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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Collateral Therapeutics, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(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:
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[LOGO]
APRIL 25, 2000
TO FELLOW STOCKHOLDERS OF
COLLATERAL THERAPEUTICS, INC.:
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING OF OUR
STOCKHOLDERS, TO BE HELD ON THURSDAY, MAY 25, 2000, AT 9:00 A.M. AT THE
DOUBLETREE HOTEL LOCATED AT 11915 EL CAMINO REAL, SAN DIEGO,
CALIFORNIA. DETAILS OF THE BUSINESS TO BE CONDUCTED AT THE ANNUAL
MEETING ARE GIVEN IN THE ATTACHED NOTICE OF ANNUAL MEETING AND PROXY
STATEMENT.
IF YOU DO NOT PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN,
DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING REPLY
ENVELOPE. IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE
YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE
ANNUAL MEETING.
SINCERELY,
JACK W. REICH, PH.D.
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
SAN DIEGO, CALIFORNIA
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YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE
REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS NEEDED
IF MAILED IN THE UNITED STATES.
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COLLATERAL THERAPEUTICS, INC.
11622 EL CAMINO REAL
SAN DIEGO, CA 92130
-------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 25, 2000
-------------------------
TO THE STOCKHOLDERS OF COLLATERAL THERAPEUTICS, INC.:
NOTICE IS HEREBY GIVEN THAT THE ANNUAL MEETING OF STOCKHOLDERS OF
COLLATERAL THERAPEUTICS, INC., A DELAWARE CORPORATION, WILL BE HELD ON THURSDAY,
MAY 25, 2000, AT 9:00 A.M. PACIFIC TIME AT THE DOUBLETREE HOTEL, 11915 EL CAMINO
REAL, SAN DIEGO, CALIFORNIA, FOR THE FOLLOWING PURPOSES, AS MORE FULLY DESCRIBED
IN THE PROXY STATEMENT ACCOMPANYING THIS NOTICE:
1. TO ELECT A BOARD OF DIRECTORS, AS SET FORTH IN THE
ACCOMPANYING PROXY STATEMENT, TO SERVE UNTIL THEIR SUCCESSORS
ARE ELECTED AND QUALIFIED.
2. TO APPROVE AMENDMENTS TO COLLATERAL'S 1998 STOCK INCENTIVE
PLAN, INCLUDING (I) AN INCREASE IN THE NUMBER OF SHARES OF
COMMON STOCK AUTHORIZED FOR ISSUANCE OVER THE TERM OF THE 1998
PLAN BY 1.5 MILLION SHARES AND (II) ELIMINATION OF THE OPTION
CANCELLATION AND RE-GRANT ("RE-PRICING") PROVISIONS.
3. TO APPROVE AMENDMENTS TO COLLATERAL'S 1998 EMPLOYEE STOCK
PURCHASE PLAN INCLUDING AN INCREASE IN THE NUMBER OF SHARES OF
COMMON STOCK AUTHORIZED FOR ISSUANCE OVER THE TERM OF THE
PURCHASE PLAN BY 100,000 SHARES.
4. TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31,
2000.
5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING OR ANY ADJOURNMENT OR ADJOURNMENTS OF THE ANNUAL
MEETING.
ONLY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON MARCH 31, 2000
ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING. OUR STOCK TRANSFER
BOOKS WILL REMAIN OPEN BETWEEN THE RECORD DATE AND THE DATE OF THE MEETING. A
LIST OF STOCKHOLDERS ENTITLED TO VOTE AT THE ANNUAL MEETING WILL BE AVAILABLE
FOR INSPECTION AT OUR EXECUTIVE OFFICES AND AT THE ANNUAL MEETING.
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ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE SIGN AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE IN THE ENVELOPE ENCLOSED FOR YOUR CONVENIENCE. IF YOU
RECEIVE MORE THAN ONE PROXY BECAUSE YOUR SHARES ARE REGISTERED IN DIFFERENT
NAMES AND ADDRESSES, EACH PROXY SHOULD BE SIGNED AND RETURNED TO ASSURE THAT ALL
YOUR SHARES WILL BE VOTED. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE
ANNUAL MEETING BY FILING A NOTICE OF REVOCATION OR ANOTHER SIGNED PROXY WITH A
LATER DATE. IF YOU ATTEND THE ANNUAL MEETING AND VOTE BY BALLOT, YOUR PROXY WILL
BE REVOKED AUTOMATICALLY AND ONLY YOUR VOTE AT THE ANNUAL MEETING WILL BE
COUNTED.
BY ORDER OF THE BOARD OF DIRECTORS
TYLER M. DYLAN, PH.D., J.D.
VICE PRESIDENT, GENERAL COUNSEL & SECRETARY
APRIL 25, 2000 SAN DIEGO, CALIFORNIA
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PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY. TO ASSURE YOUR
REPRESENTATION AT THE MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
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<PAGE>
[LOGO]
COLLATERAL THERAPEUTICS, INC.
11622 EL CAMINO REAL
SAN DIEGO, CA 92130
-------------------------
PROXY STATEMENT
-------------------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 25, 2000
The enclosed proxy is solicited on behalf of the Board of Directors of
Collateral Therapeutics, Inc., a Delaware corporation, for use at the annual
meeting of stockholders to be held on May 25, 2000. The annual meeting will be
held at 9:00 a.m. Pacific Time at the DoubleTree Hotel, 11915 El Camino Real,
San Diego, California. These proxy solicitation materials were mailed on or
about April 25, 2000, to all stockholders entitled to vote at the annual
meeting.
ACTION TO BE TAKEN UNDER THE PROXY
The specific proposals to be considered and acted on at the annual
meeting are summarized in the accompanying notice and are described in more
detail in this proxy statement. On March 31, 2000, the record date for
determination of stockholders entitled to notice of and to vote at the annual
meeting, 13,014,872 shares of our common stock, par value $0.001 were issued and
outstanding. No shares of our preferred stock, par value $0.001, were
outstanding. Each stockholder is entitled to one vote for each share of common
stock on March 31, 2000. Stockholders may not cumulate votes in the election of
directors.
All votes will be counted by the inspector of election appointed for
the meeting, who will separately count affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as present for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions will be counted towards the tabulations
of votes cast on proposals presented to the stockholders and will have the same
effect as negative votes. Broker non-votes will not be counted for purposes of
determining whether a proposal has been approved.
If the enclosed form of proxy is properly signed, dated and returned,
the shares represented will be voted at the annual meeting in accordance with
the instructions specified on the proxy.
If the proxy does not specify how the shares are to be voted:
- the proxy will be voted FOR the election of the directors
nominated by the Board (unless the authority to vote for the
election of seven nominee directors is withheld) and,
- the proxy will be voted FOR the approval of Proposals 2, 3 and
4 described in the notice and proxy statement (unless contrary
instructions are given).
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You may revoke or change your proxy at any time before the annual
meeting by filing a notice of revocation or another signed proxy with a later
date. These should be filed with our General Counsel & Secretary at our
principal executive offices at 11622 El Camino Real, San Diego, California
92130. You may also revoke your proxy by attending the annual meeting and voting
in person.
We do not know of other matters to be presented for consideration at
the annual meeting. However, if any other matters properly come before the
annual meeting, it is the intention of the persons named in the enclosed form of
proxy to vote the shares they represent as the Board of Directors may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed proxy.
PROXY SOLICITATION
We will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional solicitation materials furnished to our stockholders. Copies
of solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, we may reimburse such persons for their costs in forwarding the
solicitation materials to such beneficial owners. The original solicitation of
proxies by mail may be supplemented by a solicitation by telephone, telegram or
other means by our directors, officers or employees. No additional compensation
will be paid to these individuals for any such services. We have retained
Georgeson Shareholder Communications, Inc. to aid in the solicitation of
proxies, including soliciting proxies from brokerage firms, banks, nominees,
custodians and fiduciaries. The fees of such firm will total approximately
$7,500 plus out-of-pocket costs and expenses.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
The persons named below are nominees for director to serve until the
next annual meeting of stockholders and until their successors have been elected
and qualified. Our bylaws provide that the authorized number of directors is
determined by resolution of the Board of Directors or by the stockholders at an
annual meeting, within the range of five to nine individuals. The authorized
number of directors is currently seven. The Board of Directors has selected
seven nominees, each of whom is a current director of Collateral. Each person
nominated for election has agreed to serve if elected, and management has no
reason to believe that any nominee will be unavailable to serve. In the event
the nominee is unable or declines to serve as a director at the time of the
annual meeting, the proxies will be voted for any nominee who may be designated
by the present Board of Directors to fill the vacancy. Unless otherwise
instructed, the proxyholders will vote the proxies received by them FOR the
nominees named below. The proxies received by the proxyholders cannot be voted
for more than seven directors. The seven candidates receiving the highest number
of affirmative votes of the shares entitled to vote at the annual meeting will
be elected directors of Collateral. Set forth below is information regarding the
director nominees.
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BUSINESS EXPERIENCE OF DIRECTOR NOMINEES
JACK W. REICH, PH.D., age 51, is one of our co-founders and has served as a
director and Chief Executive Officer since April 1995, as President from April
1995 to September 1999 and as Chairman of the Board since June 1999. Dr. Reich
is a member of the Employee Benefits Committee. Dr. Reich is also a director and
Chairman of the Board of CIStem Molecular Corporation, a gene regulation
company. In May 1995, Dr. Reich co-founded MyoTech, Inc., a newly established
venture based upon a novel clinical service model and drug therapy to treat
chronic muscle injury, which was sold in November 1996. From October 1994 to
January 1995, he was Senior Vice President of Enterprise Partners, a Southern
California-based venture capital firm that has played a key role in developing
biotechnology and medical technology companies. From September 1987 to October
1994, Dr. Reich was Vice President, Regulatory Affairs and Quality Operations of
Gensia, Inc., now Gensia Sicor, Inc., a biopharmaceutical company formed to
discover, develop, manufacture and market novel pharmaceutical products for the
diagnosis and treatment of human disease. Dr. Reich received a B.A. in Biology
from Washington and Jefferson College, a B.S. in Pharmacy from Creighton
University, an M.S. in Hospital Pharmacy Administration from Temple University
and a Ph.D. in Pharmaceuticals - International Pharmaceutical Administration
from Temple University.
CHRISTOPHER J. REINHARD, age 46, is one of our co-founders and has served as a
director and Chief Financial Officer since April 1995, as Chief Operating
Officer since July 1997 and as President since September 1999. From 1990 to
1995, Mr. Reinhard was President of the Colony Group Inc., a business and
corporate development company, and Reinhard Associates, an investor relations
consulting company. From 1986 to 1990, he served as Vice President and Managing
Director of the Henley Group, a diversified industrial and manufacturing group,
and as Vice President of various public and private companies created by the
Henley Group, including Fisher Scientific Group, a leading international
distributor of laboratory equipment and test apparatus for the scientific
community, Instrumentation Laboratory, IMED Corporation, Wheelabrator
Technologies Inc., and Henley Properties Inc. (now California Coastal
Communities, Inc.). Mr. Reinhard received a B.S. in Finance and an M.B.A. from
Babson College.
CHARLES J. ASCHAUER, age 71, has served as a director since 1999. Mr. Aschauer
is a member of the Audit Committee. He currently acts as a business consultant.
After an 18-year career at Abbott Laboratories, an international healthcare
company, he retired as Executive Vice President and a member of the Board of
Directors. Mr. Aschauer served as a director of Boston Scientific Corporation, a
medical device company, and Linc Capital Inc., a financial services company, for
more than five years, and served as a director of Trustmark Insurance Company,
for more than fifteen years. Since January 2000, Mr. Aschauer has also served as
a director of Solar Communications. Earlier in his career, Mr. Aschauer served
as a director of QLT Therapeutics and of Rustoleum Corporation. Mr. Aschauer
received a B.A. degree in Business Administration from Northwestern University.
B. MASON FLEMMING JR., age 62, has served as a director since March 2000. Mr.
Flemming is a member of the Audit Committee and the Compensation and Stock Plan
Administrative Committees. Mr. Flemming is a Chartered Financial Analyst. Since
1995, he has been Managing Director of Flemming Lessard & Shields LLC, formerly
Flemming & Lessard, Inc., an investment banking firm he co-founded to represent
emerging growth companies. Prior to forming the investment banking firm, Mr.
Flemming served as the Executive Vice President of Robert C. Brown & Co., Inc.,
and helped to establish Pacific Securities, an institutional brokerage and bond
trading operation. Mr. Flemming received a B.A. from the University of
Pennsylvania and an M.B.A. in Finance from the Harvard Business School.
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H. KIRK HAMMOND, M.D., age 50, our chief scientist, is one of our co-founders
and has served as a director since 1995. He has also served as our Vice
President, Research since April 1995. Since July 1994, Dr. Hammond has been
Associate Professor of Medicine at UCSD. From 1987 to June 1994, he was Clinical
Assistant Professor of Medicine at UCSD. Since 1983, he has been an active basic
research scientist and cardiologist at the San Diego Veterans' Affairs
Healthcare System. Dr. Hammond's laboratory at UCSD has focused on the
development of gene therapy to treat cardiovascular disease. Dr. Hammond was the
primary co-inventor of the technology that served as the basis for the formation
of Collateral. Dr. Hammond received his M.D. from Indiana University in 1980 and
is board certified in internal medicine and cardiovascular diseases.
RONALD I. SIMON, PH.D., age 61, has served as a director since 1999. Dr. Simon
is a member of the Audit Committee, the Employee Benefits Committee, and the
Compensation and Stock Plan Administrative Committees. From May 1997 through
April 2000, Dr. Simon served as Executive Vice President and Chief Financial
Officer of Western Water Company, a developer and marketer of water rights, and
has served as a director of the Company since September 1999. Since 1995, Dr.
Simon has been a director of SoftNet Systems, Inc., an internet services
provider. Since 1996, he has been a director of WestCorp Investments, a
wholly-owned subsidiary of WestCorp, Inc., a financial services company. From
1995 through December 1999, Dr. Simon served as a director of Citadel Holdings
Corporation, a real estate development company. From 1993 to 1997, Dr. Simon was
Chairman and Chief Financial Officer of Sonant Corporation. From 1986 to 1990,
he was Managing Director and Chief Financial Officer of the Henley Group Inc.
From 1976 to 1997, he was a financial consultant and President of Ronald I.
Simon Inc., a financial consulting company. Dr. Simon received a B.A. in
Economics from Harvard University, an M.A. in History from Columbia University,
and a Ph.D. in Business from the Columbia University Graduate School of
Business.
DALE A. STRINGFELLOW, PH.D., age 55, has served as a director since 1999. Since
June 1995, he has been President of Berlex Biosciences, a wholly-owned
subsidiary of Schering AG. He has been a director of Myriad Genetics Inc. since
December 1991. From July 1990 until April 1995, he was President, Chief
Executive Officer and a director of Celtrix Pharmaceuticals. Dr. Stringfellow
has also held other positions including: Vice President and Senior Director of
Preclinical Cancer Research at Bristol-Myers Company; Research Head, Cancer
Virology and Cellular Biology Research at Upjohn Company; and Vice President,
Research and Development at Collagen Corporation. Dr. Stringfellow received a
B.S. and a Ph.D. in Microbiology from the University of Utah.
BOARD COMMITTEES AND MEETINGS
The Board of Directors held eight meetings and acted by unanimous
written consent two times during 1999. The Board of Directors has an Audit
Committee, a Compensation Committee, a Stock Plan Administrative Committee and
an Employee Benefits Committee. Other than Dr. Hammond, every director attended
or participated in 75% or more of the aggregate of: (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all committees of the Board on which such director served during 1999.
The Audit Committee currently consists of three directors, Mr.
Aschauer, Mr. Flemming and Dr. Simon. Mr. Craig S. Andrews, a former director,
served on this committee until January 2000. The Audit Committee is primarily
responsible for approving the services performed by our independent auditors and
reviewing their reports regarding our accounting practices and systems of
internal accounting controls. The Audit Committee held one meeting during 1999.
The Compensation Committee currently consists of Dr. Simon and Mr.
Flemming. Mr. Andrews served on this committee until January 2000 and Mr. David
E. Robinson, a former director, served on this committee until May 1999. The
Compensation Committee is primarily responsible for reviewing
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and approving our general compensation policies and setting compensation levels
for our executive officers. The Compensation Committee also has the exclusive
authority to administer our employee stock purchase plan. The Compensation
Committee held two meetings during the 1999 fiscal year and acted by unanimous
written consent once during 1999.
The Stock Plan Administrative Committee currently consists of Dr. Simon
and Mr. Flemming. Ms. Elise G. Klein and Mr. Robinson, two former directors,
served on this committee until May 1999, and Dr. Stringfellow served on this
committee until April 2000. The Stock Plan Administrative Committee has the
exclusive authority to administer our stock incentive plan and to make option
grants under that plan. The Stock Plan Administrative Committee acted by
unanimous written consent six times during 1999.
The Employee Benefits Committee currently consists of two directors,
Dr. Simon and Dr. Reich. The Employee Benefits Committee is primarily
responsible for establishing and administering Collateral's employee benefit
plans. The Employee Benefits Committee acted by unanimous written consent once
during 1999.
DIRECTOR COMPENSATION
We reimburse directors for all reasonable and necessary travel and
other incidental expenses incurred in connection with their attendance at
meetings of the Board. Currently, our non-employee directors are eligible to
receive an annual fee of up to $18,000. During 1999, Mr. Andrews, Mr. Aschauer,
Dr. Simon and Dr. Stringfellow each earned $12,000 in fees. Under our stock
incentive plan, directors who are not officers or employees will receive
periodic option grants. Under the option grant program for non-employee
directors, each individual who first becomes a director at any time after the
July 2, 1998 effective date of the program receives an option grant for 15,000
shares of common stock on the date such individual joins the Board, provided
such individual has not been in our employ. In addition, on the date of each
annual meeting, each non-employee director who continues to serve as a director
is granted an option to purchase 5,000 shares of common stock, provided such
individual has served on the Board for at least six months.
Each grant for non-employee directors has an exercise price equal to
100% of the fair market value per share of common stock on the option grant
date, and has a term of 10 years, subject to earlier termination following the
optionee's cessation of Board service. Under the terms of the non-employee
directors stock option program, Mr. Aschauer, Dr. Simon and Dr. Stringfellow
each received a 15,000-share grant on May 27, 1999 at an exercise price of
$12.25 per share; Mr. Andrews and Dr. Engler each received a 5,000-share grant
on May 27, 1999 at an exercise price of $12.25 per share; and Mr. Flemming
received a 15,000-share grant on March 14, 2000 at an exercise price of $25.875
per share.
Each non-employee director's option is immediately exercisable for all
of the option shares; however, any unvested shares purchased under the option
are subject to repurchase by Collateral, at the exercise price paid per share,
should the optionee cease Board services prior to vesting in those shares. The
shares subject to each initial 15,000-share option grant vest in successive
equal annual installments upon the individual's completion of each year of Board
service over the three-year period measured from the option grant date. Each
5,000-share option grant vests on the one year anniversary of the option grant
date. However, the shares subject to each grant will immediately vest in full
upon certain changes in control or ownership of Collateral or upon the
optionee's death or disability while a director.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
election of the nominees listed above.
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PROPOSAL 2:
APPROVAL OF AMENDMENTS TO THE 1998 STOCK INCENTIVE PLAN
Collateral's stockholders are being asked to approve amendments to
Collateral's 1998 Stock Incentive Plan, the "1998 Plan", that will effect the
following changes: (i) increase the maximum number of shares of common stock
authorized for issuance over the term of the 1998 Plan by an additional 1.5
million shares to 3,803,960 shares and (ii) eliminate the cancellation and
re-grant ("re-pricing") provisions.
The 1998 Plan was adopted by the Board of Directors in April 1998 as
the successor to Collateral's 1995 Stock Option Plan, the "1995 Plan", and was
also approved by the stockholders in April 1998. The 1998 Plan became effective
April 20, 1998, and at that time all outstanding options under the 1995 Plan
were incorporated into the 1998 Plan and the 1995 Plan was accordingly
terminated as to all future option grants. In March 2000, the Board amended the
1998 Plan to increase the shares of common stock available for issuance under
the 1998 Plan and to eliminate the option cancellation and re-grant provisions,
known as re-pricing provisions, subject to stockholder approval at the annual
meeting.
The proposed share increase was intended to ensure that a sufficient
reserve of common stock is available under the 1998 Plan to attract and retain
the services of key individuals essential to Collateral's long-term growth and
success. The Board also voted to delete the re-pricing provisions of the 1998
Plan which permitted the substitution of new stock options for outstanding stock
options at a lower exercise price than that of the original options. Such option
re-pricing provisions, although permissible under the general plan, have never
been employed by Collateral.
The following is a summary of the principal features of the 1998 Plan,
including the amendments which will become effective upon stockholder approval
of this Proposal Number Two, together with the applicable tax and accounting
implications for Collateral and the participants. However, the summary does not
purport to be a complete description of all provisions of the 1998 Plan. Any
stockholder of Collateral who wishes to obtain a copy of the actual plan
document may do so upon written request to our Corporate Secretary at our
principal executive offices in San Diego, California.
EQUITY PROGRAMS
The 1998 Plan contains the following programs:
- the Discretionary Option Grant Program,
- the Salary Investment Option Grant Program,
- the Stock Issuance Program,
- the Automatic Option Grant Program for Non-Employee Directors,
and
- the Director Fee Option Grant Program.
The principal features of each of these programs are described below.
The Stock Plan Administrative Committee of the Board administers the provisions
of the 1998 Plan (other than the Automatic Option Grant and the Director Fee
Option Grant Programs) with respect to all officers and directors of Collateral
subject to the short-swing trading restrictions of the federal securities laws
("Section 16 Insiders"). With respect to all other participants, the 1998 Plan
is presently also administered by the Stock Plan Administrative Committee, but
it may alternatively be administered by
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the Compensation Committee, by a special stock option committee (the "Secondary
Committee") comprised of one or more Board members appointed by the Board or by
the entire Board itself. Each entity, whether the Stock Plan Administrative
Committee, the Compensation Committee, the Secondary Committee or the Board,
will be referred to in this summary as the Plan Administrator with respect to
its particular administrative functions under the 1998 Plan, and each Plan
Administrator will have complete discretion (subject to the provisions of the
1998 Plan) to authorize option grants and direct stock issuances under the 1998
Plan within the scope of its administrative jurisdiction. However, all grants
under the Automatic Option Grant and Director Fee Option Grant Programs will be
made in strict compliance with the provisions of that program, and no
administrative discretion will be exercised by any Plan Administrator with
respect to the grants made under such programs. Additionally, all option grants
under the Salary Investment Option Grant Program shall be made in accordance
with the express terms of that program, and the Plan Administrator shall not
exercise any discretionary functions under such program, except for determining
which employees shall be eligible for participation in this program and whether
the employee's salary investment authorization is to be approved in whole or in
part.
SHARE RESERVE
3,803,960 shares of common stock have been reserved for issuance over
the 10-year term of the 1998 Plan, including the 1.5 million share increase
subject to stockholder approval as part of this Proposal No. Two.
Should any option terminate prior to exercise in full, the shares
subject to the unexercised portion of that option will be available for
subsequent option grants. In addition, any unvested shares issued under the Plan
and subsequently repurchased by Collateral at the option exercise or direct
issue price paid per share pursuant to Collateral's repurchase rights under the
Plan will be added back to the number of shares of common stock reserved for
issuance under the Plan and will accordingly be available for reissuance through
one or more subsequent option grants or direct stock issuances made under the
Plan. However, shares subject to any option surrendered in accordance with the
stock appreciation right provisions of the 1998 Plan will not be available for
subsequent issuance.
In no event may any one participant in the 1998 Plan be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 250,000 shares in the aggregate per calendar year under
the 1998 Plan.
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of common
stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without Collateral's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and class of securities issuable under
the 1998 Plan, (ii) the number and class of securities for which any one
participant may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the 1998 Plan, (iii) the
number and class of securities for which option grants will subsequently be made
under the Automatic Option Grant Program to each newly-elected or continuing
non-employee Board member, and (iv) the number and class of securities and the
exercise price per share in effect under each outstanding option under the Plan.
All such adjustments will be designed to preclude the enlargement or dilution of
participant rights and benefits under the Option Plan.
ELIGIBILITY
Employees, non-employee Board members, and independent consultants and
advisors to Collateral and its subsidiaries (whether now existing or
subsequently established) will be eligible to
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participate in the Discretionary Option Grant and Stock Issuance Programs.
Employees who are Section 16 Insiders or other highly compensated individuals
will also be eligible to participate in the Salary Investment Option Grant
Program. Non-employee members of the Board will also be eligible to participate
in the Automatic Option Grant and the Director Fee Option Grant Programs.
As of March 31, 2000, six executive officers, four non-employee Board
members and about 50 other employees were eligible to participate in the
Discretionary Option Grant Program. Five executive officers were also eligible
to participate in the Salary Investment Option Grant Program and the four
non-employee Board members were eligible to participate in the Non-Employee
Directors Option Grant program. As of March 31, 2000, the Plan Administrator had
not authorized any grants under the Stock Issuance or the Director Fee Option
Grant Programs.
VALUATION
The fair market value per share of common stock on any relevant date
under the 1998 Plan will be the closing selling price per share on that date on
the Nasdaq National Market. On March 31, 2000, the closing selling price of
Collateral's common stock was $43 7/8 per share.
Further information regarding each of the programs under the 1998 Plan
is provided below, and in the Plan document.
DISCRETIONARY OPTION GRANT PROGRAM
GRANTS
The Plan Administrator, which is currently the Stock
Plan Administrative Committee, has authority under the
Discretionary Option Grant Program to determine which eligible
individuals are to receive option grants, the time or times
when such grants are to be made, the number of shares subject
to such grant, the status of any granted option as either an
incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule if any to be in effect
for the option grant and the maximum term for which any
granted option is to remain outstanding. All expenses incurred
in administering the 1998 Plan will be paid by Collateral.
Further information is provided below and in the Plan
document.
PRICE AND EXERCISABILITY
Under our plan, the exercise price per share for
options granted under the Discretionary Option Grant Program
may not be less than 100% of the fair market value per share
of common stock on the option grant date. No option granted
will have a term in excess of 10 years, and each option will
generally become exercisable in one or more installments over
the optionee's period of service with Collateral. The shares
of common stock acquired upon the exercise of one or more
options may, however, be unvested and subject to repurchase by
Collateral, at the exercise price paid per share, if the
optionee ceases service with Collateral prior to vesting in
those shares. The Plan Administrator may at any time cancel
Collateral's outstanding repurchase rights with respect to
those shares and thereby accelerate the vesting of those
shares. Vesting will generally accelerate in the event of a
change in control of Collateral, as described further below.
The exercise price may be paid in cash or in shares
of Collateral Therapeutics common stock. Outstanding options
may also be exercised through a same-day sale program pursuant
to which a designated brokerage firm is to effect an immediate
sale of the shares purchased under the option and pay to
Collateral, out of the sale proceeds available on the
settlement date, sufficient funds to cover the exercise price
for the purchased shares plus applicable withholding taxes.
-8-
<PAGE>
No optionee will have any stockholder rights with
respect to the option shares until such optionee has exercised
the option, paid the exercise price and become the record
holder of the purchased shares. Options are generally not
assignable or transferable other than by will or the laws of
inheritance and, during the optionee's lifetime, the option
may be exercised only by such optionee. However, the Plan
Administrator may allow non-statutory options to be
transferred or assigned during the optionee's lifetime to one
or more members of the optionee's immediate family or to a
trust established exclusively for one or more of such family
members, to the extent such transfer or assignment is in
furtherance of the optionee's estate plan.
TERMINATION OF SERVICE
Upon an optionee's cessation of employment or
service, the optionee has a limited period of time in which to
exercise his or her outstanding options for any shares in
which the optionee is vested at that time. However, at any
time while the options remain outstanding, the Plan
Administrator has authority to extend the period following the
optionee's cessation of employment or service during which his
or her outstanding options may be exercised. The Plan
Administrator also has complete discretion to accelerate the
exercisability or vesting of options in whole or in part at
any time.
STOCK APPRECIATION RIGHTS
The Plan Administrator is authorized to issue tandem
stock appreciation rights and limited stock appreciation
rights in connection with option grants made under the
Discretionary Option Grant Program, as described below.
Tandem stock appreciation rights provide the holders
with the right to surrender their options for an appreciation
distribution from Collateral equal in amount to the excess of
(a) the fair market value of the vested shares of common stock
subject to the surrendered option over (b) the aggregate
exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator,
be made in cash and/or in shares of common stock.
Limited stock appreciation rights may be provided to
one or more executive officers or directors of Collateral with
respect to their outstanding options. Any option with such a
limited stock appreciation right may be surrendered to
Collateral upon the successful completion of a hostile tender
offer to acquire control of more than 50% of Collateral's
outstanding voting stock. In return for the surrendered
option, the officer will be entitled to a cash distribution
from Collateral in an amount per surrendered option share
equal to the excess of (a) the fair market value on the date
of surrender (or, if higher, and for a non-qualified option,
the highest price per share of common stock paid in connection
with the tender offer) over (b) the exercise price payable for
such share.
Further information regarding change in control and
other provisions affecting these options is provided below and
in the plan.
SALARY INVESTMENT OPTION GRANT PROGRAM
The Plan Administrator, which is currently the Stock
Plan Administrative Committee, has the authority to determine
the calendar year or years, if any, that the Salary Investment
Option Grant Program is in effect and to select the Section 16
Insiders and other highly compensated employees eligible to
participate in this Program. Each selected individual who
elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of
participation, file with the Plan Administrator an irrevocable
authorization directing Collateral to reduce his or her base
salary for that calendar year by an amount not less than
$10,000 nor more than $50,000. The Plan Administrator shall
have complete discretion to determine whether to approve
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the filed authorization in whole or in part. To the extent the
Plan Administrator approves the authorization, the individual
who filed that authorization shall automatically be granted an
option under the Salary Investment Option Grant Program on the
first trading day in January of the calendar year for which
the salary reduction is to be in effect. The number of option
shares is determined by dividing the total dollar amount of
the authorized reduction in optionee's base salary by
two-thirds of the fair market value per share of common stock
on the option grant date, and the exercise price per share is
equal to one-third of the fair market value of the option
shares on the grant date. In total, the amount payable by the
optionee upon exercise plus the amount of the optionee's
authorized reduction in base salary equal 100% of the fair
market value of the option shares on the grant date.
Salary investment options become exercisable for the
option shares in a series of 12 successive equal monthly
installments upon the optionee's completion of each month of
service during the calendar year of the option grant. In the
event the optionee ceases service for any reason, the unvested
shares subject to the option at the time of such cessation
terminate; however, the option remains exercisable for any
vested shares until the earlier of: (i) the expiration of the
10-year option term or (ii) the end of the three-year period
measured from the date of the optionee's cessation of service.
The remaining terms of each option grant under this
Salary Investment Option Grant Program will in general conform
to the terms summarized above for option grants made under the
Discretionary Option Grant Program.
Further information regarding change in control and
other provisions affecting these options is provided below and
in the plan.
STOCK ISSUANCE PROGRAM
Shares may be issued under the Stock Issuance Program
at a price per share not less than 100% of their fair market
value, payable in cash to Collateral. Shares may also be
issued for past services rendered to Collateral. The Plan
Administrator may issue shares of common stock which are fully
vested upon issuance. Alternatively, the Plan Administrator
may issue shares subject to a vesting schedule tied to the
performance of service or the attainment of performance goals.
The Plan Administrator will, however, have the discretionary
authority at any time to accelerate the vesting of any and all
unvested shares outstanding under this program.
AUTOMATIC OPTION GRANT PROGRAM FOR NON-EMPLOYEE DIRECTORS
Each individual who first becomes a non-employee
Board member after July 2, 1998, whether through election by
the stockholders or appointment by the Board, is granted, on
the date of such election or appointment, a non-statutory
option to purchase 15,000 shares of common stock, provided the
individual has not previously been in Collateral's employ.
On the date of each annual meeting, each non-employee
director who is to continue to serve on the Board is granted a
non-statutory option to purchase 5,000 shares of common stock,
provided such individual has served as a non-employee Board
member for at least six months. There is no limit on the
number of annual 5,000-share option grants that any one
non-employee director may receive over his or her period of
Board service, and non-employee directors who have previously
been in Collateral's employ will be eligible to receive one or
more of those annual grants.
Each option grant for non-employee directors has an
exercise price per share equal to 100% of the fair market
value per share of common stock on the grant date. The option
has a maximum term of 10 years, subject to earlier termination
at the end of a 12
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month period measured from the date of the optionee's
cessation of Board service. Each option is immediately
exercisable for all of the option shares. However, any shares
purchased under the option are subject to repurchase by
Collateral, at the exercise price paid per share, upon the
optionee's cessation of Board service prior to vesting in
those shares. The shares of common stock subject to the
initial 15,000-share grant vest in a series of three
successive equal annual installments upon the optionee's
completion of each year of Board service over the three year
period measured from the grant date. The shares of common
stock subject to the initial 5,000-share grant vest upon
completion of the optionee's year of Board service measured
from the grant date.
Each non-employee directors option remains
exercisable for a 12 month period following an optionee's
cessation of service as a Board member. In no event, however,
may the option be exercised after the expiration date of the
option term. During the applicable post-service exercise
period, the option may not be exercised for more than the
number of option shares if any in which the Board member is
vested at the time of his or her cessation of Board service.
The shares subject to each automatic option grant
will immediately vest upon the optionee's death or permanent
disability while a Board member. Vesting will generally
accelerate in connection with of change in control of
Collateral, as described below and in the plan.
The remaining terms and conditions of each automatic
option grant will in general conform to the terms summarized
above for option grants made under the Discretionary Option
Grant Program.
DIRECTOR FEE OPTION GRANT PROGRAM
The Plan Administrator shall have sole and exclusive
authority to determine the calendar year or years, if any, the
Director Fee Option grant Program is in effect. When the
Director Fee Option Grant Program is in effect, each
non-employee Board member will have the right to apply all or
a portion of the fee otherwise payable to him in cash each
year to the acquisition of a special option grant under the
program. The Board member must make his election to
participate in the program for a particular calendar year by
December 31st of the immediately preceding calendar year. The
grant for each year of participation will automatically be
made on the first trading day in January of that year and will
have an exercise price per share equal to one-third of the
fair market value of the option shares on the grant date. The
number of option shares will be determined by dividing the
total dollar amount of the fees subject to the Board member's
election by two-thirds of the fair market value per share of
common stock on the option grant date. As a result, the total
spread on the option (the fair market value of the option
shares on the grant date less the aggregate exercise price
payable for those shares) will be equal to the portion of the
fee subject to the Board member's election.
The option will become exercisable for the option
shares in a series of 12 successive equal monthly installments
upon the optionee's completion of each month of Board service
during the calendar year of the option grant. In the event the
optionee ceases Board service for any reason (other than death
or permanent disability), the unvested shares subject to the
option at the time of such cessation will immediately
terminate; however, the option will remain exercisable for the
vested shares subject to the option until the earlier of the
expiration of the 10-year option term or the end of the
three-year period measured from the date of the optionee's
cessation of Board service.
Should the optionee's service as a Board member cease
by reason of death or permanent disability, then the option
will immediately become exercisable for all the shares of
common stock subject to the option and may be exercised for
such shares until
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the earlier of the expiration of the 10-year option term or
the end of the three-year period measured from the date of the
optionee's cessation of Board service.
The remaining terms of each option grant under this
Director Fee Option Grant Program will in general conform to
the terms summarized above for option grants made under the
Discretionary Option Grant Program.
Further information regarding change in control and
other provisions affecting these options is provided below and
in the plan.
GENERAL PROVISIONS OF THE STOCK INCENTIVE PLAN
CHANGE IN CONTROL
Options granted under our stock incentive plan are
generally subject to accelerated vesting in the event of a
change in control of Collateral, whether by merger or asset
sale or by successful tender offer to acquire more than 50% of
the outstanding voting stock of Collateral or by a change in
the majority of the Board by reason of one or more proxy
contests for the election of Board members. Upon such a change
in control, each outstanding option under the Discretionary
Option Grant Program which is not to be assumed by a successor
corporation will automatically accelerate in full, and all
unvested shares under the Discretionary Option Grant Program
will immediately vest, except to the extent Collateral's
repurchase rights with respect to those shares are to be
assigned to the successor corporation. However, an outstanding
option shall not become exercisable on such an accelerated
basis if and to the extent: (i) such option is, in connection
with the change in control, to be assumed or otherwise
continued in full force or effect by the successor corporation
pursuant to the terms of the change in control transaction,
(ii) such option is to be replaced with a cash incentive
program of the successor corporation which preserves the
spread existing at the time of the change in control on the
shares of common stock for which the option is not otherwise
at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those
option shares or (iii) the acceleration of such option is
subject to other limitations imposed by the Plan Administrator
at the time of the option grant.
The Plan Administrator also has the discretionary
authority to provide for the full and immediate vesting of all
outstanding stock options and unvested shares under the
Discretionary Option Grant in connection with a change in
control of Collateral (whether by successful tender offer to
acquire more than 50% of the outstanding voting stock or a
change in the majority of the Board by reason of one or more
proxy contests for the election of Board members), with such
vesting to occur either at the time of such change in control
or upon the subsequent termination of the individual's
service.
All outstanding options under the Salary Investment
Option Grant, Automatic Option Grant for Non-Employee
Directors and the Director Fee Option Grant Programs
automatically accelerate upon any change in control so that
each option shall, immediately prior to the effective date of
the change in control, become fully exercisable with respect
to the total number of Shares of common stock at the time
subject to such option and may be exercised for any or all
those shares as fully-vested shares of common stock. In
addition, upon the successful completion of a hostile tender
offer to acquire control of more than 50% of Collateral's
outstanding voting stock, each outstanding grant may be
surrendered to Collateral for a cash distribution per
surrendered option share in an amount equal to the excess of
(a) the highest price per share of common stock paid in
connection with such tender offer over (b) the exercise price
payable for such share. No approval or consent of the Plan
Administrator or the Board will be required at the time of the
actual option surrender and cash distribution.
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All unvested shares under the Stock Issuance Program
will immediately vest upon any change in control, except to
the extent Collateral's repurchase rights with respect to
those shares are assigned to the successor corporation. All
option grants under the Automatic Option Grant Program shall
fully-vest automatically upon a change in control.
The acceleration of vesting upon a change in the
ownership or control of Collateral may be seen as an
anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other
efforts to gain control of Collateral.
FINANCIAL ASSISTANCE
The Plan Administrator may institute a loan program
to assist one or more participants in financing the exercise
of outstanding options or the purchase of shares under the
Discretionary Option Grant or Stock Issuance Program. The Plan
Administrator will have complete discretion to determine the
terms of any such financial assistance. However, the maximum
amount of financing provided any individual may not exceed the
cash consideration payable for the issued shares plus all
applicable taxes. Any such financing may be subject to
forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the participant's period of service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more
holders of options or unvested shares with the right to have
Collateral withhold a portion of the shares otherwise issuable
to such individuals in satisfaction of the tax liability
incurred by such individuals in connection with the exercise
of those options or the vesting of those shares.
Alternatively, the Plan Administrator may allow such
individuals to deliver previously acquired shares of common
stock in payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1998 Plan in any or
all respects whatsoever, subject to any stockholder approval
required under applicable law or regulation. The Board may
terminate the 1998 Plan at any time, and the 1998 Plan will in
all events terminate on April 20, 2008.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1998 Plan may be either
incentive stock options, intended to satisfy the requirements
of Section 422 of the Internal Revenue Code to the extent
qualified, or non-statutory options which are not intended to
meet such requirements. The Federal income tax treatment for
the two types of options differs as follows:
INCENTIVE OPTIONS. No taxable income is recognized by
the optionee at the time of the option grant, and no taxable
income is generally recognized at the time the option is
exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or
otherwise made the subject of a taxable disposition. For
Federal tax purposes, dispositions are divided into two
categories: qualifying and disqualifying. A qualifying
disposition occurs if the sale or other disposition is made
after the optionee has held the shares for more than two years
after the option grant date and more than one year after the
exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will
recognize long-term capital gain in an amount equal to the
excess of (i) the amount realized upon the sale or other
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disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair
market value of those shares on the exercise date over (ii)
the exercise price paid for the shares will be taxable as
ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be recognized as a
capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of
the purchased shares, then Collateral will be entitled to an
income tax deduction, for the taxable year in which such
disposition occurs, equal to the excess of (i) the fair market
value of such shares on the option exercise date over (ii) the
exercise price paid for the shares. If the optionee makes a
qualifying disposition, Collateral will not be entitled to any
income tax deduction.
NON-STATUTORY OPTIONS. No taxable income is
recognized by an optionee upon the grant of a non-statutory
option, which is also referred to as a non-qualified option.
The optionee will in general recognize ordinary income, in the
year in which the option is exercised, equal to the excess of
the fair market value of the purchased shares on the exercise
date over the exercise price paid for the shares, and the
optionee will be required to satisfy the tax withholding
requirements applicable to such income.
If the shares acquired upon exercise of the
non-statutory option are unvested and subject to repurchase by
Collateral in the event of the optionee's termination of
service prior to vesting in those shares, then the optionee
will not recognize any taxable income at the time of exercise
but will have to report as ordinary income, as and when
Collateral's repurchase right lapses, an amount equal to the
excess of (i) the fair market value of the shares on the date
the repurchase right lapses over (ii) the exercise price paid
for the shares. The optionee may, however, elect under Section
83(b) of the Internal Revenue Code to include as ordinary
income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased
shares on the exercise date over (ii) the exercise price paid
for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when
the repurchase right lapses.
Collateral will be entitled to an income tax
deduction equal to the amount of ordinary income recognized by
the optionee with respect to the exercised non-statutory
option. The deduction will in general be allowed for the
taxable year of Collateral in which such ordinary income is
recognized by the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right
will recognize ordinary income in the year of exercise equal
to the amount of the appreciation distribution. Collateral
will be entitled to an income tax deduction equal to such
distribution for the taxable year in which the ordinary income
is recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock
issuances under the 1998 Plan will be substantially the same
as those summarized above for the exercise of non-statutory
option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Collateral anticipates that any compensation deemed
paid by it in connection with the disqualifying disposition of
incentive stock option shares or the exercise of non-statutory
options granted with exercise prices equal to the fair market
value of the shares on the grant date will qualify as
performance-based compensation for purposes of Code Section
162(m) and will not have to be taken into account for purposes
of the $1 million
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limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of Collateral.
Accordingly, all compensation deemed paid under the 1998 Plan
will remain deductible by Collateral without limitation under
Code Section 162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or
issue prices less than the fair market value of the shares on
the grant or issue date will result in a direct compensation
expense to Collateral's earnings equal to the difference
between the exercise or issue price and the fair market value
of the shares on the grant or issue date. Option grants or
stock issuances made to consultants result in a direct
compensation expense to Collateral's reported earnings based
upon the fair value of the option measured on the vesting date
of each installment of the underlying option shares. Such
expense will accordingly include the appreciation in the value
of the option shares over the period between the grant date of
the option and the vesting date of each installment of the
option shares and will be accruable by Collateral over the
period that the option shares or issued shares are to vest.
Option grants or stock issuances made to employees or Board
directors at 100% of fair market value will not result in any
direct charge to Collateral's earnings. However, the fair
value of those options is required to be disclosed in the
notes to Collateral's financial statements, and Collateral
must also disclose, in pro-forma statements to our financial
statements, the impact those options would have upon our
reported earnings were the value of those options at the time
of grant treated as compensation expense. Whether or not
granted at a discount, the number of outstanding options may
be a factor in determining Collateral's earnings per share on
a fully-diluted basis.
Should one or more optionees be granted stock
appreciation rights which have no conditions upon
exercisability other than a service or employment requirement,
then such rights will result in compensation expense to
Collateral's earnings.
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STOCK AWARDS
The table below shows, as to each of Collateral's executive officers
named in the Summary Compensation Table of the Executive Compensation and
Related Information section of this Proxy Statement and the various indicated
individuals and groups, the number of shares of common stock subject to options
granted under the 1998 Plan between the April 20, 1998 effective date of the
1998 Plan and March 31, 2000, together with the weighted average exercise price
payable per share. No direct stock issuances have been made to date under the
1998 Plan.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
OPTIONS
GRANTED WEIGHTED AVERAGE
(NUMBER OF EXERCISE PRICE OF
NAME SHARES) GRANTED OPTIONS
- ------------------------------------------------------------------ -------------- ---------------------
<S> <C> <C>
Jack W. Reich, Ph.D.
Chairman of the Board,
Chief Executive Officer and Director.............................. 225,000 $5.188
Christopher J. Reinhard
President, Chief Operating Officer,
Chief Financial Officer and Director.............................. 157,500 $5.188
Tyler M. Dylan, Ph.D., J.D.
Vice President, General Counsel and Secretary..................... 103,408 $9.153
Jeffrey Friedman, M.D.
Vice President, Development....................................... 95,852 $11.933
H. Kirk Hammond, M.D.
Vice President, Research and Director............................. 146,250 $5.188
All current executive officers as a group (6 persons) ............ 784,010 $6.535
All current directors who are not executive officers as a group (4
persons) ......................................................... 65,000 $15.88
All employees, including current officers who are
not executive officers, as a group (48 persons)................... 380,150 $11.29
</TABLE>
As of March 31, 2000, options covering 1,795,169 shares of common stock
were outstanding under the 1998 Plan, 269,892 shares remained available for
future option grant or direct issuance, and 47,791 shares have been issued
pursuant to the exercise of outstanding options granted under the 1998 Plan.
NEW PLAN BENEFITS
No options have been granted, and no direct stock issuances have been
made, on the basis of the 1.5 million share increase which forms part of this
Proposal No. Two. At the 2000 annual meeting, each individual who will continue
to serve as a non-employee Board member will receive an option grant
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under the Automatic Option Grant Program to purchase 5,000 shares of common
stock at an exercise price per share equal to the fair market value per share of
common stock on the option grant date.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
Collateral present or represented and entitled to vote at the 2000 annual
meeting is required for approval of the amendments to the 1998 Plan. Should such
stockholder approval not be obtained, then the 1.5 million share increase to the
share reserve will not be implemented, and any stock options granted on the
basis of the 1.5 million share increase to the 1998 Plan will immediately
terminate without becoming exercisable for the shares of common stock subject to
those options, and no additional options will be granted on the basis of such
share increase. The 1998 Plan will, however, continue to remain in effect, and
option grants and direct stock issuances may continue to be made pursuant to the
provisions of the 1998 Plan in effect prior to the amendments summarized in this
Proposal No. Two, until the available reserve of common stock as last approved
by the stockholders has been issued pursuant to option grants and direct stock
issuances made under the 1998 Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that amendment of the 1998 Plan is
necessary in order to continue to provide equity incentives to attract and
retain the services of high quality employees. For this reason, the Board of
Directors recommends that the stockholders vote FOR the amendment to the 1998
Plan.
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO THE
1998 EMPLOYEE STOCK PURCHASE PLAN
Collateral's stockholders are being asked to approve an amendment to
Collateral's 1998 Employee Stock Purchase Plan which will increase the maximum
number of shares of common stock authorized for issuance over the term of the
Purchase Plan by an additional 100,000 shares, of which no more than 25,000
shares shall be purchasable on any one semi-annual purchase date.
The purpose of the share increase is to ensure that Collateral will
continue to have a sufficient reserve of common stock available under the
Purchase Plan to provide eligible employees of Collateral and its participating
affiliates with the opportunity to acquire a proprietary interest in Collateral
through participation in a payroll-deduction based employee stock purchase plan
under Section 423 of the Internal Revenue Code.
The Purchase Plan was adopted by the Board of Directors in April 1998,
and was also approved by Collateral's stockholders in April 1998. The Purchase
Plan became effective on July 2, 1998 in connection with the initial public
offering of Collateral's common stock. In March 2000, the Board amended the
Purchase Plan to increase the shares of common stock available for issuance
under the Purchase Plan and to also increase the number of shares purchasable on
any one semi-annual purchase date, subject to stockholder approval at the annual
meeting.
The following is a summary of the principal features of the Purchase
Plan, as amended. The summary, however, does not purport to be a complete
description of all the provisions of the Purchase Plan. Any stockholder of
Collateral who wishes to obtain a copy of the actual plan document may do so
upon written request to our Corporate Secretary at our principal executive
offices in San Diego, California.
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ADMINISTRATION
The Purchase Plan is currently administered by the Compensation
Committee of the Board. This committee, as Plan Administrator, has full
authority to adopt administrative rules and procedures and to interpret the
provisions of the Purchase Plan. All costs and expenses incurred in plan
administration are paid by Collateral.
SECURITIES SUBJECT TO THE PURCHASE PLAN
Under the Purchase Plan, 150,000 shares of common stock will have been
reserved for issuance over the term of the Purchase Plan, including the 100,000
share increase for which stockholder approval is sought under this Proposal No.
Three. The shares may be made available from authorized but unissued shares of
Collateral's common stock or from shares of common stock repurchased by
Collateral, including shares repurchased on the open market.
In the event that any change is made to Collateral's outstanding common
stock (whether by reason of any recapitalization, stock dividend, stock split,
exchange or combination of shares or other change in corporate structure
effected without Collateral's receipt of consideration), appropriate adjustments
will be made to the class and maximum number of securities issuable over the
term of the Purchase Plan, the class and maximum number of securities
purchasable per participant on any one semi-annual purchase date and the class
and number of securities and the price per share in effect under each
outstanding purchase right.
ELIGIBILITY AND PARTICIPATION
Any individual who is employed on a basis under which he or she is
expected to work for more than 20 hours per week for more than five months per
calendar year in the employ of Collateral or any participating parent or
subsidiary corporation (including any corporation which subsequently becomes
such at any time during the term of the Purchase Plan) is eligible to
participate in the Purchase Plan.
An individual who is an eligible employee on the start date of any
offering period may join that offering period at that time or on any subsequent
semi-annual entry date (the first business day in February or August each year)
within that offering period. An individual who first becomes an eligible
employee after such start date may join the offering period on any semi-annual
entry date within that offering period on which he or she is an eligible
employee.
As of March 31, 2000, a total of 26,636 shares of common stock had been
issued under the Purchase Plan, and 23,364 shares were available for future
issuance. As of March 31, 2000, Collateral estimates that about 55 employees,
including three executive officers, were eligible to participate in the Purchase
Plan.
PURCHASE PRICE
The purchase price of the common stock acquired on each semi-annual
purchase date will be equal to 85% of the lower of (i) the fair market value per
share of common stock on the participant's entry date into the offering period
or (ii) the fair market value on the semi-annual purchase date.
The fair market value of the common stock on any relevant date under
the Purchase Plan will be deemed to be equal to the closing selling price per
share on such date on the Nasdaq National Market. On January 31, 2000, the fair
market value per share of common stock determined on such basis was $20.25 per
share.
-18-
<PAGE>
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's
right to acquire common stock, including the following:
- Purchase rights may not be granted to any individual
who owns stock (including stock purchasable under any
outstanding purchase rights) possessing 5% or more of
the total combined voting power or value of all
classes of stock of Collateral or any of its
affiliates.
- Purchase rights granted to a participant may not
permit such individual to purchase more than $25,000
worth of common stock (valued at the time each
purchase right is granted) for each calendar year
those purchase rights are outstanding at any time.
- No participant may purchase more than 1,000 shares of
common stock on any semi-annual purchase date.
- The maximum number of shares of common stock
purchasable in the aggregate on any one purchase date
may not exceed 25,000 shares.
Further information regarding the Purchase Plan is provided below and
in the Plan document.
EMPLOYEE STOCK PURCHASE PLAN
OFFERING PERIODS AND PURCHASE RIGHTS
Shares of common stock are offered under the Purchase
Plan through a series of successive offering periods, each
with a maximum duration of 24 months. If the fair market value
per share of common stock on any purchase date within an
offering period is less than on the start date of that
offering period, then that offering period shall terminate
immediately and a new offering period will begin after that
purchase date.
The first offering period began on July 2, 1998, in
connection with the initial public offering of the common
stock, and will end on the last business day in July 2000. The
next offering period will start on the first business day in
August 2000 and will end on the last business day of July
2002. Subsequent offering periods will begin as designated by
the Plan Administrator.
At the time the participant joins the offering
period, he or she will be granted a purchase right to acquire
shares of common stock at six-month intervals over the
remainder of that offering period. The purchase dates will
occur on the last business day in January and July each year,
and all payroll deductions collected from the participant for
the period ending with each such semi-annual purchase date
will automatically be applied to the purchase of common stock.
PAYROLL DEDUCTIONS AND STOCK PURCHASES
Each participant may authorize periodic payroll
deductions in any multiple of 1% up to a maximum of 10% of his
or her base salary each offering period to be applied to the
acquisition of common stock on each semi-annual purchase date.
The payroll deductions of each participant will automatically
be applied on each semi-annual purchase date (the last
business day in January and July of each year) to the purchase
of whole shares of common stock at the purchase price in
effect for the participant for that purchase date.
-19-
<PAGE>
TERMINATION OF PURCHASE RIGHTS
The participant may withdraw from the Purchase Plan
at any time, and his or her accumulated payroll deductions
will, at the participant's election, either be refunded
immediately or applied to the purchase of common stock on the
next semi-annual purchase date.
The participant's purchase right will immediately
terminate upon his or her cessation of employment or loss of
eligible employee status. Any payroll deductions which the
participant may have made for the semi-annual period in which
such cessation of employment or loss of eligibility occurs
will be refunded and will not be applied to the purchase of
common stock.
STOCKHOLDER RIGHTS
No participant will have any stockholder rights with
respect to the shares covered by his or her purchase rights
until the shares are actually purchased on the participant's
behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is
prior to the date of such purchase.
ASSIGNABILITY
No purchase rights will be assignable or transferable
by the participant, and the purchase rights will be
exercisable only by the participant.
CHANGE IN CONTROL
In the event Collateral is acquired by merger or
asset sale, all outstanding purchase rights will automatically
be exercised immediately prior to the effective date of such
acquisition. The purchase price will be equal to 85% of the
lower of (i) the fair market value per share of common stock
on the participant's entry date into the offering period in
which such acquisition occurs or (ii) the fair market value
per share of common stock immediately prior to the effective
date of such acquisition.
SHARE PRO-RATION
Should the total number of shares of common stock to
be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares at the time
available for issuance under the Purchase Plan, then the Plan
Administrator will make a pro-rata allocation of the available
shares on a uniform and nondiscriminatory basis, and the
payroll deductions of each participant, to the extent in
excess of the aggregate purchase price payable for the common
stock allocated to such individual, will be refunded.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earliest of
(i) the last business day in July 2008, (ii) the date on which
all shares available for issuance under the Purchase Plan have
been sold pursuant to purchase rights exercised under the
Purchase Plan or (iii) the date on which all purchase rights
are exercised in connection with a corporate transaction.
The Board may at any time alter, suspend or
discontinue the Purchase Plan. However, the Board may not,
without stockholder approval, (i) increase the number of
shares issuable under the Purchase Plan or the maximum number
of shares purchasable per participant on any one semi-annual
purchase date, except in connection with certain changes in
Collateral's capital structure, (ii) alter the purchase price
formula so as to reduce the purchase price or (iii) modify the
requirements for eligibility to participate in the Purchase
Plan.
-20-
<PAGE>
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee
stock purchase plan" within the meaning of Section 423 of the
Internal Revenue Code. Under a plan which so qualifies, no
taxable income will be recognized by a participant, and no
deductions will be allowable to Collateral, upon either the
grant or the exercise of the purchase rights. Taxable income
will not be recognized until there is a sale or other
disposition of the shares acquired under the Purchase Plan or
in the event the participant should die while still owning the
purchased shares.
If the participant sells or otherwise disposes of the
purchased shares within two (2) years after his or her entry
date into the offering period in which such shares were
acquired or within one (1) year after the semi-annual purchase
date on which those shares were actually acquired, then the
participant will recognize ordinary income in the year of sale
or disposition equal to the amount by which the fair market
value of the shares on the purchase date exceeded the purchase
price paid for those shares, and Collateral will be entitled
to an income tax deduction, for the taxable year in which such
disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased
shares more than two (2) years after his or her entry date
into the offering period in which the shares were acquired and
more than one (1) year after the semi-annual purchase date of
those shares, then the participant will recognize ordinary
income in the year of sale or disposition equal to the lower
of (i) the amount by which the fair market value of the shares
on the sale or disposition date exceeded the purchase price
paid for those shares or (ii) fifteen percent (15%) of the
fair market value of the shares on the participant's entry
date into that offering period. Any additional gain upon the
disposition will be taxed as a long-term capital gain.
Collateral will not be entitled to an income tax deduction
with respect to such disposition.
If the participant still owns the purchased shares at
the time of death, his or her estate will recognize ordinary
income in the year of death equal to the lower of (i) the
amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen
percent (15%) of the fair market value of the shares on his or
her entry date into the offering period in which those shares
were acquired.
ACCOUNTING TREATMENT
The issuance of common stock under the Purchase Plan
will not result in a direct compensation expense chargeable
against Collateral's reported earnings. However, Collateral
must disclose, in pro-forma statements to Collateral's
financial statements, if significant, the impact the purchase
rights granted under the Purchase Plan would have upon
Collateral's reported earnings were the value of those
purchase rights treated as compensation expense.
-21-
<PAGE>
STOCK ISSUANCES
The table below shows, as to each of Collateral's executive officers
named in the Summary Compensation Table of the Executive Compensation and
Related Information section of this Proxy Statement and the various indicated
groups, the number of shares of common stock purchased under the Purchase Plan
between the July 2, 1998 effective date of the Purchase Plan and the most recent
purchase date, January 31, 2000, together with the weighted average purchase
price paid per share.
PURCHASE PLAN TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
NAME PURCHASED SHARES PURCHASE PRICE
- ---------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Tyler M. Dylan, Ph.D., J.D.
Vice President, General Counsel and Secretary................... 2,000 $7.597
Jeffrey Friedman, M.D.
Vice President, Development..................................... 2,000 $7.597
All current executive officers as a group (3 persons)........... 4,372 $7.493
All employees, including current officers who are
not executive officers, as a group (40 persons)................. 22,264 $6.608
</TABLE>
NEW PLAN BENEFITS
No purchase rights have been granted, and no shares of common stock
have been issued, under the Purchase Plan on the basis of the 100,000 share
increase for which stockholder approval is sought under this Proposal No. Three.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
Collateral present or represented and entitled to vote at the 2000 annual
meeting is required for approval of the 100,000 share increase to the Purchase
Plan. Should such stockholder approval not be obtained, then the share increase
will not be implemented, and any purchase rights granted on the basis of the
share increase to the Purchase Plan will immediately terminate. No additional
purchase rights will be granted on the basis of such share increase, and the
Purchase Plan will terminate once the existing share reserve has been issued.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the amendment to the Purchase Plan
is necessary in order to continue to provide equity incentives to attract and
retain the services of high quality employees. For this reason, the Board of
Directors recommends that the stockholders vote FOR the amendment to the
Purchase Plan.
-22-
<PAGE>
PROPOSAL NO. 4
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP, our
independent public auditors during 1999, to serve in the same capacity for the
year ending December 31, 2000, and is asking the stockholders to ratify this
appointment. The affirmative vote of a majority of the shares represented and
voting at the annual meeting is required to ratify the appointment of Ernst &
Young LLP.
In the event the stockholders fail to ratify the appointment, the Board
of Directors will reconsider its selection. Even if the selection is ratified,
the Board of Directors in its discretion may direct the appointment of a
different independent auditing firm at any time during the year if the Board of
Directors believes that such a change would be in the best interests of
Collateral and its stockholders.
A representative of Ernst & Young LLP is expected to be present at the
annual meeting. This representative will have the opportunity to make a
statement if he or she desires to do so, and will be available to respond to
appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of Ernst & Young LLP to serve as our independent
auditors for the fiscal year ending December 31, 2000.
OTHER MATTERS
We know of no other matters that will be presented for consideration at
the annual meeting. If any other matters properly come before the annual
meeting, it is the intention of the persons named in the enclosed form of proxy
to vote the shares they represent as the Board of Directors may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed proxy.
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to us with
respect to the beneficial ownership of the common stock as of January 31, 2000,
by:
- all persons who are beneficial owners of 5% or more of common
stock,
- each director and nominee for director,
- the executive officers named in the Summary Compensation Table
of the Executive Compensation and Other Information section of
this proxy statement, and
- all current directors and executive officers as a group.
-23-
<PAGE>
Unless otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable. Except as otherwise indicated, the
address of all stockholders listed in the table is 11622 El Camino Real, San
Diego, California 92130. Percentage of ownership is based on 12,959,742 shares
of common stock outstanding on January 31, 2000, and is calculated as required
under SEC Rule 13d-3(d)(1) but includes all options (including shares
exercisable after 60 days of January 31, 2000, as described below in the
footnotes).
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE OF SHARES
BENEFICIAL OWNER OWNED BENEFICIALLY OWNED
- --------------------------------------------------------------------------- ------------ --------------------
<S> <C> <C>
Schering Berlin Venture Corp............................................... 1,584,676 12.2%
110 East Hanover Avenue
Cedar Knolls, New Jersey 07929
The Wellcome Trust......................................................... 987,500 7.6%
183 Euston Road
London, England NW1 2BE
State of Wisconsin Investment Board ....................................... 1,583,000 12.2%
P.O. Box 7842
Madison, WI 53707
Jack W. Reich (1).......................................................... 1,560,857 11.8%
Christopher J. Reinhard (2)................................................ 759,357 5.8%
Charles J. Aschauer (3).................................................... 15,000 0.1%
Tyler M. Dylan (4)......................................................... 105,408 0.8%
Robert L. Engler (5)....................................................... 994,457 7.7%
B. Mason Flemming, Jr. (6)................................................. 20,000 0.2%
Jeffrey Friedman (7)....................................................... 97,852 0.7%
H. Kirk Hammond (8)........................................................ 1,947,807 14.8%
Kathleen E. Rooney (9) .................................................... 187,472 1.4%
Ronald I. Simon (3)........................................................ 18,200 0.1%
Dale A. Stringfellow (10).................................................. 15,000 0.1%
All directors, director nominees and executive officers as a group
(11 persons) (1)--(10)............................................. 5,721,410 41.0%
</TABLE>
- ----------
(1) Includes 76,000 shares beneficially owned by the Jordon A. Reich Trust
dated January 31, 1992, Mary P. Reich, Trustee and 76,000 shares
beneficially owned by the Jason D. Reich Trust dated January 31, 1992,
Mary P. Reich, Trustee. Dr. Reich disclaims beneficial ownership of
these shares. Also includes 227,850 option shares of which 102,850
options are exercisable within 60 days of January 31, 2000.
-24-
<PAGE>
(2) Includes 38,000 shares beneficially owned by Griffin J. Reinhard, a
minor son of Mr. Reinhard. Also includes 240,150 option shares of which
152,649 options are exercisable within 60 days of January 31, 2000.
(3) Includes 15,000 option shares of which all are exercisable within 60
days of January 31, 2000.
(4) Includes 103,408 option shares of which 25,018 are exercisable within
60 days of January 31, 2000.
(5) Includes 867,607 shares beneficially owned by the Robert L. Engler
Separate Property Trust. Also includes 47,500 shares beneficially owned
by Mathew Lawrence Engler and 47,500 shares beneficially owned by Eric
Herschel Engler. Dr. Engler disclaims beneficial ownership of these
shares. Also includes 31,850 option shares of which 16,850 options are
exercisable within 60 days of January 31, 2000.
(6) Includes 20,000 option shares of which 15,000 are exercisable within 60
days of January 31, 2000.
(7) Includes 95,852 option shares of which 26,463 are exercisable within 60
days of January 31, 2000.
(8) Includes 72,200 shares of common stock held in a family trust for the
benefit of Dr. Hammond's children, 142,500 shares of common stock held
in a trust for the benefit of Talisin T. Hammond and 142,500 shares of
common stock held in a trust for the benefit of Shura X. Hammond. Dr.
Hammond exercises shared voting and investment power with respect to
all such shares. Dr. Hammond disclaims beneficial ownership of these
shares. Also includes 149,100 option shares held by H. Kirk Hammond,
and 9,500 option shares held by Tamsin L. Kelly. Of these 158,600 total
option shares, 77,350 are exercisable within 60 days of January 31,
2000.
(9) Includes 73,100 option shares of which 38,100 are exercisable within 60
days of January 31, 2000.
(10) Includes 15,000 option shares of which all are exercisable within 60
days of January 31, 2000. Does not include shares controlled by
Schering AG, the parent corporation of Berlex Biosciences (of which Dr.
Stringfellow is President) and Schering Berlin Venture Corp.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned by our Chief Executive Officer and each of our four other
most highly compensated executive officers whose salary and bonus for the 1999
fiscal year was in excess of $100,000, for services rendered in all capacities.
-25-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------------- ------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) OPTIONS/SARS COMPENSATION(5)
------------------ ---- --------- -------- --------------- ------------ ---------------
#
<S> <C> <C> <C> <C> <C> <C>
Jack W. Reich............. 1999 $350,013 $224,335 -- -- $11,661
Chairman of the Board 1998 $324,887 $85,000 -- 227,850 $5,542
and Chief Executive 1997 $298,712 $70,000 -- -- $6,532
Officer
Christopher J. Reinhard... 1999 $250,010 $163,991 -- -- $8,247
President, Chief 1998 $231,259 $75,000 -- 240,150 $2,722
Operating Officer, 1997 $213,713 $70,000 -- -- $4,003
Chief Financial Officer
and Director
Tyler M. Dylan............ 1999 $205,008 $70,000 -- 40,000 --
Vice President, General 1998 $34,956 $15,000 $22,089 (4) 60,000 --
Counsel and Secretary 1997 -- -- -- -- --
Jeffrey Friedman.......... 1999 $215,018 $50,000 -- -- --
Vice President, 1998 $58,716 $12,000 $76,535 (4) 70,000 --
Development 1997 -- -- -- -- --
H. Kirk Hammond........... 1999 $189,108 $95,978 -- -- --
Vice President, 1998 $166,935 $40,000 -- 149,100 --
Research and Director 1997 $145,936 $35,000 -- -- --
</TABLE>
(1) Includes amounts deferred pursuant to our 401(k) Plan.
(2) Bonuses include amounts paid in a current fiscal year for performance
in the preceding fiscal year. The 1999 amounts therefore reflect
bonuses paid in 2000.
(3) Except as noted, the aggregate amount of perquisites and other personal
benefits, if any, did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus reported for each officer and has
therefore been omitted.
(4) This figure relates to amounts paid by Collateral for relocation costs
incurred by the executive and payments made to cover the related taxes.
(5) This figure includes amounts paid for health care reimbursements and
life insurance premiums.
-26-
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The table below contains information concerning the stock options
granted to the named executive officers during the 1999 fiscal year. All grants
were made under our 1998 stock incentive plan. Except for the limited stock
appreciation rights summarized below, no stock appreciation rights, or SARs,
were granted to the named executive officers during such fiscal year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
----------------- Potential Realizable
Number of Percent of Total Value at Assumed Annual
Securities Options/SARs Rates of Stock Price
Underlying Granted to Appreciation for Option
Options/SARs Employees in Exercise or Expiration Term (3)
Granted Fiscal Year Base Price Date (2) 5% 10%
(1)
- ------------------------------------------------------------------------------------------------------------------
Name # % $/Share $ $
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tyler M. Dylan 40,000 18.18% $15.00 10/20/09 $377,206 $955,839
</TABLE>
(1) The exercise price may be paid in cash or in shares of common stock
valued at fair market value on the exercise date. Alternatively, the
option may be exercised through a cashless exercise procedure in which
the optionee provides irrevocable instructions to a brokerage firm to
sell the purchased shares and to remit to Collateral, out of the sale
proceeds, an amount equal to the exercise price plus all applicable
withholding taxes. The Compensation Committee may also assist an
optionee in the exercise of an option by (i) authorizing a loan from us
in a principal amount not to exceed the aggregate exercise price plus
any tax liability incurred in connection with the exercise or (ii)
permitting the optionee to pay the option price in installments over a
period of years upon terms established by the Compensation Committee.
(2) The option includes a "limited stock appreciation right" pursuant to
which this option may, upon the successful completion of a hostile
tender offer to acquire control of more than 50% of the total combined
voting power of our outstanding securities, be surrendered to us in
return for a cash payment equal to the excess of (i) the then market
price of the shares of common stock subject to the surrendered option
or, if higher, the highest price paid per share of common stock in such
tender offer over (ii) the exercise price payable for those shares. The
option becomes exercisable over 48 successive monthly installments upon
Optionee's completion of each additional month of service as measured
from October 21, 1999. In no event is the option exercisable for any
unvested option shares after an Optionee's cessation of service.
Options become exercisable on an accelerated basis upon a change in
control of Collateral as described above in connection with our 1998
stock incentive plan.
(3) There can be no assurance provided to any of our executive officers or
other holders of our securities that the actual stock price
appreciation over the option term will be at the assumed 5% and 10%
levels or at any other defined level. Unless the market price of the
common stock appreciates over the option term, no value will be
realized from those option grants which were made to the officers with
an exercise price equal to the fair market value of the option shares
on the grant date.
AGGREGATED OPTION\SAR EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information, with respect to the named
executive officers, concerning options and stock appreciation rights held by
them at the end of the 1999 fiscal year. None of the named executive officers
exercised any options or stock appreciation rights during the 1999 fiscal year,
and except for the limited stock appreciation rights described above, no stock
appreciation rights were held by the officers at the end of such year.
-27-
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
------------------------------ ---------------------------------- -----------------------------------
Number of Unexercised Value of Unexercised
Options/SARs at FY-End in-the-Money Options/SARs
at FY-End (1)
---------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------------------ --------------- ------------------ ----------------- -----------------
# # $ $
<S> <C> <C> <C> <C>
Jack W. Reich 90,350 137,500 $1,258,610 $1,916,406
Christopher J. Reinhard 143,900 96,250 $2,027,629 $1,341,485
Tyler M. Dylan 17,916 82,084 $230,310 $759,690
Jeffrey Friedman 21,875 48,125 $289,844 $637,656
H. Kirk Hammond 59,725 89,375 $833,176 $1,245,664
------------------------------ --------------- ------------------ ----------------- -----------------
</TABLE>
(1) Based upon the market price of $19.125 per share, determined on the basis
of the closing selling price per share of common stock on the NASDAQ
National Market on the last day of the 1999 fiscal year, less the option
exercise price payable per share.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
There are no formal employment agreements with any of our officers, all
of whom are advisors or employees on an at-will basis.
The Stock Plan Administrative Committee of the Board of Directors, as
plan administrator of our 1998 stock incentive plan, has the authority to
provide for accelerated vesting of any outstanding options held by our executive
officers or any unvested share issuances actually held by such individual, in
connection with certain changes in control of Collateral or the subsequent
termination of the officer's employment following the change in control event.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of December 31, 1999, the Compensation Committee of our Board of
Directors consisted of Dr. Simon and Mr. Andrews. Neither of these individuals
was an employee of ours and, except for Mr. Andrews' service as Secretary until
November 1998, neither was an officer. In addition, Mr. Andrews is a partner of
the law firm of Brobeck Phleger & Harrison LLP, which provides legal services to
us in connection with certain corporate matters.
None of our current executive officers has served as a member of a
board of directors or compensation committee of any other entity that has or has
had one or more executive officers serving as a member of our Board of Directors
or Compensation Committee during the last fiscal year.
The following report of the Compensation Committee and performance
graph should not be considered to be part of this proxy statement. Any current
or future cross-references to this proxy statement in filings with the SEC under
either the Securities Act or the Securities Exchange Act will not include the
report or graph reproduced below.
-28-
<PAGE>
BOARD COMPENSATION AND STOCK PLAN ADMINISTRATIVE COMMITTEES'
REPORT ON EXECUTIVE COMPENSATION
It is the duty of the Compensation Committee to review and determine
the base salaries, annual incentives compensation and long-term incentives of
our executive officers, including our Chief Executive Officer, and to establish
the general compensation policies for such individuals. The Stock Plan
Administrative Committee has the sole and exclusive authority to make
discretionary option grants to our executive officers under our 1998 stock
incentive plan.
The Compensation Committee believes that the compensation programs for
our executive officers should reflect our performance and the value created for
our stockholders. In addition, the compensation programs should support our
short-term and long-term strategic goals and values and should reward individual
contribution to our success. We are engaged in a very competitive industry, and
our success depends upon our ability to attract and retain qualified executives
through the competitive compensation packages we offer to such individuals.
GENERAL COMPENSATION POLICY. The Compensation and Stock Plan
Administrative Committees' policy is to provide our executive officers with
compensation opportunities which are based upon their personal performance, our
financial performance and their contribution to that performance and which are
competitive enough to attract and retain highly skilled individuals. As an
officer's level of responsibility increases, a greater proportion of his or her
total compensation will be dependent upon our financial performance and stock
price appreciation rather than base salary. Each executive officer's
compensation package is comprised of three elements:
- base salary that is competitive with the market and reflects
individual performance,
- annual variable performance awards payable in cash and tied
to our achievement of annual performance goals, and
- long-term stock-based incentive awards designed to
strengthen the mutuality of interests between our executive
officers and our stockholders.
FACTORS. Several of the more important factors which we considered in
establishing the components of each executive officer's compensation package for
the 1999 fiscal year are summarized below. Additional factors were also taken
into account, and we may in our discretion apply entirely different factors,
particularly different measures of financial performance, in setting executive
compensation for future fiscal years. All compensation decisions will be
designed to further the general compensation policy indicated above.
BASE SALARY. In setting base salaries, the Compensation Committee
reviewed published compensation survey data for 405 U.S. biotechnology
companies. The base salary for each officer reflects the salary levels for
comparable positions in the published surveys for such comparative group of
companies, as well as the individual's personal performance and internal
alignment considerations. The relative weight given to each factor varies with
each individual in the sole discretion of the Compensation Committee. Each
executive officer's base salary is adjusted yearly on the basis of (i) the
Compensation Committee's evaluation of the officer's personal performance for
the year and (ii) the competitive marketplace for persons in comparable
positions. Our corporate performance may also be a factor in determining the
base salaries.
ANNUAL INCENTIVE COMPENSATION. Annual bonuses are earned by each
executive officer on the basis of our achievement of the corporate performance
targets established at the start of the fiscal year and the achievement of other
individual goals.
-29-
<PAGE>
LONG-TERM INCENTIVES. Generally, stock option grants are periodically
made to each of our executive officers by the Stock Plan Administrative
Committee. Each grant is designed to align the interests of the executive
officer with those of the stockholders and provide each individual with a
significant incentive to manage from the perspective of an owner with an equity
stake in the business. Each grant allows the officer to acquire shares of our
common stock at a fixed price per share (the market price on the grant date)
over a specified period of time (up to ten years). Each option becomes vested in
a series of installments over a four-year period, contingent upon the officer's
continued employment. Accordingly, the option will provide a return to the
executive officer only if he or she remains employed by us during the vesting
period, and then only if the market price of the shares appreciates over the
option term. The size of the option grant to each executive officer, including
the Chief Executive Officer, is set by the Stock Plan Administrative Committee
at a level that is intended to create a meaningful opportunity for stock
ownership based upon the individual's current position, the individual's
personal performance in recent periods and his or her potential for future
responsibility and promotion over the option term. The Stock Plan Administrative
Committee also takes into account the number of unvested options held by the
executive officer in order to maintain an appropriate level of equity incentive
for that individual. The relevant weight given to each of these factors varies
from individual to individual. The Stock Plan Administrative Committee has
established certain guidelines with respect to the option grants made to the
executive officers, but has the flexibility to make adjustments to those
guidelines at its discretion.
CEO COMPENSATION. In setting the total compensation payable to our
Chief Executive Officer, Dr. Reich, for the 1999 fiscal year, the Compensation
Committee sought to make that compensation competitive with the compensation
paid to the chief executive officers of the companies in the surveyed group,
while at the same time assuring that a significant percentage of compensation
was tied to the achievement of corporate performance targets established at the
start of the 1999 fiscal year.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m). Section 162(m) of
the Internal Revenue Code disallows a tax deduction to publicly held companies
for compensation paid to certain of their executive officers, to the extent that
compensation exceeds $1 million per covered officer in any fiscal year. The
limitation applies only to compensation that is not considered to be
performance-based. Non-performance based compensation paid to our executive
officers for the 1999 fiscal year did not exceed the $1 million limit per
officer. The Compensation Committee does not anticipate that the non-performance
based compensation to be paid to our executive officers for fiscal year 2000
will exceed that limit. Our 1998 stock incentive plan has been structured so
that any compensation deemed paid in connection with the exercise of option
grants made under that plan with an exercise price equal to the fair market
value of the option shares on the grant date will qualify as performance-based
compensation which will not be subject to the $1 million limitation. Since it is
unlikely that the cash compensation payable to any of our executive officers in
the foreseeable future will approach the $1 million limit, the Compensation
Committee has decided at this time not to take any action to limit or
restructure the elements of cash compensation payable to Collateral's executive
officers. The Compensation Committee will reconsider this decision if the
individual cash compensation of any executive officer ever approaches the $1
million level.
It is the opinion of the Compensation Committee and the Stock Plan
Administrative Committee that the executive compensation policies and plans
provide the necessary total remuneration program to properly align our
performance and the interests of our stockholders through the use of competitive
and equitable executive compensation in a balanced and reasonable manner, for
both the short and long-term.
COMPENSATION COMMITTEE STOCK PLAN ADMINISTRATIVE COMMITTEE
Craig S. Andrews Ronald I. Simon
Ronald I. Simon Dale A. Stringfellow
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<PAGE>
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of our cumulative total
stockholder returns for our common stock, the Nasdaq Index, the Russell 2000
Index and the Standard & Poors' SmallCap Biotech Index, from the date of our
initial public offering on July 2, 1998 through December 31, 1999. The graph
assumes that $100 was invested on July 2, 1998, in our common stock and in each
index, and that all dividends were reinvested. No cash dividends have been
declared on Collateral's common stock. Stockholder returns over the indicated
period should not be considered indicative of future stockholder returns.
[GRAPH]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
7/2/1998 9/30/1998 12/31/1998 3/31/99 6/30/99 9/30/99 12/31/99
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Collateral Therapeutics Inc $100 $83 $97 $124 $317 $262 $264
- ---------------------------------------------------------------------------------------------------------
Nasdaq US $100 $90 $117 $131 $143 $147 $212
- ---------------------------------------------------------------------------------------------------------
Russell 2000 $100 $80 $93 $88 $101 $95 $112
- ---------------------------------------------------------------------------------------------------------
S&P SmallCap Biotech Index $100 $82 $100 $86 $96 $106 $168
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding anything to the contrary set forth in any of
Collateral's previous filings made under the Securities Act of 1933, as amended,
or the Securities Exchange of Act of 1934, as amended, that might incorporate
future filings made by the Company under those statutes, neither the preceding
Stock Performance Graph nor the Compensation Committee Report is to be
incorporated by reference into any future filings made by Collateral under those
statutes.
-31-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the indemnification provisions contained in our
certificate of incorporation and bylaws, we have entered into separate
indemnification agreements with each of our directors and officers. These
agreements require us, among other things, to indemnify such director or officer
against certain expenses, including attorneys' fees, judgments, fines and
settlements paid by such individual in connection with any action, suit or
proceeding arising out of the individual's status or service as a director or
officer. These agreements also require us to advance expenses incurred by the
individual in connection with any proceeding against them with respect to which
they may be entitled to indemnification by us.
BOARD OF DIRECTORS AFFILIATIONS
In May 1996, we entered into a collaboration, license and royalty
agreement with Schering AG, the parent corporation of Schering Berlin Venture
Corporation which is a holder of more than 5% of our securities. Further, Dr.
Stringfellow, a director of Collateral, is President of Berlex Biosciences, a
wholly-owned subsidiary of Schering AG. The agreement established a strategic
alliance related to the development and commercialization of gene therapy
products to promote angiogenesis. Our 1999 revenues under this agreement were
$6.4 million. We issued two secured promissory notes dated August 12, 1995 and
October 12, 1995 in the aggregate amount of $500,000 to Schering Berlin Venture
Corp. Both notes were amended and restated on May 16, 1996. The amended notes
bear interest at 1% below the prime rate; at January 31, 2000, the amended notes
bore interest at 7.50%. Such notes are secured by our assets, with the exception
of certain equipment purchased from February 15, 1998 through November 15, 1998
which is pledged on a first priority basis under our bank loan. Principal and
interest on the notes are due and payable upon demand.
Mr. Andrews, a former director and one of our co-founders, is a partner
in the law firm of Brobeck, Phleger & Harrison LLP, which has provided legal
services to us in connection with corporate matters since our inception in April
1995.
Dr. Engler, a former director, provided consulting services to
Collateral upon management's request. His consulting fees totaled $133,000 in
1999. Dr. Engler is president of the Veterans Medical Research Foundation, a
foundation that Collateral has contracted with since 1995 to conduct certain
research activities. In March 1999, we entered into a three-year agreement with
the Veterans Medical Research Foundation. Under this agreement, Dr. Hammond, a
Collateral director, and the Veterans Medical Research Foundation agree to
utilize their best efforts to conduct studies in the field of cardiovascular
disease. In consideration for such services, we have agreed to pay the Veterans
Medical Research Foundation monthly fees based on the overall level of
expenditures for research and development conducted on behalf of Collateral,
plus certain administrative overhead charges.
We believe that all of the transactions set forth above were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties. All future transactions between us and our officers, directors
and principal stockholders and their affiliates will be approved in accordance
with the Delaware General Corporation Law by a majority of the Board, including
a majority of the independent and disinterested directors of the Board, and are
expected to be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
-32-
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of our Board of Directors, our executive officers and
persons who hold more than 10% of our outstanding common stock are subject to
the reporting requirements of Section 16(a) of the Securities Exchange Act which
require them to file reports with respect to their ownership of the common stock
and their transactions in such common stock. Based upon the copies of Section
16(a) reports which we received from such persons, we believe that all reporting
requirements under Section 16(a) for such fiscal year were met in a timely
manner by these individuals.
STOCKHOLDER PROPOSALS FOR OUR 2001 ANNUAL MEETING
Stockholder proposals that are intended to be presented at our 2001
annual meeting must be received no later than December 26, 2000, in order that
they may be included in the proxy statement and form of proxy relating to that
meeting, and must meet all other requirements as specified in our bylaws. In
addition, the proxy solicited by the Board of Directors for the 2001 annual
meeting will confer discretionary authority to vote on any stockholder proposal
presented at that meeting, unless we receive notice of such proposal not later
than December 26, 2000.
ANNUAL REPORT TO STOCKHOLDERS
A copy of our annual report for the 1999 fiscal year has been mailed
concurrently with this proxy statement to all stockholders entitled to notice of
and to vote at the annual meeting. The annual report is not incorporated into
this proxy statement and is not considered proxy solicitation material.
ANNUAL REPORT ON FORM 10-K
We filed an annual report on Form 10-K with the Securities and Exchange
Commission on or about March 27, 2000. Stockholders may obtain a copy of this
report, without charge, by writing to the President and Chief Financial Officer
of Collateral, at our principal executive offices located at 11622 El Camino
Real, San Diego, CA 92130.
THE BOARD OF DIRECTORS OF
COLLATERAL THERAPEUTICS, INC.
DATED: APRIL 25, 2000
-33-
<PAGE>
COLLATERAL THERAPEUTICS, INC.
1998 STOCK INCENTIVE PLAN
(AS AMENDED THROUGH MAY 25, 2000)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Incentive Plan is intended to promote the interests of
Collateral Therapeutics, Inc., a California corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock,
- the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested each year in
special option grants,
- the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock directly,
either through the immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible non-employee
Board members shall automatically receive option grants at periodic intervals to
purchase shares of Common Stock, and
- the Director Fee Option Grant Program under which non-employee Board
members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special option grant.
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the Discretionary Option
Grant and Stock Issuance Programs shall be administered by the Board. Beginning
with the Section 12 Registration Date, the Primary Committee shall have sole and
exclusive authority to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders.
<PAGE>
B. Administration of the Discretionary Option Grant and Stock Issuance
Programs with respect to all other persons eligible to participate in those
programs may, at the Board's discretion, be vested in the Primary Committee or a
Secondary Committee, or the Board may retain the power to administer those
programs with respect to all such persons.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any stock option or stock issuance thereunder.
E. The Primary Committee shall have the sole and exclusive authority to
determine which Section 16 Insiders and other highly compensated Employees shall
be eligible for participation in the Salary Investment Option Grant Program for
one or more calendar years. However, all option grants under the Salary
Investment Option Grant Program shall be made in accordance with the express
terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
F. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
G. Administration of the Automatic Option Grant and Director Fee Option
Grant Programs shall be self-executing in accordance with the terms of those
programs, and no Plan Administrator shall exercise any discretionary functions
with respect to any option grants or stock issuances made under those programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
<PAGE>
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members after the Underwriting Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (ii) those individuals who continue to serve as non-employee Board members
at one or more Annual Stockholders Meetings held after the Underwriting Date,
including individuals serving as non-employee Board members on the Underwriting
Date. A non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under the Automatic Option Grant Program at the time he or she
first becomes a non-employee Board member, but shall be eligible to receive
periodic option grants under the Automatic Option Grant Program while he or she
continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate in
the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed two
million two hundred ninety-six thousand eight hundred thirty-five (2,296,835)
shares, which shall consist of (i) the number of shares which are estimated to
remain available for issuance, as of the Section 12 Registration Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under that Predecessor Plan, (ii) an
additional increase of approximately one million five hundred thousand
(1,500,000) shares authorized by the Board and the stockholders prior to the
Section 12 Registration Date and (iii) an additional one million five hundred
thousand (1,500,000) shares authorized by the Board in March 2000 subject to
stockholder approval subject to approval by the stockholders at the 2000 Annual
Meeting. To the extent any unvested shares of Common Stock issued under the
Predecessor Plan are repurchased by the Corporation after the Section 12
Registration Date, at the option exercise price paid per share, in connection
with the holder's termination of service, those repurchased shares shall be
added to the reserve of Common Stock available for issuance under the Plan, but
in no event shall more than 437,100 shares be added to the reserve from such
repurchases.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than two hundred fifty thousand (250,000) shares of Common Stock in the
aggregate per calendar year, beginning with the 1998 calendar year.
<PAGE>
C. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation (including unvested shares issued under the Predecessor Plan and
repurchased by the Corporation on or after the Plan Effective Date) at the
original issue price paid per share, pursuant to the Corporation's repurchase
rights under the Plan shall be added back to the number of shares of Common
Stock reserved for issuance under the Plan and shall accordingly be available
for reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. However, should the exercise price of an option under
the Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an option
or the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance. Shares of Common Stock underlying one
or more stock appreciation rights exercised under Section IV of Article Two of
the Plan shall NOT be available for subsequent issuance under the Plan.
D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year, (iii) the number and/or
class of securities for which grants are subsequently to be made under the
Automatic Option Grant Program to new and continuing non-employee Board members,
(iv) the number and/or class of securities and the exercise price per share in
effect under each outstanding option under the Plan and (v) the number and/or
class of securities and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Seven and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
<PAGE>
under Section 12 of the 1934 Act at the time the option is exercised, then the
exercise price may also be paid as follows:
(i) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable instructions
(A) to a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares
plus all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of such
exercise and (B) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by
the Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
<PAGE>
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service
from the limited exercise period otherwise in effect for that option to
such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for the Optionee and/or
one or more such family members. The assigned portion may only be exercised by
the person or persons who acquire a proprietary interest in the option pursuant
to the assignment. The terms applicable to the assigned portion shall be the
same as those in effect for the option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may
<PAGE>
for the first time become exercisable as Incentive Options during any one
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CHANGE IN CONTROL
A. Each option outstanding at the time of a Change in Control but not
otherwise fully exercisable shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not become
exercisable on such an accelerated basis if and to the extent: (i) such option
is, in connection with the Change in Control, to be assumed or otherwise
continued in full force or effect by the successor corporation (or parent
thereof) pursuant to the terms of the Change in Control transaction, (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing at the time of the Change in
Control on the shares of Common Stock for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
C. Immediately following the consummation of the Change in Control, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof) or otherwise
continued in full force and effect pursuant to the terms of the Change in
Control transaction.
D. Each option which is assumed in connection with a Change in Control
(or is otherwise to continue in effect) shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of
securities or other property which would have been issuable to the Optionee in
consummation of such Change in Control had the option been exercised immediately
prior to such Change in Control. Appropriate adjustments to reflect such Change
in Control shall also be made to (i) the exercise price payable per share under
each outstanding option, PROVIDED the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan and (iii)
the maximum number and/or class of securities for which any one person may be
granted stock options and direct stock issuances under the Plan per calendar
year.
E. The Plan Administrator shall have full power and authority
exercisable, either at the time the option is granted or at any time while the
option remains outstanding, to provide for the accelerated vesting of one or
more outstanding options under the Discretionary Option Grant Program upon the
occurrence of a Change in Control, whether or not those options are to be
assumed or otherwise continued
<PAGE>
in full force and effect pursuant to the terms of the Change in Control
transaction. In addition, the Plan Administrator may structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall immediately terminate, in whole or in part, at the
time of a Change in Control and shall not be assignable to the successor
corporation (or parent thereof), and the shares subject to those terminated
repurchase rights shall accordingly vest in full at the time of such Change in
Control.
F. The Plan Administrator shall have full power and authority
exercisable, either at the time the option is granted or at any time while the
option remains outstanding, to provide for the accelerated vesting, in whole or
in part, of one or more outstanding options under the Discretionary Option Grant
Program upon the Involuntary Termination of the Optionee's Service within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control in which those options do not otherwise
accelerate. In addition, the Plan Administrator may structure one or more of the
Corporation's repurchase rights under the Discretionary Option Grant Program so
that those rights will immediately terminate at the time of such Involuntary
Termination, and the shares subject to those terminated repurchase rights shall
accordingly vest in full at that time.
G. The portion of any Incentive Option accelerated in connection with a
Change in Control shall remain exercisable as an Incentive Option only to the
extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant
to selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of
Common Stock and the surrender of that option in exchange for a
distribution from the Corporation in an amount equal to the excess of
(a) the Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so
approved, then the distribution to which the Optionee shall be entitled
may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash, or partly in shares and partly in
cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
(iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise
<PAGE>
such rights at any time prior to the LATER of (a) five (5) business
days after the receipt of the rejection notice or (b) the last day on
which the option is otherwise exercisable in accordance with the terms
of the documents evidencing such option, but in no event may such
rights be exercised more than ten (10) years after the option grant
date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for
a thirty (30)-day period following such Hostile Take-Over) to surrender
each such option to the Corporation, to the extent the option is at the
time exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution from
the Corporation in an amount equal to the excess of (A) the Take-Over
Price of the shares of Common Stock which are at the time vested under
each surrendered option (or surrendered portion thereof) over (B) the
aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the option
surrender date.
(iii) The Plan Administrator shall, at the time the option
with such limited stock appreciation right is granted under the
Discretionary Option Grant Program, pre-approve any subsequent exercise
of that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents evidencing
such option.
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole or
in part. To the extent the Primary Committee approves the authorization, the
individual who filed that authorization shall automatically be granted an option
under the Salary Investment Option Grant Program on the first trading day in
January of the calendar year for which the salary reduction is to be in effect.
<PAGE>
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; PROVIDED, however,
that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject
to the non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the EARLIER of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
Such right of exercise shall lapse, and the option shall terminate, upon the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of Service
for any reason, terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the
<PAGE>
Change in Control, become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
successor corporation (or parent thereof) in the Change in Control transaction
shall assume each such outstanding option so that each option under the Salary
Investment Option Grant Program shall remain exercisable for the fully-vested
shares until the EARLIEST to occur of (i) the expiration of the ten (10)-year
option term, (ii) the expiration of the three (3)-year period measured from the
date of the Optionee's cessation of Service or (iii) the surrender of the option
in connection with a Hostile Take-Over.
B. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph B. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
C. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
<PAGE>
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the Corporation
(or any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. The Plan Administrator may issue shares of Common Stock
under the Stock Issuance Program which are fully and immediately vested upon
issuance or which are to vest in one or more installments over the Participant's
period of Service or upon attainment of specified performance objectives.
Alternatively, the Plan Administrator may issue share right awards under the
Stock Issuance Program which shall entitle the recipient to receive a specified
number of shares of Common Stock upon the attainment of one or more performance
goals established by the Plan Administrator. Upon the attainment of such
performance goals, fully-vested shares of Common Stock shall be issued in
satisfaction of those share right awards.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock in
satisfaction of one or more outstanding share right awards as to which the
designated performance goals are not attained.
<PAGE>
II. CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Change in Control, except to the extent (i) those repurchase
rights are to be assigned to the successor corporation (or parent thereof) in
connection with such Change in Control or are otherwise to continue in full
force and effect pursuant to the terms of the Change in Control transaction or
(ii) such accelerated vesting is precluded by other limitations imposed in the
Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate upon the
occurrence of a Change in Control and shall not be assignable to the successor
corporation (or parent thereof), and the shares of Common Stock subject to those
terminated rights shall immediately vest at the time of such Change in Control.
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof) or are otherwise continued in effect.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants under the Automatic Option Grant
Program shall be made on the dates specified below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase fifteen thousand (15,000) shares of Common
Stock, provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as an
Eligible Director (including individuals who joined the Board prior to the
Underwriting Date), whether or not that individual is standing for re-election
to the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase five thousand (5,000) shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months. There shall be no limit on the number of such five
<PAGE>
thousand (5,000)-share option grants any one Eligible Director may receive over
his or her period of Board service, and non-employee Board members who have
previously been in the employ of the Corporation (or any Parent or Subsidiary)
or who have otherwise received a stock option grant from the Corporation prior
to the Underwriting Date shall be eligible to receive one or more such annual
option grants over their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each initial
fifteen thousand (15,000)-share automatic option grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of three (3) successive
equal annual installments upon the Optionee's completion of each year of Board
service over the three (3)-year period measured from the option grant date. The
shares subject to each annual five thousand (5,000)-share automatic option grant
shall vest, and the Corporation's repurchase right shall lapse, upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date.
E. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution) shall
have a twelve (12)-month period following the date of such cessation of
Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable at
the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation
of Board service, be exercised for all or any portion of those shares
as fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
<PAGE>
the option shall, immediately upon the Optionee's cessation of Board
service for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. The shares of Common Stock subject to each option outstanding at the
time of a Change in Control but not otherwise vested shall automatically vest in
full so that each such option shall, immediately prior to the effective date of
such Change in Control, become exercisable for all of those shares as
fully-vested shares of Common Stock and may be exercised for all or any portion
of those vested shares. Immediately following the consummation of the Change in
Control, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) or otherwise continued in full force and effect pursuant to the
terms of the Change in Control transaction.
B. All outstanding repurchase rights shall automatically terminate, and
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Change in Control.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
D. Each option which is assumed in connection with a Change in Control
(or otherwise continued in full and effect) shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of
securities or other property which would have been issuable to the Optionee in
consummation of such Change in Control had the option been exercised immediately
prior to such Change in Control. Appropriate adjustments shall also be made to
the exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
<PAGE>
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Plan Administrator shall have the sole and exclusive authority to
determine the calendar year or years (if any) the Director Fee Option Grant
Program is to be in effect. When the Director Fee Option Grant Program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant. Such election must be filed
with the Corporation's Chief Financial Officer prior to first day of the
calendar year for which the annual retainer fee which is the subject of that
election is otherwise payable. Each non-employee Board member who files such a
timely election shall automatically be granted an option under this Director Fee
Option Grant Program on the first trading day in January in the calendar year
for which the annual retainer fee which is the subject of that election would
otherwise be payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject
to the non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable in
a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each month of Board service over the twelve (12)-month
period measured from the grant date. Each option shall have a maximum term of
ten (10) years measured from the option grant date.
D. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this
<PAGE>
Director Fee Option Grant Program at the time of his or her cessation of Board
service shall immediately terminate and cease to remain outstanding with respect
to any and all shares of Common Stock for which the option is not otherwise at
that time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the EARLIER of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. Such right of exercise shall lapse,
and the option shall terminate, upon the EARLIER of (i) the expiration of the
ten (10)-year option term or (ii) the three (3)-year period measured from the
date of the Optionee's cessation of Board service.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. The successor corporation (or
parent thereof) in the Change in Control transaction shall assume each such
outstanding option so that each option under the Director Fee Option Grant
Program shall remain exercisable for the fully-vested shares until the EARLIEST
to occur of (i) the expiration of the ten (10)-year option term, (ii) the
expiration of the three (3)-year period measured from the date of the Optionee's
cessation of Board service or (iii) the surrender of the option in connection
with a Hostile Take-Over.
B. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required in connection with such option surrender and
cash distribution.
C. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
<PAGE>
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options or the vesting of their
shares. Such right may be provided to any such holder in either or both of the
following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant and Stock Issuance Programs shall
become effective immediately on the Plan Effective Date, and the Automatic
Option Grant Program shall become effective on the Underwriting Date. However,
the Salary Investment Option Grant and Director Fee Option Grant Programs shall
not be implemented until such time as the Primary Committee may deem
appropriate. Options may be granted under the Discretionary Option Grant or
Automatic Option Grant Program at any time on or after the Plan Effective Date;
however, no options granted under the Plan may be exercised, and no shares shall
be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then
<PAGE>
all options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options outstanding
under the Predecessor Plan on the Section 12 Registration Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Changes in
Control, may, in the Plan Administrator's discretion, be extended to one or more
options incorporated from the Predecessor Plan which do not otherwise contain
such provisions.
D. The Plan shall terminate upon the EARLIEST to occur of (i) April 20,
2008, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Should the Plan
terminate on April 20, 2008, then all option grants and unvested stock issuances
outstanding at that time shall continue to have force and effect in accordance
with the provisions of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
<PAGE>
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all
or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders, or
(iv) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATION shall mean Collateral Therapeutics, Inc., a California
corporation, and any corporate successor to all or substantially of the assets
or voting stock of Collateral Therapeutics, Inc. which shall by appropriate
action adopt the Plan.
G. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
I. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
<PAGE>
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market. If there is no closing selling
price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator, after taking into account such factors as it deems
appropriate.
M. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following
(A) a change in his or her position with the Corporation (or Parent or
Subsidiary employing the
<PAGE>
individual) which materially reduces his or her duties and
responsibilities or the level of management to which he or she reports,
(B) a reduction in his or her level of compensation (including base
salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
T. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
W. PLAN shall mean the Corporation's 1998 Stock Incentive Plan, as set
forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
<PAGE>
Y. PLAN EFFECTIVE DATE shall mean April 20, 1998, the date on which the
Plan was adopted by the Board.
Z. PREDECESSOR PLAN shall mean the Corporation's pre-existing Stock
Option Plan in effect immediately prior to the Section 12 Registration Date.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
BB. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under the Plan.
CC. SECONDARY COMMITTEE shall mean a committee of one or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
DD. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12 of the 1934 Act.
EE. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. SERVICE shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
GG. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
HH. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
II. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
JJ. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
KK. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
LL. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
<PAGE>
MM. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
NN. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
OO. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED THROUGH MAY 25, 2000)
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Collateral Therapeutics, Inc., a Delaware corporation, by providing
eligible employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed Fifty Thousand
(150,000) shares. Such share reserve includes the 100,000-share increase
approved by the Board in March 2000, subject to approval by the stockholders at
the 2000 Annual Meeting.
B. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant and in the aggregate on any one Purchase Date and
(iii) the number and class of securities and the price per share in effect under
each outstanding purchase right in order to prevent the dilution or enlargement
of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each offering period shall be of such duration (not to
exceed twenty-four (24) months) as determined by the Plan Administrator prior to
the start date of such offering period. However, the initial offering period
shall commence at the Effective Time and terminate on the last business day in
July 2000. The next offering period shall commence on the first business day in
August 2000, and subsequent offering periods shall commence as designated by the
Plan Administrator.
<PAGE>
C. Each offering period shall be comprised of a series of one
or more successive Purchase Intervals. Purchase Intervals shall run from the
first business day in February each year to the last business day in July of the
same year and from the first business day in August each year to the last
business day in January of the following year. However, the first Purchase
Interval in effect under the initial offering period shall commence at the
Effective Time and terminate on the last business day in January 1999.
D. Should the Fair Market Value per share of Common Stock on
any Purchase Date within an offering period be less than the Fair Market Value
per share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. Purchase rights
in the new offering period shall automatically be granted to the individuals
participating in the terminated offering period, and the new offering period
shall have a duration of twenty (24) months, unless a shorter duration is
established by the Plan Administrator within five (5) business days following
the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start
date of any offering period under the Plan may enter that offering period on
such start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee
after the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Base Salary paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with
the Plan Administrator. The Participant may not, however, effect more
than one (1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the
commencement of any new Purchase Interval within the offering period,
increase the rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new rate (which may
not exceed the ten percent (10%) maximum) shall become effective on the
start date of the first Purchase Interval following the filing of such
form.
<PAGE>
B. Payroll deductions shall begin on the first pay day
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be required to be held in any segregated account or trust fund and may be
commingled with the general assets of the Corporation and used for general
corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall
be automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded pursuant to the Termination of Purchase
Right provisions below) on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall be equal to eighty-five percent (85%) of the
LOWER of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market Value
per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of
Common Stock purchasable by a Participant on each Purchase Date during the
offering period shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the
Purchase Interval ending with that Purchase Date by the purchase price in effect
for the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed One Thousand (1,000) shares, subject to periodic adjustments in
the event of certain changes in the Corporation's capitalization. In addition,
the maximum aggregate number of shares of Common Stock purchasable by all
Participants on
<PAGE>
any one Purchase Date shall not exceed Twelve Thousand Five Hundred (25,000)
shares, subject to periodic adjustments in the event of certain changes in the
Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable on the Purchase Date
shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions
shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the
next scheduled Purchase Date in the offering period, terminate his or
her outstanding purchase right by filing the appropriate form with the
Plan Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect to the
terminated purchase right. Any payroll deductions collected during the
Purchase Interval in which such termination occurs shall, at the
Participant's election, be immediately refunded or held for the
purchase of shares on the next Purchase Date. If no such election is
made at the time such purchase right is terminated, then the payroll
deductions collected with respect to the terminated right shall be
refunded as soon as possible.
(ii) The termination of such purchase right
shall be irrevocable, and the Participant may not subsequently rejoin
the offering period for which the terminated purchase right was
granted. In order to resume participation in any subsequent offering
period, such individual must re-enroll in the Plan (by making a timely
filing of the prescribed enrollment forms) on or before his or her
scheduled Entry Date into that offering period.
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (including death, disability or change
in status) while his or her purchase right remains outstanding, then
that purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the Purchase Interval in which the
purchase right so terminates shall be immediately refunded. However,
should the Participant cease to remain in active service by reason of
an approved unpaid leave of absence, then the Participant shall have
the right, exercisable up until the last business day of the Purchase
Interval in which such leave commences, to (a) withdraw all the payroll
deductions collected to date on his or her behalf for that Purchase
Interval or (b) have such funds held for the purchase of shares on his
or her behalf on the next scheduled Purchase Date. In no event,
however, shall any further payroll deductions be collected on the
Participant's behalf during such leave. Upon the Participant's return
to active service (i) within ninety (90) days following the
commencement of such leave or, (ii) prior to the expiration of any
longer period for which such Participant's right to reemployment with
the Corporation is guaranteed by either statute or contract, his or her
payroll deductions under the Plan shall automatically resume at the
rate in effect at the time the leave began. However, should the
Participant's leave of absence exceed ninety (90) days and his or her
re-employment rights not be guaranteed by either statute or contract,
then the Participant's status as an Eligible Employee will be deemed to
terminate on the ninety-first (91st) day of that leave, and such
Participant's purchase right for the offering period in which that
leave began shall thereupon terminate. An individual who returns to
active employment following such a leave shall be treated as a new
Employee for purposes of the Plan and must, in order to resume
participation in the Plan, re-enroll in the Plan (by
<PAGE>
making a timely filing of the prescribed enrollment forms) on or before
his or her scheduled Entry Date into the offering period.
G. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control by applying the payroll deductions of each Participant for the
Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the LOWER of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in the
aggregate.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Change in Control,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only
by the Participant and shall not be assignable or transferable by the
Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under
each outstanding purchase right shall accrue in a series of
installments on each successive Purchase Date during the offering
period on which such right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued
<PAGE>
in the same calendar year the right to acquire Common Stock under one
(1) or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000) worth of Common Stock (determined on the
basis of the Fair Market Value per share on the date or dates of grant)
for each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular Purchase Interval, then
the payroll deductions which the Participant made during that Purchase Interval
with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions
of this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on April 20, 1998 and
shall become effective at the Effective Time, PROVIDED no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected, within
twelve (12) months after the date on which the Plan is adopted by the Board, the
Plan shall terminate and have no further force or effect, and all sums collected
from Participants during the initial offering period hereunder shall be
refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the EARLIEST of (i) the last business day in July 2008, (ii) the
date on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT/TERMINATION OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan
at any time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the recognition of compensation
expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following
amendments or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan or the maximum number of shares purchasable per Participant on any one
Purchase Date, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization, (ii) alter the purchase price
formula so as to reduce the purchase price payable for the shares of Common
Stock purchasable under the Plan or (iii) modify eligibility requirements for
participation in the Plan.
<PAGE>
XI. GENERAL PROVISIONS
A. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
B. All costs and expenses incurred in the administration of
the Plan shall be paid by the Corporation; however, each Plan Participant shall
bear all costs and expenses incurred by such individual in the sale or other
disposition of any shares purchased under the Plan.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
<PAGE>
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Collateral Therapeutics, Inc.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan,
calculated before deduction of (A) any income or employment tax withholdings or
(B) any pre-tax contributions made by the Participant to any Code Section 401(k)
salary deferral plan or any Code Section 125 cafeteria benefit program now or
hereafter established by the Corporation or any Corporate Affiliate. The
following items of compensation shall NOT be included in Base Salary: (i) all
overtime payments, bonuses, commissions (other than those functioning as base
salary equivalents), profit-sharing distributions and other incentive-type
payments and (ii) any and all contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the Participant's behalf by the
Corporation or any Corporate Affiliate under any employee benefit or welfare
plan now or hereafter established.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean any of the following
transactions effecting a change in ownership or control of the Corporation:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's shareholders.
D. CODE shall mean the Internal Revenue Code of 1986, as
amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. CORPORATION shall mean Collateral Therapeutics, Inc., a
Delaware corporation, and any corporate successor to all or substantially all of
the assets or voting stock of Collateral Therapeutics, Inc.
which shall by appropriate action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the
Underwriting Agreement is executed and finally priced. Any Corporate Affiliate
which becomes a Participating Corporation after such Effective Time shall
designate a subsequent Effective Time with respect to its employee-Participants.
<PAGE>
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by
a Participating Corporation on a basis under which he or she is regularly
expected to render more than twenty (20) hours of service per week for more than
five (5) months per calendar year for earnings considered wages under Code
Section 3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
<PAGE>
(iii) For purposes of the initial offering period which
begins at the Effective Time, the Fair Market Value shall be deemed to
be equal to the price per share at which the Common Stock is sold in
the initial public offering pursuant to the Underwriting Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
N. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
O. PARTICIPATING CORPORATION shall mean the Corporation and
such Corporate Affiliate or Affiliates as may be authorized from time to time by
the Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
P. PLAN shall mean the Corporation's 1998 Employee Stock
Purchase Plan, as set forth in this document.
Q. PLAN ADMINISTRATOR shall mean the committee of two (2) or
more Board members appointed by the Board to administer the Plan.
R. PURCHASE DATE shall mean the last business day of each
Purchase Interval. The initial Purchase Date shall be January 29, 1999.
S. PURCHASE INTERVAL shall mean each successive six (6)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
T. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
February and August each year on which an Eligible Employee may first enter an
offering period.
U. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
V. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
<PAGE>
COLLATERAL THERAPEUTICS, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS, MAY 25, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
COLLATERAL THERAPEUTICS, INC.
The undersigned revokes all previous proxies, acknowledges receipt of
the Notice of the Annual Meeting of Stockholders to be held May 25, 2000 and
the Proxy Statement and appoints Jack W. Reich, Christopher J. Reinhard and
Tyler M. Dylan, and each of them, the Proxy of the undersigned, with full
power of substitution, to vote all shares of Common Stock of Collateral
Therapeutics, Inc. (the "Company") which the undersigned is entitled to
vote, either on his or her own behalf or on behalf of any entity or
entities, at the Annual Meeting of Stockholders of the Company to be held at
The DoubleTree Hotel, 11915 El Camino Real, San Diego, California on
Thursday, May 25, 2000 at 9:00 a.m. Pacific Time (the "Annual Meeting"), and
at any adjournment or postponement thereof, with the same force and effect
as the undersigned might or could do if personally present thereat. The
shares represented by this Proxy shall be voted in the manner set forth on
the reverse side.
(TO BE SIGNED AND DATED ON REVERSE SIDE)
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
COLLATERAL THERAPEUTICS, INC.
MAY 25, 2000
- Please Detach and Mail in the Envelope Provided -
/X/ Please mark your
votes as in this
example
<TABLE>
<S><C>
WITHHOLD
AUTHORITY
FOR TO VOTE FOR AGAINST ABSTAIN
1. To elect the / / / / Nominees: Jack W. Reich 2. To approve amendments to the / / / / / /
following directors Christopher J. Reinhard Company's 1998 Stock Incentive
to serve until the Charles J. Aschauer Plan, including (i) an increase
next Annual B. Mason Flemming in the number of shares of
Meeting of Stockholders and until their H. Kirk Hammond common stock authorized for
successors are duly elected and qualified; Ronald I. Simon issuance over the term of the
(INSTRUCTIONS: To withhold authority to vote Dale A. Stringfellow 1998 Plan by 1.5 million shares
for any nominee, check the box "WITHHOLD and (ii) elimination of the
AUTHORITY TO VOTE" and write that nominee's option cancellation and re-grant
name on the line below; to withhold ("re-pricing") provisions.
authority to vote for ALL nominees,
check the box "WITHHOLD AUTHORITY TO VOTE"
and write "ALL" on the line below.) 3. To approve amendments to the / / / / / /
Company's 1998 Employee Stock
Purchase Plan including an
------------------------------------------- increase in the number of shares
of common stock authorized for
issuance over the term of the
Purchase Plan by 100,000 shares.
4. To ratify the appointment of / / / / / /
Ernst & Young LLP as independent
auditors of the Company for the
fiscal year ending December 31,
2000.
5. To transact such other business as may properly
come before the meeting or any adjournment
or adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
DIRECTORS LISTED ABOVE AND A VOTE FOR THE
PROPOSALS LISTED ABOVE. THIS PROXY, WHEN
PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED
ABOVE. IF NO SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS
LISTED ABOVE AND FOR THE OTHER PROPOSALS.
Authorized Signature(s) Dated: , 2000
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Please print the name(s) appearing on each share certificate(s) over which you have voting authority:
-----------------------------
</TABLE>