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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
Commission File Number: 0-28310
SIBIA Neurosciences, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-3616229
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
505 Coast Boulevard South, Suite 300, La Jolla, CA 92037
(Address of principal executive offices) (Zip Code)
(619) 452-5892
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 22, 1997
----- -----------------------------
Common Stock, $.001 par value 9,224,059
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SIBIA Neurosciences, Inc.
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
Condensed Balance Sheet as of December 31, 1996
and March 31, 1997 (Unaudited) ................................. 3
Condensed Statement of Operations (Unaudited) for the Three
Months Ended March 31, 1996 and 1997............................ 4
Condensed Statement of Cash Flows (Unaudited) for the Three
Months Ended March 31, 1996 and 1997............................ 5
Notes to Financial Statements (Unaudited)........................ 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ............................................... 12
ITEM 2. Changes in Securities ........................................... 12
ITEM 3. Defaults Upon Senior Securities.................................. 13
ITEM 4. Submission of Matters to a Vote of
Security Holders................................................ 13
ITEM 5. Other Information................................................ 13
ITEM 6. Exhibits and Reports on Form 8-K................................. 13
SIGNATURE.......................................................................... 14
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
SIBIA Neurosciences, Inc.
Condensed Balance Sheet
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1997
(Unaudited)
----------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,412,000 $ 4,492,000
Investment securities 36,052,000 33,879,000
Contracts and accounts receivable 68,000 360,000
Prepaid expenses and other current assets 684,000 874,000
------------ ------------
Total current assets 38,216,000 39,605,000
------------ ------------
Property and equipment, net 1,307,000 1,286,000
Other assets 460,000 468,000
------------ ------------
$ 39,983,000 $ 41,359,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,212,000 $ 1,834,000
Accrued liabilities 1,249,000 1,860,000
Deferred revenue 431,000 3,225,000
------------ ------------
Total current liabilities 2,892,000 6,919,000
------------ ------------
Capital lease obligations 519,000 477,000
------------ ------------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000 shares authorized:
Series A Junior Participating Preferred Stock, 150,000
shares authorized. No shares issued and outstanding at
December 31, 1996 and March 31, 1997
Common stock, $.001 par value; 25,000,000 shares authorized;
9,154,157 and 9,217,468 shares issued and outstanding at
December 31, 1996 and March 31, 1997, respectively. 9,000 9,000
Additional paid-in capital 59,746,000 59,791,000
Deferred compensation (1,039,000) (941,000)
Notes receivable from stockholders (640,000) (640,000)
Net unrealized gains on investment securities
available-for-sale 189,000 37,000
Accumulated deficit (21,693,000) (24,293,000)
------------ ------------
Total stockholders' equity 36,572,000 33,963,000
------------ ------------
$ 39,983,000 $ 41,359,000
============ ============
</TABLE>
See accompanying notes.
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SIBIA Neurosciences, Inc.
Condensed Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1997
----------- -----------
<S> <C> <C>
Revenue:
Contract $ 2,327,000 $ 1,781,000
License and royalty 57,000 162,000
----------- -----------
Total revenue (including $770,000 and
$926,000 in related-party revenue for
1996 and 1997, respectively) 2,384,000 1,943,000
----------- -----------
Expenses:
Research and development 2,675,000 3,959,000
General and administrative 852,000 1,155,000
----------- -----------
3,527,000 5,114,000
----------- -----------
(1,143,000) (3,171,000)
----------- -----------
Other income (expense):
Interest income 225,000 584,000
Interest expense (17,000) (15,000)
Other -- 2,000
----------- -----------
208,000 571,000
----------- -----------
Net loss $ (935,000) $(2,600,000)
=========== ===========
Net loss per common share $ (0.19) $ (0.28)
=========== ===========
Weighted average number of common
shares outstanding 4,981,619 9,179,552
=========== ===========
</TABLE>
See accompanying notes.
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SIBIA Neurosciences, Inc.
Condensed Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (935,000) $(2,600,000)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 138,000 155,000
Compensation from issuance of common stock options 169,000 98,000
(Gain) loss on disposal of property 4,000 (2,000)
Net amortization of premium and discount on
investment securities (179,000) (16,000)
Increase (decrease) in cash resulting from changes in:
Contract and accounts receivable (1,150,000) (292,000)
Prepaid expenses and other assets (359,000) (198,000)
Accounts payable and accrued liabilities 721,000 1,213,000
Deferred revenue 2,794,000
----------- -----------
Net cash provided (used) by operating activities (1,591,000) 1,152,000
----------- -----------
Cash flows from investing activities:
Purchases of investment securities available-for-sale (4,202,000) (1,970,000)
Maturities of investment securities available-for-sale 4,000,000
Maturities of investment securities held-to-maturity 6,792,000
Principal payments received on investment securities
available-for-sale 19,000 7,000
Proceeds from disposal of property and equipment 2,000
Acquisition of property and equipment (20,000) (30,000)
----------- -----------
Net cash provided (used) by investing activities 2,589,000 2,009,000
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock 35,000 45,000
Principal payments on capital lease obligations (108,000) (126,000)
----------- -----------
Net cash provided (used) by financing activities (73,000) (81,000)
----------- -----------
Net increase in cash and cash equivalents 925,000 3,080,000
Cash and cash equivalents at beginning of period 2,274,000 1,412,000
----------- -----------
Cash and cash equivalents at end of period $ 3,199,000 $ 4,492,000
=========== ===========
</TABLE>
See accompanying notes.
5
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SIBIA Neurosciences, Inc.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of SIBIA Neurosciences, Inc.
("SIBIA" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the financial statements
and footnotes thereto for the year ended December 31, 1996, included in the
Company's Form 10-K filed with the SEC.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures as of the date of the financial statements. Actual results
could differ from such estimates.
2. NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number of
common shares outstanding during the periods presented. Other Common Stock
equivalents are antidilutive and are excluded from the computation of net loss
per common share.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", which
establishes standards for computing and presenting earnings per share (EPS).
SFAS No. 128 will be adopted by the Company as required for the interim periods
and fiscal years ending after December 15, 1997. Upon adoption of SFAS No. 128,
the Company will present basic EPS as well as diluted EPS in the period of
adoption and restate all prior-period EPS data presented for comparative
purposes. Basic EPS will be computed by dividing income available to holders of
Common Stock by the weighted average number of shares of Common Stock
outstanding. Diluted EPS will be computed similarly to basic EPS except that the
weighted average number of shares of Common Stock outstanding will be increased
to include the number of additional shares of Common Stock that would have been
outstanding if the dilutive potential common shares had been issued. Pro forma
EPS calculations under SFAS No. 128 are not presented as they are not materially
different than those currently presented.
3. STOCKHOLDERS' EQUITY
In March 1997, the Board of Directors of the Company adopted a Share Purchase
Rights Plan pursuant to which preferred share purchase rights (the "Rights")
were distributed for each share of Common Stock of the Company held as of the
close of business on April 2, 1997. Each Right, under certain circumstances,
entitles the holder thereof to purchase from the Company one one-
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hundredth of a share of Series A Junior Participating Preferred Stock (each a
"Preferred Share") at an exercise price of $60.00 per one one-hundredth of a
Preferred Share. Each one one-hundredth of a share of Preferred Share has
rights, preferences and privileges equal to the value of a share of Common
Stock. The Rights will expire on March 17, 2007, unless the Rights are earlier
redeemed or exchanged by the Company. The Rights will cause substantial dilution
to a person or group that attempts to acquire the Company on terms not approved
by the Company's Board of Directors.
4. STATEMENT OF CASH FLOWS
Non-cash financing activities were comprised of capital lease obligations of
$154,000 and $104,000, respectively, in the three-month periods ended March 31,
1996 and 1997.
5. SIGNIFICANT COLLABORATIVE AGREEMENTS
Total costs incurred under the Company's various collaborative agreements for
the three months ended March 31, 1996 and 1997, including certain administrative
costs, aggregated $1,485,000 and $1,560,000, respectively.
6. LEASE LINE FUNDING
In February 1997, the Company received a firm commitment from a third-party to
fund an aggregate of $1,500,000 in equipment purchases under a master lease
agreement through March 31, 1998.
7. DEVELOPMENT AGREEMENT
In February 1997, the Company entered into an agreement with Meiji Seika Kaisha,
Ltd for the development and commercialization of the Company's proprietary
nicotinic acetylcholine receptor agonist, SIB-1508Y, as a treatment for
Parkinson's disease in Japan and other Asian countries. Under the agreement, the
Company received an upfront license fee of $3,000,000, all of which was deferred
until certain contingencies are met, and may receive development milestone
payments and royalties on future products, if any. The Company will retain
rights for the commercial manufacture of the product.
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation with Cadus Pharmaceutical
Corporation. See further discussion of this matter at Item 1 in Part II of this
Form 10-Q.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Except for the historical information contained herein, the discussion in this
report contains forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from those discussed in
this report. Factors that could cause or contribute to such differences include,
without limitation, those discussed in the section entitled "Liquidity and
Capital Resources" herein as well as those discussed in the Company's Form 10-K
for the year ended December 31, 1996 under the heading "Risk Factors".
SIBIA is engaged in the discovery and development of novel, small molecule
therapeutics for disorders of the nervous system based on the Company's unique
approach to characterizing the molecular processes involved in such disorders.
SIBIA is focusing its efforts on discovering and developing compounds for the
treatment of Parkinson's disease, Alzheimer's disease, stroke, depression, head
trauma, epilepsy, chronic pain, schizophrenia and other neurological,
psychiatric and neurodegenerative disorders, many of which have large patient
populations and represent critical unmet medical needs.
The Company has no products available for sale and does not expect to have any
products resulting from its research efforts, including its collaborations with
others, commercially available for at least several years, if at all. Except for
1995, the Company has incurred net losses every year since shifting its area of
therapeutic focus to the central nervous system in 1991. The Company is
continuing to incur losses and expects to incur increasing operating losses over
the next several years as the Company's research and development expenditures
increase. The Company's revenue for the next several years will be limited to
payments under its collaborative agreements, license fees, interest income and
other miscellaneous income.
RESULTS OF OPERATIONS
Revenue
Total revenue decreased by 18%, from $2,384,000 in the first quarter 1996 to
$1,943,000 in the first quarter 1997. The decrease in total revenue was due
primarily to lower revenues provided in the first quarter of 1997 under the
Company's recently extended collaboration with Eli Lilly and Company and to the
recognition in the first quarter of 1996 of revenue related to reimbursed costs
and fees pursuant to SIBIA's collaborative agreement with Novartis.
Expenses
Total expenses increased by 45%, from $3,527,000 in the first quarter 1996 to
$5,114,000 in the first quarter 1997. The increase in total expenses was
primarily attributable to an increase in research and development expenses of
48%, from $2,675,000 in the first quarter 1996 to $3,959,000 in the first
quarter 1997. The increase in research and development expenses was primarily
the result of expanded programs in drug discovery and for expenses associated
with non-clinical and clinical trials of SIB-1508Y, SIBIA's lead compound for
Parkinson's disease. General and administrative expenses increased by 36%, from
$852,000 in the first quarter of 1996
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to $1,155,000 in the first quarter of 1997. The increase in general and
administrative expenses was primarily due to increases in legal costs and
expenses related to being a public company.
Other Income
The Company's other income primarily consists of interest income and interest
expense. Other income during the first quarter of 1997 increased by 175%, or
$363,000, as compared to the first quarter of 1996, primarily due to increased
interest income earned on proceeds from the Company's initial public offering of
Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
SIBIA has financed its operations primarily through equity financings, research
contracts (generally conducted on a best efforts basis), option, license and
royalty revenues, and the sale of certain technology. As of March 31, 1997, the
Company had an accumulated deficit of $24,293,000.
The Company anticipates that the cash, cash equivalents and investment
securities balance of $38,371,000 as of March 31, 1997 will be used to support
continued research and development as well as continued drug discovery efforts
and non-clinical and early stage clinical trials of potential drug candidates.
The Company leases laboratory and office facilities under an agreement expiring
on December 31, 2001 with an option to extend for an additional five years. The
average minimum annual payment under the lease is approximately $1,347,000,
before consideration of sublease income. The Company believes that its present
facility will be adequate to conduct its research activities through December
2001, and believes that, when needed, it will be able to secure additional space
at commercially reasonable rates.
The Company will require substantial additional funds to conduct the research
and development with respect to its technologies and preclinical and clinical
testing of potential drug candidates. Although the Company plans to contract
with third parties to manufacture and market any products that may be developed,
to the extent the Company is unsuccessful and is required to establish its own
manufacturing capacity or marketing program, it will require substantial
additional capital. The Company's future capital needs will be dependent upon
many factors, including progress in its research and development activities, the
magnitude and scope of these activities, progress with preclinical and clinical
trials, the cost of preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments, changes in or terminations of existing
collaborative arrangements and the establishment of additional collaborative
arrangements. The Company expects to expend substantial funds in connection with
research and development and in the area of intellectual property. Funds
generated from payments under existing collaborative agreements, together with
the Company's current cash reserves, will be insufficient to fund the Company's
operations through the completion of any clinical trials. Although the Company
will seek to obtain additional funds through public or private equity or debt
financings, collaborative or other arrangements with corporate partners or from
other sources, there can be no assurance that additional financing will be
available or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders would result. If adequate funds are not available,
the Company may be required to curtail significantly or eliminate one or more of
its research, discovery or development programs or obtain funds through
additional arrangements with corporate partners or others which may require the
Company to relinquish rights to certain of its
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technologies or product candidates that the Company would not otherwise
relinquish, which could have a material adverse effect on the Company's
business.
The Company's strategy for the development, clinical testing, manufacturing and
commercialization of certain of its compounds includes entering into various
collaborations with corporate partners, licensors, licensees and others. The
Company has entered into collaborative arrangements with Eli Lilly and Company,
Novartis AG, Bristol-Myers Squibb and Company and Meiji Seika Kaisha, Ltd. and
intends to enter into additional collaborations. There can be no assurance that
these collaborations will continue or be successful or that any products will be
developed. The amount and timing of resources dedicated by these collaborators
under their respective agreements also is not within the control of the Company.
There can be no assurance that the Company will ever receive any milestone or
royalty payments under these agreements. Each of the collaborative parties has
the right to terminate its respective collaboration under certain circumstances.
There can be no assurance that collaborators will not terminate their respective
collaborations. In addition, there can be no assurance that collaborators will
not pursue alternative technologies to develop treatments for the diseases
targeted by the respective collaborative programs. If any of the Company's
collaborative partners terminates or breaches its agreement with the Company or
fails to devote adequate resources to or to conduct in a timely manner its
collaborative activities, the research program under the applicable
collaborative agreement or the development and commercialization of drug
candidates subject to such collaboration would be materially adversely affected,
which would have a material adverse effect on the Company's business. In
addition, because the Company's collaborative agreements accounted for 97% of
total revenues for the year ended December 31, 1996 and three-months ended March
31, 1997, such a termination or breach could materially adversely affect the
Company's results of operations and financial condition.
The Company's success will depend in part on its ability to obtain patents,
maintain trade secrets and operate without infringing on the proprietary rights
of others, both in the United States and other countries. The patent positions
of biotechnology and pharmaceutical companies can be highly uncertain and
involve complex legal and factual questions, and therefore, the breadth of
claims allowed in biotechnology and pharmaceutical patents cannot be predicted.
Litigation, which could result in substantial costs to the Company, may also be
necessary to enforce any patents issued to the Company or to determine the scope
and validity of third-party proprietary rights. Moreover, if competitors of the
Company prepare and file patent applications in the United States that claim
technology also claimed by the Company, the Company may have to participate in
interference proceedings to determine priority of invention, which could result
in substantial cost to the Company, even if the eventual outcome is favorable to
the Company. The Company is aware of a third-party patent application that may
elicit an interference proceeding with one of the Company's patent applications.
In addition, the Company believes that certain claims in three of its other
patent applications may elicit such proceedings. The Company believes that its
TBA technology is fundamental and broadly applicable to modern drug discovery,
and represents a valuable asset to the Company. The Company is involved in
litigation with Cadus Pharmaceutical Corporation regarding such technology. See
Part II, Item 1 of this Report. There can be no assurance that the Company will
prevail in these proceedings.
Prior to marketing in the United States, any drug developed by the Company must
undergo rigorous preclinical and clinical testing and an extensive regulatory
approval process implemented by the FDA under the federal Food, Drug and
Cosmetic Act. To market products abroad, the Company also would be subject to
foreign regulatory requirements, implemented by foreign health authorities,
governing clinical trials and marketing approval for drugs. Satisfaction of such
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regulatory requirements, which includes demonstrating to the satisfaction of the
FDA that the product is both safe and effective, typically takes several years
or more depending upon the type, complexity and novelty of the product and
requires the expenditure of substantial resources. The Company intends to
establish collaborative relationships to conduct clinical trials and seek
regulatory approvals to market products that it may develop, although there can
be no assurance that such approvals will be received on a timely basis, if at
all.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings:
On July 9, 1996, the Company filed an action in the United States
District Court for the Southern District of California for patent
infringement against Cadus Pharmaceutical Corporation ("Cadus"). The
complaint asserts that Cadus' assay technology infringes the Company's
U.S. Patent No. 5,401,629 (the "629 patent"), entitled "Assay Methods
and Compositions Useful for Measuring the Transduction of an
Intracellular Signal". Through the complaint, the Company seeks
damages in an unspecified amount and a preliminary and permanent
injunction.
On August 1, 1996, Cadus filed its answer and counterclaim to the
Company's complaint. The counterclaim asserts claims that the 629
patent and the Company's 5,436,128 patent are invalid and/or
unenforceable and further asserts claims for intentional interference
with prospective economic advantage and unfair competition. The
counterclaim seeks declaratory relief and compensatory and punitive
damages in an unspecified amount.
Company management believes that its complaint against Cadus is
well-founded and necessary to protect the value of its intellectual
property portfolio. Management believes that Cadus' counterclaim is
without merit and intends to vigorously prosecute its claim of
infringement and oppose Cadus' counterclaim.
Management believes that the ultimate resolution of the above matter
will not have a material adverse impact on the Company's financial
position, results of operations or cash flow.
In addition to the above, the Company is involved in certain legal or
administrative proceedings generally incidental to its normal business
activities. While the outcome of any such proceedings cannot be
accurately predicted, the Company does not believe the ultimate
resolution of any such existing matters will have a material adverse
effect on its financial position, results of operations or cash flows.
ITEM 2. Changes in Securities:
On March 17, 1997, the Board of Directors of the Company approved the
adoption of a Share Purchase Rights Plan (the "Plan"). The Plan
provides for a dividend distribution of one preferred share purchase
right (a "Right") for each outstanding share of Common Stock (the
"Common Share") of the Company. The dividend was paid on April 2, 1997
(the "Record Date") to the stockholders of record on that date. Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a share (the "Preferred Shares"), at a price of
$60.00 per one one-hundredth of a Preferred Share, subject to
adjustment. The description and terms of the Rights are set forth in a
Rights Agreement (the "Rights Agreement"), dated as of March 17, 1997
entered into between the Company and ChaseMellon Shareholder Services,
L.L.C., as rights agent (the "Rights Agent"). The rights, preferences,
and privileges of the Preferred Shares are set forth in the
Certificate of Designation which was filed as an exhibit to the
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Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 31, 1997.
ITEM 3. Defaults Upon Senior Securities:
None.
ITEM 4. Submission of Matters to a Vote of Security Holders:
None.
ITEM 5. Other Information:
None.
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
3.3 Registrant's Certificate of Designation of Series
A Junior Participating Preferred Stock (1)
10.9 Registrant's 1996 Equity Incentive Plan, as
amended (the "1996 Equity Plan").
10.37 Development and License Agreement dated February
28, 1997 between Registrant and Meiji Seika
Kaisha, Ltd. (2)
10.38 Further Extension Agreement dated November 1, 1996
between Registrant and Eli Lilly and Company (2)
10.39 Third Amendment to Lease dated December 31, 1996
between Registrant and Regency Properties, L.P.
(2)
10.40 Equipment Lease Line Agreement dated March 4, 1997
between Registrant and G.E. Capital. (2)
10.41 Rights Agreement dated as of March 17, 1997 among
Registrant and ChaseMellon Shareholder Services,
L.L.C. (1)
10.42 Specimen Rights Certificate (1)
----------
(1) Filed as an exhibit to the Registrant's report on
Form 8-K filed with the Commission on March 31,
1997 and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996
and incorporated herein by reference.
(b) Reports on Form 8-K
Form 8-K dated March 17, 1997 regarding the adoption of a
Share Purchase Rights Plan.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
SIBIA Neurosciences, Inc.
Date: May 15, 1997 By: /s/ THOMAS A. REED
----------------------------- --------------------------------
Thomas A. Reed
Vice President, Finance &
Administration, Chief Financial
Officer
(on behalf of the registrant and as
the principal financial officer)
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Exhibit 10.9
ALL REFERENCES HEREIN TO NUMBERS OF
SHARES ALREADY TAKE INTO ACCOUNT AND
GIVE EFFECT TO THE 2.35-FOR-1 STOCK
SPLIT TO BE EFFECTED IN MARCH 1996.
SIBIA NEUROSCIENCES, INC.
1996 EQUITY INCENTIVE PLAN
ORIGINALLY ADOPTED FEBRUARY 22, 1996
AMENDED DECEMBER 12, 1996
1. PURPOSES
(A) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(B) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(C) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS
(A) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(B) "BOARD" means the Board of Directors of the Company.
(C) "CODE" means the Internal Revenue Code of 1986, as amended.
(D) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(E) "COMPANY" means SIBIA Neurosciences, Inc., a Delaware corporation.
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(F) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(G) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(H) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board, in its sole discretion,
may determine whether Continuous Status as an Employee, Director or Consultant
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave; or (ii) transfers between the Company, Affiliates or their
successors.
(I) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(J) "DIRECTOR" means a member of the Board.
(K) "DISINTERESTED PERSON" means a Director: who either (i) was not during
the one year prior to service as an administrator of the Plan granted or awarded
equity securities pursuant to the Plan or any other plan of the Company or any
affiliate entitling the participants therein to acquire equity securities of the
Company or any affiliate except as permitted by Rule 16b-3(c)(2)(i); or (ii) is
otherwise considered to be a "disinterested person" in accordance with Rule
16b-3(c)(2)(i), or any other applicable rules, regulations or interpretations of
the Securities and Exchange Commission.
(L) "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.
(M) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(N) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company 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:
(1) 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 last 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
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the greatest volume of trading in common stock) prior to the determination, as
reported in the Wall Street Journal or such other source as the Board deems
reliable;
(2) 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;
(3) In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
(O) "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.
(P) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a
right granted pursuant to subsection 8(b)(3) of the Plan.
(Q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(R) "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.
(S) "OPTION" means a stock option granted pursuant to the Plan.
(T) "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.
(U) "OPTIONEE" means a person who holds an outstanding Option.
(V) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
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.
(W) "PLAN" means this 1996 Equity Incentive Plan.
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(X) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(Y) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(Z) "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.
(AA) "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.
(BB) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION
(A) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(B) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall be
granted; whether 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.
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(C) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons and may also be, in the
discretion of the Board, 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 (and references in this
Plan to the Board shall thereafter be to the Committee), 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. Notwithstanding
anything in this Section 3 to the contrary, at any time 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 avoid the application of Section 162(m) of
the Code.
(D) Any requirement that an administrator of the Plan be a Disinterested
Person shall not apply if the Board or the Committee expressly declares that
such requirement shall not apply. Any Disinterested Person shall otherwise
comply with the requirements of Rule 16b-3.
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 one million five hundred thirteen thousand one
hundred forty-one (1,513,141) shares (as adjusted for the 2.35-for-1 stock split
to be effected in March 1996) 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) A Director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of the Director as a
person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards
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granted to the Director: (i) the Board has delegated its discretionary authority
over the Plan to a Committee which consists solely of Disinterested Persons; or
(ii) the Plan otherwise complies with the requirements of Rule 16b-3. The Board
shall otherwise comply with the requirements of Rule 16b-3. This subsection 5(b)
shall not apply if the Board or Committee expressly declares that it shall not
apply.
(C) 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.
(D) 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.
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:
(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, (B)
according to a deferred payment arrangement, except that payment of the common
stock's "par value" (as defined in the Delaware General Corporation Law) shall
not be made by deferred
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payment, or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other common stock of the Company) with
the person to whom the Option is granted or to whom the Option is transferred
pursuant to subsection 6(d), or (C) in any other form of legal consideration
that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(D) TRANSFERABILITY. An Incentive Stock 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 Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order satisfying the requirements of
Rule 16b-3 and any administrative interpretations or pronouncements thereunder
(a "QDRO"), and shall be exercisable during the lifetime of the person to whom
the Option is granted only by such person or any transferee pursuant to a QDRO.
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 within such
period of time ending on the earlier of (i) the date three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period, which in no event shall 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
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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 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, 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.
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(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) 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 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(c)), 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 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.
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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
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 qualified domestic relations order 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;
(ii) at the discretion of the Board or the Committee, according to a deferred
payment or other arrangement with the person to whom the stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board or
the Committee in its discretion. Notwithstanding the foregoing, the Board or the
Committee to which administration of the Plan has been delegated may award stock
pursuant to a stock bonus agreement in consideration for past services actually
rendered to the Company or for its benefit.
(D) VESTING. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee;
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 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
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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 subject to Section 16(b) of the
Exchange Act (a "Section 16(b) Insider"), the Stock Award Agreement of grant
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(d), 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 Rights.
(B) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation Rights
will be granted appurtenant to an Option, and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions applicable
to the particular Option grant to which it pertains. Tandem Stock Appreciation
Rights will require the holder to elect between the exercise of the underlying
Option for shares of stock and the surrender, in whole or in part, of such
Option for an appreciation distribution. The appreciation distribution payable
on the exercised Tandem Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the Option surrender) in an amount up to the excess of (A) the Fair Market Value
(on the date of the Option surrender) of the number of shares of stock covered
by that portion of the surrendered Option in which the Optionee is vested over
(B) the aggregate exercise price payable for such vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is
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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 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(c)), 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(d) 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
12
<PAGE> 13
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(d) 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 of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
12. MISCELLANEOUS
(A) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be deemed
to be the holder of, or to have any of the rights of a holder with respect to,
any shares subject to such Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(B) Throughout the term of any Stock Award, the Company shall deliver to
the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income statement. This section 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, to remove any Director as provided in the
Company's By-
13
<PAGE> 14
Laws and the provisions of the General Corporation Law of the State of Delaware,
or to terminate the relationship of any Consultant in accordance with the terms
of that Consultant's agreement with the Company or Affiliate to which such
Consultant is providing services.
(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 require the holder of the Stock
Award to provide such other representations, written assurances or information
which the Company shall determine is necessary, desirable or appropriate to
comply with applicable securities and other laws as a condition of granting a
Stock Award to such person or permitting the holder of the Stock Award to
exercise the Stock Award. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(F) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK
(A) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation,
14
<PAGE> 15
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split (excluding the 2.35-for-1 stock split to
be effected in March 1996), 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 class(es) and maximum number of shares subject to
the Plan pursuant to subsection 4(a) and the maximum number of shares subject to
award to any person during any twelve (12) month period pursuant to subsection
5(d), and the outstanding Stock Awards will be appropriately adjusted in the
class(es) and number of shares and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board or the
Committee, the determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company".)
(B) In the event of: (1) a merger or consolidation in which the Company is
not the surviving corporation or (2) 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, then to the extent not prohibited by applicable law: (i) any
surviving corporation or an Affiliate of such surviving corporation shall assume
any Stock Awards outstanding under the Plan or shall substitute similar Stock
Awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 10(b)) for those
outstanding under the Plan, or (ii) such Stock Awards shall continue in full
force and effect. In the event any surviving corporation and its Affiliates
refuse to assume such Stock Awards, or to substitute similar Stock Awards for
those outstanding under the Plan, then such Stock Awards shall be terminated if
not exercised prior to such event. In the event of a dissolution or liquidation
of the Company, any Stock Awards outstanding under the Plan shall terminate if
not exercised prior to such event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS
(A) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for Stock Awards under the
Plan;
(2) 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
(3) 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.
15
<PAGE> 16
(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,
Directors or Consultants 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 February 21, 2006, which shall be within
ten (10) years from the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(B) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF THE 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.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED
BALANCE SHEET AS OF MARCH 31, 1997 AND UNAUDITED STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,492,000
<SECURITIES> 33,879,000
<RECEIVABLES> 360,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,605,000
<PP&E> 1,286,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,359,000
<CURRENT-LIABILITIES> 6,919,000
<BONDS> 0
<COMMON> 9,000
0
0
<OTHER-SE> 33,954,000
<TOTAL-LIABILITY-AND-EQUITY> 41,359,000
<SALES> 0
<TOTAL-REVENUES> 1,943,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,114,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,000
<INCOME-PRETAX> (2,600,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,600,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,600,000)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
