<PAGE>
SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the Appropriate Box:
<TABLE>
<C> <S>
[ ] 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 (S) 240.14a-11(c) or (S) 240.14a-12
</TABLE>
CURAGEN CORPORATION
-------------------
(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 14-a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
1
<PAGE>
[LOGO OF CURAGEN CORPORATION APPEARS HERE]
555 LONG WHARF DRIVE, 11th FLOOR
NEW HAVEN, CONNECTICUT 06511
April 14, 1999
Dear Shareholder,
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of CuraGen Corporation to be held at 10:00 a.m. on Wednesday, May 12, 1999 at
the New Haven Omni Hotel at Yale University, 155 Temple Street, New Haven,
Connecticut 06510.
At the Annual Meeting, you will be asked to elect two Class I Directors of
the Company to serve for a three year term of office. CuraGen will also seek
Shareholder approval of an increase in the aggregate number of shares for
which stock options and stock awards may be granted under its 1997 Employee,
Director and Consultant Stock Plan. The Board of Directors recommends the
approval of both of these proposals. Such other business will be transacted as
may properly come before the Annual Meeting.
We hope you will be able to attend the Annual Meeting. Whether you plan to
attend the Annual Meeting or not, it is important that your shares are
represented. Therefore, you are urged to promptly mark, sign, date and return
the enclosed proxy card in the postage-prepaid envelope enclosed for that
purpose. This will ensure your proper representation at the Annual Meeting.
Sincerely,
/s/ Jonathan M. Rothberg
Chief Executive Officer, President
and Chairman of the Board
New Haven, Connecticut
April 14, 1999
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
CURAGEN CORPORATION
555 LONG WHARF DRIVE, 11th FLOOR
NEW HAVEN, CONNECTICUT 06511
(203) 401-3330
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
MAY 12, 1999
To the Shareholders of CuraGen Corporation:
The Annual Meeting of Shareholders of CuraGen Corporation, a Delaware
corporation ("CuraGen" or the "Company"), will be held at 10:00 a.m. on
Wednesday, May 12, 1999 at the New Haven Omni Hotel at Yale University, 155
Temple Street, New Haven, Connecticut 06510, for the following purposes:
1. To elect two Class I Directors, each to serve for a three year term of
office or until their successors are elected.
2. To consider and act upon a proposal to increase by 2,000,000 shares
the aggregate number of shares for which stock options and stock awards may
be granted under the Company's 1997 Employee, Director and Consultant Stock
Plan.
3. To transact such other business as may properly come before the
meeting and any adjournments thereof.
These items of business are more fully described in the Proxy Statement
accompanying this notice. Only Shareholders of record at the close of business
on March 26, 1999 are entitled to notice of, and to vote at, the Annual
Meeting. All Shareholders are invited to attend the Annual Meeting in person.
Whether you plan to attend the Annual Meeting or not, it is important that your
shares are represented. Therefore, you are urged to promptly mark, sign, date
and return the enclosed proxy card in the postage-prepaid envelope enclosed for
that purpose. Any Shareholder attending the Annual Meeting may vote in person
even if the Shareholder has returned a proxy.
By Order of the Board of Directors
/s/ Elizabeth A. Whayland
Director of Financial Management
and Secretary
New Haven, Connecticut
April 14, 1999
<PAGE>
CURAGEN CORPORATION
555 LONG WHARF DRIVE, 11th FLOOR
NEW HAVEN, CONNECTICUT 06511
(203) 401-3330
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
GENERAL
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of CuraGen Corporation ("CuraGen" or the "Company"), a
Delaware corporation, of proxies, in the accompanying form, to be used at the
Annual Meeting of Shareholders to be held at 10:00 a.m. on Wednesday, May 12,
1999 at the New Haven Omni Hotel at Yale University, 155 Temple Street, New
Haven, Connecticut 06510, and any adjournments thereof (the "Meeting").
Where the Shareholder specifies a choice on the proxy as to how his or her
shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted FOR the
election of the two nominees for Class I Directors named herein, and FOR the
proposal to increase by 2,000,000 shares the aggregate number of shares for
which stock options and stock awards may be granted under the Company's 1997
Employee, Director and Consultant Stock Plan. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before its use
by delivering to the Company a written notice of revocation or a duly executed
proxy bearing a later date. Any Shareholder who has executed a proxy but is
present at the Meeting, and who wishes to vote in person, may do so by
revoking his or her proxy as described in the preceding sentence. Shares
represented by valid proxies in the form enclosed, received in time for use at
the Meeting and not revoked at or prior to the Meeting, will be voted at the
Meeting. Attendance at the Meeting will not by itself constitute the
revocation of a proxy. The presence, in person or by proxy, of the holders of
a majority of the outstanding shares of the Company's common stock, par value
$0.01 per share ("Common Stock"), is necessary to constitute a quorum at the
Meeting.
The election of the Class I Directors will be determined by a plurality of
the votes cast. The other proposal to be voted upon by the Shareholders of the
Company requires the affirmative vote of a majority of the shares present or
represented and voting on the proposal at the Meeting. Abstentions and broker
non-votes (which result when a broker holding shares for a beneficial holder
in "street name" has not received timely voting instructions on certain
matters from such beneficial holder and the broker does not have discretionary
voting power on such matters) are counted for purposes of determining the
presence or absence of a quorum at the Meeting. Abstentions and broker non-
votes are not counted for purposes of tabulating the votes cast.
The close of business on March 26, 1999 has been fixed as the record date
for determining the Shareholders entitled to notice of, and to vote at, the
Meeting. As of the close of business on March 26, 1999, the Company had
13,430,357 shares of Common Stock outstanding and entitled to vote. Holders of
Common Stock are entitled to one vote per share on all matters to be voted on
by Shareholders.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock of the Company for their
expenses in forwarding proxy material to such beneficial owners. Solicitation
of proxies by mail may be supplemented by telephone, telegram, telex and
personal solicitation by the Directors, officers or employees of the Company.
No additional compensation will be paid for such solicitation. In addition,
the Company may request banks, brokers, and other custodians, nominees and
fiduciaries to solicit customers of theirs who have shares of the Company
registered in the name of the nominee. The Company will reimburse any such
persons for their reasonable out-of-pocket expenses.
This Proxy Statement and the accompanying proxy are being mailed on or about
April 14, 1999 to all Shareholders entitled to notice of and to vote at the
Meeting.
1
<PAGE>
The Annual Report to Shareholders for the fiscal year ended December 31,
1998 is being mailed to the Shareholders with this Proxy Statement, but does
not constitute a part hereof.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of April 1, 1999, by (i) each person known by the
Company to be the beneficial owner of more than 5% of its outstanding shares
of Common Stock, (ii) each Director of the Company, (iii) each executive
officer named in the Summary Compensation Table on pages 7 and 8 hereof and
(iv) all Directors and executive officers of the Company as a group. Except as
otherwise indicated, the persons or entities listed below have sole voting and
investment power with respect to all shares of Common Stock owned by them.
<TABLE>
<CAPTION>
Number of Shares Percentage of Shares
Name and Address** Beneficially Owned Beneficially Owned(1)(2)
------------------ ------------------ ------------------------
<S> <C> <C>
Jonathan M. Rothberg,
Ph.D.(3)............... 3,528,800 26.3%
c/o CuraGen Corporation
555 Long Wharf Drive,
11th Floor
New Haven, CT 06511
Quantum Industrial
Partners LDC(4)........ 2,047,782 14.9%
Kaya Flamboyan
Willemstad, Curacao
Netherlands Antilles
Pioneer Hi-Bred
International,
Inc.(5)................ 1,000,000 7.4%
700 Capital Square
400 Locust Street
Des Moines, IA 50309
Henry M. Rothberg(6).... 989,496 7.2%
c/o Law Offices of
Marshal D. Gibson,
P.C.
152 Temple Street
New Haven, CT 06510
Lillian R. Rothberg(7).. 989,496 7.2%
c/o Law Offices of
Marshal D. Gibson,
P.C.
152 Temple Street
New Haven, CT 06510
Genentech, Inc.(8)...... 741,949 5.5%
460 Point San Bruno
Blvd.
South San Francisco, CA
94080
David M. Wurzer(9)...... 44,000 *
Peter A. Fuller,
Ph.D.(10).............. 30,000 *
Stephen F. Kingsmore,
M.B., Ch.B.(11)........ 35,000 *
Gregory T. Went,
Ph.D.(12).............. 350,000 2.6%
Richard H. Booth,
C.P.A., C.L.U.,
Ch.F.C.(13)............ 42,398 *
Vincent T. DeVita, Jr.,
M.D.(14)............... 23,333 *
Robert E. Patricelli,
J.D.(15)............... 93,450 *
James L. Vincent(16).... 98,733 *
All Directors and
executive officers as a
group (11 persons)(17).. 4,312,464 30.9%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the Company's
outstanding shares of Common Stock.
** Addresses are given for beneficial owners of more than 5% of the
outstanding Common Stock only.
(1) Shares of Common Stock that an individual or group has the right to
acquire within 60 days of April 1, 1999, pursuant to the exercise of
options or warrants or pursuant to stock purchase agreements are deemed
to be outstanding for the purposes of computing the percentage ownership
of such individual or group, but
2
<PAGE>
are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
(2) Percentage of ownership is based on 13,430,357 shares of Common Stock
issued and outstanding on April 1, 1999.
(3) Includes (i) 500,000 shares of Common Stock held by a limited partnership
of which Dr. Rothberg is the sole general partner and of which the sole
limited partner is a trust in which Dr. Rothberg is the primary
beneficiary, (ii) 10,000 shares of Common stock subject to currently
exercisable options, (iii) 2,700 shares of Common Stock held jointly by
Dr. Rothberg and his brother, (iv) 200 shares of Common Stock owned by
Dr. Rothberg's wife and (v) 800 shares of Common Stock subject to
currently exercisable options held by Dr. Rothberg's wife.
(4) Includes 341,297 shares of Common Stock subject to currently exercisable
warrants. The sole general partner of Quantum Industrial Partners LDC
("QIP") is QIH Management Investor, L.P., the sole general partner of
which is QIH Management, Inc. ("QIH Management"). Mr. George Soros ("Mr.
Soros") is the sole shareholder of QIH Management, and has entered into
an agreement dated as of January 1, 1997 with Soros Fund Management LLC
("SFM LLC") pursuant to which Mr. Soros has, among other things, agreed
to use his best efforts to cause QIH Management to act at the direction
of SFM LLC. Mr. Soros is also the Chairman of SFM LLC, and in such
capacity may be deemed to have voting and dispositive power over
securities held for the account of QIP. Mr. Stanley F. Druckenmiller, as
Lead Portfolio Manager of SFM LLC, may also be deemed to have voting and
dispositive power over securities held for the account of QIP. This
information is based solely on a Schedule 13G filed with the Securities
and Exchange Commission on February 12, 1999.
(5) This information is based solely on a Schedule 13G filed with the
Securities and Exchange Commission on February 16, 1999.
(6) Consists of (i) 35,000 shares of Common Stock held by Mr. Rothberg, (ii)
10,000 shares of Common Stock owned jointly by Mr. Rothberg and his wife,
(iii) 634,130 shares of Common Stock held by Grand Hemroc Limited
Partnership, and (iv) 310,366 shares of Common Stock subject to currently
exercisable warrants held by Grand Hemroc Limited Partnership. Mr.
Rothberg and his wife serve as co-general partners of Grand Hemroc
Limited Partnership.
(7) Consists of (i) 35,000 shares of Common Stock held by Mrs. Rothberg, (ii)
10,000 shares of Common Stock owned jointly by Mrs. Rothberg and her
husband, (iii) 634,130 shares of Common Stock held by Grand Hemroc
Limited Partnership, and (iv) 310,366 shares of Common Stock subject to
currently exercisable warrants held by Grand Hemroc Limited Partnership.
Mrs. Rothberg and her husband serve as co-general partners of Grand
Hemroc Limited Partnership.
(8) This information is based solely on a Schedule 13G filed with the
Securities and Exchange Commission on April 2, 1998.
(9) Consists of 44,000 shares of Common Stock subject to currently
exercisable options.
(10) Consists of 30,000 shares of Common Stock subject to currently
exercisable options.
(11) Consists of 35,000 shares of Common Stock subject to currently
exercisable options.
(12) Includes 277,000 shares subject to currently exercisable options and
10,500 shares of Common Stock held by trusts for the benefit of Dr.
Went's wife and children. Dr. Went's wife is a co-trustee of the trusts,
and Dr. Went disclaims beneficial ownership of such 10,500 shares.
(13) Consists of 5,000 shares of Common Stock subject to currently exercisable
warrants, 18,333 shares of Common Stock subject to currently exercisable
options and 19,065 shares of Common Stock held by Mr. Booth's wife.
(14) Consists of 23,333 shares of Common Stock subject to currently
exercisable options.
(15) Includes 18,333 shares of Common Stock subject to currently exercisable
options.
(16) Includes 18,333 shares of Common Stock subject to currently exercisable
options.
(17) Includes 33,250 shares of Common Stock subject to currently exercisable
options and 1,500 shares of Common Stock held by Elizabeth A. Whayland,
and 32,000 shares of Common Stock subject to currently exercisable
options held by Michael P. McKenna. See also footnotes 3 and 9 through 16
above.
3
<PAGE>
MANAGEMENT
Proposal 1
Election of Directors
The Company's By-Laws provide for the Company's business to be managed by or
under the direction of the Board of Directors. Under the Company's By-Laws,
the number of Directors is fixed from time to time by the Board of Directors.
The Board of Directors currently consists of five members, classified into
three classes as follows: Robert E. Patricelli, J.D. and James L. Vincent
serve in a class with a term which expires at the upcoming Meeting (the "Class
I Directors"); Vincent T. DeVita, Jr., M.D. serves in a class with a term
ending in 2000 (the "Class II Director"); and Jonathan M. Rothberg, Ph.D. and
Richard H. Booth, C.P.A., C.L.U., Ch.F.C. serve in a class with a term ending
in 2001 (the "Class III Directors"). At each annual meeting of Shareholders,
Directors are elected for a term of three years to succeed those Directors
whose terms are expiring.
Pursuant to the Company's By-Laws, on March 4, 1999 the Board of Directors
voted (i) to set the size of the Board of Directors at five and (ii) to
nominate Robert E. Patricelli, J.D. and James L. Vincent for election at the
Meeting, each for a term of three years to serve until the 2002 annual meeting
of Shareholders, and until their respective successors have been elected and
qualified. The Class II Director (Vincent T. DeVita, Jr., M.D.) and the Class
III Directors (Jonathan M. Rothberg, Ph.D. and Richard H. Booth, C.P.A.,
C.L.U., Ch.F.C.) will serve until the annual meetings of Shareholders to be
held in 2000 and 2001, respectively, and until their respective successors
have been elected and qualified.
Shares represented by all proxies received by the Board of Directors and not
marked as withholding authority to vote for any individual Class I Director or
for both Class I Directors will be voted FOR the election of both Class I
Director nominees, unless one or more nominees is unable or unwilling to
serve. The Board of Directors knows of no reason why any such nominee would be
unable or unwilling to serve as a Director, but if such should be the case,
proxies may be voted for the election of some other person as the Board of
Directors may recommend in his place, or for fixing the number of Directors at
a lesser number. The affirmative vote of a majority of the shares present, in
person or by proxy, and entitled to vote on the election of Directors is
required to elect each nominee of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF MR. PATRICELLI AND MR.
VINCENT AS CLASS I DIRECTORS, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED
IN FAVOR THEREOF UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
4
<PAGE>
Executive Officers and Directors
The following table sets forth as to the present Directors, the nominees for
election at the Meeting and each executive officer: (i) name, (ii) age, (iii)
present positions with the Company, (iv) the Class of each Director and (v)
committee memberships as of April 1, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jonathan M. Rothberg, 35 Chief Executive Officer, President and Chairman of the Board
Ph.D.(3)...............
David M. Wurzer, 40 Executive Vice-President, Treasurer and Chief Financial Officer
C.P.A..................
Elizabeth A. Whayland, 38 Director of Financial Management and Secretary
C.P.A..................
Peter A. Fuller, Ph.D... 45 Vice-President, Business Development
Michael P. McKenna, 37 Vice-President, Operations
Ph.D...................
Richard H. Booth,
C.P.A., C.L.U.,
Ch.F.C.(3)(4).......... 52 Director
Vincent T. DeVita, Jr., 64 Director
M.D.(2)(5).............
Robert E. Patricelli, 59 Director
J.D.*(1)(5)............
James L. 59 Director
Vincent*(1)(4).........
</TABLE>
- --------
* Nominee for Director
(1) Class I Director
(2) Class II Director
(3) Class III Director
(4) Member of the Compensation Committee
(5) Member of the Audit Committee
Jonathan M. Rothberg, Ph.D. has served as Chief Executive Officer, President
and Chairman of the Board of Directors of the Company since its formation in
1991. Dr. Rothberg received his B.S. in Chemical Engineering from Carnegie
Mellon University and his M.S., M. Phil. and Ph.D. in Biology from Yale
University.
David M. Wurzer, C.P.A. has served as Executive Vice-President, Treasurer
and Chief Financial Officer of the Company since September 1997. From January
1991 to September 1997, Mr. Wurzer served as Senior Vice President and Chief
Financial Officer of, and in other senior managerial positions for, Value
Health, Inc., a managed health care provider. Mr. Wurzer received his B.B.A.
from the University of Notre Dame.
Elizabeth A. Whayland, C.P.A. has served as Director of Financial Management
since November 1994 and as Secretary of the Company since September 1997. From
July 1982 to November 1994, Ms. Whayland served as a Senior Manager and in
other staff and management positions with Deloitte & Touche. Ms. Whayland
received her B.A. from Grove City College and her M.S.T. from the University
of Hartford.
Peter A. Fuller, Ph.D. has served as Vice-President, Business Development of
the Company since October 1997. From September 1983 to October 1997, Dr.
Fuller served as Director, Technology Identification & Assessment, Director,
Technology Access, Director, Technology Acquisition Group and Soybean Research
Station Manager for Pioneer Hi-Bred International, Inc., a leading supplier of
agricultural genetics. Dr. Fuller received his B.S. from California State
University and his M.S. and Ph.D. from the University of Nebraska.
Michael P. McKenna, Ph.D. has served as Vice-President, Operations of the
Company since August 1998. From September 1994 to August 1998, Dr. McKenna
served as Director, Genomics Facility at CuraGen and in other management
positions with the Company. He also served as Graduate Scholar in the
Institute for Molecular Biologicals at Miles Biotechnology from 1992 to 1994.
Dr. McKenna received his B.S. from Carnegie-Mellon and his Ph.D. from Yale
University.
Richard H. Booth, C.P.A., C.L.U., Ch.F.C. has served as a Director of the
Company since October 1997. Currently, he serves as Executive Vice President,
Corporate Strategic Development of Phoenix Home Life
5
<PAGE>
Mutual Insurance Company, a position he has held since October 1994. He also
currently serves as a Director of Phoenix Duff & Phelps Corporation, MECH
Financial, Inc., Phoenix Investment Partners, Ltd., HSB Group, Inc., Aberdeen
Asset Management, PLC. From August 1994 to September 1994, Mr. Booth served as
a consultant for Phoenix Home Life Mutual Insurance Company. From February
1991 to June 1994, he served as President, Chief Operating Officer and as a
Director of The Travelers Corporation, a diversified financial services
company. Mr. Booth received his B.S. and his M.S.P.A. from the University of
Hartford.
Vincent T. DeVita, Jr., M.D. has served as a Director of the Company since
September 1995. Currently, he serves as a Director of Imclone Systems, Inc.
and is Director of the Yale University Comprehensive Cancer Center, a position
he has held since July 1993. From September 1988 to July 1993, Dr. DeVita
served as Physician-in-Chief of the Memorial Sloane-Kettering Cancer Center.
From July 1980 to August 1988, he served as Director of the National Cancer
Institute. Dr. DeVita received his B.S. from the College of William and Mary
and his M.D. from the George Washington University School of Medicine.
Robert E. Patricelli, J.D. has served as a Director of the Company since
October 1997. Currently, he serves as the Chairman and Chief Executive Officer
of Women's Health USA, Inc., a women's health services company, a position he
has held since August 1997. He also currently serves as a Director of
Northeast Utilities, Inc. and Hartford Life, Inc. From May 1987 to August
1997, he served as Chairman, President and Chief Executive Officer of Value
Health, Inc. Mr. Patricelli received his B.A. from Wesleyan University and his
J.D. from Harvard Law School.
James L. Vincent has served as a Director of the Company since October 1997.
Mr. Vincent has been the Chairman of the Board of Directors of Biogen, Inc.
since 1985; Chief Executive Officer of Biogen, Inc. since December 1998 and
from 1985 until February 1997, and President from 1985 to February 1994; from
1982 to 1985, Group Vice President, Allied Corporation (now Allied-Signal,
Inc.) and President, Allied Health and Scientific Products Company; from 1979
through 1980, Executive Vice President, Chief Operating Officer and a Director
of Abbott Laboratories, Inc. Mr. Vincent received his B.S. from Duke
University and his M.B.A. from Wharton Graduate Business School, University of
Pennsylvania.
Committees of the Board of Directors
The Board of Directors established a Compensation Committee and an Audit
Committee in October 1997. The Audit Committee, of which Dr. DeVita and Mr.
Patricelli are members, oversees the engagement of the Company's independent
accountants, reviews the annual financial statements and the scope of annual
audit and considers matters relating to accounting policy and internal
controls. The Compensation Committee, of which Messrs. Booth and Vincent are
members, reviews, approves, and makes recommendations to the Board of
Directors concerning the Company's compensation policies, practices and
procedures for its executive officers. The Compensation Committee also
administers the Company's 1997 Employee, Director and Consultant Stock Plan
and the 1993 Stock Option and Incentive Award Plan. The Board of Directors has
no standing nominating committee.
The Board of Directors met five times in 1998 and acted by unanimous written
consent twice. Each of the committees met once in 1998. All Directors attended
100% of the total number of meetings, with the exception of Dr. Vincent
DeVita, who attended only 40% of the total number of meetings of the Board.
Dr. DeVita was present at the Audit Committee meeting.
Compensation of Directors
Non-employee Directors are reimbursed for travel costs and other out-of-
pocket expenses incurred in attending each Directors' meeting and committee
meeting. Effective with the 1999 Annual Meeting, non-employee Directors will
receive Directors' fees of $2,500 per meeting, with an annual limit of
$15,000. Under the 1997 Stock Plan, each non-employee Director, upon first
being elected or appointed to the Board of Directors,
6
<PAGE>
receives an option to purchase 20,000 shares of Common Stock, which will vest
one-third immediately and one-third each on the first and second anniversaries
of the grant date. Any non-employee Director who joined the Board of Directors
prior to the adoption of the 1997 Stock Plan received an option to purchase
5,000 shares of Common Stock, which vested one-third immediately and one-third
each on the first and second anniversaries of the grant date. Upon joining the
Board of Directors in September 1995, Dr. DeVita (the only current non-
employee Director to join prior to the adoption of the 1997 Stock Plan) was
granted an option to purchase 15,000 shares of Common Stock under the 1993
Stock Plan. The 1997 Stock Plan also provides for an annual grant of an
immediately exercisable option to purchase 7,500 shares of Common Stock to
each continuing non-employee Director following each annual meeting of
Shareholders. All automatic option grants to non-employee Directors will have
a term of ten years and an exercise price equal to the fair market value of
the Common Stock on the date of grant. Pursuant to the foregoing provisions of
the 1997 Stock Plan, to date Dr. DeVita and Messrs. Booth, Patricelli and
Vincent have been granted options to purchase 10,000, 25,000, 25,000, and
25,000 shares of Common Stock, respectively, at an exercise price of $11.50
per share.
Compensation Committee Interlocks and Insider Participation
Messrs. Booth and Vincent, both non-employee Directors, currently constitute
the Company's Compensation Committee. No executive officer of the Company
serves as a member of the Board of Directors or compensation committee of any
entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the
compensation of the Company's Chief Executive Officer and each of the four
other most highly compensated executive officers who earned more than $100,000
in salary and bonus in 1998 (together with the Chief Executive Officer, the
"Named Executive Officers") for services rendered in all capacities during the
three fiscal years most recently ended.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------ ------------
Other Securities All
Annual Underlying Other
Name and Principal Position Year Salary Bonus Compensation Options(#) Compensation
- --------------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jonathan M. Rothberg,
Ph.D.................... 1998 $160,256 -- -- 100,000 --
Chief Executive Officer,
President 1997 $125,000 -- -- -- --
and Chairman of the
Board 1996 $125,000 -- -- -- --
David M. Wurzer, C.P.A... 1998 $160,256 -- -- 70,000 --
Executive Vice-
President, Treasurer
and Chief Financial
Officer
Peter A. Fuller, Ph.D.... 1998 $120,897 $ 20,000 -- 25,000 --
Vice-President, Business
Development
Stephen F. Kingsmore,
M.B., Ch.B.............. 1998 $124,038 $ 63,200 $28,816(2) 25,000 --
Vice-President,
Research(1)
Gregory T. Went, Ph.D.... 1998 $156,891 $129,000 -- 60,000 $3,365
Executive Vice-President
and 1997 $119,166 -- -- 114,000 --
Director(3)
</TABLE>
- --------
(1) Dr. Kingsmore served as Vice-President, Research of the Company since
October 1997. Dr. Kingsmore resigned from the Company on February 28,
1999.
7
<PAGE>
(2) Reflects income taxes and relocation expenses reimbursed by the Company.
(3) On December 23, 1998, Dr. Went resigned as Executive Vice-President of the
Company and from the Board of Directors of the Company. In connection with
the resignation, the Company and Dr. Went entered into a Separation
Agreement that provides for certain payments and benefits to him. Pursuant
to the Separation Agreement, Dr. Went agreed to continue as a full-time
employee of the Company through March 31, 1999. For his services from
December 23, 1998 through December 31, 1998, the Company agreed to
continue to pay Dr. Went a salary at the rate of $175,000 per annum and
for his services from January 1, 1999 through March 31, 1999 at the rate
of $200,000 per annum. The Separation Agreement also provided that from
April 1, 1999 through December 31, 1999, Dr. Went will serve as a
consultant to the Company. After December 31, 1999, the term of the
consulting period may be extended on a month-to-month basis until June 30,
2000, if at the beginning of each month Dr. Went has not become employed
on a substantially full-time basis by a subsequent employer. During the
consulting period, the Company agreed to pay Dr. Went a consulting fee at
the rate of $200,000 per annum. In addition, on January 4, 1999, the
Company paid Dr. Went a one-time severance payment amounting to $100,000.
The Separation Agreement also includes a provision for the payment of
$83,000 in early January 1999 to enable Dr. Went to exercise various
vested options, plus an additional gross-up payment of $458,386 to cover
the income tax liability imposed on receipt of the $83,000, the exercise
of the options and the income tax liability on receipt of the gross-up
payment. In addition, the Company and Dr. Went executed a non-qualified
stock option agreement dated December 23, 1998 for the purchase of 25,000
shares of Common Stock at $6.875 per share, the then current fair market
value of the Company's Common Stock. The option will become fully vested
and exercisable on June 30, 2000 and shall terminate on June 30, 2002. The
Company has also agreed to make available from time to time during the
period from April 1, 1999 to March 31, 2001, a loan in the maximum
principal amount of $250,000. If utilized, the loan will have a term of
two years and will bear interest at a variable rate equal to the prime
rate as reported in the Wall Street Journal, adjusted monthly.
1998 Stock Option Grant Table
The following table sets forth information concerning stock options granted
in 1998 to the Named Executive Officers. The potential realizable values that
would exist for the respective options are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date of grant over
the full term of the option.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise For Option Term(2)
Options Employees Price Expiration ----------------------------
Name Granted in 1998(1) ($/share) Date 5% ($) 10% ($)
---- ---------- ---------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jonathan M. Rothberg,
Ph.D................... 50,000(3) 4.2% $11.94(7) 4/1/08 $ 375,450 $ 951,464
50,000(4) 4.2% $7.425(8) 12/16/03 $ 102,570 $ 226,652
David M. Wurzer,
C.P.A.................. 20,000(3) 1.7% $11.50(9) 3/17/08 $ 144,646 $ 366,561
50,000(3) 4.2% $ 6.75(7) 12/16/08 $ 212,252 $ 537,888
Peter A. Fuller, Ph.D... 25,000(3) 2.1% $ 6.75(7) 12/16/08 $ 106,126 $ 268,944
Stephen F. Kingsmore,
M.B., Ch.B............. 25,000(3) 2.1% $ 6.75(7) 12/16/08 $ 106,126 $ 268,944
Gregory T. Went, Ph.D... 35,000(5) 2.9% $11.50(9) 6/30/99 $ 253,130 $ 641,481
25,000(6) 2.1% $6.875(7) 6/30/02 $ 32,066 $ 68,329
</TABLE>
- --------
(1) The Company granted options to purchase 1,241,100 shares of Common Stock
to employees in the year ended December 31, 1998.
(2) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming that the stock price on the date of grant
appreciates at the specified annual rates of appreciation, compounded
annually over the term of the options. These numbers are calculated based
on rules promulgated by the Securities and Exchange Commission. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the time of such exercise and the future performance of the
Company's Common Stock.
8
<PAGE>
(3) The options vest on the first, second, third, fourth and fifth
anniversaries of the date of grant and have a term of ten years.
(4) The option vests on the first, second, third, fourth and fifth
anniversaries of the date of grant and has a term of five years.
(5) A total of 7,000 shares have vested under such option. The option will
terminate on June 30, 1999 as a result of the termination of Dr. Went's
employment with Curagen.
(6) The option vests on June 30, 2000 and has a term of three and one half
years.
(7) The exercise price represents the fair market value of the Company's
Common Stock on the date of grant, determined by the closing price of the
Nasdaq Stock Market on the trading day immediately preceding the grant
date.
(8) The exercise price represents the fair market value of the Company's
Common Stock on the date of grant, determined by the closing price of the
Nasdaq Stock Market on the trading day immediately preceding the grant
date, plus 10%.
(9) The exercise price represents the fair market value of the Company's
Common Stock on the date of grant as determined by the Company's Board of
Directors.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table summarizes for the Named Executive Officers, unexercised
options held at December 31, 1998. The Named Executive Officers did not
exercise or hold any stock appreciation rights during the year ended December
31, 1998. The value of unexercised in-the-money options at the fiscal year end
is the difference between the exercise price and the fair market value of the
underlying stock on December 31, 1998, the last business day of the fiscal
year. The closing price of the Company's Common Stock on the Nasdaq National
Market on such date was $7.063. No Named Executive Officer exercised any stock
options during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money
Fiscal Year End (#) Options at Fiscal Year End(1)
--------------------------------- ---------------------------------
Name Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
---- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Jonathan M. Rothberg,
Ph.D................... -- 100,000 -- --
David M. Wurzer,
C.P.A.................. 40,000 130,000 -- $ 15,625
Peter A. Fuller, Ph.D... 30,000 75,000 -- $ 7,813
Stephen F. Kingsmore,
M.B., Ch.B. ........... 35,000 70,000 -- $ 7,813
Gregory T. Went, Ph.D... 271,250 198,750 $1,441,083 $542,469
</TABLE>
- --------
(1) These values have not been and may never be realized. Actual gains, if
any, on exercise will depend on the value of the Common Stock on the date
of sale of any shares acquired upon exercise of the option. Certain of the
Named Executive Officers have options to purchase shares of Common Stock
at exercise prices greater than the fair market value of the Common Stock
as of December 31, 1998. Such values are not "in-the-money" and their
value is, therefore, not disclosed above.
Executive Compensation--Employment Agreements and Other Termination of
Employment Agreements
The Company entered into letter agreements with the following executive
officers: Mr. Wurzer and Dr. Fuller in July 1997 and August 1997,
respectively. The letter agreements do not specify a term of employment. Each
letter provides for a cash bonus, which the Board of Directors may, in its
discretion, award from time to time.
9
<PAGE>
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Overview
The Compensation Committee of the Board of Directors is currently composed
of Directors who are not current or former employees of the Company. The
Compensation Committee, which is comprised of Messrs. Booth and Vincent,
reviews, approves and makes recommendations to the Board of Directors
concerning the Company's executive compensation policies. In addition, the
Compensation Committee evaluates the performance of executive management and
provides direction for succession planning. The Compensation Committee also
administers the Company's 1997 Employee, Director and Consultant Stock Plan
and the 1993 Stock Option and Incentive Award Plan.
No executive officer of the Company will serve as a member of the Board of
Directors or Compensation Committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee. This report addresses the compensation policies for
fiscal year 1998 as they affected Dr. Rothberg, in his capacity as Chief
Executive Officer, President and Chairman of the Board, and the other
executive officers of the Company.
General Compensation Philosophy
The Company's compensation policy for executive officers is designed to
achieve the following objectives:
. Motivate, reward and retain executives who strive to achieve Company
financial and non-financial performance objectives.
. Attract and retain qualified executives.
. Remunerate executives for their contribution to the realization of long-
term strategic goals.
. Align the interests of executives with the long-term interests of
stockholders through the opportunity to be awarded stock option grants,
thereby encouraging the achievement of solid results over an extended
period.
. Preserve the full deductibility of compensation for tax purposes.
Executive Officer Compensation Program
The Company's executive officer compensation program is comprised of (i)
base salary; (ii) annual incentive compensation, in the form of discretionary
cash bonuses which are based on achievement of predetermined objectives of the
Company; and (iii) long-term incentive compensation in the form of periodic
stock option grants.
The Compensation Committee performs annual reviews of executive compensation
to confirm the competitiveness of the overall executive compensation packages
as compared with organizations that compete with the Company for prospective
employees.
In considering compensation of the Company's executives, one of the factors
the Compensation Committee takes into account is the anticipated tax treatment
to the Company of various components of compensation. The Company does not
believe Section 162(m) of the Internal Revenue Code of 1986, as amended, which
generally disallows a tax deduction for certain compensation in excess of $1
million to any of the executive officers appearing in the Summary Compensation
Table above, will have an effect on the Company. The Compensation Committee
has considered the requirements of Section 162(m) of the Code and its related
regulations.
10
<PAGE>
Base Salary and Benefits
The Compensation Committee utilized several management compensation surveys
of other biotechnology, pharmaceutical, and comparable companies to assist in
its evaluation and setting of executive compensation. The survey participants
were chosen based on the Company's ability to compete with those companies and
their similarity in size and stage of development. Within this group, the
Compensation Committee made comparisons to executives with similar levels of
experience who have a comparable level of responsibility and expected level of
contribution to the Company's performance. In setting base salaries, the
Compensation Committee also took into account the intense level of competition
among biotechnology companies to attract talented personnel who have
outstanding ability and potential, as well as individual experience and
performance. Executive officers are also entitled to participate in benefit
plans generally available to employees.
Discretionary Cash Bonuses
The Compensation Committee believes that periodic discretionary cash bonuses
may be needed to retain and encourage a successful management team. Executives
who receive cash bonuses are chosen at the discretion of the Committee. The
amount of a discretionary cash bonus is determined by evaluating a number of
quantitative and qualitative factors; CuraGen's historical and recent
financial performance in the principal area of responsibility of the officer,
the executive's progress toward non-financial goals within his area of
responsibility, individual performance, experience, level of responsibility,
and other contributions made to CuraGen.
Long-Term Incentive Compensation
Long-term incentive compensation, in the form of stock option grants, allows
the executive officers to share in any appreciation in the value of the
Company's Common Stock. Option grants are made from time to time to executives
whose contributions have or will have a significant impact on the Company's
long-term performance. The Company believes that option grants (1) align
executive interests with stockholder interests by creating a direct link
between compensation and stockholder return; (2) give executives a
significant, long-term interest in the Company's success, and (3) help retain
executive talent in an extremely competitive market.
Stock option grants are based on various subjective factors primarily
relating to the responsibilities of the individual officers, and also to their
expected future contributions and prior option grants. The level of stock
options granted is based on the Committee's evaluation of an executive's
ability to impact future corporate results and is directly proportional to job
responsibility. The Company's determination of whether option grants are
appropriate is based upon individual performance measures established for each
individual executive. Options are not necessarily granted to each executive
during each year.
All awards are made at a level calculated to be competitive within the
biotechnology industry as well as a broader group of companies of comparable
size, maturity, and complexity.
Chief Executive Officer Compensation
Dr. Rothberg has served as Chief Executive Officer, President and Chairman
of the Board since the formation of the Company in 1991. Dr. Rothberg has not
entered into an employment agreement with the Company. In April of 1998, at
the recommendation of the Compensation Committee, Dr. Rothberg's base salary
was increased from $125,000 to $175,000 by the Board of Directors. During this
period, Dr. Rothberg completed a successful initial public offering, several
strategic collaborations, and increased the depth and breadth of current
collaborations. Dr. Rothberg's salary is consistent with the range of salary
levels received by his counterparts in companies in the biotechnology industry
and other comparable companies. The Compensation Committee believes Dr.
Rothberg has managed the Company well in an extremely fast-paced and
competitive business climate. Dr. Rothberg has continued to move the Company
towards its long-term objectives and been instrumental in managing the
Company's tremendous growth in 1998 from an employee base of 174 to 303.
11
<PAGE>
The Company has also granted to Dr. Rothberg stock options. The granting of
these options was consistent with the Board's assessment of the contributions
made by Dr. Rothberg, the goals of the Company's stock option program as a
whole, and comparable awards to counterparts in the biotechnology industry and
other similar companies.
THE COMPENSATION COMMITTEE:
Richard H. Booth, Chairman
James L. Vincent
12
<PAGE>
PERFORMANCE GRAPH
The following stock price performance graph compares total cumulative
stockholder return on the Company's Common Stock during a period commencing on
March 18, 1998 (the date the Company's Common Stock first began trading) and
ending on December 31, 1998 (as measured by dividing (i) the sum of (A) the
cumulative amount of dividends for the measurement period, assuming dividend
reinvestment and (B) the difference between the Company's share price at the
end and the beginning of the measurement period by (ii) the share price at the
beginning of the measurement period) to two indices: the Nasdaq CRSP Total
Return Index for the Nasdaq Stock Market, U.S. companies (the "Nasdaq-US") and
the Nasdaq CRSP Total Return Index for Biotechnology Stocks, SIC (the "Nasdaq-
Biotechnology"). The Nasdaq-US tracks the aggregate price performance of all
equity securities of U.S. companies traded on the Nasdaq National Market (the
"NNM") and the Nasdaq SmallCap Market (the "SmallCap Market"). The Nasdaq-
Biotechnology tracks the aggregate price performance of equity securities of
biotechnology companies traded on the NNM and the SmallCap market. Although
the total return for the Company's stock and for each index assumes the
reinvestment of dividends, dividends have never been declared on the Company's
Common Stock, and is based on the returns of the component companies weighted
according to their capitalization as of the end of each quarterly period. The
Company's Common Stock is traded on the NNM and is a component of both the
Nasdaq-US and the Nasdaq-Biotechnology.
[GRAPH APPEARS HERE]
Cumulative Total Return
----------------------------------------
3/18/98 3/98 6/98 9/98 12/98
CURAGEN CORPORATION $100 $101 $ 54 $ 52 $ 61
NASDAQ STOCK MARKET (U.S.) $100 $103 $106 $ 96 $124
NASDAQ BIOTECHNOLOGY $100 $100 $ 94 $ 94 $129
* ASSUMES $100 INVESTED ON 3/18/98 IN STOCK OR INDEX - INCLUDING
REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31, 1998.
13
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's Directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock ("Reporting Persons"), to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Reporting Persons are required by SEC regulations 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
forms received by the Company and on written representations from certain
Reporting Persons, during the year ended December 31, 1998, all Section 16(a)
filing requirements applicable to its Directors, executive officers and
greater than ten percent beneficial owners were met.
RELATED TRANSACTIONS
In October 1997, the Company and Biogen, Inc. ("Biogen") entered into a
research collaboration and database subscription arrangement to discover novel
genes and therapeutics. In connection with this Agreement, Biogen agreed to
purchase $5,000,000 of Common Stock of the Company in a private placement
concurrent with the Company's initial public offering. In March 1998, the
Company and Biogen completed the private placement whereby Biogen purchased
434,782 shares of Common Stock at $11.50 per share. James L. Vincent, a Class
I Director of the Company, currently serves as Chairman of the Board of
Directors of Biogen.
The Company made a loan facility of up to $100,000 available to Dr. Fuller in
connection with his 1998 performance. The loan facility is available at an
interest rate of 8% and may be borrowed on and repaid at any time prior to
December 31, 2000, subject to certain collateral provisions. This note will be
forgiven if Dr. Fuller remains an employee through January 2001. As of April
1, 1999, Dr. Fuller had not borrowed any portion of the facility.
INCREASE IN THE AGGREGATE NUMBER OF SHARES FOR WHICH STOCK OPTIONS AND
STOCK AWARDS MAY BE GRANTED UNDER THE COMPANY'S 1997 EMPLOYEE, DIRECTOR
AND CONSULTANT STOCK PLAN
Proposal 2
General
The Company's Board of Directors approved the 1997 Stock Plan in 1997, and
the plan was subsequently approved by the Company's Shareholders in 1998. A
total of 1,500,000 shares of Common Stock were initially reserved for issuance
under the Plan. As of April 1, 1999, 344,900 shares of Common Stock remain
eligible for grant under the 1997 Stock Plan. By the terms of the Plan, the
Plan may be amended by the Board of Directors or the Compensation Committee of
the Board of Directors (the "Compensation Committee"), provided that any
amendment approved by the Board of Directors or the Compensation Committee
which is of a scope that requires Shareholder approval in order to ensure
favorable federal income tax treatment for any incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), is
subject to obtaining such Shareholder approval. On November 9, 1998 the Board
of Directors voted to approve an amendment to the Plan to increase by
2,000,000 shares the aggregate number of shares of Common Stock for which
stock options or stock awards may be granted under the Plan. The Board of
Directors believes that the increase is advisable to give the Company the
flexibility needed to attract, retain and motivate employees, Directors and
consultants. This amendment is being submitted for Shareholder approval at the
Meeting to ensure continued qualification of the Plan under The Nasdaq Stock
Market rules and Section 422 of the Code.
14
<PAGE>
Material Features of the Plan
The Plan is intended to encourage ownership of the Company's Common Stock by
employees, Directors and certain consultants to the Company in order to
attract such people, to induce them to work for the benefit of the Company and
to provide additional incentive for them to promote the success of the
Company. All employees, Directors and consultants of the Company and its
affiliates (approximately 325 people) are eligible to participate in the Plan.
The Plan is administered by the Compensation Committee. Subject to the
provisions of the Plan, the Compensation Committee determines the persons to
whom options or stock awards will be granted, the number of shares to be
covered by each option or award and the terms and conditions upon which an
option or award may be granted. The terms of stock awards may include
conditions relating to the right of the Company to reacquire the shares
subject to the stock award, including the time and events upon which such
rights shall accrue and the purchase price of the shares.
Options granted under the Plan may be either (i) options intended to qualify
as "incentive stock options" under Section 422 of the Code, or (ii) non-
qualified stock options. Incentive stock options may be granted under the Plan
to employees of the Company and its affiliates. Non-qualified stock options
may be granted to consultants, Directors and employees of the Company and its
affiliates. Each non-employee Director of the Company, upon first being
elected or appointed to the Board of Directors, shall be granted a non-
qualified option to purchase 20,000 shares of Common Stock as of the date of
election or appointment at the fair market value of the Common Stock on such
date. Each option described in the foregoing sentence shall become
cumulatively exercisable as follows: (x) one-third shall vest immediately on
the date of grant, (y) one-third shall vest on the first anniversary of the
date of grant, and (z) one-third shall vest on the second anniversary of the
date of grant. In addition, immediately following each annual meeting of
stockholders (or special meeting in lieu of an annual meeting), each non-
employee Director will be granted an immediately exercisable non-qualified
option to purchase 7,500 shares of Common Stock at the fair market value of
the Common Stock on the date of grant.
The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to incentive stock options which become exercisable in any
calendar year under any incentive stock option plan of the Company may not
exceed $100,000. Incentive stock options granted under the Plan may not be
granted at a price less than the fair market value of the Common Stock on the
date of grant, or 110% of fair market value in the case of options granted to
an employee holding 10% or more of the voting stock of the Company. Incentive
stock options granted under the Plan expire not more than ten years from the
date of grant, or not more than five years from the date of grant in the case
of incentive stock options granted to an employee holding 10% or more of the
voting stock of the Company. An option granted under the Plan is exercisable,
during the optionholder's lifetime, only by the optionholder and is not
transferable by him or her except by will or by the laws of descent and
distribution.
An incentive stock option granted under the Plan may, at the Compensation
Committee's discretion, be exercised after the termination of the
optionholder's employment with the Company (other than by reason of death,
disability or termination for "cause" as defined in the Plan) to the extent
exercisable on the date of such termination, at any time prior to the earlier
of the option's specified expiration date or 90 days after such termination.
In granting any non-qualified stock option, the Compensation Committee may
specify that such non-qualified stock option shall be subject to such
termination or cancellation provisions as the Compensation Committee shall
determine. In the event of the optionholder's death or disability, both
incentive stock options and non-qualified stock options generally may be
exercised, to the extent exercisable on the date of death or disability (plus
a prorata portion of the option if the option vests periodically), by the
optionholder or the optionholder's survivors at any time prior to the earlier
of the option's specified expiration date or one year from the date of the
optionholder's death or disability. Generally, in the event of the
optionholder's termination for cause, all outstanding and unexercised options
are forfeited.
In the event of termination of service, other than by reason of death,
disability or termination for "cause", except as otherwise provided, in the
pertinent stock grant agreement, the Company generally has the right to
repurchase that number of shares subject to a stock grant as to which the
Company's repurchase rights, as set
15
<PAGE>
forth in stock grant agreement, have not lapsed. In the event of a stock grant
holder's death or disability, the Company's rights of repurchase generally are
exercisable, to the extent that they have not lapsed on the date of death or
disability. Generally, in the event of termination for "cause", all shares
subject to any stock grant are immediately subject to repurchase by the
Company at the purchase price, if any.
If the shares of Common Stock shall be subdivided or combined into a greater
or smaller number of shares or if the Company shall issue any shares of Common
Stock as a stock dividend on its outstanding Common Stock, the number of
shares of Common Stock deliverable upon the exercise of an option granted
under the Plan shall be appropriately increased or decreased proportionately,
and appropriate adjustments shall be made in the purchase price per share to
reflect such subdivision, combination or stock dividend. If the Company is to
be consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Compensation Committee or the board of Directors of any entity assuming the
obligations of the Company under the Plan (the "Successor Board"), shall, as
to outstanding options under the Plan either (i) make appropriate provision
for the continuation of such options by substituting on an equitable basis for
the shares then subject to such options the consideration payable with respect
to the outstanding shares of Common Stock in connection with the Acquisition
or securities of the successor or acquiring entity; or (ii) upon written
notice to the participants, provide that all options must be exercised (either
to the extent then exercisable or, at the discretion of the Compensation
Committee, all options being made fully exercisable for purposes of such
transaction) within a specified number of days of the date of such notice, at
the end of which period the options shall terminate; or (iii) terminate all
options in exchange for a cash payment equal to the excess of the fair market
value of the shares subject to each such option (either to the extent then
exercisable or, at the discretion of the Compensation Committee, all options
being made fully exercisable for purposes of such transaction) over the
exercise price thereof. In the event of a recapitalization or reorganization
of the Company (other than an Acquisition) pursuant to which securities of the
Company or of another corporation are issued with respect to the outstanding
shares of Common Stock, an optionholder upon exercising an option under the
Plan, shall be entitled to receive for the purchase price paid upon such
exercise the securities he or she would have received if he or she had
exercised such option prior to such recapitalization or reorganization.
With respect to outstanding stock grants, the Compensation Committee or the
Successor Board, shall either (i) make appropriate provisions for the
continuation of such stock grants by substituting on an equitable basis for
the shares of Common Stock then subject to such stock grants either the
consideration payable with respect to the outstanding shares of Common Stock
in connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the participants, provide that all
stock grants must be accepted (to the extent then subject to acceptance)
within a specified number of days of the date of such notice, at the end of
which period the offer of the stock grants shall terminate; or (iii) terminate
all stock grants in exchange for a cash payment equal to the excess of the
fair market value of the shares of Common Stock subject to such stock grants
over the purchase price thereof, if any. In addition, in the event of an
Acquisition, the Compensation Committee may waive any or all Company
repurchase rights with respect to outstanding stock grants.
The Plan may be amended by the Shareholders of the Company. The Plan may
also be amended by the Board of Directors or the Compensation Committee,
provided that any amendment approved by the Board of Directors or the
Compensation Committee which is of a scope that requires Shareholder approval
in order to ensure favorable federal income tax treatment for any incentive
stock options under Section 422 of the Code, is subject to obtaining such
Shareholder approval.
16
<PAGE>
Option Information
The following table sets forth as of April 1, 1999, all options granted
pursuant to the Plan to (i) the Named Executive Officers, (ii) all current
executive officers of the Company as a group, (iii) all current directors of
the Company who are not executive officers as a group and (iv) all employees,
including all current officers who are not executive officers, as a group.
<TABLE>
<CAPTION>
No. of
Options
Name Title Granted
- ---- ----- -------
<S> <C> <C>
Jonathan M. Rothberg,
Ph.D................... Chief Executive Officer, President and Chairman of the Board 100,000
David M. Wurzer,
C.P.A.................. Executive Vice-President, Treasurer and Chief Financial Officer 70,000
Peter A. Fuller, Ph.D... Vice-President, Business Development 25,000
Stephen F. Kingsmore,
M.B., Ch.B............. Vice-President, Research 25,000
Gregory T. Went, Ph.D... Executive Vice-President and Director 60,000
All current executive officers of the Company as a group (5 persons).................... 262,500
All current Directors of the Company who are not executive officers (4 persons)......... 85,000
All employees who are not executive officers, as a group................................ 627,600
</TABLE>
On April 1, 1999, the closing market price per share of the Company's Common
Stock was $6.94, as reported in the NASDAQ National Market System.
Federal Income Tax Considerations
Incentive Stock Options
Options designated as ISOs are intended to qualify as "incentive stock
options" under Section 422 of the Code. An incentive stock option does not
result in taxable income to the optionee or deduction to the Company at the
time it is granted or exercised, provided that no disposition is made by the
optionee of the shares acquired pursuant to the option within two years after
the date of grant of the option nor within one year after the date of issuance
of shares to him (the "ISO holding period"). However, the difference between
the fair market value of the shares on the date of exercise and the option
price will be an item of tax preference includible in "alternative minimum
taxable income." Upon disposition of the shares after the expiration of the
ISO holding period, the optionee will generally recognize long term capital
gain or loss based on the difference between the disposition proceeds and the
option price paid for the shares. If the shares are disposed of prior to the
expiration of the ISO holding period, the optionee generally will recognize
taxable compensation, and the Company will have a corresponding deduction, in
the year of the disposition, equal to the excess of the fair market value of
the shares on the date of exercise of the option over the option price. Any
additional gain realized on the disposition will normally constitute capital
gain. If the amount realized upon such a disqualifying disposition is less
than fair market value of the shares on the date of exercise, the amount of
compensation income will be limited to the excess of the amount realized over
the optionee's adjusted basis in the shares.
Non-Qualified Options
Options otherwise qualifying as ISOs, to the extent the aggregate fair
market value of shares with respect to which such options are first
exercisable by an individual in any calendar year exceeds $100,000, and
options designated as non-qualified options will be treated as options that
are not incentive stock options.
A non-qualified option ordinarily will not result in income to the option
holder or deduction to the Company at the time of grant. The option holder
will recognize compensation income at the time of exercise of such non-
qualified option in an amount equal to the excess of the then value of the
shares over the option price per share. Such compensation income of option
holders may be subject to withholding taxes, and a deduction may then be
allowable to the Company in an amount equal to the option holder's
compensation income.
17
<PAGE>
An option holder's initial basis in shares so acquired will be the amount
paid on exercise of the non-qualified option plus the amount of any
corresponding compensation income. Any gain or loss as a result of a
subsequent disposition of the shares so acquired will be capital gain or loss.
Stock Grants
With respect to stock grants that result in the issuance of shares that are
either not restricted as to transferability or not subject to a substantial
risk of forfeiture, the grantee must generally recognize ordinary income equal
to the fair market value of shares received. The Company generally will be
entitled to a deduction in an amount equal to the ordinary income recognized
by the grantee. With respect to stock grants involving the issuance of shares
that are restricted as to transferability and subject to a substantial risk of
forfeiture, the grantee must generally recognize ordinary income equal to the
fair market value of the shares received at the first time the shares become
transferable or are not subject to a substantial risk of forfeiture, whichever
occurs earlier. A grantee may elect to be taxed at the time of receipt of
shares rather than upon lapse of restrictions on transferability or
substantial risk of forfeiture, but if the grantee subsequently forfeits such
shares, the grantee would not be entitled to any tax deduction, including as a
capital loss, for the value of the shares on which he previously paid tax. The
grantee must file such election with the Internal Revenue Service within 30
days of the receipt of the shares. The Company generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the grantee.
The affirmative vote of a majority of the votes cast at the Meeting is
required to approve the increase in the aggregate number of shares of Common
Stock available under the Plan.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF AN AMENDMENT
TO THE PLAN TO INCREASE BY 2,000,000 SHARES THE AGGREGATE NUMBER OF SHARES FOR
WHICH STOCK OPTIONS AND STOCK AWARDS MAY BE GRANTED UNDER THE PLAN, AND
PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR OF SUCH AMENDMENT UNLESS
A SHAREHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP as Auditors for
the Company for the year ended December 31, 1999. Deloitte & Touche LLP have
been regularly engaged by the Company to audit the Company's annual financial
statements and for other purposes. Representatives from Deloitte & Touche LLP
are expected to be present at the Meeting, with the opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions from Shareholders.
SHAREHOLDER PROPOSALS
Under Rule 14a-8 promulgated under the Exchange Act, Shareholders of the
Company may present proper proposals for inclusion in the Company's proxy
statement and for consideration at the next annual meeting of Shareholders by
submitting their proposals to the Company in a timely manner. In order to be
considered for inclusion in the proxy statement distributed to Shareholders
prior to the annual meeting in the year 2000, a Shareholder proposal must be
received by the Company no later than December 16, 1999 and must otherwise
comply with the requirements of Rule 14a-8. In order to be considered for
presentation at the annual meeting of Shareholders in the year 2000, although
not included in the proxy statement, a Shareholder proposal must comply with
the requirements of the Company's by-laws and be received by the Company no
later than March 13, 2000 and no earlier than February 12, 2000. Shareholder
proposals should be delivered in writing to Elizabeth A. Whayland, Secretary,
CuraGen Corporation, 555 Long Wharf Drive, 11th Floor, New Haven, Connecticut
06511. A copy of the Company's by-laws may be obtained from the Company upon
written request to Ms. Whayland.
18
<PAGE>
OTHER BUSINESS
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than that stated above. If any other
business should come before the Meeting, votes may be cast pursuant to proxies
in respect to any such business in the best judgment of the person or persons
acting under the proxies.
ANNUAL REPORT ON FORM 10-K
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (other than exhibits thereto) filed with the Securities and Exchange
Commission, which provides additional information about the Company, is
available to beneficial owners of the Common Stock without charge upon written
request to the Investor Relations Department, CuraGen Corporation, 555 Long
Wharf Drive, 11th Floor, New Haven, Connecticut 06511.
19
<PAGE>
CURAGEN CORPORATION
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF CURAGEN CORPORATION
The undersigned, revoking any previous proxies relating to these shares, hereby
acknowledges receipt of the Notice and Proxy Statement dated April 14, 1999, in
connection with the Annual Meeting to be held at 10:00 a.m. on Wednesday, May
12, 1999 at the New Haven Omni Hotel at Yale University, and hereby appoints
Jonathan M. Rothberg, Ph.D. and David M. Wurzer, and each of them (with full
power to act alone), the attorneys and proxies of the undersigned, with power of
substitution to each, to vote all shares of the Common Stock of CuraGen
Corporation registered in the name provided herein which the undersigned is
entitled to vote at the 1999 Annual Meeting of Stockholders, and at any
adjournments thereof, with all the powers the undersigned would have if
personally present. Without limiting the general authorization hereby given,
said proxies are, and each of them is, instructed to vote or act as follows on
the proposals set forth in said Proxy.
This Proxy when executed will be voted in the manner directed herein. If no
direction is made this Proxy will be voted FOR the election of Directors and FOR
Proposal 2.
In their discretion the proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournments thereof.
Election of Directors (or if any nominee is not available for election, such
substitute as the Board of Directors may designate)
Nominees: Robert E. Patricelli, J.D. James L. Vincent
SEE REVERSE SIDE FOR BOTH PROPOSALS. If you wish to vote in accordance with the
Board of Directors' recommendations, just sign on the reverse side. You need not
mark any boxes.
(SEE REVERSE SIDE)
------------------
[X] Please mark votes as in this example.
The Board of Directors recommends a vote FOR Proposals 1 and 2.
1. Election of Directors (See reverse). FOR [_] WITHHELD [_]
_____________________________________________________
For all nominees except as noted above.
2. Proposal to increase by 2,000,000 shares the aggregate number of
shares for which stock options and stock awards may be granted under the
Corporation's 1997 Employee, Director and Consultant Stock Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
Please sign exactly as name(s) appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
Signature: Date
------------------ ---------
Signature: Date
------------------ ---------
<PAGE>
APPENDIX B
CURAGEN CORPORATION
AMENDED AND RESTATED
1997 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN
1. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this CuraGen Corporation 1997 Employee, Director
and Consultant Stock Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated
-------------
power to act on its behalf to the Committee, in which case the
Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of
---------
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
------------------
Code means the United States Internal Revenue Code of 1986, as
----
amended.
Committee means the committee of the Board of Directors to which the
---------
Board of Directors has delegated power to act under or pursuant to the
provisions of the Plan.
Common Stock means shares of the Company's voting common stock, $.01
------------
par value per share.
Company means CuraGen Corporation, a Delaware corporation.
-------
Disability or Disabled means permanent and total disability as defined
---------- --------
in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a national securities exchange or
traded in the over-the-counter market and sales prices are regularly
reported for the Common Stock, the closing or last price of the Common
Stock on the Composite Tape or other comparable reporting system for
the trading day immediately preceding the applicable date;
<PAGE>
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices
are not regularly reported for the Common Stock for the trading day
referred to in clause (1), and if bid and asked prices for the Common
Stock are regularly reported, the mean between the bid and the asked
price for the Common Stock at the close of trading in the over-the-
counter market for the trading day on which Common Stock was traded
immediately preceding the applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
---
under Section 422 of the Code.
Key Employee means an employee of the Company or of an Affiliate
------------
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by
the Administrator to be eligible to be granted one or more Stock
Rights under the Plan.
Non-Qualified Option means an option which is not intended to
--------------------
qualify as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
------
Option Agreement means an agreement between the Company and a
----------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Participant means a Key Employee, director or consultant to whom one
-----------
or more Stock Rights are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Plan means this CuraGen Corporation 1997 Employee, Director and
----
Consultant Stock Plan.
Shares means shares of the Common Stock as to which Stock Rights
------
have been or may be granted under the Plan or any shares of capital
stock into which the Shares are changed or for which they are
exchanged within the provisions of Paragraph 3 of the Plan. The
Shares issued under the Plan may be authorized and unissued shares or
shares held by the Company in its treasury, or both.
Stock Grant means a grant by the Company of Shares under the Plan.
-----------
Stock Grant Agreement means an agreement between the Company and a
---------------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
2
<PAGE>
Stock Right means a right to Shares of the Company granted pursuant
-----------
to the Plan -- an ISO, a Non-Qualified Option or a Stock Grant.
Survivors means a deceased Participant's legal representatives and/or
---------
any person or persons who acquired the Participant's rights to a Stock
Right by will or by the laws of descent and distribution.
2. PURPOSES OF THE PLAN.
--------------------
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the granting of ISOs, Non-
Qualified Options and Stock Grants.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
The number of Shares which may be issued from time to time pursuant to this
Plan shall be 3,500,000 or the equivalent of such number of Shares after the
Administrator, in its sole discretion, has interpreted the effect of any stock
split, stock dividend, combination, recapitalization or similar transaction in
accordance with Paragraph 23 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, or if the
Company shall reacquire any Shares issued pursuant to a Stock Grant, the Shares
which were subject to such Option and any Shares so reacquired by the Company
shall be available for the granting of other Stock Rights under the Plan. Any
Option shall be treated as "outstanding" until such Option is exercised in full,
or terminates or expires under the provisions of the Plan, or by agreement of
the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
--------------------------
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to the Committee, in which
case the Committee shall be the Administrator. Subject to the provisions of the
Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option or Stock Grant
and to make all rules and determinations which it deems necessary or
advisable for the administration of the Plan;
3
<PAGE>
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors
and consultants shall be granted Stock Rights;
c. Determine the number of Shares for which a Stock Right or Stock Rights
shall be granted, provided, however, that in no event shall Stock
Rights with respect to more than 750,000 shares be granted to any
Participant in any fiscal year; and
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
The Administrator will, in its sole discretion, name the Participants in the
Plan, provided, however, that each Participant must be a Key Employee, director
or consultant of the Company or of an Affiliate at the time a Stock Right is
granted. Notwithstanding the foregoing, the Administrator may authorize the
grant of a Stock Right to a person not then an employee, director or consultant
of the Company or of an Affiliate; provided, however, that the actual grant of
such Stock Right shall be conditioned upon such person becoming eligible to
become a Participant at or prior to the time of the delivery of the Agreement
evidencing such Stock Right. ISOs may be granted only to Key Employees. Non-
Qualified Options and Stock Grants may be granted to any Key Employee, director
or consultant of the Company or an Affiliate. The granting of any Stock Right to
any individual shall neither entitle that individual to, nor disqualify him or
her from, participation in any other grant of Stock Rights.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such conditions as the Administrator may deem appropriate
including, without limitation, subsequent approval by the shareholders of the
Company of this Plan or any amendments thereto. The Option Agreements shall be
subject to at least the following terms and conditions:
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
---------------------
Option shall be subject to the terms and conditions which the
Administrator determines to be
4
<PAGE>
appropriate and in the best interest of the Company, subject to the
following minimum standards for any such Non-Qualified Option:
a. Option Price: Each Option Agreement shall state the option price
(per share) of the Shares covered by each Option, which option
price shall be determined by the Administrator but shall not be
less than the par value per share of Common Stock.
b. Each Option Agreement shall state the number of Shares to which
it pertains;
c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or
become exercisable in installments over a period of months or
years, or upon the occurrence of certain conditions or the
attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to
the Administrator providing for certain protections for the
Company and its other shareholders, including requirements that:
i. The Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and must
also acknowledge that the Shares will bear legends noting
any applicable restrictions.
e. Directors' Options: Each director of the Company who is serving
------------------
on the Board of Directors on October 6, 1997 and who is not an
employee of or consultant to the Company or any Affiliate, shall
be granted a Non-Qualified Option to purchase 5,000 Shares as of
such date. In addition, each director of the Company who is
elected or appointed to the Board of Directors after October 6,
1997 and who is not an employee of or consultant to the Company
or any Affiliate, upon first being elected or appointed to the
Board of Directors, shall be granted a Non-Qualified Option to
purchase 20,000 Shares as of the date of election or appointment.
Each Option described in the foregoing two sentences shall (i)
have an exercise price equal to the Fair Market Value (per share)
of the Shares on the date of grant of the Option, (ii) have a
term of ten years, and (iii) become cumulatively exercisable as
follows: (x) one-third shall vest immediately on the date of
grant, (y) one-third shall vest on the first anniversary of the
date of grant, and (z) one-third shall vest on the second
anniversary of the date of grant.
5
<PAGE>
Immediately following the 1998 annual meeting of stockholders (or
special meeting in lieu of an annual meeting), and until the 1999
annual meeting of stockholders, each Continuing Director (as
defined below) will be granted a Non-Qualified Option to purchase
5,000 Shares. Immediately following each annual meeting of
stockholders (or special meeting in lieu of an annual meeting),
commencing with the 1999 annual meeting, each Continuing Director
(as defined below) will be granted a Non-Qualified Option to
purchase 7,500 Shares. As used herein, the term "Continuing
Director" shall mean a director who (i) is serving as a director
immediately following such annual or special meeting but was not
first elected at such annual or special meeting, (ii) has been in
continued and uninterrupted service as a director of the Company
since his or her initial election or appointment and (iii) is not
an employee of or consultant to the Company or any Affiliate.
Each such Option shall (i) have an exercise price equal to the
Fair Market Value (per share) of the Shares on the date of grant
of the Option, (ii) have a term of ten years, and (iii) be
immediately exercisable in full.
Any director entitled to receive an Option under this
subparagraph may elect to decline the Option.
Except as otherwise provided in the pertinent Option Agreement, if a
director who receives Options pursuant to this subparagraph:
a. ceases to be a member of the Board of Directors for any
reason other than death or Disability, any then unexercised
Options granted to such director may be exercised by the
director within a period of ninety (90) days after the date
the director ceases to be a member of the Board of
Directors, but only to the extent of the number of Shares
with respect to which the Options are exercisable on the
date the director ceases to be a member of the Board of
Directors, and in no event later than the expiration date of
the Option; or
b. ceases to be a member of the Board of Directors by reason of
his or her death or Disability, any then unexercised Options
granted to such director may be exercised by the director
(or by the director's personal representative, or the
director's Survivors) within a period of one hundred eighty
(180) days after the date the director ceases to be a member
of the Board of Directors, but only to the extent of the
number of Shares with respect to which the Options are
exercisable on the date the director ceases to be a member
of the Board of Directors, and in no event later than the
expiration date of the Option.
6
<PAGE>
B. ISOs: Each Option intended to be an ISO shall be issued only to a
----
Key Employee and be subject to at least the following terms and
conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with
Section 422 of the Code and relevant regulations and rulings of the
Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described in Paragraph 6(A)
above, except clauses (a) and (e) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting
-------
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred percent
(100%) of the Fair Market Value per share of the Shares on
the date of the grant of the Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred ten
percent (110%) of the said Fair Market Value on the date of
grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting
-------
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than ten
(10) years from the date of the grant or at such earlier
time as the Option Agreement may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than five
(5) years from the date of the grant or at such earlier time
as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company or
an Affiliate) so that the aggregate Fair Market Value (determined
at the time each ISO is granted) of the stock with respect to
which ISOs are exercisable for the first time by the Participant
in any calendar year does not exceed one hundred thousand
7
<PAGE>
dollars ($100,000), provided that this subparagraph (d) shall
have no force or effect if its inclusion in the Plan is not
necessary for Options issued as ISOs to qualify as ISOs pursuant
to Section 422(d) of the Code.
7. TERMS AND CONDITIONS OF STOCK GRANTS.
------------------------------------
Each offer of a Stock Grant to a Participant shall state the date prior to
which the Stock Grant must be accepted by the Participant, and the principal
terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Grant Agreement shall be in a form
approved by the Administrator and shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
(a) Each Stock Grant Agreement shall state the purchase price (per share),
if any, of the Shares covered by each Stock Grant, which purchase
price shall be determined by the Administrator but shall not be less
than the minimum consideration required by the Delaware General
Corporation Law on the date of the grant of the Stock Grant;
(b) Each Stock Grant Agreement shall state the number of Shares to which
the Stock Grant pertains; and
(c) Each Stock Grant Agreement shall include the terms of any right of the
Company to reacquire the Shares subject to the Stock Grant, including
the time and events upon which such rights shall accrue and the
purchase price therefor, if any.
8. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
---------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Option Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing
8
<PAGE>
interest payable not less than annually at no less than 100% of the applicable
Federal rate, as defined in Section 1274(d) of the Code, or (e) at the
discretion of the Administrator, in accordance with a cashless exercise program
established with a securities brokerage firm, and approved by the Administrator,
or (f) at the discretion of the Administrator, by any combination of (a), (b),
(c), (d) and (e) above. Notwithstanding the foregoing, the Administrator shall
accept only such payment on exercise of an ISO as is permitted by Section 422 of
the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Shares shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise of
any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 26) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in Paragraph
6.B.d.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option provided (i) such term or condition as amended is permitted
by the Plan, (ii) any such amendment shall be made only with the consent of the
Participant to whom the Option was granted, or in the event of the death of the
Participant, the Participant's Survivors, if the amendment is adverse to the
Participant, and (iii) any such amendment of any ISO shall be made only after
the Administrator, after consulting the counsel for the Company, determines
whether such amendment would constitute a "modification" of any Option which is
an ISO (as that term is defined in Section 424(h) of the Code) or would cause
any adverse tax consequences for the holder of such ISO.
9. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES.
---------------------------------------------
A Stock Grant (or any part or installment thereof) shall be accepted by
executing the Stock Grant Agreement and delivering it to the Company at its
principal office address, together with provision for payment of the full
purchase price, if any, in accordance with this Paragraph for the Shares as to
which such Stock Grant is being accepted, and upon compliance with any other
conditions set forth in the Stock Grant Agreement. Payment of the purchase price
for the Shares as to which such Stock Grant is being accepted shall be made (a)
in United States dollars in cash or by check, or (b) at the discretion of the
Administrator, through delivery of shares of Common Stock having a fair market
value equal as of the date of acceptance of the Stock Grant to the purchase
price of the Stock Grant determined in good faith by the Administrator, or (c)
at
9
<PAGE>
the discretion of the Administrator, by delivery of the grantee's personal
recourse note bearing interest payable not less than annually at no less than
100% of the applicable Federal rate, as defined in Section 1274(d) of the Code,
or (d) at the discretion of the Administrator, by any combination of (a), (b)
and (c) above.
The Company shall then reasonably promptly deliver the Shares as to which
such Stock Grant was accepted to the Participant (or to the Participant's
Survivors, as the case may be), subject to any escrow provision set forth in the
Stock Grant Agreement. In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Stock Grant or Stock Grant Agreement provided (i) such term or
condition as amended is permitted by the Plan, and (ii) any such amendment shall
be made only with the consent of the Participant to whom the Stock Grant was
made, if the amendment is adverse to the Participant.
10. RIGHTS AS A SHAREHOLDER.
-----------------------
No Participant to whom a Stock Right has been granted shall have rights as
a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise of the Option or acceptance of the Stock Grant and tender of
the full purchase price, if any, for the Shares being purchased pursuant to such
exercise or acceptance and registration of the Shares in the Company's share
register in the name of the Participant.
11. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
-------------------------------------------------
By its terms, a Stock Right granted to a Participant shall not be
transferable by the Participant other than (i) by will or by the laws of descent
and distribution, or (ii) as otherwise determined by the Administrator and set
forth in the applicable Option Agreement or Stock Grant Agreement. The
designation of a beneficiary of a Stock Right by a Participant shall not be
deemed a transfer prohibited by this Paragraph. Except as provided above, a
Stock Right shall only be exercisable or may only be accepted, during the
Participant's lifetime, by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon a Stock Right, shall be null and void.
10
<PAGE>
12. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR DEATH
---------------------------------------------------------------------------
OR DISABILITY.
-------------
Except as otherwise provided in the pertinent Option Agreement in the event
of a termination of service (whether as an employee, director or consultant)
with the Company or an Affiliate before the Participant has exercised an Option,
the following rules apply:
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination
"for cause", Disability, or death for which events there are special
rules in Paragraphs 13, 14, and 15, respectively), may exercise any
Option granted to him or her to the extent that the Option is
exercisable on the date of such termination of service, but only
within such term as the Administrator has designated in the pertinent
Option Agreement.
b. Except as provided in subparagraph (c) below, or Paragraph 14 or 15,
In no event may an Option Agreement provide, if an Option is intended
to be an ISO, that the time for exercise be later than three (3)
months after the Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of Paragraph
14 or 15, shall apply to a Participant who subsequently becomes
Disabled or dies after the termination of employment, director status
or consultancy, provided, however, in the case of a Participant's
Disability or death within three (3) months after the termination of
employment, director status or consultancy, the Participant or the
Participant's Survivors may exercise the Option within one (1) year
after the date of the Participant's termination of employment, but in
no event after the date of expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director
status or termination of consultancy, but prior to the exercise of an
Option, the Board of Directors determines that, either prior or
subsequent to the Participant's termination, the Participant engaged
in conduct which would constitute "cause", then such Participant shall
forthwith cease to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who
is absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have
terminated such Participant's employment, director status or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide.
11
<PAGE>
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by any
change of a Participant's status within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate.
13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE "FOR CAUSE".
-------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the time the Participant
is notified his or her service is terminated "for cause" will
immediately be forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the existence
of "cause" will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause", then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.
----------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability may exercise any Option granted to
such Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
12
<PAGE>
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability.
The proration shall be based upon the number of days of such accrual
period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date of the Participant's termination of
employment, directorship or consultancy, as the case may be, notwithstanding
that the Participant might have been able to exercise the Option as to some or
all of the Shares on a later date if the Participant had not become disabled and
had continued to be an employee, director or consultant or, if earlier, within
the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
15. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
--------------------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant while the Participant is an employee,
director or consultant of the Company or of an Affiliate, such Option may be
exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration
shall be based upon the number of days of such accrual period prior to
the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
13
<PAGE>
16. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS.
------------------------------------------------
In the event of a termination of service (whether as an employee, director
or consultant) with the Company or an Affiliate for any reason before the
Participant has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to
whom a Stock Grant has been offered under the Plan who is absent from work with
the Company or with an Affiliate because of temporary disability (any disability
other than a permanent and total Disability as defined in Paragraph 1 hereof),
or who is on leave of absence for any purpose, shall not, during the period of
any such absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment, director status or consultancy with the Company
or with an Affiliate, except as the Administrator may otherwise expressly
provide.
In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any
change of employment or other service within or among the Company and any
Affiliates shall not be treated as a termination of employment, director status
or consultancy so long as the Participant continues to be an employee, director
or consultant of the Company or any Affiliate.
17. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR
--------------------------------------------------------------------------
DEATH OR DISABILITY.
-------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, in the
event of a termination of service (whether as an employee, director or
consultant), other than termination "for cause," Disability, or death for which
events there are special rules in Paragraphs 18, 19, and 20, respectively,
before all Company rights of repurchase shall have lapsed, then the Company
shall have the right to repurchase that number of Shares subject to a Stock
Grant as to which the Company's repurchase rights have not lapsed.
18. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE "FOR CAUSE".
------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause":
a. All Shares subject to any Stock Grant shall be immediately subject
to repurchase by the Company at the purchase price, if any, thereof.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized
disclosure of confidential information, and conduct substantially
prejudicial to the business of the Company or any Affiliate.
14
<PAGE>
The determination of the Administrator as to the existence of "cause"
will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service, that either prior or subsequent to the Participant's
termination the Participant engaged in conduct which would constitute
"cause," then the Company's right to repurchase all of such
Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.
---------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if a Participant ceases to be an employee, director or
consultant of the Company or of an Affiliate by reason of Disability: to the
extent the Company's rights of repurchase have not lapsed on the date of
Disability, they shall be exercisable; provided, however, that in the event such
rights of repurchase lapse periodically, such rights shall lapse to the extent
of a pro rata portion of the Shares subject to such Stock Grant as would have
lapsed had the Participant not become Disabled prior to the end of the vesting
period which next ends following the date of Disability. The proration shall be
based upon the number of days of such vesting period prior to the date of
Disability.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
20. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
-------------------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply in the event of the death of a Participant while the
Participant is an employee, director or consultant of the Company or of an
Affiliate: to the extent the Company's rights of repurchase have not lapsed on
the date of death, they shall be exercisable; provided, however, that in the
event such rights of repurchase lapse periodically, such rights shall lapse to
the extent of a pro
15
<PAGE>
rata portion of the Shares subject to such Stock Grant as would have lapsed had
the Participant not died prior to the end of the vesting period which next ends
following the date of death. The proration shall be based upon the number of
days of such vesting period prior to the Participant's death.
21. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise or acceptance of a Stock Right shall have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended (the
"1933 Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:
a. The person(s) who exercise(s) or accept(s) such Stock Right shall
warrant to the Company, prior to the receipt of such Shares, that such
person(s) are acquiring such Shares for their own respective accounts,
for investment, and not with a view to, or for sale in connection
with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the provisions of
the following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or such
grant:
"The shares represented by this certificate have been
taken for investment and they may not be sold or
otherwise transferred by any person, including a
pledgee, unless (1) either (a) a Registration
Statement with respect to such shares shall be
effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an
opinion of counsel satisfactory to it that an
exemption from registration under such Act is then
available, and (2) there shall have been compliance
with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued upon
such particular exercise or acceptance in compliance with the 1933 Act
without registration thereunder.
22. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
-----------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised and all
Stock Grants which have not been accepted will terminate and become null and
void; provided, however, that if the rights of a Participant or a Participant's
Survivors have not otherwise terminated and expired, the Participant or the
Participant's Survivors will have the right immediately prior to such
dissolution or
16
<PAGE>
liquidation to exercise or accept any Stock Right to the extent that the Stock
Right is exercisable or subject to acceptance as of the date immediately prior
to such dissolution or liquidation.
23. ADJUSTMENTS.
-----------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Stock Right granted to him or her hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
pertinent Option Agreement or Stock Grant Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise or acceptance of such Stock Right may be
appropriately increased or decreased proportionately, and appropriate
adjustments may be made in the purchase price per share to reflect such events.
The number of Shares subject to Options to be granted to directors pursuant to
Paragraph 6(A)(e) and the number of Shares subject to the limitation in
Paragraph 4(c) shall also be proportionately adjusted upon the occurrence of
such events.
B. Consolidations or Mergers. If the Company is to be consolidated with
-------------------------
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Administrator or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph) at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a cash payment equal
to the excess of the Fair Market Value of the Shares subject to such Options
(either to the extent then exercisable or, at the discretion of the
Administrator, all Options being made fully exercisable for purposes of this
Subparagraph) over the exercise price thereof.
With respect to outstanding Stock Grants, the Administrator or the
Successor Board, shall either (i) make appropriate provisions for the
continuation of such Stock Grants by substituting on an equitable basis for the
Shares then subject to such Stock Grants either the consideration payable with
respect to the outstanding Shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Stock Grants must be
accepted (to the extent then subject to acceptance) within a specified number of
days of the date of such notice, at the end of which
17
<PAGE>
period the offer of the Stock Grants shall terminate; or (iii) terminate all
Stock Grants in exchange for a cash payment equal to the excess of the Fair
Market Value of the Shares subject to such Stock Grants over the purchase price
thereof, if any. In addition, in the event of an Acquisition, the Administrator
may waive any or all Company repurchase rights with respect to outstanding Stock
Grants.
C. Recapitalization or Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in Subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant upon exercising or accepting a Stock Right shall be
entitled to receive for the purchase price, if any, paid upon such exercise or
acceptance the securities which would have been received if such Stock Right had
been exercised or accepted prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
--------------------
made pursuant to Subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Administrator
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments, unless
the holder of an ISO specifically requests in writing that such adjustment be
made and such writing indicates that the holder has full knowledge of the
consequences of such "modification" on his or her income tax treatment with
respect to the ISO.
24. ISSUANCES OF SECURITIES.
-----------------------
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Stock Rights. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company
prior to any issuance of Shares pursuant to a Stock Right.
25. FRACTIONAL SHARES.
-----------------
No fractional shares shall be issued under the Plan and the person
exercising a Stock Right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.
18
<PAGE>
26. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
------------------------------------------------------------------
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such
conversion, the Administrator (with the consent of the Participant) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed
to give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
27. WITHHOLDING.
-----------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise or acceptance of a Stock Right or in connection with a
Disqualifying Disposition (as defined in Paragraph 28) or upon the lapsing of
any right of repurchase, the Company may withhold from the Participant's
compensation, if any, or may require that the Participant advance in cash to the
Company, or to any Affiliate of the Company which employs or employed the
Participant, the amount of such withholdings unless a different withholding
arrangement, including the use of shares of Common Stock or a promissory note,
is authorized by the Administrator (and permitted by law). For purposes hereof,
the fair market value of the shares withheld for purposes of payroll withholding
shall be determined in the manner provided in Paragraph 1 above, as of the most
recent practicable date prior to the date of exercise. If the fair market value
of the shares withheld is less than the amount of payroll withholdings required,
the Participant may be required to advance the difference in cash to the Company
or the Affiliate employer. The Administrator in its discretion may condition
the exercise of an Option for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
28. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any
19
<PAGE>
sale) of such shares before the later of (a) two years after the date the Key
Employee was granted the ISO, or (b) one year after the date the Key Employee
acquired Shares by exercising the ISO. If the Key Employee has died before such
stock is sold, these holding period requirements do not apply and no
Disqualifying Disposition can occur thereafter.
29. TERMINATION OF THE PLAN.
-----------------------
The Plan will terminate on 10 years after adoption, the date which is ten
(10) years from the earlier of the date of its adoption and the date of its
-------
approval by the shareholders of the Company. The Plan may be terminated at an
earlier date by vote of the shareholders of the Company; provided, however, that
any such earlier termination shall not affect any Option Agreements or Stock
Grant Agreements executed prior to the effective date of such termination.
30. AMENDMENT OF THE PLAN AND AGREEMENTS.
------------------------------------
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Stock Rights granted under
the Plan or Stock Rights to be granted under the Plan for favorable federal
income tax treatment (including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422 of the Code, and to the
extent necessary to qualify the shares issuable upon exercise or acceptance of
any outstanding Stock Rights granted, or Stock Rights to be granted, under the
Plan for listing on any national securities exchange or quotation in any
national automated quotation system of securities dealers. Any amendment
approved by the Administrator which the Administrator determines is of a scope
that requires shareholder approval shall be subject to obtaining such
shareholder approval. Any modification or amendment of the Plan shall not,
without the consent of a Participant, adversely affect his or her rights under a
Stock Right previously granted to him or her. With the consent of the
Participant affected, the Administrator may amend outstanding Option Agreements
and Stock Grant Agreements in a manner which may be adverse to the Participant
but which is not inconsistent with the Plan. In the discretion of the
Administrator, outstanding Option Agreements and Stock Grant Agreements may be
amended by the Administrator in a manner which is not adverse to the
Participant.
31. EMPLOYMENT OR OTHER RELATIONSHIP.
--------------------------------
Nothing in this Plan or any Option Agreement or Stock Grant Agreement shall
be deemed to prevent the Company or an Affiliate from terminating the
employment, consultancy or director status of a Participant, nor to prevent a
Participant from terminating his or her own employment, consultancy or director
status or to give any Participant a right to be retained in employment or other
service by the Company or any Affiliate for any period of time.
20
<PAGE>
32. GOVERNING LAW.
-------------
This Plan shall be construed and enforced in accordance with the law of the
State of Delaware.
21
