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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, 1998
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.
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(Exact name of registrant as specified in its charter)
Delaware 95-3616229
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
505 Coast Boulevard South, Suite 300, La Jolla, CA 92037
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(Address of principal executive offices) (Zip Code)
(619) 452-5892
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(Registrant's telephone number, including area code)
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(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.
<TABLE>
<CAPTION>
Class Outstanding at April 30, 1998
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<S> <C>
Common Stock, $.001 par value 9,393,498
</TABLE>
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<TABLE>
<CAPTION>
SIBIA Neurosciences, Inc.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
Condensed Balance Sheet as of December 31, 1997
and March 31, 1998 (Unaudited)..................................... 3
Condensed Statement of Operations and Comprehensive Loss
(Unaudited) for the Three Months Ended March 31, 1997 and 1998..... 4
Condensed Statement of Cash Flows (Unaudited) for the Three
Months Ended March 31, 1997 and 1998............................... 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 and Use of Proceeds................................... 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, 1997 March 31, 1998
----------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 4,972,000 $ 3,537,000
Investment securities ..................................... 28,375,000 26,386,000
Contracts and accounts receivable ......................... 588,000 315,000
Prepaid expenses and other current assets ................. 550,000 697,000
------------ ------------
Total current assets .............................. 34,485,000 30,935,000
Property and equipment, net ................................. 1,599,000 1,913,000
Other assets ................................................ 96,000 512,000
------------ ------------
$ 36,180,000 $ 33,360,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 1,611,000 $ 2,533,000
Accrued liabilities ....................................... 1,660,000 1,970,000
Deferred revenue .......................................... 92,000
------------ ------------
Total current liabilities ......................... 3,271,000 4,595,000
Long-term capital lease obligations ......................... 695,000 955,000
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000
shares authorized
Common Stock, $.001 par value; 25,000,000
shares authorized; 9,338,744 and 9,376,999
shares issued and outstanding at December 31,
1997 and March 31, 1998, respectively ................... 9,000 9,000
Additional paid-in capital ................................ 59,946,000 59,990,000
Deferred compensation ..................................... (580,000) (499,000)
Notes receivable from stockholders ........................ (87,000) (87,000)
Accumulated other comprehensive income .................... 2,212,000 1,735,000
Accumulated deficit ....................................... (29,286,000) (33,338,000)
------------ ------------
Total stockholders' equity ........................ 32,214,000 27,810,000
------------ ------------
$ 36,180,000 $ 33,360,000
============ ============
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
SIBIA NEUROSCIENCES, INC.
CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
Three Months Ended
March 31,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Revenue:
Contract ........................................................... $ 1,883,000 $ 1,534,000
License and royalty ................................................ 60,000
----------- -----------
Total revenue (Note 3) .......................................... 1,943,000 1,534,000
----------- -----------
Operating expenses:
Research and development ........................................... 3,959,000 4,796,000
General and administrative ......................................... 1,155,000 1,491,000
----------- -----------
Total operating expenses ........................................ 5,114,000 6,287,000
----------- -----------
(3,171,000) (4,753,000)
----------- -----------
Other income (expense):
Interest income .................................................... 584,000 464,000
Interest expense ................................................... (15,000) (23,000)
Gain on sale of investment ......................................... 260,000
Other .............................................................. 2,000
----------- -----------
571,000 701,000
----------- -----------
Net loss ............................................................. $(2,600,000) $(4,052,000)
Other comprehensive income - unrealized
holding losses arising during period ............................... (152,000) (217,000)
Less: reclassification adjustment for
gains realized in net loss ......................................... 260,000
----------- -----------
Comprehensive loss ................................................... $(2,752,000) $(4,529,000)
=========== ===========
Basic and diluted net loss per common share .......................... $ (0.28) $ (0.43)
=========== ===========
Shares used in computing basic and diluted net
loss per common share .............................................. 9,179,552 9,365,155
=========== ===========
</TABLE>
See accompanying notes to financial statements
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<TABLE>
<CAPTION>
SIBIA NEUROSCIENCES, INC.
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
----------------------------
1997 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss .............................................. $(2,600,000) $(4,052,000)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization ...................... 155,000 217,000
Compensation from issuance of common stock options . 98,000 81,000
Gain on disposal of property ....................... (2,000)
Gain on sale of investment ......................... (260,000)
Net amortization of premium and discount on
investment securities ............................ (16,000) (23,000)
Increase (decrease) in cash resulting from changes
in:
Contract and accounts receivable ................... (292,000) 273,000
Prepaid expenses and other assets .................. (198,000) (563,000)
Accounts payable and accrued liabilities ........... 1,213,000 1,181,000
Deferred revenue ................................... 2,794,000 92,000
----------- -----------
Net cash provided (used) by operating
activities ................................... 1,152,000 (3,054,000)
----------- -----------
Cash flows from investing activities:
Purchase of investment securities available-for-sale . (1,970,000) (2,977,000)
Maturities of investment securities available-for-sale 4,000,000 4,760,000
Principal payments received on investment securities
available-for-sale ................................. 7,000 12,000
Proceeds from disposal of property and equipment ..... 2,000
Acquisition of property and equipment ................ (30,000) (34,000)
----------- -----------
Net cash provided (used) by investing
activities ................................. 2,009,000 1,761,000
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock ...................... 45,000 44,000
Principal payments on capital lease obligations ...... (126,000) (186,000)
----------- -----------
Net cash provided (used) by financing
activities ................................. (81,000) (142,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents ... 3,080,000 (1,435,000)
Cash and cash equivalents at beginning of period ....... 1,412,000 4,972,000
----------- -----------
Cash and cash equivalents at end of period ............. $ 4,492,000 $ 3,537,000
=========== ===========
Supplemental Information:
Equipment under capital leases ....................... $ 104,000 $ 497,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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SIBIA Neurosciences, Inc.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1998
(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, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. For further information, refer to the financial statements
and footnotes thereto for the year ended December 31, 1997, 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
The Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings Per Share" ("EPS"), for fiscal 1997 and retroactively restated
all prior periods as required. Basic net income per common share is computed by
dividing income available to holders of Common Stock by the weighted average
number of shares of Common Stock outstanding. Diluted EPS is computed similarly
to basic EPS, except that the weighted average number of shares of Common Stock
outstanding are increased to include the number of additional shares of Common
Stock that would have been outstanding if dilutive potential common shares had
been issued. For all periods presented, both basic and diluted loss per common
share are computed based on the weighted average number of shares of Common
Stock outstanding during the period. Stock options could potentially dilute
basic earnings per share in the future but were excluded from the computation of
diluted loss per share as their effect is antidilutive for the periods
presented.
3. RELATED PARTY TRANSACTIONS
Total revenue for the three-month period ended March 31, 1998 included $713,000
from a collaborative partner that is a related party. For the corresponding
period in 1997, total revenue included $926,000 from a collaborative partner
that is a related party.
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4. 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.
5. ADOPTION OF NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement, which is required to be adopted effective January 1, 1998,
requires the presentation of a statement of comprehensive income. Comprehensive
income is defined as the change in equity of a business enterprise during a
period resulting from transactions and other events and circumstances from
nonowner sources. Comprehensive income (loss) for the Company, in addition to
net loss, includes unrealized gains and losses on marketable securities
available for sale, currently recorded in stockholders' equity.
6. RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal 1997 amounts to conform
to the presentation used in fiscal 1998.
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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 may differ significantly from those discussed in
this report. Factors that might cause or contribute to such differences include,
without limitation, those discussed in this Item 2 (Management's Discussion and
Analysis of Financial Condition and Results of Operations) as well as those
discussed in the Company's Form 10-K for the year ended December 31, 1997 under
the headings "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SIBIA, incorporated in Delaware in 1981, was established by The Salk Institute
for Biological Studies. Through 1990, SIBIA successfully developed several
proprietary life-sciences technologies in collaboration with corporate partners.
In 1987, SIBIA initiated research in the neuroscience field and in 1991 shifted
its focus completely to the development of novel therapeutics to treat nervous
system disorders.
To date, the Company's operations have been funded primarily through equity
financings, research contracts, option and license and royalty revenues. In
addition, SIBIA received funds from the sale of its interest in a corporate
joint venture in 1994 and from the settlement of certain litigation in 1995,
with which it has purchased investment securities and which it has used to
finance its operations. As of March 31, 1998, the Company had an accumulated
deficit of approximately $33,338,000.
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, development and clinical trial
efforts expand. The Company expects that its revenue and other income for the
next several years will fluctuate significantly from quarter to quarter and will
be limited to payments under its collaborative relationships, license fees,
interest income and other miscellaneous income.
In May 1998 the Company modified the protocol for the ongoing Phase II study of
SIB-1508Y, a selective brain nicotinic cholinergic agonist for Parkinson's
disease. The modification was made in response to the appearance of
lightheadedness, which was problematic for some patients in the study and
involved a reduction in dose levels and a change in dosing schedule for new
patients entering the trial. Although the Company still hopes to complete the
Phase II study in the second half of 1998, the change in protocol could extend
that timetable into 1999.
RESULTS OF OPERATIONS
Revenue
The Company's total revenue decreased from $1,943,000 for the first quarter
ended March 31, 1997, compared to $1,534,000 for the same period in 1998. The
decrease in the comparable three-month periods was due primarily to the
completion, in October 1997, of the research phase of SIBIA's collaboration with
Eli Lilly and Company.
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Expenses
Research and development expenses increased from $3,959,000 for the first
quarter ended March 31, 1997 to $4,796,000 for the same period in 1998. The
increase in research and development expenses was primarily the result of the
commencement of Phase II clinical trials of SIB-1508Y in Parkinson's disease
patients, continued pre-clinical development of SIB-1553A, currently in
development for Alzheimer's disease and expanded programs in drug discovery.
General and administrative expenses increased from $1,155,000 for the first
quarter ended March 31, 1997 to $1,491,000 for the same period in 1998. The
increase in general and administrative expenses in the comparable three-month
periods was due primarily to increased legal fees related to various litigation
matters.
Other Income
Other income increased from $571,000 for the first quarter ended March 31, 1997
to $701,000 for the same period in 1998. The increase in other income in the
comparable three-month periods was due primarily to the net effect of a gain on
the sale of equity securities and decreased interest income as a result of a
lower average cash and investment balances carried in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and investment securities were approximately
$33,347,000 at December 31, 1997 as compared to $29,923,000 at March 31, 1998.
The primary use of cash and investments was to finance the Company's continuing
operations.
To date, the Company has financed its operations primarily through equity
financings, research contracts (generally conducted on a best efforts basis) and
option, license and royalty revenues. The Company has also received funds from
the sale of its interest in the SISKA Diagnostics, Inc. joint venture and the
settlement of certain litigation. Since 1991, the Company has received
approximately $41,775,000 in net proceeds from the sale of Convertible Preferred
Stock and Common Stock to investors and collaborative partners and approximately
$49,470,000 in contract, license and royalty revenue. The Company is entitled to
receive additional payments under the collaborative agreements in the form of
contract revenue, milestone payments, if milestones are achieved, and royalties,
if products are commercialized. The research phase of the Company's
collaboration with Novartis AG is scheduled to conclude in September 1998.
Although SIBIA is discussing with Novartis different options for the period
subsequent to September 1998, the Company does not expect that ongoing research
funding will continue. As of March 31, 1998, the Company had an accumulated
deficit of $33,338,000.
The Company believes its proprietary drug discovery platform will lead to
corporate collaboration and licensing opportunities which may generate future
revenues in the form of license fees, milestone payments and/or royalties.
The Company leases laboratory and office facilities under an agreement expiring
on December 31, 2001. The average minimum annual payment under the lease is
approximately $1,497,000, before consideration of sublease income. The Company
believes that its present facility will be
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adequate to conduct its research activities through December 2001. Management
believes that it should be able to secure additional space at commercially
reasonable rates, if necessary. The Company has an option to extend its lease
for an additional five years. Since 1991, the Company has invested $4,369,000 in
property and equipment. Included within this amount is $3,583,000 of equipment
under capital leases.
The Company anticipates that the cash, cash equivalents and investment
securities balance of $29,923,000 as of March 31, 1998 will be used to support
continued research and development of its technologies and fund other general
and administrative expenditures and will be sufficient to maintain operations
through 1999. The Company expects to incur substantial research and development
expenses including continued increases in personnel costs and costs related to
the continued expansion of its drug discovery platform and pre-clinical testing
and early stage clinical trials. 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
pre-clinical 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, the establishment of
additional licensing and/or collaborative arrangements, and the cost of
manufacturing scale-up and development of marketing activities, if undertaken by
the Company. The Company intends to seek additional funding through research and
development relationships with suitable corporate collaborators or through
public or private financing. There can be no assurance that the Company will be
successful in its efforts to collaborate with additional partners or that
additional financing from other sources will be available on favorable terms, if
at all.
Payments under existing collaborative agreements and the Company's current cash
reserves and investment securities will be insufficient to fund the Company's
operations through the completion of any clinical trials and commercialization
of its first product, if developed. 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 to obtain funds through additional
arrangements with corporate partners or others which may require the Company to
relinquish rights to certain of its technologies or product candidates that the
Company would not otherwise relinquish, which could have a material adverse
effect on the Company's business.
As of December 31, 1997, the Company had available net operating loss
carryforwards for federal and state income tax purposes of approximately
$28,640,000 and $8,407,000, respectively, which expire beginning in 2006 and
2002, respectively. As of December 31, 1997, the Company had federal and state
tax credits for research activities totaling approximately $1,393,000 and
$381,000, respectively, which are available to offset future income taxes. The
federal tax credits expire during the years 2004 to 2013. The Company's ability
to utilize net operating loss carryforwards and tax credits is subject to
limitations as set forth in applicable federal and state tax laws. As specified
in the Internal Revenue Code, an ownership change of more than 50% by a
combination of the Company's significant stockholders during any three-year
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period would result in certain limitations on the Company's ability to utilize
its net operating loss and tax credit carryforwards.
The Company is in the process of assessing the impact of the year 2000 on its
operations and systems. Management has developed a plan to address identified
issues within the Company. The Company does not yet know the full extent, if
any, of the impact of the year 2000 on its systems and equipment, but at this
point does not expect the costs associated with its becoming year 2000
compliant to be material. The Company is also in the process of communicating
with third parties with which it conducts business to assess whether they are
or will be year 2000 compliant. There can be no assurance, however, that such
third parties, including suppliers, clinical research organizations and
collaborative parties, are using systems that are year 2000 compliant or will
address any year 2000 issues in a timely fashion. Any year 2000 compliance
problems of the Company, its suppliers, its clinical research organizations,
its collaborative partners, or others could have a material adverse effect on
the Company's business, results of operations and financial condition.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings:
On July 9, 1996, the Company filed an action for patent infringement against
Cadus in the United States District Court for the Southern District of
California. 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 injunctive relief.
On August 1, 1996, Cadus filed its answer and a counterclaim to the Company's
complaint. The counterclaim asserts claims that the `629 patent and the
Company's U.S. Patent No. 5,436,128, entitled "Assay Methods and Composition for
Detecting and Evaluating the Intracellular Transduction of an Extracellular
Signal," are invalid, unenforceable and not infringed, 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. The court has scheduled trial of
the action for November 3, 1998.
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 defend against 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 flows.
ITEM 2. Changes in Securities and Use of Proceeds:
Securities Act Rule 229.463 ("Rule 463") required issuers to report on Form SR
their use of proceeds, following an initial public offering, within ten days of
the first three months following the effective date of the registration
statement, and every six months thereafter, until the application of all such
proceeds was complete. Effective September 2, 1997, pursuant to Release No.
34-38850, the Securities and Exchange Commission ("SEC") amended Rule 463 to
eliminate Form SR and now requires a first-time registrant to report the
application of proceeds in each of its periodic reports filed pursuant to the
requirements under the Exchange Act until the application of such proceeds is
complete. Prior to September 2, 1997, the Company utilized Form SR to report the
application of proceeds received by the Company following its initial public
offering.
The information provided below represents a reasonable estimate of the
cumulative application, through March 31, 1998, of the net proceeds of
$20,842,000 which were received following the Company's initial public offering
on May 9, 1996:
Purchase and installation of machinery and equipment $189,869
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Repayment of indebtedness $637,164
Working capital used to fund operations $20,014,967
Except for payments described in the following sentence, the cumulative
application of the net offering proceeds listed above represents direct payments
to others. No payments were made to directors or officers or to their associates
except for payments made in the ordinary course of business which include, but
may not be limited to, the payment of officer salaries, fringe benefits, and
expense reimbursements or compensation paid to directors for their services
provided to the Company under consulting arrangements. At March 31, 1998, the
Company had no proceeds pending final application.
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
<TABLE>
<S> <C>
10.1 Registrant's Management Change of Control Plan, as amended.
10.2 Employment Agreement dated February 23, 1998 between
Registrant and Jeffrey F. McKelvy, Ph.D.
27.1 Financial Data Schedule. (Exhibit 27 is submitted
as an exhibit in the electronic format of this
Quarterly Report on Form 10-Q submitted to the
Securities and Exchange Commission.)
</TABLE>
(b) Reports on Form 8-K
None.
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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, 1998 By: /s/ THOMAS A. REED
------------------- -----------------------------------
Thomas A. Reed
Vice President, Finance & Administration,
and Chief Financial Officer
(on behalf of the registrant and as the
registrant's principal financial officer)
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EXHIBIT 10.1
CONFIDENTIAL
SIBIA NEUROSCIENCES, INC.
AMENDED AND RESTATED
MANAGEMENT CHANGE-OF-CONTROL PLAN
AMENDED AND RESTATED AS FEBRUARY 26, 1998
INTRODUCTION
SIBIA Neurosciences, Inc. (formerly, "The Salk Institute
Biotechnology/Industrial Associates, Inc."), a Delaware corporation (the
"Company") Management Change-of-Control Plan was adopted by the Board of
Directors (the "Board") of the Company, effective November 10, 1994. The Plan is
intended to provide members of management who are Participants in the Plan with
the Benefits specified herein in the event of a Change of Control.
WHEREAS, the Plan was previously amended by the Board in November 1995,
March 1996 and June 1997 (the "Prior Amendments");
WHEREAS, the Board at a meeting held on February 26, 1998 approved an
amendment to the Plan (the "Current Amendment") to, among other things, include
Dr. Jeffrey McKelvy as a Plan participant and to add certain language regarding
effecting amendments to and administration of the Plan, which language was
inadvertently omitted from the Plan as originally approved by the Board, and in
any event does not affect any Plan participant; and
WHEREAS, the Board wishes to amend and restate the Plan to consolidate
the Prior Amendments and the Current Amendment in one Plan document.
NOW, THEREFORE, upon authorization duly granted by the Board, the
undersigned parties hereto agree to amend and restate the Plan as provided
herein.
Certain capitalized terms used in the Plan are defined in Article 13.
ARTICLE 1
ESTABLISHMENT OF THE PLAN AND ELIGIBILITY
1.1 ESTABLISHMENT OF PLAN. As of the Effective Date, the Company hereby
establishes a plan to be known as the "Management Change-of-Control Plan" (the
"Plan"), as set forth herein.
1.2 APPLICABILITY OF PLAN. The benefits provided by the Plan shall be
available to all Participants, unless otherwise specifically provided.
1.
<PAGE> 2
ARTICLE 2
ELIGIBILITY
2.1 PARTICIPATION. William T. Comer will be a Participant in the Plan
and will serve in the position of Chief Executive Officer. Jeffrey McKelvy will
be a Participant in the Plan and will serve in the position of Executive Vice
President. The following members of management shall also be Participants in the
Plan and shall each serve in a position of Vice President: Michael J. Dunn,
Michael M. Harpold, G. Kenneth Lloyd, Ian A. McDonald, David E. McClure, and
Thomas A. Reed. The Board or the Compensation Committee of the Board (the
"Compensation Committee") may, in its sole discretion, designate additional
members of management or employees to be Participants in the Plan and, subject
to the terms of Section 2.2, may decide that members of management or employees
who have been designated as Participants in the Plan shall no longer be
Participants.
2.2 DURATION OF PARTICIPATION. A Participant shall cease to be a
Participant in the Plan upon a determination thereof by the Board or the
Compensation Committee; provided, however, that in no event shall any such
determination impair a Participant's rights under this Plan with respect to
Benefits that have accrued prior to such determination. Without limiting the
foregoing, if a Participant is then entitled to payment of Benefits as a result
of a Change of Control that occurred prior to such determination, such
Participant shall remain a Participant in the Plan until the full amount of such
Benefits has been paid to such Participant. In no event shall any Participant be
entitled to Benefits pursuant to this Plan with respect to a Change of Control
that occurs after the termination of such Participant's employment with the
Company, for any reason or for no reason, and nothing in this Plan shall alter
the status of each Participant as an at-will employee of the Company.
ARTICLE 3
BENEFITS
Participants shall be entitled to the following Benefits pursuant to
this Plan: Bonus Payments, as provided in Article 4; Stock Options and
Additional Incentives, as provided in Article 5 (except neither Dr. David
McClure nor Dr. Jeffrey McKelvy will be entitled to any benefits provided to
Plan Participants under Article 5); and Severance Benefits, as provided in
Article 6.
ARTICLE 4
BONUS PAYMENTS
4.1 BONUS PAYMENT UPON CHANGE OF CONTROL. If a Change of Control occurs,
then each Participant (i) who remains employed by the Company or its successor
for a period of six months following such Change of Control (the "Bonus Service
Period") or (ii) whose employment shall be Terminated Without Cause during the
Bonus Service Period, shall receive a
2.
<PAGE> 3
Bonus Payment based upon the Company's valuation at the time of the Change of
Control in accordance with the following schedule:
<TABLE>
<CAPTION>
VALUE OF COMPANY BONUS AMOUNT AS A
UPON CHANGE OF CONTROL PERCENT OF BASE SALARY
<S> <C>
Less than $10,000,000 0%
$10,000,000 to $20,000,000 10%
Greater than $20,000,000 25%
</TABLE>
4.2 DETERMINATION OF VALUE OF THE COMPANY.
(a) For purposes of determining the Bonus amounts to be paid
under this Article 4 and the number of Stock Options and the applicability of
Additional Incentives under Article 5, the value of the Company shall be
determined as of the closing date of the applicable Change of Control
transaction (the "Value Determination Date ") by a Qualified Valuation Expert
(defined below) retained by the Company or its successor (at the Company's or
such successor's expense) not later than ten (10) days after the Valuation
Determination Date. Such Qualified Valuation Expert shall be directed to prepare
and deliver to the Company and each eligible Participant a report setting forth
the value of the Company in accordance with this Section 4.2 as soon as
practicable but not less than thirty (30) days following the Valuation
Determination Date. Such report shall be prepared pursuant to this Section 4.2
in accordance with the Qualified Valuation Expert's normal valuation procedures
applicable to companies in similar industries and stages of development as the
Company and shall be final and binding on the Company (and any successor) and
each Participant.
(b) (i) The value of the Company shall be determined by
the Qualified Valuation Expert pursuant to this Section 4.2 based on the
aggregate consideration received (A) by the stockholders of the Company to the
extent such Change of Control involves a merger (including a reverse merger),
tender offer, consolidation or sale or issuance of securities, including the
aggregate consideration received by holders of options, warrants and convertible
securities, and (B) by the Company to the extent such Change of Control involves
a transfer, sale or other disposition of assets or securities of the Company.
(ii) For purposes of this Section 4.2, the
"aggregate consideration received" as of the Valuation Determination Date shall
be deemed to include the following: (A) any amounts paid into any escrow or
similar arrangement, (B) the aggregate amount of any liabilities assumed by the
acquiror and/or the affiliates or stockholders of the acquiror, (C) any amounts
allocated to any noncompete or similar arrangement entered into with any
employees (including officers) and/or stockholders of the Company and (D) to the
extent such Change of Control involves a transfer, sale or other disposition of
assets of the Company, the aggregate net value of any assets not transferred,
sold or otherwise disposed of by the Company. In addition, if the "aggregate
consideration received" with respect to such transaction
3.
<PAGE> 4
may be increased as a result of contingent payments related to future earnings
or operations or the achievement of milestones or other future events, any
incremental Benefits that would otherwise be payable pursuant to this Plan if
such consideration were received on the Valuation Determination Date shall be
paid when and as such contingent payments are made.
(c) For purposes of this Section 4.2, a "Qualified
Valuation Expert" shall mean (i) an investment banking firm of recognized
regional or national standing such as, by way of example, Mehta & Isaly,
Cruttendon, Kemper Securities, Needham & Company, Wedbush Securities or Sutro or
(ii) a nationally recognized valuation firm such as, by way of example, Houlihan
Lokey.
4.3 TIME OF BONUS PAYMENT. The Bonus Payments under this Article 4 shall
be paid in a cash lump sum no later than fifteen (15) days following the Bonus
Completion Date.
ARTICLE 5
STOCK OPTIONS AND OTHER INCENTIVES
5.1 STOCK OPTIONS. Each Participant in the Plan shall be granted
nonqualified stock options to acquire the Company's common stock ("Stock
Options"). The number of such Stock Options granted shall be based upon the
Participant's position with the Company on the date the Participant is initially
designated as a Participant by the Board or the Compensation Committee and in
accordance with the schedule set forth in this Section 5.1. Notwithstanding the
foregoing, in the event the Board or Compensation Committee subsequently
promotes a Participant to a more senior officer position, such Participant shall
be entitled to receive an additional grant of Stock Options in an amount equal
to that required to make the total Stock Options granted to such Participant
equal to that number of Stock Options granted to other Participants serving in
like positions with the Company. Each Stock Option granted under this Article 5
shall have an exercise price of $2.00 per share (which price does not reflect
the 2.35-to-1 reverse stock split effected by the Company in May of 1996). Each
Stock Option shall not be granted pursuant to the Company's Amended and Restated
1992 Stock Option and Restricted Stock Plan, but shall incorporate the terms of
such plan to the extent not inconsistent with this Plan, as determined by the
Board or the Compensation Committee in its sole discretion, including terms
related to the transferability of stock options granted hereunder.
<TABLE>
<CAPTION>
OFFICER STATUS WITH COMPANY NUMBER OF STOCK
OPTIONS GRANTED
<S> <C>
Vice President 25,000 shares
Chief Executive Officer (CEO) 40,000 shares
</TABLE>
5.2 TIME AND EXERCISE OF STOCK OPTION GRANT. The Stock Options granted
under this Article 5 shall be granted as of the Effective Date (or, if later,
the date the Participant is initially designated as a Participant by the Board
or the Compensation Committee). Except as set
4.
<PAGE> 5
forth below, the Stock Options granted under this Section 5 shall be subject to
vesting and shall not become exercisable in any respect until seven (7) years
following the date of grant, at which time they shall become fully vested and
exercisable pursuant to the terms thereof. Notwithstanding the foregoing, in the
event the Company shall consummate an initial public offering of its Common
Stock, 25% of all then outstanding options under the Plan shall vest and become
fully exercisable immediately prior to the effective date of the registration
statement pursuant to which such shares of Common Stock are being registered,
with the remaining 75% of the then outstanding options vesting in three equal
annual installments commencing on the anniversary date of the effectiveness of
the registration statement.
In addition to the foregoing, vesting of options outstanding under the
Plan shall be accelerated and the Stock Options will become fully vested and
exercisable pursuant to their terms immediately prior to a Change of Control in
accordance with the following schedule:
<TABLE>
<CAPTION>
VALUE OF COMPANY UPON NUMBER OR PERCENTAGE OF SHARES
CHANGE OF CONTROL ACCELERATED
<S> <C>
Less than $10,000,000 0
$10,000,000 to $20,000,000
Vice President 20,000 shares
Chief Executive Officer 30,000 shares
Greater than $20,000,000 100%
</TABLE>
Stock Options granted to each Participant hereunder shall be exercisable
for not more than thirty (30) days following such Participant's termination of
employment (for any reason or for no reason) and shall also be subject to the
terms and conditions specified in a standard form of stock option agreement as
set forth in Appendix A.
5.3 ADDITIONAL INCENTIVES. An Additional Incentive as described in this
Section 5.3 shall be provided to Michael Harpold ("Harpold") upon a Change of
Control if the conditions set forth in this Section 5.3 are satisfied. Harpold
has two loans outstanding from the Company: a loan in the principal amount of
$43,600 bearing interest at 7.5 % annually and due in full on July 29, 1997,
which is more fully described in that certain loan agreement dated July 29, 1992
(the "Loan"); and a stock loan in the principal amount of $795.08, more fully
described in that certain note dated November 30, 1988 (the "Stock Loan").
Following a Change of Control and upon the completion of each of the following
terms and conditions, the Loan principal plus interest will be forgiven as set
forth in Section 5.3(d), below:
(a) The Change of Control occurs on or before July l, 1995;
(b) The value of the Company on the Value Determination Date
exceeds $20,000,000;
5.
<PAGE> 6
(c) Any delinquent amounts on the Loan and the Stock Loan, both
principal and interest, are paid by Harpold on or before July 1, 1996; and
(d) Harpold continues to be employed by the Company as follows:
If Harpold terminates employment for any reason, prior to July 1, 1996, no
amount of the Loan will be forgiven. If Harpold is employed by the Company on
July 1, 1996, one-half of the Loan principal and interest will be forgiven on
July 1, 1996. If Harpold is employed by the Company on July 1, 1997, the
remainder of the Loan principal and interest will be forgiven on July 1, 1997.
The Company and Harpold shall take such actions and execute such documents as
are necessary and appropriate to document the forgiveness of the Loan principal
and interest and to release and extinguish Harpold's liability to the Company
for the Loan to the extent provided for in this Section 5.3. No portion of the
Stock Loan shall be forgiven pursuant to this Plan.
ARTICLE 6
SEVERANCE BENEFITS
6.1 RIGHT TO SEVERANCE BENEFITS. If the Change of Control is consummated
while the Plan remains in effect, a Participant shall be entitled to receive
Severance Benefits from the Company as set forth in Section 6.2 providing the
Participant was employed by the Company at the time of the Change of Control,
and within twelve (12) months following the Change of Control, the Participant's
employment with the Company is Terminated Without Cause.
6.2 DETERMINATION OF SEVERANCE BENEFITS. If, after a Change of Control,
any Participant has a right to receive Severance Benefits pursuant to Section
6.1 above, Severance Benefits shall be determined as follows:
(a) Each Vice-President will receive as a Severance Payment the
equivalent of one and one-half (1 1/2) times Base Salary. Each Executive Vice
President and the Chief Executive Officer (CEO) will receive as a Severance
Payment the equivalent of two (2) times Base Salary.
(b) The Company shall pay the premiums for the terminated
Participant and for the eligible spouse and other COBRA qualified beneficiaries
of the terminated Participant for the health insurance continuation benefits
provided under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, ("COBRA"), and Section 4980B of the Internal Revenue Code of 1986, as
amended (the "Code"), for the maximum period provided by law for such qualified
beneficiary's COBRA continuation rights.
(c) The Company shall reimburse the Participant for outplacement
expenses incurred during the three months following the Date of Termination as a
result of the Participant's search for other employment. In no event, however,
will such outplacement expenses exceed a total of seven thousand five hundred
dollars ($7,500) per Participant. The
6.
<PAGE> 7
Participant shall provide to the Company proof of such outplacement expenses in
a form mutually acceptable to the Company and the Participant.
6.3 TIME OF SEVERANCE PAYMENT. The Severance Payment shall be payable by
the Company in lump sum in cash not later than thirty (30) days following the
Date of Termination.
6.4 NO MITIGATION. The Participant shall not be required to mitigate the
amount of the Severance Benefits by seeking other employment or otherwise, and
any amount earned by the Participant as the result of employment by another
employer after the Date of Termination shall not reduce the amount of the
Severance Payment.
6.5 WITHHOLDING. The Company shall withhold appropriate federal, state,
local and foreign income and employment taxes from any payments hereunder.
6.6 NOTICE OF TERMINATION. Any termination by the Company for Cause or
by the Participant for Good Reason shall be communicated by Notice of
Termination to the other party hereto given by hand delivery or by registered or
certified mail, return receipt requested, postage prepaid, if to the
Participant, to the Participant at the Participant's address as set forth in the
Company's records, and, if to the Company, to SIBIA, 505 Coast Boulevard South,
La Jolla, California 92037-4641, or to such other address as may be designated
by the Company. Any notices given pursuant to this Section 6.6 shall be
effective on the earlier of the date on which such notice is actually received
by the addressee or the date that is three days after such notice is sent by the
addressor. For purposes of the Plan, a "Notice of Termination" means a written
notice which (i) indicates the provisions in the Plan that are affected by such
termination and (ii) if the Date of Termination, as defined below, is other than
the date of receipt of such notice, specifies the termination date (which date
shall be not more than fifteen (15) days after the giving of such notice). The
failure by the Company or the Participant to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Cause or
of Good Reason shall not waive any right of the Company or of the Participant,
respectively, hereunder or preclude the Company or the Participant,
respectively, from asserting such fact or circumstance in enforcing its or his
rights hereunder.
6.7 DATE OF TERMINATION. "Date of Termination" means the date of receipt
of the Notice of Termination or any later date specified therein, as the case
may be; provided, however, that (i) if the Participant's employment terminates
by the Company other than by reason of death or Disability, or for Cause, the
Date of Termination shall be the date on which the Company notifies the
Participant of such termination and (ii) if the Participant's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death or determination of Disability pursuant to Section 13.9, as
the case may be.
6.8 CERTAIN REDUCTION OF PAYMENTS. In the event that any distribution
received or to be received by a Participant pursuant to the Plan
("Distribution") would (i) constitute a "parachute payment" within the meaning
of Section 280G of the Code and (ii) but for this Section 6.8, be subject to the
excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then such
Distribution may be reduced to the largest amount which the Participant, in his
sole
7.
<PAGE> 8
discretion, determines would result in no portion of the Distribution being
subject to the Excise Tax. The determination by a Participant of any reduction
shall be conclusive and binding upon the Company. The Company shall reduce a
Distribution only upon written notice by the Participant indicating the amount
of such reduction.
ARTICLE 7
PAYMENTS TO AND FROM THE PLAN
The cash benefits under the Plan shall be paid from the general funds of
the Company (by certified or official bank check or wire transfer of immediately
available funds to an account designated by the applicable Participant), and the
Participants shall be no more than unsecured general creditors of the Company.
ARTICLE 8
OTHER RIGHTS AND BENEFITS NOT AFFECTED
8.1 NONEXCLUSIVITY. Nothing in the Plan shall prevent or limit any
Participant's continuing or future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices provided by the
Company and for which a Participant may otherwise qualify, nor shall anything
herein limit or otherwise affect such rights as any Participant may have under
any stock option or other agreements with the Company. Except as otherwise
expressly provided herein, amounts which are vested benefits or which a
Participant is otherwise entitled to receive under any plan, policy, practice or
program of the Company at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program.
8.2 EMPLOYMENT STATUS. The Plan does not constitute a contract of
employment or impose on any Participant or the Company any obligation to retain
any Participant as an employee, to change the status of the Participant's
employment, or to change the Company's policies regarding termination of
employment. In no event shall any Participant be entitled to Benefits pursuant
to this Plan with respect to a Change of Control that occurs after the
termination of such Participant's employment with the Company, for any reason or
for no reason, and nothing in this Plan shall alter the status of each
Participant as an at-will employee of the Company.
ARTICLE 9
SUCCESSOR TO COMPANY
The Plan shall be binding upon any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, and any such successor
or assignee shall be required to perform the Company's obligations under the
Plan, in the same manner and to the same extent that the Company would
8.
<PAGE> 9
be required to perform if no such succession or assignment had taken place. In
such event, the term "Company," as used in the Plan, shall mean the Company as
hereinafter defined and any successor or assignee to the business or assets
which by reason hereof becomes bound by the terms and provisions of the Plan.
ARTICLE 10
DURATION, AMENDMENT AND TERMINATION; RIGHT TO INTERPRETATION
10.1 DURATION. Beginning on December 31, 1995, and on each subsequent
anniversary of such date, one year shall be added to the term of the Plan,
unless, prior to such date or anniversary, the Company, by resolution of the
Board, shall have notified each Participant in writing that such extension will
not become effective. If such resolutions are adopted by the Board, the term of
the Plan will not be extended and the Plan will terminate on the first December
31 following the date that such resolutions are adopted.
10.2 NO AMENDMENT OR TERMINATION. Except as set forth in Section 10.1
above, the Company may not change or terminate this Plan with respect to any
Participant without the written consent of such Participant.
10.3 EXCLUSIVE DISCRETION. The Company shall have the exclusive
discretion and authority to establish rules, forms and procedures for the
administration of the Plan, and to construe and interpret the Plan and to decide
any and all questions of fact, interpretation, definition, computation or
administration arising in connection with the operation of the Plan, including,
but not limited to, the eligibility to participate in the Plan and amount of
benefits paid under the Plan. The rules, interpretations, computations and other
actions of the Company shall be binding and conclusive on all persons.
ARTICLE 11
NON-TRANSFER OF BENEFITS
No benefit hereunder shall be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt to do so
shall be void.
ARTICLE 12
LEGAL CONSTRUCTION AND ARBITRATION
12.1 APPLICABLE LAW. This Plan shall be construed in accordance with the
laws of the State of California without regard to the conflict of laws
provisions thereof.
12.2 ARBITRATION. Any and all disputes or controversies, whether of law
or fact of any nature whatsoever, arising from or respecting the application of
the Plan to any Participant shall be decided by arbitration by the American
Arbitration Association in accordance with the rules
9.
<PAGE> 10
and regulations of that Association, or by any other arbitration body mutually
agreed upon by the parties. Pre-arbitration discovery shall be permitted at the
request of either party to a dispute under appropriate protection for
proprietary and confidential business information.
The arbitrators shall be selected as follows: the Company and the
Participant who is a party to the dispute shall each select one independent,
qualified arbitrator and the two arbitrators so selected shall select the third
arbitrator. The Company reserves the right to disqualify any individual
arbitrator who shall be employed by or affiliated with a competing organization.
Arbitration shall take place in San Diego County, California, or any
other location mutually agreeable to the parties. At the request of either
party, arbitration proceedings will be conducted in the utmost secrecy and, in
such case, all documents, testimony and records shall be received, heard and
maintained by the arbitrators in secrecy under seal, available for inspection
only by the parties to the arbitration, their respective attorneys, and their
respective expert consultants or witnesses who shall agree, in advance and in
writing, to receive all such information confidentially and to maintain such
information in secrecy, and make no use of such information except for the
purposes of the arbitration, until such information shall become generally
known.
The arbitrators, who shall act by majority vote, shall be able to decree
any and all relief of an equitable nature, including but not limited to such
relief as a temporary restraining order, a temporary injunction, or a permanent
injunction, and shall also be able to award damages, with or without an
accounting and costs. The decree or judgment of an award rendered by the
arbitrators may be entered and enforced in any court having jurisdiction over
the parties.
Reasonable notice of the time and place of arbitration shall be given to
persons other than the parties, if such notice is required by law, in which case
such persons or their authorized representatives shall have the right to attend
or participate in the arbitration hearing in such manner as the law shall
require.
If any action is necessary to enforce or interpret the application of
the Plan to a Participant, the prevailing party shall be entitled to reasonable
attorneys fees, costs, and necessary disbursements in addition to any other
relief to which that party may be entitled.
ARTICLE 13
DEFINITIONS
For purposes of the Plan, the following terms shall have the meanings
set forth below.
13.1 "ADDITIONAL INCENTIVES" means the forgiveness of debt described in
Section 5.3.
13.2 "BASE SALARY" means, as of the Effective Date (or if the individual
named below became a participant in the Plan following the Effective Date, the
date as of which such individual first became a Participant), the following
salaries for each Participant: William T.
10.
<PAGE> 11
Comer, $228,000; Michael J. Dunn, $80,400; Michael M. Harpold, $170,000; G.
Kenneth Lloyd, $165,000; Ian A. McDonald, $140,000; David E. McClure, $160,000;
Thomas A. Reed; $92,000 and Jeffrey McKelvy, $250,000. The Base Salary for each
Participant or any Participant may be increased by the Compensation Committee in
its sole discretion and such increased Base Salary in effect on the Value
Determination Date shall constitute Base Salary for purposes of payments under
the Plan.
13.3 "BENEFITS" means, collectively, the various benefits payable or
awarded under this Plan, which are the Bonus Payments, the Stock Options, the
Additional Incentives, and the Severance Benefits.
13.4 "BONUS COMPLETION DATE" means the last date of the Bonus Service
Period.
13.5 "BONUS PAYMENTS" means the payments described in Article 4.
13.6 "BONUS SERVICE PERIOD" shall have the meaning assigned in Section
4.1 herein.
13.7 "CAUSE" means (a) gross or habitual failure to perform assigned
duties of the Participant's job, that is, performance failure not corrected
within thirty (30) days after written notice to the Participant thereof or (b)
misconduct, including but not limited to: (i) conviction of a crime, or entry of
a plea of nolo contendere, with regard to a crime involving moral turpitude or
dishonesty, (ii) illegal drug use or alcohol abuse on Company premises or at a
Company sponsored event, (iii) conduct by the Participant which in the good
faith and reasonable determination of the Board demonstrates gross unfitness to
serve, or (iv) intentional, material violation by the Participant of any
contract between the Participant and the Company or any statutory duty of the
Participant to the Company.
13.8 "CHANGE OF CONTROL" means any one of the following:
(a) a sale of all or substantially all of the assets of the
Company;
(b) a merger or consolidation in which the Company is not the
surviving corporation (other than a transaction the principal purpose of which
is to change the state of the Company's incorporation or a transaction in which
the voting securities of the Company are exchanged for beneficial ownership of
at least 50% of the voting securities of the controlling acquiring corporation);
(c) a merger or consolidation in which the Company is the
surviving corporation and less than 50% of the voting securities of the Company
which are outstanding immediately after the consummation of such transaction are
beneficially owned, directly or indirectly, by the persons who owned such voting
securities immediately prior to such transaction;
(d) any transaction or series of related transactions after which
any person (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended), other
11.
<PAGE> 12
than any employee benefit plan (or related trust) sponsored or maintained by the
Company or any subsidiary of the Company, becomes the beneficial owner of voting
securities of the Company representing 50% or more of the combined voting power
of all of the voting securities of the Company.
(e) during any period of two consecutive years, individuals who
at the beginning of such period constitute the membership of the Company's Board
of Directors ("Incumbent Directors") cease for any reason to have authority to
cast at least a majority of the votes which all directors on the Board of
Directors are entitled to cast, unless the election, or the nomination for
election by the Company's stockholders, of a new director was approved by a vote
of at least two-thirds of the votes entitled to be cast by the Incumbent
Directors, in which case such director shall also be treated as an Incumbent
Director in the future; or
(f) the liquidation or dissolution of the Company.
13.9 "COMPANY" means SIBIA Neurosciences, Inc., a Delaware corporation,
and any successor as provided in Article 9 hereof.
13.10 "DATE OF TERMINATION" has the meaning set forth in Section 6.7.
13.11 "DISABILITY" means that the Participant has exhausted any
short-term disability benefits to which he is entitled and is permanently
unable, by reason of a physical or mental incapacity, to perform the normal
duties of the work for which he was employed by the Company.
13.12 "EFFECTIVE DATE" shall mean November 10, 1994.
13.13 "GOOD REASON" means any action taken by the Company or its
successor, as the case may be, that results in a (i) reduction of the
Participant's rate of compensation as in effect immediately prior to the Change
of Control, (ii) failure to provide a package of welfare benefit plans which,
taken as a whole, provide substantially similar benefits to those in which the
Participant is entitled to participate immediately prior to the Change of
Control (except that employee contributions may be raised to the extent of any
cost increases imposed by third parties) or any action by the Company which
would adversely affect the Participant's participation or reduce the
Participant's benefits under any of such plans, (iii) change in the
Participant's responsibilities, authority, titles or offices resulting in
diminution of position, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith which is remedied by the Company
promptly after notice thereof is given by the Participant, (iv) request that the
Participant relocate to a worksite that is more than 35 miles from his prior
worksite, unless the Participant accepts such relocation opportunity, (v)
material reduction in duties, (vi) failure or refusal of the successor company
to assume the Company's obligations under this Plan, as required by Article 9,
or (vii) material breach by the Company or any successor company of any of the
material provisions of the Plan.
13.14 "NOTICE OF TERMINATION" has the meaning set forth in Section 6.6.
12.
<PAGE> 13
13.15 "PARTICIPANT" shall mean an employee who has been designated as a
Participant as provided in Section 2.1.
13.16 "PLAN" has the meaning set forth in Section 1.1.
13.17 "SEVERANCE BENEFITS" has the meaning set forth in Section 6.2.
13.18 "SEVERANCE PAYMENT" has the meaning set forth in Section 6.2.
13.19 "STOCK OPTIONS" means the options to purchase Company stock
described in Article 5.
13.20 "TERMINATED WITHOUT CAUSE" shall occur if a Participant's
employment with the Company:
(a) shall be involuntarily terminated, unless the Company
terminates the employment of the Participant for Cause, or unless the
Participant's employment is terminated by reason of death or Disability; or
(b) shall be voluntarily terminated by the Participant for Good
Reason.
ARTICLE 14
MISCELLANEOUS
14.1 SEVERABILITY. If any term, provision, covenant or restriction of
the Plan is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of the Plan shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
14.2 CONSTRUCTION OF PLAN. Any gender, where appearing in the Plan,
shall be deemed to include the other gender, the singular shall include the
plural, and the plural shall include the singular, unless the context otherwise
requires. Descriptive headings of the several Articles of the Plan are inserted
for convenience only and shall not control or affect the meaning or construction
of any of the provisions hereof. In the event of a conflict between the text of
the Plan and any summary, description or other information regarding the Plan,
the text of the Plan shall control.
14.3 ADJUSTMENTS TO STOCK. If any change is made in the stock subject to
options granted under the Plan (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 number of shares remaining subject
to such options will be appropriately adjusted in the type(s) and maximum
number. Such adjustments shall be made by the Board or the Compensation
Committee of the
13.
<PAGE> 14
Board, 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".)
ARTICLE 15
CLAIMS, INQUIRIES AND APPEALS
15.1 APPLICATIONS FOR BENEFITS AND INQUIRIES. Any application for
benefits, inquiries about the Plan or inquiries about present or future rights
under the Plan must be submitted to the Plan Administrator in writing. The
Company, or any successor, shall at all times maintain a Plan Administrator, and
shall give each Participant written notice of any change in the Plan
Administrator or the address to which benefits or inquiries should be sent. The
Plan Administrator is:
SIBIA Neurosciences, Inc.
Attention: Treasurer
505 Coast Boulevard South
La Jolla, CA 92037-4641
15.2 DENIAL OF CLAIMS. In the event that any application for benefits is
denied in whole or in part, the Plan Administrator must notify the applicant, in
writing, of the denial of the application. The written notice of denial will be
set forth in a manner designed to be understood by the Participant, and will
include specific reasons for the denial, specific references to the Plan
provision upon which the denial is based and a description of any information or
material that the Plan Administrator needs to complete the review. This written
notice will be given to the employee within 20 days after the Plan Administrator
receives the application.
15.3 LEGAL ACTION. No legal action for benefits under the Plan may be
brought until the claimant (i) has submitted a written application for benefits
in accordance with the procedures described by Section 15.1 above and (ii) has
been notified by the Plan Administrator that the application is denied (or the
application is deemed denied due to the Plan Administrator's failure to act on
it within the established time period).
ARTICLE 16
OTHER PLAN INFORMATION
16.1 EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer
Identification Number assigned to the Company (which is the "Plan Sponsor" as
that term is used in ERISA) by the Internal Revenue Service is 95-3616229. The
Plan Number assigned to the Plan by the Plan Sponsor pursuant to the
instructions of the Internal Revenue Service is 530.
16.2 ENDING DATE FOR PLAN'S FISCAL YEAR. The date of the end of the
fiscal year for the purpose of maintaining the Plan's records is December 31.
14.
<PAGE> 15
16.3 AGENT FOR THE SERVICE OF LEGAL PROCESS. The agent for the service
of legal process with respect to the Plan is: SIBIA Neurosciences, Inc., 505
Coast Boulevard South, La Jolla, CA 92037-4641, Attn: Treasurer. Service of
legal process also may be made upon the Plan Administrator.
16.4 PLAN SPONSOR AND ADMINISTRATOR. The "Plan Sponsor" and the "Plan
Administrator" of the Plan is SIBIA Neurosciences, Inc., 505 Coast Boulevard
South, La Jolla, CA 92037-4641. The Plan Sponsor's and Plan Administrator's
telephone number is (619) 452-5892. The Plan Administrator is the named
fiduciary charged with the responsibility for administering the Plan.
ARTICLE 17
15.
<PAGE> 16
EXECUTION
Having been originally adopted by the Board on November 10, 1994, and
having been amended, this Amended and Restated Management Change of Control Plan
is executed by a duly authorized officer and the Chairman of the Board as of the
26th day of February, 1998.
SIBIA NEUROSCIENCES, INC.
By:
-------------------------------------
William T. Comer,
Chief Executive Officer
By:
-------------------------------------
William R. Miller,
Chairman of the Board
PARTICIPANTS:
----------------------------------------
William T. Comer
----------------------------------------
Michael J. Dunn
----------------------------------------
Michael M. Harpold
----------------------------------------
G. Kenneth Lloyd
----------------------------------------
David E. McClure
----------------------------------------
Ian A. McDonald
----------------------------------------
Jeffrey McKelvy
----------------------------------------
Thomas A. Reed
16.
<PAGE> 1
February 23, 1998
EXHIBIT 10.2
PERSONAL AND CONFIDENTIAL
Dr. Jeffrey McKelvy
275 Central Park West, #18B
New York, NY 10024
Dear Jeff:
I am pleased to extend the offer outlined below for you to become the Executive
Vice President and Chief Scientific Officer of SIBIA Neurosciences, Inc. (the
"Company"). You will have responsibility for leading the Company's R&D efforts,
including technology development, drug discovery and product realisation. You
will be expected to provide strategic direction with the goal of ensuring that
the Company fully capitalises on its proprietary technology. It has been our
sincere pleasure to work with you during the course of this important
recruitment, and unanimously, the Board of Directors believes that you will be
very successful as SIBIA's scientific leader, enhancing its future growth in
revenues, earnings and shareholder value.
The terms of our offer are as follows:
1. TITLE OF POSITION: Executive Vice President and Chief Scientific
Officer. You will also be appointed as a member of the Company's Board
of Directors.
2. SALARY: $20,833.33 per month ($250,000 per annum).
3. INITIAL BONUS: The amount of $30,000 will be paid to you on April 1, 1998 to
compensate you for the loss of your 1997 bonus at Allelix. Of course your
salary, bonus and any other compensation or payments will be subject to
normal withholding.
4. STOCK OPTION GRANT: Upon acceptance of this offer and commencement of
employment at SIBIA, the Board of Directors shall grant to you an option
to acquire 100,000 shares of SIBIA common stock, which is about 1.07% of
the Company's currently outstanding shares, under our 1996 Stock Option
and Restricted Stock Plan (the "Stock Plan"). These shares shall vest at
an annual rate of 25% over a period of four (4) years from the grant
date. This stock option grant is intended as an incentive and also a
recognition of the important role you are expected to play for the
success of the Company. In the event you are promoted to President, an
additional stock option grant will be awarded as determined by the Board
of Directors. The stock option will be subject in all respects to the
Stock Plan.
<PAGE> 2
Dr. Jeffrey McKelvy
February 23, 1998
Page 2
5. ANNUAL CASH BONUS: You will be eligible to receive a discretionary cash
bonus at 20% of base salary based upon successful achievement of
personal and Company objectives. The Board of Directors will annually
determine the amount of any cash bonus according to its determination of
SIBIA's performance as well as your individual and team effort. Cash
bonuses are generally determined and paid in April of each year, and
bonus amounts are prorated for partial years of service greater than
three months. Because you will commence employment after December 1997,
you will not be eligible for a bonus under this paragraph until April
1999. However, in lieu thereof, you will receive an initial bonus in
April 1998 as provided in paragraph 3.
6. LONG-TERM STOCK OPTION INCENTIVE PLAN: You will be eligible to receive
annual discretionary stock option grants under the Stock Plan. The Board of
Directors will annually determine the number of shares subject to any such
options based upon its determination of SIBIA's performance as well as your
individual and team effort. Such option grants generally vest over four (4)
years, but may be subject to a different vesting schedule. Options are
generally granted in April of each year, at the discretion of the Board of
Directors.
7. VACATION: You will be entitled to four weeks (20 days) of vacation per year,
to be used at your discretion so long as Company business is not impeded.
8. HEALTH INSURANCE AND OTHER BENEFITS: Upon joining SIBIA, the Company will
enroll you in a health insurance plan for you and your family. Specifically,
your benefits will include medical, dental, long term disability, life
insurance, and sick leave, according to Company policy for its executives.
9. RELOCATION ASSISTANCE: The Company will provide you relocation
assistance in the following manner: (i) SIBIA will offer a lump sum
amount of $30,000 which will be paid to you after commencement of your
employment at SIBIA. This amount is intended to include transportation
of household and personal goods and relocation travel in addition to
assisting you with temporary housing and other related relocation
expenses. If SIBIA should pay any of these costs directly to vendors
(e.g. rent, travel, moving company etc.), those payments will be
deducted from the $30,000 amount paid to you. Please note also that this
amount may be adjusted after itemised moving estimates are received, as
approved by the Company; (ii) SIBIA will provide a housing loan of
$100,000 to facilitate your acquiring a property in the San Diego area
after commencement of your employment. Such loan will be paid out to you
at the closing of your home purchase as long as you are then an employee
of SIBIA. The principal and the interest associated with this loan shall
be forgiven over a five year period, based upon the achievement of
personal and corporate milestones determined by SIBIA. In case of
termination, you will have to repay the then outstanding principal of
the loan by no later than twelve (12) months following such termination.
The loan will be secured by a second priority security interest in your
purchased home, and you agree to execute such documents as we may
request.
10. TERMINATION: Both SIBIA and you have the right to terminate your employment
at any time for any reason or no reason, with or without cause and with or
without notice. If your employment
<PAGE> 3
Dr. Jeffrey McKelvy
February 23, 1998
Page 3
with SIBIA is terminated by the Company without cause, the Company
agrees that the stock options granted to you as part of this employment
offer to the extent then vested may be exercised by you within 30 days,
and SIBIA shall: (i) pay you an amount equal to one year's base salary;
and (ii) continue to pay your medical benefits under COBRA for one
year's time; and (iii) pardon the portion of the loan referenced in
paragraph 9 (capital and interest) for the period that you have spent
with the Company including for the full year during which the
termination occurs. Notwithstanding the foregoing, your right to receive
the payments specified in the foregoing clauses (i) and (ii) and to be
pardoned for such portion of the loan as specified in the foregoing
clause (iii) shall be conditioned upon your execution of a full general
release of any and all claims against SIBIA (other than claims under
this paragraph 10) in such form as shall be provided by SIBIA.
11. CHANGE OF CONTROL PLAN: The Company's Change of Control Plan provides for
the payment of certain benefits to its participants upon the occurrence of
certain defined change of control events. As a Company executive, you will
be entitled to benefits under the Change of Control plan in accordance with
its terms. Among the benefits provided are: (i)cash bonuses of up to 20% of
annual base salary, depending on the valuation of the Company at the time of
the change of control; (ii) acceleration of vesting of certain stock options
granted to each participant; (iii) severance payments of up to two times
annual base salary; and (iv) the payment of health insurance premiums and
outplacement expenses incurred upon a change of control.
12. PATENT/CONFIDENTIALITY AGREEMENT: Our standard form of
Patent/Confidentiality Agreement will need to be executed by you as part of
your employment with SIBIA.
13. You agree that subsequent to the execution by you of this letter, (i) you
will not improperly use or disclose any confidential information, trade
secrets or other proprietary information of any third party, including but
not limited to any former employer, and (ii) you will not bring onto SIBIA's
premises any unpublished documents or property of any third party, including
but not limited to any former employer. Further, you hereby represent that
by executing this letter and commencing employment with SIBIA, you have not
breached any agreement with any third party, including but not limited to
any employer or former employer. Subject to the foregoing, SIBIA will
indemnify you for any damages or costs (including reasonable attorneys fees)
incurred by you as a result of any claim by Allelix arising out of or
relating to the execution of this letter and your commencement of employment
with SIBIA.
14. BEGINNING OF EMPLOYMENT AT SIBIA: As soon as possible subject to your
obligations to Allelix, but in any event not more than ninety (90) days
after the date this letter is executed by you.
This letter contains the entire agreement between the parties. It supersedes any
and all other agreements, either oral or in writing, between you and SIBIA with
respect to your employment by SIBIA. SIBIA and you both acknowledge that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and acknowledge that no other agreement, statement or promise
not
<PAGE> 4
Dr. Jeffrey McKelvy
February 23, 1998
Page 4
contained in this letter agreement shall be valid or binding. This letter
agreement may not be modified by oral agreement, or course of conduct, but only
by an agreement in writing signed by the President of SIBIA and you.
Jeff, it has been our pleasure to make your acquaintance during the course of
our recruitment for this position. We have full confidence in your ability to be
an extraordinarily successful Chief Scientific Officer and leader at SIBIA and
we look forward to working with you in the very near future.
Yours very sincerely,
/s/ William T. Comer
William T. Comer, Ph.D.
President and CEO
Agreed to and Accepted by:
/s/ Jeffrey McKelvy February 24, 1998
- ------------------ Date
Jeffrey McKelvy
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF MARCH 31, 1998 AND UNAUDITED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,537,000
<SECURITIES> 26,386,000
<RECEIVABLES> 315,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,935,000
<PP&E> 1,913,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,360,000
<CURRENT-LIABILITIES> 4,595,000
<BONDS> 0
0
0
<COMMON> 9,000
<OTHER-SE> 27,801,000
<TOTAL-LIABILITY-AND-EQUITY> 33,360,000
<SALES> 0
<TOTAL-REVENUES> 1,534,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,287,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,000
<INCOME-PRETAX> (4,052,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,052,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,052,000)
<EPS-PRIMARY> (0.43)
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</TABLE>
