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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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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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AURORA BIOSCIENCES CORPORATION
11010 TORREYANA ROAD
SAN DIEGO, CA 92121
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 23, 2000
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, May 23, 2000 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.
3. To approve the Company's Non-Employee Directors' Plan, as amended.
4. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 2000.
5. 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 27, 2000,
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/ THOMAS A. COLL
Thomas A. Coll
Secretary
San Diego, California
April 19, 2000
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.
<PAGE> 3
AURORA BIOSCIENCES CORPORATION
11010 TORREYANA ROAD
SAN DIEGO, CA 92121
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Aurora Biosciences Corporation, a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders to be held on May 23, 2000, 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 April 19, 2000 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 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
27, 2000 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on March 27, 2000, the Company had outstanding and entitled to
vote 19,760,498 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
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 annual
meeting of Stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 20, 2000. The deadline for submitting a stockholder
proposal or a nomination for director that is not to be included in such proxy
statement and proxy is also December 20, 2000. 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 five nominees for the five Board positions to be authorized in
the Company's By-laws effective as of the date of the Annual Meeting. 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, four directors having been elected by the
stockholders and one director, Stuart J.M. Collinson, having been elected by the
Board. Dr. Timothy J. Rink, our former Chairman and Chief Executive Officer, is
not standing for re-election to the Board at this Annual Meeting.
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 five 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>
Dr. Stuart J.M. Collinson.......... 40 President, Chief Executive Officer and Chairman of the
Board of Directors
Dr. James C. Blair................. 60 Member of the Board of Directors and Managing Member of
Domain Associates, LLC
Dr. Hugh Y. Rienhoff, Jr........... 47 Member of the Board of Directors and Chief Executive
Officer of Kiva Genetics, Inc.
Roy A. Whitfield................... 46 Member of the Board of Directors and Chief Executive
Officer of Incyte Pharmaceuticals, Inc.
Timothy J. Wollaeger............... 56 Member of the Board of Directors and General Partner of
Kingsbury Associates
</TABLE>
DR. STUART J.M. COLLINSON joined us in May 1999 as President and a member
of the Board of Directors and was elected to the position of Chief Executive
Officer in November 1999. He was appointed as Chairman of the Board in March
2000. Prior to joining Aurora, Dr. Collinson served as a consultant to us from
December 1998 to May 1999 and as Chief Executive Officer of Andaris, Ltd., a
privately held biopharmaceutical company, from June 1998 to November 1998. Prior
to Andaris, Dr. Collinson held several positions with Glaxo Wellcome from
December 1994 through June 1998, most recently serving as Co-Chairman, Hospital
and Critical Care Therapy Management Team and Director of Hospital and Critical
Care. Dr. Collinson previously held several positions with Baxter International,
Inc. and the Boston Consulting Group. Dr. Collinson received his Ph.D. in
physical chemistry from the University of Oxford, England and his M.B.A. from
Harvard University.
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DR. JAMES C. BLAIR has been a director since March 1996. Dr. Blair has been
a managing member of Domain Associates, L.L.C., a venture capital investment
firm, since 1985. From 1969 to 1985, Dr. Blair was an officer of three
investment banking and venture capital firms. Dr. Blair is a director of Amylin
Pharmaceuticals, Inc., Dura Pharmaceuticals, 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.
DR. HUGH Y. RIENHOFF, JR. has been a director since March 1996. Dr.
Rienhoff is currently Chief Executive Officer of Kiva Genetics, Inc., which he
founded in September 1998. Until April 1998, Dr. Rienhoff served as 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, where he most recently served as Partner. He is a
director of Microcide Pharmaceuticals, Inc. Dr. Rienhoff received an M.D. from
The Johns Hopkins University School of Medicine and a B.A. in English Literature
and Biology, with honors, from Williams College.
ROY A. WHITFIELD has been a director since September 1997. Mr. Whitfield is
the Chief Executive Officer of Incyte Pharmaceuticals, Inc., a position he has
held since June 1993, and has been a director of Incyte since 1991. 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 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 since March 1996. He has been the
general partner of Kingsbury Associates, Kingsbury Capital Partners, L.P.,
Kingsbury Capital Partners, L.P. II and Kingsbury Capital Partners, L.P. III
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
Chairman of the Board 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, 1999 the Board of Directors held
six meetings and took action by unanimous written consent once. 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. In
1999, the Audit Committee was composed of two non-employee directors: Dr.
Rienhoff and Mr. Wollaeger. The Committee met twice during fiscal year 1999. In
February 2000, the Board increased the size of the Committee to three non-
employee directors and Dr. Blair was added to the Committee.
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 two
non-employee directors: Drs. Blair and Rienhoff. Kevin Kinsella, a former
director, served
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on the Committee until his resignation from the Board in September 1999. The
Committee met seven times during fiscal year 1999.
During the fiscal year ended December 31, 1999, 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.
PROPOSAL 2
APPROVAL OF THE 1996 STOCK PLAN, AS AMENDED
In January 1996, the Board adopted, and the stockholders subsequently
approved, the Company's 1996 Stock Plan ("1996 Plan"). As a result of a previous
amendment, as of March 31, 2000 there were 6,000,000 shares of Common Stock
reserved for issuance under the 1996 Plan.
As of March 31, 2000, options (net of canceled or expired options) covering
an aggregate of 4,553,034 shares of the Company's Common Stock had been granted
under the 1996 Plan and 1,446,966 shares of Common Stock (plus any shares that
might in the future be returned to the 1996 Plan 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, 1999, under the 1996 Plan, the Company
granted to all current executive officers, as a group, options to purchase
573,600 shares at exercise prices of $5.75 to $11.31 per share, and to all
employees (excluding executive officers) and consultants, as a group, options to
purchase 1,081,161 shares at exercise prices of $5.00 to $15.31 per share. No
options to purchase shares under the 1996 Plan were made to any directors who
were not officers.
In April 2000, the Board approved amendments 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.
Among other things, the amendments approved in April 2000 increase the number of
shares authorized for issuance under the 1996 Plan from a total of 6,000,000
shares to 8,000,000 shares. The Board adopted these amendments to ensure that
the Company can continue to grant stock options to employees at levels
determined appropriate by the Board and the Compensation Committee in order to
recruit new employees and retain existing employees.
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, as amended, 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 not intended to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of options. In addition, the 1996 Plan permits
the granting of stock appreciation rights (SARs) in conjunction with 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").
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PURPOSE
The Board adopted the 1996 Plan to provide a means by which selected
employees, officers, directors and consultants of the Company and its affiliates
could be given an opportunity to purchase stock in the Company, to assist in
retaining the services of such persons, 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 197 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 will 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 the 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 Dr. Stuart J.M.
Collinson the authority to grant Stock Awards to non-executive officer employees
of the Company in accordance with guidelines established by the Board. 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 and stock appreciation rights appurtenant thereto
may be granted under the 1996 Plan only to employees (including officers) of the
Company and its affiliates. Employees (including officers), directors, and
consultants of both the Company and its affiliates are eligible to receive all
other types of Stock Awards under the 1996 Plan.
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 incentive stock 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 may be granted Stock Awards
under the 1996 Plan covering more than 500,000 shares of the Company's common
stock in any twelve-month period.
STOCK SUBJECT TO THE 1996 PLAN
An aggregate of 8,000,000 shares of Common Stock is reserved for issuance
under 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. If the
Company reacquires unvested stock issued under the 1996 Plan, the reacquired
stock will again become available for reissuance under the 1996 Plan.
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<PAGE> 8
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 100% of the fair market value of the
stock subject to the option on the date of the 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 may not be less than 85% of the fair
market value of the Common Stock on the date of the option grant. If options
were granted with exercise prices below market value, deductions for
compensation attributable to the exercise of such options could be limited by
Section 162(m) of the Code. See "Federal Income Tax Information." As of April
10, 2000, the closing price of the Company's Common Stock as reported on the
Nasdaq National Market System was $45.25 per share.
The exercise price of options granted under the 1996 Plan must be paid
either in cash at the time the option is exercised or, at the discretion of the
Board, (i) by delivery of other Common Stock of the Company, or (ii) in any
other form of legal consideration acceptable to the Board.
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 1/48 per month (25% per
year) thereafter during the optionee's employment or services as a director or
consultant so that the options become fully vested after four years. 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 vest or 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 (i) 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 (to the
extent the option was exercisable at the time of the termination of service) at
any time within 12 months of such termination; (ii) the optionee dies before the
optionee's service has terminated, 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 18 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 (iii) the option by its terms specifically provides
otherwise. An optionee may designate a beneficiary who may exercise the option
following the optionee's death. The option term may also be extended in the
event that exercise of the option within those periods is prohibited for
specified reasons.
TERMS OF STOCK APPRECIATION RIGHTS
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.
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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
1996 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 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.
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 Stock Awards outstanding
under the 1996 Plan, or to substitute similar Stock Awards, then, (i) with
respect to Stock Awards held by persons performing services as employees,
directors or consultants, the time during which such Stock Awards 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 1996 Plan, such Stock Awards will be
terminated if not exercised prior to such event. In addition, in connection with
certain specified transactions, if a surviving corporation assumes Stock Awards
outstanding under the 1996 Plan or substitutes similar Stock Awards for those
outstanding under the 1996 Plan, and the services provided by the holder of such
Stock Awards are terminated within 18 months of such transaction other than for
"cause" (as defined in the 1996 Plan) or death or disability, or if such holder
resigns for "good reason" (as defined in the 1996 Plan), the term during which
such Stock Awards may be exercised will be accelerated. The acceleration of an
option in the event of an acquisition or similar corporate event may be viewed
as an anti-takeover provision, which may have the effect of discouraging a
proposal to acquire or otherwise obtain control of the Company.
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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 (i) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the 1996 Plan to satisfy Section 422 of the Code, if applicable, or
Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")); (ii) increase the number of shares reserved for issuance upon exercise
of options; or (iii) change any other provision of the 1996 Plan in any other
way if such modification requires stockholder approval in order to comply with
Rule 16b-3 of the Exchange Act 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 that the Board deems
appropriate. Stock bonuses and restricted stock purchase agreements awarded
under the 1996 Plan are generally non-transferable.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
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 participant
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
participant's alternative minimum tax liability, if any.
If a participant 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
participant upon exercise of the option, any gain or loss on a disposition of
such stock will be a long-term capital gain or loss if the participant held the
stock for more than one year.
Generally, if the participant disposes of the stock before the expiration
of either of these holding periods (a "disqualifying disposition"), then at the
time of disposition the participant will realize taxable ordinary income equal
to the lesser of (i) the excess of the stock's fair market value on the date of
exercise over the exercise price, (ii) the participant's actual gain, if any, on
the purchase and sale. The participant'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.
8
<PAGE> 11
To the extent the participant 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, Restricted Stock Purchase Awards and Stock
Bonuses. Nonstatutory stock options, restricted stock purchase awards and stock
bonuses granted under the 1996 Plan generally have the following federal income
tax consequences:
There are no tax consequences to the participant or the Company by reason
of the grant. Upon acquisition of the stock, the participant normally will
recognize taxable ordinary income equal to the excess, if any, of the stock's
fair market value on the acquisition date over the purchase price. 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
participant elects to be taxed on receipt of the stock. With respect to
employees, the Company is generally 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 participant. Slightly different rules may apply
to participants who acquire stock subject to certain repurchase options or who
are subject to Section 16(b) of the Exchange Act.
Upon disposition of the stock, the participant 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 acquisition (or vesting) of the stock. Such gain or loss will be long-term
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Stock Appreciation Rights. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
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 participant 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 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 reporting obligation, the
Company will be entitled to a business expense deduction equal to the taxable
ordinary income recognized by the participant.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly-held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that compensation to
such covered employee exceeds $1 million. It is possible that compensation
attributable to awards, 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 and stock appreciation rights will qualify as
performance-based compensation if the award is granted by a compensation
committee comprised solely of "outside directors" and either (i) the plan
contains a per-employee limitation on the number of shares for which such awards
may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the award is no less
than the fair market value of the stock on the date of grant, or (ii) the award
is granted (or exercisable) only upon the achievement (as certified in writing
by a compensation committee) of an objective performance goal established in
writing by a compensation committee while the outcome is substantially
uncertain, and the award is approved by stockholders.
Compensation attributable to restricted stock and stock bonuses will
qualify as performance-based compensation, provided that: (i) the award is
granted by a compensation committee comprised solely of
9
<PAGE> 12
"outside directors, (ii) the purchase price of the award is no less than the
fair market value of the stock on the date of grant, (iii) the plan states the
maximum number of shares with respect to which options may be granted during a
specified period of time to any employee and (iv) the stockholders have approved
the plan. Stock bonuses qualify as performance-based compensation under the
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) a 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).
NEW PLAN BENEFITS
The following table presents certain information with respect to options
granted under the 1996 Plan for the fiscal year ended December 31, 1999 by (i)
the Company's Chief Executive Officer and its other most highly compensated
executive officers who received grants under the 1996 Plan, (ii) all executive
officers as a group and (iii) all non-executive officer employees as a group.
NEW PLAN BENEFITS
1996 STOCK PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS
----------------- ------------------
<S> <C>
Stuart J.M. Collinson....................................... 430,000
President, Chief Executive Officer and Chairman of the
Board
Thomas G. Klopack........................................... 25,000
Senior Vice President, Chief Operating Officer
John D. Mendlein............................................ 25,000
Chief Knowledge Officer and General Counsel
Harry Stylli................................................ 80,000
Senior Vice President, Commercial Development
All Executive Officers as a Group........................... 573,600
All Non-Employee Directors as a Group....................... 0
All Non-Executive Officer Employees as a Group.............. 1,081,161
</TABLE>
PROPOSAL 3
APPROVAL OF THE NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN, AS AMENDED
In February 1997, the Board adopted, and the stockholders subsequently
approved, the Company's Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). In April 2000, the Board amended the Directors' Plan,
subject to stockholder approval, to increase the number of options to purchase
shares of the Company's Common Stock to be granted to non-employee directors
upon first joining the Board (as more fully described below) from sixteen
thousand (16,000) to twenty thousand (20,000) and to increase the number of
options to purchase shares of the Company's Common Stock granted annually to
non-employee directors serving on the Board from four thousand (4,000) to five
thousand (5,000). The Board also voted to amend the Directors' Plan to provide
for vesting of new options granted annually to non-employee directors over a
period of one year.
As of March 31, 2000 options (net of canceled or expired options) covering
an aggregate of 107,999 shares of the Company's Common Stock had been granted
under the Directors' Plan and 132,001 shares of Common Stock (plus any shares
that might in the future be returned to the Directors' Plan as a result of
cancellations or expiration of options) remained available for future grant
under the Directors' Plan.
10
<PAGE> 13
Stockholders are requested in this Proposal 3 to approve the Directors'
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 Directors' 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 3.
The essential features of the Directors' Plan, as amended, are outlined
below:
GENERAL
The Directors' Plan provides for the automatic grant of nonstatutory stock
options. Options granted under the Directors' Plan are not intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Code. See
"Federal Income Tax Information" for a discussion of the tax treatment of
nonstatutory stock options.
PURPOSE
The Board adopted the Directors' Plan to provide a means by which
non-employee directors of the Company may be given an opportunity to purchase
stock in the Company, to assist in retaining the services of such persons, 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. Four of the current directors of the Company are eligible to
participate in the Directors' Plan.
ADMINISTRATION
The Board administers the Directors' Plan. The Board has the power to
construe and interpret the Directors' Plan. The Directors' Plan specifies the
persons to whom or the dates on which options will be granted, the number of
shares to be subject to each option, the time or times during the term of each
option within which all or a portion of such option may be exercised, the
exercise price, and the type of consideration or the other terms of the option.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to
non-employee directors of the Company. A "non-employee director" is defined in
the Directors' Plan as a director of the Company who is not otherwise an
employee of the Company or any affiliate.
STOCK SUBJECT TO THE DIRECTORS' PLAN
An aggregate of two hundred forty thousand (240,000) shares of Common Stock
was initially reserved for issuance under the Directors' Plan. If options
granted under the Directors' Plan expire or otherwise terminate without being
exercised, the shares of Common Stock not acquired pursuant to such options
again become available for issuance under the Directors' Plan. If the Company
reacquires unvested stock issued under the Directors' Plan, the reacquired stock
will again become available for reissuance under the Directors' Plan.
TERMS OF OPTIONS
The following is a description of the terms of options under the Directors'
Plan. Individual option grants may not be more restrictive as to the terms
described below:
Automatic Grants. Each non-employee director automatically shall be
granted, upon the appointment or election of such person for the first time to
the Board, a one-time option to purchase twenty thousand (20,000) shares of
Common Stock of the Company on the terms and conditions set forth herein. In
addition,
11
<PAGE> 14
on the date of each annual meeting of the stockholders of the Company commencing
with this Annual Meeting, each person who is, immediately following such annual
meeting, a non-employee director (other than persons elected to the Board for
the first time or within three months prior to such meeting) automatically shall
be granted an option to purchase five thousand (5,000) shares of Common Stock of
the Company.
Exercise Price; Payment. The exercise price of options granted under the
Directors' Plan may not be less than 100% of the fair market value of the stock
subject to the option on the date of the grant. As of April 10, 2000, the
closing price of the Company's Common Stock as reported on the Nasdaq National
Market System was $45.25 per share. The exercise price of options granted under
the Directors' Plan must be paid either in cash at the time the option is
exercised or (i) by delivery of other Common Stock of the Company, or (ii) by a
combination of payment with cash and Common Stock of the Company.
Option Exercise. Options granted under the Directors' Plan vest during the
optionholder's service as a director of the Company but not during any
subsequent employment of the optionholder by and/or service by the optionholder
as a consultant to the Company. Initial grants of twenty-thousand (20,000)
shares vest at the rate of 1/48 per month (25% per year) during the optionee's
service as a director, so that the options become fully vested after four years.
Annual grants of five-thousand (5,000) shares vest over twelve months at the
rate of 1/12 per month during the optionee's service as a director so that the
options are fully vested one year after grant. The Board has the power to
accelerate the time during which an option may vest or be exercised. Options
granted under the Directors' Plan permit exercise prior to vesting, and in such
event the optionholder is required to enter into an early exercise stock
purchase agreement that allows the Company to repurchase unvested shares at
their exercise price should the optionholder's service terminate before vesting.
To the extent provided by the terms of an option, an optionholder 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 optionholder, by
delivering already-owned Common Stock of the Company or by a combination of
these means.
Term. The term of options under the Directors' Plan is 10 years. Options
under the Directors' Plan terminate three months after termination of the
optionholder's service unless (i) such termination is due to the optionholder's
disability, in which case the option may be exercised (to the extent the option
was exercisable at the time of the termination of service) at any time within 12
months of such termination; or (ii) the optionholder dies before the
optionholder's service has terminated, or within a period specified in the
option agreement after the optionee's service, in which case the option may be
exercised (to the extent the option was exercisable at the time of the
optionholder's death) within 18 months of the optionholder'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. An optionholder may designate a beneficiary who may
exercise the option following the optionholder's death.
An optionholder's option agreement provides that if the exercise of the
option following the termination of the optionholder's service would result in
liability under Section 16(b) of the Exchange, then the option will terminate on
the earlier of (i) the expiration of the term of the option or (ii) the 10th day
after the last date on which such exercise would result in such liability under
Section 16(b). An optionholder's option agreement also provides that if the
exercise of the option following the termination of the optionholder's service
would be prohibited because the issuance of stock would violate the registration
requirements under the Securities Act of 1933, as amended, then the option will
terminate on the earlier of (i) the expiration of the term of the option or (ii)
three months after the termination of the optionholder's service during which
the exercise of the option would not be in violation of such registration
requirements.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as
determined by the Board.
12
<PAGE> 15
RESTRICTIONS ON TRANSFER
An option shall only be transferable by the optionee upon such terms and
conditions as are set forth in the option agreement for such option, as the
Board or the Compensation Committee shall determine in its discretion. The
optionee 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.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company, such as
a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of Common Stock subject to the Directors'
Plan and outstanding options. In that event, the Directors' Plan will be
appropriately adjusted as to the class and the maximum number of shares of
Common Stock subject to the Directors' Plan, and outstanding options will be
adjusted as to the class, number of shares and price per share of Common Stock
subject to such options.
EFFECT OF CERTAIN CORPORATE EVENTS
The Directors' Plan provides that, in the event of a dissolution,
liquidation or sale of substantially all of the assets of the Company, specified
types of merger, or other corporate reorganization ("change in control"), the
time during which options outstanding under the Directors' Plan may be exercised
shall be accelerated to permit the optionee to exercise all such options in full
prior to such event, and the options shall terminate if not exercised prior to
such event.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Directors' Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Directors' Plan will terminate on the date that is ten (10)
years after the Effective Date.
The Board may also amend the Directors' Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within 12 months before or after its adoption by the
Board if the amendment would (i) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Directors' Plan to satisfy Rule 16b-3 of the Exchange Act); (ii)
increase the number of shares reserved for issuance upon exercise of options; or
(iii) change any other provision of the Directors' Plan in any other way if such
modification requires stockholder approval in order to comply with Rule 16b-3 of
the Exchange Act or satisfy the requirements of Section 162(m) of the Code.
However, the Board may not amend the Plan more than once every six months with
respect to the provisions of the Plan that relate to the amount, price and
timing of grants, other than to comport with changes in the Code, or the
applicable regulations or rulings thereunder. The Board may submit any other
amendment to the Directors' Plan for stockholder approval.
FEDERAL INCOME TAX INFORMATION
Options granted under the Directors' Plan generally have the federal income
tax consequences of nonstatutory stock options described under "Federal Income
Tax Information" in Proposal 2 above.
NEW PLAN BENEFITS
To date, 144,000 options have been granted under the Directors' Plan. If
this Proposal 3 is approved, then each of our four current non-employee
directors will, effective as of the date of the Annual Meeting, automatically be
granted an option to purchase 5,000 shares of common stock.
13
<PAGE> 16
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000 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 4.
14
<PAGE> 17
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 March 1, 2000 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 ISSUABLE
UPON EXERCISE OF
OPTIONS EXERCISABLE PERCENTAGE OF
SHARES BENEFICIALLY WITHIN 60 DAYS OF SHARES BENEFICIALLY
5% STOCKHOLDERS, DIRECTORS AND NAMED EXECUTIVE OFFICERS OWNED (1) MARCH 1, 2000 OWNED(1)
- ------------------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Entities affiliated with Janus Capital Corporation... 1,300,000 -- 6.6%
100 Fillmore Street
Denver, CO 80206
Entities affiliated with BB Biotech................ 1,206,500 -- 6.0%
Vordergasse 3
8200 Schaffhausen
CH/Switzerland
The Kaufmann Fund, Inc............................. 1,000,000 5.1%
140 East 45th Street
New York, NY 10017
Timothy J. Rink(2)................................. 593,349 31,179 3.0%
James C. Blair..................................... 12,347 1,417 *
Hugh Y. Rienhoff, Jr............................... 10,008 7,001 *
Roy A. Whitfield................................... 13,250 13,250 *
Timothy J. Wollaeger............................... 4,893 1,001 *
Stuart J.M. Collinson.............................. 107,496 107,496 *
Paul J. England.................................... 40,542 40,542 *
Thomas G. Klopack.................................. 43,411 34,671 *
John D. Mendlein................................... 99,931 63,108 *
Harry Stylli....................................... 116,969 33,960 *
All directors and executive officers as a group (11
persons)......................................... 1,055,809 340,905 5.3%
</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
19,633,183 shares outstanding on March 1, 2000, adjusted as required by
rules promulgated by the SEC. Includes shares issuable pursuant to options
and other rights to purchase shares of the Company's Common Stock
exercisable within 60 days of March 1, 2000 and shares issuable pursuant to
the Employee Stock Purchase Plan. Additionally, as of March 1, 2000, Dr.
Mendlein held 6,000 shares of non-vested restricted Common Stock and Dr.
Stylli held 4,084 shares of non-vested restricted Common Stock. These shares
are not included in the Beneficial Ownership Table above.
(2) Includes 459,036 shares held in a trust for which Dr. Rink is trustee. Also
includes 16,000 shares held by one of his children for which Dr. Rink
disclaims beneficial ownership.
15
<PAGE> 18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of 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, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives a per meeting fee in
cash 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 the fiscal year ended December 31, 1999, the total cash
compensation paid to non-employee directors was $68,000. The members of the
Board of Directors 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 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 as in effect prior to the date
of this Annual Meeting: (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. Such initial and annual grants have been proposed to be
increased as set forth in Proposal 3.
During the fiscal year ended December 31, 1999, the Company granted options
covering an aggregate of 16,000 shares to the current non-employee directors of
the Company, at the exercise price of $5.75 per share. The exercise price per
share of each option was equal to the fair market value of the Company' Common
Stock on the respective dates of grant, as determined in accordance with the
Directors' Plan. As of March 31, 2000, 49,332 options had been exercised under
the Directors' Plan.
16
<PAGE> 19
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows, for the fiscal years ended December 31, 1997,
1998 and 1999, compensation awarded or paid to, or earned by, the Company's
current and former Chief Executive Officer and its other four most highly
compensated executive officers (the "Named Executive Officers") at December 31,
1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION (1) SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
--------------------------- ---- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Stuart J.M. Collinson(2)......... 1999 193,941 92,000(3) 430,000 138,270(4)
President and Chief Executive
Officer
Timothy J. Rink(5)............... 1999 370,008 100,000 -- --
Former President, Chief 1998 337,512 87,500 75,000 --
Executive Officer and Chairman 1997 297,928 81,250 108,000 --
of the Board
Paul J. England.................. 1999 205,833 37,800 -- --
Senior Vice President, Research 1998 146,686 45,000(6) 125,000 11,816(7)
Thomas G. Klopack................ 1999 210,695 29,300 25,000 18,855(8)
Senior Vice President, 1998 84,545 38,000 100,000 57,564(9)
Chief Operating Officer
John D. Mendlein................. 1999 200,833 50,000 25,000 --
Chief Knowledge Officer and 1998 163,333 40,000 60,000(10) --
General Counsel 1997 130,729 31,500 45,200 977(11)
Harry Stylli(12)................. 1999 213,250 54,078 80,000 20,000(13)
Senior Vice President, 1998 174,417 40,000 40,000 --
Commercial Development
</TABLE>
- ---------------
(1) In accordance with the rules of the SEC, 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.
(2) Dr. Collinson joined Aurora as President in May 1999 and became Chief
Executive Officer in November 1999. Dr. Collinson was appointed Chairman of
the Board in March 2000.
(3) Includes $28,000 hiring bonus for Dr. Collinson. Dr. Collinson joined
Aurora in May 1999.
(4) Includes $59,505 paid for relocation expenses for Dr. Collinson. Also
includes $78,765 as fees paid for consulting services rendered prior to
employment with the Company, from January to May 1999.
(5) Dr. Rink resigned as President in May 1999, as Chief Executive Officer in
November 1999 and as Chairman of the Board in March 2000. Dr. Rink is not
standing for re-election to the Board at this Annual Meeting.
(6) Includes $15,000 hiring bonus for Dr. England. Dr. England joined Aurora in
June 1998. We expect Dr. England to transition to part-time employment with
us in the near future.
(7) Includes amounts paid for relocation expenses for Dr. England.
(8) Includes $15,000 in loan forgiveness.
(9) Includes amounts paid for relocation expenses for Mr. Klopack.
(10) Includes options that were granted in a prior year and repriced in 1998.
(11) Includes amounts paid for relocation expenses for Dr. Mendlein.
(12) Dr. Stylli became an executive officer in July 1998.
(13) Includes $20,000 in loan forgiveness.
17
<PAGE> 20
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1996 Plan.
As of March 31, 2000, options to purchase a total of 3,456,425 shares were
outstanding under the 1996 Plan and options to purchase 1,446,966 shares
remained available for grant thereunder. The following tables show for the
fiscal year ended December 31, 1999, certain information regarding options
granted to, exercised by, and held at year end by, the Named Executive Officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
--------------------------------------------------------------------------
POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(5)
OPTIONS EMPLOYEES OR BASE EXPIRATION -----------------------
NAME(1) GRANTED(2) IN 1999(3) PRICE(4) DATE 5% ($) 10% ($)
------- ---------- ----------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stuart J.M. Collinson.............. 350,000 21.2% $ 6.00 4/29/09 1,231,741 3,205,241
80,000 4.8% $11.31 12/7/09 569,150 637,449
Paul J. England.................... -- -- -- -- -- --
Thomas G. Klopack.................. 25,000 1.5% $ 6.38 1/6/09 100,230 254,003
John D. Mendlein................... 25,000 1.5% $ 6.72 4/1/09 105,639 267,709
Harry Stylli....................... 80,000 4.8% $ 5.75 5/4/09 289,292 733,122
Timothy J. Rink.................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Drs. Rink and England did not receive any options during the fiscal year
ended December 31, 1999.
(2) The stock options generally vest over a four year period, 25% on the first
anniversary of the grant date and approximately 2.084% 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. The material terms of the Company's 1996 Plan are
described in Proposal 2 above.
(3) Based on options to purchase an aggregate of 1,654,761 shares of the Common
Stock granted to Company employees, including the executive officers named
in the Summary Compensation Table above and consultants.
(4) The exercise price on the date of grant was equal to 100% of the fair market
value on the date of grant as reported on Nasdaq National Market.
(5) 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.
18
<PAGE> 21
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999($)(1)
------------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------------- -------------------------
<S> <C> <C>
Timothy J. Rink.................... 103,063/79,937 $2,412,203/$1,698,697
Stuart J.M. Collinson.............. 87,500/342,500 $1,793,750/$6,596,250
Paul J. England.................... 53,125/71,875 $1,104,878/$1,487,297
Thomas G. Klopack.................. 35,417/89,583 $667,398/$1,720,127
John D. Mendlein................... 45,267/64,933 $1,022,616/$1,310,789
Harry Stylli....................... 28,334/111,666 $631,310/$2,296,170
</TABLE>
- ---------------
(1) The fair market value of the underlying shares on the last day of the fiscal
year less the exercise or base price.
EMPLOYMENT AGREEMENTS
The Company executed letter agreements in November 1999 and January 2000
with Dr. Rink providing for director services at the same compensation as other
directors, Chairman duties compensated at the rate of $2,500 per quarter, and
consulting services at the rate of $2,500 per day. The Company has agreed to pay
a fee of $5,000 to Dr. Rink whenever the Company requests that he travel to the
United States on behalf of the Company. Dr. Rink resigned as Chairman in March
2000 and is not standing for re-election to the Board at this Annual Meeting.
Dr. Rink is a member of the Company's Scientific Advisory Board.
In April and December 1999, we entered into agreements with Stuart J.M.
Collinson, our President and Chief Executive Officer. Pursuant to these
agreements, Dr. Collinson received an initial annual base salary of $350,000 and
is eligible to receive an annual performance bonus, in cash, of up to fifty
percent (50%) of his base salary conditioned upon achievement of certain
specified milestones. In the event that Dr. Collinson's employment is terminated
other than "for cause" (as defined in the agreements), he is entitled to
severance payments equal to one year of his then current base salary plus an
amount equal to his most recent annual bonus, vesting of any unvested stock
options, and reimbursement of actual and reasonable expenses incurred in
connection with the relocation of his principal residence to the United Kingdom,
including forgiveness of any outstanding house loan he may then have with the
Company. Dr. Collinson was awarded grants to purchase 430,000 shares of our
common stock pursuant to our 1996 Stock Plan.
The Company executed a letter agreement with Mr. Klopack in June 1998, in
connection with his commencement of employment with the Company. Pursuant to the
letter agreement, Mr. Klopack is to be paid a minimum base salary of $180,000
per year and a hiring bonus of $20,000, which may be required to be returned to
the Company under certain circumstances. Mr. Klopack also received an
interest-free loan of $60,000 to assist with the purchase of a residence in
connection with his relocation to San Diego, secured by his primary residence.
The loan is being forgiven annually over four years following his commencement
of employment at the rate of $15,000 per year provided that Mr. Klopack is
employed by Aurora at December 31 of each of those years. In consideration of
such forgiveness, any performance-based bonus awarded to Mr. Klopack for each of
those years will be reduced by 50%, up to a maximum of $10,000 each year. In the
event Mr. Klopack's employment is terminated by the Company other than for
cause, he is entitled to a severance payment equal to nine months' salary if
between twelve and eighteen months after his start date, or six months' salary
if between eighteen and twenty-four months after his start date.
The Company executed a letter agreement with Paul J. England, in connection
with his employment with the Company in December 1997. Pursuant to the letter
agreement, Dr. England is to be paid a minimum base salary rate of $180,000 per
year, and was paid a hiring bonus of $15,000. Dr. England received a grant of
100,000 options on the same general terms as all employees, except that in the
event of a change in control of the Company where Dr. England's employment was
terminated within a 12 month period of that change, that
19
<PAGE> 22
grant of options would continue to vest normally for an additional 12 months. We
expect Dr. England to transition to part-time employment with us in the near
future.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors (the "Committee")
consists of Dr. Blair and Dr. Rienhoff. Mr. Kinsella, a former director, served
on the Committee until September 1999 when he resigned from the Board of
Directors. 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 1999, 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 the
Committee's evaluation of individual performance. For fiscal 1999, 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 generally 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
- ---------------
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, as amended (the "1933 Act") or the
Exchange Act of 1934 (the "1934 Act"), whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
20
<PAGE> 23
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, received a performance-based cash award for 1999. These cash bonuses
were paid based upon individual performance and the Company's financial results
for 1999. 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
Dr. Collinson's compensation is determined in accordance with the criteria
described above for all executive officers. Dr. Collinson receives an annual
base salary of $350,000 and is eligible to receive an annual performance-based
bonus, in cash, of up to fifty percent (50%) of his base salary conditioned upon
achievement of certain specified milestones. In the event that Dr. Collinson's
employment is terminated other than "for cause" (as defined in the agreements),
he is entitled to severance payments equal to one year of his then current base
salary plus an amount equal to his most recent bonus, vesting of any unvested
stock options, and reimbursement of actual and reasonable expenses incurred in
connection with the relocation of his principal residence to the United Kingdom,
including forgiveness of any outstanding house loan he may then have with the
Company. In 1999, Dr. Collinson was awarded grants to purchase an aggregate of
430,000 shares of our Common Stock pursuant to the 1996 Plan. In February 2000,
he was awarded grants to purchase an additional 51,065 shares of our Common
Stock under the 1996 Plan.
Compensation Committee
James C. Blair
Hugh Y. Rienhoff, Jr.
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 of Directors or Compensation
Committee.
21
<PAGE> 24
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 TOTAL CUMULATIVE RETURN ON INVESTMENT
SINCE THE COMPANY'S INITIAL PUBLIC OFFERING ON JUNE 19, 1997
<TABLE>
<CAPTION>
ABSC NASDAQ-US NASDAQ-PH
---- --------- ---------
<S> <C> <C> <C>
6/30/97 100.000 100.000 100.000
9/30/97 137.957 116.923 112.172
12/31/97 126.506 109.498 100.714
3/31/98 110.843 128.149 110.711
6/30/98 56.627 131.669 102.454
9/30/98 57.831 118.902 96.656
12/31/98 62.053 154.298 128.121
3/31/99 64.761 172.597 140.595
6/30/99 69.880 188.842 143.076
9/30/99 125.908 193.149 163.498
12/31/99 255.422 278.755 239.417
</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 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
CERTAIN TRANSACTIONS
Mr. Klopack received an interest-free loan of $60,000 to assist with the
purchase of a residence in connection with Mr. Klopack's relocation to San
Diego, secured by his primary residence. The loan will be forgiven annually over
four years at the rate of $15,000 per year if Mr. Klopack is employed by Aurora
at December 31 of each of those years beginning on December 31, 1999. In
consideration of such forgiveness, any performance-based bonus awarded to Mr.
Klopack for each of those years will be reduced by 50%, up to a maximum of
$10,000 each year.
Dr. Stylli received a loan in the amount of $60,000 to assist with the
purchase of a residence in San Diego. The loan bears interest at the rate of
5.66% per year, payable monthly. In February 1999, the Board of Directors
amended the loan agreement to be due and payable in February 2001 and secured
the loan with 30,000 shares of Aurora Common Stock owned by Dr. Stylli. In May
1999, the Compensation Committee awarded a bonus to Dr. Stylli in an amount
needed to repay outstanding principal and interest for the loan conditioned upon
Dr. Stylli's agreement to use the bonus to repay the loan. The loan was repaid
at that time.
Dr. Mendlein entered into a loan agreement with the Company in 1999 in the
amount of $45,000 for the purpose of pursuing an MBA degree. Dr. Mendlein
received $15,000 in August 1999 and $15,000 in February 2000, and $15,000 will
be paid in August 2000. Interest is paid monthly by Dr. Mendlein at the
Applicable Federal Rate per annum. The principal amount of the loan will be due
and payable in a single payment on the earliest of i) January 1, 2002; ii) six
months following the voluntary termination of Dr. Mendlein; and iii) 90 days
after Dr. Mendlein voluntarily or involuntarily withdraws from the business
school prior to completing the MBA degree program. If Dr. Mendlein remains
employed with the Company on January 1, 2002, or if
22
<PAGE> 25
Dr. Mendlein is terminated by the Company for any reason other than for cause,
the entire principal amount will be forgiven.
The Company has also entered into certain agreements with certain of its
current and former executive officers, as described under the caption
"Employment Agreements."
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 of Directors, 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 of Directors 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/ THOMAS A. COLL
Thomas A. Coll
Corporate Secretary
April 19, 2000
- --------------------------------------------------------------------------------
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K, AS AMENDED, FOR THE FISCAL YEAR ENDED DECEMBER
31, 1999 IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR
RELATIONS, AURORA BIOSCIENCES CORPORATION, 11010 TORREYANA ROAD, SAN
DIEGO, CALIFORNIA, 92121.
- --------------------------------------------------------------------------------
23
<PAGE> 26
AURORA BIOSCIENCES CORPORATION
1996 STOCK PLAN
ADOPTED JANUARY 23, 1996
AS AMENDED AND RESTATED AS OF FEBRUARY 4, 1997
AS AMENDED ON APRIL 21, 1998
AS AMENDED ON MAY 28, 1998
AS AMENDED ON MAY 4, 1999
AS AMENDED ON DECEMBER 7, 1999
AS AMENDED ON MARCH 14, 2000
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.
1.
<PAGE> 27
(c) "CAUSE" shall mean any of the following: (a) an intentional act
which materially injures the Company; (b) an intentional refusal or failure to
follow lawful and reasonable directions of the Board or an individual to whom a
person reports (as appropriate); (c) a willful and habitual neglect of duties;
or (d) a conviction of a felony involving moral turpitude which is reasonably
likely to inflict or has inflicted material injury on the Company.
(d) "CHANGE IN CONTROL" means: (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; (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.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(g) "COMPANY" means Aurora Biosciences Corporation, a Delaware
corporation.
(h) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(i) "CONSTRUCTIVELY TERMINATED" shall mean the voluntary termination of
Continuous Status as an Employee, Director or Consultant by a person within
fifteen (15) days after any of the following are undertaken without such
person's express written consent: (a) the assignment to such person of any
duties or responsibilities which result in a material diminution or adverse
change of such person's position, status or circumstances of employment or
engagement, other than a mere change in title or reporting relationship; (b)
reduction by the Company in such person's base salary or compensation; (c) any
failure by the Company to continue in effect any benefit plan or arrangement,
including incentive plans or plans to receive securities of the Company, in
which such person is participating (hereinafter referred to as "Benefit Plans"),
or the taking of any action by the Company which would adversely affect such
person's participation in or reduce such person's benefits under any Benefit
Plans or deprive such person of any fringe benefit then enjoyed by such person,
provided, however, that such person's termination shall not be deemed to be
Constructively Terminated if the Company offers a range of benefit plans and
programs which, taken as a whole, are comparable to the Benefit Plans; (d) a
relocation of such person or the Company's principal business offices to a
location more than fifty (50) miles from the location at which such person
performs duties, except for required travel by such person on the Company's
business to an extent substantially consistent with such
2.
<PAGE> 28
person's business travel obligations; (e) any breach by the Company of any
material agreement between such person and the Company concerning such person's
employment or engagement; or (f) any failure by the Company to obtain the
assumption of any material agreement between such person and the Company
concerning such person's employment or engagement by any successor or assign of
the Company.
(j) "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.
(k) "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.
(l) "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.
(m) "DIRECTOR" means a member of the Board.
(n) "DISABILITY" means permanent and total disability as defined in
Section 422(c)(6) of the Code.
(o) "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.
(p) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(q) "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
3.
<PAGE> 29
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(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.
(r) "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.
(s) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(t) "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.
(u) "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.
(v) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(w) "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.
(x) "OPTION" means a stock option granted pursuant to the Plan.
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(y) "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.
(z) "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.
(aa) "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.
(bb) "PLAN" mans this 1996 Stock Plan.
(cc) "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.
(dd) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(ee) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(ff) "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.
(gg) "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.
(hh) "SURVIVING STOCK AWARDS" shall have the meaning set forth in
Section 13(b) of the Plan.
(ii) "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:
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(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 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 eight
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million (8,000,000) 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 five hundred thousand (500,000) 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 each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
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(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.
(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
8.
<PAGE> 34
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 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,
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<PAGE> 35
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 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
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<PAGE> 36
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 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
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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 (25%) per year over four (4) 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.
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:
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(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, 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
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<PAGE> 39
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.
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
14.
<PAGE> 40
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.
(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.
15.
<PAGE> 41
(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 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 a Change in Control, 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 such Change in Control) for those
outstanding under the Plan (such assumed or substituted stock awards are
collectively referred to herein as the "SURVIVING STOCK AWARDS"), 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 performing services as Employees,
Directors or Consultants immediately prior to the effective date of such Change
in Control, 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 such Stock Awards terminated if not
exercised (if applicable) after such acceleration and at or prior to such event,
and (B) unless otherwise provided in this Section 13, with respect to any other
Stock Awards outstanding under the Plan, such Stock Awards shall be terminated
if not exercised (if applicable) prior to the effective date of such Change in
Control.
(c) In addition, with respect to any person (i) who is Constructively
Terminated within the sixty (60) day period immediately preceding the effective
date of a Change in Control or (ii) whose Continuous Status as an Employee,
Director or Consultant is terminated by the Company within the sixty (60) day
period immediately preceding the effective date of a Change in Control other
than (A) for Cause or (B) upon such person's death or Disability, any Stock
Awards held by such person shall: (a) become fully vested, and any repurchase
right held by the
16.
<PAGE> 42
Company with respect to shares acquired by such person under a Stock Award shall
lapse, immediately upon the effective date of such Change in Control, (b) in the
event such Stock Award is granted after May 28, 1998 or has an exercise price in
excess of $7.50 per share (as adjusted for stock splits and the like subsequent
to May 28, 1998) be exercisable within the period ending on the earlier of (u)
twelve (12) months following termination of such person's Continuous Status as
an Employee, Director or Consultant or (v) expiration of the term of such Stock
Award, as set forth therein or as otherwise provided in the Plan and (c)
terminate immediately upon the completion of the period described in clause (b)
of this sentence, if applicable, or as provided in such Stock Award.
(d) Further, with respect to any person (i) who was providing services
as an Employee, Director or Consultant immediately prior to the effective date
of a Change in Control and (ii) (A) who is Constructively Terminated within the
thirteen (13) month period following the effective date of such Change in
Control or (B) whose Continuous Status as an Employee, Director or Consultant is
terminated by the surviving or acquiring corporation within the thirteen (13)
month period following the effective date of such Change in Control other than
(w) for Cause or (x) upon such person's death or Disability, any Surviving Stock
Awards held by such person shall: (a) become fully vested, and any repurchase
right held by the acquiring or surviving corporation with respect to shares
acquired by such person under a Surviving Stock Award shall lapse, immediately
upon termination of such person's Continuous Status as an Employee, Director or
Consultant, (b) in the event such Stock Award is granted after May 28, 1998 or
has an exercise price in excess of $7.50 per share (as adjusted for stock splits
and the like subsequent to May 28, 1998) be exercisable within the period ending
on the earlier of (y) twelve (12) months following termination of such person's
Continuous Status as an Employee, Director or Consultant or (z) expiration of
the term of such Surviving Stock Award, as set forth therein or as otherwise
provided in the Plan and (c) terminate immediately upon completion of the period
described in clause (b) of this sentence, if applicable, or as provided in such
Stock Award.
(e) Notwithstanding subsections 13(c) and (d) above, in the event all of
the following occurs: (i) a contemplated Change in Control would occur prior to
May 28, 2000 (the date two (2) years following the adoption of subsections 13(c)
through (h)); (ii) such potential acceleration of vesting (and exercisability)
under subsections 13(c) or (d) would by itself cause a contemplated Change in
Control, that would otherwise be eligible to be accounted for as a "pooling of
interests" accounting transaction, to become ineligible for such accounting
treatment; and (iii) the potential acquiror of the Company desires to account
for such contemplated Change in Control as a "pooling of interests" transaction,
then such acceleration shall not occur. Additionally, in the event that the
restrictions upon acceleration provided for in the immediately preceding
sentence by itself would cause a contemplated Change in Control to become
ineligible to be accounted for as a "pooling of interests" accounting
transaction, then such restrictions shall be deemed inoperative. Accounting
issues shall be determined by the Company's independent public accountants
applying generally accepted accounting principles.
(f) The terms of a particular Stock Award may provide for different
terms to govern events described in this Section 13. In the event the provisions
of this Section 13 conflict with an
17.
<PAGE> 43
employment agreement or other agreement relating to the rights of the holder of
a Stock Award, the provisions of this Section 13 and the conflicting agreement
shall be construed to provide the greatest benefit to the holder of the Stock
Award.
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;
(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
18.
<PAGE> 44
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.
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.
19.
<PAGE> 45
AURORA BIOSCIENCES CORPORATION
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED ON FEBRUARY 10, 1997
AS AMENDED ON JULY 2, 1997
AS AMENDED ON MARCH 14, 2000
1. PURPOSE.
(a) The purpose of the Non-Employee Directors' Stock Option Plan (the
"Plan") is to provide a means by which certain directors of Aurora Biosciences
Corporation, a Delaware corporation (the "Company"), who are not otherwise
employees of the Company or of any Affiliate of the Company ("Non-Employee
Directors"), will be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
certain persons now serving as Non-Employee Directors of the Company, to secure
and retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). 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, 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.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan
1.
<PAGE> 46
shall not exceed in the aggregate two hundred forty thousand (240,000) shares of
the Company's common stock. If any option granted under the Plan shall for any
reason expire or otherwise terminate without having been exercised in full, the
stock not purchased under such option shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who, upon the effective date of the Plan as set forth in
Section 13 below, is a Non-Employee Director automatically shall be granted a
one-time option to purchase sixteen thousand (16,000) shares of common stock of
the Company on the terms and conditions set forth herein.
(b) Each person who, after the effective date of the Company's initial
public offering of shares of Common Stock pursuant to a registration statement
on Form S-1 filed with the Securities and Exchange Commission (the "Effective
Date") and prior to March 14, 2000, for the first time becomes a Non-Employee
Director automatically shall be granted, upon the date of his or her initial
appointment or election to be a Non-Employee Director by the Board or
stockholders of the Company, a one-time option to purchase sixteen thousand
(16,000) shares of Common Stock of the Company on the terms and conditions set
forth herein.
(c) Each person who, after March 14, 2000, for the first time becomes a
Non-Employee Director automatically shall be granted, upon the date of his or
her initial appointment or election to be a Non-Employee Director by the Board
or stockholders of the Company, a one-time option to purchase twenty thousand
(20,000) shares of Common Stock of the Company on the terms and conditions set
forth herein.
(d) On the date of each annual meeting of the stockholders of the
Company after the Effective Date (other than any such annual meeting held in
1997) and prior to March 14, 2000, each person who is elected at such annual
meeting to serve as a Non-Employee Director (other than a person who receives a
grant under subparagraph 5(b) on or during the three-month period preceding such
date) automatically shall be granted an option to purchase four thousand (4,000)
shares of Common Stock of the Company on the terms and conditions set forth
herein.
(e) On the date of each annual meeting of the stockholders of the
Company after March 14, 2000, each person who is elected at such annual meeting
to serve as a Non-Employee Director (other than a person who receives a grant
under subparagraph
2.
<PAGE> 47
5(c) on or during the three-month period preceding such date) automatically
shall be granted an option to purchase five thousand (5,000) shares of common
stock of the Company on the terms and conditions set forth herein.
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ten (10) years
from the date of grant (the "Expiration Date"). No option shall be exercisable
after the Expiration Date.
(b) If the optionee's service as a Non-Employee Director of the Company
("Service") 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 Service (or such longer or shorter period,
which shall not be less than thirty (30) days, specified in the option
agreement), or (ii) the Expiration Date. 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 of Service,
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.
An optionee's option agreement may also provide that, if the exercise of
the option following the termination of the optionee's Service (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 Date 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 Service
(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 Date or (ii) the expiration of a period of three
(3) months after the termination of the optionee's Service during which the
exercise of the Option would not be in violation of such registration
requirements.
(c) In the event an optionee's Service 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
3.
<PAGE> 48
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
Date. 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.
(d) 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
Service, 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 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 Date. 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.
(e) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted.
(f) Payment of the exercise price of each option is due in full in cash
upon any exercise, provided that an option may be exercised pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
which results in the receipt of cash (or check) by the Company prior to the
issuance of shares of the Company's common stock.
(g) An option shall only be transferable by the optionee upon such terms
and conditions as are set forth in the option agreement for such option, as the
Board or the Committee shall determine in its discretion. The optionee 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.
(h) Stock options granted pursuant to Sections 5(a), 5(b), 5(c) and 5(d)
herein shall become exercisable (vest) in monthly installments over a period of
four years from
4.
<PAGE> 49
the date of grant, with one forty-eighth (1/48) of the shares vesting on each
one-month anniversary of the grant date; provided that the optionee has, during
the entire period prior to such vesting date, continuously served as a
Non-Employee Director of the Company, whereupon such option shall become fully
exercisable in accordance with its terms with respect to that portion of the
shares represented by that installment. The option shall include a provision
whereby the Optionee may elect at any time while a Director 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 in a form approved by the Board which
corresponds to the vesting schedule continued in such option.
(i) Stock options granted pursuant to Section 5(e) herein shall become
exercisable (vest) in monthly installments over a period of one year from the
date of grant, with one twelfth (1/12) of the shares vesting on each one-month
anniversary of the grant date; provided that the optionee has, during the entire
period prior to such vesting date, continuously served as a Non-Employee
Director of the Company, whereupon such option shall become fully exercisable in
accordance with its terms with respect to that portion of the shares represented
by that installment. The option shall include a provision whereby the Optionee
may elect at any time while a Director 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 in a form approved by the Board which corresponds to the vesting
schedule contained in such option.
(j) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(g), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration statement under the Securities Act of 1933, as amended (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.
(k) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
5.
<PAGE> 50
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(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 options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. 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 options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(g) 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 option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Throughout the term of any option granted pursuant to the Plan, the
Company shall make available to the holder of such option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the option term, upon request, such financial and other information
regarding the Company as comprises the annual report to the shareholders of the
Company provided for in the Bylaws of the Company and such other information
regarding the Company as the holder of such option may reasonably request.
(c) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate or shall affect any right of the Company, its
Board or shareholders or any Affiliate to terminate the service of any
Non-Employee Director with or without cause.
(d) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares
6.
<PAGE> 51
of common stock, if any, as shall have been reserved for him pursuant to an
option granted to him.
(e) In connection with each option granted pursuant to the Plan, it
shall be a condition precedent to the Company's obligation to issue or transfer
shares to a Non-Employee Director, or to evidence the removal or lapse of any
restrictions on transfer, that such Non-Employee Director make arrangements
satisfactory to the Company to insure that the amount of any federal or other
withholding tax required to be withheld with respect to such sale or transfer,
or such removal or lapse, is made available to the Company for timely payment of
such tax.
(f) As used in this Plan, "fair market value" means, as of any date, the
value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, 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;
(ii) If the common stock is quoted on Nasdaq (but not on the
National Market 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.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the 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 Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the
7.
<PAGE> 52
surviving corporation; (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) any
other capital reorganization (including a sale of stock of the Company to a
single purchaser or single group of affiliated purchasers) after which less than
fifty percent (50%) of the outstanding voting shares of the new or continuing
corporation are owned by stockholders of the Company immediately before such
transaction, the time during which options outstanding under the Plan may be
exercised shall be accelerated to permit the optionee to exercise all such
options in full prior to such event, and the options shall terminate if not
exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than once every
six (6) months with respect to the provisions of the Plan which relate to the
amount, price and timing of grants, other than to comport with changes in the
Code or applicable regulations or rulings thereunder. Except as provided in
paragraph 10 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 which may be issued under the
Plan;
(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 comply with the requirements of Rule 16b-3); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 or Section 162(m) of the Internal Revenue Code.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii) such
person consents in writing.
12. 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 the date that is ten (10) years
after the Effective Date. No options may be granted under the Plan while the
Plan is suspended or after it is terminated.
8.
<PAGE> 53
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective on the date on which the Board
approves the Plan, subject to the condition that the Plan be approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
9.
<PAGE> 54
PROXY PROXY
AURORA BIOSCIENCES CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS -- MAY 23, 2000
The undersigned appoints Stuart J.M. Collinson and John R. Pashkowsky, 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, May
23, 2000 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 LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(Continued and to be signed on the reverse side.)
<PAGE> 55
AURORA BIOSCIENCES CORPORATION
<TABLE>
<CAPTION>
<S> <C>
Please mark
your votes as [X]
indicated in
this example
MANAGEMENT RECOMMENDS A VOTE FOR THE For all MANAGEMENT RECOMMENDS A VOTE FOR
NOMINEES FOR DIRECTOR LISTED. (except PROPOSALS 2, 3 AND 4.
Nominee(s) WITHHOLD
1. To elect directors to hold office written below) ALL 2. To approve the Company's 1996 FOR AGAINST ABSTAIN
until the next Annual Meeting of [ ] [ ] Stock Plan, as amended. [ ] [ ] [ ]
Stockholders and until their successors
are elected 3. To approve the Company's Non- FOR AGAINST ABSTAIN
Employee Directors' Plan, as
Nominees: Stuart J.M. Collinson, James C. amended. [ ] [ ] [ ]
Blair, Hugh Y. Rienhoff, Jr., Roy A. Whitfield,
and Timothy J. Wollaeger. 4. To ratify the election of FOR AGAINST ABSTAIN
Ernst & Young LLP as [ ] [ ] [ ]
(Instruction: To withhold authority to vote for any individual Nominee, independent auditors of the
write that Nominee's name in the space provided below.) Company for its fiscal year
ending December 31, 2000.
______________________________________________________________________
Signature(s)________________________________________________________________________ Dated: ___________________________________ 2000
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 *
</TABLE>
