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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
SIBIA Neurosciences, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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SIBIA NEUROSCIENCES, INC.
505 COAST BOULEVARD SOUTH
SUITE 300
LA JOLLA, CALIFORNIA 92037-4641
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 1999
TO THE STOCKHOLDERS OF SIBIA NEUROSCIENCES, INC.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders (the
"Annual Meeting") of SIBIA Neurosciences, Inc., a Delaware corporation (the
"Company"), will be held on Wednesday, May 26, 1999, at 5:00 p.m., Pacific
Daylight Savings Time, at Lieb Auditorium, 505 Coast Boulevard South, Suite 300,
La Jolla, California 92037, for the following purposes:
1. To elect one director to hold office until the 2002 Annual Meeting of
Stockholders.
2. To approve the Company's 1996 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of common stock authorized for
issuance under such Plan from one million five hundred thirteen thousand
one hundred forty-one (1,513,141) shares to two million five hundred
thirteen thousand one hundred forty-one (2,513,141) shares.
3. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending December 31, 1999.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 1, 1999 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
/s/ FREDERICK T. MUTO
----------------------------------
Frederick T. Muto
Secretary
La Jolla, California
April 14, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO
ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE
PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF
YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE ANNUAL
MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
SIBIA NEUROSCIENCES, INC.
505 COAST BOULEVARD SOUTH
SUITE 300
LA JOLLA, CALIFORNIA 92037-4641
------------------------
PROXY STATEMENT
------------------------
FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
MAY 26, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of SIBIA Neurosciences, Inc., a Delaware corporation (the "Company" or
"SIBIA"), for use at the 1999 Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Wednesday, May 26, 1999, at 5:00 p.m., Pacific Daylight
Savings Time, or at any adjournment or postponement thereof, for the purposes
set forth herein and in the accompanying Notice of Annual Meeting. The Annual
Meeting will be held at Lieb Auditorium, 505 Coast Boulevard South, Suite 300,
La Jolla, California 92037. The Company intends to mail this proxy statement and
the accompanying proxy card on or about April 14, 1999, to all stockholders
entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing, and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telefacsimile, or personal
solicitation by directors, officers or other regular employees of the Company
or, at the Company's request, a professional proxy solicitation firm. No
additional compensation will be paid to directors, officers or other regular
employees for such services, but any professional proxy solicitation firm used
by the Company will be paid its customary fee.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April 1,
1999 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 1, 1999, the Company had outstanding and entitled to
vote 9,548,023 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes will be
counted towards a quorum but will not be counted for any purpose in determining
whether a matter has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 505 Coast
Boulevard South, Suite 300, La Jolla, California 92037-4641, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the Annual Meeting and voting in person. Attendance at the Annual
Meeting will not, by itself, revoke a proxy.
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STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 16, 1999. The deadline for submitting a stockholder
proposal or a nomination for director that is not to be included in such proxy
statement and proxy is also December 16, 1999. Stockholders are also advised to
review the Company's Bylaws, which contain additional requirements with respect
to advance notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides that the Board
shall be divided into three classes with staggered three-year terms. Vacancies
on the Board may be filled only by persons elected by a majority of the
remaining directors. A director elected by the Board to fill a vacancy
(including a vacancy created by an increase in the number of directors to serve
on the Board) shall serve for the remainder of the full term of the class of
directors in which the vacancy occurred and until such director's successor is
elected and qualified.
The Board of Directors is presently composed of seven members. There are
currently two directors in the class whose term of office expires as of the
Annual Meeting, James D. Watson, Ph.D. and Frederick B. Rentschler. There is
currently one nominee for election to this class, James D. Watson, Ph.D., who is
currently a director of the Company and who was previously elected by the
stockholders. If elected at the Annual Meeting, the nominee would serve until
the 2002 Annual Meeting and until his successor is elected and has qualified, or
until such director's earlier death, resignation or removal. Mr. Rentschler will
not stand for reelection.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the nominee named below. In the event that the nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. The nominee for election has agreed to serve if elected, and management
has no reason to believe that the nominee will be unable to serve.
Set forth below is biographical information for the sole person nominated
for election to serve for a three-year term expiring at the 2002 Annual Meeting
and each person whose term of office as a director will continue after the
Annual Meeting.
NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2002 ANNUAL MEETING
DR. JAMES D. WATSON, 71, has been a director of the Company since 1992. Dr.
Watson served as director of the Cold Spring Harbor Laboratory from 1968 to
1994, at which time he was appointed President. From 1956 to 1976, Dr. Watson
was a member of the Department of Biology (then Molecular Biology) at Harvard
University. Between 1988 and 1992, he directed the National Center for Human
Genome Research at the National Institute of Health. In 1962, Dr. Watson, along
with Drs. Francis H.C. Crick and Maurice Wilkins, was awarded the Nobel Prize in
Physiology or Medicine for discovering the structure of deoxyribonucleic acid.
Dr. Watson has won numerous awards in addition to the Nobel Prize and is a
member of the U.S. National Academy of Sciences, the Royal Society in London,
the Danish Academy of Arts and Sciences and the Academy of Sciences of Russia.
Dr. Watson holds a B.S. from the University of Chicago and a Ph.D. from Indiana
University and he has also received honorary degrees from 21 colleges and
universities. He is a director of the Pall Corporation and a director of
Diagnostic Products Corporation.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF THE NAMED NOMINEE.
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DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
DR. STANLEY T. CROOKE, 54, has been a director of the Company since 1992.
He is the founder of Isis Pharmaceuticals, Inc., a publicly-held biotechnology
company, and has been its Chief Executive Officer since its inception in 1989
and Chairman of the Board of Directors since 1991. From 1980 until 1989, Dr.
Crooke was employed by SmithKline Beckman Corporation, a publicly-held
pharmaceutical company, most recently as President of Research and Development
of SmithKline & French Laboratories. Dr. Crooke received a Ph.D. and a M.D. from
Baylor College of Medicine. He is a director of Megabios Corp., a publicly-held
biotechnology company, a director of EPIX Medical, Inc. and an Adjunct Professor
of Pharmacology at UCSD.
DR. JEFFREY F. MCKELVY, 60, has served as the Company's Executive Vice
President and Chief Scientific Officer and a director of the Company since April
1998. Prior to his joining the Company, Dr. McKelvy was Senior Vice President,
Neuroscience of Allelix Biopharmaceuticals, Inc. and President of Allelix
Neuroscience, Inc. since 1997. In 1994, Dr. McKelvy founded Trophix
Pharmaceuticals, Inc. and served as its Chairman and Chief Executive Officer. In
1992, Dr. McKelvy joined Novartis AG (formerly CIBA-Geigy) as Vice President of
the CNS Strategic Business Unit with responsibility for all aspects of the
company's CNS portfolio. Prior to joining CIBA-Geigy, Dr. McKelvy was Area Head,
Neuroscience Discovery, and then Venture Head for Neuroscience at Abbott, where
he had responsibility for the global development of drugs for neurology and
psychiatry. Dr. McKelvy spent 18 years in academic neuroscience, lastly as
Professor of Neurobiology, Molecular Biology and Psychiatry at State University
of New York Stony Brook and Chairman of the Neuroscience Research Review
Committee of the National Institute of Mental Health. Dr. McKelvy received his
Ph.D. in Biochemistry from Johns Hopkins University.
MR. WILLIAM R. MILLER, 70, has been a director of the Company since 1991
and Chairman of the Board of Directors since 1992. In 1991, he retired as Vice
Chairman of the Board of Directors of Bristol-Myers Squibb, after six years in
the position. Mr. Miller is a director of ImClone Systems, Inc., Isis
Pharmaceuticals, Inc., Transkaryotic Therapies, Inc., Westvaco Corporation and
Xomed Surgical Products, Inc. He is Chairman of the Board of Directors of Vion
Pharmaceuticals, Inc. Mr. Miller is Chairman of the Board of Trustees of the
Cold Spring Harbor Laboratory and a past Chairman of the Board of Directors of
Pharmaceutical Manufacturers Association. Mr. Miller is a Trustee of the
Manhattan School of Music, Metropolitan Opera Association, Opera Orchestra of
New York, a member of Oxford University Chancellor's Court of Benefactors;
Honorary Fellow of St. Edmund Hall, and Chairman of the English-Speaking Union
of the United States.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
DR. WILLIAM T. COMER, 63, has been President, Chief Executive Officer and a
director of SIBIA since 1991. Prior to joining SIBIA, Dr. Comer worked for
Bristol-Myers Squibb Company, a publicly-held pharmaceutical company
("Bristol-Myers Squibb"), for nearly 30 years in various scientific and
management positions. He served as Executive Vice President, Science &
Technology, and then as President, Pharmaceutical Research & Licensing at
Bristol-Myers Squibb from 1989 until 1990. Thereafter, he served as Senior Vice
President, Strategic Management -- Pharmaceuticals and Nutritionals at
Bristol-Myers Squibb until 1991. Dr. Comer is currently a director of Cytel
Corporation, a publicly-held biotechnology company, the University of
California, San Diego ("UCSD") Cancer Center Foundation and The San Diego
Chamber Orchestra. He is also a member of the Executive Committee of BIOCOM and
the UCSD Industrial Advisory Committee for the Department of Chemistry and
Biochemistry. Dr. Comer received a B.A. degree and Alumni Achievement Award from
Carleton College and a Ph.D. in Organic Chemistry and Pharmacology from the
University of Iowa.
MR. GUNNAR EKDAHL, 56, has been a director of the Company since 1995. He is
currently a director of Skandigen AB and served as Chairman of its board of
directors from 1995 to 1998. Mr. Ekdahl has extensive experience with Swedish
finance and investment companies and was President and Chief Executive Officer
of Latour AB from 1985 to 1992, with controlling holdings in large Swedish
industrial companies. Mr. Ekdahl has been active as a non-executive board member
of several Swedish companies, including Chairman of
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Arcona AB, G&L Beijer AB, Lofbergs Lila AB, and Philipson Bil AB. Mr. Ekdahl
received his B.A. from the Stockholm School of Economics in 1966.
BACKGROUND OF NON-DIRECTOR EXECUTIVE OFFICERS
MR. STEPHEN F. KEANE, 41, has served as the Company's Vice President,
Corporate Development since November 1998. From 1994 to 1998, Mr. Keane was
Director, Business Development at Molecular Biosystems, Inc. in San Diego, where
he was responsible for negotiating corporate partnerships. He previously served
as Director, Investor Relations at Molecular Biosystems, Inc. From 1993 to 1994,
he was Senior Account Executive -- Bioscience Division with Stoorza, Ziegus &
Metzger, responsible for all aspects of corporate communications programs for
biotechnology and healthcare clients. From 1989 to 1993, Mr. Keane held a
position at UCSD Medical Center as Scientific Editor, Radiology Department. Mr.
Keane holds a B.A. from San Diego State University.
DR. G. KENNETH LLOYD, 55, has served as Vice President, Biology since 1998.
From 1994 to 1998, he served as the Company's Vice President,
Pharmaceuticals -- Biology. He joined the Company as Senior Director of
Pharmacology and Preclinical Development in 1992. Beginning in 1977, Dr. Lloyd
worked for Synthelabo S.A. where he held various management positions
culminating with six years as Associate Director, Biology with responsibility
for nervous system, cerebrovascular, bronchopulmonary, gastrointestinal and
inflammation research. From 1990 to 1992, Dr. Lloyd was Assistant Vice President
of Research and Director of Research (U.K.) for Wyeth-Ayerst Research. Dr. Lloyd
serves on the Scientific Advisory Boards of Epigenesis and the Huntington Chorea
Society of Canada. He received his B.S. and M.S. from McGill University and a
Ph.D. from the University of Toronto. He held a postdoctoral position at F.
Hoffman-La Roche & Co. Ltd. in Basel, Switzerland.
DR. DAVID E. MCCLURE, 51, has served as the Company's Vice President,
Clinical Development and Regulatory since 1996. From 1992 to 1996, Dr. McClure
served as Director, Product Development and Project Management at Molecular
Biosystems, Inc. From 1988 to 1992, he served as Assistant Director, Oncology
Clinical and Medical Affairs, and as Senior Project Development Manager, Drug
Development Department at ICI Pharmaceuticals Group. From 1983 to 1988, Dr.
McClure served as Development Team Chairperson and Section Head, Medicinal
Chemistry at McNeil Pharmaceutical (Johnson & Johnson). He started his career at
Merck Research Laboratories as a medicinal chemist. He received his B.S. in
Chemistry from Nebraska Wesleyan University, a Ph.D. in Organic Chemistry from
Stanford University, and conducted post-doctoral work from 1973 to 1975 at
Columbia University.
DR. IAN A. MCDONALD, 51, has served as the Company's Vice President,
Chemistry since 1998. From 1994 to 1998, he served as the Company's Vice
President, Pharmaceuticals -- Chemistry. He joined the Company as Director of
Chemistry in 1993. He has held senior scientist positions at the State Health
Laboratory Service in Perth, Australia, at the Australian National University,
and the Centre de Recherche Merrell International, Strasbourg, France, and he
was a Group Leader and Senior Research Scientist, Marion Merrell Dow Research
Institute (formerly Merrell Dow), Cincinnati, Ohio during the period 1985 to
1993. He received his B.S. and Ph.D. from the School of Chemistry, the
University of Western Australia. He completed his postdoctoral studies at the
Organic Chemistry Institute of the University of Zurich, Switzerland.
MR. THOMAS A. REED, 43, has been with the Company since 1981. He has been
Vice President, Finance/ Administration and Chief Financial Officer since 1995.
From 1991 to 1995, he was Director, Finance and was Manager of Business and
Market Evaluation from 1989 to 1991. He received his B.A. from the University of
California, Berkeley and his M.B.A. from the University of San Diego.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998, the Board held six
meetings. The Board has an Audit Committee, a Compensation and Stock Option
Committee and a Non-Officer Stock Option Committee.
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The Audit Committee is composed of two directors, Dr. Crooke and Mr.
Rentschler. The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements, recommends to the Board the independent auditors to be
retained, and receives and considers the auditors' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee met once during fiscal year
1998.
The Compensation and Stock Option Committee is composed of three
non-employee directors: Messrs. Ekdahl and Miller and Dr. Watson. The
Compensation and Stock Option Committee makes recommendations to the Board
concerning salaries and incentive compensation, awards stock options to
employees and consultants under the Company's stock option plan and otherwise
determines compensation levels and performs such other functions regarding
compensation as the Board may delegate. The Compensation and Stock Option
Committee met five times during fiscal year 1998.
The Board's Non-Officer Stock Option Committee consists of Dr. Comer as the
sole member. The function of the Non-Officer Stock Option Committee is to review
and approve stock option grants under the Company's 1996 Equity Incentive Plan
in accordance with guidelines approved by the Board to eligible persons under
the plan that are not subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), by reason of their status as an officer,
director or stockholder of the Company. The Non-Officer Stock Option Committee
did not meet during fiscal year 1998, and its functions were performed by the
Compensation and Stock Option Committee.
During the fiscal year ended December 31, 1998, all directors except Dr.
Watson attended at least 75% of the aggregate of the meetings of the Board and
of the committees on which he served, held during the period for which he was a
director or committee member, respectively.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE
1996 EQUITY INCENTIVE PLAN, AS AMENDED
In February 1996, the Board adopted, and the stockholders subsequently
approved, the Company's 1996 Equity Incentive Plan ("Incentive Plan"). As a
result of a series of amendments, as of January 31, 1999, there were 1,513,141
shares of Common Stock reserved for issuance under the Incentive Plan. In
February 1999, the Board amended the Incentive Plan, subject to stockholder
approval, to increase the number of shares of Common Stock authorized for
issuance under the Incentive Plan from a total of 1,513,141 shares to a total of
2,513,141 shares. The Board adopted this amendment in order to ensure that the
Company can continue to grant stock options at levels determined appropriate by
the Board.
As of January 31, 1999 awards (net of canceled or expired awards) covering
an aggregate of 826,301 shares of the Company's Common Stock had been granted
under the Incentive Plan. Not including the additional shares of Common Stock
that will be available for grant upon approval of this Proposal 2, as of January
31, 1999, only 686,840 shares of Common Stock (plus any shares that might in the
future be returned to the Incentive Plan as a result of cancellations or
expiration of awards or the reacquisition by the Company of issued shares)
remained available for future grant under the Incentive Plan.
Stockholders are requested in this Proposal 2 to approve the amendment to
the Incentive Plan, as amended. The affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled to
vote at the meeting will be required to approve the amendment to the Incentive
Plan. Abstentions will be counted toward the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
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The essential features of the Incentive Plan are outlined below:
GENERAL
The Incentive Plan provides for the grant of incentive stock options,
nonstatutory stock options, stock appreciation rights, stock bonuses and
restricted stock purchase awards (collectively "awards"). Incentive stock
options granted under the Incentive Plan are intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Nonstatutory stock options granted under the
Incentive Plan are not intended to qualify as incentive stock options under the
Code. Stock appreciation rights granted under the Incentive Plan may be tandem
rights, concurrent rights or independent rights. See "Federal Income Tax
Information" for a discussion of the tax treatment of awards. To date, the
Company has granted only stock options under the Plan.
PURPOSE
The Board adopted the Incentive Plan to provide a means by which employees,
directors and consultants of the Company and its affiliates may be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of such persons, to secure and retain the services of persons capable
of filling such positions and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its affiliates. Approximately
136 of the approximately 140 employees, directors and consultants of the Company
and its affiliates are eligible to participate in the Incentive Plan.
ADMINISTRATION
The Board administers the Incentive Plan. Subject to the provisions of the
Incentive Plan, the Board has the power to construe and interpret the Incentive
Plan and to determine the persons to whom and the dates on which awards will be
granted, the number of shares of Common Stock to be subject to each award, the
time or times during the term of each award within which all or a portion of
such award may be exercised, the exercise price, the type of consideration and
other terms of the award.
The Board has the power to delegate administration of the Incentive Plan to
a committee composed of not fewer than two members of the Board. In the
discretion of the Board, a committee may consist solely of two or more outside
directors in accordance with Section 162(m) of the Code or solely of two or more
non-employee directors in accordance with Rule 16b-3 of the Exchange Act. The
Board has delegated administration of the Incentive Plan to the Compensation and
Stock Option Committee of the Board. The Board may also delegate to a committee
of one or more members of the Board the authority to grant awards under the
Incentive Plan to eligible persons who are not subject to Section 16 of the
Exchange Act in accordance with guidelines approved by the Board. The Board has
delegated such authority to the Non-Officer Stock Option Committee. See "Board
Committees and Meetings." As used herein with respect to the Incentive Plan, the
"Board" refers to any committee the Board appoints as well as to the Board
itself.
The regulations under Section 162(m) of the Code require that the directors
who serve as members of the committee must be "outside directors." The Incentive
Plan provides that, in the Board's discretion, directors serving on the
committee may be "outside directors" within the meaning of Section 162(m). This
limitation would exclude from the committee directors who are (i) current
employees of the Company or an affiliate, (ii) former employees of the Company
or an affiliate receiving compensation for past services (other than benefits
under a tax-qualified pension Incentive Plan), (iii) current and former officers
of the Company or an affiliate, (iv) directors currently receiving direct or
indirect remuneration from the Company or an affiliate in any capacity (other
than as a director), and (v) any other person who is otherwise considered an
"outside director" for purposes of Section 162(m). The definition of an "outside
director" under Section 162(m) is generally narrower than the definition of a
"non-employee director" under Rule 16b-3 of the Exchange Act.
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ELIGIBILITY
Incentive stock options and stock appreciation rights appurtenant thereto
may be granted under the Incentive Plan only to employees (including officers)
of the Company and its affiliates. Employees (including officers), directors and
consultants of both the Company and its affiliates are eligible to receive all
other types of awards under the Incentive Plan.
No option may be granted under the Incentive Plan to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10% of
the total combined voting power of the Company or any affiliate of the Company,
unless the exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant and the term of the option does not
exceed five years from the date of grant. Likewise, no restricted stock award
may be granted under the Incentive Plan to any such 10% stockholder unless the
exercise price is at least 100% of the fair market value of the stock subject to
the award. In addition, the aggregate fair market value, determined at the time
of grant, of the shares of Common Stock with respect to which incentive stock
options are exercisable for the first time by a participant during any calendar
year (under the Incentive Plan and all other such plans of the Company and its
affiliates) may not exceed $100,000.
No person may be granted options and stock appreciation rights under the
Incentive Plan exercisable for more than 500,000 shares of Common Stock during
any twelve (12) month period ("Section 162(m) Limitation").
STOCK SUBJECT TO THE INCENTIVE PLAN
Subject to stockholder approval of this Proposal, an aggregate of 2,513,141
shares of Common Stock is reserved for issuance under the Incentive Plan. If
awards granted under the Incentive Plan expire or otherwise terminate without
being exercised, the shares of Common Stock not acquired pursuant to such awards
again becomes available for issuance under that Incentive Plan. If the Company
reacquires unvested stock issued under the Incentive Plan, the reacquired stock
will revert to and again become available for reissuance under the Incentive
Plan for awards other than incentive stock options.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Incentive Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options may
not be less than 100% of the fair market value of the stock subject to the
option on the date of the grant and, in some cases (see "Eligibility" above),
may not be less than 110% of such fair market value. The exercise price of
nonstatutory options may not be less than 85% of the fair market value of the
stock on the date of grant and, in some cases (see "Eligibility" above), may not
be less than 110% of such fair market value. If options were granted with
exercise prices below market value, deductions for compensation attributable to
the exercise of such options could be limited by Section 162(m) of the Code. See
"Federal Income Tax Information." As of the close of business on April 1, 1999,
the closing price of the Company's Common Stock as reported on the Nasdaq
National Market System was $5.00 per share.
The exercise price of options granted under the Incentive Plan must be paid
either in cash at the time the option is exercised or at the discretion of the
Board (i) by delivery of other Common Stock of the Company, (ii) pursuant to a
deferred payment arrangement or (iii) in any other form of legal consideration
acceptable to the Board.
Repricing. In the event of a decline in the value of the Company's Common
Stock, the Board has the authority to offer participants the opportunity to
replace outstanding higher priced options with new lower priced options. To the
extent required by Section 162(m) of the Code, a repriced option is deemed to be
canceled and a new option granted. Both the option deemed to be canceled and the
new option deemed to be granted will be counted against the Section 162(m)
Limitation.
7
<PAGE> 10
Option Exercise. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding options under the Incentive Plan typically vest
at the rate of at least twenty percent (20%) per year of the total number of
shares subject to the option during the participant's employment by, or service
as a director or consultant to, the Company or an affiliate (collectively,
"service"). Shares covered by options granted in the future under the Incentive
Plan may be subject to different vesting terms. The Board has the power to
accelerate the time during which an option may vest or be exercised. In
addition, options granted under the Incentive Plan may permit exercise prior to
vesting, but in such event the participant may be required to enter into an
early exercise stock purchase agreement that allows the Company to repurchase
unvested shares, generally at their exercise price, should the participant's
service terminate before vesting. To the extent provided by the terms of an
option, a participant may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such option by a cash payment upon
exercise, by authorizing the Company to withhold a portion of the stock
otherwise issuable to the participant, by delivering already-owned Common Stock
of the Company or by a combination of these means.
Term. The maximum term of options under the Incentive Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Incentive Plan generally terminate three months after
termination of the participant's service unless (i) such termination is due to
the participant's disability, in which case the option may, but need not,
provide that it may be exercised (to the extent the option was exercisable at
the time of the termination of service) at any time within 12 months of such
termination; (ii) the participant dies before the participant's service has
terminated, or within the period specified in the option agreement, in which
case the option may, but need not, provide that it may be exercised (to the
extent the option was exercisable at the time of the participant's death) within
18 months of the participant's death by the person or persons to whom the rights
to such option pass by will or by the laws of descent and distribution; or (iii)
the option by its terms specifically provides otherwise. A participant may
designate a beneficiary who may exercise the option following the participant's
death.
Individual option grants by their terms may provide for exercise within a
longer period of time following termination of service.
The option term generally is not extended in the event that exercise of the
option within these periods is prohibited. A participant's option agreement may
provide that if the exercise of the option following the termination of the
participant's service 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 or (ii) the 10th day after the last date on
which such exercise would result in such liability under Section 16(b). A
participant's option agreement also may provide that if the exercise of the
option following the termination of the participant's service would be
prohibited because the issuance of stock would violate the registration
requirements under the Securities Act of 1933, as amended (the "Securities
Act"), then the option will terminate on the earlier of (i) the expiration of
the term of the option or (ii) three months after the termination of the
participant's service during which the exercise of the option would not be in
violation of such registration requirements.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Payment. The Board determines the purchase price under a restricted stock
purchase agreement, but the purchase price may not be less than 85% of the fair
market value of the Company's Common Stock on the date of grant. The Board may
award stock bonuses in consideration of past services without a purchase
payment.
The purchase price of stock acquired pursuant to a restricted stock
purchase agreement under the Incentive Plan must be paid either in cash at the
time the option is exercised or at the discretion of the Board, (i) by delivery
of other Common Stock of the Company, (ii) pursuant to a deferred payment
arrangement or (iii) in any other form of legal consideration acceptable to the
Board.
Vesting. Shares of stock sold or awarded under the Incentive Plan may, but
need not be, subject to a repurchase option in favor of the Company in
accordance with a vesting schedule as determined by the Board.
8
<PAGE> 11
The Board has the power to accelerate the vesting of stock acquired pursuant to
a restricted stock purchase agreement under the Incentive Plan.
Restrictions on Transfer. Rights under a stock bonus or restricted stock
bonus agreement may not be transferred except where such assignment is required
by law.
STOCK APPRECIATION RIGHTS
The Incentive Plan authorizes three types of stock appreciation rights.
Tandem Stock Appreciation Rights. Tandem stock appreciation rights are tied
to an underlying option and require the participant to elect whether to exercise
the underlying option or to surrender the option for an appreciation
distribution equal to the market price of the vested shares purchasable under
the surrendered option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of tandem stock
appreciation rights must be made in cash.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation rights
are tied to an underlying option and are exercised automatically at the same
time the underlying option is exercised. The participant receives an
appreciation distribution equal to the market price of the vested shares
purchased under the option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of concurrent stock
appreciation rights must be made in cash.
Independent Stock Appreciation Rights. Independent stock appreciation
rights are granted independently of any option and entitle the participant to
receive upon exercise an appreciation distribution equal to the market price of
a number of shares equal to the number of share equivalents to which the
participant is vested under the independent stock appreciation right less than
fair market value of such number of shares of stock on the date of grant of the
independent stock appreciation rights. Appreciation distributions payable upon
exercise of independent stock appreciation rights may, at the Board's
discretion, be made in cash, in shares of stock or a combination thereof.
Repricing. In the event of a decline in the value of the Company's Common
Stock, the Board has the authority to offer participants the opportunity to
replace outstanding higher priced stock appreciation rights with new lower
priced stock appreciation rights. To the extent required by Section 162(m) of
the Code, a repriced stock appreciation right is deemed to be canceled and a new
stock appreciation right granted. Both the stock appreciation right deemed to be
canceled and the new stock appreciation right deemed to be granted will be
counted against the Section 162(m) Limitation.
RESTRICTIONS ON TRANSFER
The participant may not transfer an incentive stock option otherwise than
by will or by the laws of descent and distribution. During the lifetime of the
participant, only the participant may exercise an incentive stock option. The
Board may not grant nonstatutory stock options that are transferable except as
provided in the stock option agreement. Shares subject to repurchase by the
Company under an early exercise stock purchase agreement may be subject to
restrictions on transfer that the Board deems appropriate.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company, such as
a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of Common Stock subject to the Incentive
Plan and outstanding awards. In that event, the Incentive Plan will be
appropriately adjusted as to the class and the maximum number of shares of
Common Stock subject to the Incentive Plan, and outstanding awards will be
adjusted as to the class, number of shares and price per share of Common Stock
subject to such awards.
9
<PAGE> 12
EFFECT OF CERTAIN CORPORATE EVENTS
The Incentive Plan provides that, in the event of a dissolution,
liquidation or sale of substantially all of the assets of the Company, specified
types of merger, or other corporate reorganization ("change in control"), to the
extent permitted by law any surviving corporation will be required to either
assume awards outstanding under the Incentive Plan or substitute similar awards
for those outstanding under the Incentive Plan, or such outstanding awards will
continue in full force and effect. If any surviving corporation declines to
assume awards outstanding under the Incentive Plan, or to substitute similar
awards, then the vesting and the time during which such awards may be exercised
will be accelerated. An outstanding award will terminate if the participant does
not exercise it before a change in control, except that in the event of certain
specified types of change in control, participants will have 15 days from the
date of the change in control to exercise such award, following which time it
will terminate if not exercised. The acceleration of an award in the event of an
acquisition or similar corporate event may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Incentive Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Incentive Plan will terminate on February 21, 2006.
The Board may also amend the Incentive Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within 12 months before or after its adoption by the
Board if the amendment would (i) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Incentive Plan to satisfy Section 422 of the Code, if applicable,
or Rule 16b-3 of the Exchange Act; (ii) increase the number of shares reserved
for issuance upon exercise of awards; or (iii) change any other provision of the
Incentive Plan in any other way if such modification requires stockholder
approval in order to comply with Rule 16b-3 of the Exchange Act or satisfy the
requirements of Section 422 of the Code or any securities exchange listing
requirements. The Board may submit any other amendment to the Incentive Plan for
stockholder approval, including, but not limited to, amendments intended to
satisfy the requirements of Section 162(m) of the Code regarding the exclusion
of performance-based compensation from the limitation on the deductibility of
compensation paid to certain employees.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Incentive Stock Options. Incentive stock options under the Incentive Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the participant
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the
participant's alternative minimum tax liability, if any.
If a participant holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
participant upon exercise of the option, any gain or loss on a disposition of
such stock will be a long-term capital gain or loss if the participant held the
stock for more than one year.
Generally, if the participant disposes of the stock before the expiration
of either of these holding periods (a "disqualifying disposition"), then at the
time of disposition the participant will realize taxable ordinary income equal
to the lesser of (i) the excess of the stock's fair market value on the date of
exercise over the
10
<PAGE> 13
exercise price, or (ii) the participant's actual gain, if any, on the purchase
and sale. The participant's additional gain or any loss upon the disqualifying
disposition will be a capital gain or loss, which will be long-term or
short-term depending on whether the stock was held for more than one year.
To the extent the participant recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options, Restricted Stock Purchase Awards and Stock
Bonuses. Nonstatutory stock options, restricted stock purchase awards and stock
bonuses granted under the Incentive Plan generally have the following federal
income tax consequences:
There are no tax consequences to the participant or the Company by reason
of the grant. Upon acquisition of the stock, the participant normally will
recognize taxable ordinary income equal to the excess, if any, of the stock's
fair market value on the acquisition date over the purchase price. However, to
the extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
participant elects to be taxed on receipt of the stock. With respect to
employees, the Company is generally required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, the provisions of Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the participant.
Upon disposition of the stock, the participant will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income
upon acquisition (or vesting) of the stock. Such gain or loss will be long-term
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Stock Appreciation Rights. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must be
treated as compensation taxable as ordinary income to the participant in the
year of such exercise. Generally, with respect to employees, the Company is
required to withhold from the payment made on exercise of the stock appreciation
right or from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness,
Section 162(m) of the Code and the satisfaction of a reporting obligation, the
Company will be entitled to a business expense deduction equal to the taxable
ordinary income recognized by the participant.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly-held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that compensation to
such covered employee exceeds $1 million. It is possible that compensation
attributable to awards, when combined with all other types of compensation
received by a covered employee from the Company, may cause this limitation to be
exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options and stock appreciation rights will qualify as
performance-based compensation if the award is granted by a compensation
committee comprised solely of "outside directors" and either (i) the plan
contains a per-employee limitation on the number of shares for which such awards
may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the award is no less
than the fair market value of the stock on the date of grant, or (ii) the award
is granted (or exercisable) only upon the achievement (as certified in writing
by the compensation committee) of an objective performance goal established in
writing by the compensation committee while the outcome is substantially
uncertain, and the award is approved by stockholders.
11
<PAGE> 14
Compensation attributable to restricted stock and stock bonuses will
qualify as performance-based compensation, provided that: (i) the award is
granted by a compensation committee comprised solely of "outside directors" and
(ii) the purchase price of the award is no less than the fair market value of
the stock on the date of grant. Stock bonuses qualify as performance-based
compensation under the Treasury regulations only if (i) the award is granted by
a compensation committee comprised solely of "outside directors," (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum
amount -- or formula used to calculate the amount -- payable upon attainment of
the performance goal).
NEW PLAN BENEFITS
The following table presents certain information with respect to options
granted under the Incentive Plan for the fiscal year ended December 31, 1998 to
(i) the Named Executive Officers (as named in the Summary Compensation Table);
(ii) all executive officers as a group, (iii) all non-executive officer
employees as a group and (iv) all non-employee directors as a group.
NEW PLAN BENEFITS
1996 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
NAME AND POSITION DOLLAR VALUE($)(1) OPTIONS GRANTED
----------------- ------------------ ---------------------------
<S> <C> <C>
William T. Comer, Ph.D. ........................... 150,000 30,000
Chief Executive Officer and President
Michael M. Harpold, Ph.D. ......................... 0 0
Vice President
G. Kenneth Lloyd, Ph.D. ........................... 75,000 15,000
Vice President, Biology
David E. McClure, Ph.D. ........................... 80,000 16,000
Vice President, Clinical Development and
Regulatory
Ian A. McDonald, Ph.D. ............................ 80,000 16,000
Vice President, Chemistry
Jeffrey F. McKelvy, Ph.D. ......................... 500,000 100,000
Executive Vice President and Chief Scientific
Officer
All executive officers as a group(2)............... 1,235,000 253,000
All non-executive officer employees as a
group(2)......................................... 1,148,289 237,288
All non-employee directors as a group.............. 0 0
</TABLE>
- ---------------
(1) Exercise Price multiplied by the number of shares underlying the option(s).
(2) Represents the number of executive officers as a group and all non-executive
officer employees as a group as of March 31, 1999.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board has selected PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders of the Company at the Annual Meeting.
PricewaterhouseCoopers LLP has audited the Company's Financial Statements since
1992. Representatives
12
<PAGE> 15
of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting,
will have an opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
Stockholder ratification of the selection of PricewaterhouseCoopers LLP as
the Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of
PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of
good corporate practice. If the stockholders fail to ratify the selection, the
Audit Committee and the Board will reconsider whether or not to retain
PricewaterhouseCoopers LLP. Even if the selection is ratified, the Audit
Committee and the Board in their discretion may direct the appointment of
different independent auditors at any time during the year if they determine
that such a change would be in the best interests of the Company and its
stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of PricewaterhouseCoopers LLP. Abstentions
will be counted toward the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes. Broker
non-votes are counted towards a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL 3
13
<PAGE> 16
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of January 31, 1999 by: (i) each director; (ii)
each of the Named Executive Officers (as named in the Summary Compensation
Table); (iii) all directors and executive officers of the Company as a group;
and (iv) all those known by the Company to be beneficial owners of more than
five percent of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL
---------------- ---------------- ----------------
<S> <C> <C>
The Salk Institute for Biological Studies............... 1,933,461 20.3%
10010 North Torrey Pines Road
La Jolla, California 92037
Biotechnology Value Fund, L.P.(2)....................... 1,043,400 11.0%
333 West Wacker Drive, Suite 1600
Chicago, IL 60606
Novartis AG............................................. 1,035,324 10.9%
Huenincerstrase
4056 Basel, Switzerland
Skandigen AB............................................ 986,696 10.4%
Norrlandsgatan 15
S-111 43 Stockholm, Sweden
Bristol-Myers Squibb Company............................ 658,000 6.9%
345 Park Avenue
New York, NY 10154
William T. Comer, Ph.D.(3).............................. 374,885 3.9%
Stanley T. Crooke, M.D., Ph.D.(4)....................... 20,250 *
Gunnar Ekdahl(5)........................................ 23,500 *
Michael M. Harpold, Ph.D.(6)............................ 157,234 1.6%
G. Kenneth Lloyd, Ph.D.(7).............................. 64,662 *
David E. McClure, Ph.D.(8).............................. 25,115 *
Ian A. McDonald, Ph.D.(9)............................... 77,706 *
Jeffrey F. McKelvy, Ph.D.(10)........................... 0 *
William R. Miller(11)................................... 65,375 *
Frederick B. Rentschler(12)............................. 29,250 *
James D. Watson, Ph.D.(13).............................. 45,000 *
All executive officers and directors as a group (12
persons)(14).......................................... 810,627 8.2%
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
9,517,947 shares outstanding on January 31, 1999, adjusted as required by
the rules promulgated by the SEC.
(2) BVF Partners L.P., a Delaware limited partnership ("Partners"), is the
general partner of Biotechnology Value Fund, L.P., a Delaware limited
partnership ("BVF"). BVF Inc., a Delaware corporation ("BVF Inc."), is an
investment adviser to and the general partner of Partners. Mark N. Lampert,
an individual, is the sole stockholder, sole director and an officer of BVF
Inc. BVF may be deemed to have beneficial ownership of 495,500 shares of
Common Stock of the Company, and Partners and BVF Inc. may be deemed to
have beneficial ownership of 1,043,400 shares of Common Stock of the
Company. BVF shares voting and dispositive power over the 495,500 shares of
Common Stock it beneficially owns
14
<PAGE> 17
with Partners. Partners and BVF Inc. share voting and dispositive power
over the 1,043,400 shares of Common Stock they beneficially own with, in
addition to BVF, the managed accounts on whose behalf Partners, as
investment managers, purchased such shares.
(3) Includes 115,235 shares subject to options exercisable within 60 days of
January 31, 1999 and 259,650 shares held by the Comer Family Trust. Does
not include 235,000 shares held by the Comer Family Irrevocable Trust.
(4) Includes 19,250 shares subject to options exercisable within 60 days of
January 31, 1999.
(5) Includes 17,500 shares subject to options exercisable within 60 days of
January 31, 1999. Does not include 986,696 shares beneficially owned by
Skandigen AG, of which Mr. Ekdahl is a board member.
(6) Includes 81,424 shares subject to options exercisable within 60 days of
January 31, 1999, of which 14,687 shares were subject to accelerated
vesting as of March 31, 1999 pursuant to Mr. Harpold's employment agreement
with the Company. See "-- Employment Agreements."
(7) Includes 48,802 shares subject to options exercisable within 60 days of
January 31, 1999.
(8) Includes 22,030 shares subject to options exercisable within 60 days of
January 31, 1999.
(9) Includes 66,706 shares subject to options exercisable within 60 days of
January 31, 1999.
(10) Jeffrey F. McKelvy, Ph.D., joined the company as a director and Executive
Vice President and Chief Scientific Officer in April 1998.
(11) Includes 12,500 shares subject to options exercisable within 60 days of
January 31, 1999.
(12) Includes 29,250 shares subject to options exercisable within 60 days of
January 31, 1999. Does not include 1,933,461 shares beneficially owned by
The Salk Institute. Mr. Rentschler is currently the Chairman of the Board
of Trustees for The Salk Institute for Biological Studies.
(13) Includes 15,625 shares subject to options exercisable within 60 days of
January 31, 1999.
(14) Includes 364,081 shares subject to options exercisable within 60 days of
January 31, 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities (the "10% Stockholders"), to file with
the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than ten percent stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, its
officers, directors and greater than 10% beneficial owners complied with all
applicable Section 16(a) filing requirements.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Currently, each non-employee director of the Company receives an annual
retainer of $15,000, while the Chairman of the Board receives $25,000. The
members of the Board are also eligible for reimbursement for their expenses
incurred in connection with attendance at Board meetings in accordance with
Company policy. Furthermore, during 1998, Dr. Watson received compensation of
$10,000 for his services as a member of the Company's Scientific Advisory Board.
For the year ended December 31, 1998, total cash compensation paid to
non-employee directors for service on the Board and/or committees of the Board
was $85,000, not including the $10,000 payment to Dr. Watson for his service on
the Company's Scientific Advisory Board.
15
<PAGE> 18
In addition to cash compensation, non-employee directors are eligible to
receive annual grants of options to purchase Common Stock of the Company. See
"Employee Benefit Plans -- 1996 Non-Employee Directors' Stock Option Plan."
During fiscal year 1998, the Company granted an option to purchase 3,000
shares of Common Stock of the Company to each non-employee director and an
option to purchase 5,000 shares of Common Stock of the Company to the Chairman
of the Board, in each case at an exercise price per share of $5.63. The fair
market value of the Company's Common Stock on the date of grant was $5.63 per
share (based upon the closing sales price reported in the Nasdaq National Market
System on the date of grant). As of January 31, 1999, options to purchase
105,750 shares of Common Stock of the Company granted to the current
non-employee directors had been exercised.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ending December 31, 1998,
1997 and 1996, compensation awarded or paid to, or earned by, the Company's
Chief Executive Officer and its four other most highly compensated executive
officers at December 31, 1998 and one former executive officer who was no longer
serving as an executive officer at the end of fiscal year 1998 (the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS(2)
---------------------------------------------- -------------
OTHER ANNUAL SHARES ALL OTHER
FISCAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) OPTIONS(#)(3) ($)(4)
--------------------------- ------ ---------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William T. Comer, Ph.D. ...... 1998 276,258 42,400 -- 30,000 6,933
Chief Executive Officer and 1997 261,756 63,000 -- 12,825 4,917
President 1996 249,000 28,800 -- 15,040 4,491
Michael M. Harpold,
Ph.D.(5).................... 1998 193,500 20,000 43,600(6) -- 4,993
Vice President 1997 191,400 37,000 -- 8,950 5,680
1996 182,500 16,000 -- 8,225 5,253
G. Kenneth Lloyd, Ph.D. ...... 1998 197,500 20,000 10,000(7) 15,000
Vice President, Biology 1997 187,500 40,000 10,000(7) 8,950 6,432
1996 178,000 15,200 10,000(7) 8,225 5,248
David E. McClure, Ph.D. ...... 1998 167,500 20,000 -- 16,000 6,191
Vice President, Clinical 1997 158,750 20,000 -- 5,198 5,556
Development and Regulatory 1996 51,667(8) 10,000(8) -- 33,500 --
Ian A. McDonald, Ph.D. ....... 1998 170,550 20,100 10,000(7) 16,000 6,209
Vice President, Chemistry 1997 161,000 32,100 10,000(7) 8,950 5,548
1996 153,250 13,300 10,000(7) 7,050 5,144
Jeffrey F. McKelvy,
Ph.D.(9).................... 1998 180,877 30,000 34,875(10) 100,000 912
Executive Vice President and 1997 -- -- -- -- --
Chief Scientific Officer 1996 -- -- -- -- --
</TABLE>
- ---------------
(1) As permitted by rules promulgated by the SEC, no amounts are shown with
respect to certain perquisites where such amounts do not exceed the lesser
of (i) 10% of the sum of the amounts reflected in the salary and bonus
columns, or (ii) $50,000.
(2) None of the Named Executive Officers held restricted stock awards as of
December 31, 1998.
(3) Unless otherwise noted, all options were granted under the Company's 1996
Equity Incentive Plan or 1992 Stock Option Plan.
(4) All amounts include the value of excess group term life insurance premiums
and matching 401(k) Plan contributions paid on behalf of the Named
Executive Officers.
(5) Dr. Harpold ceased serving as Vice President, Research in April 1998 and
became Vice President.
16
<PAGE> 19
(6) Consists of forgiveness of debt related to amounts loaned to Dr. Harpold
pursuant to a promissory note dated July 1992. See "-- Employment
Agreements."
(7) Includes forgiveness of $10,000 of principal amount owed to the Company for
certain indebtedness.
(8) Dr. McClure joined the Company in September 1996. Salary amount represents
the total amount of salary actually paid to Dr. McClure in 1996. Dr.
McClure's annual base salary for 1996 was $155,000. The bonus amount of
$10,000 represents Dr. McClure's signing bonus. Upon joining the Company,
Dr. McClure was granted an option to purchase 33,500 shares of Common Stock
of the Company at an exercise price of $6.63 per share. The option vests
and becomes exercisable in four equal annual installments commencing on
September 1, 1997.
(9) Dr. McKelvy joined the Company in April 1998. Salary amount represents the
total amount of salary actually paid to Dr. McKelvy in 1998. Dr. McKelvy's
annual base salary for 1998 was $250,000. Bonus amount of $30,000
represents Dr. McKelvy's sign-on bonus. Upon joining the Company, Dr.
McKelvy was granted an option to purchase 100,000 shares of Common Stock of
the Company at an exercise price of $5.00 per share. The option vests and
becomes exercisable in four equal annual installments commencing on April
9, 1999.
(10) Consists of relocation costs paid by the Company.
STOCK OPTION GRANTS AND EXERCISES
The Company currently grants options to its executive officers under the
Incentive Plan. As of January 31, 1999, options to purchase a total of 825,825
shares were outstanding under the Incentive Plan and options to purchase 686,840
shares remained available for grant thereunder. The following tables show for
the fiscal year ended December 31, 1998, certain information regarding options
granted to, exercised by, and held at year end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED FOR OPTION TERM($)(3)
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION -------------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) PRICE($/SH) DATE 5% 10%
---- ------------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William T. Comer.......... 30,000 5.9 5.00 4/8/08 94,500 238,500
G. Kenneth Lloyd.......... 15,000 3.0 5.00 4/8/08 47,250 119,250
David E. McClure.......... 16,000 3.2 5.00 4/8/08 50,400 127,200
Ian A. McDonald........... 16,000 3.2 5.00 4/8/08 50,400 127,200
Jeffrey F. McKelvy........ 100,000(4) 19.7 5.00 4/8/08 315,000 795,000
</TABLE>
- ---------------
(1) Except otherwise noted, options were granted under the Incentive Plan. The
options vest 20% on date of grant and 20% annually over the next 4 years.
(2) Based on options to purchase 506,288 shares of the Company's Common Stock
granted to employees, including Named Executive Officers, under the
Incentive Plan during fiscal year 1998.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant, which in each case is 10 years. It is calculated
assuming that the stock price on the date of grant appreciates at the
indicated annual rate, compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price. The total appreciation of the options over
their 10-year terms at 5% and 10% is 63% and 159%, respectively. These
amounts represent certain assumed rates of appreciation only, in accordance
with the rules of the SEC, and do not reflect the Company's estimate or
projection of future stock price performance. Actual gains, if any, are
dependent on the actual future performance of the Company's Common Stock,
and no gain to the optionee is possible unless the stock price increases
over the option term, which will benefit all stockholders. The
17
<PAGE> 20
Board has the authority to reprice options under the Incentive Plan. See
Proposal 2 -- "Terms of Options -- Repricing."
(4) Options vest 25% annually over the next 4 years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN
OPTIONS AT DECEMBER 31, THE MONEY OPTIONS AT
SHARES 1998(#)(1) DECEMBER 31, 1998($)(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
William T. Comer............ 0 0 108,244/65,946 $356,967/$123,669
Michael M. Harpold.......... 0 0 62,919/25,931 218,896/74,772
G. Kenneth Lloyd............ 17,700 75,589 45,043/37,872 137,585/74,577
David E. McClure............ 0 0 22,030/32,668 0/0
Ian A. McDonald............. 20,000 95,400 63,476/37,849 210,738/72,132
Jeffrey F. McKelvy.......... 0 0 0/100,000 0/0
</TABLE>
- ---------------
(1) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with an exercise price below the fair market value of
the Company's Common Stock.
(2) Calculation based on the fair market value of the Company's Common Stock at
December 31, 1998 ($4.75 per share), minus the exercise price.
"Out-of-the-money" options are ignored.
EMPLOYMENT AGREEMENTS
Effective April 1998, the Company entered into an employment agreement (the
"McKelvy Agreement") with Dr. Jeffrey McKelvy whereby Dr. McKelvy agreed to
serve as the Company's Executive Vice President and Chief Scientific Officer.
Under the McKelvy Agreement, Dr. McKelvy will receive an annual base salary of
$250,000 and will be eligible to receive a discretionary performance-based cash
bonus of up to 20% of such base salary. In addition, Dr. McKelvy was granted a
stock option under the Company's 1996 Equity Incentive Plan to acquire up to
100,000 shares of the Company's Common Stock at an exercise price of $5 per
share. Such options vest at an annual rate of 25% over a period of four years
from the date of grant. Dr. McKelvy also received a sign-on bonus of $30,000 and
is eligible to receive a loan from the Company of up to $100,000 to assist him
in relocating to San Diego, the principal and interest of such loan to be
forgiven over a period of five years based upon the achievement of personal and
company objectives. The McKelvy Agreement is terminable at any time for any
reason or no reason by either party.
Effective April 1998, the Company entered into an employment agreement (the
"Harpold Agreement") with Michael M. Harpold, Ph.D. whereby Dr. Harpold agreed
to continue his employment with the Company by performing a special assignment
with the title of Vice President through March 31, 1999. Under the Harpold
Agreement, Dr. Harpold will continue to receive his annual base salary of
$193,500. In addition, the Company forgave Dr. Harpold's outstanding employee
loan in the amount of $43,600, as described under the caption "Certain
Transactions." The Harpold Agreement is terminable at any time or for any reason
by either party. If Dr. Harpold remains an employee through March 31, 1999,
subject to certain conditions, the Company will continue his salary for a period
of six months after such time and accelerate vesting of his stock options (dated
November 10, 1994 covering a total of 58,750 shares at an exercise price of
$0.85 cents per share, May 9, 1995 covering a total of 7,050 shares at an
exercise price of $1.45 per share and February 22, 1996 covering a total of
6,169 shares at an exercise price of $1.91 per share).
Effective November 1998, the Company entered into an employment agreement
(the "Keane Agreement") with Stephen F. Keane whereby Mr. Keane agreed to serve
as the Company's Vice President, Corporate Development. Under the Keane
Agreement, Mr. Keane will receive an annual base salary of
18
<PAGE> 21
$150,000 and will be eligible to receive a discretionary performance-based cash
bonus of up to 15% of such base salary. In addition, Mr. Keane was granted a
stock option under the Incentive Plan to acquire up to 60,000 shares of the
Company's Common Stock at an exercise price of $4.50 per share. Such options
vest at an annual rate of 25% over a period of four years from the date of
grant. Mr. Keane also received a sign-on bonus of $5,000. The Keane Agreement is
terminable at any time for any reason or no reason by either party.
CHANGE IN CONTROL ARRANGEMENTS
The Company's Management Change of Control Plan, as amended on December 10,
1998, (the "Change of Control Plan"), is applicable to William T. Comer, G.
Kenneth Lloyd, Ian A. McDonald, Thomas A. Reed and, with respect to certain
provisions, David E. McClure, Stephen F. Keane and Jeffrey F. McKelvy. The
Change of Control Plan generally provides for the payment of benefits to its
participants upon the occurrence of certain defined change of control events.
Among the benefits provided are generally: (i) cash bonuses of up to 25% 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 certain participants; (iii) severance payments of up to two times annual base
salary, depending on the participant's position with the Company at the time of
a change of control; and (iv) the payment of health insurance premiums and
outplacement expenses incurred upon a change of control.
Under the Change of Control Plan, a "change of control" of the Company is
deemed to have occurred upon the consummation of a merger or consolidation in
which the Company is not the surviving entity (other than a transaction the
principal purpose of which is to change the jurisdiction of the Company's
incorporation), the sale, transfer or other disposition of all or substantially
all of the assets of the Company or a reverse merger in which the Company is the
surviving entity, but in which 50% or more of the Company's outstanding voting
stock is transferred to holders different from those who held such stock
immediately prior to such merger.
EMPLOYEE BENEFIT PLANS
In addition to the Incentive Plan (see Proposal 2), the Company maintains
the following employee benefit plans.
EMPLOYEE STOCK PURCHASE PLAN
In February 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the Employee Stock Purchase Plan (the "Purchase Plan").
The purpose of the Purchase Plan is to assist the Company in retaining the
services of its employees, to secure and retain the services of new employees
and to provide incentives for such persons to exert maximum efforts for the
success of the Company. The Purchase Plan provides a means by which employees of
the Company and its affiliates may purchase Common Stock of the Company at a
discount through accumulated payroll deductions. The rights to purchase Common
Stock granted under the Purchase Plan are intended to qualify as options issued
under an "employee stock purchase plan" as that term is defined in Section
423(b) of the Code. The maximum number of shares of Common Stock that may be
issued under the Purchase Plan is 500,000. As of January 31, 1999, all of the
Company's 130 employees were eligible to participate in the Purchase Plan.
Under the Purchase Plan, the Board may provide for the grant of rights to
purchase Common Stock to eligible employees (an "Offering") on a date or dates
to be selected by the Board of Directors. The first Offering under the Purchase
Plan began May 9, 1996, the effective date of the Company's initial public
offering, and extended until April 30, 1998. Subsequent Offerings commence on
May 1 every year, beginning with calendar year 1998 and end on the day prior to
the first anniversary of the date the Offering commences. As of January 31,
1999, the Company had issued 63,631 shares of Common Stock to employees under
the Purchase Plan.
19
<PAGE> 22
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In February 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the 1996 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). The purpose of the Directors' Plan is to attract and retain
the services of persons capable of serving as non-employee directors on the
Board of Directors and to provide incentives for such persons to exert maximum
efforts to promote the success of the Company. The Directors' Plan provides for
the automatic grant of nonstatutory stock options to purchase shares of Common
Stock to non-employee directors of the Company. The maximum number of shares of
Common Stock that may be issued pursuant to options granted under the Directors'
Plan is 235,000. Option grants under the Directors' Plan are non-discretionary.
Under the Directors' Plan, each person who for the first time becomes a
non-employee director shall be granted upon the date of his or her initial
election to the Board of Directors, an option to purchase 10,000 shares of
Common Stock of the Company. In addition, on the date of each annual meeting of
stockholders, each non-employee director who is reelected at such meeting shall
be granted an option to purchase 3,000 shares of Common Stock of the Company;
provided, however, that a non-employee director who is then serving as the
Chairman of the Board shall be granted an option to purchase 5,000 shares of
Common Stock of the Company. As of January 31, 1999, options to purchase 54,000
shares had been granted under the Directors' Plan. Options granted under the
Directors' Plan are not intended to qualify as incentive stock options under the
Code.
401(k) PLAN
The Company adopted a tax-qualified employee savings and retirement plan
under Section 401(k) of the Code (the "401(k) Plan") covering all of the
Company's employees. Pursuant to the 401(k) Plan, employees may elect to reduce
their current compensation by up to 15% of their salaries, but not in excess of
the statutory prescribed annual limit ($10,000 in 1998) and have the amount of
such reduction contributed to the 401(k) Plan. The Company currently matches 50%
of employee contributions up to 6% of an employee's salary, limited to the
maximum contribution allowable for income tax purposes. Employer contributions
vest proportionally over five years of service. Contributions to the 401(k) Plan
made by employees or by the Company, and income earned on such contributions
made by the Company, if any, will be deductible by the Company when made. The
401(k) Plan may be amended or discontinued at any time by the Company.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1)
The Company's executive compensation program is administered by the
Compensation and Stock Option Committee (the "Committee") of the Board. The
Committee is appointed by the Board and is comprised of three non-employee
directors. The non-employee directors that served on the Committee during fiscal
year 1998 were Messrs. Miller and Ekdahl and Dr. Watson.
The Committee is responsible for establishing and maintaining the Company's
policies governing employee compensation and administering the Company's
employee benefit plans. More specifically, the Committee establishes
compensation packages, bonus programs and employee benefit plans. In addition,
the Committee reviews and approves proposals made by management with respect to
the adoption of new plans or modification to existing plans, compensation
packages involving amounts over $100,000 per year and modifications to the bonus
plans.
- ---------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference into any filing of
the Company under the Securities Act of 1933, as amended, or the Exchange Act
whether made before or after the date hereof and irrespective of any general
incorporation language contained in such filing.
20
<PAGE> 23
COMPENSATION PHILOSOPHY
The Company's executive compensation philosophy strongly links management
pay with both the individual's and the Company's annual and long-term
performance. The Company's current compensation programs are designed to
attract, motivate, and retain senior management by providing compensation
packages that are competitive with local and national biotech companies. The
Company engages outside consultants to advise it with respect to its
compensation programs and consults various industry compensation surveys
including the Biotechnology Employee Development Coalition and Radford National
Salary and Benefits surveys.(2)
During the first quarter of each year, the Company's management proposes to
the Committee specific Company-wide objectives to be used as benchmark
performance indicators for that year. The Committee uses such objectives to
evaluate the Company's overall performance for the year, and subjectively
assesses each individual's contribution to such performance. Corporate
objectives for 1998 included (i) securing additional research support by
establishing and renewing collaborative research and license agreements; (ii)
advancing the Company's various drug discovery and development programs; (iii)
generating additional revenues by licensing various technologies; and (iv)
engaging additional corporate partners to further research and develop certain
of the Company's compounds.
COMPONENTS OF EXECUTIVE COMPENSATION.
The components of the Company's executive compensation packages and the
objective criteria on which they are based are as follows:
Base Salary. With respect to determining the base salary of executive
officers, the Committee considers a variety of factors including the executive's
prior relevant experience, the level of responsibility, the individual's
performance, and the salaries of similar positions in the Company compared with
the salaries set forth in the local Biotechnology Employee Development Coalition
and Radford National Salary and Benefits surveys. Based on the foregoing factors
and the data generated in the surveys, the Committee then sets target salary
levels applicable to each executive officer. For fiscal 1998, the Committee set
established target salaries for each executive officer at levels within the
range of salary levels reflected in the surveys. The Committee made its target
salary determinations subjectively after considering the competitive nature of
the biotechnology industry and the Company's need to attract and retain talented
executive officers.
The Committee believes that its process for determining and adjusting the
base salary of executive officers is consistent and equitable with sound
personnel practices and the Company's general compensation philosophy. Annual
adjustments in base salaries are determined consistent with the foregoing and
typically are made at the end of the first quarter.
Annual Cash Bonuses. Annual cash bonus awards are an integral component of
an executive's overall compensation package and are intended to maintain
competitive compensation levels with other leading biotechnology companies as
well as to reinforce team building and provide a merit-based means of earning
additional compensation. The amount of each executive's cash bonus is determined
each year subjectively by the Committee based upon the factors outlined above
for base salary with the goal of establishing combined base salary and bonus
within the range of salary levels determined using the surveys. Cash bonuses are
also awarded if certain minimum corporate earning thresholds are met, even if
certain other objectives are not met. During the fiscal year 1998, cash bonuses
were paid to all executive officers of the Company.
Equity Incentive Awards. Generally, the Company grants equity incentive
awards in the form of stock options to executive officers concurrent with their
joining the Company. The amount of such grants are intended to reflect a new
hire's level of experience and position for which such person was hired. In
addition,
- ---------------
(2) The companies included in the survey are not necessarily the same as the
companies included in the market indices included in the performance graph in
this Proxy Statement. Although the compensation (salary and bonus) surveys
referred to above and the market indices included in the performance graph are
broad and include companies in related industries, the surveys and indices were
created for different purposes and accordingly are not comparable.
21
<PAGE> 24
annual grants of stock options are made with the objective to strengthen the
mutuality of interest between management and the Company's stockholders. Grants
made under the 1996 Equity Incentive Plan generally have a term of 10 years and
are normally tied to the market valuation of the Company's Common Stock, thereby
providing an additional incentive for executives to build stockholder value. In
addition, grants are generally subject to vesting over four years, with vesting
tied to continued employment. Executives receive value from these grants only if
strategic goals are achieved and the Company's Common Stock appreciates
accordingly. This component of an executive's compensation package is intended
to retain and motivate executives to improve long-term stock market performance.
Additional long-term incentives are provided through the Company's Employee
Stock Purchase Plan in which all eligible employees may participate.
The level of the annual discretionary stock awards are based, in part, on
the executive's level of contribution to the Company during the prior year as
determined by the Committee using the factors specified above. The terms of the
Company's equity incentive plans pursuant to which it grants options to its
executive officers are comparable, in all material respects, to equity incentive
plans which are generally employed in the industry and which the Company
believes are competitive and reasonable.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee uses the same procedures described above in setting the total
compensation package paid to the Company's Chief Executive Officer. The Chief
Executive Officer's total salary is based on comparisons with other companies
included in the surveys referred to above. In awarding annual stock options, the
Committee considers the Chief Executive Officer's performance with respect to
objective criteria established by the Committee and overall contribution to the
Company during the prior year. During 1998, the Chief Executive Officer was paid
a salary of $276,258, a cash bonus of $42,400 and was granted options to
purchase 30,000 shares of Common Stock of the Company. The Committee believes
that the total compensation package received by the Chief Executive Officer for
fiscal year 1998 was competitive within the industry and reflected his overall
contribution to the Company.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code.
The statute containing this law and the applicable regulations offer a
number of transitional exceptions to the 162(m) limitations on deductions for
pre-existing compensation plans, arrangements and binding contracts. As a
result, the Committee believes that at the present time it is quite unlikely
that the compensation paid to any Named Executive Officer in a taxable year
which is subject to the deduction limit will exceed $1 million. Therefore, the
Committee has not yet established a policy for determining which forms of
incentive compensation awarded to its executive officers shall be designed to
qualify as "performance-based compensation." The Committee intends to continue
to evaluate the effects of the statute and to comply with Section 162(m) of the
Code in the future to the extent consistent with the best interests of the
Company and its stockholders.
SUBMITTED BY THE COMPENSATION AND STOCK OPTION COMMITTEE OF THE BOARD OF
DIRECTORS
Gunnar Ekdahl
William R. Miller
James D. Watson
22
<PAGE> 25
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows a comparison of cumulative total stockholder
returns on an investment of $100 in cash for the period from May 9, 1996 (the
effective date of the Company's initial public offering) to December 31, 1998
for the (i) Company's Common Stock, (ii) Nasdaq Stock Market Index, (iii) Nasdaq
Pharmaceutical Stock Index, and (iv) NeuroInvestment Index.
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
<TABLE>
<CAPTION>
SIBIA NEUROSCIENCES NASDAQ NEUROINVESTMENT INDEX
------------------- NASDAQ STOCK MARKET PHARMACEUTICAL STOCK ---------------------
INDEX INDEX
------------------- --------------------
<S> <C> <C> <C> <C>
10-May-96 100 100 100 100
28-Jun-96 71 100 92 88
31-Dec-96 69 109 92 89
30-Jun-97 60 122 94 75
31-Dec-97 60 133 95 66
30-Jun-98 48 160 96 60
31-Dec-98 44 187 121 53
</TABLE>
- ---------------
(1) This section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended, or the Exchange Act whether
made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
CERTAIN TRANSACTIONS
In July 1992, the Company loaned to Dr. Harpold $43,600 pursuant to a
promissory note bearing interest at the rate of 7.5% per annum. The entire loan
balance of $43,600 was forgiven as a provision of Dr. Harpold's June 1998
employment agreement. See "Executive Compensation -- Employment Agreements."
In February 1996, the Company loaned to Dr. Harpold $44,100 as the purchase
price for certain options to purchase Common Stock of the Company pursuant to a
promissory note bearing interest at the rate of 7.0% per annum. As of March 31,
1999, the total amount of principal and interest outstanding under the
promissory note was $53,771.
The Company has entered into certain transactions with its directors, as
described under the caption "Executive Compensation -- Compensation of
Directors."
The Company has also entered into certain agreements with certain of its
current and former executive officers, as described under the captions
"Executive Compensation -- Employment Agreements" and "-- Change in Control
Arrangements."
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law.
23
<PAGE> 26
The Company is also empowered under its Bylaws to enter into indemnification
contracts with its directors and officers and to purchase insurance on behalf of
any person whom it is required or permitted to indemnify. Pursuant to this
provision, the Company has entered into indemnity agreements with each of its
directors and officers.
In addition, the Company's Restated Certificate of Incorporation provides
that to the fullest extent permitted by Delaware law, the Company's directors
will not be liable for monetary damages for breach of the directors' fiduciary
duty of care to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Delaware law. Each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for acts or
omissions that the director believes to be contrary to the best interests of the
Company or its stockholders, for any transaction from which the director derived
an improper personal benefit, for acts or omissions involving a reckless
disregard for the director's duty to the Company or its stockholders when the
director was aware or should have been aware of a risk of serious injury to the
Company or its stockholders, for acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of the director's duty to
the Company or its stockholders, for improper transactions between the director
and the Company, and for improper distributions to stockholders and loans to
directors and officers. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
OTHER MATTERS
The Board knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ FREDERICK T. MUTO
----------------------------------
Frederick T. Muto
Secretary
April 14, 1999
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: THOMAS A. REED, CHIEF FINANCIAL OFFICER,
SIBIA NEUROSCIENCES, INC., 505 COAST BOULEVARD SOUTH, SUITE 300, LA JOLLA,
CALIFORNIA 92037-4641.
24
<PAGE> 27
ALL REFERENCES HEREIN TO NUMBERS OF SHARES
ALREADY TAKE INTO ACCOUNT AND GIVE EFFECT
TO THE 2.35-FOR-1 STOCK SPLIT EFFECTED IN
MARCH 1996.
SIBIA NEUROSCIENCES, INC.
1996 EQUITY INCENTIVE PLAN
ORIGINALLY ADOPTED FEBRUARY 22, 1996
AMENDED DECEMBER 12, 1996
AMENDED FEBRUARY 27, 1997
AMENDED JUNE 5, 1997
AMENDED FEBRUARY 25, 1999
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) "CAUSE" means (1) gross or habitual failure to perform assigned
duties of the job, that is, performance failure not corrected within thirty (30)
days after written notice thereof or (2) 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
1.
<PAGE> 28
or alcohol abuse on Company premises or at a Company sponsored event, (iii)
conduct which in the good faith and reasonable determination of the Board
demonstrates gross unfitness to serve, or (iv) intentional, material violation
of any contract between the holder of a Stock Award and the Company or any
statutory duty of such person to the Company.
(d) "CHANGE OF CONTROL" means any one of the following:
(1) a sale of all or substantially all of the assets of the
Company;
(2) a merger or consolidation in which the Company is not the
surviving corporation (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);
(3) 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;
(4) 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 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.
(5) 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
(6) the liquidation or dissolution of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(g) "COMPANY" means SIBIA Neurosciences, Inc., a Delaware corporation.
2.
<PAGE> 29
(h) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(i) "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.
(j) "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.
(k) "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.
(l) "DIRECTOR" means a member of the Board.
(m) "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.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "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
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.
<PAGE> 30
(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.
(p) "GOOD REASON" means any action taken by the Company or its
successor, as the case may be, that would result in a (1) reduction of the rate
of compensation as in effect immediately prior to the Change of Control, (2)
failure to provide a package of welfare benefit plans which, taken as a whole,
provide substantially similar benefits to those in which the holder of a Stock
Award 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 participation or reduce benefits under any of such plans, (3)
change in 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, (4) request that the holder of a Stock Award
relocate to a worksite that is more than thirty-five (35) miles from the prior
worksite, unless such relocation opportunity is accepted, (5) material reduction
in duties, (6) failure or refusal of the acquiring or surviving corporation to
assume the Company's obligations under this Plan, as required by Section 13(b),
or (7) material breach by the Company or any acquiring or surviving corporation
of any of the material provisions of the Plan.
(q) "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.
(r) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(s) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
(Regulation S-K)), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under 404(b) of Regulation S-K; or (ii) is otherwise considered a non-employee
director for purposes of Rule 16b-3.
(t) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(u) "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.
(v) "OPTION" means a stock option granted pursuant to the Plan.
4.
<PAGE> 31
(w) "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.
(x) "OPTIONEE" means a person who holds an outstanding Option.
(y) "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.
(z) "PLAN" means this 1996 Equity Incentive Plan.
(aa) "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.
(bb) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(cc) "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.
(dd) "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.
(ee) "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
5.
<PAGE> 32
person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything in this Section 3 to the
contrary, the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
(1) are not then subject to Section 16 of the Exchange Act and/or (2) are either
(i) not then Covered Employees and are not expected to be Covered Employees at
the time of recognition of income resulting from such Stock Award, or (ii) not
persons with respect to whom the Company wishes to comply with Section 162(m) of
the Code.
4. SHARES SUBJECT TO THE PLAN
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate two million five hundred thirteen thousand one
hundred forty-one (2,513,141) shares of the Company's common stock. If any Stock
Award shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the stock not acquired under such Stock
Award shall revert to and again become available for issuance under the Plan.
Shares subject to Stock Appreciation Rights exercised in accordance with Section
8 of the Plan shall not be available for subsequent issuance under the Plan.
6.
<PAGE> 33
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Option or an award
to purchase restricted stock if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such Option
is at least one hundred ten percent (110%) of the Fair Market Value of such
stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant, or in the case of a
restricted stock purchase award, the purchase price is at least one hundred
percent (100%) of the Fair Market Value of such stock at the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights covering more than five hundred thousand (500,000) shares of
the Company's common stock in any twelve (12) month period.
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
7.
<PAGE> 34
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
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 as provided in the stock option agreement evidencing such
Nonstatutory Stock Option and any amendments thereto or 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
8.
<PAGE> 35
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 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
9.
<PAGE> 36
in the Option Agreement. If, at the time of death, the Optionee was not entitled
to exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate; provided,
however, that (i) the right to repurchase at the original purchase price shall
lapse at a minimum rate of twenty percent (20%) per year over five (5) years
from the date the Option was granted, and (ii) such right shall be exercisable
only within (A) the ninety (90) day period following the termination of
employment or the relationship as a Director or Consultant, or (B) such longer
period as may be agreed to by the Company and the Optionee (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for the
shares. Should the right of repurchase be assigned by the Company, the assignee
shall pay the Company cash equal to the difference between the original purchase
price and the stock's Fair Market Value if the original purchase price is less
than the stock's Fair Market Value.
(j) 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(b)), shall have an exercise price which is equal to
one hundred ten percent (110%) of the Fair Market Value of the stock subject to
the Re-Load Option on the date of exercise of the original Option and shall have
a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(e) of the Plan and in Section
422(d) of the
10.
<PAGE> 37
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.
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
11.
<PAGE> 38
requirements of Section 1202(c)(3) of the Code (regarding "qualified small
business stock")), and (iii) such right shall be exercisable only for cash or
cancellation of purchase money indebtedness for the shares. Should the right of
repurchase be assigned by the Company, the assignee shall pay the Company cash
equal to the difference between the original purchase price and the stock's Fair
Market Value if the original purchase price is less than the stock's Fair Market
Value.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time 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(c), no limitation shall exist on the
aggregate amount of cash payments the Company may make under the Plan in
connection with the exercise of a Stock Appreciation 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.
12.
<PAGE> 39
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will
be granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They shall
be denominated in share equivalents. The appreciation distribution payable on
the exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (B) the aggregate Fair Market Value (on the date of the grant
of the Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall be in
cash or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE GRANT OF OPTIONS
(a) The Board or the Committee shall have the authority to effect, at
any time and from time to time, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and/or (ii) with the consent
of the affected holders of Options and/or Stock Appreciation Rights, the
cancellation of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and the grant in substitution therefor of new Options and/or
Stock Appreciation Rights under the Plan covering the same or different numbers
of shares of stock, but having an exercise price per share not less than
eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%)
of the Fair Market Value in the case of an Incentive Stock Option) or, in the
case of a 10% stockholder (as described in subsection 5(b)), not less than one
hundred ten percent (110%) of the Fair Market Value) per share of stock on the
new grant date. Notwithstanding the foregoing, the Board or the Committee may
grant an Option and/or Stock Appreciation Right with an exercise price lower
than that set forth above if such Option and/or Stock Appreciation Right is
granted as part of a transaction to which section 424(a) of the Code applies.
13.
<PAGE> 40
(b) Shares subject to an Option or Stock Appreciation Right canceled
under this Section 9 shall continue to be counted against the maximum award of
Options and Stock Appreciation Rights permitted to be granted pursuant to
subsection 5(c) of the Plan. The repricing of an Option and/or Stock
Appreciation Right under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Right and the grant of a substitute Option and/or
Stock Appreciation Right; in the event of such repricing, both the original and
the substituted Options and Stock Appreciation Rights shall be counted against
the maximum awards of Options and Stock Appreciation Rights permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 9(b) shall be applicable only to the extent required by Section
162(m) of the Code.
10. COVENANTS OF THE COMPANY
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act 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.
14.
<PAGE> 41
(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-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
15.
<PAGE> 42
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, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split (excluding the
2.35-for-1 stock split 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(c), 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 a Change of Control, then to the extent permitted by
applicable law: (1) any surviving or acquiring corporation or an Affiliate of
such corporation shall assume any Stock Awards outstanding under the Plan or
shall substitute similar stock awards (including an award to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 13(b)) for those outstanding under the Plan, or (2) such Stock Awards
shall continue in full force and effect. If Stock Awards are assumed,
substituted, or continue in full force and effect, then the vesting of such
Stock Awards shall be accelerated in full if the holder's Continuous Status as
an Employee, Director or Consultant is terminated either without Cause by the
surviving or acquiring corporation or with Good Reason by the holder, within the
twelve (12) months following the date of the Change of Control. In the event any
surviving or acquiring corporation or its Affiliate refuses or is not permitted
under applicable law to assume such Stock Awards or to substitute similar Stock
Awards for those outstanding under the Plan, then the vesting and exercisability
of such Stock Awards shall be accelerated in full prior to the Change of Control
and such Stock Awards shall be terminated if not exercised at or prior to such
Change of Control; provided, however, that if such Change of Control occurs as
the result of an event described in Section 2(d)(4) or Section 2(d)(5) of this
Plan, then the holders of Stock Awards shall have fifteen (15) days from the
date of such Change of Control to exercise such Stock Awards, after which time
such Stock Awards shall be terminated. In the event of a dissolution or
liquidation of the Company, any Stock Awards outstanding under the Plan shall
terminate if not exercised at or prior to such event.
16.
<PAGE> 43
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.
(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.
17.
<PAGE> 44
(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.
18.
<PAGE> 45
PROXY
SIBIA NEUROSCIENCES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 1999
The undersigned hereby appoints William T. Comer and Thomas A. Reed, and each
of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of SIBIA Neurosciences, Inc.
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of SIBIA Neurosciences, Inc. to be held at Lieb Auditorium, 505
Coast Boulevard South, Suite 300, La Jolla, California 92037, on Wednesday, May
26, 1999, at 5:00 p.m., Pacific Daylight Savings Time, and at any and all
postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
(Continued on other side)
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<PAGE> 46
(Continued from other side)
Please mark
your vote
as indicated [X]
in this
example
MANAGEMENT RECOMMENDS A VOTE FOR THE FOR the nominee WITHHOLD
NOMINEE FOR DIRECTOR LISTED BELOW. listed below AUTHORITY
(except as marked to vote for the
PROPOSAL 1: To elect one director to to the contrary nominee listed
hold office until the below). below.
2002 Annual Meeting of [ ] [ ]
Stockholders.
NOMINEE: James D. Watson, Ph.D.
MANAGEMENT RECOMMENDS A VOTE FOR
PROPOSALS 2 AND 3. FOR AGAINST ABSTAIN
PROPOSAL 2: To approve the Company's 1996 [ ] [ ] [ ]
Equity Incentive Plan, as
amended, to increase the
aggregate number of shares of
common stock authorized for
issuance under such Plan from
one million five hundred thirteen
thousand one hundred forty-one
(1,513,141) shares to two
million five hundred thirteen
thousand one hundred forty-one
(2,513,141) shares.
FOR AGAINST ABSTAIN
PROPOSAL 3: To ratify selection of [ ] [ ] [ ]
PricewaterhouseCoopers LLP
as independent auditors of the
Company for its fiscal year
ending December 31, 1999.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE NOMINEE LISTED IN
PROPOSAL 1 AND FOR PROPOSALS 2 AND 3 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT.
IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
Please vote, date and promptly return this proxy
in the enclosed return envelope which is postage
prepaid if mailed in the United States.
Signature(s) Dated
------------------------------------------------ --------------
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
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FOLD AND DETACH HERE
