SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-2
Diatide, 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:
____________________________
2) Aggregate number of securities to which transaction applies:
____________________________
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 filing fee is calculated and state how it was determined):
______________________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________________
5) Total fee paid: ____________________________
[ ] Fee paid previously with preliminary materials: __________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid: ______________________________________________
2) Form, Schedule or Registration Statement No.: ________________________
3) Filing Party: ________________________________________________________
4) Date Filed: __________________________________________________________
- --------------------------------------------------------------------------------
<PAGE>
DIATIDE, INC.
Nine Delta Drive
Londonderry, New Hampshire 03053
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1999
--------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Diatide, Inc., a Delaware corporation (the "Company"), will be held on Friday,
May 14, 1999 at 10:00 a.m. at the Bedford Village Inn, 2 Village Inn Lane,
Bedford, New Hampshire (the "Meeting") for the purpose of considering and
voting upon the following matters:
1. To elect two Class III Directors for the ensuing three years;
2. To approve the adoption of the 1999 Stock Incentive Plan;
3. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for the current year; and
4. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on Thursday, April
1, 1999 as the record date for the determination of stockholders entitled to
notice of and to vote at the Meeting and at any adjournments thereof.
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1998, which contains financial statements and other information of
interest to stockholders, accompanies this Notice and the enclosed Proxy
Statement.
By order of the Board of Directors,
Ronald B. Kinder, Secretary
April 16, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE TO ASSURE
REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE AFFIXED IF THE
PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
[This page intentionally left blank]
<PAGE>
DIATIDE, INC.
Nine Delta Drive
Londonderry, New Hampshire 03053
--------------------
PROXY STATEMENT
--------------------
For the Annual Meeting of Stockholders
To Be Held on May 14, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Diatide, Inc. (the "Company") for the
Annual Meeting of Stockholders to be held on Friday, May 14, 1999 at 10:00 a.m.
at the Bedford Village Inn, 2 Village Inn Lane, Bedford, New Hampshire and at
any adjournments thereof (the "Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation or a subsequently dated proxy to the Secretary of the
Company or by voting in person at the Meeting. Attendance at the Meeting will
not itself be deemed to revoke a proxy unless the stockholder gives affirmative
notice at the Meeting that the stockholder intends to revoke the proxy and vote
in person.
The Notice of Meeting, this Proxy Statement, the enclosed proxy and the
Company's Annual Report to Stockholders for the year ended December 31, 1998
are being mailed to stockholders on or about April 16, 1999. The Company will,
upon written request of any stockholder, furnish without charge a copy of its
Annual Report on Form 10-K for the year ended December 31, 1998, as filed with
the Securities and Exchange Commission (the "SEC"), without exhibits. Please
address all such requests to the Company, Attention of Daniel F. Harrington,
Chief Financial Officer, Nine Delta Drive, Londonderry, New Hampshire 03053.
Exhibits to such Form 10-K will be provided upon written request and payment of
an appropriate processing fee.
Voting Securities and Votes Required
On April 1, 1999, the record date for determination of stockholders
entitled to notice of and to vote at the Meeting, there were outstanding and
entitled to vote an aggregate of 10,582,773 shares of Common Stock of the
Company, $.001 par value per share (the "Common Stock"), 1,210,256 shares of
Series A Convertible Preferred Stock of the Company, $.01 par value per share
(the "Series A Preferred Stock"), and 825,309 shares of Series B Convertible
Preferred Stock of the Company, $.01 par value per share (the "Series B
Preferred Stock," and together with the Series A Preferred Stock, the
"Preferred Stock"). Holders of shares of Common Stock are entitled to one vote
per share. Holders of shares of Preferred Stock are entitled to one vote for
each share of Common Stock issuable as of the date of such vote upon conversion
of each share of Preferred Stock held (currently, one vote per share of
Preferred Stock). On all matters submitted to the record holders of shares of
Common Stock, such holders and the record holders of shares of Preferred Stock
will vote together as one class.
The holders of a majority of the shares of capital stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of capital stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for stockholder approval)
will be counted for purposes of determining whether a quorum is present at the
Meeting.
The affirmative vote of the holders of a plurality of the votes cast by
the stockholders entitled to vote at the Meeting is required for the election
of directors. The affirmative vote of the holders of a majority of the shares
of capital stock present or represented by proxy and voting on the matter is
required for the approval of the 1999 Stock Incentive Plan and the ratification
of the selection of the Company's independent auditors.
<PAGE>
Shares which abstain from voting as to a particular matter, and shares
held in "street name" by brokers or nominees who indicate on their proxies that
they do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on a
matter that requires the affirmative vote of a certain percentage of the votes
cast or shares voting on a matter.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of January 31,
1999, regarding the beneficial ownership of shares of the Company's Common
Stock, Series A Preferred Stock and Series B Preferred Stock, the Company's
three classes of voting stock, by (i) each person or entity known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each person or entity known by the Company to own beneficially more
than 5% of the outstanding shares of Series A Preferred Stock; (iii) each
person or entity known by the Company to own beneficially more than 5% of the
outstanding shares of Series B Preferred Stock, (iv) each director and director
nominee of the Company, (v) the Named Executive Officers (as defined in the
Summary Compensation Table below), and (vi) the directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Series A Convertible
Common Stock Preferred Stock
---------------------------- ------------------------
Number Number
of of
Shares Percent Shares Percent
Beneficially of Beneficially of
Owned(1) Class Owned Class
------------------ --------- -------------- ---------
<S> <C> <C> <C> <C>
5% Stockholders
Chase Venture Capital Associates, L.P. .. 1,653,564(3) 14.3% 871,795 72.0%
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, NY 10019
Nycomed Imaging AS ...................... 1,500,000 14.2% -- --
Nycoveien 1-2
N-0401 Oslo, Norway
Medsource S.A. .......................... 1,450,346(4) 13.3% 307,692 25.4%
c/o BB Medtech AG
Vodergasse 3
CH-8200 Schaffhausen
Switzerland
Entities affiliated with DLJ Capital
Corporation ............................. 1,135,953(5) 10.7% -- --
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, CA 94025-7114
Medical Science Partners Group .......... 1,028,830(6) 9.7% -- --
20 William Street, Suite 250
Wellesley, MA 02181
Entities affiliated with Alta Partners .. 949,104(7) 8.2% -- --
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
<CAPTION>
Series B Convertible
Preferred Stock
------------------------
Number Total Percent of
of Common and
Shares Percent Preferred Stock on
Beneficially of an As-Converted
Owned Class Basis(2)
-------------- --------- -------------------
<S> <C> <C> <C>
5% Stockholders
Chase Venture Capital Associates, L.P. .. -- -- 13.0%
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, NY 10019
Nycomed Imaging AS ...................... -- -- 11.9%
Nycoveien 1-2
N-0401 Oslo, Norway
Medsource S.A. .......................... -- -- 11.5%
c/o BB Medtech AG
Vodergasse 3
CH-8200 Schaffhausen
Switzerland
Entities affiliated with DLJ Capital
Corporation ............................. -- -- 9.0%
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, CA 94025-7114
Medical Science Partners Group .......... -- -- 8.2%
20 William Street, Suite 250
Wellesley, MA 02181
Entities affiliated with Alta Partners .. 825,309 100% 7.4%
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Series A Convertible
Common Stock Preferred Stock
------------------------------ ------------------------
Number Number
of of
Shares Percent Shares Percent
Beneficially of Beneficially of
Owned(1) Class Owned Class
-------------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Directors
Gustav Christensen ..................... 31,900(8) * -- --
Richard T. Dean ........................ 380,674(9) 3.6% -- --
Hirsch Handmaker ....................... 51,200(10) * -- --
Robert S. Lees ......................... 175,187(11) 1.6% -- --
Joseph F. Lovett ....................... 1,045,169(12) 9.9% -- --
Donald L. Murfin ....................... 265,544(13) 2.5% -- --
Daniel L. Peters ....................... 1,507,500(14) 14.2% -- --
Other Named Executive Officers
Ronald B. Kinder ....................... 76,959(15) * -- --
Daniel F. Harrington ................... 52,000(16) * -- --
Gerald F. Eisen ........................ - - -- --
Christopher F. Nicodemus ............... 15,000(17) * -- --
All directors and executive officers
as a group (11 persons) ............... 3,601,133(18) 32.9% -- --
<CAPTION>
Series B Convertible
Preferred Stock
------------------------
Number Total Percent of
of Common and
Shares Percent Preferred Stock on
Beneficially of an As-Converted
Owned Class Basis(2)
-------------- --------- -------------------
<S> <C> <C> <C>
Directors
Gustav Christensen ..................... -- -- *
Richard T. Dean ........................ -- -- 3.0%
Hirsch Handmaker ....................... -- -- *
Robert S. Lees ......................... -- -- 1.4%
Joseph F. Lovett ....................... -- -- 8.3%
Donald L. Murfin ....................... -- -- 2.1%
Daniel L. Peters ....................... -- -- 11.9%
Other Named Executive Officers
Ronald B. Kinder ....................... -- -- *
Daniel F. Harrington ................... -- -- *
Gerald F. Eisen ........................ -- -- -
Christopher F. Nicodemus ............... -- -- *
All directors and executive officers
as a group (11 persons) ............... -- -- 27.8%
</TABLE>
- ---------
* Less than 1%.
(1) The number of shares beneficially owned by each person or entity known by
the Company to own beneficially more than 5% of the outstanding voting
stock, director and executive officer is determined under rules
promulgated by the SEC, and the information is not necessarily indicative
of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which an individual or
group has sole or shared voting power or investment power and also any
shares which an individual or group has the right to acquire within 60
days after January 31, 1999 through the conversion of Preferred Stock or
the exercise of any stock option, warrant or other right. The inclusion
herein of such shares, however, does not constitute an admission that the
named stockholder is a direct or indirect beneficial owner of such shares.
Unless otherwise indicated, each person or group named in the table has
sole voting and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by
such person or entity.
(2) This column reflects each listed individual's or group's percent
beneficial ownership of the Company's voting stock on an as-converted
basis. This column differs from the column entitled "Percent of Class"
with respect to the Company's Common Stock because the percent calculation
in this column is based on the assumption that all of the shares of Series
A Preferred Stock currently outstanding are converted into 1,210,256
shares of Common Stock and that all of the shares of Series B Preferred
Stock currently outstanding are converted into 825,309 shares of Common
Stock. The percent calculation in the column entitled "Percent of Class"
with respect to the Company's Common Stock includes shares of Common Stock
issuable upon conversion of the Preferred Stock only to the extent that
the listed individual or group beneficially owns such shares of Preferred
Stock.
(3) Includes 871,795 shares of Common Stock issuable upon conversion of
871,795 shares of Series A Preferred Stock held by Chase Venture Capital
Associates, L.P. ("CVC") and 130,769 shares of Common Stock subject to
outstanding common stock purchase warrants held by CVC.
3
<PAGE>
(4) Includes 307,692 shares of Common Stock issuable upon conversion of
307,692 shares of Series A Preferred Stock held by Medsource S.A.
("Medsource") and 46,154 shares of Common Stock subject to outstanding
common stock purchase warrants held by Medsource. This information is
taken from a Schedule 13D and a Schedule 13G filed with the SEC on July 7,
1998. Medsource is a wholly-owned subsidiary of BB Medtech AG.
(5) Consists of 809,705 shares held by ML Venture Partners II, L.P., 281,647
shares held by Sprout Capital VI, L.P. and 44,601 shares held by DLJ
Capital Corporation. These entities are affiliates under common control.
(6) Consists of 919,089 shares held by Medical Science Partners, L.P. ("MSP"),
96,154 shares held by Medical Science Partners II, L.P. ("MSP II") and
13,587 shares held by Medical Science II Co-Investment L.P. ("MS
Co-Investment"). These entities are affiliates under common control. This
information is taken from a Schedule 13D and a Schedule 13G filed with the
SEC on February 14, 1997.
(7) Includes 795,332 shares of Common Stock issuable upon conversion of
795,332 shares of Series B Preferred Stock held by Alta BioPharma Partners
L.P. ("Alta BioPharma"), 29,977 shares of Common Stock issuable upon
conversion of 29,977 Series B Preferred Stock held by Alta Embarcadero
BioPharma Partners LLC ("Alta Embarcadero"), 119,299 shares of Common
Stock subject to outstanding common stock purchase warrants held by Alta
BioPharma and 4,496 shares of Common Stock subject to outstanding common
stock purchase warrants held by Alta Embarcadero. These entities are
affiliates under common control.
(8) Includes 14,700 shares subject to outstanding stock options held by Mr.
Christensen, which are exercisable within the 60-day period following
January 31, 1999, and 7,200 shares held in an individual retirement
account of which Mr. Christensen is the beneficiary.
(9) Includes 139,087 shares subject to outstanding stock options held by Dr.
Dean, which are exercisable within the 60-day period following January 31,
1999.
(10) Includes 30,200 shares held by Healthcare Technology Group ("HTG"), an
entity of which Dr. Handmaker is the principal. Also includes 12,000
shares subject to outstanding stock options held by HTG and 5,000 shares
subject to outstanding stock options held by Dr. Handmaker. These options
are exercisable within the 60-day period following January 31, 1999.
(11) Includes 11,100 shares subject to outstanding stock options held by Dr.
Lees, which are exercisable within the 60-day period following January 31,
1999 and 1,000 shares held by his spouse.
(12) Includes 7,500 shares subject to outstanding stock options held by Mr.
Lovett, which are exercisable within the 60-day period following January
31, 1999, 919,089 shares held by MSP, 96,154 shares held by MSP II and
13,587 shares held by MS Co-Investment. Mr. Lovett is a general partner of
the general partners of MSP, MSP II and MS Co-Investment and may be
considered a beneficial owner of the shares beneficially owned by such
entities, although Mr. Lovett disclaims beneficial ownership of such
shares, except as to his pecuniary interests therein.
(13) Includes 7,500 shares subject to outstanding stock options held by Mr.
Murfin, which are exercisable within the 60-day period following January
31, 1999 and 257,456 shares held by Chemicals and Materials Enterprise
Associates, L.P. ("CMEA"). Mr. Murfin is a general partner of CMEA and may
be considered a beneficial owner of the shares beneficially owned by CMEA,
although Mr. Murfin disclaims beneficial ownership of such shares, except
as to his pecuniary interests therein.
(14) Consists of 7,500 shares subject to outstanding stock options held by Mr.
Peters, which are exercisable within the 60-day period following January
31, 1999 and 1,500,000 shares held by Nycomed Imaging AS ("Nycomed"). Mr.
Peters is the President and a director of Nycomed Inc., a subsidiary of
Nycomed ASA, Nycomed's parent company, and may be considered a beneficial
owner of the shares beneficially owned by Nycomed, although Mr. Peters
disclaims beneficial ownership of such shares. Mr. Peters resigned from
the Board of Directors on February 4, 1999.
4
<PAGE>
(15) Includes 74,200 shares subject to outstanding stock options held by Mr.
Kinder, which are exercisable within the 60-day period following January
31, 1999.
(16) Consists of 52,000 shares subject to outstanding stock options held by Mr.
Harrington, which are exercisable within the 60-day period following
January 31, 1999.
(17) Consists of 15,000 shares subject to outstanding stock options held by Mr.
Nicodemus, which are exercisable within the 60-day period following
January 31, 1999.
(18) See Notes (8) through (17) above.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three Class
I Directors, one Class II Director and two Class III Directors. At each annual
meeting of stockholders, directors are elected for a full term of three years
to succeed those whose terms are expiring. Two Class III Directors will be
elected at the Meeting for a three-year term expiring at the 2002 Annual
Meeting. Class I Directors were elected at the 1997 Annual Meeting for a
three-year term expiring at the 2000 Annual Meeting. Class II Directors were
elected at the 1998 Annual Meeting for a three-year term expiring at the 2001
Annual Meeting.
The persons named in the enclosed proxy will vote to elect, as Class III
Directors, Richard T. Dean and Robert S. Lees, the director nominees named
below, unless the proxy is marked otherwise. Drs. Dean and Lees are currently
directors of the Company. Mr. Peters, a former Class III Director, resigned
from the Board of Directors on February 4, 1999.
Each Class III Director will be elected to hold office until the annual
meeting of stockholders to be held in 2002 and until his successor is elected
and qualified. Each of the nominees has indicated his willingness to serve, if
elected; however, if any nominee should be unable to serve, the person acting
under the proxy may vote the proxy for a substitute nominee designated by the
Board of Directors. The Board of Directors has no reason to believe that any of
the nominees will be unable to serve if elected.
Set forth below are the name and age of each member of the Board of
Directors, including those who are nominees for election as Class III
Directors, whose term of office will continue beyond the date of the Meeting,
and the position and offices held by such member, his principal occupation and
business experience during the past five years, the names of other publicly
held companies of which he serves as a director and the year of the
commencement of his term as a director of the Company.
<TABLE>
<CAPTION>
Principal Occupation, Other
Director Business Experience during Past Five
Name Age Since Years and Other Directorships
- ---- --- -------- ------------------------------------
<S> <C> <C> <C>
Nominees for Terms Expiring
in 1999 (Class III Directors)
Richard T. Dean, Ph.D ......... 51 1990 President and Chief Executive Officer since April
1990, and a founder of the Company. Director of
Radiopharmaceutical Research and Development at
Centocor, Inc., a pharmaceutical company, from 1986
to 1990. From 1981 to 1986, served in a variety of
positions at Mallinckrodt, Inc., most recently as
Associate Director, Diagnostic Chemistry Research
and Development.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation, Other
Director Business Experience during Past Five
Name Age Since Years and Other Directorships
- ---- --- -------- ------------------------------------
<S> <C> <C> <C>
Robert S. Lees, M.D ........... 64 1990 A founder of the Company and Chairman of the
Company's Board of Scientific Advisors. Professor of
Health Sciences and Technology in the Harvard-
Massachusetts Institute of Technology Division of
Health Sciences and Technology since 1988 and
President of the Boston Heart Foundation since 1985.
Director and founder of the Arteriosclerosis Center at
the Massachusetts Institute of Technology ("MIT")
since 1973. Chairman of the Metabolism Study Section
at the National Institutes of Health and former director
of the Noninvasive Diagnostic Laboratory at the
Massachusetts General Hospital. Professor at MIT
since 1968 and Harvard University since 1988.
Directors Whose Terms Expire
in 2000 (Class I Directors)
Gustav A. Christensen ......... 51 1990 Founder of Phytera, Inc., a biotechnology company,
and member of the Board of Directors since 1992.
Chairman of the Board of Directors of Alpha-Beta
Technologies, Inc., a biotechnology company, from
1990 to 1999. From 1988 to 1990, President and Chief
Executive Officer of Immulogic Pharmaceutical
Corporation, a biotechnology company, and from 1983
to 1988, Senior Vice President of Commercial Affairs
and Vice President of Marketing and Business
Development for Genetics Institute, Inc., a
biotechnology company.
Donald L. Murfin .............. 55 1993 General Partner of Chemicals and Materials Enterprise
Associates, L.P., a venture capital firm affiliated with
New Enterprise Associates V, L.P., of which he is a
Special Partner, since 1989. From 1979 to 1988,
President and a Director of Lubrizol Enterprises, Inc.,
a venture development company, and from 1985 to
1988, Vice President of The Lubrizol Corporation, its
parent company. Member of the Board of Directors of
Genentech, Inc., a biotechnology company.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation, Other
Director Business Experience during Past Five
Name Age Since Years and Other Directorships
- ---- --- -------- ------------------------------------
<S> <C> <C> <C>
Hirsch Handmaker, M.D ......... 58 1997 President of Healthcare Technology Group since 1986.
From 1996 to 1997, a physician with Clinical
Diagnostic Radiology, Inc. From 1994 to 1997,
Executive Director of the Arizona Institute of Nuclear
Medicine (the "Arizona Institute") and Medical
Director of Papago Imaging, a medical imaging
company. From 1972 to 1994, Director of Nuclear
Medicine at the Children's Hospital of San Francisco
and its successor, the California Pacific Medical
Center. From 1983 to 1987, President and Chairman of
Diagnostic Networks, Inc., a healthcare company.
From 1974 to 1982, President and Chairman of
RadPharm, Inc., a healthcare company subsequently
sold to Mallinckrodt, Inc. Diplomate of the American
Boards of Radiology and Nuclear Medicine and a
Fellow of the American College of Nuclear Physicians.
Director Whose Term Expires
in 2001 (Class II Director)
Joseph F. Lovett .............. 50 1990 General Partner of Medical Science Ventures, L.P., the
general partner of Medical Science Partners, L.P., a
venture capital firm, since 1988. From 1985 to 1988,
Senior Vice President of Damon Biotech, a
biotechnology company. From 1980 to 1985, served in
a variety of positions at Mallinckrodt, Inc., a health
care products and specialty chemicals company, most
recently as Vice President and General Manager of the
Diagnostic Products Division.
</TABLE>
For information relating to shares of Common Stock beneficially owned by
each of the directors, see "Security Ownership of Certain Beneficial Owners and
Management."
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock 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. Such persons are required by
the SEC regulations to furnish the Company with copies of all Section 16(a)
forms filed by such person with respect to the Company.
Based solely on its review of copies of reports filed by reporting persons
pursuant to Section 16(a) of the Exchange Act, or written representations from
reporting persons that no Form 5 filing was required for such person, the
Company believes that, during 1998, all filings required to be made by
reporting persons of the Company were timely made in accordance with the
requirements of the Exchange Act, other than a filing by Ronald B. Kinder with
respect to a stock option grant, a filing by Hirsch Handmaker with respect to a
disposition of stock and a filing by Gerald Eisen with respect to a stock
option grant, which filings were not made on a timely basis.
7
<PAGE>
Board and Committee Meetings
The Board of Directors held five meetings during 1998. All directors
attended at least 75% of the meetings of the Board of Directors and the
meetings of the committees on which they served.
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company, establishes and approves salaries and incentive
compensation for certain senior officers and employees and administers and
grants stock options pursuant to the Company's stock option plans. The
Compensation Committee held three meetings during 1998. The members of the
Compensation Committee are Messrs. Christensen and Lovett. Mr. Peters also
served on the Compensation Committee during 1998. See "Compensation of
Executive Officers -- Report of the Compensation Committee on Executive
Compensation."
The Board of Directors has an Audit Committee, which reviews the results
and scope of the audit and other services provided by the Company's independent
public accountants. The Audit Committee held three meetings during 1998. The
members of the Audit Committee are Drs. Lees and Handmaker and Mr. Murfin.
The Company does not have a nominating committee or a committee serving a
similar function. Nominations are made by and through the full Board of
Directors.
Compensation of Directors
Each non-employee director is paid $1,500 for personal or telephonic
attendance at a Board or committee meeting. Other directors are not entitled to
compensation in their capacities as directors. All of the directors are
reimbursed for their expenses incurred in connection with their attendance at
Board and committee meetings.
Dr. Lees received approximately $42,000 in compensation in the year ended
December 31, 1998 in connection with the provision of certain consulting
services to the Company, including his attendance at the Company's Scientific
Advisory Board meeting.
Each non-employee director is entitled to participate in the Company's
1996 Director Stock Option Plan (the "Director Plan"). The Director Plan
provides that options to purchase 5,000 shares of Common Stock will be granted
to each new director upon his or her initial election to the Board of
Directors. Under the Director Plan, annual options to purchase 2,500 shares of
Common Stock will be granted to each eligible director on May 1 of each year.
All options will vest on the first anniversary of the date of grant; provided,
that the exercisability of these options will be accelerated upon the
occurrence of a change in control of the Company (as defined in the Director
Plan). A total of 250,000 shares of Common Stock may be issued upon the
exercise of stock options granted under the Director Plan. The exercise price
of options granted under the Director Plan will equal the closing price of the
Common Stock on the date of grant. On May 1, 1998, each director of the Company
other than Dr. Dean received stock options under the Director Plan to purchase
2,500 shares of Common Stock at a price of $9.50 per share, the fair market
value on the date of grant. As of March 15, 1999, options to purchase an
aggregate of 55,000 shares of stock were outstanding under the Director Plan.
The Company is a party to consulting and other arrangements with
affiliates of Dr. Handmaker. For a description of these arrangements with the
Company, see "Certain Relationships and Related Transactions."
Compensation of Executive Officers
Summary Compensation Table
The following table sets forth the compensation for each of the last three
fiscal years for the Company's Chief Executive Officer and the Company's four
other most highly compensated executive officers (other than the Chief
Executive Officer) whose total annual salary and bonus exceeded $100,000 for
the year ended December 31, 1998 (the "Named Executive Officers").
8
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------- -------------
Securities
Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
- -------------------------------------- ------ ------------ ----------------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
Richard T. Dean ...................... 1998 $233,093 $ 46,689(1) 80,000 $ 5,842(2)(3)
President, Chief Executive 1997 221,194 50,625(4) 75,000 5,835(5)(6)
Officer and Director 1996 207,500 -- -- 5,998(8)(9)
Ronald B. Kinder ..................... 1998 187,751 25,862(1) 40,000 3,707(2)(3)
Executive Vice President, 1997 177,500 27,000(4) 38,000 3,024(5)(6)
Chief Operating Officer and 1996 152,607 -- -- 2,939(8)(9)
Secretary
Daniel F. Harrington(10) ............. 1998 173,614 17,623(1) 25,000 2,890(2)(3)
Vice President, Chief 1997 165,344 37,202(4) -- 1,843(5)(6)
Financial Officer and 1996 6,875 50,000(11) 100,000 --
Treasurer
Gerald F. Eisen(12) .................. 1998 90,342 45,877(1)(11) 50,000 389(3)
Vice President of Clinical
Operations
Christopher F. Nicodemus(13) ......... 1998 204,033 -- -- 2,970(2)(3)
Former Vice President of 1997 104,583 12,000(4) 75,000 217(6)
Clinical Operations
</TABLE>
- ------------
(1) Reflects amounts paid as a bonus in 1999 to the Named Executive Officer
for 1998.
(2) Includes $2,500 contributed by the Company for each of Dr. Dean, Mr.
Kinder, Mr. Harrington and Dr. Nicodemus pursuant to the Company's 401(k)
Plan in 1998.
(3) Includes $3,342, $1,207, $390, $470 and $389 of insurance premiums paid by
the Company on behalf of Dr. Dean, Mr. Kinder, Mr. Harrington, Dr.
Nicodemus and Mr. Eisen, respectively, during 1998 with respect to life
insurance for the benefit of the Named Executive Officer.
(4) Reflects amounts paid as a bonus in 1998 to the Named Executive Officer
for 1997.
(5) Includes $997, $2,375, and $1,449 contributed by the Company on behalf of
Dr. Dean, Mr. Kinder, and Mr. Harrington respectively, pursuant to the
Company's 401(k) Plan in 1997.
(6) Includes $4,838, $649, $394 and $217 of insurance premiums paid by the
Company on behalf of Dr. Dean, Mr. Kinder, Mr. Harrington and Dr.
Nicodemus, respectively, during 1997 with respect to life insurance for
the benefit of the Named Executive Officer.
(7) Reflects amount paid as a bonus in 1997 to Dr. Dean for 1996.
(8) Includes $1,000 and $2,289 contributed by the Company on behalf of Dr.
Dean and Mr. Kinder, respectively, pursuant to the Company's 401(k) Plan
in 1996.
(9) Includes $4,998 and $650 of insurance premiums paid by the Company on
behalf of Dr. Dean and Mr. Kinder, respectively, during 1996 with respect
to life insurance for the benefit of the Named Executive Officer.
9
<PAGE>
(10) Mr. Harrington commenced his employment with the Company on December 15,
1996.
(11) Reflects amount paid by the Company as a signing bonus.
(12) Mr. Eisen commenced his employment with the Company on July 6, 1998.
(13) Dr. Nicodemus commenced his employment with the Company on June 23, 1997
and terminated his employment with the Company on January 22, 1999.
Employment Agreement
The Company is a party to an employment agreement with Dr. Dean for the
period ending April 1, 2000, subject to automatic extension for additional
one-year periods unless either Dr. Dean or the Company provides written notice
to the contrary to the other party at least six months prior to the expiration
of the employment period. Under this agreement, Dr. Dean is currently entitled
to receive an annual base salary of $233,445, as it may be adjusted in the
discretion of the Board of Directors or as a result of changes in the U.S.
Consumer Price Index, and an annual cash bonus equal to up to 25% of his annual
base salary based on the attainment of management objectives determined by the
Board of Directors in its sole discretion. In the event Dr. Dean's employment
is terminated (i) by the Company without cause, (ii) due to nonrenewal of the
employment agreement by the Company or (iii) by Dr. Dean following a change in
control of the Company or the significant diminution in his authority or
responsibility, he will continue to receive his annual base salary during the
one-year period commencing on the date of termination. In the event of a change
in control of the Company (as defined in his option agreements), all
outstanding unvested options held by Dr. Dean will become immediately vested.
The Company has also entered into a registration rights agreement with Dr.
Dean that provides that in the event the Company proposes to register any of
its securities under the Securities Act of 1933, as amended, at any time, with
certain exceptions, Dr. Dean shall be entitled to include the shares of Common
Stock held by him in such registration, subject to the right of the managing
underwriter of any underwritten offering to exclude from such registration for
marketing reasons some or all of such shares.
10
<PAGE>
Option Grants Table
The following sets forth, as to the Named Executive Officers, information
concerning stock options granted in the year ended December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term (1)
------------------------------------------------------------------ -------------------------
Number of
Securities % of Total
Underlying Options Granted to Exercise
Option Employees in Price Expiration
Name Granted (#) Fiscal Year ($/sh)(2) Date(3) 5% 10%
- ------------------------------ --------------- -------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard T. Dean .............. 80,000(4) 26.3 $ 7.00 12/16/08 $352,181 $892,496
Ronald B. Kinder ............. 40,000(4) 13.1 7.00 12/16/08 176,091 446,248
Daniel F. Harrington ......... 25,000(4) 8.2 7.00 12/16/08 110,057 278,905
Gerald F. Eisen .............. 50,000(5) 16.4 8.50 07/06/08 267,280 677,341
Christopher F. Nicodemus ..... -- -- -- -- -- --
</TABLE>
- ------------
(1) Amounts represent hypothetical gains that could be achieved for respective
options if exercised at the end of the option term. These gains are based
on assumed rates of stock price appreciation of 5% and 10%, compounded
annually from the date the respective options were granted to their
expiration date. The gains shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with the
exercise. Actual gains, if any, on stock option exercises will depend on
the future performance of the Common Stock, the option holder's continued
employment through the option period and the date on which the options are
exercised.
(2) The exercise price of an option is equal to the fair market value of the
Company's Common Stock on the date of grant.
(3) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted.
(4) These stock options vest in five equal installments when the average price
of a share of the Company's Common Stock over a period of 10 trading days
reaches each of the following levels: $10.00, $12.50, $15.00, $17.50 and
$20.00; and, in any event, the stock options will vest in full eight years
after the date of grant.
(5) These options are exercisable in five equal annual installments commencing
on the first anniversary of the date on which the option was originally
granted. These options are intended to qualify as incentive stock options.
11
<PAGE>
Aggregated Option Exercises and Year-End Option Table
The following table sets forth certain information regarding each exercise
of a stock option during the year ended December 31, 1998 by each of the Named
Executive Officers and the number and value of unexercised options held by each
of the Named Executive Officers on December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
Number of Number of Shares Value of Unexercised In-the-
Shares Value Underlying Options at Fiscal Money Options at Fiscal
Acquired Realized Year-End Year-End(2)
Name on Exercise ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------------- ------------- ---------- ------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Richard T. Dean .................. -- -- 139,087/164,000 $882,395/$290,500
Ronald B. Kinder ................. -- -- 74,200/90,800 457,600/166,900
Daniel F. Harrington ............. -- -- 52,000/73,000 9,724/15,226
Gerald F. Eisen .................. -- -- 0/50,000 0/0
Christopher F. Nicodemus ......... -- -- 15,000/60,000 24,375/97,500
</TABLE>
- ------------
(1) Based on fair market value of the Common Stock on the date of exercise less
the option exercise price.
(2) Value based on the closing sales price of the Company's Common Stock on
December 31, 1998 ($7.25), the last trading day of 1998, less the
applicable option exercise price.
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Company's Board of Directors is
responsible for establishing compensation policies with respect to the
Company's executive officers, including the Chief Executive Officer and the
other executive officers named in the Summary Compensation Table, and setting
the compensation for these individuals.
The Compensation Committee seeks to achieve three broad goals in
connection with the Company's executive compensation programs and decisions
regarding individual compensation. First, the Compensation Committee structures
executive compensation programs in a manner that the Committee believes will
enable the Company to attract and retain key executives. Second, the
Compensation Committee establishes compensation programs that are designed to
reward executives for the achievement of business objectives of the Company
and/or the individual executive's particular area of responsibility. By tying
compensation in part to achievement, the Compensation Committee believes that a
performance-oriented environment is created for the Company's executives.
Finally, the Company's executive compensation programs are intended to provide
executives with an equity interest in the Company so as to link a portion of
the compensation of the Company's executives with the performance of the
Company's Common Stock.
The compensation programs for the Company's executives established by the
Compensation Committee consist principally of two elements based upon the
foregoing objectives: base salary and a stock-based equity incentive in the
form of participation in the Company's stock option plans.
In establishing base salaries for the executive officers, including the
Chief Executive Officer, the Compensation Committee monitors salaries at other
companies, particularly those that are in the same industry as the Company or
related industries and/or located in the same general geographic area as the
Company, considers historic salary levels of the individual and the nature of
the individual's responsibilities and compares the individual's base salary
with those of other executives at the Company. To the extent determined to be
appropriate, the Compensation Committee also
12
<PAGE>
considers general economic conditions, the Company's financial performance and
the individual's performance. In 1998, Dr. Dean's base salary was as specified
in his Employment Agreement with the Company.
The Compensation Committee uses stock options as a significant element of
the compensation package of the Company's executive officers, including the
Chief Executive Officer, because they provide an incentive to executives to
maximize stockholder value and because they reward the executives only to the
extent that stockholders also benefit. It is not the policy of the Compensation
Committee, however, to grant stock options to executives annually, and the
timing of such grants depends upon a number of factors, including new hires of
executives, the executives' current stock and option holdings and such other
factors as the Compensation Committee deems relevant. In 1998, after reviewing
the Company's executive officers' stock and option holdings, the Compensation
Committee granted stock options to Dr. Dean, Mr. Kinder and Mr. Harrington in
connection with the Company's performance in 1998, including the commercial
launch of AcuTect[TM] in the United States market, the filing of a New Drug
Application for NeoTect[TM] and other accomplishments in areas such as product
development and enhancement of the Company's patent position. The Compensation
Committee also granted stock options to Dr. Eisen in connection with the
commencement of his employment with the Company. When granting stock options,
it has generally been the policy of the Compensation Committee to fix the
exercise price of such options at 100% of the fair market value of the Common
Stock on the date of grant.
In addition to base salary and stock options, the Compensation Committee
also considers the payment of cash bonuses as part of its compensation program.
In this regard, the Compensation Committee determined to pay a cash bonus of
$46,689 to Dr. Dean for 1998. This bonus, which was consistent with bonuses
previously paid to Dr. Dean, was paid in recognition of Dr. Dean's leadership
of the Company in attaining its 1998 performance goals, including the
commercial launch of AcuTect[TM] in the United States market, the filing of a
New Drug Application for NeoTect[TM] and other accomplishments in areas such as
product development and enhancement of the Company's patent position.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation over $1,000,000 paid to its chief executive officer and its four
other most highly compensated executive officers. Qualifying performance-based
compensation will not be subject to the deduction limit if certain requirements
are met. In this regard, the Company has limited the number of shares subject
to stock options which may be granted to Company employees in a manner that
complies with the performance-based requirements of Section 162(m). Based on
the compensation awarded to Dr. Dean and the other executive officers of the
Company, it does not appear that the Section 162(m) limitation will have a
significant impact on the Company in the near term. While the Committee does
not currently intend to qualify its bonus and other incentive awards as
qualified performance-based compensation, it will continue to monitor the
impact of Section 162(m) on the Company.
COMPENSATION COMMITTEE
Gustav Christensen
Joseph F. Lovett
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee are Messrs.
Christensen and Lovett. Mr. Peters also served on the Compensation Committee
during 1998. No executive officer of the Company has served as a director or
member of the compensation committee (or other committee serving an equivalent
function) of any other entity, one of whose executive officers served as a
director of or member of the Compensation Committee of the Company.
Since January 1, 1998, the Company has engaged in certain transactions
with Nycomed, an entity of which Mr. Peters is an affiliate. See "Certain
Relationships and Related Transactions."
13
<PAGE>
Certain Relationships and Related Transactions
Since January 1, 1998, the Company has entered into or engaged in the
following transactions with the following directors, executive officers and
stockholders who beneficially own more than 5% of the outstanding voting stock
of the Company (the "5% Stockholders"), and affiliates of such directors,
officers and 5% Stockholders.
In August 1995, the Company and Nycomed entered into a strategic alliance
relating to the Company's radiolabelled peptide imaging products ("Techtides").
The strategic alliance contemplates research and development support and a
marketing collaboration. Under the strategic alliance, the Company granted
Nycomed options to co-promote Techtides in the United States and to distribute
and license Techtides in Europe, South Africa and certain countries in the
Middle East. During the year ended December 31, 1998, Nycomed paid to the
Company an aggregate of $6,000,000 under the collaborative agreements as
research and development support and milestone payments. In August 1998, the
Company received notice that Nycomed has elected to terminate the option and
development agreement between the Company and Nycomed. As a result, Nycomed
discontinued its research and development support payments effective December
31, 1998. This decision does not affect the co-promotion and license agreements
in place relating to the Company's two lead products, AcuTect[TM] and
NeoTect[TM].
The Company is a party to a number of clinical trial agreements with the
Arizona Institute, an organization for which Dr. Handmaker serves as Executive
Director. These agreements provide for the Arizona Institute to act as a site
for clinical trials of the Company's products and provide that Dr. Handmaker
will serve as principal investigator in connection with the conduct of the
clinical trials at the site. During 1998, the Company paid to the Arizona
Institute a total of $12,260 under these agreements.
On January 1, 1998, the Company entered into a one-year scientific
advisory consulting agreement with HTG, an entity of which Dr. Handmaker is the
principal. Under this agreement, HTG provided the Company with up to 20 days of
consulting services and the Company paid HTG consulting fees and expenses of
$54,978. In addition, in December 1998, the Company granted HTG options under
the Company's 1992 Stock Option Plan (the "1992 Plan") to purchase 40,000
shares of Common Stock at an exercise price of $7.00 per share. The Company and
HTG are in discussions to finalize a new one-year consulting agreement for 1999
that will terminate the prior agreement and provide for HTG to provide the
Company with five days a month of consulting services and HTG to receive
consulting fees of $7,500 per month, certain additional fees based upon the
achievement of specific objectives and reimbursement of expenses for a period
of one year.
14
<PAGE>
Stock Performance Graph
The stock performance graph below compares the cumulative stockholder
return on the Common Stock of the Company for the period from June 12, 1996
(the date of the Company's initial public offering) through December 31, 1998
with the cumulative total return on (i) the S&P 500 Index and (ii) the Nasdaq
Pharmaceutical Index. This graph assumes the investment of $100 in the
Company's Common Stock (at the initial public offering price), the S&P 500
Index and the Nasdaq Pharmaceutical Index on June 12, 1996 and assumes
dividends are reinvested. Prior to June 12, 1996, the Company's Common Stock
was not registered under the Exchange Act.
Comparative Total Returns: Diatide, Inc., S&P 500 Index, Nasdaq Pharmaceutical
Index
<TABLE>
<CAPTION>
6/12/96 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C>
Diatide, Inc. 100.00 83.82 107.35 85.29
S&P 500 Index 100.00 112.11 149.51 192.24
Nasdaq Pharmaceutical Index 100.00 99.23 102.54 131.17
</TABLE>
15
<PAGE>
PROPOSAL 2 - APPROVAL OF THE 1999 STOCK INCENTIVE PLAN
On February 24, 1999, the Board of Directors of the Company adopted,
subject to stockholder approval, the 1999 Stock Incentive Plan (the "1999
Plan"). Up to 2,500,000 shares of Common Stock (subject to adjustment in the
event of stock splits and other similar events) may be issued pursuant to
awards granted under the 1999 Plan.
The 1999 Plan is intended to replace the Company's 1992 Plan. As of March
31, 1999, options to purchase 1,212,618 shares of Common Stock were outstanding
under the 1992 Plan and an additional 514,739 shares were reserved for future
awards. The Company will not grant any additional options under the 1992 Plan.
All outstanding options under the 1992 Plan will remain in effect.
The Board of Directors believes that the continued growth and
profitability of the Company depends, in large part, upon the ability of the
Company to maintain a competitive position in attracting, retaining and
motivating key personnel.
Summary of the 1999 Plan
Description of Awards
The 1999 Plan provides for the grant of incentive stock options intended
to qualify under Section 422 of the Code, nonstatutory stock options,
restricted stock awards and other stock-based awards, including the grant of
shares based upon certain conditions, the grant of securities convertible into
Common Stock and the grant of stock appreciation rights (collectively
"Awards").
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at some time
in the future at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant. Under present
law, however, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common
Stock on the date of grant (or less than 110% of the fair market value in the
case of incentive stock options granted to Optionees holding more than 10% of
the voting power of the Company). Options may not be granted for a term in
excess of ten years. The 1999 Plan permits the Board to determine the manner of
payment of the exercise price of options, including through payment by cash,
check or in connection with a "cashless exercise" through a broker, by
surrender to the Company of shares of Common Stock, by delivery to the Company
of a promissory note or by any other lawful means.
Restricted Stock Awards. Restricted stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the end
of the applicable restriction period established for such Award.
Other Stock-Based Awards. Under the 1999 Plan, the Board has the right to
grant other Awards based upon the Common Stock having such terms and conditions
as the Board may determine, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights.
Eligibility to Receive Awards
Officers, employees, directors, consultants and advisors of the Company
and its subsidiaries are eligible to be granted Awards under the 1999 Plan.
Under present law, however, incentive stock options may only be granted to
employees. The maximum aggregate number of shares with respect to which Awards
may be granted to any participant under the 1999 Plan may not exceed 750,000
shares during any calendar year of the Plan.
As of March 31, 1999, approximately 93 persons were eligible to receive
Awards under the 1999 Plan, including the Company's executive officers and
non-employee directors. The granting of Awards under the 1999 Plan is
16
<PAGE>
discretionary, and the Company cannot now determine the number or type of
Awards to be granted in the future to any particular person or group.
On March 31, 1999, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $4.13.
Administration
The 1999 Plan is administered by the Board of Directors. The Board of
Directors has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the 1999 Plan and to interpret the
provisions of the 1999 Plan. Pursuant to the terms of the 1999 Plan, the Board
of Directors may delegate authority under the 1999 Plan to one or more
committees of the Board, and subject to certain limitations, to one or more
executive officers of the Company. Subject to any applicable limitations
contained in the 1999 Plan, the Board of Directors or any other committee or
executive officer to whom the Board delegates authority, as the case may be,
selects the recipients of Awards and determines (i) the number of shares of
Common Stock covered by options and the dates upon which such options become
exercisable, (ii) the exercise price of options, (iii) the duration of options
and (iv) the number of shares of Common Stock subject to any restricted stock
or other stock-based Awards and the terms and conditions of such Awards,
including conditions for repurchase, issue price and repurchase price.
The Board of Directors is required to make appropriate adjustments in
connection with the 1999 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In addition, if the Company
enters into a merger or consolidation with or into another entity (an
"Acquisition Event"), the Board shall provide that all outstanding options
shall be assumed, or equivalent options be substituted, by the acquiring or
succeeding corporation. If an Acquisition Event also constitutes a Change in
Control Event (as defined in the 1999 Plan), except to the extent specifically
provided to the contrary in the instrument evidencing any Award between a
participant and the Company, such assumed or substituted options shall become
immediately exercisable in full, if on or prior to the second anniversary of
the date of the consummation of the Acquisition Event, the participant's
employment with the Company or the acquiring or succeeding corporation is
terminated for Good Reason (as defined below) by the participant or is
terminated without cause by the Company or the acquiring or succeeding
corporation. "Good Reason" means any significant diminution in the
participant's title, authority, responsibilities or reduction in the annual
cash compensation payable to the participant from and after such Acquisition
Event or Change of Control Event, or the relocation of the place of business
which the participant is principally located to a location greater than fifty
miles from the current site.
If any Award expires or is terminated, surrendered, canceled or forfeited,
the unused shares of Common Stock covered by such Award will again be available
for grant under the 1999 Plan subject, however, in the case of incentive stock
options, to any limitation required under the Code.
Amendment or Termination
No Award may be made under the 1999 Plan after February 24, 2007, but
Awards previously granted may extend beyond that date. The Board of Directors
may at any time amend, suspend or terminate the 1999 Plan, except that no
outstanding Award designated as subject to Section 162(m) of the Code by the
Board of Directors after the date of such amendment shall become exercisable,
realizable or vested (to the extent such amendment was required to grant such
Award) unless and until such amendment shall have been approved by the
Company's stockholders.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
1999 Plan and with respect to the sale of Common Stock acquired under the 1999
Plan.
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option.
Instead, a participant will recognize taxable income with respect to an
incentive stock
17
<PAGE>
option only upon the sale of Common Stock acquired through the exercise of the
option ("ISO Stock"). The exercise of an incentive stock option, however, may
subject the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then
the participant will recognize capital loss in an amount equal to the excess of
the exercise price over the sale price of the ISO Stock. This capital loss will
be a long-term capital loss if the participant has held the ISO Stock for more
than one year prior to the date of sale.
Nonstatutory Stock Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a nonstatutory
stock option. Unlike the case of an incentive stock option, however, a
participant who exercises a nonstatutory stock option generally will recognize
ordinary compensation income in an amount equal to the excess of the fair
market value of the Common Stock acquired through the exercise of the option
("NSO Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal
to the exercise price plus any income recognized upon the exercise of the
option. Upon selling NSO Stock, a participant generally will recognize capital
gain or loss in an amount equal to the difference between the sale price of the
NSO Stock and the participant's tax basis in the NSO Stock. This capital gain
or loss will be a long-term capital gain or loss if the participant has held
the NSO Stock for more than one year prior to the date of the sale.
Restricted Stock. A participant will not recognize taxable income upon the
grant of a restricted stock Award unless the participant makes an election
under Section 83(b) of the Code (a "Section 83(b) Election"). If the
participant makes a Section 83(b) Election within 30 days of the date of the
grant, then the participant will recognize ordinary compensation income, for
the year in which the Award is granted, in an amount equal to the difference
between the fair market value of the Common Stock at the time the Award is
granted and the purchase price paid for the Common Stock. If a Section 83(b)
Election is not made at the time that the forfeiture provisions or restrictions
on transfer lapse, then the participant will recognize ordinary compensation
income in an amount equal to the difference between the fair market value of
the Common Stock at the time of such lapse and the original purchase price paid
for the Common Stock. The participant will have a tax basis in the Common Stock
acquired equal to the sum of the price paid and the amount of ordinary
compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss in an amount
equal to the difference between the sale price of the Common Stock and the
participant's tax basis in the Common Stock. This capital gain or loss will be
a long-term capital gain or loss if the shares are held for more than one year.
For this purpose, the holding period shall begin just after the date on which
the forfeiture provisions or restrictions lapse if a Section 83(b) Election is
not made, or just after the Award is granted if a Section 83(b) Election is
made.
Other Stock-Based Awards. The tax consequences associated with any other
stock-based Award granted under the 1999 Plan will vary depending on the
specific terms of the Award. Among the relevant factors are whether or not the
Award has a readily ascertainable fair market value, whether or not the Award
is subject to forfeiture provisions or restrictions on transfer, the nature of
the property to be received by the participant under the Award, and the
participant's holding period and tax basis for the Award or underlying Common
Stock.
18
<PAGE>
Tax Consequences to the Company. The grant of an Award under the 1999 Plan
will have no tax consequences to the Company. Moreover, in general, neither the
exercise of an incentive stock option nor the sale of any Common Stock acquired
under the 1999 Plan will have any tax consequences to the Company. The Company
generally will be entitled to a business-expense deduction, however, with
respect to any ordinary compensation income recognized by a participant under
the 1999 Plan, including that which results from the exercise of a nonstatutory
stock option, a Disqualifying Disposition or a Section 83(b) Election. Any such
deduction will be subject to the limitations of Section 162(m) of the Code.
PROPOSAL 3 - RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as auditors of the
Company for the year ending December 31, 1999, subject to ratification by the
stockholders at the Meeting. If the stockholders do not ratify the selection of
Ernst & Young LLP, the Board of Directors will reconsider the matter. A
representative of Ernst & Young LLP, which served as auditors for the year
ended December 31, 1998, is expected to be present at the Meeting to respond to
appropriate questions and to make a statement if he or she so desires.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 2000 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at
its offices, Nine Delta Drive, Londonderry, New Hampshire 03053, no later than
December 8, 1999 in order to be considered for inclusion in the Proxy Statement
relating to that meeting.
If a stockholder of the Company wishes to present a proposal before the
2000 Annual Meeting but has not complied with the requirements for inclusion of
such proposal in the Company's proxy materials pursuant to Rule 14a-8 under the
Exchange Act, such stockholder must give notice of such proposal to the
Secretary of the Company at the principal offices of the Company. The required
notice must be made in writing and delivered or mailed by first class United
States mail, postage prepaid, to the Secretary of the Company at the principal
offices of the Company, and received not less than 60 days nor more than 90
days prior to the 2000 Annual Meeting. Notwithstanding the foregoing, if the
Company provides less than 70 days notice or prior public disclosure of the
date of the meeting to the stockholders, notice by the stockholders must be
received by the Secretary not later than the close of business on the tenth day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. The advance notice provisions of
the Company's by-laws supercede the notice requirements contained in recent
amendments to Rule 14a-8 under the Exchange Act.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is the intention of the
persons named in the enclosed proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, telegraph,
facsimile and personal interviews. The Company will also request brokerage
houses, custodians, nominees and fiduciaries to forward copies of the proxy
material to the owners of stock held in their name and request instructions for
voting the proxies. The Company will reimburse such brokerage houses and other
persons for their reasonable expenses in connection with this distribution.
19
<PAGE>
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS APPRECIATED.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY EVEN THOUGH
THEY HAVE SENT IN THEIR PROXIES.
By Order of the Board of Directors,
Ronald B. Kinder, Secretary
April 16, 1999
20
<PAGE>
1533-PS-99
<PAGE>
APPENDIX A
PROXY
DIATIDE, INC.
Annual Meeting of Stockholders - May 14, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s) Richard T.
Dean, Daniel F. Harrington and David E. Redlick, and each or any of them, as
proxies of the undersigned (with full power of substitution in them and each of
them) to attend and represent the undersigned at the Annual Meeting of
Stockholders of Diatide, Inc. (the "Company") to be held at the Bedford Village
Inn, 2 Village Inn Lane, Bedford, New Hampshire, on Friday, May 14, 1999 at
10:00 a.m. (local time), and any adjourned sessions thereof, and there to act
and vote, as indicated, upon all matters referred to on the reverse side and
described in the proxy statement relating to the Meeting, all shares of capital
stock of the Company which the undersigned would be entitled to vote or act
upon, with all powers the undersigned would possess, if personally present at
the Meeting and at any adjourned sessions thereof. Each of the following matters
is being proposed by the Board of Directors of the Company. All capitalized
terms used in this proxy and not defined herein shall have the meaning ascribed
them in the proxy statement relating to the Meeting.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER
MATTERS AS PROPERLY MAY COME BEFORE THE MEETING, OR ANY ADJOURNMENT
THEREOF.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
[X] Please mark votes
as in this example.
This proxy, when properly executed, will be voted in the manner directed by
the undersigned. If no direction is given with respect to any election to
office or proposal specified below, this proxy will be voted FOR such
election to office or proposal.
1. Election of Class III Directors.
Nominees: Richard T. Dean and Robert S. Lees
[ ] FOR BOTH NOMINEES [ ] VOTE WITHHELD FROM
BOTH NOMINEES
- --------------------------------------------------------------------------------
(INSTRUCTION: To withhold authority to vote for any individual nominee,
print that nominee's name on the line provided.)
2. Approval of the 1999 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification of the selection of Ernst & Young LLP as the Company's
independent auditors for the current year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE [ ]
FOR ADDRESS
CHANGE AND
NOTE AT LEFT
Attendance of the undersigned at the Meeting or at any adjourned session
thereof will not be deemed to revoke this proxy unless the undersigned
shall affirmatively indicate thereat the intention of the undersigned to
vote said shares in person. If the undersigned hold(s) any of the shares
of the Company in a fiduciary, custodial or joint capacity or
capacities, this proxy is signed by the undersigned in every such
capacity as well as individually.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-
PAID RETURN ENVELOPE.
Please sign name(s) exactly as appearing hereon. When signing as
attorney, executor, administrator or other fiduciary, please give your
full title as such. Joint owners should each sign personally.
Signature:-------------- Date:--------- Signature:-------------- Date:---------
<PAGE>
APPENDIX B
DIATIDE, INC.
1999 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
The purpose of this 1999 Stock Incentive Plan (the "Plan") of Diatide,
Inc., a Delaware corporation (the "Company"), is to advance the interests of the
Company's stockholders by enhancing the Company's ability to attract, retain and
motivate persons who make (or are expected to make) important contributions to
the Company by providing such persons with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any of the Company's
present or future subsidiary corporations of as defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board
<PAGE>
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references in
the Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 8, Awards may
be made under the Plan for up to 2,500,000 shares of common stock, $.01 par
value per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 8, for
Awards granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of
Common Stock with respect to which an Award may be granted to any Participant
under the Plan shall be 750,000 per calendar year. The per-Participant limit
described in this Section 4(b) shall be construed and applied consistently with
Section 162(m) of the Code.
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to
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<PAGE>
and shall be construed consistently with the requirements of Section 422 of the
Code. The Company shall have no liability to a Participant, or any other party,
if an Option (or any part thereof) which is intended to be an Incentive Stock
Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price;
(3) when the Common Stock is registered under the Exchange Act,
by delivery of shares of Common Stock owned by the Participant valued at their
fair market value as determined by (or in a manner approved by) the Board in
good faith ("Fair Market Value"), provided (i) such method of payment is then
permitted under applicable law and (ii) such Common Stock was owned by the
Participant at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion
by (i) delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) payment of such other lawful consideration as
the Board may determine; or
(5) by any combination of the above permitted forms of payment.
6. Restricted Stock
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<PAGE>
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. Adjustments for Changes in Common Stock and Certain Other Events
(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
-4-
<PAGE>
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation
or dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) Acquisition and Change in Control Events
(1) Definitions
(a) An "Acquisition Event" shall mean:
(i) any merger or consolidation of the Company
with or into another entity as a result of
which the Common Stock is converted into or
exchanged for the right to receive cash,
securities or other property; or
(ii) any exchange of shares of the Company for
cash, securities or other property pursuant
to a statutory share exchange transaction.
(b) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or
group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act)
(a "Person") of beneficial ownership of any
capital stock of the Company if, after such
acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3
promulgated under the Exchange Act) 30% or
more of either (x) the then-outstanding
shares of common stock of the Company (the
"Outstanding Company Common Stock") or (y)
the combined voting power of the
then-outstanding securities of the Company
entitled to vote generally in the election
of directors (the "Outstanding Company
Voting Securities"); provided, however,
that for purposes of this
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<PAGE>
subsection (i), the following acquisitions
shall not constitute a Change in Control
Event: (A) any acquisition directly from
the Company (excluding an acquisition
pursuant to the exercise, conversion or
exchange of any security exercisable for,
convertible into or exchangeable for common
stock or voting securities of the Company,
unless the Person exercising, converting or
exchanging such security acquired such
security directly from the Company or an
underwriter or agent of the Company), (B)
any acquisition by any employee benefit
plan (or related trust) sponsored or
maintained by the Company or any
corporation controlled by the Company, or
(C) any acquisition by any corporation
pursuant to a Business Combination (as
defined below) which complies with clauses
(x) and (y) of subsection (iii) of this
definition; or
(ii) such time as the Continuing Directors (as
defined below) do not constitute a majority
of the Board (or, if applicable, the Board
of Directors of a successor corporation to
the Company), where the term "Continuing
Director" means at any date a member of the
Board (x) who was a member of the Board on
the date of the initial adoption of this
Plan by the Board or (y) who was nominated
or elected subsequent to such date by at
least a majority of the directors who were
Continuing Directors at the time of such
nomination or election or whose election to
the Board was recommended or endorsed by at
least a majority of the directors who were
Continuing Directors at the time of such
nomination or election; provided, however,
that there shall be excluded from this
clause (y) any individual whose initial
assumption of office occurred as a result
of an actual or threatened election contest
with respect to the election or removal of
directors or other actual or threatened
solicitation of proxies or consents, by or
on behalf of a person other than the Board;
or
(iii) the consummation of a merger,
consolidation, reorganization,
recapitalization or statutory share
exchange involving the Company or a sale or
other disposition of all or substantially
all of the assets of
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<PAGE>
the Company (a "Business Combination"),
unless, immediately following such Business
Combination, each of the following two
conditions is satisfied: (x) all or
substantially all of the individuals and
entities who were the beneficial owners of
the Outstanding Company Common Stock and
Outstanding Company Voting Securities
immediately prior to such Business
Combination beneficially own, directly or
indirectly, more than 50% of the then-
outstanding shares of common stock and the
combined voting power of the
then-outstanding securities entitled to
vote generally in the election of
directors, respectively, of the resulting
or acquiring corporation in such Business
Combination (which shall include, without
limitation, a corporation which as a result
of such transaction owns the Company or
substantially all of the Company's assets
either directly or through one or more
subsidiaries) (such resulting or acquiring
corporation is referred to herein as the
"Acquiring Corporation") in substantially
the same proportions as their ownership of
the Outstanding Company Common Stock and
Outstanding Company Voting Securities,
respectively, immediately prior to such
Business Combination and (y) no Person
(excluding the Acquiring Corporation or any
employee benefit plan (or related trust)
maintained or sponsored by the Company or
by the Acquiring Corporation) beneficially
owns, directly or indirectly, 30% or more
of the then-outstanding shares of common
stock of the Acquiring Corporation, or of
the combined voting power of the
then-outstanding securities of such
corporation entitled to vote generally in
the election of directors (except to the
extent that such ownership existed prior to
the Business Combination).
(c) "Good Reason" shall mean any significant diminution
in the Participant's title, authority, or
responsibilities from and after such Acquisition
Event or Change in Control Event, as the case may
be, or any reduction in the annual cash
compensation payable to the Participant from and
after such Acquisition Event or Change in Control
Event, as the case may be, or the relocation of the
place of
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<PAGE>
business at which the Participant is principally
located to a location that is greater than 50 miles
from the current site.
(d) "Cause" shall mean any (i) willful failure by the
Participant, which failure is not cured within 30
days of written notice to the Participant from the
Company, to perform his or her material
responsibilities to the Company or (ii) willful
misconduct by the Participant which affects the
business reputation of the Company.
(2) Effect on Options
(a) Acquisition Event. Upon the occurrence of an
Acquisition Event (regardless of whether such event
also constitutes a Change in Control Event), or the
execution by the Company of any agreement with
respect to an Acquisition Event (regardless of
whether such event will result in a Change in
Control Event), the Board shall provide that all
outstanding Options shall be assumed, or equivalent
options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof);
provided that if such Acquisition Event also
constitutes a Change in Control Event, except to
the extent specifically provided to the contrary in
the instrument evidencing any Option or any other
agreement between a Participant and the Company
such assumed or substituted options shall become
immediately exercisable in full if, on or prior to
the second anniversary of the date of the
consummation of the Acquisition Event, the
Participant's employment with the Company or the
acquiring or succeeding corporation is terminated
for Good Reason by the Participant or is terminated
without Cause by the Company or the acquiring or
succeeding corporation. For purposes hereof, an
Option shall be considered to be assumed if,
following consummation of the Acquisition Event,
the Option confers the right to purchase, for each
share of Common Stock subject to the Option
immediately prior to the consummation of the
Acquisition Event, the consideration (whether cash,
securities or other property) received as a result
of the Acquisition Event by holders of Common Stock
for each share of Common Stock held immediately
prior to the consummation of the Acquisition Event
(and if holders were offered a choice of
consideration, the type of consideration chosen by
the holders of a majority of the
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<PAGE>
outstanding shares of Common Stock); provided,
however, that if the consideration received as a
result of the Acquisition Event is not solely
common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company
may, with the consent of the acquiring or
succeeding corporation, provide for the
consideration to be received upon the exercise of
Options to consist solely of common stock of the
acquiring or succeeding corporation (or an
affiliate thereof) equivalent in fair market value
to the per share consideration received by holders
of outstanding shares of Common Stock as a result
of the Acquisition Event.
Notwithstanding the foregoing, if the
acquiring or succeeding corporation (or an
affiliate thereof) does not agree to assume, or
substitute for, such Options, then the Board shall,
upon written notice to the Participants, provide
that all then unexercised Options will become
exercisable in full as of a specified time prior to
the Acquisition Event and will terminate
immediately prior to the consummation of such
Acquisition Event, except to the extent exercised
by the Participants before the consummation of such
Acquisition Event; provided, however, that in the
event of an Acquisition Event under the terms of
which holders of Common Stock will receive upon
consummation thereof a cash payment for each share
of Common Stock surrendered pursuant to such
Acquisition Event (the "Acquisition Price"), then
the Board may instead provide that all outstanding
Options shall terminate upon consummation of such
Acquisition Event and that each Participant shall
receive, in exchange therefor, a cash payment equal
to the amount (if any) by which (A) the Acquisition
Price multiplied by the number of shares of Common
Stock subject to such outstanding Options (whether
or not then exercisable), exceeds (B) the aggregate
exercise price of such Options.
(b) Change in Control Event that is not an Acquisition
Event. Upon the occurrence of a Change in Control
Event that does not also constitute an Acquisition
Event, except to the extent specifically provided
to the contrary in the instrument evidencing any
Option or any other agreement between a Participant
and the Company, each such Option shall be
immediately exercisable in full if, on or prior to
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<PAGE>
the second anniversary of the date of the
consummation of the Change in Control Event, the
Participant's employment with the Company or the
acquiring or succeeding corporation is terminated
for Good Reason by the Participant or is terminated
without Cause by the Company or the acquiring or
succeeding corporation.
(3) Effect on Restricted Stock Awards
(a) Acquisition Event that is not a Change in Control
Event. Upon the occurrence of an Acquisition Event
that is not a Change in Control Event, the
repurchase and other rights of the Company under
each outstanding Restricted Stock Award shall inure
to the benefit of the Company's successor and shall
apply to the cash, securities or other property
which the Common Stock was converted into or
exchanged for pursuant to such Acquisition Event in
the same manner and to the same extent as they
applied to the Common Stock subject to such
Restricted Stock Award.
(b) Change in Control Event. Upon the occurrence of a
Change in Control Event (regardless of whether such
event also constitutes an Acquisition Event),
except to the extent specifically provided to the
contrary in the instrument evidencing any
Restricted Stock Award or any other agreement
between a Participant and the Company, each such
Restricted Stock Award shall immediately become
free from all conditions or restrictions if, on or
prior to the second anniversary of the date of the
consummation of the Change in Control Event, the
Participant's employment with the Company or the
acquiring or succeeding corporation is terminated
for Good Reason by the Participant or is terminated
without Cause by the Company or the acquiring or
succeeding corporation.
(4) Effect on Other Awards
(a) Acquisition Event that is not a Change in Control
Event. The Board shall specify the effect of an
Acquisition Event that is not a Change in Control
Event on any other Award granted under the Plan at
the time of the grant of such Award.
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<PAGE>
(b) Change in Control Event. Upon the occurrence of a
Change in Control Event (regardless of whether such
event also constitutes an Acquisition Event),
except to the extent specifically provided to the
contrary in the instrument evidencing any Award or
any other agreement between a Participant and the
Company, each such Award shall immediately become
fully exercisable, realizable, vested or free from
conditions or restrictions if, on or prior to the
second anniversary of the date of the consummation
of the Change in Control Event, the Participant's
employment with the Company or the acquiring or
succeeding corporation is terminated for Good
Reason by the Participant or is terminated without
Cause by the Company or the acquiring or succeeding
corporation.
9. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced by a written instrument
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the
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event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law, satisfy
such tax obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of restrictions in full or in part or that any other
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
10. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
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(b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant designated by the Board as subject to Section 162(m) of the Code by
the Board shall become exercisable, vested or realizable, as applicable to such
Award, unless and until the Plan has been approved by the Company's stockholders
to the extent stockholder approval is required by Section 162(m) in the manner
required under Section 162(m) (including the vote required under Section
162(m)). No Awards shall be granted under the Plan after the completion of ten
years from the earlier of (i) the date on which the Plan was adopted by the
Board or (ii) the date the Plan was approved by the Company's stockholders, but
Awards previously granted may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that to the extent required by
Section 162(m) of the Code, no Award granted to a Participant designated as
subject to Section 162(m) by the Board after the date of such amendment shall
become exercisable, realizable or vested, as applicable to such Award (to the
extent that such amendment to the Plan was required to grant such Award to a
particular Participant), unless and until such amendment shall have been
approved by the Company's stockholders as required by Section 162(m) (including
the vote required under Section 162(m)).
(e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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