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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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Cypress Bioscience, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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<PAGE> 2
PRELIMINARY COPIES
CYPRESS BIOSCIENCE, INC.
4350 EXECUTIVE DRIVE, SUITE 325
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 15, 1997
TO THE STOCKHOLDERS OF CYPRESS BIOSCIENCE, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Cypress Bioscience, Inc., a Delaware corporation (the "Company"), will be held
on Wednesday, October 15, 1997 at 12:00 P.m. local time at the La Jolla Marriott
Hotel, 4240 La Jolla Village Drive, La Jolla, California 92037 for the following
purposes:
1. To elect two (2) directors to hold office until the 2000 Annual
Meeting of Stockholders or until their successors are duly elected and
qualified;
2. To approve a form of Indemnity Agreement and to authorize the Company
to enter into individual Indemnity Agreements with each of its directors and
executive officers.
3. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997; and
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on August 28,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
Susan E. Feiner
Corporate Secretary
San Diego, California
September 2, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE
YOU REPRESENTATION AT THE MEETING. A RETURN ENVELOPE, WHICH IS POSTAGE PREPAID
IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
PRELIMINARY COPIES
CYPRESS BIOSCIENCE, INC.
4350 EXECUTIVE DRIVE, SUITE 325
SAN DIEGO, CA 92121
--------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 15, 1997
---------------
PROXY STATEMENT
This Proxy Statement and the enclosed proxy card, which the Company
intends to mail to stockholders on or about September 2, 1997, are furnished in
connection with the solicitation of proxies by the Board of Directors (the
"Board") of CYPRESS BIOSCIENCE, INC., a Delaware corporation (the "Company"),
for use in voting at the Annual Meeting of Stockholders to be held on October
15, 1997, at 12:00 p.m. California time or at any adjournment or postponement
thereof (the "Annual Meeting"). The Annual Meeting will be held at the La Jolla
Marriott Hotel, 4240 La Jolla Village Drive, La Jolla, California 92037.
The Board has fixed August 28, 1997 as the record date (the "Record
Date") for the determination of stockholders entitled to vote at the Annual
Meeting. Only holders of record of the Company's Common Stock at the close of
business on August 28, 1997 will be entitled to notice of and to vote at the
Annual Meeting. The only outstanding class of capital stock of the Company is
its Common Stock, $.02 par value per share (the "Common Stock"). At the close of
business on the Record Date, there were outstanding and entitled to vote
_________ shares of Common Stock. Each share of Common Stock entitles the holder
of record on the Record Date to one vote on all matters to be voted upon at the
Annual Meeting. The presence in person or by proxy of the holders of record of
one-third (1/3) of the issued and outstanding shares of Common Stock of the
Company entitled to vote is required to constitute a quorum for the transaction
of business at the meeting. Abstentions and broker non-votes will be considered
represented at the meeting for the purposes of determining a quorum.
All proxies will be voted in accordance with the instructions contained
in the proxy. If no choice is made on your signed proxy card that is returned to
the Company, the shares represented by your executed proxy will be voted FOR (i)
Proposal 1 to elect each of management's nominees for director to the class
whose term expires as of the Annual Meeting, (ii) Proposal 2 to approve the
form of Indemnity Agreement attached as Exhibit A to this Proxy Statement and to
authorize the Company to enter into individual Indemnity Agreements with each of
its directors and executive officers, and (iii) Proposal 3 to ratify the
selection of Ernst & Young LLP as the Company's independent auditor's for the
fiscal year ending December 31, 1997. If the instruction on your proxy card
1.
<PAGE> 4
specifies "ABSTAIN" with respect to a particular proposal, the shares
represented by your executed proxy card will be counted as an abstention for
such proposal.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be considered shares entitled
to vote in the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether a matter has been approved. Approval of Proposals 2 and 3 requires the
affirmative vote of the majority of the shares of the Company's Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote on such proposals.
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 4350
Executive Drive, Suite 325, San Diego, California 92121, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
In order to be included in the Company's proxy statement and proxy card
relating to the 1998 Annual Meeting of Stockholders, proposals of stockholders
that are intended to be presented at the Company's 1998 Annual Meeting of
Stockholders must comply with the applicable Securities and Exchange Commission
rules and regulations, must be sent to the Corporate Secretary of the Company at
the address set forth on page 1 of this Proxy Statement and be received by the
Company not later than May 5, 1998.
SOLICITATION
The Company will bear the entire cost of the solicitation of proxies,
including preparation, assembly, printing and mailing of the Proxy Statement,
the proxy card and any additional information furnished to stockholders of the
Company. Copies of solicitation materials will be furnished to banks, brokerage
houses, fiduciaries and custodians holding in their names shares of Common Stock
of the Company beneficially owned by others to forward to such beneficial
owners. The Company may reimburse such banks, brokerage houses, fiduciaries and
custodians for their costs of forwarding solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, telegram or personal solicitation by directors, officers or other
regular employees of the Company or, at the Company's request, a professional
proxy solicitation firm. No additional compensation will be paid to directors,
officers or other regular employees for such services, but any professional
proxy solicitation firm used by the Company will be paid its customary fee.
2.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board shall be divided into three
classes. Each class consists of one-third of the total number of directors, with
each class having a three-year term. Vacancies on the Board may be filled only
by persons elected by a majority of the remaining directors. A director elected
by the Board to fill a vacancy (including a vacancy created by an increase in
the number of directors to serve on the Board) shall serve for the remainder of
the full term of the class of directors in which the vacancy occurred and until
such director's successor is elected and qualified.
Under the Company's Bylaws, there shall be not less than three nor more
than nine directors, as determined from time to time by resolution of the Board.
There are presently five directors serving on the Board and there is currently
one vacancy.
There are two (2) directors in the class whose term of office expires
as of the Annual Meeting. Each of the nominees for election to this class, Jay
D. Kranzler, M.D., Ph.D. and Richard M. Crooks, Jr., is currently a director of
the Company. Dr. Kranzler was elected to the Board in December 1995 while
Mr. Crooks was elected to the Board in 1994. If elected at the Annual Meeting,
each of Dr. Kranzler and Mr. Crooks will serve until the 2000 Annual Meeting
of Stockholders and until his or her successor is elected and has qualified,
or until such director's earlier death, resignation or removal.
Election of the nominees will require the affirmative vote of a
plurality of the shares of Common Stock present in person or represented by
proxy and entitled to vote at the Annual Meeting. Shares represented by executed
proxies will be voted, if authority to do so is not withheld, for the election
of Dr. Kranzler and Mr. Crooks. Dr. Kranzler and Mr. Crooks have each agreed to
serve if elected, and management has no reason to believe that either nominee
will be unable to serve. In the event that either of Dr. Kranzler or Mr. Crooks
should be unavailable to serve as a result of an unexpected occurrence, such
shares will be voted (unless the proxy card is marked to the contrary) for the
election of such substitute nominee or nominees, if any, as management may
recommend. It is believed that all officers and directors of the Company will
vote their respective shares in favor of Dr. Kranzler and Mr. Crooks.
Set forth below is biographical information for each person nominated
for election for a three-year term expiring at the 2000 Annual Meeting and each
person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING
JAY D. KRANZLER, 39, was appointed Chief Executive Officer and Vice
Chairman of the Company in December 1995. In April 1996, Dr. Kranzler also
assumed the position of Chief Scientific Officer of the Company. From January
1989 until August 1995, Dr. Kranzler served as President, Chief Executive
Officer and a director of Cytel Corporation, a publicly held biotechnology
company. Dr. Kranzler has been an adjunct member of the Research Institute of
3.
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Scripps Clinic since January 1989. Before joining Cytel, Dr. Kranzler was
employed by McKinsey & Company, a management consulting firm, as a consultant
specializing in the pharmaceutical industry from 1985 to January 1989.
MR. RICHARD M. CROOKS, JR., 57, has been a director of the Company
since 1994. He has been President of RMC Consultants, a financial advisory
services firm, since June 1990. Mr. Crooks is a director of and consultant to
Allen & Company Incorporated, a privately held investment banking firm, which is
the Company's principal stockholder. He served as a Managing Director of Allen &
Company Incorporated for more than five years prior to June 1990. Mr. Crooks is
also a director of Excaliber Technologies Corporation.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING
MR. JACK H. VAUGHN, 76, has served as a director of the Company since
1991. Currently, Mr. Vaughn is Chairman of ECOTRUST, a Portland, Oregon-based
foundation promoting environmentally friendly development in the Pacific
Northwest. From 1988 to 1992, he was the U.S. Government's Senior Environmental
Advisor for Central America. Prior to that, Mr. Vaughn had been the founding
Chairman of Conservation International, a private foundation encouraging
biological diversity. Mr. Vaughn was a director of Allegheny & Western Energy
Corporation, a publicly held utility company, from 1981 through 1995 and was a
member of its Compensation Committee.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
DEBBY JO BLANK, M.D., 45, was appointed President, Chief Operating
Officer and director of the Company in December 1995. Prior to joining the
Company, from 1994 through the end of 1995, Dr. Blank was Senior Vice President,
Marketing, for Advanced Technology Laboratories, a publicly held manufacturer
and distributor of ultrasound equipment. From 1993 to 1994, she was Vice
President, U.S. Marketing for Syntex, a pharmaceutical company. From 1989 to
1993, Dr. Blank held various positions at the DuPont Company and the DuPont
Merck Pharmaceutical Company ("DuPont"), including Vice President Worldwide
Marketing, Vice President, New Product Planning & Licensing, and Vice President,
Strategy and Business Development. Before joining DuPont, she was employed from
1986 to 1989 by Arthur D. Little, a management consulting firm, as a consultant
in its pharmaceutical practice.
MR. PHILIP J. O'REILLY, 58, has been a director of the Company since
1994. He is a partner in the law firm of O'Reilly, Marsh, Kearney & Corteselli
P.C., in Mineola, New York. He has been in private practice for more than twenty
years. Mr. O'Reilly also serves as a director of Excalibur.
4.
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BACKGROUND OF NON-DIRECTOR EXECUTIVE OFFICERS
SUSAN E. FEINER, 29, was appointed Director of Finance, Controller,
Corporate Secretary and Corporate Treasurer of the Company in April 1996. Prior
to joining the Company, from March 1994 until March 1996, Ms. Feiner held
various positions, including Finance Manager and Financial Accounting Manager at
Pyxis Corporation, a publicly held manufacturer and distributor of automated
medication distribution systems. From July 1990 until March 1994 she was
employed by Ernst & Young LLP, as a senior auditor.
R. MICHAEL GENDREAU, 41, was appointed Vice President of Research and
Development and Chief Medical Officer of the Company in December 1996. Dr.
Gendreau joined the Company in 1994 and has held various positions through 1996,
including Executive Director of Scientific Affairs. From 1991 to 1994, Dr.
Gendreau was Vice President of Research and Development and Chief Medical
Officer for MicroProbe Corporation, a developer and manufacturer of DNA
probe-based diagnostic equipment.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996, the Board held ten
meetings. During the fiscal year ended December 31, 1996, each member of the
Board attended 75% or more of the aggregate number of meetings of the Board and
committees of the Board on which he or she served, held during the period for
which he or she was a director or committee member, respectively. The Board has
an Audit Committee, a Compensation Committee, a Stock Option Committee and a
Non-Executive Officer Stock Option Committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statement, recommends to the Board the independent auditors to be
retained, and receives and considers the auditors' comments (out of the presence
of management) as to adequacy of staff and management performance, effectiveness
of existing audit and financial controls and procedures established in
connection with implementing such controls. The Audit Committee is composed of
three directors: Messrs. Vaughn (Chairman), Crooks and O'Reilly. The Audit
Committee met one time during fiscal year 1996.
The Compensation Committee makes recommendations based on management's
inputs concerning salaries and incentive compensation, determines compensation
levels based on recommendations of management and performs such other functions
regarding compensation as the Board may delegate. The Compensation Committee is
composed of three directors: Messrs. Vaughn, Crooks and O'Reilly. The
Compensation Committee met one time during fiscal year 1996.
The Stock Option Committee awards stock options to officers, employees
of and consultants to the Company. The Stock Option Committee is composed of two
directors: Messrs. Crooks and O'Reilly. The Stock Option Committee met four
times during fiscal year 1996.
5.
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The Non-Executive Officer Stock Option Committee is a subcommittee
created by the Stock Option Committee in February 1996. It has the authority to
grant options to employees who are not executive officers of the Company,
subject to certain limitations. The Non-Executive Officer Stock Option Committee
is composed of two directors: Drs. Kranzler and Blank. The Non-Executive Officer
Stock Option Committee met one time during fiscal year 1996.
The Board did not have a standing Nominating Committee during fiscal
year 1996.
PROPOSAL 2
APPROVAL OF FORM OF INDEMNITY AGREEMENT
AND AUTHORIZATION OF THE COMPANY TO ENTER
INTO INDIVIDUAL INDEMNITY AGREEMENTS WITH
ITS DIRECTORS AND OFFICERS
The Board has directed the submission to a vote of the stockholders of
the Company of a proposal to ratify and approve the form of Indemnity Agreement
substantially as set forth as Exhibit A attached to this Proxy Statement (the
"Indemnity Agreement") and to authorize the Company to enter into individual
Indemnity Agreements with its directors and officers. Although stockholder
ratification and approval of the Indemnity Agreement is not required by the
Company's Bylaws or otherwise required by law, it is considered a matter of good
corporate practice to submit the Indemnity Agreement to the stockholders of the
Company for their approval because the members of the Board and certain officers
of the Company will be parties to, and therefore the beneficiaries of the rights
contained in, the Indemnity Agreement. Although the law in this regard is not
certain, stockholders who vote to authorize and approve the Indemnity Agreement
may be prevented by such vote from challenging the validity of the Indemnity
Agreement in a subsequent court proceeding.
SUMMARY OF INDEMNITY AGREEMENT
The following summary is qualified in its entirety by reference to the
Indemnity Agreement.
The Indemnity Agreement provides that the Company will indemnify the
director or officer to the fullest extent permitted by Delaware law and the
Company's Restated Certificate and Bylaws. In addition, the Company will
indemnify such director or officer against all expenses (including attorneys'
fees), witness fees, damages, judgments, fines and amounts paid in settlements
and any other amounts that such director or officer becomes legally obligated to
pay in connection with any threatened, pending or completed action, suit or
proceeding (including actions brought by or on behalf of the Company, such as
stockholder derivative actions) to which the director or officer is, was, or at
any time becomes a party, or is threatened to be made a party by reason of such
director's or officer's position as a director, officer, employee or other agent
of the Company, or is or was serving, or at any time serves at the written
request of the Company as a director, officer, employee or other agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, and otherwise to the
6.
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full extent available under the non-exclusivity provisions of the Delaware law
and the Company's Restated Certificate and Bylaws.
The additional indemnity provided by the Indemnity Agreement goes
beyond the rights expressly provided under Delaware law primarily in the
availability of indemnification in connection with actions brought by or on
behalf of the Company, such as stockholder derivative actions, and in the
provisions for advancement of litigation expenses prior to settlement or
judgment. Such additional indemnity is not available, however, where the conduct
of the director or officer is (a) knowingly fraudulent or deliberately dishonest
or constituted willful misconduct; (b) has resulted in illegal personal profit
or advantage; (c) has resulted in a breach of the duty of loyalty; or (d) has
resulted in a violation of the federal short swing trading rules. The Indemnity
Agreement also does not provide for additional indemnity to the extent that the
director or officer receives payment pursuant to insurance or other
indemnification or in the event a court has determined that indemnification is
not lawful under the circumstances. To the extent that the Indemnity Agreement
goes beyond the indemnification expressly provided under the Delaware law, it is
subject to limitation by the courts for reasons of public policy. Additional
indemnification would be available with respect to an action brought by such
director or officer, but only where indemnification is expressly required by law
or authorized by the Board or provided by the Company, or where the proceeding
is one for enforcement of rights pursuant to the Indemnity Agreement. The
provisions of the Indemnity Agreement are intended to apply to proceedings
arising from acts or omissions occurring before or after their execution.
The consent of the holders of a majority of the outstanding shares of
Common Stock present in person or represented by proxy and entitled to vote at
the Annual Meeting will be required to ratify and approve the form of Indemnity
Agreement and to authorize the Company to enter into individual Indemnity
Agreements with its directors and officers. The Board unanimously approved the
form of Indemnity Agreement and authorized the Company to enter into individual
Indemnity Agreements with its directors and officers and believes that all of
its directors and officers will vote their respective shares in favor of this
Proposal 2.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
7.
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PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board has selected Ernst & Young LLP ("Ernst & Young") to continue
as the Company's independent auditors for the fiscal year ending December 31,
1997 and has further directed that management submit the selection of
independent auditors for ratification by the stockholders at the Annual Meeting.
Ernst & Young audited the Company's financial statements for the fiscal years
ended December 31, 1994, 1995 and 1996. Representatives of Ernst & Young are
expected to be present at the Annual Meeting, will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
Stockholder ratification of the selection of Ernst & Young as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young to
the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
REQUIRED VOTE OF STOCKHOLDERS
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of Ernst & Young as the Company's
independent auditors. The Board unanimously approved the selection of Ernst &
Young and believes that all officers and directors will vote their respective
shares in favor of this Proposal 3.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3
8.
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of July 31, 1997 with respect
to (i) each stockholder known to the Company to be the beneficial owner of more
than five percent (5%) of the outstanding common stock of the Company, (ii) each
director, (iii) each executive officer listed in the table entitled "Summary
Compensation Table" under the heading "Compensation of Directors and Executive
Officers" below employed by the Company in that capacity on July 31, 1997 and
(iv) all directors and Named Executive Officers (as defined below) of the
Company as a group. Except as set forth below, each of the named persons and
members of the group has sole voting and investment power with respect to the
shares shown.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) PERCENT OF CLASS (2)
- -------------------- ------------------------ --------------------
<S> <C> <C>
Allen & Company Incorporated............... 6,457,391(3) 18.1%
711 Fifth Avenue
New York, New York 10022
Paramount Capital Asset Management, Inc.... 2,769,134(4) 8.0%
787 Seventh Avenue, 44th Floor
New York, NY 10019
Jay D. Kranzler............................ 1,892,082(5) 5.2%
Debby Jo Blank............................. 813,541(6) 2.4%
R. Michael Gendreau........................ 143,864(7) *
Richard M. Crooks, Jr...................... 1,111,897(8) 3.2%
Jack H. Vaughn............................. 66,000(9) *
Philip J. O'Reilly......................... 74,625(10) *
All Directors and Named Executive Officers as a
Group (6 persons)........................ 3,937,592(11) 10.6%
</TABLE>
- ----------
*Less than one percent
(1) This table is based upon information supplied by officers, directors
and principal stockholders and Schedule 13Ds filed with the Securities
and Exchange Commission (the "Commission"). Except as shown otherwise
in the table, the address of each stockholder listed is in care of the
Company at 4350 Executive Drive, Suite 325, San Diego, California
92121.
(2) Except as otherwise indicated in the footnotes of this table and
pursuant to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock. Beneficial ownership is determined in
accordance with the rules of the Commission and generally includes
voting or investment power with respect to securities. Shares of Common
Stock subject to options or warrants exercisable within 60 days of July
31, 1997 are deemed outstanding for computing the percentage of the
person or entity holding such options or warrants but are not deemed
outstanding for computing the percentage of any other person.
Percentage of beneficial ownership is based upon 34,636,067 shares of
the Company's Common Stock outstanding as of July 31, 1997.
(3) This information was derived from information provided to the Company
by Allen & Company Incorporated. Includes warrants to purchase
1,021,700 shares of Common Stock. Excludes 2,620,621 shares of Common
Stock, and warrants and options to purchase 192,267 shares of Common
Stock, owned by Allen & Company Incorporated. Allen & Company
Incorporated disclaims beneficial ownership of these shares of Common
Stock.
(4) Dr. Lindsay A. Rosenwald is the sole shareholder of Paramount Capital
Asset Management, Inc. ("Paramount Capital"). Paramount Capital is the
general partner of Aries Domestic Fund, L.P., a limited partnership
incorporated in Delaware ("Aries Domestic") and the investment manager
of The Aries Trust, a Cayman Islands trust ("Aries Trust"). Of the
2,769,134 shares of Common Stock indicated as beneficially
9.
<PAGE> 12
held, Paramount Capital shares voting and dispositive power with the
following persons or entities: Dr. Rosenwald with respect to 2,769,134
of the shares; Aries Domestic with respect to 819,967 of the shares;
and Aries Trust with respect to 1,949,167 of the shares. This
information was derived from a Schedule 13D filed by Paramount Capital
with the Commission on December 10, 1996.
(5) Includes 1,717,665 shares of Common Stock issuable pursuant to options
exercisable within 60 days of July 31, 1997. Also includes 164,417
shares of Common Stock held by the Company's 401(k) plan for which Dr.
Kranzler, as co-trustee of the 401(k) plan, has voting rights to such
shares.
(6) Includes 644,124 shares of Common Stock issuable pursuant to options
exercisable within 60 days of July 31, 1997. Also includes 164,417
shares of Common Stock held by the Company's 401(k) plan for which Dr.
Blank, as co-trustee of the 401(k) plan, has voting rights to such
shares.
(7) Includes 143,864 shares of Common Stock issuable pursuant to options
exercisable within 60 days of July 31, 1997.
(8) Includes 30,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of July 31, 1997. Also includes 692,829
shares of Common Stock and presently exercisable warrants to purchase
6,667 shares of Common Stock held by Allen & Company Incorporated, in
which Mr. Crooks has a pecuniary interest pursuant to an arrangement
with Allen & Company Incorporated. This information was derived from
information provided to the Company by Allen & Company Incorporated.
(9) Includes 65,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of July 31, 1997.
(10) Includes 30,000 shares of Common Stock issuable pursuant to options or
other rights exercisable within 60 days of July 31, 1997.
(11) Includes 2,637,320 shares of Common Stock issuable pursuant to options
and warrants exercisable within 60 days of July 31, 1997 that are
beneficially held by the directors and named executive officers as a
group. Also includes 164,417 shares of Common Stock held by the
Company's 401(K) plan for which certain individuals in the group
exercise voting power.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's officers and directors and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Commission. Officers, directors and holders of more than ten percent (10%) of
the Company's capital stock are required by Commission regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no forms were
required for those persons, the Company believes that during fiscal year 1996
all its officers, directors and holders of more than ten percent (10%) of the
outstanding shares of the Company's capital stock complied with all Section
16(a) filing requirements applicable to them.
10.
<PAGE> 13
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Each nonemployee director of the Company is entitled to receive $12,000
per year for such person's service as a director. Messrs. O'Reilly and Vaughn
each received $12,000 in cash compensation for service as a director during
fiscal year 1996. In addition, each nonemployee director is entitled to receive
an option to purchase 10,000 shares of Common Stock of the Company upon such
nonemployee director's initial election to the Board and an option to purchase
an additional 10,000 shares of Common Stock of the Company upon each annual
re-election of such nonemployee director to the Board. Each of Messrs. Crooks,
O'Reilly and Vaughn received an option to purchase 10,000 shares of Common Stock
for service as a director during fiscal year 1996. Directors who are employees
of the Company do not receive any fee for their service as directors. None of
the Company's directors receive any fees for their service on any committee of
the Board. All of the Company's directors are reimbursed for their out-of-pocket
travel and accommodation expenses incurred in connection with their service as
directors of the Company.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning compensation
awarded or paid to, or earned for the fiscal years ended December 31, 1996, 1995
and 1994 by the Chief Executive Officer of the Company during fiscal year 1996,
and those executive officers whose salary and bonus for fiscal year 1996
exceeded $100,000 (collectively, the "Named Executive Officers"):
11.
<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION (1)
----------------------------------- SHARES ALL OTHER
NAME AND PRINCIPAL FISCAL BASE UNDERLYING COMPENSATION
POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)
- --------------------------- ----------------- ----------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Jay D. Kranzler, M.D., 1996 $ 240,000 $ 135,000 3,025,327 $ 10,700(3)
Ph.D.,
Chief Executive Officer 1995 - $ 50,000 - -
Chief Scientific Officer
and Vice Chairman(2)
Debby Jo Blank, M.D., 1996 $ 210,000 $ 135,000 1,134,497 $ 164,236(5)
President, Chief Operating 1995 - $ 50,000 - -
Officer and Director(4)
R. Michael Gendreau, M.D. 1996 $ 145,000 $ 25,000 125,000 $ 57,804(6)
Vice President, Research 1995 $ 145,000 - 141,000 7,537(7)
and Development and 1994 $ 37,750 - - -
Chief Medical Officer
</TABLE>
(1) The Company's 1996 Equity Incentive Plan (the "1996 Plan"), Incentive
Stock Option and Appreciation Plan and the 1988 Non-Qualified Stock
Option Plan (collectively, the "Plans") are intended to further the
interests of the Company by providing for the grant of stock awards to
directors, officers and employees of and consultants to the Company.
(2) Dr. Kranzler was appointed Chief Executive Officer of the Company on
December 28, 1995. Amounts shown as Annual Compensation do not reflect
approximately $20,000 which Dr. Kranzler received as a consultant to
the Company during 1995.
(3) Includes $1,200 paid by the Company on behalf of Dr. Kranzler for life
insurance premiums during 1996, and $9,500 of contributions made by the
Company under its 401(k) Plan.
(4) Dr. Blank was appointed President and Chief Operating Officer on
December 28, 1995. Amounts shown as Annual Compensation do not reflect
approximately $20,000 which Dr. Blank received as a consultant to the
Company during 1995.
(5) Includes $154,736 paid to Dr. Blank for relocation costs and related
tax gross-ups associated with Dr. Blank's relocation to San Diego,
California upon joining the Company. Also includes $9,500 of
contributions made by the Company under its 401(k) plan.
(6) Includes $52,583 paid to Dr. Gendreau for relocation costs associated
with Dr. Gendreau's relocation to San Diego, California. Also includes
$5,221 of contributions made by the Company under its 401(k) plan.
(7) Represents contributions made by the Company under its 401(k) plan.
12.
<PAGE> 15
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 1996 to the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES OF
------------------------------------------------ STOCK APPRECIATION FOR
SHARES % OF TOTAL OPTION
UNDERLYING OPTIONS GRANTED TERM($)(2)
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE PRICE EXPIRATION ------------------------------
NAME (#) FISCAL YEAR(%)(1) PER SHARE($) DATE 5% 10%
------------------ ------------ ------------------ -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jay D. Kranzler, M.D., 3,025,327(3) 46.07 $ 1.500 01/19/06 $4,702,568 $10,175,990
Ph.D.
Debby Jo Blank, M.D. 1,134,497(3) 17.28 1.500 01/19/06 1,763,462 3,815,994
R. Michael Gendreau, 125,000(4) 1.90 2.019 04/29/06 231,263 517,713
M.D.
</TABLE>
(1) Based upon options to purchase a total of 6,566,157 shares of Common
Stock of the Company granted during the fiscal year 1996.
(2) The potential realizable value is based upon the assumption that the
fair market value of the Common Stock appreciates at the annual rate
shown (compounded annually) from the date of grant until the end of the
option term. Actual realizable value, if any, on stock option exercises
is dependent on the future performance of the Common Stock and overall
market conditions, as well as the option holder's continued employment
through the vesting period.
(3) Such options vest 25% on the date of grant with the remainder vesting
ratably and daily over the four-year period following the date of
grant.
(4) Such options vest as follows: 20,000 on the date of grant, 25,000 on
August 31, 1996 and 80,000 vest ratably and daily over a four-year
period following the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information as of December 31,
1996, regarding options held by the Named Executive Officers. None of such
individuals exercised any options during the fiscal year ended December 31,
1996. There were no stock appreciation rights outstanding at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FY-END (#) AS OF FY-END ($) (1)
--------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jay D. Kranzler, M.D., 1,295,238 1,730,089 $566,667 $756,914
Ph.D.
Debby Jo Blank, M.D. 485,714 648,783 212,500 283,843
R. Michael Gendreau, M.D. 93,720 172,280 6,047 18,141
</TABLE>
(1) Calculation based upon $1.9375, the closing sales price of the
underlying shares of Common Stock as reported on the Nasdaq SmallCap
Market on December 31, 1996, less the exercise price.
13.
<PAGE> 16
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
The Company entered into five year employment agreements commencing on
December 28, 1995 with each of Dr. Jay D. Kranzler, the Company's Chief
Executive Officer and Chief Scientific Officer and Dr. Debby Jo Blank, the
Company's President and Chief Operating Officer (collectively, the "Employment
Agreements"). Drs. Kranzler and Blank receive an annual base salary of $240,000,
and $210,000, respectively, and performance based bonuses of up to an additional
twenty-five percent (25%) of their respective annual base salaries. In addition,
the Employment Agreements provided for bonuses of $185,000, payable in
installments upon the occurrence of certain milestone events achieved by the
Company and Drs. Kranzler and Blank. As of the date hereof, the total amount of
these bonuses have been paid to Drs. Kranzler and Blank, with, in each case,
$135,000 of such bonuses being paid during fiscal year 1996.
In addition to their base salary and bonus, Drs. Kranzler and Blank
were granted options to purchase approximately eight percent (8%) and three
percent (3%), respectively, of the Company's Common Stock on a fully diluted
basis at an exercise price equal to $1.50 per share. The options vest
twenty-five percent (25%) immediately upon grant and thereafter ratably and
daily over a four (4) year period. The options shall fully vest immediately upon
the consummation of any (i) merger or consolidation of the Company with or into
any other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the Company's
voting power immediately after such consolidation, merger or reorganization; (2)
transaction or series of related transactions in which in excess of 50% of the
Company's voting power is transferred; or (3) sale of all or substantially all
of the assets of the Company and (ii) with respect to each of Drs. Kranzler and
Blank, the termination without cause of their employment with the Company and
the death or disability of each of them.
In April 1996, the Company entered into an employment agreement with R.
Michael Gendreau, M.D., whereby Dr. Gendreau will receive an annual base salary
of $145,000. In addition, during 1996 Dr. Gendreau received $52,583 to offset
the costs of relocating from Seattle, Washington to San Diego, California. The
Company also granted Dr. Gendreau options to purchase up to 125,000 shares of
the Company's Common Stock at an exercise price of $2.019 per share. As of
January 31, 1997, options to purchase 61,657 shares of common stock have vested
with the remainder vesting ratably and daily such that all of such options shall
be fully vested on April 29, 2001. In the event that Dr. Gendreau's employment
with the Company is terminated by the Company without cause due to a corporate
merger or acquisition, Dr. Gendreau will receive severance pay equal to $72,500.
14.
<PAGE> 17
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION(1)
The Compensation Committee (the "Committee") is comprised of directors
who are not employees of the Company. The Committee is responsible for
establishing and administering the Company's executive compensation
arrangements.
The Company believes that a competitive, goal-oriented compensation
policy is critically important to the creation of value for stockholders. To
that end, the Company has created an incentive compensation program intended to
reward outstanding individual performance.
COMPENSATION PHILOSOPHY
The Company's compensation program is intended to implement the
following principles:
- Compensation should be related to the value created for stockholders.
- Compensation programs should support the short-term and long-term
strategic goals and objectives of the Company.
- Compensation programs should reflect and promote the Company's values
and reward individuals for outstanding contributions to the Company's
success.
- Short-term and long-term compensation programs play a critical role in
attracting and retaining well-qualified executives.
- While compensation opportunities should be based in part upon
individual contribution, the actual amounts earned by executives in
variable compensation programs should also be based upon how the
Company performs.
COMPENSATION MIX AND MEASUREMENT
The Company's executive compensation for the Chief Executive Officer
and all other executives is based upon three components, each of which is
intended to serve the Company's compensation principles:
Base Salary
Base salary is targeted at the competitive median for similar companies
in the biotechnology industry. For the purpose of establishing these levels, the
Committee compares the Company's compensation structure from time to time with
the companies covered in a compensation survey of the biotechnology industry
entitled, Biotechnology Compensation and
- --------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing of
the Company under the Securities Act of 1933 as amended (the "1933 Act") or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), whether made
before or after the date hereof and irrespective of any general incorporation
language in any such filing.
15.
<PAGE> 18
Benefits Survey which is prepared by Radford Associates and sponsored by the
Biotechnology Industry Organization. Many of the Companies covered in that
survey are also included in the published industry line-of-business index
included in the Company's Stock Price Performance Graph, included elsewhere in
this document.
Based upon its reviews of industry data, the Compensation Committee
determined that the base salaries of the Chief Executive Officer and all other
executive officers were appropriate and necessary to attract individuals of such
high caliber within the biotechnology industry.
The Committee reviews the salaries of the Chief Executive Officer and
other executive officers each year and such salaries may be increased based upon
(i) the individual's performance and contribution to the Company and (ii)
increases in median competitive pay levels.
Annual Incentives
The Company has a cash bonus program whereby bonus amounts are
determined based upon the achievement of corporate goals and individual
performance. Any bonus is based, in part, upon Company performance and in part
on individual performance. The Committee believes bonus amounts are similar to
those paid by other companies in the biotechnology industry.
Based upon the Committee's review of the financial performance of the
Company, no annual incentive bonuses were awarded to any members of senior
management for 1996.
Long-Term Incentives
Long-term incentive compensation is provided through grants of options
to purchase shares of the Company's Common Stock to the Chief Executive Officer
and other executive officers. The stock options are intended to retain and
motivate all employees to improve long-term performance of the Company. It is
common in the biotechnology industry to grant stock options to all employees. As
of the beginning of 1997, stock options had been granted to all full-time
employees of the Company. The Committee believes the amount and value of such
grants are based upon levels similar to other companies in the biotechnology
industry.
Generally, stock options are granted with an exercise price equal to
prevailing market value. The stock options generally vest in increments over a
period of years and an employee must be employed by the Company at the time of
vesting in order to exercise his or her options.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Company appointed Jay D. Kranzler, M.D., Ph.D. as its new Chief
Executive Officer on December 28, 1995. Accordingly, his compensation was
determined based upon prevailing compensation packages in the biotechnology
industry, since a compensation package consistent with the biotechnology
industry was believed necessary to attract an individual of Dr. Kranzler's
caliber. His annual compensation consists of base salary of $240,000 and cash
bonuses of up to twenty-five percent (25%) of his annual base salary. In
addition, under his employment
16.
<PAGE> 19
agreement, Dr. Kranzler was granted options to purchase 3,025,327 shares of the
Company's Common Stock at an exercise price of $1.50 per share. During 1996, Dr.
Kranzler was not paid any cash bonuses determined as a percentage of his base
salary. However, in 1996, he was paid sign-on bonuses totaling $135,000 upon the
Company attaining certain milestones pursuant to the terms of his employment
agreement.
Under the Omnibus Budget Reconciliation Act of 1993, beginning in 1994,
the federal income tax deduction for certain types of compensation paid to the
Chief Executive Officer and four other most highly compensated officers of
publicly-held companies is limited to $1,000,000 per officer per fiscal year
unless such compensation meets certain requirements. The Committee is aware of
this limitation and believes that the deductibility of compensation payable in
1996 will not be affected by this limitation.
STOCK OPTION COMMITTEE COMPENSATION COMMITTEE
Richard M. Crooks, Jr. Richard M. Crooks, Jr.
Philip J. O'Reilly Philip J. O'Reilly
Jack H. Vaughn
NON-EXECUTIVE OFFICER STOCK OPTION COMMITTEE
Jay D. Kranzler, M.D., Ph.D.
Debby Jo Blank, M.D.
17.
<PAGE> 20
STOCK PRICE PERFORMANCE GRAPH
COMPARISON OF 5-YEAR CUMULATIVE RETURN
The following Stock Price Performance Graph compares the Company's
cumulative total stockholder return on the Company's Common Stock for the
periods indicated with the cumulative total return of the NASDAQ OTC Index and
the NASDAQ Pharmaceuticals Stock Index. The Company has not declared any
dividends since its inception. The Board and the Committee recognize that the
market price of the Company's Common Stock is influenced by many factors, only
one of which is Company performance. The historical stock price performance
shown on the Stock Price Performance Graph is not necessarily indicative of
future stock price performance.
<TABLE>
<CAPTION>
91 92 93 94 95 96
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
NASDAQ OTC 100 116.4 133.6 130.6 184.7 227.2
CYPRESS BIOSCIENCE, INC. 100 104.5 138.5 78.5 98.3 68.2
NASDAQ PHARMACEUTICAL INDEX 100 83.2 74.2 55.8 102.1 102.4
</TABLE>
The above comparison assumes $100 was invested in the Company's common
stock and each index on December 31, 1991.
18.
<PAGE> 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1996, the Company completed a private placement (the
"October Private Placement") of 1,734,000 Units (with each Unit being comprised
of two shares of common stock of the Company and a warrant to purchase one share
of Common Stock of the Company at an exercise price of $2.00) at a sales price
of $4.00 per Unit. Net proceeds to the Company from the October Private
Placement were approximately $6,429,000. Allen & Company Incorporated served as
a non-exclusive placement agent in connection with the October Private Placement
and received $116,000 as a placement agent fee.
In May 1996, the Company entered into a resignation agreement (the
"Resignation Agreement") with Alex P. de Soto, the Company's former Vice
President, Chief Financial Officer, Secretary and Treasurer, whereby Mr. de Soto
resigned as an officer of the Company effective May 6, 1996, but remained an
employee of the Company through June 30, 1996. Pursuant to the terms of the
Resignation Agreement, the Company paid to Mr. de Soto an aggregate of $77,364
during 1996 and issued to Mr. de Soto 11,765 registered shares of Common Stock
of the Company. In addition, the Company retained Mr. de Soto as a consultant
for a period of ten months commencing on July 1, 1996 at a total cost of
$70,000.
The Company entered into letter agreements with Mr. de Soto, whereby
the Company has agreed to pay for certain expenses (including attorney's fees)
incurred by him related to inquiries being conducted by the State of
Washington's Board of Accountancy and the SEC in advance of any final
disposition of such inquiries. In the event it is ultimately determined that Mr.
de Soto is not entitled to indemnification under the terms of the Company's
Bylaws or other applicable laws or regulations, Mr. de Soto is obligated to
repay all amounts advanced by the Company on his behalf.
In March 1996, the Company entered into a letter of resignation (the
"Letter of Resignation") with Dr. Frank Jones relating to the terms and
conditions of Dr. Jones' resignation as Chief Scientific Officer and a director
of the Company. Pursuant to the Letter of Resignation, the Company paid Dr.
Jones a severance payment in the aggregate amount of $251,500 (which amount is
net of amounts paid by Dr. Jones to purchase certain personal property from the
Company). Under the terms of the Letter of Resignation, certain options and
warrants to purchase Common Stock of the Company held by Dr. Jones were canceled
and options to purchase 705,000 shares of the Company's Common Stock at an
exercise price of $2.25 per share were issued to Dr. Jones in their place.
Allen & Company Incorporated acted as a non-exclusive placement agent
in connection with the January Private Placement and received 20,000 shares of
Common Stock of the Company as a placement agent fee. As of July 31, 1997, Allen
& Company Incorporated beneficially held approximately 18.1% of the Company's
Common Stock.
Mr. Richard Crooks, Jr., a director of the Company, is a director of
and consultant to, Allen & Company Incorporated, as a principal stockholder of
the Company. As of July 31 ,1997, Mr. Crooks beneficially held approximately
3.2% of the Company's Common Stock.
19.
<PAGE> 22
Allen & Company Incorporated is compensated for investment banking
services rendered to the Company under a one year consulting agreement
specifying monthly payments of $5,000. In 1996, the Company paid Allen & Company
Incorporated a total of $20,000 under this agreement.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"),
the Company has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
In addition, the Company's Certificate of Incorporation and By-laws
include provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by Section 102(b)(7) of the DGCL and (ii) require the Company to
indemnify its directors and officers to the fullest extent permitted by
applicable law, including circumstances in which indemnification is otherwise
discretionary. Pursuant to Section 145 of the DGCL, a corporation generally has
the power to indemnify its present and former directors, officers, employees and
agents against expenses incurred by them in connection with any suit to which
they are or are threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a manner they
reasonably believed to be in or not opposed to, the best interests of the
corporation and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The Company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers. These provisions do not eliminate the directors' or officers' duty
of care, and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under the
DGCL. In addition, each director will continue to be subject to liability
pursuant to Section 174 of the DGCL, for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for acts or omissions
that the director believes to be contrary to the best interests of the Company
or its stockholders, for any transaction from which the director derived an
improper personal benefit, for acts or omissions involving a reckless disregard
for the director's duty to the Company or its stockholders when the director was
aware or should have been aware of a risk of serious injury to the Company or
its stockholders, for acts or omission that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company and for improper loans to directors and officers. The provision also
does not affect a director's responsibilities under any other law, such as the
federal securities law or state or federal environmental laws.
20.
<PAGE> 23
OTHER MATTERS
The Board knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy card to vote on such matters in accordance with their best judgment.
THE COMPANY WILL FURNISH TO RECORD AND BENEFICIAL HOLDERS OF ITS COMMON STOCK
UPON REQUEST, FREE OF CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UPON WRITTEN REQUEST TO: SUSAN E. FEINER, CORPORATE
SECRETARY, CYPRESS BIOSCIENCE, INC., 4350 EXECUTIVE DRIVE, SUITE 325, SAN DIEGO,
CALIFORNIA 92121.
By Order of the Board of Directors
/s/ SUSAN E. FEINER
Susan E. Feiner, Corporate Secretary
September 2, 1997
21.
<PAGE> 24
EXHIBIT A
FORM OF INDEMNITY AGREEMENT
<PAGE> 25
CYPRESS BIOSCIENCE, INC.
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is made and entered into this ____ day of
____________, 199__ (the "Agreement") by and between CYPRESS BIOSCIENCE, INC., a
Delaware corporation (the "Corporation"), and______________________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his/her
capacity as a [Director/Executive Officer] of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as a
[Director/Executive Officer] of the Corporation, the Corporation has determined
and agreed to enter into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as a
[Director/Executive Officer] after the date hereof, the parties hereto agree as
follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as a
[Director/Executive Officer] of the Corporation or as a director, officer or
other fiduciary of an affiliate of the Corporation (including any employee
benefit plan of the Corporation) faithfully and to the best of [his/her] ability
so long as [he/she] is duly elected and qualified in accordance with the
provisions of the Bylaws or other applicable charter documents of the
Corporation or such affiliate; provided, however, that Agent may at any time and
for any reason resign from such position (subject to any contractual obligation
that Agent may have assumed apart from this Agreement) and that the Corporation
or any affiliate shall have no obligation under this Agreement to continue Agent
in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and
1
<PAGE> 26
the Code, as the same may be amended from time to time (but, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than the Bylaws or the Code permitted prior to adoption of such
amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts ("Liabilities") that Agent becomes legally obligated to pay
because of any claim or claims made against or by him in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative (including an action by
or in the right of the Corporation) to which Agent is, was or at any time
becomes a party, or is threatened to be made a party ("Proceeding"), by reason
of the fact that Agent is, was or at any time becomes a director, officer,
employee or other agent of Corporation, or is or was serving or at any time
serves at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent
by the Corporation under the non-exclusivity provisions of the Code and Section
41 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent
or deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both
the Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
2
<PAGE> 27
(f) in connection with any proceeding (or part thereof) initiated
by Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the Liabilities that
Agent becomes legally obligated to pay in connection with any Proceeding even if
not entitled hereunder to indemnification for the total amount thereof, and the
Corporation shall indemnify Agent for the portion thereof to which Agent is
entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and Agent in the conduct of the defense of such action
or (iii) the Corporation shall not in fact have
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<PAGE> 28
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of Agent's separate counsel shall be at the expense of the
Corporation. The Corporation shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of the Corporation or as to
which Agent shall have made the conclusion provided for in clause (ii) above;
and
(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
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<PAGE> 29
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to
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<PAGE> 30
Cypress Bioscience, Inc.
4350 Executive Drive
Suite 325
San Diego, California 92121
Attention: Chief Executive Officer
or to such other address as may have been furnished to Agent by the Corporation.
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
CYPRESS BIOSCIENCE, INC.
By:_______________________________________
Name:_________________
Title: __________________
------------------------------------------
AGENT
------------------------------------------
Address:
------------------------------------------
------------------------------------------
7
<PAGE> 32
PRELIMINARY COPIES
CYPRESS BIOSCIENCE, INC.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 15, 1997
The undersigned hereby appoints Jay D. Kranzler and Susan E. Feiner, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Cypress Bioscience, Inc.
(the "Company") which the undersigned may be entitled to vote at the 1997 Annual
Meeting of Stockholders of Cypress Bioscience, Inc. to be held at the Marriott
Hotel La Jolla, 4240 La Jolla Village Drive, San Diego, California 92037 on
Wednesday, October 15, 1997 at 12:00 p.m. PST, and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect two directors to hold office until the 2000 Annual Meeting
of Stockholders.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to
(except as marked to the contrary vote for all nominees
below). listed below.
NOMINEES: Jay D. Kranzler, M.D., Ph.D.
Richard M. Crooks, Jr.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Continued and to be signed on other side)
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<PAGE> 33
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3.
PROPOSAL 2: To approve the form of Indemnity Agreement attached as
Exhibit A to the Proxy Statement and to authorize the
Company to enter into individual Indemnity Agreements with
each of its directors and executive officers.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3: To ratify the selection of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated:__________________, 1997 ____________________________________________
____________________________________________
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating title.
If signer is a partnership, please sign in
partnership name by authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
