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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____)
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Aurora Biosciences Corporation
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(Name of Registrant as Specified In Its Charter)
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9. Date Filed:
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AURORA BIOSCIENCES CORPORATION
11010 Torreyana Road
San Diego, CA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 21, 1998
TO THE STOCKHOLDERS OF AURORA BIOSCIENCES CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of AURORA
BIOSCIENCES CORPORATION, a Delaware corporation (the "Company"), will be held on
Tuesday, April 21, 1998 at 2:00 p.m. local time, at the Company's offices at
11010 Torreyana Road, San Diego, California, 92121, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected;
2. To approve the Company's 1996 Stock Plan, as amended, to increase the
aggregate number of shares of Common Stock authorized for issuance under
such plan by 2,000,000 shares;
3. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 1998;
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 17,
1998, as the record date for the determination of stockholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ DEBORAH J. TOWER
----------------------------------------
Deborah J. Tower
Secretary
San Diego, California
March 27, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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AURORA BIOSCIENCES CORPORATION
11010 Torreyana Road
San Diego, CA 92121
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
April 21, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of Aurora Biosciences Corporation, a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held on April
21, 1998, at 2:00 p.m. local time (the "Annual Meeting"), or at any adjournment
or postponement thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting. The Annual Meeting will be held at the
Company's offices at 11010 Torreyana Road, San Diego, California, 92121. The
Company intends to mail this proxy statement and accompanying proxy card on or
about March 27, 1998 to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of the Company's common stock
("Common Stock") beneficially owned by others to forward to such beneficial
owners. The Company may reimburse persons representing beneficial owners of
Common Stock for their costs of forwarding solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, telegram or personal solicitation by directors, officers or other
regular employees of the Company. No additional compensation will be paid to
directors, officers or other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March
17, 1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on March 17, 1998 the Company had outstanding and entitled to
vote 17,032,593 shares of Common Stock. Each holder of record of Common Stock on
such date will be entitled to one vote for each share held on all matters to be
voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 11010
Torreyana Road, San Diego, California, 92121, a written notice of revocation or
a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
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STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than November 27, 1998 in order to be included in the proxy statement
and proxy relating to that Annual Meeting. Stockholders are also advised to
review the Company's By-laws, which contain additional requirements with respect
to advance notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
There are eight nominees for the eight Board positions presently
authorized in the Company's By-laws. Each director to be elected will hold
office until the next annual meeting of stockholders and until his successor is
elected and has qualified, or until such director's earlier death, resignation
or removal. Each nominee listed below is currently a director of the Company,
two directors, Kevin J. Kinsella and Timothy J. Rink, having been elected by the
sole incorporator of the Company, and six directors having been elected by the
Board.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote. Shares represented by executed
proxies will be voted, if authority to do so is not withheld, for the election
of the eight nominees named below. In the event that any nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected and
management has no reason to believe that any nominee will be unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set
forth below:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION/POSITION HELD WITH THE COMPANY
<S> <C> <C>
Timothy J. Rink, M.D., Sc.D. 51 Chairman of the Board, President and Chief
Executive Officer
J. Gordon Foulkes, Ph.D. 44 Chief Technical Officer, Director
James C. Blair, Ph.D.(1) 58 Member, Board of Directors
Kevin J. Kinsella(1) 52 Member, Board of Directors
Hugh Y. Rienhoff, Jr., M.D.(1)(2) 45 Member, Board of Directors
Lubert Stryer, M.D. 60 Member, Board of Directors
Roy A. Whitfield 44 Member, Board of Directors
Timothy J. Wollaeger(2) 54 Member, Board of Directors
</TABLE>
- -----------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
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TIMOTHY J. RINK has served as Chairman of the Board, President and Chief
Executive Officer of the Company since February 1996. From 1990 through 1995,
Dr. Rink served as President and Chief Technical Officer of Amylin
Pharmaceuticals, Inc. ("Amylin"), a publicly held biopharmaceutical company. Dr.
Rink was Vice President, Research at SmithKline Beecham in the U.K. from 1984 to
1989, and previously was Lecturer in Physiology at the University of Cambridge.
Dr. Rink currently serves on the Scientific Advisory Board of Amylin, and is a
director of CoCensys, Inc. and NPS Pharmaceuticals, Inc., all publicly held
biopharmaceutical companies. Dr. Rink received his M.A., M.D. and Sc.D. in
Medical Sciences from the University of Cambridge, England.
J. GORDON FOULKES has been Chief Technical Officer and a director of the
Company since November 1996. From 1987 to 1996, Dr. Foulkes served in several
capacities at OSI Pharmaceuticals, Inc. ("OSIP"), where he was a director and
most recently held the position of Chief Scientific Officer. Prior to joining
OSIP, Dr. Foulkes led a research group at National Institute for Medical
Research in the U.K., and was previously a post-doctoral fellow in Dr. David
Baltimore's Laboratory at the Massachusetts Institute of Technology. Dr. Foulkes
obtained his B.Sc. in Biochemistry at the University College, Cardiff, U.K. and
his Ph.D. in Biochemistry in Professor Philip Cohen's laboratory at the
University of Dundee, Scotland.
JAMES C. BLAIR has been a director of the Company since March 1996. Dr.
Blair has been a general partner of Domain Associates, a venture capital
investment firm, since 1985. Domain Associates manages Domain Partners III, L.P.
and DP III Associates, L.P. and is the U.S. venture capital advisor to
Biotechnology Investments Limited. From 1969 to 1985, Dr. Blair was an officer
of three investment banking and venture capital firms. Dr. Blair is a director
of Amylin, CoCensys, Inc., Dura Pharmaceuticals, Inc., Gensia-Sicor, Inc., Trega
Biosciences, Inc. and Vista Medical Technologies, Inc. Dr. Blair received a
B.S.E. from Princeton University and M.S.E. and Ph.D. degrees in Electrical
Engineering from the University of Pennsylvania.
KEVIN J. KINSELLA, a founder of the Company, has been a director of the
Company since its inception in May 1995. He currently serves as Chairman of the
Board of ANCILE Pharmaceuticals, Inc., a privately-held biopharmaceutical
company. Mr. Kinsella founded Sequana Therapeutics, Inc. ("Sequana"), in
February 1993 and served as President, Chief Executive Officer and a member of
the Board of Directors until its merger into AxyS Pharmaceuticals, Inc. ("AxyS")
in January, 1998. He was the Managing General Partner of Avalon Ventures, a
venture capital firm which established over thirty companies, many of which are
in the biopharmaceutical field. He received a B.S. from the Massachusetts
Institute of Technology and an M.A. from the Johns Hopkins School of Advanced
International Studies. He is a director of AxyS, Pharmacopeia, Inc., Athena
Neurosciences Inc., ONYX Pharmaceuticals and Vertex Pharmaceuticals Inc.
HUGH Y. RIENHOFF, JR. has been a director of the Company since March
1996. Dr. Rienhoff is a director of Abingworth Management Limited, a venture
capital investment firm. From 1992 to 1997, Dr. Rienhoff held various positions
at New Enterprise Associates Development Corporation ("NEA"), where he most
recently served as Partner. He is a director of Hexagen plc. and Microcide
Pharmaceuticals, Inc. Dr. Rienhoff received an M.D. degree from The Johns
Hopkins University and a B.A, degree in English Literature and Biology, with
honors, from Williams College.
LUBERT STRYER has been a director of the Company since March 1996, and
currently serves as a scientifica advisor of the Company. He is a Winzer
Professor in the School of Medicine and Professor of Neurobiology at Stanford
University and is a director of Affymetrix, Inc. ("Affymetrix"). He served as
President and Scientific Director of Affymax Research Institute in 1989 and
1990. He is co-inventor of Affymetrix's light-directed synthesis technology. Dr.
Stryer has pioneered the development of novel fluorescence detection techniques
and holds ten patents involving fluorescence and light-activated chemical
syntheses. Dr. Stryer is the author of Biochemistry, a major text used widely in
colleges and universities around the world. Dr. Stryer received the American
Chemical Society Award in Biological Chemistry (the Eli Lilly Award), is a
member of the National Academy of Sciences and received an honorary Doctor of
Science from The University of Chicago. Dr. Stryer received his M.D. degree from
Harvard University and his B.S. degree from the University of Chicago.
ROY A. WHITFIELD has been a director of the Company since September
1997. Mr. Whitfield is the Chief Executive Officer of Incyte Pharmaceuticals,
Inc. ("Incyte"), a position he has held since June 1993. He is also a director
of Incyte. Mr. Whitfield served as President of Incyte from June 1991 until
January 1997 and as Treasurer from April 1991 until October 1995. Previously,
Mr. Whitfield served as the President of Ideon Corporation, which
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was a majority owned subsidiary of Invitron Corporation, a biotechnology
company, from October 1989 until April 1991. From 1984 to 1989, Mr. Whitfield
held senior operating and business development positions with Technicon
Instruments Corporation, a medical instrumentation company, and its predecessor
company, CooperBiomedical, Inc., a biotechnology and medical diagnostics
company. Prior to his work at Technicon, Mr. Whitfield spent seven years with
the Boston Consulting Group's international consulting practice. Mr. Whitfield
received a B.S. with First Class Honors in mathematics from Oxford University,
and an M.B.A. with Distinction from Stanford University.
TIMOTHY J. WOLLAEGER has been a director of the Company since March
1996. He has been the general partner of Kingsbury Associates, Kingsbury Capital
Partners, L.P. and Kingsbury Capital Partners, L.P. II venture capital
investment partnerships since 1993. From 1990 to 1993, Mr. Wollaeger served as
Senior Vice President and was a director of Columbia Hospital Corporation, a
hospital management company now known as Columbia/HCA Healthcare Corporation.
From 1986 until 1993, he was a general partner of the general partner of Biovest
Associates, a venture capital investment firm. He is a director of Amylin and is
Chairman and a director of Biosite Diagnostics, Inc. He received an M.B.A. from
Stanford University and a B.A. in economics from Yale University.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997 the Board held five
meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors to
review the results of the annual audit and discuss the financial statements;
recommends to the Board the independent auditors to be retained; and receives
and considers the accountants' comments as to controls, adequacy of staff and
management performance and procedures in connection with audit and financial
controls. The Audit Committee is composed of two non-employee directors: Dr.
Rienhoff and Mr. Wollaeger. The meeting regarding the audit for fiscal year 1997
was held in January 1998; no meetings were held in 1997.
The Compensation Committee makes recommendations concerning executive
salaries and incentive compensation, awards stock options to the Company's
executive officers and consultants under the Company's equity incentive plans
and otherwise determines compensation levels and performs such other functions
regarding compensation as the Board may delegate. The Committee is responsible
for setting and administering the Company's policies governing the Company's
employee benefit plans. The Compensation Committee is composed of three
non-employee directors: Drs. Blair and Rienhoff and Mr. Kinsella. It met once
during fiscal year 1997.
During the fiscal year ended December 31, 1997, each Board member
attended 75% or more of the aggregate of the meetings of the Board and of the
committees on which he served, held during the period for which he was a
director or committee member, respectively, except for Dr. Rienhoff, who
attended 72% of the aggregate of the Board and committee meetings in which he
was entitled to participate.
PROPOSAL 2
APPROVAL OF 1996 STOCK PLAN, AS AMENDED
In January 1996, the Board adopted, and the stockholders subsequently
approved, the Company's 1996 Stock Plan (the "1996 Plan"). There are 2,000,000
shares of the Company's Common Stock authorized for issuance under the 1996
Plan.
At March 1, 1998, options (net of canceled or expired options) covering
an aggregate of 1,701,115 shares of the Company's Common Stock had been granted
under the 1996 Plan, and 298,885 shares (plus any shares that might in the
future be returned to the plans as a result of cancellations or expiration of
options) remained available for future grant under the 1996 Plan. During the
fiscal year ended December 31, 1997, under the 1996 Plan, the Company granted to
all current executive officers as a group options to purchase 291,000 shares at
exercise prices of $0.38 to $13.38 per share, to all employees (excluding
executive officers) and consultants as a group options to purchase 768,452
shares at exercise prices of $0.38 to $15.25 per share. No options to purchase
shares under the 1996 Plan were made to any current directors who are not
officers.
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In September, 1997, the Board approved an amendment to the 1996 Plan,
subject to stockholder approval, to enhance the flexibility of the Board and the
Compensation Committee in granting stock options to the Company's employees. The
amendment increases the number of shares authorized for issuance under the 1996
Plan from a total of 2,000,000 shares to 4,000,000 shares. The Board adopted
this amendment to ensure that the Company can continue to grant stock options to
employees at levels determined appropriate by the Board and the Compensation
Committee.
Stockholders are requested in this Proposal 2 to approve the 1996 Plan,
as amended. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the 1996 Plan, as amended. Abstentions will be
counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 1996 Plan are outlined below:
GENERAL
The 1996 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1996 Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the 1996 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options. In
addition, the 1996 Plan permits the granting of stock appreciation rights (SARs)
appurtenant to or independently of options, as well as stock bonuses and rights
to purchase restricted stock (options, SARs, stock bonuses and rights to
purchase restricted stock are hereinafter referred to as "Stock Awards").
PURPOSE
The 1996 Plan was adopted to provide a means by which selected
employees, officers and directors of and consultants to the Company and its
affiliates could be given an opportunity to purchase stock in the Company, to
assist in retaining the services of employees holding key positions, to secure
and retain the services of persons capable of filling such positions and to
provide incentives for such persons to exert maximum efforts for the success of
the Company. Each of the Company's approximately 104 full-time employees and
consultants are eligible to participate in the 1996 Plan.
ADMINISTRATION
The 1996 Plan is administered by the Board or a committee appointed by
the Board. The Board has the power to construe and interpret the 1996 Plan and,
subject to the provisions of the 1996 Plan, the Board has the authority to
select the persons to whom grants are to be made, to designate the number of
shares to be covered by each Stock Award, to determine whether an option is to
be an incentive stock option or a nonstatutory stock option, to establish
vesting schedules, to specify the option exercise price and the type of
consideration to be paid to the Company upon exercise and, subject to certain
restrictions, to specify other terms of Stock Awards. The Board has delegated
administration of the 1996 Plan to the Compensation Committee of the Board. In
addition, the Board has delegated to Timothy J. Rink the authority to grant
Stock Awards to certain non-executive officer employees of the Company. As used
herein with respect to the 1996 Plan, the "Board" refers to the Board of
Directors as well as any person or committee to which administration of the 1996
plan has been delegated.
ELIGIBILITY
Incentive stock options may be granted under the 1996 Plan only to
selected employees (including officers) of the Company and its affiliates.
Selected employees (including officers), directors and consultants are eligible
to
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receive nonstatutory stock options under the 1996 Plan. SARs, stock bonuses and
rights to purchase restricted stock may also be granted to employees (including
officers), directors and consultants.
No incentive stock option may be granted under the 1996 Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the date of
grant. For incentive stock options granted under the 1996 Plan, the aggregate
fair market value, determined at the time of grant, of the shares of Common
Stock with respect to which such options are exercisable for the first time by
an optionee during any calendar year (under all such plans of the Company and
its affiliates) may not exceed $100,000. No person is eligible to be granted
options and SARs covering more than 200,000 shares of the Company's Common Stock
in any twelve-month period.
STOCK SUBJECT TO THE 1996 PLAN
Pursuant to the 1996 Plan, shares subject to Stock Awards that have
expired or otherwise terminated without having been exercised in full again
become available for the grant, but shares subject to exercised stock
appreciation rights will not again become available for the grant.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1996 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1996 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the 1996 Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant. At March 2, 1998, the closing price of the
Company's Common Stock as reported on the Nasdaq National Market System was
$10.875 per share.
The exercise price of options granted under the 1996 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board. In the event of a decline in the
value of the Company' s Common Stock, the Board has the authority to offer
employees the opportunity to replace outstanding higher priced options, whether
incentive or nonstatutory, with new lower priced options.
Option Exercise. Options granted under the 1996 Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding options under the 1996 Plan typically vest at
the rate of 25% on the first anniversary of the date of grant and 1/48th per
month (25% per year) thereafter during the optionee's employment or services as
a director or consultant. Shares covered by options granted in the future under
the 1996 Plan may be subject to different vesting terms. The Board has the power
to accelerate the time during which an option may be exercised. In addition,
options granted under the 1996 Plan may permit exercise prior to vesting, but in
such event the optionee may be required to enter into an early exercise stock
purchase agreement that allows the Company to repurchase shares not yet vested
at their exercise price should the optionee leave the employ of the Company
before vesting. To the extent provided by the terms of an option, an optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned stock of the Company or by a combination of these
means.
Term. The maximum term of options under the 1996 Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1996 Plan generally terminate three months after termination
of the optionee's employment or relationship as a consultant or director of the
Company or any affiliate of the Company, unless (a) such termination is due to
such person's permanent and total disability (as defined in the Code), in which
case the option may, but need not, provide that it may be exercised at any time
within one year of
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such termination; (b) the optionee dies while employed by or serving as a
consultant or director of the Company or any affiliate of the Company, or within
three months after termination of such relationship, in which case the option
may, but need not, provide that it may be exercised (to the extent the option
was exercisable at the time of the optionee's death) within eighteen months of
the optionee's death by the person or persons to whom the rights to such option
pass by will or by the laws of descent and distribution; or (c) the option by
its terms specifically provides otherwise. Individual options by their terms may
provide for exercise within a longer period of time following termination of
employment or the consulting relationship. The option term may also be extended
in the event that exercise of the option within these periods is prohibited for
specified reasons.
TERMS OF STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees or directors
of, or consultants to, the Company or its affiliates. The 1996 Plan authorizes
three types of stock appreciation rights.
Tandem Stock Appreciation Rights. Tandem stock appreciation rights are
tied to an underlying option and require the holder to elect whether to exercise
the underlying option or to surrender the option for an appreciation
distribution in an amount up to the difference between the aggregate market
price of the vested shares purchasable under the surrendered option and the
aggregate exercise price payable for such shares. Appreciation distributions
payable upon exercise of tandem stock appreciation rights may be made in cash or
an equivalent number of shares of Common Stock based on the market price of the
Common Stock on the date of exercise.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation
rights are tied to an underlying option and are exercised automatically at the
same time the underlying option is exercised. The holder receives an
appreciation distribution in an amount up to the difference between the
aggregate market price of the vested shares purchased upon exercise of the
option and the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of concurrent stock appreciation rights may
be made in cash or an equivalent number of shares of Common Stock based on the
market price of the Common Stock on the date of exercise.
Independent Stock Appreciation Rights. Independent stock appreciation
rights are granted independently of any option and entitle the holder to receive
upon exercise an appreciation distribution in an amount up to the difference
between (i) the aggregate market price of a number of shares equal to the number
of share equivalents to which the holder is vested under the independent stock
appreciation right and (ii) market price of such number of shares of stock on
the date of grant of the independent stock appreciation right. Appreciation
distributions payable upon exercise of independent stock appreciation rights may
be made in cash or an equivalent number of shares of Common Stock based on the
market price of the Common Stock on the date of exercise.
TERMS OF STOCK BONUSES AND RESTRICTED STOCK PURCHASE AWARDS
Any stock bonuses or restricted stock purchase awards granted under the
Stock Plan are/will be in such form and will contain terms and conditions as the
Board deems appropriate. The purchase price under any restricted stock purchase
agreement will not be less than 85% of the fair market value of the Company's
Common Stock on the date of grant.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1996 Plan or subject
to any option granted under the 1996 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1996 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to an employee during a calendar year, and the class,
number of shares and price per share of stock subject to such outstanding
options.
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EFFECT OF CERTAIN CORPORATE EVENTS
The 1996 Plan provides that, in the event of a dissolution or
liquidation of the Company, specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving corporation will
be required to either assume Stock Awards outstanding under the 1996 Plan or
substitute similar Stock Awards for those outstanding under the 1996 Plan. In
the event that any surviving corporation declines to assume or continue options
outstanding under the 1996 Plan, or to substitute similar options, then (I) with
respect to Stock Awards held by persons then performing services as employees,
directors or consultants, the time during which such options may be exercised
will be accelerated and the Stock Awards terminated if not exercised after such
acceleration and at or prior to such event and (ii) with respect to other Stock
Awards outstanding under the Plan, such Stock Awards will be terminated if not
exercised prior to such event. The acceleration of an option in the event of an
acquisition or similar corporate event may be viewed as an antitakeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1996 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1996 Plan will terminate on January 22, 2006.
The Board may also amend the 1996 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the Plan in any other
way if such modification requires stockholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The Board may
submit any other amendment to the 1996 Plan for stockholder approval, including,
but not limited to, amendments intended to satisfy the requirements of Section
162(m) of the Code regarding the exclusion of performance-based compensation
from the limitation on the deductibility of compensation paid to certain
employees.
RESTRICTIONS ON TRANSFER
Under the 1996 Plan, an incentive stock option may not be transferred by
the optionee otherwise than by will or by the laws of descent and distribution
and during the lifetime of the optionee, may be exercised only by the optionee.
A nonstatutory stock option may be transferred by the optionee only upon such
terms and conditions as are set forth in the option agreement for such option.
In any case, the optionee may designate in writing a third party who may
exercise the option in the event of the optionee's death. In addition, shares
subject to repurchase by the Company under an early exercise stock purchase
agreement may be subject to restrictions on transfer which the Board deems
appropriate. Stock bonuses and restricted stock purchase agreements awarded
under the 1996 Plan are generally non-transferable.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1996 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the
9
<PAGE> 11
lesser of (a) the excess of the stock's fair market value on the date of
exercise over the exercise price, or (b) the optionee's actual gain, if any, on
the purchase and sale. The optionee's additional gain, or any loss, upon the
disqualifying disposition will be a capital gain or loss, which will be
long-term or short-term depending on whether the stock was held for more than
one year. Long-term capital gains currently are generally subject to lower tax
rates than ordinary income. The maximum capital gains rate for federal income
tax purposes is currently 28% while the maximum ordinary income rate is
effectively 39.6% at the present time. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1996 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionee normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be
long-term, mid-term or short-term depending on how long the stock was held by
the optionee. Slightly different rules may apply to optionees who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Restricted Stock And Stock Bonuses. Restricted stock and stock bonuses
granted under the Incentive Plan generally have the following federal income tax
consequences: Upon acquisition of stock under a restricted stock or stock bonus
award, the recipient normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the recipient. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock, if any, plus
any amount recognized as ordinary income upon acquisition (or vesting) of the
stock. Such gain or loss will be long-term, mid-term or short-term depending on
how long the stock was held by the grantee. Slightly different rules may apply
to persons who acquire stock subject to forfeiture.
Stock Appreciation Rights And Performance Units. No taxable income is
realized upon the receipt of a stock appreciation right or performance unit, but
upon exercise of the stock appreciation right or performance unit, the fair
market value of the shares (or cash in lieu of shares) received must be treated
as compensation taxable as ordinary income to the recipient in the year of such
exercise. Generally, with respect to employees, the Company is required to
withhold from the payment made on exercise of the stock appreciation right or
performance unit, or from regular wages or supplemental wage payments, an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, Section 162(m) of the Code and the satisfaction of a tax
reporting obligation, the Company will be entitled to a business expense
deduction equal to the taxable ordinary income recognized by the recipient.
Potential Limitation on Company Deductions. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add
Section 162(m), which denies a deduction to any publicly held
10
<PAGE> 12
corporation for compensation paid to certain employees in a taxable year to the
extent that compensation exceeds $1,000,000 for a covered employee. It is
possible that compensation attributable to stock options, when combined with all
other types of compensation received by a covered employee from the Company, may
cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised solely
of "outside directors" and either: (i) the option plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period, the per-employee limitation is approved by the stockholders,
and the exercise price of the option is no less than the fair market value of
the stock on the date of grant; or (ii) the option is granted (or exercisable)
only upon the achievement (as certified in writing by the compensation
committee) of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain, and the
option is approved by stockholders.
Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors"; and (ii) the
purchase price of the award is no less than the fair market value of the stock
on the date of grant. Stock bonuses qualify as performance-based compensation
under these Treasury regulations only if: (i) the award is granted by a
compensation committee comprised solely of "outside directors;" (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain; (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied; and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the amount) payable upon attainment of the
performance goal).
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board has selected Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 1998 and has further directed
that management submit the selection of independent auditors for ratification by
the stockholders at the Annual Meeting. Ernst & Young LLP has audited the
Company's financial statements since its inception in 1995. Representatives of
Ernst & Young LLP are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
11
<PAGE> 13
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of February 10, 1998 by: (i) each
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY SHARES BENEFICIALLY
5% STOCKHOLDERS, DIRECTORS AND NAMED EXECUTIVE OFFICERS OWNED(1) OWNED(1)
------------------------------------------------------- ------------ -------------------
<S> <C> <C>
Abingworth Bioventures SICAV............................... 1,835,262 10.8%
c/o Sanne & Cie
Boite Postale 566
L-2015 Luxemberg
Entities affiliated with Domain Partners III, L.P.(2)...... 1,714,285 10.1%
One Palmer Square, Suite 515
Princeton, NJ 08542
The Kaufmann Fund, Inc..................................... 1,500,000 8.8%
140 East 45th Street
New York, NY 10017
Entities affiliated with BB Biotech ....................... 1,421,500 8.3%
Vordergasse 3
8200Schaffhausen
CH/Switzerland
Entities affiliated with New Enterprise Associates
Development Corporation(3)................................. 1,271,135 7.5%
1119 St. Paul Street
Baltimore, MD 21202
Timothy J. Rink(4)......................................... 520,567 3.1%
James C. Blair(5).......................................... 1,718,952 0.1%
J. Gordon Foulkes(6)....................................... 216,218 1.3%
Kevin J. Kinsella(7)....................................... 758,903 4.5%
Hugh Y. Rienhoff, Jr.(8)................................... 1,842,936 10.8%
Lubert Stryer(9)........................................... 101,779 *
Roy A. Whitfield(10) ...................................... 2,333 *
Timothy J. Wollaeger(11) .................................. 606,170 3.6%
Paul A. Grayson(12) ....................................... 72,144 *
John L. Mendlein (13) ..................................... 57,907 *
Deborah J. Tower (14) ..................................... 41,807 *
All directors and executive officers as a
group(15) (11 persons) .................................. 5,939,726 34.6%
</TABLE>
- --------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
17,029,885 shares outstanding on February 10, 1998, adjusted as required by
rules promulgated by the SEC.
12
<PAGE> 14
(2) Represents 57,324 shares held by DP III Associates, L.P. ("DP III") and
1,656,961 shares held by Domain Partners III., L.P. ("Domain III"). One
Palmer Square Associates III, L.P. is the general partner of DP III and
Domain III.
(3) Represents 1,271,135 shares held by New Enterprise Associates VI Limited
Partnership. NEA manages New Enterprise Associates VI Limited Partnership.
(4) Includes 459,046 shares held in a trust for which Dr. Rink is trustee and
32,000 shares held by Dr. Rink as custodian for two of his minor children.
Dr. Rink disclaims beneficial ownership of all of such shares. Also
includes 29,250 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of February 10, 1998.
(5) Represents 57,324 shares held by DP III and 1,656,961 shares held by Domain
III. Dr. Blair is a general partner of the One Palmer Square Associates
III, L.P., the general partner of DP III and Domain III. Dr. Blair
disclaims beneficial ownership of such shares except to the extent of his
partnership interest therein. Also includes 4,667 shares of Common Stock
issuable upon exercise of options exercisable within 60 days of February
10, 1998.
(6) Includes 6,666 shares held by Dr. Foulkes' spouse and minor son. Dr.
Foulkes disclaims beneficial ownership of all such shares. Also includes
8,667 shares of Common Stock issuable upon exercise of options exercisable
within 60 days of February 10, 1998.
(7) Includes 30,000 shares held in a charitable trust for which Mr. Kinsella is
trustee and 148,222 shares held in another trust for which Mr. Kinsella is
trustee. Also includes 570,000 shares held by AxyS, of which Mr. Kinsella
is a director (all of which were sold subsequent to the February 10, 1998
date used in this table) and 6,014 shares held by Mr. Kinsella's spouse.
Mr. Kinsella disclaims beneficial ownership of such shares. Also includes
4,667 shares of Common Stock issuable upon exercise of options exercisable
within 60 days of February 10, 1998.
(8) Includes 1,835,262 shares held by Abingworth Bioventures SICAV. Dr.
Rienhoff is a director of Abingworth Management Limited, the management
company of Abingworth Bioventures SICAV. Dr. Rienhoff disclaims beneficial
ownership of such shares except to the extent of his partnership interest
therein. Also includes 4,667 shares of Common Stock issuable upon exercise
of options exercisable within 60 days of February 10, 1998.
(9) Includes 22,556 shares held by Dr. Stryer's spouse, Andrea S. Stryer. Also
includes 4,667 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of February 10, 1998.
(10) Represents 2,333 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of February 10, 1998.
(11) Includes 601,503 shares held by Kingsbury Capital Partners, L.P. II
("Kingsbury"). Mr. Wollaeger is the general partner of Kingsbury. Mr.
Wollaeger disclaims beneficial ownership of such shares except to the
extent of his partnership interest therein. Also includes 4,667 shares of
Common Stock issuable upon exercise of options exercisable within 60 days
of February 10, 1998.
(12) Includes 12,083 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of February 10, 1998.
(13) Includes 9,034 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of February 10, 1998.
13
<PAGE> 15
(14) Includes 6,067 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of February 10, 1998.
(15) Includes 90,769 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of February 10, 1998. See Notes (4) through (14)
above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that one
report, covering an event, was filed late by Mr. Kinsella. Mr. Kinsella
inadvertently failed to report on a Form 4 the sale in February 1998 of Aurora
Common Stock held by AxyS, Inc. of which Mr. Kinsella is a director.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
In September 1997, the Board approved a resolution stating that each
non-employee director of the Company shall receive a per meeting fee of $2,500
for every Board meeting at which such director is in attendance in person and
$500 for every Board meeting at which such director is in attendance by
telephone (plus $500 for each committee meeting attended by committee members,
in person or by telephone). During the fiscal year ended December 31, 1997, the
total such compensation paid to non-employee directors was $4,500. The members
of the Board are also eligible for reimbursement for their expenses incurred in
connection with attendance at Board meetings in accordance with Company policy.
Each non-employee director of the Company also receives stock option
grants under the Company's Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). Only non-employee directors of the Company are eligible to
receive options under the Directors' Plan. Options granted under the Directors'
Plan are intended by the Company not to qualify as incentive stock options under
the Code.
Pursuant to the terms of the Directors' Plan: (i) each person who, upon
the effective date of the Directors' Plan, was a non-employee director
automatically was granted a one-time option to purchase sixteen thousand
(16,000) shares of Common Stock; (ii) each person who after the effective date
of the Company's initial public offering for the first time becomes a
non-employee director automatically will be granted, upon the date of his or her
initial appointment or election to be a non-employee director, a one-time option
to purchase sixteen thousand (16,000) shares of Common Stock; (iii) on the date
of each annual meeting of the stockholders of the Company, each person who is
elected at such annual meeting to serve as a non-employee director (other than a
person who receives a grant in accordance with (ii) above on or during the
three-month period preceding such date) automatically will be granted an option
to purchase four thousand (4,000) shares of Common Stock. No other options may
be granted at any time under the Directors' Plan. No options granted under the
Directors' Plan may be exercised after the expiration of ten years from the date
of grant. Options granted under the Directors' Plan vest monthly over a
four-year period. Options granted under the Directors' Plan may permit exercise
prior to vesting, but in such event the optionee may be required to enter into
an early exercise stock purchase agreement that allows the Company to repurchase
shares not yet vested at their exercise price should the optionee cease to be a
member of the Board of the Company before vesting. The exercise price of options
under the Directors' Plan will equal 100% of the fair market value of the Common
Stock on the date of grant. Options granted under the Directors' Plan are
generally non-transferable. Unless otherwise terminated by the Board, the
Directors' Plan automatically terminates on June 19, 2007. In the event of a
merger of the Company with or into another corporation or a consolidation,
14
<PAGE> 16
acquisition of assets or other change-in-control transaction involving the
Company, the vesting of each option will accelerate and the option will
terminate if not exercised prior to the consummation of the transaction.
During the fiscal year ended December 31, 1997, the Company granted
options covering 16,000 shares to each non-employee director of the Company, at
exercise prices of $1.50 to $11.375 per share. The exercise price per share of
each option was equal to the fair market value of the Company's Common Stock on
the respective dates of grant, as determined in accordance with the Directors'
Plan. As of March 1, 1998, no options had been exercised under the Directors'
Plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows, for the fiscal years indicated, compensation
awarded or paid to, or earned by, the Company's Chief Executive Officer and its
other four most highly compensated executive officers at December 31, 1997 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) SECURITIES
---------------------- ----------
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION
--------------------------- ---- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Timothy J. Rink................ 1997 $297,928 $81,250 108,000 0
President, Chief Executive 1996 $229,649 $50,000 0 $27,188(2)
Officer and Chairman of the
Board
J. Gordon Foulkes.............. 1997 251,050 50,000 32,000 48,409(3)
Chief Technical Officer
Paul A. Grayson................ 1997 142,500 46,500 65,000 0
Senior Vice President,
Corporate Development
John Mendlein.................. 1997 130,729 31,500 45,200 977(4)
Vice President, Intellectual
Property and Senior Legal
Counsel
Deborah J. Tower............... 1997 121,042 31,000 40,800 0
Vice President, Finance and
Administration, Treasurer
and Secretary
</TABLE>
- ---------------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Executive Officers which are available generally to all salaried employees
of the Company and certain perquisites and other personal benefits received
by the Named Executive Officers which do not exceed the lesser of $50,000
or 10% of any such officer's salary and bonus disclosed in this table. As
of December 31, 1997, the Named Executive Officers held the following
shares of restricted Common Stock having the aggregate value listed: Dr.
Rink held 177,330 shares valued at $2,327,226, Dr. Foulkes held 151,667
shares valued at $1,971,671, Mr. Grayson held 35,000 shares valued at
$456,313, Mr. Mendlein held 32,000 shares valued at $416,000, and Ms. Tower
held 14,500 shares valued at $189,044.
(2) Represents fees paid for consulting services rendered prior to employment
with the Company from January to March 1996.
15
<PAGE> 17
(3) Includes amounts paid for relocation expenses and for imputed interest on a
loan to Dr. Foulkes from the company. See "Certain Transactions".
(4) Includes amounts paid for relocation expenses.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under the 1996
Plan. As of March 1, 1998, options to purchase a total of 1,701,115 shares were
outstanding under the 1996 Plan and options to purchase 298,885 shares remained
available for grant thereunder. The following tables show for the fiscal year
ended December 31, 1997, certain information regarding options granted to,
exercised by, and held at year end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF POTENTIAL
NUMBER OF TOTAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL
UNDERLYING GRANTED TO EXERCISE RATES OF STOCK PRICE
OPTIONS EMPLOYEES OR BASE APPRECIATION
GRANTED IN PRICE EXPIRATION FOR OPTION TERM(4)
NAME (#)(1) 1997(2) ($/SH)(3) DATE 5%($) 10%($)
- --------------- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Rink 108,000 10.9% $1.50 2/18/07 $101,881 $258,186
J. Gordon Foulkes 32,000 3.2% $1.50 2/18/07 $30,187 $76,500
Paul A. Grayson 20,000 2.0% $.375 1/22/07 $4,717 $11,953
20,000 2.0% $.75 1/30/07 $9,433 $23,906
25,000 2.5% $13.375 11/3/07 $210,287 $532,908
John Mendlein, Ph.D 15,200 1.5% $.375 1/14/07 $3,585 $9,084
4,800 .5% $.375 1/22/07 $1,132 $2,869
5,200 .5% $.75 1/30/07 $2,453 $6,216
20,000 2.0% $13.375 11/3/07 $168,229 $426,326
Deborah J. Tower 20,800 2.1% $.75 1/30/07 $9,811 $24,862
20,000 2.0% $13.375 11/3/07 $168,229 $426,326
</TABLE>
- -------------------
(1) The stock options generally vest over a four year period, with
approximately 25% vesting on the first anniversary of the grant date and
approximately 2.084% vesting each month thereafter until fully vested, and
have a maximum term of 10 years measured from the grant date, subject to
earlier termination upon the optionee's cessation of service with the
Company. Under the terms of the Company's 1996 Plans, the committee
designated by the Board to administer the Plans retains the discretion,
subject to certain limitations within the Plans, to modify, extend or renew
outstanding options and to reprice outstanding option. Options may be
repriced by canceling outstanding options and reissuing new options with an
exercise price equal to the fair market value on the date of reissue, which
may be lower than the original exercise price of such canceled options.
Upon certain corporate events resulting in a change in control, (i)
16
<PAGE> 18
the outstanding options will be assumed or replaced by any surviving
corporation, or (ii) the outstanding options will become exercisable
immediately prior to such event.
(2) Based on options to purchase an aggregate of 1,059,452 shares of the Common
Stock granted to Company employees, including the Named Executive Officers,
and consultants.
(3) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant as determined in the good faith judgment
of the Board. The exercise price may be paid in cash, check, by delivery of
already-owned shares of the Company's Common Stock subject to certain
conditions, or pursuant to a cashless exercise procedure under which the
optionee provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to the Company, out of the sale proceeds, an
amount equal to the aggregate exercise price plus all applicable
withholding taxes.
(4) The potential realizable value is based on the form of the option at its
time of grant (10 years). It is calculated by assuming that the stock price
on the date of grant appreciates at the indicated annual rate, compounded
annually for the entire term of the option, and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. Pursuant to SEC guidelines, for options granted prior to the
company's initial public offering, the stock price on the date of grant is
deemed to be equal to the value used by the Company for accounting purposes
to determine if any compensation expense related to the option grants is
reportable. The 5% and 10% assumed rates of appreciation are mandated by
the rules of the SEC and do not represent the Company's estimate or
projection of the future Common Stock price. There can be no assurance that
any of the values reflected in the table will be achieved.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, AT DECEMBER 31, 1997
1997(#) ($)(1)
------------------------- ------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
Timothy J. Rink 0/108,000 $0.00/$1,266,500
J. Gordon Foulkes 0/32,000 $0.00/$372,000
Paul A. Grayson 0/65,000 $0.00/$502,500
John Mendlein, Ph.D 5,067/40,133 $64,604/$254,746
Deborah J. Tower 0/40,800 $0.00/$257,400
</TABLE>
- -------------------
(1) The fair market value of the underlying shares on the last day of the
fiscal year less the exercise or base price. If outstanding options permit
early exercise, the calculation should reflect options vested and unvested
with a footnote indicating that fact.
17
<PAGE> 19
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Drs. Rink (as
amended on March 8, 1996) and Foulkes dated as of January 23, 1996 (as amended
on August 6, 1996 and January 2, 1998. Dr. Rink's employment agreement provides
for the payment of an annual base salary of $250,000. His current annual salary
is $325,000. In the event that Dr. Rink's employment is terminated, other than
"for cause" (as defined in his employment agreement), prior to March 1, 1999,
Dr. Rink will be entitled to severance payments equal to six (6) times his
then-current monthly base salary. Dr. Foulkes' employment agreement provides for
the payment of an annual base salary of $250,000. Dr. Foulkes' current annual
salary is $262,512. In the event that Dr. Foulkes' employment is terminated,
other than "for cause" (as defined in his employment agreement), prior to the
second anniversary of his commencement of employment with the Company, Dr.
Foulkes will be entitled to severance payments equal to twelve (12) times his
then-current monthly base salary, plus $100,000. In the event that Dr. Foulkes'
employment is terminated, other than "for cause," after the second anniversary
of his commencement of employment with the Company, but prior to the third
anniversary of such commencement, Dr. Foulkes will be entitled to severance
payments equal to nine (9) times his then-current monthly base salary. Pursuant
to his employment agreement, Dr. Foulkes was reimbursed for relocation expenses
aggregating $36,000. He was also paid a mortgage allowance of $7,500, and was
loaned, on an interest-free basis, $150,000 for use in connection with the
purchase of a home in San Diego, California. Such loan is payable on the earlier
of one year following termination of employment or four years following the loan
date. So long as Dr. Foulkes is then employed with the Company, he will then
receive a bonus in the amount of $125,000 from the Company upon such four-year
anniversary.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Committee") consists of
Dr. Blair, Dr. Rienhoff and Mr. Kinsella. None of the members are officers or
employees of the Company. The Committee also receives input from the Chief
Executive Officer regarding compensation of all executive officers other than
the Chief Executive Officer, who considers the same criteria as that considered
by the Committee, as described below.
Compensation Philosophy
The Committee is responsible for setting and administering the Company's
policies governing employee compensation and employee benefit plans, as well as
establishing and administering the Company's executive compensation arrangements
to attract and retain executives capable of leading the Company to meet its
business objectives and to motivate them to enhance long-term shareholder value.
A significant portion of the Company's annual executive compensation program is
determined on the basis of corporate performance. The program is designed to
provide base salaries that represent competitive compensation for the Company's
executive officers, incentive compensation and long-term incentives that
motivate the Company's executive officers to achieve strategic business
objectives over the long term.
Salary. Salary is targeted at competitive levels within the
biotechnology industry. For the purpose of establishing these levels, the
Company compares itself to a self-selected group of biotechnology companies in
stages of development similar to that of the Company. The companies included in
the survey are not necessarily the same as the companies included in the market
indices included in the performance graph in this Proxy Statement. Although the
compensation (salary and bonus) survey referred to above and the market indices
included in the performance graph are broad and include companies in related
industries, the market surveys and indices were created for different purposes
and accordingly are not comparable.
Based on the data generated in the surveys, the Committee then sets
target salary levels applicable to each executive officer. For fiscal year 1997,
the Committee established target salaries at levels approximating the median
levels determined based on the surveys. The Committee made its target salary
determinations subjectively after considering the competitive nature of the
biotechnology industry and the Company's need to attract and retain talented
executive officers.
The Committee then considers the level of responsibility, experience and
contributions of each executive officer and sets each officer's salary taking
into account the target compensation, recent corporate performance and
18
<PAGE> 20
the Committee's evaluation of individual performance. For fiscal 1997, the
salary of each executive officer was generally at or near the median target
compensation levels determined through the surveys.
Long-Term Incentives. Long-term incentives are provided to executives
through the Company's equity incentive program, which consists primarily of its
1996 Stock Plan. Grants under the 1996 Stock Plan are made at fair market value,
have a term of 10 years and are subject to vesting over four years, with vesting
tied to continued employment. This component of compensation is intended to
retain and motivate executives to improve long-term stock market performance and
accordingly, executives receive value from this plan only if the Company's
Common Stock appreciates. Additional long-term incentives are provided through
the Company's Employee Stock Purchase Plan in which all eligible employees may
participate up to 15% of their annual compensation.
Option grant levels to executive officers are subjectively determined by
the Committee after considering stock option grant data taken from the
compensation surveys referred to above, as well as the level of responsibility,
experience and contributions of each executive officer. Generally, the Committee
expects to grant options to executive officers annually as part of the
performance review process for each officer. In determining the size of
individual grants, the Committee also considers the number of shares subject to
previous grants to each executive officer, including the number of shares that
have vested and remain unvested.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is performance-based compensation" within the meaning of the
Code. The Compensation Committee has determined that stock options granted under
the Company's 1996 Stock Plan with an exercise price at least equal to the fair
market value of the Company's Common Stock on the date of grant shall be treated
as "performance-based compensation."
Cash Bonus Awards. Each executive officer, including the Chief Executive
Officer, was eligible to receive and did receive an annual cash award for 1997.
These cash bonuses were paid based upon the achievement of certain business
objectives including the completion of financing and lease transactions, the
initiation and continuation of corporate collaborations including completion of
milestones as well as the issuance of patents relating to the Company's
proprietary technology. The Committee's recommendations were based on the
accomplishments described above, as well as particular accomplishments achieved
by the executive during the year in his area of responsibility, and such other
factors as the Compensation Committee deemed relevant to motivate the executive
to achieve strategic performance levels.
Chief Executive Officer Compensation
The salary of Dr. Rink is reviewed periodically by the Compensation
Committee in light of his accomplishments in furthering the growth of the
Company and the salaries paid to chief executive officers of comparable
companies. The base salary of Timothy J. Rink, M.D., Sc.D., Chairman, Chief
Executive Officer and President, was increased by the Compensation Committee in
February 1997 by $25,000 over his 1996 base salary of $250,000, to the new
salary of $275,000, in recognition of the collaborations entered into with
Bristol Myers Squibb and Eli Lilly and Company. In July 1997, Dr. Rink's salary
was again increased by $50,000 to a new base salary of $325,000, in recognition
of the completion of the Company's initial public offering in June 1997. For
1997, Dr. Rink received a cash bonus equal to approximately twenty percent of
his base salary in recognition of the accomplishments referred to above as well
as the collaborations that were initiated with Warner Lambert and Merck. In
addition, after considering Dr. Rink's current stock levels, the Committee
awarded a grant to Dr. Rink of options to acquire 108,000 shares of the
Company's Common Stock under the 1996 Stock Plan.
Compensation Committee
James C. Blair
Kevin J. Kinsella
Hugh Y. Rienhoff, Jr.
- -----------------------
(1) The material in this report is not "soliciting material", is not deemed
filed with the SEC and is not to be incorporated by reference in any filing of
the Company under the Securities Act of 1933 or the Exchange Act, whether made
before or after the date hereof and irrespective of any general incorporation
language in any such filing.
19
<PAGE> 21
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board or Compensation Committee.
See "Certain Transactions" for a description of transactions between the Company
and entities affiliated with members of the Compensation Committee.
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment
of $100 in cash on June 19, 1997 for (i) the Company's Common Stock, (ii) the
CRSP Total Return Index for the Nasdaq Stock Market (US) ("Nasdaq US") and (iii)
Nasdaq Pharmaceutical Stocks ("Nasdaq PH"). All values assume reinvestment of
the full amount of all dividends and are calculated as of December 31 of each
year:
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
SINCE THE COMPANY'S INITIAL PUBLIC OFFERING ON JUNE 19, 1997 (1)
<TABLE>
<CAPTION>
6/30/97 9/30/97 12/31/97
<S> <C> <C> <C>
Nasdaq-US 476.144 556.698 522.073
Pharm 406.666 456.219 409.903
ABSC 10.375 14.313 13.125
6/30/97 9/30/97 12/31/97
Nasdaq-US 100 116.918 109.646
Nasdaq-Pharm 100 112.1852 100.796
ABSC 100 137.9566 126.506
</TABLE>
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933 as amended or the Securities Exchange Act of
1934 as amended, whether made before or after the date hereof and irrespective
of any general incorporation language in any such filing.
CERTAIN TRANSACTIONS
In connection with Sequana's purchase of Series C Preferred Stock, the
Company and Sequana entered into a Research Agreement dated April 2, 1996. See
"Business-Corporate Collaborations." As noted above, Kevin J. Kinsella, a
director of the Company and its Chairman of the Board and Acting Chief Executive
Officer until March 1996, was the President and Chief Executive Officer of
Sequana until its merger into AxyS.
The Company has employment agreements with Timothy J. Rink, its Chief
Executive Officer and President, and J. Gordon Foulkes, its Chief Technical
Officer. See "Management-Employment Agreements."
In October 1996, the Company loaned $150,000 to J. Gordon Foulkes, the
Company's Chief Technical Officer and a director of the Company, to assist with
the purchase of a residence in connection with Dr. Foulkes
20
<PAGE> 22
relocation to San Diego, California from Huntington, New York. The loan is
interest-free and is secured by a second deed of trust on the property purchased
in part by such funds. Such loan is payable on the earlier of one year following
termination of employment or four years following the loan date. So long as Dr.
Foulkes is then employed with the Company, he will then receive a bonus in the
amount of $125,000 from the Company upon such four-year anniversary. See
"Executive Compensation Compensation of Directors" and "Stock Option Grants and
Exercises."
The Company has granted options to certain of its directors and
executive officers. The Company has also entered into an Indemnification
Agreement with each of its directors and executive officers which provide, among
other things, that the Company will indemnify such officer or director, under
the circumstances and to the extent provided for therein, for expenses, damages,
judgments, fines and settlements he may be required to pay in actions or
proceedings which he is or may be made a party be reason of his position as a
director, officer or other agent of the Company, and otherwise to the full
extent permitted under Delaware law and the Company's By-laws.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All future transactions between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board, including a majority of the disinterested
directors, and will continue to be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
OTHER MATTERS
The Board knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ DEBORAH J. TOWER
----------------------------------------
Deborah J. Tower
Secretary
March 27, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, AURORA BIOSCIENCES
CORPORATION, 11010 TORREYANA
ROAD, SAN DIEGO, CALIFORNIA, 92121
21
<PAGE> 23
EXHIBIT 10.2
AURORA BIOSCIENCES CORPORATION
1996 STOCK PLAN
ADOPTED JANUARY 23, 1996
AS AMENDED AND RESTATED AS OF FEBRUARY 4, 1997 AND AS AMENDED
BY THE BOARD OF DIRECTORS ON SEPTEMBER 18, 1997
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by
which selected Employees and Directors of and Consultants to the Company, and
its Affiliates, may be given an opportunity to benefit from increases in value
of the stock of the Company through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to
purchase restricted stock, and (v) stock appreciation rights, all as defined
below.
(b) The Company, by means of the Plan, seeks to retain
the services of persons who are now Employees or Directors of or Consultants to
the Company or its Affiliates, to secure and retain the services of new
Employees, Directors and Consultants, and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.
(c) The Company intends that the Stock Awards issued
under the Plan shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, (ii) stock
bonuses or rights to purchase restricted stock granted pursuant to Section 7
hereof, or (iii) stock appreciation rights granted pursuant to Section 8
hereof. All Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and in such form as issued
pursuant to Section 6, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or
subsidiary corporation, whether now or hereafter existing, as those terms are
defined in Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended.
(d) "COMMITTEE" means a Committee appointed by the Board
in accordance with subsection 3(c) of the Plan.
1
<PAGE> 24
"COMPANY" means Aurora Biosciences Corporation, a Delaware
corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT
RIGHT" means a right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor,
engaged by the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE , DIRECTOR OR
CONSULTANT" means that the service of an individual to the Company, whether as
an Employee, Director or Consultant is not interrupted or terminated. The
Board, in its sole discretion, may determine whether Continuous Status as an
Employee, Director or Consultant shall be considered interrupted in the case
of: (i) any leave of absence approved by the Board, including sick leave,
military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their
successors.
(i) "COVERED EMPLOYEE" means the chief executive officer
and the four (4) other highest compensated officers of the Company for whom
total compensation is required to be reported to stockholders under the
Exchange Act, as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including Officers and
Directors, employed by the Company or any Affiliate of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value
of the common stock determined as follows and, in each case, in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations:
(i) If the common stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a share of
common stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in common stock) on the last
market trading day prior to the day of determination, as reported in the Wall
Street Journal or such other source as the Board deems reliable;
2
<PAGE> 25
(ii) If the common stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of Common Stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(iii) In the absence of an established market for the
common stock, the Fair Market Value shall be determined in good faith by the
Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or
"INDEPENDENT RIGHT" means a right granted pursuant to subsection 8(b)(3) of the
Plan.
(p) "LISTING DATE" means the first date upon which any
security of the Company is listed (or approved for listing) upon notice of
issuance on any securities exchange, or designated (or approved for
designation) upon notice of issuance as a national market security on an
interdealer quotation system if such securities exchange or interdealer
quotation system has been certified in accordance with the provisions of
Section 25100(o) of the California Corporate Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either
(i) is not a current Employee or Officer of the Company or its parent or
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or subsidiary for services rendered as a consultant or in
any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K
promulgated pursuant to the Securities Act ("Regulation S-K")), does not
possess an interest in any other transaction as to which disclosure would be
required under Item 404(a) of Regulation S-K, and is not engaged in a business
relationship as to which disclosure would be required under Item 404(b) of
Regulation S-K; or (ii) is otherwise considered a "non-employee" for purposes
of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not
intended to qualify as an Incentive Stock Option.
(s) "OFFICER" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(t) "OPTION" means a stock option granted pursuant to the
Plan.
(u) "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. Each Option Agreement shall be subject to the terms
and conditions of the Plan.
3
<PAGE> 26
(v) "OPTIONEE" means a person to whom an Option is
granted pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is
not a current employee of the Company or an "affiliated corporation" (within
the meaning of the Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(x) "PLAN" mans this 1996 Stock Plan.
(y) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or
any successor to Rule 16b-3, as in effect with respect to the Company when
discretion is being exercised regarding the Plan.
(z) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(aa) "STOCK APPRECIATION RIGHT" means any of the various
types of rights which may be granted under Section 8 of the Plan.
(bb) "STOCK AWARD" means any right granted under the Plan,
including any Option, any stock bonus, any right to purchase restricted stock,
and any Stock Appreciation Right.
(cc) "STOCK AWARD AGREEMENT" means a written agreement
between the Company and a holder of a Stock Award evidencing the terms and
conditions of an individual Stock Award grant. Each Stock Award Agreement
shall be subject to the terms and conditions of the Plan.
(dd) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT"
means a right granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the
persons eligible under the Plan shall be granted Stock Awards; when and how
each Stock Award shall be granted; whether
4
<PAGE> 27
a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a
stock bonus, a right to purchase restricted stock, a Stock Appreciation Right,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; whether a person shall
be permitted to receive stock upon exercise of an Independent Stock
Appreciation Right; and the number of shares with respect to which a Stock
Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock
Awards granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board, in the exercise of this power,
may correct any defect, omission or inconsistency in the Plan or in any Stock
Award Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(3) To amend the Plan or a Stock Award as provided
in Section 14.
(4) Generally, to exercise such powers and to
perform such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.
(c) The Board may delegate administration of the Plan to
a committee of the Board composed of not fewer than two (2) members (the
"Committee"), all of the members of which Committee may be, in the discretion
of the Board, Non-Employee Directors and/or Outside Directors. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee of
two (2) or more Outside Directors any of the administrative powers the
Committee is authorized to exercise (and references in this Plan to the Board
shall thereafter be to the Committee or such a subcommittee), subject, however,
to such resolutions, not inconsistent with the provisions of the Plan, as may
be adopted from time to time by the Board. The Board may abolish the Committee
at any time and revest in the Board the administration of the Plan.
Additionally, prior to the Listing Date, and notwithstanding anything to the
contrary contained herein, the Board may delegate administration of the Plan to
a committee of one or more members of the Board and the term Committee shall
apply to any person or persons to whom such authority has been delegated.
Notwithstanding anything in this Section 3 to the contrary, the Board or the
Committee may delegate to a committee of one or more members of the Board the
authority to grant Stock Awards to eligible persons who (1) are not then
subject to Section 16 of the Exchange Act and/or (2) are either (i) not then
Covered Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Stock Award, or (ii) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate
5
<PAGE> 28
four million (4,000,000) shares of the Company's common stock. If any Stock
Award shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the stock not acquired under such Stock
Award shall revert to and again become available for issuance under the Plan.
Shares subject to Stock Appreciation Rights exercised in accordance with Section
8 of the Plan shall not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights
appurtenant thereto may be granted only to Employees. Stock Awards other than
Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may
be granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an
Option or an award to purchase restricted stock if, at the time of grant, such
person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or of any of its Affiliates unless the
exercise price of such Option is at least one hundred ten percent (110%) of the
Fair Market Value of such stock at the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant, or
in the case of a restricted stock purchase award, the purchase price is at
least one hundred percent (100%) of the Fair Market Value of such stock at the
date of grant.
(c) Subject to the provisions of Section 13 relating to
adjustments upon changes in stock, no person shall be eligible to be granted
Options and Stock Appreciation Rights covering more than two hundred fifty
thousand (250,000) shares of the Company's common stock in any twelve (12)
month period. This subsection 5(c) shall not apply prior to the Listing Date
and, following the Listing Date, shall not apply until (i) the earliest of:
(a) the first material modification of the Plan (including any increase to the
number of shares reserved for issuance under the Plan in accordance with
Section 4); (b) the issuance of all of the shares of common stock reserved for
issuance under the Plan; (c) the expiration of the Plan; or (d) the first
meeting of stockholders at which directors are to be elected that occurs after
the close of the third calendar year following the calendar year in which
occurred the first registration of an equity security under section 12 of the
Exchange Act; or (ii) such other date required by Section 162(m) of the Code
and the rules and regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but
6
<PAGE> 29
each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:
(a) TERM. No Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock
Option shall be not less than one hundred percent (100%) of the Fair Market
Value of the stock subject to the Option on the date the Option is granted; the
exercise price of each Nonstatutory Stock Option shall be not less than
eighty-five percent (85%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution
for another option in a manner satisfying the provisions of Section 424(a) of
the Code.
(c) CONSIDERATION. The purchase price of stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is
exercised, or (ii) at the discretion of the Board or the Committee, at the time
of the grant of the Option, (a) by delivery to the Company of other common
stock of the Company, or (b) in any other form of legal consideration that may
be acceptable to the Board.
(d) TRANSFERABILITY. An Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Option is granted
only by such person; provided, however, that, after the Listing Date, to the
extent permitted by applicable law, a Nonstatutory Stock Option shall be
transferable by the person to whom such Option is granted upon such terms and
conditions as are set forth in the Option Agreement for such Nonstatutory Stock
Option, as the Board or Committee shall determine in its discretion.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject
to an Option may, but need not, be allotted in periodic installments (which
may, but need not, be equal). The Option Agreement may provide that from time
to time during each of such installment periods, the Option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period and/or any prior period as to which the Option became vested but
was not fully exercised. The Option may be subject to such other terms and
conditions on the time or times when it may be exercised (which may be based on
performance or other criteria) as the Board may deem appropriate. The vesting
provisions of individual Options may vary but in each case will provide for
vesting of at least twenty percent (20%) per year of the total number of shares
subject to the Option. The provisions of this subsection 6(e) are subject to
any Option provisions governing the minimum number of shares as to which an
Option may be exercised.
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(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A
DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an
Employee, Director or Consultant terminates (other than upon the Optionee's
death or disability), the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant (or such longer or
shorter period, which shall not be less than thirty (30) days, specified in the
Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionee does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise
of the Option following the termination of the Optionee's Continuous Status as
an Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the
term of the Option set forth in the Option Agreement, or (ii) the tenth (10th)
day after the last date on which such exercise would result in such liability
under Section 16(b) of the Exchange Act. Finally, an Optionee's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (other than upon the Optionee's death or disability) would be
prohibited at any time solely because the issuance of shares would violate the
registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in the first paragraph of this subsection 6(f), or (ii) the expiration of
a period of three (3) months after the termination of the Optionee's Continuous
Status as an Employee, Director or Consultant during which the exercise of the
Option would not be in violation of such registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's
Continuous Status as an Employee, Director or Consultant terminates as a result
of the Optionee's disability, the Optionee may exercise his or her Option (to
the extent that the Optionee was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months, specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option Agreement after the
termination of, the Optionee's Continuous Status as an Employee, Director or
Consultant, the Option may be exercised (to the extent the Optionee was
entitled to exercise the Option as of the date of death) by the Optionee's
estate, by a person who acquired the right to exercise the Option by bequest or
inheritance or by a person
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designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen (18) months following the date of death (or such longer or
shorter period, which in no event shall be less than six (6) months, specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
(i) EARLY EXERCISE. The Option may, but need not,
include a provision whereby the Optionee may elect at any time while an
Employee, Director or Consultant to exercise the Option as to any part or all
of the shares subject to the Option prior to the full vesting of the Option.
Any unvested shares so purchased shall be subject to a repurchase right in
favor of the Company, with the repurchase price to be equal to the original
purchase price of the stock, or to any other restriction the Board determines
to be appropriate; provided, however, that (i) the right to repurchase at the
original purchase price shall lapse at a minimum rate of twenty percent (20%)
per year over five (5) years from the date the Option was granted, and (ii)
such right shall be exercisable only within (A) the ninety (90) day period
following the termination of employment or the relationship as a Director or
Consultant, or (B) such longer period as may be agreed to by the Company and
the Optionee (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code (regarding "qualified small business stock")),
and (iii) such right shall be exercisable only for cash or cancellation of
purchase money indebtedness for the shares. Should the right of repurchase be
assigned by the Company, the assignee shall pay the Company cash equal to the
difference between the original purchase price and the stock's Fair Market
Value if the original purchase price is less than the stock's Fair Market
Value.
(j) RIGHT OF REPURCHASE. The Option may, but need not,
include a provision whereby the Company may elect, prior to the Listing Date,
to repurchase all or any part of the vested shares exercised pursuant to the
Option; provided, however, that (i) such repurchase right shall be exercisable
only within (a) the ninety (90) day period following the termination of
employment or the relationship as a Director or Consultant and (ii) such right
shall be exercisable only for cash or cancellation of purchase money
indebtedness for the shares at a repurchase price equal to the greater of (a)
the stock's Fair Market Value at the time of such termination, or (b) the
original purchase price paid for such shares by the Optionee.
(k) RIGHT OF FIRST REFUSAL. The Option may, but need
not, include a provision whereby the Company may elect, prior to the Listing
Date, to exercise a right of first refusal following receipt of notice from the
Optionee of the intent to transfer all or any part of the shares exercised
pursuant to the Option.
(l) RE-LOAD OPTIONS. Without in any way limiting the
authority of the Board or Committee to make or not to make grants of Options
hereunder, the Board or Committee shall have the authority (but not an
obligation) to include as part of any Option Agreement a provision entitling
the Optionee to a further Option (a "Re-Load Option") in the event the Optionee
exercises the Option evidenced by the Option agreement, in whole or in part, by
surrendering
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<PAGE> 32
other shares of Common Stock in accordance with this Plan and the terms and
conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a
number of shares equal to the number of shares surrendered as part or all of
the exercise price of such Option; (ii) shall have an expiration date which is
the same as the expiration date of the Option the exercise of which gave rise
to such Re-Load Option; and (iii) shall have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option which is granted to a 10%
stockholder (as described in subsection 5(b)), shall have an exercise price
which is equal to one hundred ten percent (110%) of the Fair Market Value of
the stock subject to the Re-Load Option on the date of exercise of the original
Option and shall have a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(e) of the Plan and in
Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load
Option. Any such Re-Load Option shall be subject to the availability of
sufficient shares under subsection 4(a) and the limits on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions
as the Board or Committee may determine which are not inconsistent with the
express provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate agreements need not be identical, but each
stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted
stock purchase Stock Award Agreement shall be such amount as the Board or
Committee shall determine and designate in such agreement, but in no event
shall the purchase price be less than eighty-five percent (85%) of the stock's
Fair Market Value on the date such award is made. Notwithstanding the
foregoing, the Board or the Committee may determine that eligible participants
in the Plan may be awarded stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted
stock purchase agreement shall be transferable except by will or the laws of
descent and distribution or pursuant to a QDRO satisfying the requirements of
Rule 16b-3 and any administrative interpretations or
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<PAGE> 33
pronouncements thereunder, so long as stock awarded under such agreement
remains subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant
to a stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; or (ii) in any other form of legal consideration that may be
acceptable to the Board or the Committee in its discretion. Notwithstanding
the foregoing, the Board or the Committee to which administration of the Plan
has been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee. The applicable agreement shall provide (i) that the right to
repurchase at the original purchase price shall lapse at a minimum rate of
twenty percent (20%) per year over five (5) years from the date the Stock Award
was granted, and (ii) such right shall be exercisable only (a) within the
ninety (90) day period following the termination of employment or the
relationship as a Director or Consultant, or (b) such longer period as may be
agreed to by the Company and the holder of the Stock Award (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for
the shares. Should the right of repurchase be assigned by the Company, the
assignee shall pay the Company cash equal to the difference between the
original purchase price and the stock's Fair Market Value if the original
purchase price is less than the stock's Fair Market Value.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
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8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and
authority, exercisable in its sole discretion, to grant Stock Appreciation
Rights under the Plan to Employees or Directors of or Consultants to, the
Company or its Affiliates. To exercise any outstanding Stock Appreciation
Right, the holder must provide written notice of exercise to the Company in
compliance with the provisions of the Stock Award Agreement evidencing such
right. If a Stock Appreciation Right is granted to an individual who is at the
time of grant subject to Section 16(b) of the Exchange Act, the Stock Award
Agreement shall incorporate all the terms and conditions at the time necessary
to assure that the subsequent exercise of such right shall qualify for the
safe-harbor exemption from short-swing profit liability provided by Rule 16b-3
promulgated under the Exchange Act (or any successor rule or regulation).
Except as provided in subsection 5(c), no limitation shall exist on the
aggregate amount of cash payments the Company may make under the Plan in
connection with the exercise of a Stock Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be
authorized for issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem
Stock Appreciation Rights will be granted appurtenant to an Option, and shall,
except as specifically set forth in this Section 8, be subject to the same
terms and conditions applicable to the particular Option grant to which it
pertains. Tandem Stock Appreciation Rights will require the holder to elect
between the exercise of the underlying Option for shares of stock and the
surrender, in whole or in part, of such Option for an appreciation
distribution. The appreciation distribution payable on the exercised Tandem
Right shall be in cash (or, if so provided, in an equivalent number of shares
of stock based on Fair Market Value on the date of the Option surrender) in an
amount up to the excess of (a) the Fair Market Value (on the date of the Option
surrender) of the number of shares of stock covered by that portion of the
surrendered Option in which the Optionee is vested over (b) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS.
Concurrent Rights will be granted appurtenant to an Option and may apply to all
or any portion of the shares of stock subject to the underlying Option and
shall, except as specifically set forth in this Section 8, be subject to the
same terms and conditions applicable to the particular Option grant to which it
pertains. A Concurrent Right shall be exercised automatically at the same time
the underlying Option is exercised with respect to the particular shares of
stock to which the Concurrent Right pertains. The appreciation distribution
payable on an exercised Concurrent Right shall be in cash (or, if so provided,
in an equivalent number of shares of stock based on Fair Market Value on the
date of the exercise of the Concurrent Right) in an amount equal to such
portion as shall be determined by the Board or the Committee at the time of the
grant of the excess of (a) the aggregate Fair Market Value (on the date of the
exercise of the Concurrent Right) of the vested shares of stock purchased under
the underlying Option which have Concurrent Rights appurtenant to them over (b)
the aggregate exercise price paid for such shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS.
Independent Rights will be granted independently of any Option and shall,
except as specifically set forth in this Section 8,
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<PAGE> 35
be subject to the same terms and conditions applicable to Nonstatutory Stock
Options as set forth in Section 6. They shall be denominated in share
equivalents. The appreciation distribution payable on the exercised
Independent Right shall be not greater than an amount equal to the excess of
(a) the aggregate Fair Market Value (on the date of the exercise of the
Independent Right) of a number of shares of Company stock equal to the number
of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (b) the aggregate Fair Market Value (on the date of the
grant of the Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall be
in cash or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority
to effect, at any time and from time to time, (i) the repricing of any
outstanding Options and/or any Stock Appreciation Rights under the Plan and/or
(ii) with the consent of the affected holders of Options and/or Stock
Appreciation Rights, the cancellation of any outstanding Options and/or any
Stock Appreciation Rights under the Plan and the grant in substitution therefor
of new Options and/or Stock Appreciation Rights under the Plan covering the
same or different numbers of shares of stock, but having an exercise price per
share not less than eighty-five percent (85%) of the Fair Market Value (one
hundred percent (100%) of the Fair Market Value in the case of an Incentive
Stock Option) or, in the case of a 10% stockholder (as described in subsection
5(b)), not less than one hundred ten percent (110%) of the Fair Market Value)
per share of stock on the new grant date. Notwithstanding the foregoing, the
Board or the Committee may grant an Option and/or Stock Appreciation Right with
an exercise price lower than that set forth above if such Option and/or Stock
Appreciation Right is granted as part of a transaction to which section 424(a)
of the Code applies.
(b) Shares subject to an Option or Stock Appreciation
Right canceled under this Section 9 shall continue to be counted against the
maximum award of Options and Stock Appreciation Rights permitted to be granted
pursuant to subsection 5(c) of the Plan. The repricing of an Option and/or
Stock Appreciation Right under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Right and the grant of a substitute Option and/or
Stock Appreciation Right; in the event of such repricing, both the original and
the substituted Options and Stock Appreciation Rights shall be counted against
the maximum awards of Options and Stock Appreciation Rights permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 9(b) shall be applicable only to the extent required by Section
162(m) of the Code.
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10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company
shall keep available at all times the number of shares of stock required to
satisfy such Stock Awards.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the Stock Award;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Stock Award or any stock
issued or issuable pursuant to any such Stock Award. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) Neither an Employee, Director or Consultant nor any
person to whom a Stock Award is transferred under subsection 6(d), 7(b), or
8(b) shall be deemed to be the holder of, or to have any of the rights of a
holder with respect to, any shares subject to such Stock Award unless and until
such person has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.
(b) Throughout the term of any Stock Award, the Company
shall deliver to the holder of such Stock Award, not later than one hundred
twenty (120) days after the close of each of the Company's fiscal years during
the term of such Stock Award, a balance sheet and an income statement. This
subsection shall not apply when issuance is limited to key employees whose
duties in connection with the Company assure them access to equivalent
information.
(c) Nothing in the Plan or any instrument executed or
Stock Award granted pursuant thereto shall confer upon any Employee, Director,
Consultant or other holder of Stock Awards any right to continue in the employ
of the Company or any Affiliate (or to continue acting as a Director or
Consultant) or shall affect the right of the Company or any Affiliate to
terminate the employment of any Employee with or without cause, the right of
the Company's Board of Directors and/or the Company's stockholders to remove
any Director as provided in the Company's By-Laws and the provisions of the
Delaware General Corporation Law or the right to terminate the relationship of
any Consultant subject to the terms of such Consultant's agreement with the
Company or Affiliate.
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(d) To the extent that the aggregate Fair Market Value
(determined at the time of grant) of stock with respect to which Incentive
Stock Options are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock
Award is granted, or any person to whom a Stock Award is transferred pursuant
to subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring
stock under any Stock Award, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with
the purchaser representative, the merits and risks of exercising the Stock
Award; and (2) to give written assurances satisfactory to the Company stating
that such person is acquiring the stock subject to the Stock Award for such
person's own account and not with any present intention of selling or otherwise
distributing the stock. The foregoing requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise or acquisition of stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act, or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to
comply with applicable securities laws, including, but not limited to, legends
restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award
Agreement, the person to whom a Stock Award is granted may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under a Stock Award by any of the following means or by a
combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Stock Award; or (3) delivering to the Company owned and unencumbered
shares of the common stock of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the
Plan, or subject to any Stock Award (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Plan will be
appropriately adjusted in the type(s) and maximum number of securities subject
to the Plan pursuant to subsection 4(a) and the maximum number of securities
subject to award to any person during any twelve (12) month
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period pursuant to subsection 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the type(s) and number of securities and price per
share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or the Committee, the determination of which shall
be final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a "transaction not involving
the receipt of consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
all or substantially all of the assets of the Company; (2) a merger or
consolidation in which the Company is not the surviving corporation or (3) a
reverse merger in which the Company is the surviving corporation but the shares
of the Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) after the Listing Date, the acquisition
by any person, entity or group within the meaning of Section 13(d) or 14(d) of
the Exchange Act or any comparable successor provisions (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or any
Affiliate of the Company) of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then: (i)
any surviving or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 13(b) for those outstanding under the
Plan, or (ii) in the event any surviving or acquiring corporation refuses to
assume such Stock Awards or to substitute similar stock awards for those
outstanding under the Plan (A) with respect to Stock Awards held by persons
then performing services as Employees, Directors or Consultants, and subject to
any applicable provisions of the California Corporate Securities Law of 1968
and related regulations relied upon as a condition of issuing securities
pursuant to the Plan, the vesting of such Stock Awards (and, if applicable, the
time during which such Stock Awards may be exercised) shall be accelerated
prior to such event and the Stock Awards terminated if not exercised (if
applicable) after such acceleration and at or prior to such event, and (B) with
respect to any other Stock Awards outstanding under the Plan, such Stock Awards
shall be terminated if not exercised (if applicable) prior to such event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 13 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within twelve (12) months before or
after the adoption of the amendment, where the amendment will:
(i) Increase the number of shares
reserved for Stock Awards under the Plan;
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(ii) Modify the requirements as to
eligibility for participation in the Plan (to the extent such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code); or
(iii) Modify the Plan in any other way if
such modification requires stockholder approval in order for the Plan to
satisfy the requirements of Section 422 of the Code or to comply with the
requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the exclusion
of performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend
the Plan in any respect the Board deems necessary or advisable to provide
eligible Employees with the maximum benefits provided or to be provided under
the provisions of the Code and the regulations promulgated thereunder relating
to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock
Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may
amend the terms of any one or more Stock Award; provided, however, that the
rights and obligations under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the person to whom the
Stock Award was granted and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on January 22, 2006,
which shall be within ten (10) years from the date the Plan is adopted by the
Board or approved by the stockholders of the Company, whichever is earlier. No
Stock Awards may be granted under the Plan while the Plan is suspended or after
it is terminated.
(b) Rights and obligations under any Stock Award granted
while the Plan is in effect shall not be impaired by suspension or termination
of the Plan, except with the written consent of the person to whom the Stock
Award was granted.
17
<PAGE> 40
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company, which approval shall
be within twelve (12) months before or after the date the Plan is adopted by
the Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
18
<PAGE> 41
PROXY PROXY
AURORA BIOSCIENCES CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- APRIL 21, 1998
The undersigned appoints Timothy J. Rink and Deborah J. Tower, and each of
them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all shares of stock of Aurora Biosciences Corporation
(the "Company") which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the offices of the
company located at 11010 Torreyana Road, San Diego, California, 92121, on
Tuesday, April 21, 1998, at 2:00 p.m., local time, and at any and all
continuations, adjournments or postponements thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly
come before the meeting.
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES, AND FOR PROPOSALS 2 AND 3
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
<PAGE> 42
AURORA BIOSCIENCES CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / /
<TABLE>
<CAPTION>
For All
<S> <C> <C> <C>
1. To elect directors to hold office until the next annual For Withhold (Except Nominee(s)
Meeting of Stockholders and until their successors All All written below)
are elected. / / / / / /
Nominees: Timothy J. Rink, J. Gordon Foulkes,
James C. Blair, Kevin J. Kinsella, Hugh Y. Rienholt, Jr.,
Lubert Stryer, Roy A. Whitfield, Timothy J. Wollaegar.
</TABLE>
<TABLE>
<S> <C> <C> <C>
2. To approve the Company's 1996 Stock Plan, as For Against Abstain
amended, to increase the aggregate number of / / / / / /
shares of Common Stock authorized for issuance
under such plan by 2,000,000 shares.
3. To ratify the election of Ernst & Young LLP as
independent auditors of the Company for its fiscal
year ending December 31, 1998.
</TABLE>
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED HERE.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3.
DATED___________________ 1998
SIGNATURE(S)________________________________
____________________________________________
NOTE: Please sign exactly as your name(s) appears. For joint accounts, each
owner should sign. When signing as executor, administrator, attorney, trustee,
or guardian, etc., please give your full title.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
