<PAGE> 1
SCHEDULE 14A INFORMATION
(Rule 14a-101)
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 sec.240.14a-11(c) or sec.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:
(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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[CYPRESS LOGO]
4350 Executive Drive, Suite 325
San Diego, CA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 1998
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 June 30, 1998 at 4:00 p.m. Eastern Standard Time at the Hotel
Intercontinental located at 111 East 48th Street, New York, New York 10017 for
the following purposes:
1. To elect two (2) directors to hold office until the 2001 Annual
Meeting of Stockholders or until their successors are duly elected
and qualified;
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to (i) effect, at any time prior to the
1999 Annual Meeting of Stockholders, a reverse stock split, whereby
the Company would issue one (1) new share of Common Stock of the
Company in exchange for between two (2) and four (4) shares of
outstanding Common Stock and (ii) after giving effect to the
aforesaid reverse stock split, establish the number of authorized
shares of (A) Common Stock at 50,000,000 shares and (B) Preferred
Stock at 15,000,000 shares;
3. To approve an amendment to the 1996 Equity Incentive Plan to increase
the total number of shares of Common Stock authorized for issuance
under such plan from 7,000,000 to 10,000,000 (without giving effect
to the proposed reverse split contemplated by Proposal 2);
4. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998;
and
5. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on May 11, 1998
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
Manny Diaz-Conti
Corporate Secretary
San Diego, California
May 18, 1998
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
YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE, WHICH IS POSTAGE PREPAID
IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
CYPRESS BIOSCIENCE, INC.
4350 EXECUTIVE DRIVE, SUITE 325
SAN DIEGO, CA 92121
--------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 30, 1998
---------------
PROXY STATEMENT
This Proxy Statement and the enclosed proxy card, which the Company
intends to mail to stockholders on or about May 18, 1998, 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 June 30,
1998, at 4:00 p.m. Eastern Standard Time or at any adjournment or postponement
thereof (the "Annual Meeting"). The Annual Meeting will be held at the Hotel
Intercontinental located at 111 East 48th Street, New York, New York 10017.
The Board has fixed May 11, 1998 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, $.02 par value per share
(the "Common Stock"), at the close of business on May 11, 1998 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. At the close of business on
the Record Date, there were outstanding and entitled to vote 38,962,177 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)
the election of management's nominees for director to the class whose term
expires as of the Annual Meeting, (ii) Proposal 2 to approve an amendment to the
Company's Amended and Restated Certificate of Incorporation to effect, at any
time prior to the 1999 Annual Meeting of Stockholders, a reverse stock split of
the Company's Common Stock as more fully described in Proposal 2 herein, (iii)
Proposal 3 to approve an amendment to the Company's 1996 Equity Incentive Plan
(the "1996 Plan") to increase the total number of shares of Common Stock
authorized for issuance under such plan from 7,000,000 to 10,000,000 (without
giving effect to the proposed reverse split contemplated
1.
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by Proposal 2), and (iv) Proposal 4 to ratify the selection of Ernst & Young LLP
as the Company's independent auditor's for the fiscal year ending December 31,
1998. If the instruction on your proxy card 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, other than with respect to Proposal 2, are
not counted for any purpose in determining whether a matter has been approved.
With respect to Proposal 2, as more fully discussed therein, broker non-votes
will have the same effect as negative votes. Election of the nominees for
director set forth in Proposal 1 requires the affirmative vote of a plurality of
the shares of the Company's Common Stock present in person or represented by
proxy and entitled to vote at the Annual Meeting. Approval of Proposal 2
requires the affirmative vote of the holders of a majority of the outstanding
shares of the Company's Common Stock. Approval of Proposal 3 requires the
affirmative vote of the holders of a 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 proposal. Ratification of Proposal 4 requires the
affirmative vote of the holders of a 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 proposal.
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 1999 Annual Meeting of Stockholders, proposals of stockholders
that are intended to be presented at the Company's 1999 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 January 18, 1999.
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
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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.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board shall be divided into three
classes, 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 seven directors serving on the Board and there are currently
no vacancies.
There are two (2) directors in the class whose term of office expires as
of the Annual Meeting. The nominees for election to this class, Messrs. Jack H.
Vaughn and Samuel D. Anderson, are currently directors of the Company. Mr.
Vaughn was originally elected to the Board in 1991 by the Board and Mr. Anderson
was elected to the Board in 1998 by the Board. If elected at the Annual Meeting,
each of Messrs. Vaughn and Anderson will serve until the 2001 Annual Meeting of
Stockholders and until his successor is elected and qualified, or until the
earlier of his 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 Messrs. Vaughn and Anderson. Messrs. Vaughn and Anderson have agreed to serve
if elected, and management has no reason to believe that the nominees will be
unable to serve. In the event that Messrs. Vaughn or Anderson 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 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 Messrs. Vaughn and Anderson.
Set forth below is biographical information for each person nominated
for election for a three-year term expiring at the 2001 Annual Meeting and each
person whose term of office as a director will continue after the Annual
Meeting.
3.
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NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING
JACK H. VAUGHN, 77, 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 from 1981 through 1995 and was a member of its Compensation
Committee.
SAMUEL D. ANDERSON, 62, was elected by the Board to serve as a director
of the Company in April 1998. Since 1991, Mr. Anderson has been an independent
consultant to various medical and research institutions. From 1990 to 1991 he
was President and Chief Executive officer of Trancel Corporation, a
privately-held biotechnology company. From 1984 to 1989 Mr. Anderson was the
Chief Executive Officer of Alpha Therapeutics Corporation, a privately-held
blood plasma fractionator, and between 1989 and 1990 served as its Chairman of
the Board.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
DEBBY JO BLANK, M.D., 46, 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.
PHILIP J. O'REILLY, 59, 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 Excaliber Technologies
Corporation.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
JAY D. KRANZLER, M.D., PH.D., 40, was appointed Chief Executive Officer
and Chairman of the Company in December 1995. In April 1996, Dr. Kranzler also
assumed the position of Chief Scientific Officer of the Company and in November
1997 became the acting Chief Financial Officer of the Company. In April 1998,
Dr. Kranzler was appointed as Chairman of the Board. From January 1989 until
August 1995, Dr. Kranzler served as President, Chief
4.
<PAGE> 7
Executive Officer and a director of Cytel Corporation ("Cytel"), a publicly-held
biotechnology company. Dr. Kranzler has been an adjunct member of the Research
Institute of 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.
RICHARD M. CROOKS, JR., 58, 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.
DAVID GOLDE, M.D., 57, was elected by the Board to serve as a director
of the Company in April 1998. Dr. Golde has been the Physician-in-Chief of
Memorial Sloan-Kettering Cancer Center since 1991 and at UCLA School of Medicine
since 1979. Dr. Golde is a consultant to numerous medical and research
institutions.
BACKGROUND OF NON-DIRECTOR EXECUTIVE OFFICERS
R. MICHAEL GENDREAU, M.D., PH.D., 42, 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, 1997, the Board held five
meetings. During the fiscal year ended December 31, 1997, 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 1997.
5.
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The Compensation Committee 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 1997.
The Stock Option Committee considers and recommends to the Board the
number and terms of stock options to be granted to officers and 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 did not meet
during fiscal year 1997 but did take action several times by unanimous written
consent.
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 certain numbers of options to employees who are not executive officers of
the Company. The Non-Executive Officer Stock Option Committee is composed of two
directors: Drs. Kranzler and Blank. The Non-Executive Officer Stock Option
Committee did not meet during fiscal year 1997 but did take action several times
by unanimous written consent.
The Board did not have a standing Nominating Committee during fiscal
year 1997.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO (I) EFFECT, AT ANY TIME PRIOR TO
THE 1999 ANNUAL MEETING OF STOCKHOLDERS, A REVERSE STOCK SPLIT,
WHEREBY THE COMPANY WOULD ISSUE ONE (1) NEW SHARE OF COMMON STOCK
IN EXCHANGE FOR BETWEEN TWO (2) AND FOUR (4) SHARES OF
OUTSTANDING COMMON STOCK AND (II) AFTER GIVING EFFECT TO THE
AFORESAID REVERSE STOCK SPLIT, ESTABLISH THE NUMBER OF AUTHORIZED
SHARES OF (A) COMMON STOCK AT 50,000,000 SHARES AND (B) PREFERRED
STOCK AT 15,000,000 SHARES
IN GENERAL
The Company's stockholders are being asked in this Proposal 2 to
authorize the Company to amend the Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") to (i) effect, at any time prior to
the 1999 Annual Meeting of Stockholders, a reverse stock split of the Company's
Common Stock whereby the Company would issue one (1) new share of Common Stock
in exchange for between two (2) and four (4) shares of outstanding Common Stock
(the "Reverse Split"), and (ii) after giving effect to the Reverse Split, to
establish the number of authorized shares of (A) Common Stock at 50,000,000 and
(B) Preferred Stock at 15,000,000. The Board has approved, subject to
stockholder approval, the Reverse Split and has directed that the Reverse Split
be submitted to the stockholders of the Company for consideration and action.
The Board believes that stockholder approval of an exchange ratio range (as
opposed
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to approval of a specified exchange ratio) in which the Reverse Split may be
effected will provide the Board with maximum flexibility to achieve the purposes
of the Reverse Split and is in the best interests of the Company and its
stockholders. See "Reasons for the Reverse Split," below.
The complete text of the form of amendment to the Restated Certificate
that would be filed with the office of the Secretary of State of the State of
Delaware to effect the Reverse Split is set forth in Appendix A to this Proxy
Statement; provided, however, that such text is subject to amendment to include
such changes as may be required by the office of the Secretary of State of the
State of Delaware and as the Board deems necessary and advisable to effect the
Reverse Split in the range described above.
REASONS FOR THE REVERSE SPLIT
The Board believes that the Reverse Split is desirable for a number of
reasons. First the Reverse Split is intended to improve the Company's ability to
raise new capital. Second, the Board believes that the Reverse Split will
improve the marketability and liquidity of the Company's Common Stock. Finally,
the Board believes that the Reverse Split will enhance the Company's ability to
have its Common Stock included for listing on the NASDAQ National Market System
(the "Nasdaq/NMS").
The Company will require additional sources of capital to fund its
existing and future product development efforts and clinical trials and to fund
continuing operations. In meetings with its financial advisors, the Company has
been advised that an increase in per share value of the Company's Common Stock,
which the Company expects as a consequence of the Reverse Split, may enhance the
acceptability of the Common Stock by the financial community and the investing
public and broaden the investor pool from which the Company might be able to
obtain additional financing. In theory, the total number of shares outstanding
should not, by itself, affect the marketability of the Common Stock, the type of
investor who acquires it or the Company's reputation in the financial community.
As a practical matter, however, the opposite is in fact often the case. For
example, because of the trading volatility often associated with low-priced
stocks, as a matter of policy many institutional investors are prohibited from
purchasing such stocks. For the same reason, brokers often discourage their
customers from purchasing such stocks. The reduction in the number of
outstanding shares of Common Stock caused by the Reverse Split is anticipated
initially to increase proportionally the per share market price of the Common
Stock. However, because some investors may view the Reverse Split negatively in
that it reduces the number of shares available in the public market, there can
be no assurance that the market price of the Common Stock will reflect
proportionately the Reverse Split, or that such price, if it does rise
proportionally to such levels, will continue to escalate or be sustained in the
future.
The Board also believes that the increased market price of its Common
Stock expected as a result of the Reverse Split will improve the marketability
and liquidity of the Company's Common Stock by appealing to a broader market
than that which currently exists and will encourage interest and trading in the
Common Stock. As previously noted, many brokerage
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houses and institutional investors have internal policies and practices that
either prohibit them from investing in low-priced stocks or tend to discourage
individual brokers from recommending low-priced stocks to their customers. Some
of those policies and practices may function to make the processing of trades in
low-priced stocks economically unattractive to brokers. Additionally, because
broker's commissions on low-priced stocks generally represent a higher
percentage of the stock price than commissions on higher-priced stocks, the
current average price per share of the Company's Common Stock can result in
individual stockholders paying transaction costs representing a higher
percentage of their total share value than would be the case if the share price
were substantially higher. If the Reverse Split is implemented, however, holders
of fewer than 100 shares of Common Stock ("odd-lots") after the Reverse Split is
effected may be charged brokerage fees that are proportionately higher than
holders of more than 100 shares of Common Stock ("round-lots"). The Board is
hopeful that the anticipated higher market price will reduce, to some extent,
the negative effects on the liquidity and marketability of the Company's Common
Stock inherent in some of the policies and practices of institutional investors
and brokerage houses described above.
The Board also believes that the proposed Reverse Split will enhance the
Company's ability to have its stock included in and listed on the Nasdaq/NMS,
thereby potentially increasing the marketability and liquidity of the Company's
Common Stock. The Company's Common Stock is currently traded in the
over-the-counter market and is quoted on the Nasdaq SmallCap Market under the
symbol "CYPB." During the period from January 1, 1998 to April 15, 1998, the
closing sales price per share of the Company's Common Stock ranged from a high
of $3.38 to a low of $1.34. There are several requirements that the Company must
meet before its Common Stock would be eligible for initial inclusion on the
Nasdaq/NMS, one of which is that the Company's Common Stock have a minimum
market price of $5.00. The Board believes that the Company currently is able to
satisfy all of the Nasdaq/NMS initial listing requirements except the $5.00
minimum market price requirement. Although there can be no assurance that the
Company will be able to satisfy the Nasdaq/NMS listing requirements in the
future, the Board believes that the Reverse Split, when implemented within the
proposed exchange ratio, will result in the market price of the Company's Common
Stock rising to the level necessary to satisfy the Nasdaq/NMS's $5.00 minimum
market price initial listing requirement.
BOARD DISCRETION TO IMPLEMENT REVERSE SPLIT
If the Reverse Split is approved by the stockholders of the Company at
the Annual Meeting, the Reverse Split will be effected, if at all, only upon a
determination by the Board, after consultation with its financial advisors, that
the Reverse Split (in an exchange ratio determined by the Board upon advice of
its financial advisors within the limits set forth in this Proposal 2) is in the
best interests of the Company and its stockholders. Such determination shall be
based upon certain factors, including but not limited to, availability of
additional working capital, existing and expected marketability and liquidity of
the Common Stock, prevailing market conditions and the likely effect on the
market price of the Common Stock. Notwithstanding approval of the Reverse Split
by the stockholders, the Board may, in its sole discretion, determine not to
effect the Reverse Split prior to the 1999 Annual Meeting of
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Stockholders. If the Board fails to implement the Reverse Split prior to such
meeting, stockholder approval again would be required prior to implementing any
reverse split.
EFFECTS OF THE REVERSE SPLIT ON REGISTRATION AND VOTING RIGHTS
The Company's Common Stock is currently registered under Section 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
Company is subject to the periodic reporting and other requirements of the
Exchange Act. The Reverse Split will not affect the registration of the
Company's Common Stock under the Exchange Act. After the Reverse Split, the
Company's Common Stock will continue to be reported on the Nasdaq SmallCap
Market under the symbol "CYPB" (although the Nasdaq will add the letter "D" to
the end of the trading symbol for a period of 20 trading days to indicate the
Reverse Split has occurred).
Proportionate voting rights and other rights of the holders of Common
Stock will not be affected by the Reverse Split (other than as a result of the
payment of cash in lieu of fractional shares as described below). For example, a
holder of 2% of the voting power of the outstanding shares of Common Stock
immediately prior to the effective time of the Reverse Split will continue to
hold 2% of the voting power of the outstanding shares of Common Stock after the
Reverse Split. Although the Reverse Split will not affect the rights of
stockholders or any stockholder's proportionate equity interest in the Company
(subject to the treatment of fractional shares), the disproportionate decrease
in the number of authorized shares with respect to the exchange ratio of the
Reverse Split will increase the ability of the Board to issue such authorized
and unissued shares without further stockholder action. The number of
stockholders of record will not be affected by the Reverse Split (except to the
extent that any stockholder holds only a fractional share interest and receives
cash for such interest after the Reverse Split).
EFFECT ON STOCK OPTIONS, WARRANTS AND PAR VALUE
The Reverse Split will effect a reduction in the number of shares of
Common Stock available for issuance under the Company's 1996 Equity Incentive
Plan (the "1996 Plan") in proportion to the exchange ratio of the Reverse Split.
The number of shares of Common Stock currently authorized for issuance under the
1996 Plan is 7,000,000 (prior to giving effect to the Reverse Split and the
proposed increase in the number of authorized shares under Proposal 3, below).
The par value of the Company's Common Stock and Preferred Stock will remain at
$0.02 per share following the effective time of the Reverse Split, while the
number of shares of Common Stock issued and outstanding will be reduced.
Consequently, the aggregate par value of the issued and outstanding Common Stock
also will be reduced. In addition, because the number of authorized shares of
Common Stock will be disproportionately decreased with respect to the exchange
ratio of the Reverse Split and the authorized number of shares of Preferred
Stock will remain the same, the number of authorized but unissued shares of
Common Stock and Preferred Stock effectively will be increased by the Reverse
Split. The issuance of such additional authorized shares may have the effect of
diluting the earnings per share and book value per share, as well as the stock
ownership and voting rights, of outstanding Common Stock. The effective increase
in the number of authorized but unissued shares of Common Stock and
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Preferred Stock may be construed as having an anti-takeover effect by permitting
the issuance of shares to purchasers who might oppose a hostile takeover bid or
oppose any efforts to amend or repeal certain provisions of the Company's
Certificate of Incorporation or Bylaws.
The Company also has outstanding certain stock options and warrants to
purchase shares of the Company's Common Stock. Under the terms of the
outstanding stock options and warrants, the Reverse Split will effect a
reduction in the number of shares of Company Common Stock issuable upon exercise
of such stock options and warrants in proportion to the exchange ratio of the
Reverse Split and will effect a proportionate increase in the exercise price of
such outstanding stock options and warrants. In connection with the Reverse
Split, the number of shares of Common Stock issuable upon exercise of
outstanding stock options and warrants will be rounded to the nearest whole
share and no cash payment will be made in respect of such rounding.
EFFECTIVE DATE
The Reverse Split would become effective as of the close of business on
the date of filing (the "Effective Date") a Certificate of Amendment to the
Restated Certificate with the office of the Secretary of State of the State of
Delaware. Except as explained below with respect to fractional shares, on the
Effective Date, each share of Common Stock issued and outstanding immediately
prior thereto (the "Old Common Stock"), will be, automatically and without any
action on the part of the stockholders, converted into between 1/2 and 1/4 of a
share of the Company's Common Stock proposed to be issued in connection with the
Reverse Split (the "New Common Stock").
PAYMENT FOR FRACTIONAL SHARES
No fractional shares of New Common Stock will be issued as a result of
the Reverse Split. In lieu of any such fractional share interest, each holder of
Old Common Stock who as a result of the Reverse Split would otherwise receive a
fractional share of New Common Stock will be entitled to receive cash in an
amount equal to the product obtained by multiplying (i) the closing sales price
of the Company's Common Stock on the Effective Date as reported in the Wall
Street Journal by (ii) the number of shares of Old Common Stock held by such
holder that would otherwise have been exchanged for such fractional share
interest. Such amount will be issued to such holder in the form of a check in
accordance with the exchange procedures outlined under "Exchange of Stock
Certificates," below.
EXCHANGE OF STOCK CERTIFICATES
Shortly after the Effective Date, each holder of an outstanding
certificate theretofore representing shares of Old Common Stock will receive
from American Stock Transfer & Trust Company, as the Company's exchange agent
(the "Exchange Agent") for the Reverse Split, instructions for the surrender of
such certificate to the Exchange Agent. Such instructions will include a form of
Transmittal Letter to be completed and returned to the Exchange Agent. As soon
as practicable after the surrender to the Exchange Agent of any certificate
which prior to the
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Reverse Split represented shares of Old Common Stock, together with a duly
executed Transmittal Letter and any other documents the Exchange Agent may
specify, the Exchange Agent shall deliver to the person in whose name such
certificate had been issued certificates registered in the name of such person
representing the number of full shares of New Common Stock into which the shares
of Old Common Stock previously represented by the surrendered certificate shall
have been reclassified and a check for any amounts to be paid in cash in lieu of
any fractional share interest. Each certificate representing shares of New
Common Stock issued in connection with the Reverse Split will continue to bear
any legends restricting the transfer of such shares that were borne by the
surrendered certificates representing the shares of Old Common Stock. Until
surrendered as contemplated herein, each certificate which immediately prior to
the Reverse Split represented any shares of Old Common Stock shall be deemed at
and after the Reverse Split to represent the number of full shares of New Common
Stock contemplated by the preceding sentence.
No service charges, brokerage commissions or transfer taxes shall be
payable by any holder of any certificate which prior to approval of the Reverse
Split represented any shares of Old Common Stock, except that if any
certificates of New Common Stock are to be issued in a name other than that in
which the certificates for shares of Old Common Stock surrendered are
registered, it shall be a condition of such issuance that (i) the person
requesting such issuance shall pay to the Company any transfer taxes payable by
reason thereof (or prior to transfer of such certificate, if any) or establish
to the satisfaction of the Company that such taxes have been paid or are not
payable, (ii) such transfer shall comply with all applicable federal and state
securities laws, and (iii) such surrendered certificate shall be properly
endorsed and otherwise be in proper form for transfer.
NO APPRAISAL RIGHTS
Under Delaware law, stockholders of the Company are not entitled to
appraisal rights with respect to the proposed Reverse Split.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
A summary of the federal income tax consequences of the proposed Reverse
Split on the Company and to individual stockholders is set forth below. The
following discussion is based upon present federal income tax law. The
discussion is not intended to be, nor should it be relied on as, a comprehensive
analysis of the tax issues arising from or relating to the proposed Reverse
Split. In addition, the Company has not and will not seek an opinion of counsel
or a ruling from the Internal Revenue Service regarding the federal income tax
consequences of the proposed Reverse Split. ACCORDINGLY, STOCKHOLDERS ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISORS FOR MORE DETAILED INFORMATION
REGARDING THE EFFECTS OF THE PROPOSED REVERSE SPLIT ON THEM UNDER APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX LAWS.
It is intended that the Reverse Split will constitute a reorganization
(a "Reorganization") within the meaning of Section 368(a)(1)(E) of the Internal
Revenue Code of 1986, as amended.
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Assuming that the Reverse Split qualifies as a Reorganization, the following
federal income tax consequences should result:
1. A stockholder will not recognize any gain or loss as a result of the
Reverse Split except to the extent a stockholder receives cash in lieu of a
fractional share. To the extent a stockholder receives cash in lieu of a
fractional share, for tax purposes the stockholder will be deemed to have sold
the fractional share to the Company. Although it is impossible to predict with
certainty the tax consequences to any individual stockholder, in all
probability, such stockholder will recognize a gain or loss as a result of the
repurchase of a fractional share equal to the difference between (i) the
stockholder's proportionate adjusted basis in such fractional share, and (ii)
the cash amount received for such fractional share. Any gain will be treated as
short-term capital gain taxable at a maximum federal income tax rate of 39.6% if
the stockholder has held his shares for one year or less prior to the Effective
Date, mid-term capital gain taxable at a maximum federal income tax rate of 28%
if the stockholder has held his shares for more than one year but not more than
18 months prior to the Effective Date, or long-term capital gain taxable at a
maximum federal income tax rate of 20% if the stockholder has held his shares
for more than 18 months prior to the Effective Date.
2. The aggregate tax basis of the shares of New Common Stock received by
the stockholder pursuant to the Reverse Split will equal the aggregate tax basis
of the shares of Old Common Stock held by the stockholder immediately prior to
the Effective Date of the Reverse Split reduced by any basis allocated to a
fractional share for which the stockholder receives cash. The stockholder will
be able to "tack" the holding period of the Old Common Stock prior to the
Reverse Split to the holding period of the New Common Stock received by the
stockholder as a result of the Reverse Split, provided that the shares of Old
Common Stock were capital assets in the hands of the stockholder.
3. The Company will not recognize gain or loss as a result of the Reverse
Split.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of
Common Stock outstanding and entitled to vote is necessary to approve the
Reverse Split and the amendment to the Restated Certificate to effect the
Reverse Split.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR PROPOSAL 2
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<PAGE> 15
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO THE 1996 EQUITY INCENTIVE PLAN TO
INCREASE THE TOTAL NUMBER OF SHARES OF COMMON STOCK AUTHORIZED
FOR ISSUANCE UNDER SUCH PLAN FROM 7,000,000 TO 10,000,000
(WITHOUT GIVING EFFECT TO THE PROPOSED REVERSE SPLIT CONTEMPLATED
BY PROPOSAL 2)
In April 1996, the stockholders of the Company approved the adoption of
the Company's 1996 Equity Incentive Plan (the "1996 Plan"). Under the 1996 Plan,
7,000,000 shares of Common Stock were authorized for issuance to directors,
officers and employees of and consultants to the Company pursuant to stock
options and other stock awards granted to such persons under the 1996 Plan.
In April 1998, the Board unanimously approved an amendment to the 1996
Plan to, subject to stockholder approval, increase the total number of shares
authorized for issuance thereunder from 7,000,000 shares to 10,000,000 shares
(which increase does not give effect to the Reverse Split contemplated in
Proposal 2 above). Under applicable law, the stockholders of the Company are
required to approve any amendment to the 1996 Plan that would increase the
number of shares authorized for issuance thereunder. The total number of shares
authorized for issuance shall be appropriately adjusted if the Reverse Split is
effected.
As of April 15, 1998, options (net of canceled or expired options) to
purchase an aggregate of 6,457,553 shares of the Company's Common Stock had been
granted to employees and consultants under the 1996 Plan, 131,126 shares had
been issued upon exercise of options granted under the 1996 Plan and 411,321
shares remained available for grant under the 1996 Plan (which amount does not:
(i) include any shares that might in the future be returned to the 1996 Plan as
a result of cancellations or expiration of options, (ii) include the increase in
the number of shares issuable under the 1996 Plan as described in this Proposal
3 or (iii) give effect to the Reverse Split contemplated in Proposal 2 above).
The Board approved the increase in the total number of shares of Common
Stock authorized for issuance under the 1996 Plan to ensure that the Company can
continue to attract and has the flexibility to reward, through stock ownership
in the Company, high caliber directors, officers, employees and consultants at
levels determined appropriate by the Board or an authorized committee of the
Board.
REQUIRED VOTE OF STOCKHOLDERS
The affirmative vote 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 approve the amendment to the 1996
Plan requested in this Proposal 3. Abstentions will be considered shares
entitled to vote in the tabulation of votes cast on this Proposal 3 and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purposes in determining whether this matter
has been approved. The
13.
<PAGE> 16
Company believes that all its executive 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.
The essential features of the 1996 Plan, as amended, are outlined below:
GENERAL
The 1996 Plan permits the granting of options intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1996, as amended (the "Code") and the granting of options that
do not so qualify or "nonstatutory stock options." Incentive stock options and
nonstatutory stock options are collectively referred to herein as "Options." See
"Federal Income Tax Information" for a discussion of the tax treatment of
incentive and nonstatutory stock options. In addition, the 1996 Plan permits the
granting of stock appreciation rights ("SARs") in connection with incentive or
nonstatutory stock options or independently the granting of stock bonuses and
the granting of rights to purchase restricted stock. (All permitted grants of
options, SARs, stock bonuses and rights to purchase restricted stock are
sometimes hereinafter collectively referred to as the "Stock Awards"). Any
proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
PURPOSE
The 1996 Plan was adopted to provide a means by which directors,
officers and employees of and consultants to the Company and its affiliates
could be given an opportunity to benefit from increases in the value of the
Common Stock of the Company, to assist in retaining the services of employees
holding key positions, to secure and retain the services of persons capable of
filling such positions and to provide incentives for such persons to exert
maximum efforts for the success of the Company. Approximately 61 of the
Company's employees and consultants are eligible to participate in the 1996
Plan.
ADMINISTRATION
The 1996 Plan is administered by the Board which generally has the power
to perform such acts as it deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan. In addition, the Board has the power to construe and interpret the 1996
Plan and, subject to the provisions of the 1996 Plan to, among other things,
determine the persons to whom and the dates on which Stock Awards will be
granted, the type of Stock Award to be granted, the number of shares to be
subject to each Stock Award, the time or times during the term of each Stock
Award within which all or a portion of such Stock Award may be exercised, the
exercise price, the type of consideration and other terms of the Stock Award.
The Board is authorized to delegate administration of the 1996 Plan to a
committee composed of not fewer than two members of the Board.
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<PAGE> 17
The Board has delegated administration of the 1996 Plan to the Stock
Option Committee of the Board. The members of the Stock Option Committee are
currently Messrs. Crooks and O'Reilly. The Board may abolish the Stock Option
Committee at any time and revest in the Board the administration of the 1996
Plan. As used herein with respect to the 1996 Plan, the "Board" refers to the
Stock Option Committee as well as to the Board itself.
In February 1996, the Stock Option Committee created the Non-Executive
Officer Stock Option Committee which committee consists of two directors. The
Non-Executive Officer Stock Option Committee has been given the authority to
grant Options to eligible persons who are not executive officers of the Company;
provided, however, that the number of shares subject to such grants made may not
exceed 750,000 during the period between any two consecutive meetings of the
Board, with the specific number of shares subject to Options granted by the
Non-Executive Officer Stock Option Committee during such period to be reported
at the next meeting of the Board. The members of the Non-Executive Officer Stock
Option Committee are currently Drs. Kranzler and Blank.
Section 162(m) of the Code requires that, in order to have stock options
qualify as "incentive stock options" and not apply to the $1,000,000 threshold
for Section162(m), THE directors who serve as members of a committee must be
"outside directors." The 1996 Plan provides that, directors serving on a
committee of the Board may be, in the discretion of the Board, "non-employee
directors" and/or "outside directors" within the meaning of the 1996 Plan.
ELIGIBILITY
Pursuant to the terms of the 1996 Plan, incentive stock options and SARs
granted appurtenant thereto may be granted only to employees (including
officers) of the Company and its affiliates. Stock Awards other than incentive
stock options and SARs appurtenant thereto may be granted under the 1996 Plan
only to employees (including officers), directors and consultants.
No Option or award to purchase restricted stock may be granted under the
1996 Plan to any person who, at the time of the grant, owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of capital stock of the
Company or any affiliate of the Company, unless the Option exercise price is at
least one hundred ten percent (110%) of the fair market value of the stock
subject to the Option on the date of grant and the term of the Option does not
exceed five years from the date of grant or, in the case of a restricted stock
purchase award, the purchase price is at least one hundred percent (100%) of the
fair market value of such stock on the date of grant. For incentive stock
options granted under the 1996 Plan, the aggregate fair market value, determined
at the time of grant, of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by an optionee during
any calendar year (under all such plans of the Company and its affiliates) may
not exceed $100,000.
In addition to the foregoing restrictions, no person shall be eligible
to be granted Options and SARs covering more than three million fifty thousand
(3,050,000) shares of the Company's Common Stock in any one calendar year
period.
15.
<PAGE> 18
SHARES SUBJECT TO THE 1996 PLAN
The shares of stock that may be issued under the 1996 Plan shall not
exceed in the aggregate ten million (10,000,000) (after giving effect to the
increase in number of shares contemplated by this Proposal 3, but prior to
giving effect to the proposed Reverse Split contemplated by Proposal 2), subject
to adjustment as provided in the 1996 Plan. If Stock Awards granted under the
1996 Plan expire or otherwise terminate without being exercised, the Common
Stock not purchased pursuant to such options again becomes available for
issuance under the 1996 Plan. Shares subject to SARs exercised in accordance
with the 1996 Plan shall not be available for subsequent issuance under the 1996
Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of Options
granted under the 1996 Plan. Individual Option grants may be more restrictive as
to any or all of the permissible terms described below.
Exercise Price, Payment. The exercise price of incentive stock options
granted under the 1996 Plan shall not be less than 100% of the fair market value
of the Common Stock subject to such option on the date of such option grant, and
in some cases (see "Eligibility" above), may not be less than 110% of such fair
market value. The exercise price of nonstatutory stock options granted under the
1996 Plan shall not be less than 85% of the fair market value of the Common
Stock subject to such option on the date of such option grant. Notwithstanding
the foregoing, an incentive stock option or nonstatutory stock option may be
granted with an exercise price lower than that set forth in the preceding
sentences if the Option is granted pursuant to an assumption or substitution for
another Option in a manner satisfying the provisions of Section 424(a) of the
Code. However, if Options were granted with exercise prices below market value,
deductions for compensation attributable to the exercise of such Options could
be limited by Section 162(m). See "Federal Income Tax Information." The closing
price of the Company's Common Stock as reported on the Nasdaq SmallCap Market on
April 15, 1998 was $3.03.
In the event of a decline in the value of the Company' s Common Stock,
the Board has the authority to offer employees the opportunity to replace
outstanding higher priced Options, whether incentive or nonstatutory, with new
lower priced Options. To the extent required by Section 162(m), an Option
replaced under the 1996 Plan is deemed to be canceled and a new Option granted.
Both the Option deemed to be canceled and the new Option deemed to be granted
will be counted against the 3,050,000 share limitation.
The exercise price of Options granted under the 1996 Plan must be paid
either: (a) in cash at the time the Option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) according to a deferred payment arrangement (except that payment of the
Common Stock's "par value" (as defined in the Delaware General Corporation Law)
may not be made by deferred payment), or (c) in any other form of legal
consideration acceptable to the Board. In the case of any deferred payment
arrangement, interest shall be payable at least annually and shall be charged at
the minimum rate of interest necessary to avoid
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<PAGE> 19
the treatment as interest, under any applicable provisions of the Code, of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.
Vesting of Options. The total number of shares of stock subject to an
Option granted under the 1996 Plan may, but need not, be allotted in periodic
installments (which may, but need not, be equal). The Option agreement may
provide that from time to time during each of such installment periods, the
Option may become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or all of the
shares allotted to such period and/or any prior period as to which the Option
became vested but was not fully exercised. The Option may be subject to such
other terms and conditions on the time or times when it may be exercised (which
may be based on performance or other criteria) as the Board may deem
appropriate. The vesting provisions of individual Options may vary but in each
case will provide for vesting of at least twenty percent (20%) per year of the
total number of shares subject to the Option. The vesting provisions contained
in the 1996 Plan are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
Early Exercise. Options granted under the 1996 Plan may, but need not,
include a provision whereby an optionee may elect at any time while an employee,
director or consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased shall be subject to a repurchase right in favor of
the Company, with the repurchase price to be equal to the original purchase
price of the stock or to any other restriction the Board determines to be
appropriate; provided however, that (i) the right to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
over five (5) years from the date the Option was granted, and (ii) such right
shall be exercisable only within (A) the ninety (90) day period following the
termination of employment or the relationship as a director or consultant, or
(B) such longer period as may be agreed to by the Company and the optionee (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code (regarding "qualified small business stock")), and (iii) such right
shall be exercisable only for cash or cancellation of purchase money
indebtedness for the shares. Should the right of repurchase be assigned by the
Company, the assignee shall pay the Company cash equal to the difference between
the original purchase price and the stock's fair market value if the original
purchase price is less than the stock's fair market value.
Term. The maximum term of Options granted under the 1996 Plan is 10
years, except that in certain cases (see "Eligibility") the maximum term is five
years. Generally, Options granted under the 1996 Plan terminate on the earlier
of (i) three months after termination of the optionee's employment or
relationship as a employee, director or consultant of the Company or any
affiliate of the Company or (ii) the expiration of the term of the Option as set
forth in the Option, unless (a) such termination is due to such person's
permanent and total disability (as defined in the Code), in which case the
Option may, but
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need not, provide that it may be exercised at any time within one year of such
termination; (b) the optionee dies while employed by or serving as a consultant
or director of the Company or any affiliate of the Company, or within three
months after termination of such relationship, in which case the Option may, but
need not, provide that it may be exercised (to the extent the Option was
exercisable at the time of the optionee's death) within eighteen months of the
optionee's death by the person or persons to whom the rights to such Option pass
by will or by the laws of descent and distribution; or (c) the Option by its
terms specifically provides otherwise. Individual Options by their terms may
provide for exercise within a longer period of time following termination of
employment or the consulting relationship. The Option term may also be extended
in the event that exercise of the Option within these periods is prohibited for
specified reasons.
RE-LOAD OPTIONS
Without in any way limiting the authority of the Board to make or not to
make grants of Options under the 1996 Plan, the Board shall have the authority
(but not an obligation) to include as part of any Option agreement a provision
entitling the optionee to a further Option (a "Re-Load Option") in the event the
optionee exercises the Option evidenced by the Option agreement, in whole or in
part, by surrendering other shares of Common Stock in accordance with the terms
of the 1996 Plan and the terms and conditions of the Option agreement. Any such
Re-Load Option may be an incentive stock option or a nonstatutory stock option,
as the Board may designate at the time of the grant of the original Option;
provided however, that the designation of any Re-Load Option as an incentive
stock option shall be subject to the one hundred thousand dollar ($100,000)
annual limitation on exercisability of incentive stock options.
TERMS OF STOCK BONUSES, RESTRICTED STOCK AND SARS
Under the 1996 Plan, the Board may grant to eligible persons stock
bonuses or may sell shares of the Company's Common Stock to such eligible
persons pursuant to restricted stock purchase agreements. The terms of such
stock bonuses are similar to those for other Stock Awards granted under the 1996
Plan. In addition to stock options and stock bonuses, the Board may also grant
to eligible persons SARs. Under the 1996 Plan, the Board may grant tandem SARs,
concurrent SARs or independent SARs.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1996 Plan or subject
to any Stock Award granted under the 1996 Plan without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the 1996 Plan will be appropriately
adjusted as to the type of securities and the maximum number of shares subject
to such plan, the maximum number of shares which may be granted to an employee
during a calendar year, and. the type of securities, number of shares and price
per share of stock subject to such outstanding options. Accordingly, such an
adjustment will occur if the Reverse Split is effected.
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EFFECT OF CERTAIN CORPORATE EVENTS
The 1996 Plan provides that, in the event of a specified type of merger
or other corporate reorganization of the Company, to the extent permitted by
law, any surviving corporation or affiliate of such surviving corporation will
be required to either assume Stock Awards outstanding under the 1996 Plan or
substitute similar Stock Awards for those outstanding under such plan, or such
outstanding Stock Awards will, subject to the next sentence, continue in full
force and effect. In the event that any surviving corporation or affiliate of
such surviving corporation declines to assume or continue Stock Awards
outstanding under the 1996 Plan, or to substitute similar Stock Awards, then the
time during which such Stock Awards may be exercised will be accelerated and the
Stock Awards terminated if not exercised during such time. The acceleration of a
Stock Award in the event of an acquisition or similar corporate event may be
viewed as an antitakeover provision, which may have the effect of' discouraging
a proposal to acquire or otherwise obtain control of the Company. In the event
of a dissolution or liquidation of the Company, any Stock Awards outstanding
under the 1996 Plan shall terminate if not exercised prior to such event.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1996 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1996 Plan will terminate on January 16, 2006.
The Board may also amend the 1996 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Exchange Act); (b) increase the number of shares
reserved for issuance upon exercise of Stock Awards; or (c) change any other
provision of the Plan in any other way if such modification requires stockholder
approval in order to comply with Rule 16b-3 or satisfy the requirements of
Section 422 of the Code. The Board may submit any other amendment to the 1996
Plan for stockholder approval, including, but not limited to, amendments
intended to satisfy the requirements of Section 162(m) of the Code regarding the
exclusion of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the 1996 Plan, an incentive stock option may not be transferred by
the optionee otherwise than by will or by the laws of descent and distribution
and during the lifetime of the optionee, may be exercised only by the optionee.
A nonstatutory stock option may not be transferred except by will or by the laws
of descent and distribution or by directors and certain officers of the Company
for estate planning purposes. In addition, shares subject to repurchase by the
Company under an early exercise stock purchase agreement may be subject to
restrictions on transfer which the Board deems appropriate. Notwithstanding the
foregoing, the person to
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whom the Option is granted may designate a third party who, in the event of the
death of the optionee, shall thereafter be entitled to exercise the Option.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1996 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which such option is
granted and at least one year from the date on which the shares are transferred
to the optionee upon exercise of such option, any gain or loss on a disposition
of such stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (i) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(ii) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss, upon the disqualifying disposition will
be a capital gain or loss, which will be long-term or short-term depending on
whether the stock was held for more than one year. Long-term capital gains
currently are generally subject to lower tax rates than ordinary income. The
maximum capital gains rate for federal income tax purposes is currently 28%
while the maximum ordinary income rate is effectively 39.6% at the present time.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1996 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionee normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized.
20.
<PAGE> 23
Subject to the requirement of reasonableness, the provisions of Section
162(m) of the Code and the satisfaction of a tax reporting obligation, the
Company will generally be entitled to a business expense deduction equal to the
taxable ordinary income realized by the optionee. Upon disposition of the stock,
the optionee will recognize a capital gain or loss equal to the difference
between the selling price and the sum of the amount paid for such stock plus any
amount recognized as ordinary income upon exercise of the nonstatutory stock
option. Such gain or loss will be long or short-term depending on whether the
stock was held for more than one year. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add
Section 162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the stock option is granted by a committee comprised solely of
"outside directors" and either: (i) the option plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period, the per-employee limitation is approved by the stockholders,
and the exercise price of the option is no less than the fair market value of
the stock on the date of grant; or (ii) the option is granted (or exercisable)
only upon the achievement (as certified in writing by the compensation
committee) of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain, and the
option is approved by stockholders.
21.
<PAGE> 24
SCHEDULE OF PLAN BENEFITS AWARDED
The following table presents certain information with respect to Options
granted under the 1996 Plan for the fiscal year ended December 31, 1997, to (i)
the executive officers of the Company named in the Summary Compensation Table
under "Compensation of Directors and Executive Officers" below, (ii) all
executive officers as a group, (iii) all current directors who are not executive
officers ("Non-Employee Directors") as a group, and (iv) all employees,
including all current officers who are not executive officers ("Non-Executive
Officer Employees") as a group. Option grants are made by the Board, the Stock
Option Committee or the Non-Executive Officer Stock Option Committee. Future
grants of Options to directors, officers and employees are not presently
determinable and the number of Options granted under the 1996 Plan during the
fiscal year ended December 31, 1997 is not necessarily indicative of the number
of Options that will be granted in the future.
1996 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
Number of
Shares Subject
Dollar to Options
Name and Position Value(1)($) Granted(2)
- --------------------------------------------------------- ----------- --------------
<S> <C> <C>
Jay D. Kranzler ......................................... $450,840 277,440
Chief Executive Officer, Chief Scientific Officer
and Vice Chairman
Debby Jo Blank .......................................... $164,799 101,415
President, Chief Operating Officer and Director
R. Michael Gendreau ..................................... $ -- --
Vice President, Research and Development and Chief
Medical Officer
All Executive Officers as a Group ....................... $615,639 378,855
All Non-Employee Directors as a Group ................... $ -- --
All Non-Executive Officer Employees
as a Group ........................................... $559,438 319,000
</TABLE>
(1) Calculated by multiplying the exercise price of the Option by the number
of shares of Common Stock underlying the Option.
(2) Represents the number of Options granted under the 1996 Plan during the
fiscal year ended December 31, 1997 and is not necessarily indicative of
the number of Options to be granted in the future.
22.
<PAGE> 25
PROPOSAL 4
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,
1998 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, 1996 and 1997. 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 4.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4
23.
<PAGE> 26
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January 30, 1998 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 January
30, 1998 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 ........... 5,727,809(3) 14.7%
711 Fifth Avenue
New York, New York 10022
Paramount Capital Asset Management,
Inc. ................................ 5,190,468(4) 13.4%
787 Seventh Avenue, 44th Floor
New York, NY 10019
Jay D. Kranzler ........................ 2,616,339(5) 6.3%
Debby Jo Blank ......................... 1,119,084(6) 2.9%
R. Michael Gendreau .................... 199,155(7) *
Richard M. Crooks, Jr .................. 1,131,897(8) 2.9%
Jack H. Vaughn ......................... 56,000(9) *
Philip J. O'Reilly ..................... 84,625(10) *
Samuel D. Anderson(11) ................. -- *
David Golde(12) ........................ -- *
All Directors and Named Executive
Officers as a Group (8 persons) ...... 5,207,100(13) 12.3%
</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 January 30, 1998 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 38,652,003 shares of the Company's Common Stock
outstanding as of January 30, 1998.
(3) This information was derived from information provided to the Company by
Allen & Company Incorporated. Includes warrants to purchase 356,980
shares of Common Stock exercisable within 60 days of January 30, 1998.
(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"). Includes
warrants to purchase 37,500 shares of Common Stock held by Aries
Domestic and warrants to purchase 87,500 shares of Common Stock held by
The Aries Trust, in each case such warrants being exercisable within 60
days of January 30, 1998. Of the 5,190,468 shares of Common Stock
(including warrants) indicated as beneficially held, Paramount Capital
shares voting and dispositive power with the following persons or
entities: Dr. Rosenwald with respect to 5,190,468 of the shares; Aries
Domestic with respect to 1,623,617 of the shares; and The Aries Trust
with respect to 3,566,851 of the shares.
24.
<PAGE> 27
(5) Includes 2,386,095 shares of Common Stock issuable pursuant to options
exercisable within 60 days of January 30, 1998. Also includes 220,244
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 893,840 shares of Common Stock issuable pursuant to options
exercisable within 60 days of January 30, 1998. Also includes 220,244
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 199,155 shares of Common Stock issuable pursuant to options
exercisable within 60 days of January 30, 1998.
(8) Includes 40,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of January 30, 1998. 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.
(9) Includes 55,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of January 30, 1998.
(10) Includes 40,000 shares of Common Stock issuable pursuant to options or
other rights exercisable within 60 days of January 30, 1998.
(11) Mr. Samuel D. Anderson was elected to the Board on March 9, 1998.
Accordingly, Mr. Anderson's beneficial ownership of securities of the
Company is not reflected as of January 30, 1998.
(12) Mr. David Golde was elected to the Board on March 31, 1998. Accordingly,
Mr. Golde's beneficial ownership of securities of the Company is not
reflected as of January 30, 1998.
(13) Includes 3,620,757 shares of Common Stock issuable pursuant to
outstanding options and warrants exercisable within 60 days of January
30, 1998. Also includes 220,244 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 1997
all of 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.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Each nonemployee director of the Company is entitled to receive between
$12,000 and $24,000 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 1997. 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, provided
however, that each of Messrs. Anderson and Golde received an option to purchase
100,000 shares of Common Stock of the Company upon their initial election to the
Board and are not entitled to receive additional option grants upon any
re-election. 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 1997. 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-
25.
<PAGE> 28
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, 1997, 1996
and 1995 by the Chief Executive Officer of the Company and those executive
officers whose salary and bonus for fiscal year 1997 exceeded $100,000
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION(1)
------------------------ ---------------
SHARES ALL OTHER
NAME AND PRINCIPAL FISCAL BASE UNDERLYING COMPENSATION
POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)
- -------------------------------- ------ --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Jay D. Kranzler, M.D., Ph.D., 1997 $ 245,000 $ 125,000 277,440 $ 10,800(3)
Chief Executive Officer, 1996 240,000 135,000 3,025,327 10,700(4)
Chief Scientific Officer, 1995 -- 50,000 -- --
Acting Chief Financial
Officer and Vice Chairman(2)
Debby Jo Blank, M.D., 1997 215,500 101,500 101,415 9,500(6)
President, Chief Operating 1996 210,000 135,000 1,134,497 164,236(7)
Officer and Director(5) 1995 -- 50,000 -- --
R. Michael Gendreau, M.D 1997 149,000 262 -- 4,472(6)
Vice President, Research 1996 145,000 25,000 125,000 57,805(8)
and Development and 1995 145,000 141,000 7,537(6)
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 $1,300 paid by the Company on behalf of Dr. Kranzler for
life insurance premiums during 1997, and $9,500 of contributions made by the
Company under its 401(k) plan.
(4) Includes $1,200 paid by the Company on behalf of Dr. Kranzler for
life insurance premium during 1996, and $9,500 of contributions made by the
Company under its 401(k) plan.
(5) 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.
(6) Represents contributions made by the Company under its 401(k) plan.
(7) 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.
(8) Includes $52,583 paid to Dr. Gendreau for relocation costs
associated with Dr. Gendreau's relocation to San Diego, California. Also
includes $5,222 of contributions made by the Company under its 401(k) plan.
26.
<PAGE> 29
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1997 to the Named Executive
Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
SHARES OPTIONS VALUE AT
UNDERLYING GRANTED TO EXERCISE ASSUMED ANNUAL RATES
OPTIONS EMPLOYEES IN PRICE OF
GRANTED FISCAL YEAR PER EXPIRATION STOCK APPRECIATION FOR
NAME (#) (%)(1) SHARE($) DATE OPTION TERM($)(2)
- ---------------------- ------------- ---------------- ---------- ---------- ------------------------
5% 10%
----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jay D. Kranzler, M.D., 277,440(3) 33.9% $1.625 8/29/07 $283,530 $718,523
Ph.D.
Debby Jo Blank, M.D. 101,415(3) 12.4% $1.625 8/29/07 $103,641 $262,647
</TABLE>
(1) Based upon options to purchase a total of 819,522 shares of Common Stock
of the Company granted during fiscal year 1997.
(2) The potential realizable value is based upon the assumption that the
fair market value of the Common Stock appreciates at the annual rate
shown (compounded annually) from the date of grant until the end of the
option term. Actual realizable value, if any, on stock option exercises
is dependent on the future performance of the Common Stock and overall
market conditions, as well as the option holder's continued employment
through the vesting period.
(3) Such options vest 25% on the date of grant with the remainder vesting
ratably and daily over the four-year period following the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information as of December 31,
1997, regarding options held by the Named Executive Officers. None of such
individuals exercised any options during the fiscal year ended December 31,
1997. There were no stock appreciation rights outstanding at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AS OF FY-END($)(1)
--------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jay D. Kranzler, M.D., Ph.D. 2,233,243 1,069,524 - -
Debby Jo Blank, M.D. 836,642 399,270 - -
R. Michael Gendreau, M.D. 158,976 107,024 - -
</TABLE>
(1) All options held by each of the Named Executive Officers as of December
31, 1997 were out-of-the money.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
On December 28, 1995, the Company entered into a five year employment
agreement with Dr. Jay Kranzler, the Company's Chief Executive Officer, Chief
Financial Officer and Chief Scientific Officer. Dr. Kranzler's annual
compensation consists of base salary of $240,000, performance based bonuses of
up to an additional twenty-five percent (25%) of annual base salary and certain
options to purchase Common Stock of the Company, as described below.
27.
<PAGE> 30
In addition to his base salary and bonus, under his employment
agreement, Dr. Kranzler was granted an option to purchase 3,025,327 shares of
Common Stock of the Company (which amount represented eight percent (8%) of the
Company's Common Stock on a fully diluted basis on the date of grant) at an
exercise price equal to $1.50 per share. The options vest twenty-five (25%)
immediately upon grant and thereafter ratably and daily over a four (4) year
period. Dr. Kranzler's options shall fully vest upon the occurrence of any
merger, consolidation, corporate reorganization or transfer of all or
substantially all of the assets of the Company and upon the termination without
cause of Dr. Kranzler's employment with the Company. In August 1997, Dr.
Kranzler was granted an option to purchase 277,440 shares of the Company's
Common Stock at an exercise price of $1.625 per share. As of March 15, 1998,
options to purchase 2,358,921 shares of Common Stock had vested.
On December 28, 1995, the Company entered into a five year employment
agreement with Dr. Debby Jo Blank, the Company's President and Chief Operating
Officer. Dr. Blank's annual compensation consists of base salary of $210,000,
performance based bonuses of up to an additional twenty-five percent (25%) of
annual base salary and certain options to purchase Common Stock of the Company,
as described below.
In addition to her base salary and bonus, under her employment
agreement, Dr. Blank was granted an option to purchase 1,134,497 shares of
Common Stock of the Company (which amount represented three percent (3%) of the
Company's Common Stock on a fully diluted basis on the date of grant) at an
exercise price equal to $1.50 per share. The options vest twenty-five (25%)
immediately upon grant and thereafter ratably and daily over a four (4) year
period. Dr. Blank's options shall fully vest upon the occurrence of any merger,
consolidation, corporate reorganization or transfer of all or substantially all
of the assets of the Company and upon the termination without cause of Dr.
Blank's employment with the Company. In August 1997, Dr. Blank was granted an
option to purchase 101,415 shares of the Company's Common Stock at an exercise
price of $1.625 per share. As of March 15, 1998, options to purchase 883,671
shares of Common Stock had vested.
In April 1996, the Company entered into an employment agreement with Dr.
R. Michael Gendreau, the Company's Vice President, Research and Development and
Chief Medical Officer, 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. On January
1, 1998, Dr. Gendreau was granted an option to purchase 50,000 shares of Common
Stock of the Company at an exercise price of $1.4375 per share. As of March 15,
1998, options to purchase a total of 198,278 shares of Common Stock had vested.
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.
28.
<PAGE> 31
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") is comprised of directors
who are not employees of the Company. The Committee is responsible for
determining executive compensation levels and performing such other functions
regarding executive compensation as the Board may direct.
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:
o Compensation should be related to the value created for
stockholders.
o Compensation programs should support the short-term and
long-term strategic goals and objectives of the Company.
o Compensation programs should reflect and promote the
Company's values and reward individuals for outstanding
contributions to the Company's success.
o Short-term and long-term compensation programs play a
critical role in attracting and retaining well-qualified
executives.
o 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 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.
29.
<PAGE> 32
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.
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 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. In 1997, he earned bonuses totaling $125,000 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
30.
<PAGE> 33
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 1997 will not be affected by
this limitation.
COMPENSATION COMMITTEE
Richard M. Crooks, Jr.
Philip J. O'Reilly
Jack H. Vaughn
31.
<PAGE> 34
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>
- -------------------------------------------------------------------------------
92 93 94 95 96 97
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NASDAQ OTC 100 114.8 112.2 158.7 195.2 239.5
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CYPRESS BIOSCIENCE, INC. 100 129.2 75 93.7 64.6 47.9
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NASDAQ PHARMACEUTICAL INDEX 100 89.1 67.1 122.7 123.1 127.2
- -------------------------------------------------------------------------------
</TABLE>
The above comparison assumes $100 was invested in the Company's Common Stock and
each index on December 31, 1992.
32.
<PAGE> 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1997, the Company completed a private placement of
approximately 3,851,000 shares of its Common Stock with certain accredited
investors at a purchase price of $1.50 per share, resulting in net proceeds to
the Company of approximately $5.6 million or $1.45 per share, after total costs
of approximately $203,000. Merrill Weber & Co. acted as a non-exclusive
placement agent for the Company and received $76,593 as a placement agent fee.
Paramount Capital Asset Management, Inc., the Company's second largest
stockholder, is the investment manager of Aries Domestic Fund, L.P. and The
Aries Trust, stockholders that participated in the private placement and who
collectively purchased 1,333,333 shares of the Company's Common Stock and
received $120,000 in placement agent fees.
Mr. Richard Crooks, Jr., a director of the Company, is a director of and
consultant to, Allen & Company Incorporated, a principal stockholder of the
Company. As of January 30, 1998, Mr. Crooks beneficially held approximately 2.9%
of the Company's Common Stock.
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 1997, the Company paid Allen & Company
Incorporated a total of $40,000 under this agreement.
The Company entered into employment agreements with each of its three
executive officers, as described in "Executive Compensation - Employment and
Change of Control Agreements." In addition, the Company has granted stock
options to certain directors and executive officers of the Company. See "Stock
Option Grants and Exercises."
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").
The Company's Bylaws provide that the Company will indemnify its
directors and executive officers and may indemnify its other officers, employees
and other agents to the fullest extent permitted by Delaware law. The Company is
also empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and officers
and currently maintains directors and officers insurance coverage.
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
33.
<PAGE> 36
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.
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, 1997 FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UPON WRITTEN REQUEST TO: MANNY DIAZ-CONTI, CORPORATE
SECRETARY, CYPRESS BIOSCIENCE, INC., 4350 EXECUTIVE DRIVE, SUITE 325, SAN DIEGO,
CALIFORNIA 92121.
By Order of the Board of Directors
Manny Diaz-Conti
Corporate Secretary
May 18, 1998
34.
<PAGE> 37
APPENDIX A
AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
OF
CYPRESS BIOSCIENCE, INC.
CYPRESS BIOSCIENCE, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware, does hereby certify as follow:
FIRST: The name of the corporation is Cypress Bioscience, Inc.
SECOND: The corporation's original Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on October 21, 1981
under the name Immune Response Systems, Inc., and was subsequently amended on
October 14, 1982, March 1, 1983, May 10, 1983, May 9, 1986, January 9, 1987,
November 9, 1990, June 10, 1991, December 21, 1994 and April 18, 1996
(collectively, the "Amendments"), each time pursuant to a Certificate of
Amendment filed with the Secretary of State of the State of Delaware.
THIRD: The Amended and Restated Certificate of Incorporation of this
corporation, in the form attached hereto as Exhibit A, integrates into a single
instrument all of the provisions of the Amendments and further amends the
Certificate of Incorporation, which further amendments have been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and
stockholders of the corporation.
FOURTH: The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and hereby incorporated
by reference.
IN WITNESS WHEREOF, Cypress Bioscience, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by its Chief Executive
Officer and attested by its Secretary this ___ day of _____________, 1998.
CYPRESS BIOSCIENCE, INC.
By:
------------------------------------
Jay D. Kranzler
Chief Executive Officer
ATTEST:
- ---------------------------
Manny Diaz-Conti
Corporate Secretary
<PAGE> 38
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
CYPRESS BIOSCIENCE, INC.,
A DELAWARE CORPORATION
ARTICLE I
The name of the corporation is Cypress Bioscience, Inc.
ARTICLE II
The address, including street, number, city and county, of the
registered office of the corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle: and the name of the registered
agent of the corporation in the State of Delaware at such address is United
States Corporation Company.
ARTICLE III
The nature of the business and purposes to be conducted or promoted by
the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
shall have authority to issue is sixty-five million, fifty million of which
shall be shares of one class of Common Stock, par value $.02 per share, and
fifteen million of which shall be shares of Preferred Stock, $.02 par value per
share ("Preferred Stock"). Effective at the time of filing with the Secretary of
State of the State of Delaware of this Amended and Restated Certificate of
Incorporation (the "Effective Time"), each _____ shares of the corporation's
Common Stock, par value $.02 per share, issued and outstanding shall,
automatically and without any action on the part of the respective holders
thereof, be converted into one (1) share of Common Stock, par value $.02 per
share, of the corporation. No fractional shares shall be issued and, in lieu
thereof, any holder of less than one share of Common Stock entitled to receive
cash for such holder's fractional share based upon the closing sales price of
the corporation's Common Stock as reported on the Nasdaq SmallCap Market as of
the date of the Effective Time.
The shares of Preferred Stock may be issued from time to time in one or
more series of any number of shares, provided that the aggregate number of
shares issued and not canceled of any series shall not exceed the total number
of shares of Preferred Stock hereinabove authorized, and with distinctive serial
designations, all as shall hereafter be stated and expressed in the resolution
or resolutions providing for the issue of such shares of Preferred Stock from
time to time adopted by the Board of Directors pursuant to authority so to do
which is hereby vested in the Board of Directors. Each series of shares of
Preferred Stock shall have such designations and powers, preferences and rights,
and such qualifications, limitations or restrictions thereof, as shall
<PAGE> 39
be stated in said resolution or resolutions providing for the issue of such
shares of Preferred Stock and which are permitted by law in respect of Preferred
Stock.
ARTICLE V
The name of the incorporator is Jack H. Halperin and his mailing address
is 250 Park Avenue, New York, New York 10017.
ARTICLE VI
The following provisions are inserted for the regulation and conduct of
the affairs of the corporation, and it is expressly provided that they are
intended to be in furtherance and not in limitation or exclusion of the powers
elsewhere conferred herein or in the By-laws of the corporation or conferred by
law:
1. The original By-laws of the corporation shall be adopted by the
incorporator named in Article V. Thereafter, in furtherance and not in
limitation or the powers conferred under the General Corporation Law of the
State of Delaware, the Board of Directors of the corporation is expressly
authorized to make, alter or repeal By-laws not inconsistent with law or with
its Certificate of Incorporation.
2. Election of directors need not be by written ballot, unless the
By-laws of the corporation shall so provide.
ARTICLE VII
No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director, except (i) for breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article VII shall apply to or have
any effect on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
2.
<PAGE> 40
CYPRESS BIOSCIENCE, INC.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 1998
The undersigned hereby appoints Jay D. Kranzler and Manny Diaz-Conti, 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 1998 Annual
Meeting of Stockholders of Cypress Bioscience, Inc. to be held at 4:00 p.m.
Eastern Standard Time at the Hotel Intercontinental located at 111 East 48th
Street, New York, New York 10017, and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect two directors to hold office until the 2001 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: Mr. Jack H. Vaughn
Mr. Samuel D. Anderson
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Continued and to be signed on other side)
1
<PAGE> 41
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3 AND 4.
PROPOSAL 2: To approve an amendment to the Company's Amended and
Restated Certificate of Incorporation to (i) effect, at any
time prior to the 1999 Annual Meeting of Stockholders, a
reverse stock split, whereby the Company would issue one (1)
new share of Common Stock in exchange for between two (2)
and four (4) shares of outstanding Common Stock and (ii)
after giving effect to the aforesaid reverse stock split,
establish the number of authorized shares of (A) Common
Stock, at 50,000,000 shares and (B) Preferred Stock at
15,000,000 shares;
FOR AGAINST ABSTAIN
PROPOSAL 3: To approve an amendment to the 1996 Equity Incentive Plan to
increase the total number of shares of Common Stock
authorized for issuance under such plan from 7,000,000 to
10,000,000 (without giving effect to the proposed reverse
split contemplated by Proposal 2);
FOR AGAINST ABSTAIN
PROPOSAL 4: To ratify the selection of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1998.
FOR AGAINST ABSTAIN
Dated:____________, 1998 ________________________________________
________________________________________
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.
2
