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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
ONYX PHARMACEUTICALS, INC.
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(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)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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ONYX PHARMACEUTICALS, INC.
3031 RESEARCH DRIVE
RICHMOND, CALIFORNIA 94806
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1997
------------------------
TO THE STOCKHOLDERS OF ONYX PHARMACEUTICALS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of ONYX
PHARMACEUTICALS, INC., a DELAWARE corporation (the "Company"), will be held on
Thursday, May 22, 1997 at 10:00 a.m. local time at the Berkeley Marina Marriott
Hotel, 200 Marina Boulevard, Berkeley, California, for the following purpose:
1. To elect three directors to hold office until the 2000 Annual Meeting of
Stockholders.
2. To approve the Company's 1996 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 600,000 shares and to add provisions with
respect to Section 162(m) of the Internal Revenue Code of 1986, as
amended.
3. To approve the Company's 1996 Non-Employee Directors' Plan, as amended,
to allow non-employee directors of the Company who are also consultants
to the Company to receive option grants under such plan.
4. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 1997.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 8, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
/s/ Robert L. Jones
Robert L. Jones
SECRETARY
Richmond, California
April 18, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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ONYX PHARMACEUTICALS, INC.
3031 RESEARCH DRIVE
RICHMOND, CALIFORNIA 94806
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1997
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of ONYX
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on Thursday, May 22, 1997 at 10:00
a.m. local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the Berkeley Marina Marriott
Hotel, 200 Marina Boulevard, Berkeley, California. The Company intends to mail
this proxy statement and accompanying proxy card on or about Friday, April 18,
1997 to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April 8,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 8, 1997, the Company had outstanding and entitled to
vote 9,535,784 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
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REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 3031
Research Drive, Richmond, California 94806, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
SHAREHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company not later
than December 17, 1997 in order to be included in the proxy statement and proxy
relating to that Annual Meeting.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-laws provide that
the Board of Directors shall be divided into three classes: Class I, Class II
and Class III, each class consisting, as nearly as possible, of one-third of the
total number of directors, with each class having a three-year term. Vacancies
on the Board may be filled only by persons elected by a majority of the
remaining directors. A director elected by the Board to fill a vacancy
(including a vacancy created by an increase in the Board of Directors) shall
serve for the remainder of the full term of the class of directors in which the
vacancy occurred and until such director's successor is elected and qualified.
The Board of Directors is presently composed of ten members with no
vacancies. There are six directors in Class I whose term of office expires in
1997, three of whom are not seeking re-election: Brook H. Byers, Kevin J.
Kinsella and Dr. Frank McCormick. Following the Annual Meeting, the Board of
Directors will be composed of seven members. Each of the nominees for election
to Class I is currently a director of the Company who was appointed by the Board
of Directors. If elected at the Annual Meeting, each of the nominees would serve
until the annual meeting of stockholders in 2000 and until his successor is
elected and has qualified, or until such director's earlier death, resignation
or removal.
Bayer Corporation has the right to have a nominee elected to the Company's
Board of Directors until the later of (i) expiration of the research term of the
collaborative agreement with the Company or (ii) if the parties have a
Collaboration Compound (as defined in the collaborative agreement) in clinical
development, until such time as the parties do not have a Collaboration Compound
in clinical development. Dr. Michael J. Berendt replaced Dr. Wolfgang Hartwig as
the Bayer Corporation nominee on the Board of Directors in December 1996 and is
a Class II Director.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the three nominees named below. In the event that any nominee should
be unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unable to serve.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL
MEETING--CLASS I
RANDY THURMAN, age 47, has served as a director of the Company since
December 1996. Mr. Thurman has served as Director of Spencer Stuart, an
executive search firm, since March 1997. From September 1993 to December 1996,
Mr. Thurman was Chairman and Chief Executive Officer of Corning Life Sciences
Inc., a global healthcare company. Prior to such time, Mr. Thurman held various
management positions at Rhone-Poulenc Rorer, a pharmaceutical company, from 1984
to August 1993, including the position of President. Mr. Thurman serves as
Chairman of the Board of Enzon, Inc. and is on the Board of Directors of Closure
Medical Corp. Mr. Thurman holds a B.A. in economics from Virginia Polytechnic
Institute and a M.A. in economics from Webster University.
WENDELL D. WIERENGA, PH.D., age 49, has served as a director of the Company
since December 1996. Dr. Wierenga has served as Senior Vice President Research
for the Parke-Davis Pharmaceutical Research division of Warner-Lambert Company
since 1990. Dr. Wierenga has also served as Vice President of the Medtech
investments of Warner-Lambert Company since 1992. Dr. Wierenga holds a B.A. from
Hope College and a Ph.D. in chemistry from Stanford University.
PAUL GODDARD, PH.D., age 47, has served as a director of the Company since
February 1997. Dr. Goddard has served as Chief Executive Officer of Neurex
Corporation, a biotechnology company,
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since March 1991 and as Chairman of the Board since October 1991. Before joining
Neurex Corporation, he was with SmithKline Beecham, a pharmaceutical company,
where he was Senior Vice President and Director of the Japan/Pacific region from
1989 to March 1991. Dr. Goddard serves on the board of directors of Molecular
Devices Corporation and Ribi ImmunoChem Research, Inc. He completed his Ph.D. in
the area of etiology and pathophysiology of colon cancer at St. Mary's Hospital,
University of London.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING--CLASS II
KATHLEEN LAPORTE, age 35, has served as director of the Company since June
1993. From January 1993 to the present, Ms. LaPorte has been affiliated with the
Sprout Group, the venture capital affiliate of Donaldson, Lufkin & Jenrette
Inc., and has served as a general partner since December 1993. From August 1987
to January 1993, Ms. LaPorte was a principal at Asset Management Company, a
venture capital firm. Ms. LaPorte currently serves on the board of directors of
Lynx Therapeutics and is Chairman of the Board of FemRx, Inc. She holds a B.S.
in biology from Yale University and an M.B.A. from Stanford University.
MICHAEL J. BERENDT, Ph.D., age 48, has served as a director of the Company
since December 1996. Dr. Berendt has served as Senior Vice President for
Research for the Pharmaceutical Division of Bayer Corporation, a pharmaceutical
company, since December 1996. From November 1993 to November 1996, Dr. Berendt
held various research and management positions at the Pharmaceutical Division of
Bayer Corporation including Vice President, Institute for Bone & Joint Disorders
and Cancer. From January 1982 to September 1993, Dr. Berendt held various
research and management positions at Pfizer, Inc., a pharmaceutical company,
including the position of Group Director. Dr. Berendt is on the Board of
Directors of Myriad Genetics, Inc. Dr. Berendt holds a B.S. from Ohio Dominican
College, a M.S. in microbiology from Miami University and a Ph.D. in
microbiology/immunology from Hahnemann Medical College.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING--CLASS III
SAMUEL D. COLELLA, age 58, has served as Chairman of the Board of the
Company since February 1993 and as a director of the Company since its
inception. Mr. Colella has been a partner in Institutional Venture Partners, a
private venture capital firm, since 1984. In addition, he serves on the board of
directors of Integrated Medical Resources Inc., CV Therapeutics, Inc.,
Pharmacopeia, Inc., Vivus, Inc. and Imagyn, Inc. Mr. Colella holds a B.S. in
business and engineering from the University of Pittsburgh and an M.B.A. from
Stanford University.
HOLLINGS C. RENTON, age 50, has served as President and Chief Executive
Officer and as a director of the Company since March 1993. Prior to joining the
Company, Mr. Renton served as President and Chief Operating Officer of Chiron
Corporation from December 1991 to March 1993 following Chiron Corporation's
acquisition of Cetus Corporation. Prior to the acquisition, Mr. Renton served as
President of Cetus Corporation from August 1990 to February 1993 and as Chief
Operating Officer of Cetus Corporation from 1987 to August 1990. Mr. Renton
holds a B.S. from Colorado State University and an M.B.A. from the University of
Michigan.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996 the Board of Directors held
seven meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent
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auditors to be retained; and receives and considers the accountants' comments as
to controls, adequacy of staff and management performance and procedures in
connection with audit and financial controls. The Audit Committee is composed of
three non-employee directors: Samuel Colella, Dr. Wendell Wierenga and Kathleen
LaPorte. It met once during such fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of five non-employee directors:
Brook Byers, Kevin Kinsella, Samuel Colella, Dr. Paul Goddard and Randy Thurman.
After the Annual Meeting, the Compensation Committee will be composed of Samuel
Colella, Dr. Paul Goddard and Randy Thurman. It met twice during such fiscal
year.
During the fiscal year ended December, 1996, all directors except Brook
Byers, Dr. Wolfgang Hartwig and Kathleen LaPorte attended at least 75% of the
aggregate of the meetings of the Board and of the committees on which they
served, held during the period for which they were a director or committee
member, respectively.
PROPOSAL 2
APPROVAL OF THE 1996 EQUITY INCENTIVE PLAN, AS AMENDED
In March 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1996 Equity Incentive Plan (the "1996
Plan"). At March 31, 1997, there were 1,725,000 shares of the Company's Common
Stock authorized for issuance under the 1996 Plan.
At March 31, 1997, options (net of canceled or expired options) covering an
aggregate of 1,668,643 shares of the Company's Common Stock had been granted
under the 1996 Plan, and only 56,357 shares (plus any shares that might in the
future be returned to the plans as a result of cancellation or expiration of
options) remained available for future grant under the 1996 Plan. During the
last fiscal year, under the 1996 Plan, the Company granted options to purchase
547,215 shares of Common Stock at exercise prices of $1.07 to $13.75 per share
to all employees (including executive officers), directors and consultants, of
which, options to purchase 239,450 shares were granted to current executive
officers and directors at exercise prices of $1.07 to $10.75 per share
In April 1997, the Board approved an amendment of the 1996 Plan, subject to
stockholder approval, to enhance the flexibility of the Board and the
Compensation Committee in granting stock options to the Company's employees and
to allow for the continued growth in hiring new employees. The amendment
increases the number of shares authorized for issuance under the 1996 Plan by
600,000, from a total of 1,725,000 to a total of 2,325,000. The Board adopted
this amendment to ensure that the Company can continue to grant stock options to
employees at levels determined appropriate by the Board and the Compensation
Committee given the anticipated continued growth in hiring new employees to
support the Company's clinical development of ONYX-015 and its research in
therapeutic viruses.
The Board also amended the 1996 Plan to modify the requirements related to
stockholder approval of amendments to the 1996 Plan to bring the 1996 Plan into
conformity with and take advantage of new regulations under Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Furthermore,
the Board amended the 1996 Plan, subject to stockholder approval, generally to
permit the Company, under Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), to continue to be able to deduct as a business expense
certain compensation attributable to the exercise of stock options granted under
the 1996 Plan. Section 162(m) denies a deduction to any publicly held
corporation for certain compensation paid to specified employees in a taxable
year to the extent that the compensation exceeds $1,000,000 for any covered
employee. See "Federal Income Tax Information" below for a discussion of the
application of Section 162(m). In light of the Section 162(m) requirements, the
Board amended the 1996 Plan, subject to stockholder approval, to include a
limitation providing that no
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employee may be granted options under the 1996 Plan during a calendar year to
purchase in excess of 300,000 shares of Common Stock. Previously, no such formal
limitation was placed on the number of shares available for option grants to an
employee.
Stockholders are requested in this Proposal 2 to approve the 1996 Plan, as
amended. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to approve the 1996 Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
The essential features of the 1996 Plan are outlined below:
GENERAL
The 1996 Plan provides for the grant of (i) both incentive and nonstatutory
stock options, (ii) stock bonuses, (iii) rights to purchase restricted stock and
(iv) stock appreciation rights (collectively, "Stock Awards"). Incentive stock
options granted under the 1996 Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Code. Nonstatutory stock
options granted under the 1996 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of Stock Awards.
PURPOSE
The 1996 Plan was adopted to provide a means by which officers and employees
of and consultants to the Company and its affiliates could be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of employees holding key positions, to secure and retain the services
of persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for the success of the Company.
ADMINISTRATION
The 1996 Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the 1996 Plan and, subject to the
provisions of the 1996 Plan, to determine the persons to whom and the dates on
which Stock Awards will be granted; whether a Stock Award will be an incentive
stock option, a nonstatutory stock option, a stock bonus, a right to purchase
restricted stock, a stock appreciation right or a combination of the foregoing;
the provisions of each Stock Award granted (which need not be identical),
including the time or times when a person shall be permitted to receive stock
pursuant to a Stock Award; whether a person shall be permitted to receive stock
upon exercise of an independent stock appreciation right; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
The Board of Directors is authorized to delegate administration of the 1996 Plan
to a committee composed of not fewer than one member of the Board. The 1996 Plan
provides that, in the Board's discretion, directors serving on the Compensation
Committee will also be "non-employee directors" within the meaning of Rule 16b-3
promulgated under the Exchange Act ("Rule 16b-3") or "outside directors" within
the meaning of Section 162(m). The Board has delegated administration of the
1996 Plan to the Compensation Committee of the Board and the Compensation
Committee has delegated the authority to grant Stock Awards to eligible persons
who are not subject to Rule 16b-3 to the Chief Executive Officer. As used herein
with respect to the 1996 Plan, the "Board" refers to the Compensation Committee
as well as to the Board of Directors itself.
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ELIGIBILITY
Incentive stock options and stock appreciation rights related to incentive
stock options may be granted under the 1996 Plan only to employees (including
officers and directors who are employees) of the Company and its affiliates.
Employees, non-employee directors and consultants are eligible to receive Stock
Awards other than incentive stock options and such stock appreciation rights
under the 1996 Plan.
No incentive stock option may be granted under the 1996 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of the Company or any affiliate of
the Company, unless the incentive stock option exercise price is at least 110%
of the fair market value of the stock subject to the incentive stock option on
the date of grant, and the term of the option does not exceed five years from
the date of grant. For incentive stock options granted under the 1996 Plan, the
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which such options are exercisable for the first
time by an optionee during any calendar year (under all such plans of the
Company and its affiliates) may not exceed $100,000.
The 1996 Plan has a per-individual, per-calendar year period limitation on
the number of shares of Common Stock that may be made subject to options and
stock appreciation rights equal to 300,000 shares of Common Stock. The purpose
of this limitation is generally to permit the Company to continue to be able to
deduct for tax purposes the compensation attributable to the exercise of options
and stock appreciation rights granted under the 1996 Plan. To date, the Company
has not granted to any individual in any calendar year options and stock
appreciation rights to purchase a number of shares equal to or in excess of the
limitation.
STOCK SUBJECT TO THE 1996 PLAN
If any Stock Award granted under the 1996 Plan expires or otherwise
terminates without being exercised (or vested, in the case of restricted stock),
the Common Stock subject to such Stock Awards again becomes available for
issuance under the 1996 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
1996 Plan. Individual option grants may be more restrictive as to any or all of
the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the 1996 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the 1996 Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant. However, if options were granted with exercise
prices below fair market value, deductions for compensation attributable to the
exercise of such options could be limited by Section 162(m). See "Federal Income
Tax Information." At December 31, 1996, the closing price of the Company's
Common Stock as reported on the Nasdaq National Market was $11.125 per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m), an option
repriced under the 1996 Plan is deemed to be canceled and a new option granted.
Both the options deemed to be canceled and the new options deemed to be granted
will be counted against the 300,000 share limitation. The exercise price of
options granted under the 1996 Plan must be paid either: (a) in cash at the time
the option is exercised; (b) at the discretion of the Board, (i) by delivery of
other Common Stock of the
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Company, or (ii) pursuant to a deferred payment arrangement; or (c) in any other
form of legal consideration acceptable to the Board.
RESTRICTIONS ON TRANSFER. Under the 1996 Plan, an incentive stock option
may not be transferred by the optionee otherwise than by will or by the laws of
descent and distribution and may be exercised only by the optionee during the
lifetime of the optionee. A nonstatutory stock option may not be transferred
except by will or by the laws of descent and distribution unless otherwise
specified in the option agreement, in which case the nonstatutory stock option
may be transferred upon such terms and conditions as set forth in the option,
including pursuant to a domestic relations order. In any case, the optionee may
designate in writing a third party who may exercise the option in the event of
the optionee's death.
OPTION EXERCISE. Options granted under the 1996 Plan may become exercisable
("vest") in cumulative increments as determined by the Board. Shares covered by
currently outstanding options under the 1996 Plan typically vest at the rate of
25% of the shares subject to the option on the first anniversary of the date of
grant and 1/48th of such shares at the end of each month thereafter during the
optionee's employment or relationship as a consultant or director. Shares
covered by options granted in the future under the 1996 Plan may be subject to
different vesting terms. The Board has the power to accelerate the time during
which an option may be exercised. In addition, options granted under the 1996
Plan may permit exercise prior to vesting, but in such event the optionee may be
required to enter into an early exercise stock purchase agreement that allows
the Company to repurchase shares not yet vested at their exercise price should
the optionee leave the employ of the Company before vesting. To the extent
provided by the terms of an option, an optionee may satisfy any federal, state
or local tax withholding obligation relating to the exercise of such option by a
cash payment upon exercise, by authorizing the Company to withhold a portion of
the stock otherwise issuable to the optionee, by delivering already-owned stock
of the Company or by a combination of these means.
TERM. The maximum term of options under the 1996 Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1996 Plan terminate three months after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless: (a) such termination is due to such
person's disability, in which case the option may be exercised (to the extent
the option was exercisable at the date of termination) at any time not exceeding
twelve months following such termination; (b) the optionee dies while employed
by or serving as a consultant or director of the Company or any affiliate of the
Company, or within three months after termination of such relationship, in which
case the option may be exercised (to the extent the option was exercisable at
the time of the optionee's death) within eighteen months of the optionee's death
by the person or persons to whom the rights to such option pass by will or by
the laws of descent and distribution; or (c) the option by its terms
specifically provides otherwise. Individual options by their terms may provide
for exercise within a longer or shorter period of time following termination of
employment or the consulting relationship. The option term may also be extended
in the event that exercise of the option within these periods is prohibited for
specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
The following is a description of the permissible terms of stock bonuses and
restricted stock purchase agreements under the 1996 Plan. The terms and
conditions of stock bonus or restricted stock purchase agreements may change
from time to time, and the terms and conditions of separate agreements need not
be identical, but each stock bonus or restricted stock purchase agreement
includes the substance of each of the following provisions as appropriate:
PURCHASE PRICE. The purchase price under each restricted stock purchase
agreement is such amount as the Board may determine and designate in such
agreement, but in no event may the purchase price be less than eighty-five
percent (85%) of the stock's fair market value on the date such award is made.
Notwithstanding the foregoing, the Board may determine that eligible
participants in the 1996 Plan may be
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awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company for its benefit.
TRANSFERABILITY. No rights under a stock bonus or restricted stock purchase
agreement shall be transferable except by will or the laws of descent and
distribution or pursuant to a domestic relations order satisfying the
requirements of Rule 16b-3.
CONSIDERATION. The purchase price of stock acquired pursuant to a stock
purchase agreement must be paid either: (i) in cash at the time of purchase;
(ii) at the discretion of the Board or the Compensation Committee, according to
a deferred payment or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be acceptable
to the Board in its discretion. Notwithstanding the foregoing, the Board may
award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
VESTING. Shares of stock sold or awarded under the Plan may, but need not,
be subject to a repurchase option in favor of the Company in accordance with a
vesting schedule to be determined by the Board.
TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In
the event a participant's continuous status as an employee, director or
consultant terminates, the Company may repurchase or otherwise re-acquire any or
all of the shares of stock held by that person which have not vested as of the
date of termination under the terms of the stock bonus or restricted stock
purchase agreement between the Company and such person.
STOCK APPRECIATION RIGHTS
The three types of stock appreciation rights that are authorized for
issuance under the 1996 Plan are as follows:
TANDEM STOCK APPRECIATION RIGHTS. Tandem stock appreciation rights may be
granted appurtenant to an option, and are generally subject to the same terms
and conditions applicable to the particular option grant to which they pertain.
Tandem stock appreciation rights require the holder to elect between the
exercise of the underlying option for shares of stock and the surrender, in
whole or in part, of such option for an appreciation distribution. The
appreciation distribution payable on the exercised tandem right is in cash (or,
if so provided, in an equivalent number of shares of stock based on fair market
value on the date of the option surrender) in an amount up to the excess of (i)
the fair market value (on the date of the option surrender) of the number of
shares of stock covered by that portion of the surrendered option in which the
optionee is vested over (ii) the aggregate exercise price payable for such
vested shares.
CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent stock appreciation rights
may be granted appurtenant to an option and may apply to all or any portion of
the shares of stock subject to the underlying option and are generally subject
to the same terms and conditions applicable to the particular option grant to
which they pertain. A concurrent right is exercised automatically at the same
time the underlying option is exercised with respect to the particular shares of
stock to which the concurrent right pertains. The appreciation distribution
payable on an exercised concurrent right is in cash (or, if so provided, in an
equivalent number of shares of stock based on fair market value on the date of
the exercise of the concurrent right) in an amount equal to such portion as
shall be determined by the Board at the time of the grant of the excess of (i)
the aggregate fair market value (on the date of the exercise of the concurrent
right) of the vested shares of stock purchased under the underlying option which
have concurrent rights appurtenant to them over (ii) the aggregate exercise
price paid for such shares.
INDEPENDENT STOCK APPRECIATION RIGHTS. Independent stock appreciation
rights may be granted independently of any option and are generally subject to
the same terms and conditions applicable to nonstatutory stock options. The
appreciation distribution payable on an exercised independent right may
9
<PAGE>
not be greater than an amount equal to the excess of (i) the aggregate fair
market value (on the date of the exercise of the independent right) of a number
of shares of Company stock equal to the number of share equivalents in which the
holder is vested under such independent right, and with respect to which the
holder is exercising the independent right on such date, over (ii) the aggregate
fair market value (on the date of the grant of the independent right) of such
number of shares of Company stock. The appreciation distribution payable on the
exercised independent right is in cash or, if so provided, in an equivalent
number of shares of stock based on fair market value on the date of the exercise
of the independent right.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1996 Plan or subject to
any Stock Award granted under the 1996 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1996 Plan and Stock
Awards outstanding thereunder will be appropriately adjusted as to the class and
the maximum number of shares subject to such plan, and the class, number of
shares and price per share of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1996 Plan provides that, in the event of a dissolution or liquidation of
the Company, sale of substantially all the assets of the Company, specified
types of mergers or other corporate reorganizations, to the extent permitted by
law, any surviving corporation will either assume Stock Awards outstanding under
the 1996 Plan or substitute similar options for those outstanding under such
plan, or such outstanding options will continue in full force and effect. In the
event that any surviving corporation declines to assume or continue Stock Awards
outstanding under the 1996 Plan, or to substitute similar Stock Awards, then the
time during which such Stock Awards may be exercised shall be accelerated and
the Stock Awards terminated if not exercised during such time.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1996 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1996 Plan will terminate on March 26, 2006.
The Board may also amend the 1996 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would require stockholder approval in order for the Plan to comply
with Section 422 of the Code, Rule 16b-3, or any Nasdaq or securities exchange
listing requirements. Subject to the foregoing, the Board may amend the 1996
Plan in any respect the Board deems necessary or advisable to provide optionees
with the maximum benefits available under the Code or to bring the 1996 Plan or
the Stock Award granted thereunder into compliance with Code.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1996 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code. There generally are no federal income
tax consequences to the optionee or the Company by reason of the grant or
exercise of an incentive stock option. However, the exercise of an incentive
stock option may increase the optionee's alternative minimum tax liability, if
any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
10
<PAGE>
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the stock was held for more than one year. Long-term capital gains currently are
generally subject to lower tax rates than ordinary income. Slightly different
rules may apply to optionees who acquire stock subject to certain repurchase
options or who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
1996 Plan generally have the following federal income tax consequences: There
are no tax consequences to the optionee or the Company by reason of the grant of
a nonstatutory stock option. Upon exercise of a nonstatutory stock option, the
optionee normally will recognize taxable ordinary income equal to the excess of
the stock's fair market value on the date of exercise over the option exercise
price. Generally, with respect to employees, the Company is required to withhold
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, the provisions
of Section 162(m) of the Code and the satisfaction of a tax reporting
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the optionee. Upon
disposition of the stock, the optionee will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount paid
for such stock plus any amount recognized as ordinary income upon exercise of
the option. Such gain or loss will be long or short-term depending on whether
the stock was held for more than one year. Slightly different rules may apply to
optionees who acquire stock subject to repurchase options or who are subject to
Section 16(b) of the Exchange Act.
RESTRICTED STOCK AND STOCK BONUSES. Restricted stock and stock bonuses
granted under the 1996 Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award, the
recipient normally will recognize taxable ordinary income equal to the excess of
the stock's fair market value over the purchase price, if any. However, to the
extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
recipient elects to be taxed on receipt of the stock. Generally, with respect to
employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
recognized by the recipient. Upon disposition of the stock, the recipient will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock, if any, plus any amount
recognized as ordinary income upon acquisition (or vesting) of the stock. Such
gain or loss will be long or short-term depending on whether the stock was held
for more than one year from the date ordinary income is measured.
STOCK APPRECIATION RIGHTS. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation
right, the fair market value of the shares (or cash in lieu of shares) received
must be treated as compensation taxable as ordinary income to the recipient in
the year of such exercise. Generally, with respect to employees, the Company is
required to withhold from the payment made on exercise of the stock appreciation
right or from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness,
Section 162(m) of the Code and the satisfaction of a reporting obligation, the
Company will be entitled to a business expense deduction equal to the taxable
ordinary income recognized by the recipient.
11
<PAGE>
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1996, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to awards under the 1996 Plan, when combined with all
other types of compensation received by a covered employee from the Company, may
cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that: (i) the stock award plan contains a per-employee limitation on
the number of shares for which stock options and stock appreciation rights may
be granted during a specified period; (ii) the per-employee limitation is
approved by the stockholders; (iii) the award is granted by a compensation
committee comprised solely of two or more "outside directors;" and (iv) the
exercise price of the award is no less than the fair market value of the stock
on the date of grant. Compensation attributable to restricted stock will qualify
as performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors"; and (ii) the
purchase price of the award is no less than the fair market value of the stock
on the date of grant. Stock bonuses qualify as performance-based compensation
under the Treasury regulations only if: (i) the award is granted by a
compensation committee comprised solely of "outside directors;" (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain; (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied; and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the amount) payable upon attainment of the
performance goal).
PROPOSAL 3
APPROVAL OF THE 1996 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN, AS AMENDED
In March 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1996 Non-Employee Directors' Stock Option
Plan (the "Directors' Plan") and reserved a total of 175,000 shares of the
Company's Common Stock under the Directors' Plan.
At March 31, 1997, options (net of canceled or expired options) covering an
aggregate of 100,000 shares of the Company's Common Stock had been granted under
the Directors' Plan, and only 75,000 shares (other than shares that might in the
future be returned to the plan as a result of cancellation or expiration of
options) remained available for future grant under the Directors' Plan. During
the last fiscal year, all non-employee directors, as a group, received options
to purchase 80,000 shares at a weighted average exercise price of $12.00 per
share.
In April 1997, the Board of Directors approved an amendment to the
Directors' Plan, subject to stockholder approval, to allow non-employee
directors who are consultants to the Company to participate in the Directors'
Plan. In addition, the Board amended the Directors' Plan to modify the
requirements related to stockholder approval of amendments to the Directors'
Plan to bring the Directors' Plan into conformity with and take advantage of new
regulations under Section 16 of the Exchange Act.
12
<PAGE>
Stockholders are requested in this Proposal 3 to approve the Directors'
Plan, as amended. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the Directors' Plan, as amended. If this
Proposal 3 is approved, Dr. Wendell Wierenga and Randy Thurman, current
directors of and consultants to the Company, would become eligible to receive
annual grants under the Directors' Plan.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Directors' Plan are outlined below:
GENERAL
The Directors' Plan provides for the non-discretionary grant of nonstatutory
stock options to members of the Board of Directors who are not employees of the
Company. Stock options granted under the Directors' Plan are intended not to
qualify as "incentive stock options" as defined by Section 422 under the Code.
See "Certain Federal Income Tax Information" for a discussion of the tax
treatment of nonstatutory stock options.
PURPOSE
The Directors' Plan was adopted to provide a means by which individuals who
serve as members of the Company's Board of Directors, and who are not otherwise
employed by the Company, could be given an opportunity to purchase stock in the
Company and to provide incentives for such persons to exert maximum efforts for
the success of the Company. Samuel Colella, Kathleen LaPorte, Brook Byers, Kevin
Kinsella and Dr. Paul Goddard are currently eligible to participate in the
Directors' Plan. Randy Thurman and Dr. Wendell Wierenga would become eligible to
participate in the Directors' Plan upon stockholder approval. Dr. Michael
Berendt has withdrawn himself from participation in the Directors' Plan.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors of the
Company. The Board has the power to construe and interpret the Directors' Plan
and is authorized to delegate administration of the Directors' Plan to a
committee composed of not fewer than two members of the Board (the "Committee").
As used herein with respect to the Directors' Plan, the "Board" refers to the
Committee as well as to the Board of Directors itself.
ELIGIBILITY
Only directors of the Company who are not common law employees of the
Company ("non-employee directors") are eligible to receive options under the
Directors' Plan.
STOCK SUBJECT TO THE DIRECTORS' PLAN
If options granted under the Directors' Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
becomes available again for issuance under the Directors' Plan.
TERM OF OPTIONS
The following is a description of the terms of options under the Directors'
Plan. Each option granted under the Directors' Plan is non-discretionary and
must be made in accordance with the terms described below.
OPTIONS GRANTS. The Directors' Plan, as amended to date by the Board of
Directors, provides that each member of the Board at the initial public offering
of the Company's Common Stock was granted an
13
<PAGE>
option to purchase 20,000 shares of the Company's Common Stock, and each new
member of the Company's Board will be granted an option to purchase 20,000
shares of the Company's Common Stock on the date of his or her initial election
to the Board. Further, the Directors' Plan provides for the automatic,
non-discretionary grant of options to purchase 5,000 shares of the Company's
Common Stock, on the anniversary of each non-employee director's initial grant,
to each non-employee director in service as of such date.
EXERCISE PRICE; PAYMENT. The exercise price of all options under the
Directors' Plan may not be less than 100% of the fair market value of the Common
Stock subject to the option on the date the option is granted. The exercise
price of options granted under the Directors' Plan must be paid either (a) in
cash at the time the option is exercised or (b) by delivery of other Common
Stock of the Company.
OPTION EXERCISE. Options granted under the Directors' Plan become
exercisable ("vest") pursuant to the following schedule: as to the initial grant
of 20,000 shares, 1/4 of the shares pursuant to the option shall vest on the
first anniversary of the grant and 1/48 of the shares shall vest monthly
thereafter. As to the annual grant of 5,000 shares, all of the shares subject to
the option shall fully vest on the first anniversary of the date of grant of
such option.
TERM, TRANSFERABILITY. The maximum term of options under the Directors'
Plan is ten years. An option may not be transferred by the optionee, except by
will or by the laws of descent and distribution by beneficiary designation.
During the lifetime of an optionee, an option may be exercised only by the
optionee or his or her guardian or legal representative.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' Plan (through merger,
consolidation, reorganization, stock dividend, dividend in property other than
cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transactions not involving the
receipt of consideration), the Directors' Plan and options outstanding
thereunder will be adjusted appropriately as to the class and the maximum number
of shares subject to such plan, the maximum number of shares and price per share
of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The Directors' Plan provides that, in the event of a dissolution,
liquidation or sale of all or substantially all of the assets of the Company,
specified types of mergers or other corporate reorganizations, or a change in
ownership for any person, entity or group holding at least 50% of the combined
voting power entitled to vote in the election of directors, the time during
which such options may be exercised will be accelerated and the options
terminated if not exercised prior to such time. The acceleration of an option in
the event of an acquisition or similar corporate event may be viewed as an
antitakeover provisions, which may have the effect of discouraging a proposal to
acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Directors' Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Directors' Plan will terminate in March, 2006.
The Board also may amend the Directors' Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company to the extent stockholder approval is required to
comply with Rule 16b-3 or any Nasdaq National Market or securities exchange
listing requirements.
14
<PAGE>
CERTAIN FEDERAL INCOME TAX INFORMATION
Stock options granted under the Directors' Plan are subject to federal
income tax treatment pursuant to rules governing options that are not incentive
stock options.
Options granted under the Directors' Plan are nonstatutory stock options.
There are no tax consequences to the optionee or the Company by reason of the
grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Because the optionee is a director of the Company, under
existing laws, the date of taxation (and the date of measurement of taxable
ordinary income) may in some instances be deferred unless the optionee files an
election under Section 83(b) of the Code. The filing of Section 83(b) election
with respect to the exercise of an option may affect the time of taxation and
the amount of income recognized at each such time. Upon disposition of the
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of such
option. Such gain or loss will be long or short-term depending on whether the
stock was held for more than one (1) year.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception in 1992.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
15
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
Information with respect to the executive officers of the Company is set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Hollings C. Renton................................... 50 President, Chief Executive Officer and Director
William Gerber, M.D.................................. 50 Vice President and Chief Operating Officer
Allan Balmain, Ph.D., F.R.S.E........................ 54 Vice President of Research
Gregory Giotta, J.D., Ph.D........................... 50 Vice President and Chief Legal Counsel
Douglas L. Blankenship............................... 35 Director of Finance
</TABLE>
HOLLINGS C. RENTON has served as President and Chief Executive Officer and
as a director of the Company since March 1993. Prior to joining the Company, Mr.
Renton served as President and Chief Operating Officer of Chiron Corporation
from December 1991 to March 1993 following Chiron Corporation's acquisition of
Cetus Corporation. Prior to the acquisition, Mr. Renton served as President of
Cetus Corporation from August 1990 to February 1993 and as Chief Operating
Officer of Cetus Corporation from 1987 to August 1990. Mr. Renton holds a B.S.
from Colorado State University and an M.B.A. from the University of Michigan.
WILLIAM G. GERBER, M.D. has served as Vice President and Chief Operating
Officer since joining the Company in June 1995. Prior to joining the Company,
Dr. Gerber served as President of the Chiron Corporation Diagnostics business
unit following Chiron Corporation's merger with Cetus Corporation in December
1991. Dr. Gerber served as Vice President and General Manager of the PCR
(Polymerase Chain Reaction) Division of Cetus Corporation from 1988 until 1991.
Dr. Gerber earned a B.S. in medical science and an M.D. from the School of
Medicine, University of California at San Francisco.
ALLAN BALMAIN, PH.D., F.R.S.E. has served as Vice President of Research
since October 1996. Dr. Balmain served as Professor of molecular oncology at the
CRC Beatson Laboratories University of Glasgow from June 1993 until October 1996
and held a Jerry Turner Fellowship of the Cancer Research Campaign, Great
Britain. Dr. Balmain directed a research group in the area of molecular genetics
of multistage carcinogenesis at the CRC Beatson Institute of Glasgow from 1983
to October 1996. Dr. Balmain served as consultant to the Company from November
1994 until October 1996. Prior to joining the Company, he cofounded Cyclacel, a
biotechnology company based in Scotland in September 1996. Dr. Balmain received
a Ph.D. in chemistry from the University of Glasgow and performed post-doctoral
research as a Royal Society European Fellow at the University of Strasbourg,
France and as an Alexander von Humboldt Fellow at the German Cancer Research
Center, Heidelberg. He has been elected as a Fellow of the Royal Society of
Edinburgh.
GREGORY GIOTTA, PH.D., J.D. joined the Company in June 1995 as Vice
President and Chief Legal Counsel. Prior to joining the Company, Dr. Giotta
served as Vice President and Chief Intellectual Property Attorney at Glycomed
Corporation, a biotechnology company, from October 1992 to June 1995. Prior to
that, Dr. Giotta held various positions at Cetus Corporation from 1990 to
October 1992, including Director of Patents and Trademarks for therapeutics. Dr.
Giotta earned a Ph.D. from the University of California at Santa Cruz and a J.D.
from the University of San Diego. Dr. Giotta also pursued post-doctoral research
at Harvard University and the Salk Institute.
DOUGLAS L. BLANKENSHIP has served as Director of Finance since October 1995.
Prior to joining the Company, Mr. Blankenship worked in a variety of finance
related positions at Eli Lilly from September 1990 to September 1995. Mr.
Blankenship, a certified public accountant, previously served as an audit
manager with KPMG Peat Marwick. Mr. Blankenship earned a B.S. in business
administration from California Polytechnic State University and an M.B.A. from
The Wharton School, University of Pennsylvania.
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<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 31, 1997 by: (i) each director and
nominee for director; (ii) each of the Named Executive Officers (as defined in
the Summary Compensation Table); (iii) all executive officers and directors of
the Company as a group; and (iv) all those known by the Company to be beneficial
owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER OWNED BENEFICIALLY OWNED(1)
- ------------------------------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
Chiron Corporation....................................................... 1,400,756 14.69%
4560 Horton Street
Emeryville, CA 94608
Entities Affiliated with Institutional Venture Partners (2).............. 985,349 10.32%
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Bayer Corporation (3).................................................... 945,510 9.92%
400 Morgan Lane
Westhaven, CT 96516
Warner-Lambert Company (4)............................................... 657,737 6.76%
201 Tabor Road
Morris Plains, NJ 07950
Samuel D. Colella (2) (5)................................................ 993,849 10.40%
Kathleen LaPorte (6)..................................................... 285,150 2.99%
Hollings C. Renton (7)................................................... 188,097 1.96%
Frank McCormick, Ph.D., F.R.S. (8)....................................... 181,798 1.90%
Brook H. Byers (9)....................................................... 6,552 *
Kevin J. Kinsella (10)................................................... 5,537 *
Randy Thurman............................................................ 0 *
Wendell Wierenga, Ph.D................................................... 0 *
Michael J. Berendt, Ph.D. (3)............................................ 0 *
Paul Goddard, Ph.D....................................................... 0 *
William Gerber, M.D. (11)................................................ 61,682 *
Gregory Giotta, Ph.D., J.D. (12)......................................... 12,367 *
All directors and executive officers as a group (14 persons) (13)........ 1,747,779 17.92%
</TABLE>
- ------------------------
(1) Based on 9,535,784 shares of Common Stock outstanding as of March 31, 1997.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Beneficial ownership also
includes shares of stock subject to options and warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
March 31, 1997.
17
<PAGE>
(2) Includes 955,477 shares held by Institutional Venture Partners V, L.P.
("IVP") and 15,865 shares held by Institutional Venture Management V, L.P.
("IVM"), of which Mr. Colella, a Director of the Company, is a partner. IVM
is the general partner of IVP. Also includes 14,007 shares IVM has the right
to acquire pursuant to an option exercisable within 60 days of March 31,
1997. Mr. Colella disclaims beneficial ownership of the shares held by IVP
and IVM, except to the extent of his pecuniary interests therein.
(3) Dr. Berendt, a director of the Company, is Senior Vice President, Research
for the Pharmaceutical Division of Bayer Corporation. Dr. Berendt disclaims
beneficial ownership of the shares held by Bayer Corporation.
(4) Includes 192,941 shares of Common Stock which Warner-Lambert Company is
obligated to purchase in a private transaction on May 4, 1997. Dr. Wierenga,
a director of the Company, is Senior Vice President Research for the
Parke-Davis Pharmaceutical Research division of Warner-Lambert. Dr. Wierenga
disclaims beneficial ownership of the shares held by Warner-Lambert Company.
(5) Includes 5,000 shares which may be acquired pursuant to options vested and
exercisable within 60 days of March 31, 1997. Also includes 500 shares held
by Colella Family Partners and 3,000 shares held by the Colella Family
Trust.
(6) Includes 241,854 shares held by Sprout Capital VI, L.P. ("Sprout") and also
includes 38,296 shares held by DLJ Capital Corporation ("DLJ"). DLJ is the
managing general partner of Sprout. Ms. LaPorte, a director of the Company,
is a general partner of DLJ Associates VI, L.P., the general partner of
Sprout. Ms. LaPorte disclaims beneficial ownership of the shares held by
such entities except to the extent of her pecuniary interests therein. Also
includes 5,000 shares which may be acquired pursuant to options vested and
exercisable within 60 days of March 31, 1997.
(7) Includes 115,894 shares held by The Renton Family Trust. Also includes
72,203 shares Mr. Renton has the right to acquire pursuant to options vested
and exercisable within 60 days of March 31, 1997.
(8) Includes 39,657 shares Dr. McCormick has the right to acquire pursuant to
options vested and exercisable within 60 days of March 31, 1997.
(9) Includes 5,000 shares which may be acquired pursuant to options vested and
exercisable within 60 days of March 31, 1997.
(10) Includes 537 shares held by the Kevin J. Kinsella Trust. Also includes
5,000 shares which may be acquired pursuant to options vested and
exercisable within 60 days of March 31, 1997.
(11) Includes 60,965 shares Dr. Gerber has the right to acquire pursuant to
options vested and exercisable within 60 days of March 31, 1997.
(12) Includes 12,367 shares Dr. Giotta has the right to acquire pursuant to
options vested and exercisable within 60 days of March 31, 1997.
(13) Includes 1,371,422 shares held by entities affiliated with certain
directors and officers and includes 220,155 shares subject to stock options
held by directors, officers and entities affiliated with certain directors
vested and exercisable within 60 days of March 31, 1997.
18
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives stock option grants under
the Directors' Plan. Only non-employee directors of the Company are eligible to
receive options under the Directors' Plan. Options granted under the Directors'
Plan are intended by the Company not to qualify as incentive stock options under
the Code. See "Proposal 3--Approval of the 1996 Non-Employee Directors' Stock
Option Plan, as Amended."
During the last fiscal year, the Company granted options to purchase an
aggregate of 123,000 shares of Company Common Stock to the non-employee
directors of the Company pursuant to the Directors' Plan and the 1996 Plan at a
weighted average exercise price per share of $11.03 (based on the closing sales
prices reported on the Nasdaq National Market for the date of each grant). As of
March 31, 1997, no options had been exercised under the Directors' Plan nor have
any options granted to non-employee directors under the 1996 Plan been
exercised.
In November 1996, each of Randy Thurman and Dr. Wendell Wierenga entered
into consulting agreements with the Company. Pursuant to the consulting
agreements, Mr. Thurman and Dr. Wierenga each receive an annual retainer of
$10,000. In addition Mr. Thurman and Dr. Wierenga are each paid $1,200 per day
for their consulting services, up to a maximum of 12 days each per annum. The
consulting agreements also provide that the Company shall grant each of Mr.
Thurman and Dr. Wierenga an option to purchase 1,500 shares of Company Common
Stock each year each of them remains a consultant to the Company. The consulting
agreements are for a term of two years but may be terminated earlier with 30
days notice by either party.
19
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain compensation awarded or paid by the
Company during the fiscal years ended December 31, 1996 and December 31, 1995 to
its President and Chief Executive Officer and the Company's other executive
officers who earned more than $100,000 during the year ended December 31, 1996
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARD
ANNUAL COMPENSATION -------------
---------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS COMPENSATION
- -------------------------------------------- --------- ---------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Hollings C. Renton ......................... 1996 $ 248,063 $ 33,333(1) 15,403 $ 2,570(2)
President and Chief Executive Officer 1995 236,250 -- -- --
Frank McCormick, Ph.D., F.R.S. ............. 1996 225,750 119,790(1)(3) 15,403 39,637(2)(4)
Vice President and Chief Scientific 1995 215,000 40,000(5) 35,018 --
Officer
William Gerber, M.D. ....................... 1996 220,500 33,333(1) 15,403 2,252(2)
Vice President and Chief Operating Officer 1995 139,000 -- 140,074 --
Gregory Giotta, Ph.D., J.D. ................ 1996 169,950 -- 17,087 1,670(2)
Vice President and Chief Legal Counsel 1995 84,974 10,487 21,513 --
</TABLE>
- ------------------------
(1) $33,333 represents an annual bonus earned for 1996 performance.
(2) Represents the taxable portion of group life insurance paid by the company.
(3) $86,457 of which represents the forgiveness on an employee loan.
(4) $38,240 of which represents payment for accrued and unused vacation time.
(5) Represents the annual forgiveness of an employee loan.
20
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED IN EXERCISE FOR TERM(2)
OPTIONS FISCAL PRICE PER EXPIRATION ---------------------
NAME GRANTED YEAR(1) SHARE DATE 5% 10%
- -------------------------------------------------- ----------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hollings C. Renton................................ 7,003 1.28% $ 1.07 1/17/06 $ 4,712 $ 11,942
President and Chief Executive Officer 8,400 1.54% 7.63 7/31/06 40,307 102,146
Frank McCormick, Ph.D., F.R.S..................... 7,003 1.28% 1.07 1/17/06 4,712 11,942
Vice President and Chief 8,400 1.54% 7.63 7/31/06 40,307 102,146
Scientific Officer
William Gerber, M.D............................... 7,003 1.28% 1.07 1/17/06 4,712 11,942
Vice President and Chief 8,400 1.54% 7.63 7/31/06 40,307 102,146
Operating Officer
Gregory Giotta, Ph.D., J.D........................ 2,101 0.38% 1.07 1/17/06 1,414 3,583
Vice President and Chief Legal Counsel 14,986 2.74% 7.63 7/31/06 71,910 182,234
</TABLE>
- ------------------------
(1) Based on an aggregate of 547,215 options granted to employees, officers,
directors and consultants under the 1996 Plan of the Company in fiscal 1996
including the Named Executive Officers set forth in the "Summary
Compensation Table" above.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years) and is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated price.
The 5% and 10% assumed rates of appreciation are derived from the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS
OPTIONS AT DECEMBER AT DECEMBER 31,
SHARES 31, 1996 1996(1)
ACQUIRED ON VALUE ---------------------- ----------------------
NAME EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
- ----------------------------------------------- ----------- ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hollings C. Renton............................. -- -- 59,239 24,452 $ 640,188 $ 207,461
President and Chief Executive Officer
Frank McCormick, Ph.D., F.R.S.................. -- -- 36,542 21,023 361,841 162,053
Vice President and Chief Scientific Officer
William Gerber, M.D............................ -- -- 47,273 80,190 469,601 756,978
Vice President and Chief Operating Officer
Gregory Giotta, Ph.D., J.D..................... -- -- 11,234 30,366 102,739 217,323
Vice President and Chief Legal Counsel
</TABLE>
- ------------------------
(1) Determined using the December 31, 1996 market price of $11.125 per share,
minus the exercise price, multiplied by the number of shares underlying the
option.
21
<PAGE>
EMPLOYMENT CONTRACTS
In May 1995, the Company entered into an employment agreement with Dr.
Gregory Giotta providing for an annual compensation of $165,000 per year and an
option to purchase up to 24,513 shares of Common Stock at an exercise price of
$1.07 per share subject to a four-year vesting schedule. If Dr. Giotta were
terminated because of a change in control of the Company, Dr. Giotta would
receive a severance payment equal to six months salary.
The Company entered into a Scientific Advisory Board Consulting Agreement
(the "SAB Agreement") with Dr. Frank McCormick in March 1996 which became
effective in January 1997 when he resigned as Vice President and Chief
Scientific Officer of the Company. Pursuant to the SAB Agreement, Dr. McCormick
was retained as Chairman of the Company's Scientific Advisory Board and as a
consultant until December 31, 1999. Dr. McCormick will provide at least 50 days
of services annually and will be paid an annual retainer of $50,000 plus a
consulting fee of $1,200 for each full day of service. In addition, upon
achievement of certain milestones as determined by the Board of Directors, Dr.
McCormick would become eligible to receive options to purchase up to 10,504
shares of the Company's Common Stock subject to vesting over a four-year period.
Upon completion of certain milestones set forth in the SAB Agreement, portions
of loans and accrued interest made by the Company to Dr. McCormick will be
forgiven.
In August 1995, the Company entered into an employment agreement, amended in
March 1997, with Dr. Allan Balmain for annual compensation of $220,000 an option
to purchase up to 100,000 shares of Common Stock at an exercise price of $10.125
per share subject to a four-year vesting schedule and an option to purchase up
to 20,000 shares of Common Stock at an exercise price of $10.125 per share
subject to vesting on the attainment of certain milestones. In connection with
Dr. Balmain's relocation from Scotland, the Company agreed to reimburse Dr.
Balmain for his reasonable moving expenses, to provide a signing bonus of
$65,000 and to provide reasonable mortgage assistance for a period not to exceed
3 years. In addition, the Company loaned Dr. Balmain $300,000, $25,000 of which
will be forgiven at the end of each year beginning in 1998 as long as Dr.
Balmain remains an employee of the Company. If Dr. Balmain were terminated
because of a change in control of the Company, Dr. Balmain would receive a
severance payment equal to six months salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From January 1 to December 1996, the Company's Compensation Committee was
composed of Brook Byers, Kevin Kinsella, and Samuel Colella. From December 1996
through the close of the fiscal year, the Compensation Committee was composed of
Brook Byers, Kevin Kinsella, Randy Thurman, and Samuel Colella. Dr. Paul Goddard
joined the Compensation Committee in February 1997. Neither Brook Byers, Kevin
Kinsella, Samuel Colella, Dr. Paul Goddard nor Randy Thurman is an officer or
employee of the Company. Randy Thurman is a consultant to the Company.
22
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
COMPENSATION PHILOSOPHY
The primary goal of the Company is to align compensation with the Company's
business objectives and performance. The Company's aim is to attract, retain and
reward executive officers and other employees who contribute to the long-term
success of the Company and to motivate those individuals to enhance long-term
stockholder value. To establish this relationship between employee compensation
and the creation of stockholder value, the Board of Directors has adopted a
total compensation package comprised of base salary and stock option awards. Key
elements of this compensation package are:
- The Company pays salaries at least competitive with those of leading
biotechnology companies with which the Company competes for talent.
- The Company maintains incentive opportunities designed to motivate and
reward achievement of specific company and individual goals. The
availability of these incentives is designed to ensure that the total
compensation for employees is competitive with the industry.
- The Company provides significant equity-based incentives for executives
and other employees to ensure that individual's are motivated over the
long term to respond to the Company's business challenges and
opportunities as owners.
SALARY COMPENSATION
The salary compensation for all employees, including executive officers, is
based upon the compensation of employees in similar positions in other
biotechnology companies, in accordance with published biotechnology compensation
survey information. Salary adjustments for 1996 also were based on each
individual's performance. In establishing base salaries and bonuses for the
executive officers other than the Chief Executive Officer, the Compensation
Committee carefully reviewed the progress made in the programs headed by each
officer and the role of these officers in the scientific and business
development of the programs of the Company.
COMPANY PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer joined the Company in 1993. His initial salary
and stock option grants were determined on the basis of negotiations between the
Board of Directors and the Chief Executive Officer with due regard to his
experience, competitive salary information and market conditions at the time.
Hollings Renton's 1996 salary was set by the Board of Directors. As with the
other executive officers, the amount of Mr. Renton's total compensation,
including his bonus, was based on the Company's 1996 accomplishments and the
Chief Executive Officer's significant contributions thereto, including, among
other things, performance to Company milestones set by the Board of Directors,
the commencement of Phase I clinical trials for the ONYX-015 Program in April
1996 and the completion of the Company's initial public offering in May 1996.
INCENTIVE COMPENSATION
The Company's primary long-term incentive program presently consists of the
1996 Plan and the 1996 Employee Stock Purchase Plan (the "Purchase Plan"). The
1996 Plan utilizes vesting periods (generally four years) to encourage employees
to continue in the employ of the Company. Through option grants, employees
receive equity incentives to build long-term stockholder value. At the time of
hiring, each
- ------------------------
(1) The material in this report is not "soliciting materials," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933 as amended (the "Securities
Act") or the Exchange Act, whether made before or after the date hereof and
irrespective of any general incorporation language contained in such filing.
23
<PAGE>
employee receives a standard initial stock option grant for such employee's job
position at the Company. The exercise price of options granted under the 1996
Plan is 100% of the fair market value of the underlying stock on the date of
grant. Employees receive value from these grants only to the extent that the
Company's Common Stock appreciates in the long term.
In 1996, the Compensation Committee and the Board of Directors granted stock
options to one of the Company's executive officers in connection with the
commencement of employment and granted stock options to five of the continuing
executive officers including the Chief Executive Officer. The grant of the
options was based on the prior performance of each executive officer and the
need to retain these officers in light of the key roles played by such executive
officers in the growth and success of the Company. In making these stock awards,
the Compensation Committee was mindful of, among other things, the success of
these officers, which was evidenced by the commencement of Phase I Clinical
trials for the ONYX-015 program in April 1996 and the completion of the
Company's initial public offering in May 1996. In reaching its decisions, the
Board of Directors relied on its experience and the vesting status of each
executive officer's previously issued stock options.
Pursuant to the annual incentive stock program under the Company's 1996
Plan, the Compensation Committee may grant every employee an annual incentive
stock option based on the Company meeting certain milestones set by the Board of
Directors. For 1996, the Compensation Committee determined that each employee
was eligible to receive stock options equal to up to 10% of the standard initial
stock option grant for such employee's job position at the Company based on the
achievement of certain milestones set forth by the Board of Directors. The Chief
Executive Officer and other executive officers are eligible to receive options
under this program. In 1996, the Compensation Committee determined that 85% of
the milestones set forth by the Board of Directors had been met and granted each
eligible employee stock options equal to 85% of such eligible employee's maximum
annual incentive grant. In addition, under such program the Compensation
Committee made discretionary merit-based stock option grants totaling up to 2.5%
of the outstanding stock option grants held by all employees. Between 10% and
15% of the Company's employees qualified for such discretionary grants in 1996.
The Company established the Purchase Plan both to encourage employees to
continue in the employ of the Company and to motivate employees through an
ownership interest in the Company. Under the Purchase Plan, employees, including
officers, may have up to 15% of their earnings withheld for purchases of Common
Stock on certain dates specified by the Purchase Plan. The price of Common Stock
purchased will be equal to 85% of the lower of the fair market value of the
Common Stock on the date of commencement of participating in each 24-month
offering period or on each specified purchase date.
CERTAIN TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of not more than $1 million of
compensation paid to certain executive officers in a taxable year. Compensation
above $1 million may be deducted if it is "performance-based compensation"
within the meaning of the Code.
The Compensation Committee has determined that the stock options granted
under the 1996 Plan with an exercise price at least equal to the fair market
value of the Company's common stock on the date of grant should be treated as
"performance-based compensation."
From the members of the Compensation Committee of ONYX Pharmaceuticals, Inc.
Brook H. Byers
Samuel D. Colella
Kevin D. Kinsella
Randy Thurman
24
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on May 8, 1996 (the day immediately preceding the Company's initial
public offering) for (i) the Company's Common Stock, (ii) the Nasdaq Stock
Market-US Index and (iii) the Nasdaq Pharmaceutical Index. All values assume
reinvestment of full amount of all dividends:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ONYX PHARMACEUTICALS, INC. NASDAQ PHARMACEUTICAL NASDAQ STOCK MARKET-US
<S> <C> <C> <C>
5/08/96 $100 $100 $100
6/96 67 95 100
9/96 95 97 104
12/96 93 94 109
</TABLE>
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
25
<PAGE>
CERTAIN TRANSACTIONS
In May 1992, Dr. Frank McCormick executed a promissory note in the amount of
$193,551 with an 8% annual interest rate. The balance of such promissory note of
$86,457 was forgiven on December 31, 1996.
In each of May 1992, November 1993 and October 1994, Dr. Frank McCormick
executed a promissory note in the amount of $75,000 at an annual interest rate
equal to the higher of 6%, 8% and 4.8%, respectively, or the federal short-term
interest rate then in effect (collectively, the "Notes"). The interest on the
Notes compounds semi-annually. The Notes are secured by 75,000 shares of Common
Stock of the Company.
In March 1996, ONYX entered into the SAB Agreement with Dr. Frank McCormick.
The SAB Agreement provides for Dr. McCormick to be retained as chairman of
ONYX's Scientific Advisory Board and as a consultant to ONYX in the field of
molecular oncology until December 31, 1999. In his role as a consultant, Dr.
McCormick will review and provide a scientific leadership advisory role for
ONYX's scientific programs, primarily with respect to ONYX's Ras and Cell Cycle
Programs. Dr. McCormick will provide a minimum of 50 days consulting services
per year, and will not provide any consulting, research or advisory services in
the field of molecular oncology, including the Company's collaboration with
Warner-Lambert Company to any other commercial entities actually or potentially
competitive with ONYX. As compensation for such services, Dr. McCormick will
receive an annual retainer of $50,000 in addition to a consulting fee of $1,200
for each day of services provided. Dr. McCormick will also be eligible to
receive for each year that he provides services (i) an option to purchase up to
7,003 shares of ONYX common stock if ONYX achieves certain milestones designated
by the Board of Directors for that year, and (ii) an option to purchase up to an
additional 3,501 shares of ONYX Common Stock if Dr. McCormick meets certain
performance objectives set by the Board of Directors for that year. In addition,
the principal and interest under the Notes are forgivable, up to 33% per year on
a cumulative basis, over the first three years of the SAB Agreement, upon the
achievement of certain milestones. If Dr. McCormick achieves such milestones
after the end of the third year, the Company shall forgive the principal and
interest under the Notes so long as Dr. McCormick is still providing services
under the SAB Agreement. If the SAB Agreement is terminated, then the principal
and interest under the Notes not already forgiven shall be due and payable
within 30 days of such termination.
On May 4, 1996, Warner-Lambert Company purchased 254,683 shares of Common
Stock at a purchase price of $15.71 per share. Further, Warner-Lambert Company
is obligated to make an equity investment of $3.33 million in May 1997 for the
purchase of 192,941 shares of Common Stock with a price of $17.28 per share.
In February 1997, the Compensation Committee granted Hollings Renton, Dr.
Frank McCormick and Dr. William Gerber each an option to purchase 9,454 shares
of Common Stock with an exercise price of $10.875 per share based on such
officers' 1996 performance. Such options have a standard four year vesting
schedule. See "Report of the Compensation Committee of the Board of Directors on
Executive Compensation."
The Company has entered into indemnity agreements with certain officers,
directors and other key employees which provide, among other things, that the
Company will indemnify such officer or director, under the circumstances and to
the extent provided for therein, for expenses, damages, judgments, fines and
settlements he or she may be required to pay in actions or proceedings which he
or she is or may be made a party by reason of his or her position as a director,
officer or other agent of the Company, and otherwise to the full extent
permitted under Delaware law and the Company's By-laws.
26
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ Robert L. Jones
Robert L. Jones
Secretary
April 18, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, ONYX
PHARMACEUTICALS, INC. 3031 RESEARCH DRIVE, RICHMOND, CALIFORNIA 94806.
27
<PAGE>
ONYX PHARMACEUTICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1997
The undersigned hereby appoints HOLLINGS C. RENTON, DOUGLAS L. BLANKENSHIP
and ROBERT L. JONES, and each of them, as attorneys and proxies of the
undersigned, with full power of substitution, to vote all of the shares of stock
of ONYX Pharmaceucticals, Inc. which the undersigned may be entitled to vote at
the Annual Meeting of Stockholders of ONYX Pharmaceuticals, Inc. to be held at
the Berkeley Marina Marriott Hotel, 200 Marina Boulevard, Berkeley, California
at 10:00 a.m., (local time, and at any and all postponements, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect three directors to hold office until the 2000 Annual
Meeting of Stockholders.
<TABLE>
<CAPTION>
<S> <C>
/ / FOR all nominees listed below (except as / / WITHHOLD AUTHORITY to vote for all
marked to the contrary below). nominees listed below.
</TABLE>
NOMINEES: Randy Thurman, Wendell D. Wierenga, Ph.D. and Paul Goddard,
Ph.D.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3 AND 4.
PROPOSAL 2: To approve the Company's 1996 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 600,000 shares and to add
provisions with respect to Section 162(m) of the Internal Revenue
code of 1986, as amended.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 3: To approve the Company's 1996 Non-Employee Directors' Stock Option
Plan, as amended, to allow non-employee directors of the Company
who are also consultants to the Company to receive option grants
under such plan.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 4: To ratify selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
DATED , 1997
________________________________________
________________________________________
SIGNATURE(S)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH
SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND
ATTORNEYS-IN-FACT SHOULD ADD THEIR
TITLES. IF SIGNER IS A CORPORATION,
PLEASE GIVE FULL CORPORATE NAME AND HAVE
A DULY AUTHORIZED OFFICER SIGN, STATING
TITLE. IF SIGNER IS A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
