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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Cypress Bioscience, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
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[LOGO OF CYPRESS BIOSCIENCE, INC.]
4350 Executive Drive, Suite 325
San Diego, CA 92121
Notice of Annual Meeting of Stockholders
To be Held on July 27, 2000
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 July 27, 2000, at 11:00 a.m. local time at the L'Auberge Hotel located at
1540 Camino Del Mar, Del Mar, California 92014 for the following purposes:
1. To elect two directors to hold office until the 2003 Annual Meeting of
Stockholders or until their successors are duly elected and qualified;
2. To approve the Company's 2000 Equity Incentive Plan;
3. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000; and
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on June 9, 2000 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
June 21, 2000
All stockholders are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please complete, date, sign and
return the enclosed proxy as promptly as possible in order to ensure your
representation at the meeting. A return envelope (which is postage prepaid if
mailed in the United States) is enclosed for that purpose. Even if you have
given your proxy, you may still vote in person if you attend the meeting. Please
note, however, that if your shares are held of record by a broker, bank or other
nominee and you wish to vote at the meeting, you must obtain from the record
holder a proxy issued in your name.
<PAGE>
CYPRESS BIOSCIENCE, INC.
4350 Executive Drive, Suite 325
San Diego, CA 92121
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
to be held on July 27, 2000
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Cypress Bioscience, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on July 27, 2000, at 11:00 a.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the L'Auberge Hotel located at 1540 Camino
Del Mar, Del Mar, California 92014. The Company intends to mail this proxy
statement and accompanying proxy card on or about June 21, 2000, to all
stockholders entitled to vote at the Annual Meeting.
Solicitation
The Company will bear the entire cost of the solicitation of proxies,
including preparation, assembly, printing and mailing of the Proxy Statement,
the proxy card and any additional information furnished to stockholders of the
Company. Copies of solicitation materials will be furnished to banks, brokerage
houses, fiduciaries and custodians holding in their names shares of common stock
of the Company beneficially owned by others to forward to such beneficial
owners. The Company may reimburse such banks, brokerage houses, fiduciaries and
custodians for their costs of forwarding solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, telegram or personal solicitation by directors, officers or other
regular employees of the Company or, at the Company's request, a professional
proxy solicitation firm. No additional compensation will be paid to directors,
officers or other regular employees for such services, but any professional
proxy solicitation firm used by the Company will be paid its customary fee.
Voting Rights and Outstanding Shares
The Board has fixed June 9, 2000 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 stockCommon Stock"), at the close of business on June 9, 2000 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
48,655,895 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. Pursuant to the Company's Bylaws, the presence in person
or by proxy of the holders of record of one-third
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(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.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
All proxies will be voted in accordance with the instructions contained in
the proxy. If no choice is made on your signed proxy card that is returned to
the Company, the shares represented by your executed proxy will be voted FOR (i)
Proposal 1 the election of management's nominee for directors to the class whose
next term expires as of the 2003 Annual Meeting, (ii) Proposal 2 to approve the
2000 Equity Incentive Plan, (iii) Proposal 3 to ratify the selection of Ernst &
Young LLP as the Company's independent auditor's for the fiscal year ending
December 31, 2000. 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.
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 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
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 Annual
Meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is February 19, 2001. Unless a stockholder who wishes to bring a
matter before the stockholders at the Company's 2000 Annual Meeting of
stockholders notifies the Company of such matter prior to May 5, 2001,
management will have discretionary authority to vote all shares for which it has
proxies in opposition to such matter.
2.
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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 six directors serving on the Board and there is one vacancy.
There are two directors in the class whose term of office expires as of the
Annual Meeting. The nominees for election to this class, Dr. Kranzler and Dr.
Golde, are currently directors of the Company. Dr. Kranzler was originally
elected to the Board in December 1995 by the Board and Dr. Golde was also
originally elected to the Board in April 1998. If elected at the Annual Meeting,
Dr. Kranzler and Dr. Golde will serve until the 2003 Annual Meeting of
Stockholders and until their successors are elected and qualified, or until the
earlier of their death, resignation or removal.
Election of the nominees will require the affirmative vote of a plurality
of the shares of common stock present in person or represented by proxy and
entitled to vote at the Annual Meeting. Shares represented by executed proxies
will be voted, if authority to do so is not withheld, for the election of Dr.
Kranzler and Dr. Golde and both directors have agreed to serve if elected, and
management has no reason to believe that any of the nominees will be unable to
serve. In the event that Dr. Kranzler or Dr. Golde should be unavailable to
serve as a result of an unexpected occurrence, such shares will be voted (unless
the proxy card is marked to the contrary) for the election of such substitute
nominee, if any, as management may recommend. It is believed that all officers
and directors of the Company will vote their respective shares in favor of Dr.
Kranzler and Dr. Golde.
Set forth below is biographical information for the nominees for election
for a three-year term expiring at the 2003 Annual Meeting and each person whose
term of office as a director will continue after the Annual Meeting.
Nominees for Election for a Three-Year Term Expiring at the 2003 Annual Meeting
Jay D. Kranzler, M.D., Ph.D., was appointed Chief Executive Officer and
Vice-Chairman of the Company in December 1995. In April 1996, Dr. Kranzler also
assumed the position of Chief Scientific Officer of the Company, and in November
1997, also assumed the position of Chief Financial Officer. In April 1998, Dr.
Kranzler was appointed as Chairman of the Board. From January 1989 until August
1995, Dr. Kranzler served as President, Chief Executive Officer and a director
of Cytel Corporation, a publicly held biotechnology company. Dr. Kranzler has
been an adjunct member of the Research Institute of Scripps Clinic since January
1989. Before joining Cytel, Dr. Kranzler was employed by McKinsey & Company, a
3.
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management-consulting firm, from 1985 to January 1989 as a consultant
specializing in the pharmaceutical industry.
David W. Golde, M.D., 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. He has been a Professor of Medicine at
Cornell University Medical College since 1991 and at UCLA School of Medicine
since 1979. Dr. Golde is also a director of Eron, Inc. Dr. Golde is a consultant
to numerous medical and research institutions.
The Board of Directors Recommends
A Vote in Favor of the Named Nominees.
Directors Continuing in Office Until the 2001 Annual Meeting
Jack H. Vaughn 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 was elected by the Board to serve as a director of the
Company in April 1998. Currently, Mr. Anderson is an independent consultant.
From 1990 to 1991, he was the President and Chief Executive Officer of Trancel
Corporation, a biotechnology company. From 1984 to 1989 Mr. Anderson was the
Chief Executive Officer of Alpha Therapeutics Corporation, a blood plasma
fractionator, and between 1989 and 1990 served as its Chairman of the Board. Mr.
Anderson is currently Chairman of the Board of Hycor, a publicly traded company,
and is also a Board member of publicly traded SeraCare.
Directors Continuing in Office Until the 2002 Annual Meeting
Mark C. Rogers, M.D., was elected by the Board to serve as a director of
the Company in October 1999. Currently, Dr. Rogers is the President of Paramount
Capital Investments, which is a company specializing in investments in the
pharmaceutical, medical and biotechnology industries. Dr. Rogers is also a
director of Genta Incorporated, a biopharmaceutical company. From 1992 to 1996
he served as the Vice Chancellor for Health Affairs at the Duke University
Medical Center. From 1990 to 1992 was an Associate Dean of the John's Hopkins
University. Dr. Rogers was also a founding member of ENTREMED, a biotechnology
company.
Larry J. Kessel, M.D., was elected by the Board to serve as a director of
the Company in October 1999. Currently, Dr. Kessel is in private practice in
internal and geriatric medicine, since 1985 he has served a medical director at
Integrated Health Services, a conglomerate involved in geriatric care. He has
been a clinical instructor at Jefferson Medical College since 1984. Dr. Kessel
holds a position on the Board of Directors of Genta, Inc. since September 1997.
4.
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Background of Non-Director Executive Officers
Carl F. Bobkoski was appointed President and Chief Operating Officer in
March 1999. Prior to joining the Company, from May 1995 to February 1999, Mr.
Bobkoski served as Executive Vice President of Signal Pharmaceuticals, Inc., a
biopharmaceutical company. From 1990 to 1995, Mr. Bobkoski was Executive Vice
President and a director at Gensia, Inc ("Gensia"), a biopharmaceutical company,
where he was responsible for directing all commercialization activities for
proprietary products, overseeing the operations of Gensia Laboratories, Ltd., a
wholly-owned subsidiary of Gensia, and supervising product development, finance,
management information systems and corporate development.
R. Michael Gendreau, M.D., Ph.D., was appointed Vice President of Research
and Development and Chief Medical Officer of the Company in December 1996 and
was promoted to Executive Vice President of Research and Development, Chief
Medical Officer and Chief Scientific Officer in February 1999. Dr. Gendreau
joined the Company in 1994 and held various positions from 1994 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
On January 20, 2000, the Board of Directors reorganized the composition of
the board committees due to the resignations of Richard M. Crooks and Philip J.
O'Reilly and the additions of Mark C. Rogers, M.D. and Larry Kessel, M.D. The
Board of Directors has designated certain committees, including, but not limited
to an Audit Committee, Compensation Committee, Stock Option Committee which has
a Non-Executive Stock Option Committee, Medical Affairs Committee, and Mergers
and Acquisitions Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the auditors' comments (out of the presence of
management) as to controls, adequacy of staff and management performance and
procedures in connection with audit and financial controls. The Audit Committee
is composed of two directors: Mr. Vaughn (Chairman) and Dr. Mark Rogers.
The Compensation Committee makes recommendations based on management's
inputs concerning salaries and incentive compensation, awards stock options to
executives under the Company's stock option plans and otherwise determines
compensation levels and performs such other functions regarding compensation as
the Board may delegate. The Compensation Committee is composed of three
directors: Messrs. Anderson (Chairman), Vaughn, and Dr. Kessel.
The Stock Option Committee considers and recommends to the Board of
Directors the number and terms of stock options to be granted to officers and
employees of the Company. The Stock Option Committee is composed of two
directors: Mr. Anderson and Dr. Kessel. The Non-Executive Officer Stock Option
Committee was created by the Stock Option Committee in February 1996. It has the
authority to grant certain numbers of options to employees who are not
5.
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executive officers of the Company; provided, however, that the number of options
granted to employee by the Non-Executive Officer Stock Option Committee is
limited to 200,000 each period between Board meetings. The Non-Executive Officer
Stock Option Committee is comprised of one director: Dr. Kranzler.
The Medical Affairs Committee reviews and recommends actions associated
with the Company's efforts on marketing the PROSORBA column to the medical
community. The Committee provides guidance, and assists with the contact of
prominent doctors in the appropriate fields. The Medical Affairs Committee is
composed of three directors: Drs. Rogers, Kessel and Golde.
The Mergers and Acquisitions Committee reviews, researches and makes
recommendations on the Company's potential abilities to merger or acquire with
appropriate companies. In addition, the Committee may make recommendations
related to the negotiations of a merger and/or acquisition, and perform due
diligence procedures on behalf of the Company. The Mergers and Acquisitions
Committee is composed of three directors: Drs. Rogers, Kessel and Golde.
Scientific Advisory Boards
The Company has established four scientific advisory boards to provide
scientific and clinical support and guidance related to the Company's products.
The areas of focus of the scientific advisory boards are immunology,
rheumatology, hematology, and platelet therapy.
The Immunology Advisory Board (the "IAB") is currently composed of Gerald
T. Nepom (appointed July 1996), M.D., Ph.D., Scientific Director of the Virginia
Mason Research Center in Seattle, Washington; Eng Tan (appointed June 1996),
M.D., Director, W.M. Keck Autoimmune Disease Center, The Scripps Clinic and
Research Institute, San Diego, California; and Richard Lerner, M.D., President,
The Scripps Research Institute. The focus of the IAB will be to provide guidance
to the extramural research investigating the PROSORBA column's immunologic
mechanism of action.
The Rheumatology Advisory Board (the "RAB") is composed of David Felson
(appointed June 1996), M.D., M.P.H. Professor of Medicine and Public Health,
Director, Boston University Arthritis Health Services Center; Richard Panush
(appointed June 1996), M.D., Professor and Chairman, Department of Medicine, St.
Barnabas Medical Center, Livingston, New Jersey; George Ehrlich (appointed June
1996), M.D., University of Pennsylvania Medical School, Member, Expert Advisory
Panel on Chronic Degenerative Disease, World Health Organization; Sanford H.
Roth, M.D., Medical Director, Arizona Research and Education, Phoenix, Arizona;
Gary S. Firestein, M.D., University of California at San Diego, School of
Medicine, La Jolla, California; and Roy Fleischmann, M.D., Chief Executive
Officer, Rheumatology Research International, Dallas, Texas. The RAB will
oversee and guide the Company's programs in RA. The RAB members are all serving
as advisors to the FDA in the Drug Division which reviews New Drug Applications
for rheumatology pharmaceutical product.
The Hematology Advisory Board (the "HAB") is composed of David J. Kuter
(appointed June 1996), M.D., D.Phil., Chairman, Department of Hematology,
Massachusetts General Hospital. The HAB will oversee and guide the Company's
programs in ITP.
6.
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The Platelet Advisory Board (the "PAB") is composed of Richard H. Aster
(appointed November 1996), M.D., former President, Blood Center of Southeast
Wisconsin; and Scott N. Swisher (appointed November 1997), M.D., Chairman, FDA
Blood Products Advisory Committee; Professor of Medicine (emeritus), University
of Michigan. The PAB will oversee the Company's programs as they relate to
platelet therapy.
There are no material consulting or other agreements between the Company
and any member of the Company's various scientific advisory boards.
Proposal 2
Approval of the 2000 Equity Incentive Plan
In May 2000, the Board of Directors of the Company ("Board") adopted the
Company's 2000 Equity Incentive Plan ("Incentive Plan"), subject to stockholder
approval. There are 3,000,000 shares of common stock reserved for issuance under
the Incentive Plan.
As of June 9, 2000, no awards (net of canceled or expired awards) had been
granted under the Incentive Plan. All of the 3,000,000 authorized shares
remained available for future grant under the Incentive Plan.
Stockholders are requested in this Proposal 2 to approve the Incentive
Plan. The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Incentive Plan. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
The Board Of Directors Recommends
A Vote In Favor Of Proposal 2.
The essential features of the Incentive Plan are outlined below:
General
The Incentive Plan provides for the grant of incentive stock options,
nonstatutory stock options, stock bonuses and restricted stock purchase awards
(collectively "awards"). Incentive stock options granted under the Incentive
Plan are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Nonstatutory stock options granted under the Incentive Plan are not intended to
qualify as incentive stock options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of awards. To date, the
Company has not granted any stock options under the Plan.
7.
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Purpose
The Board adopted the Incentive Plan to provide a means by which employees,
directors and consultants of the Company and its affiliates may be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of such persons, 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 and its affiliates. All of the
approximately 55 employees, directors and consultants of the Company and its
affiliates are eligible to participate in the Incentive Plan.
Administration
The Board administers the Incentive Plan. Subject to the provisions of the
Incentive Plan, the Board has the power to construe and interpret the Incentive
Plan and to determine the persons to whom and the dates on which awards will be
granted, the number of shares of common stock to be subject to each award, the
time or times during the term of each award within which all or a portion of
such award may be exercised, the exercise price, the type of consideration and
other terms of the award.
The Board has the power to delegate administration of the Incentive Plan to
a committee composed of not fewer than two members of the Board. In the
discretion of the Board, a committee may consist solely of two or more outside
directors in accordance with Section 162(m) of the Code or solely of two or more
non-employee directors in accordance with Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Board has delegated
administration of the Incentive Plan to the Compensation Committee of the Board.
As used herein with respect to the Incentive Plan, the "Board" refers to any
committee the Board appoints as well as to the Board itself. The Board has also
delegated to Dr. Kranzler, the Company's Chief Executive Officer, the power to
grant up to 250,000 options to non-officer employees between the time of Board
meetings.
The regulations under Section 162(m) of the Code require that the directors
who serve as members of the committee must be "outside directors." The Incentive
Plan provides that, in the Board's discretion, directors serving on the
committee may be "outside directors" within the meaning of Section 162(m). This
limitation would exclude from the committee directors who are (i) current
employees of the Company or an affiliate, (ii) former employees of the Company
or an affiliate receiving compensation for past services (other than benefits
under a tax-qualified pension Incentive Plan), (iii) current and former officers
of the Company or an affiliate, (iv) directors currently receiving direct or
indirect remuneration from the Company or an affiliate in any capacity (other
than as a director), and (v) any other person who is otherwise considered an
"outside director" for purposes of Section 162(m). The definition of an "outside
director" under Section 162(m) is generally narrower than the definition of a
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"non-employee director" under Rule 16b-3 of the Exchange Act.
8.
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Eligibility
Incentive stock options may be granted under the Incentive Plan only to
employees (including officers) of the Company and its affiliates. Employees
(including officers), directors, and consultants of both the Company and its
affiliates are eligible to receive all other types of awards under the Incentive
Plan.
No incentive stock option may be granted under the Incentive Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the exercise price is at least 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.
Likewise, no restricted stock award may be granted under the Incentive Plan to
any such 10% stockholder unless the exercise price is at least 100% of the fair
market value of the stock subject to the award. In addition, 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 a participant during any calendar year (under the Incentive Plan and all
other such plans of the Company and its affiliates) may not exceed $100,000.
No employee may be granted options under the Incentive Plan exercisable for
more than 1,000,000 shares of common stock during any calendar year ("Section
162(m) Limitation").
Stock Subject to the Incentive Plan
Subject to this Proposal, an aggregate of 3,000,000 shares of common stock
is reserved for issuance under the Incentive Plan. If awards granted under the
Incentive Plan expire or otherwise terminate without being exercised, the shares
of common stock not acquired pursuant to such awards again becomes available for
issuance under the Incentive Plan. If the Company reacquires unvested stock
issued under the Incentive Plan, the reacquired stock will again become
available for reissuance under the Incentive Plan for awards other than
incentive stock options.
Terms of Options
The following is a description of the permissible terms of options under
the Incentive 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 may
not be less than 100% of the fair market value of the stock subject to the
option on the date of the grant and, in some cases (see "Eligibility" above),
may not be less than 110% of such fair market value. The exercise price of
nonstatutory options may not be less than 85% of the fair market value of the
stock on the date of grant and, in some cases (see "Eligibility" above), may not
be less than 110% of such fair market value. 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) of the Code. See
"Federal Income Tax Information." As of June 5, 2000, the closing price of the
Company's common stock as reported on the SmallCap Nasdaq Stock Market was
$1.844 per share.
9.
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The exercise price of options granted under the Incentive Plan must be paid
either in cash at the time the option is exercised or at the discretion of the
Board, (i) by delivery of other common stock of the Company, (ii) pursuant to a
deferred payment arrangement or (iii) in any other form of legal consideration
acceptable to the Board.
Repricing. In the event of a decline in the value of the Company's common
stock, the Board has the authority to offer participants the opportunity to
replace outstanding higher priced options with new lower priced options. To the
extent required by Section 162(m) of the Code, a repriced option 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 Section 162(m)
Limitation.
Option Exercise. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding options under the Incentive Plan typically vest
over four years with a one year cliff and vesting daily and ratably thereafter
during the participant's employment by, or service as a director or consultant
to, the Company or an affiliate (collectively, "service"). Shares covered by
options granted in the future under the Incentive Plan may be subject to
different vesting terms. The Board has the power to accelerate the time during
which an option may vest or be exercised. In addition, options granted under the
Incentive Plan may permit exercise prior to vesting, but in such event the
participant may be required to enter into an early exercise stock purchase
agreement that allows the Company to repurchase unvested shares, generally at
their exercise price, should the participant's service terminate before vesting.
To the extent provided by the terms of an option, a participant may satisfy any
federal, state or local tax withholding obligation relating to the exercise of
such option by a cash payment upon exercise, by authorizing the Company to
withhold a portion of the stock otherwise issuable to the participant, by
delivering already-owned common stock of the Company or by a combination of
these means.
Term. The maximum term of options under the Incentive Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Incentive Plan generally terminate three months after
termination of the participant's service unless (i) such termination is due to
the participant's permanent and total disability (as defined in the Code), 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 termination of service)
at any time within 12 months of such termination; (ii) the participant dies
before the participant's service has terminated, or within three months after
termination of such service, 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 participant's death) within 18 months of the participant'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 (iii) the option by its terms specifically
provides otherwise. A participant may designate a beneficiary who may exercise
the option following the participant's death. Individual option grants by their
terms may provide for exercise within a longer period of time following
termination of service.
The option term generally is not extended in the event that exercise of the
option within these periods is prohibited. Participant's option agreement also
may provide that if the exercise of the option following the termination of the
participant's service would be prohibited because the issuance of stock would
violate the registration requirements under the Securities Act, then the option
will terminate on the earlier of (i) the expiration of the term of the option or
(ii) three
10.
<PAGE>
months after the termination of the participant's service during which the
exercise of the option would not be in violation of such registration
requirements.
Terms of Stock Bonuses and Purchases of Restricted Stock
Payment. The Board determines the purchase price under a restricted stock
purchase agreement but the purchase price may not be less than 85% of the fair
market value of the Company's common stock on the date of grant. The Board may
award stock bonuses in consideration of past services without a purchase
payment.
The purchase price of stock acquired pursuant to a restricted stock
purchase agreement under the Incentive Plan must be paid either in cash at the
time the option is exercised or at the discretion of the Board, (i) by delivery
of other common stock of the Company, (ii) pursuant to a deferred payment
arrangement or (iii) in any other form of legal consideration acceptable to the
Board.
Vesting. Shares of stock sold or awarded under the Incentive Plan may, but
need not be, subject to a repurchase option in favor of the Company in
accordance with a vesting schedule as determined by the Board. The Board has the
power to accelerate the vesting of stock acquired pursuant to a restricted stock
purchase agreement under the Incentive Plan.
Restrictions on Transfer. Rights under a stock bonus or restricted stock
bonus agreement may be not be transferred except where such assignment is
required by law or expressly authorized by the terms of the applicable stock
bonus or restricted stock purchase agreement, which is in the sole discretion of
the Board.
Restrictions on Transfer
The participant may not transfer an incentive stock option otherwise than
by will or by the laws of descent and distribution. During the lifetime of the
participant, only the participant may exercise an incentive stock option. The
Board may grant nonstatutory stock options that are transferable in certain
limited instances. Shares subject to repurchase by the Company under an early
exercise stock purchase agreement may be subject to restrictions on transfer
that the Board deems appropriate.
Adjustment Provisions
Transactions not involving receipt of consideration by the Company, such as
a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of common stock subject to the Incentive
Plan and outstanding awards. In that event, the Incentive Plan will be
appropriately adjusted as to the class and the maximum number of shares of
common stock subject to the Incentive Plan and the Section 162(m) Limitation,
and outstanding awards will be adjusted as to the class, number of shares and
price per share of common stock subject to such awards.
11.
<PAGE>
Effect of Certain Corporate Events
The Incentive Plan provides that, in the event of a dissolution or
liquidation of the Company, then all outstanding awards shall terminate prior to
such event. The Incentive Plan further provides that, in the event of a sale of
substantially all of the assets of the Company, specified types of merger, or
other corporate reorganization ("change in control"), any surviving corporation
shall assume awards outstanding under the Incentive Plan or substitute similar
awards for those outstanding under the Incentive Plan. If any surviving
corporation declines to assume awards outstanding under the Incentive Plan, or
to substitute similar awards, then, with respect to participants whose service
has not terminated, the vesting and the time during which such awards may be
exercised will be accelerated. An outstanding award will terminate if the
participant does not exercise it before a change in control. The acceleration of
an award in the event of an acquisition or similar corporate event may be viewed
as an anti-takeover provision, which may have the effect of discouraging a
proposal to acquire or otherwise obtain control of the Company.
Duration, Amendment and Termination
The Board may suspend or terminate the Incentive Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Incentive Plan will terminate on May 3, 2010.
The Board may also amend the Incentive Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within 12 months before or after its adoption by the
Board if the amendment would (i) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Incentive Plan to satisfy Section 422 of the Code, if applicable,
or Rule 16b-3 of the Exchange Act); (ii) increase the number of shares reserved
for issuance upon exercise of awards; or (iii) change any other provision of the
Incentive Plan in any other way if such modification requires stockholder
approval in order to comply with Rule 16b-3 of the Exchange Act or satisfy the
requirements of Section 422 of the Code or any securities exchange listing
requirements. The Board may submit any other amendment to the Incentive 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.
Federal Income Tax Information
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
12.
<PAGE>
Incentive Stock Options. Incentive stock options under the Incentive
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
participant 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 participant's alternative minimum tax liability, if any.
If a participant holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
participant upon exercise of the option, any gain or loss on a disposition of
such stock will be a long-term capital gain or loss if the participant held the
stock for more than one year.
Generally, if the participant disposes of the stock before the
expiration of either of these holding periods (a "disqualifying disposition"),
then at the time of disposition the participant 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 participant's actual
gain, if any, on the purchase and sale. The participant'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.
To the extent the participant 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, Restricted Stock Purchase Awards and Stock
Bonuses. Nonstatutory stock options, restricted stock purchase awards and stock
bonuses granted under the Incentive Plan generally have the following federal
income tax consequences:
There are no tax consequences to the participant or the Company by
reason of the grant. Upon acquisition of the stock, the participant normally
will recognize taxable ordinary income equal to the excess, if any, of the
stock's fair market value on the acquisition date over the purchase price.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the participant elects to be taxed on receipt of the stock. With
respect to employees, the Company is generally required to withhold from regular
wages or supplemental wage payments an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation,
the Company will generally be entitled to a business expense deduction equal to
the taxable ordinary income realized by the participant.
Upon disposition of the stock, the participant 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 acquisition (or vesting) of the stock. Such gain or
13.
<PAGE>
loss will be long-term or short-term depending on whether the stock was held for
more than one year. Slightly different rules may apply to participants who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
Stock Appreciation Rights. No taxable income is realized upon the
receipt of a stock appreciation right, but upon exercise of the stock
appreciation right the fair market value of the shares (or cash in lieu of
shares) received must be treated as compensation taxable as ordinary income to
the participant in the year of such exercise. Generally, with respect to
employees, the Company is required to withhold from the payment made on exercise
of the stock appreciation right or from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, Section 162(m) of the Code and the satisfaction
of a reporting obligation, the Company will be entitled to a business expense
deduction equal to the taxable ordinary income recognized by the participant.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly-held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that compensation to
such covered employee exceeds $1 million. It is possible that compensation
attributable to awards, 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 and stock appreciation rights will qualify as
performance-based compensation if the award is granted by a compensation
committee comprised solely of "outside directors" and either (i) the plan
contains a per-employee limitation on the number of shares for which such awards
may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the award is no less
than the fair market value of the stock on the date of grant, or (ii) the award
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 award is approved by stockholders.
Compensation attributable to restricted stock and stock bonuses will
qualify as performance-based compensation, provided that: (i) the award is
granted by a compensation committee comprised solely of "outside directors" and
(ii) the purchase price of the award is no less than the fair market value of
the stock on the date of grant. Stock bonuses qualify as performance-based
compensation under the Treasury regulations only if (i) the award is granted by
a compensation committee comprised solely of "outside directors" , (ii) the
award is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
-- or formula used to calculate the amount -- payable upon attainment of the
performance goal).
14.
<PAGE>
Proposal 3
Ratification Of Selection Of Independent Auditors
The Board has selected Ernst & Young LLP to continue as the Company's
independent auditors for the fiscal year ending December 31, 2000 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young has
audited the Company's financial statements since the fiscal year ended December
31, 1994. 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. Abstentions will be counted toward the tabulation of votes
cast on proposals presented to the stockholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
The Board unanimously approved the selection of Ernst & Young and believes that
all officers and directors will vote their respective shares in favor of this
Proposal 3.
The Board Of Directors Recommends
A Vote In Favor Of Proposal 3.
15.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 15, 2000 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 Named Executive Officer and (iv) all directors
and Named Executive Officers 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 Ownership of Percent of Class of
----------------------- -------------------
Beneficial Owner of Common Stock (1) Common Stock (2) Common Stock (2)
---------------- ----------------
<S> <C> <C>
Paramount Capital Asset Management, Inc. ...... 14,090,185(3) 28.96%
787 Seventh Avenue, 44th Floor
New York, NY 10019
Jay D. Kranzler ............................... 3,464,957(4) 7.12%
Carl Bobkoski ................................. 296,382(5) *
R. Michael Gendreau ........................... 358,977(6) *
Jack H. Vaughn ................................ 75,000(7) *
Samuel D. Anderson ............................ 83,736(8) *
David Golde ................................... 57,320(9) *
Larry J. Kessel ............................... 86,300(10) *
Mark C. Rogers ................................ 81,300(11) *
All Directors and Named Executive Officers as a
Group (8 persons) ........................... 4,252,212(12) 8.74%
</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 May 15, 2000 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
48,655,895 shares of the Company's common stock outstanding as of May 15,
2000.
(3) 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 Master
Fund, a Cayman Islands trust ("The Aries Master Fund"). Of the 14,090,185
shares of common stock indicated as beneficially held, Paramount Capital
shares voting and dispositive power with the following persons or entities:
Aries Domestic Fund, L.P. with respect to 4,130,666 of the shares; The
Aries Master Fund II with respect to 9,639,681 of the shares and the Aries
Domestic Fund II, L.P. with respect to 319,838 shares.
(4) Includes 3,171,016 shares of common stock issuable pursuant to options
exercisable within 60 days of May 15, 2000. Also includes 42,181 shares of
common stock held in Dr. Kranzler's name. Also includes 251,760 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.
(5) Includes 44,322 shares of common stock issuable pursuant to options
exercisable within 60 days of May 15, 2000. Also includes 251,760 shares of
common stock held by the Company's 401(k) plan for which Mr. Bobkoski, as
co-trustee of the 401(k) plan, has voting rights to such shares. Also
includes 100 shares held be Alexander Bobkoski, Mr. Bobkoski's son, 100
shares held by Elizabeth Bobkoski, Mr. Bobkoski's daughter and 100 shares
held by Catherine Bobkoski, Mr. Bobkoski's daughter.
(6) Includes 358,977 shares of common stock issuable pursuant to options
exercisable within 60 days of May 15, 2000.
(7) Includes 75,000 shares of common stock issuable pursuant to options
exercisable within 60 days of May 15, 2000.
(8) Includes 58,736 shares of common stock issuable pursuant to options
exercisable within 60 days of May 15, 2000. Also Includes 25,000 shares of
common stock held by Samuel D. and Mary Ann H. Anderson as trustees of the
Samuel and Mary Ann Anderson trust dated March 22, 1979.
(9) Includes 57,230 shares of common stock issuable pursuant to options
exercisable within 60 days of May 15, 2000.
(10) Includes 86,300 shares of common stock issuable pursuant to options or
other rights exercisable within 60 days of May 15, 2000.
(11) Includes 81,300 shares of common stock issuable pursuant to options
exercisable within 60 days of May 15, 2000.
(12) Includes 3,776,671 shares of common stock issuable pursuant to options
exercisable within 60 days of May 15, 2000.
16.
<PAGE>
Compliance with 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 1999
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 non-employee 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 1999. Messrs. Golde and Anderson each
received $24,000 in cash compensation for service as a director during fiscal
year 1999. Mr. Kessel received $2,000 in cash compensation for service as a
director during fiscal year 1999. In addition, Mr. Vaughn is entitled to receive
an option to purchase 10,000 shares of common stock of the Company upon each
annual meeting of such non-employee director to the Board. Messrs. Anderson,
Golde, and Drs. Kessel and Rogers 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 annual meeting.
Directors who are employees of the Company do not receive any fee for their
service as directors. None of the Company's directors receive any fees for their
service on any committee of the Board. All of the Company's directors are
reimbursed for their out-of-pocket travel and accommodation expenses incurred in
connection with their service as directors of the Company.
Compensation of Executive Officers
The following table sets forth all compensation awarded or paid to and
earned by, the Chief Executive Officer of the Company during the fiscal years
ended December 31, 1999, 1998 and 1997 as well as those executive officers whose
salary and bonus were in excess of $100,000 for services rendered to the Company
during the years ended December 31, 1999, 1998 and 1997, and one former
executive officer who departed from the Company in March 1999 (collectively, the
"Named Executive Officers"):
17.
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation (1)
---------------------------------------------------------------
Shares All Other
Fiscal Base Underlying Compensation
Name and Principal Position Year Salary($) Bonus($) Options(#) ($)
--------------------------- ------ --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jay D. Kranzler, M.D., Ph.D., 1999 $305,500 $150,000 - $12,800(2)
Chief Executive Officer, 1998 277,000 - - 11,300(3)
Chief Financial Officer and 1997 245,000 125,000 277,440 10,800(4)
Chairman of the Board
Carl Bobkoski 1999 189,500 - 500,000 15,250(5)
President, Chief Operating 1998 - - - -
Officer and Corporate 1997 - - - -
Secretary
Debby Jo Blank, M.D.(6), 1999 94,600 - - 9,460(7)
President, Chief Operating 1998 244,000 - - 52,000(8)
Officer and Director 1997 215,500 101,500 101,415 9,500(9)
R. Michael Gendreau, M.D. 1999 191,500 75,000 - 10,000(10)
Executive Vice President, 1998 167,400 - 150,000 10,000(11)
Research and Development, 1997 149,000 262 - 4,472(12)
Chief Medical Officer; and
Chief Scientific Officer
</TABLE>
-------------
1. The Company's 1996 Equity Incentive Plan (the "1996 Plan"), is 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. Includes $2,800 paid by the Company on behalf of Dr. Kranzler for life
insurance premiums during 1999, and $10,000 of contributions made by
the Company under its 401(k) plan.
3. Includes $1,300 paid by the Company on behalf of Dr. Kranzler for life
insurance premiums during 1998, and $10,000 of contributions made by
the Company under its 401(k) plan.
4. 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.
5. Includes $5,250 paid by the Company on behalf of Mr. Bobkoski for long-
term disability premiums during 1999, and $10,000 of contributions made
by the Company under its 401(k) plan.
6. Dr. Blank resigned from the Company effective March 1999.
7. Represents $9,460 of contributions made by the Company under its 401(k)
plan during 1999.
8. Includes $42,000 paid to Dr. Blank for relocation costs associated with
Dr. Blank's relocation to San Diego, California upon joining the
Company. Also includes $10,000 of contributions made by the Company
under its 401(k) plan.
9. Represents $9,500 in contributions made by the Company under its 401(k)
plan.
10. Represents $10,000 in contributions made by the Company under its
401(k) plan.
11. Represents $10,000 in contributions made by the Company under its
401(k) plan.
12. Represents $4,472 in contributions made by the Company under its 401(k)
plan.
18.
<PAGE>
Stock Option Grants And Exercises In Last Fiscal Year
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1999 to the Named Executive
Officers:
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
% of Total Potential Realizable
Options Value at Assumed
Shares Granted to Annual Rates of Stock
Underlying Employees in Exercise Appreciation for
Options Fiscal Price Per Expiration Option Term($)(2)
----------------------
Name Granted (#) Year(%)(1) Share($) Date 5% 10%
------------- ----------- --------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Carl Bobkoski 500,000 (3) 36.4% $2.75 2/17/09 864,730 2,191,396
</TABLE>
1. Based upon options to purchase a total of 1,373,000 shares of common
stock of the Company granted during the fiscal year 1999.
2. The potential realizable value is based upon the assumption that the
fair market value of the common stock appreciates at the annual rate
shown (compounded annually) from the date of grant until the end of the
option term. Actual realizable value, if any, on stock option exercises
is dependent on the future performance of the common stock and overall
market conditions, as well as the option holder's continued employment
through the vesting period.
3. Such options vest 25% on the one-year anniversary of the date of grant
with the remainder vesting ratably and daily over the following three-
year period.
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-end Option Values
The following table sets forth certain information as of December 31,
1999, regarding options held by the Named Executive Officers. None of such
individuals exercised any options during the fiscal year ended December 31,
1999. There were no stock appreciation rights outstanding at December 31, 1999.
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options In-The-Money Options
at FY-End (#) as of FY-End ($)(1)
----------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jay Kranzler, M.D., Ph.D. 2,992,342 60,427 $907,980 $11,330
Carl Bobkoski - 500,000 $ - $ -
R. Michael Gendreau, M.D. 344,385 71,615 $ 19,773 $ 7,039
</TABLE>
________________
(1) Calculation based upon $1.8125, the closing sales price of the
underlying shares of common stock as reported on the Nasdaq SmallCap
Market on December 31, 1999, less exercise price.
19.
<PAGE>
Employment And Change Of Control Agreements
Jay D. Kranzler, M.D., Ph.D., the Company's Chairman of the Board,
Chief Executive Officer, and Chief Financial Officer had a base salary in 1999
of $305,500, and received a performance based bonus of $150,000. 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 percent (25%) immediately upon grant and
thereafter ratably and daily over a four year period subject to board approved
company-wide stock option accelerations. 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 and vest twenty-five percent (25%) one year
from the date of grant and thereafter ratably and daily over a three year
period. On January 27, 2000 Dr. Kranzler was granted an option to purchase
1,000,000 shares of the Company's common stock at an exercise price of $2.8125
per share and vest ratably and daily over a four (4) year period. As of March 1,
2000, options to purchase 3,074,327 shares of common stock had vested.
In April 1996, the Company entered into an employment agreement with
Dr. R. Michael Gendreau, the Company's Executive Vice President, Research and
Development, Chief Scientific Officer and Chief Medical Officer, whereby Dr.
Gendreau's annual compensation consisted of a base salary of $149.000. During
1999, Dr. Michael Gendreau received a base salary of $191,500 and a performance
bonus of $75,000. In April 1996 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 and on August 10, 1998 he was granted an additional option to
purchase 100,000 shares of the Company's common stock at an exercise price of
$2.3438 per share which vest twenty-five percent (25%) after one year upon grant
and thereafter ratably and daily over a three year period. On January 27, 2000
Dr. Gendreau was granted an option to purchase 125,000 shares of the Company's
common stock at an exercise price of $2.8125 per share which vest ratably and
daily over a four (4) year period. As of March 1, 2000, options to purchase a
total of 353,560 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 a six
month salary severance.
In February 1999, the Company entered into an employment agreement with
Carl F. Bobkoski, the Company's President, Chief Operating Officer and Corporate
Secretary, whereby Mr. Bobkoski's annual compensation consists of base salary of
$215,000 and he is eligible at the sole discretion of the Board for an annual
bonus equal to 25% of his base salary. During 1999 Mr. Bobkoski was paid
$189,500 in base salary. In February 1999, the Company also granted Mr. Bobkoski
options to purchase up to 500,000 shares of the Company's common stock at an
exercise price of $2.75 per share. If the Company terminates Mr. Bobkoski's
employment without cause, he is entitled to his base salary for six months;
provided that the payments shall increase by one month for every full year of
continuous service with the Company. In addition, in the event that Mr.
Bobkoski's employment with the Company is terminated by the Company without
cause due to a corporate merger or acquisition, Mr. Bobkoski's options shall
become fully exercisable.
20.
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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
establishing and administering the Company's executive compensation
arrangements.
The Company believes that a competitive, goal-oriented compensation
policy is critically important to the creation of value for stockholders. To
that end, the Company has created an incentive compensation program intended to
reward outstanding individual performance. Under the Omnibus Budget
Reconciliation Act of 1993, beginning in 1994, the federal income tax deduction
for certain types of compensation paid to the Chief Executive Officer and four
other most highly compensated officers of publicly held companies is limited to
$1,000,000 per officer per fiscal year unless such compensation meets certain
requirements. The Committee is aware of this limitation and believes that the
deductibility of compensation payable in 1999 will not be affected by this
limitation.
Compensation Philosophy
The Company's compensation program is intended to implement the
following principles:
. Compensation should be related to the value created for stockholders.
. Compensation programs should support the short-term and long-term
strategic goals and objectives of the Company.
. Compensation programs should reflect and promote the Company's values
and reward individuals for outstanding contributions to the Company's
success.
. Short-term and long-term compensation programs play a critical role in
attracting and retaining well-qualified executives.
While compensation opportunities should be based in part upon
individual contribution, the actual amounts earned by executives in variable
compensation programs should also be based upon how the Company performs.
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.
21.
<PAGE>
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,
other executive officers and other employees. 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 1999, 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.
Compensation Of The Chief Executive Officer
Dr. Kranzler, the Company's Chief Executive Officer, assisted the
Company in achieving certain of its goals in 1999. In 1999, the Company entered
into an exclusive distribution agreement with Fresenius with respect to the
PROSORBA column, obtained FDA clearance of the sale of the PROSORBA column for
rheumatoid arthritis (RA) and launched the sale of the PROSORBA column for the
treatment of RA. In accordance with the policies noted above, and in
consideration of Dr. Kranzler's contributions to the Company, the Committee set
Dr. Kranzler's base salary at $305,500 a 10.3% increase over 1998, and the
committee also awarded Dr. Kranzler a $150,000 bonus in 1999.
Compensation Committee
Sam Anderson, Chairman
Larry Kessel, M.D.
Jack Vaughn
22.
<PAGE>
Stock Price Performance Graph
Comparison of Cumulative Return on Investment
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.
[OBJECT OMITTED]
The above comparison assumes $100 was invested in the Company's common stock and
each index on December 31, 1994.
23.
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Certain Relationships And Related Transactions
Mr. Mark Rogers, M.D., appointed as director of the Company in January
2000, is the President of Paramount Capital Investments. As of March 1, 2000,
Paramount Capital Investments held approximately 12.3% of the Company's common
stock.
Mr. Richard Crooks, Jr., a former director of the Company, is a
director of and consultant to Allen & Company Incorporated, a principal
stockholder of the Company. Effective November 1999, Mr. Crooks resigned his
Board of Director's position with the Company.
The Company has also entered into an employment agreement with its
three executive officers, as described under the caption "Management -
Employment Agreements." The Company has granted stock options to certain
directors and executive officers of the Company. See "Management - Executive
Compensation."
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 it bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person who 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.
Other Maters
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/A for the fiscal year ended December 31, 1999 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
June 21, 2000
