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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 Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S) 240.14a-12
Mycogen Corporation
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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)(1) 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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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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MYCOGEN CORPORATION
5501 Oberlin Drive
San Diego, California 92121-1718
______________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 8, 1998
______________
To the Stockholders of MYCOGEN CORPORATION:
The annual meeting of stockholders of Mycogen Corporation (the "Company") will
be held at the headquarters of Mycogen Corporation, 5501 Oberlin Drive, San
Diego, California 92121-1718 on Thursday, January 8, 1998, at 10:00 a.m. (the
"Annual Meeting") for the following purposes:
1. To elect the Board of Directors to serve until the Company's next annual
meeting and until their successors are elected and qualified;
2. To approve the amendment to the Company's Articles of Incorporation to
increase the total authorized number of shares from 45,000,000 to
55,000,000;
3. To approve an amendment to the Company's 1992 Stock Option Plan (i) to
reduce the number of shares subject to the automatic grant of non-
statutory stock options upon the appointment or initial election of a
Director, who is not a current or prior employee of the Company, from
20,000 shares to 7,500 shares of common stock and (ii) to provide that,
upon re-election, all non-employee Directors (including officers and
employees of DowElanco) will automatically receive a grant of a non-
statutory stock option to purchase 7,500 shares of common stock;
4. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending August 31, 1998; and
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Any stockholders of record at the close of
business on November 19, 1997, will be entitled to vote at the Annual Meeting
and at any adjournment thereof. The transfer books will not be closed. A list
of stockholders entitled to vote at the Annual Meeting will be available for
inspection at the offices of the Company. If you do not plan to attend the
Annual Meeting in person, please sign, date and return the enclosed proxy in the
envelope provided to which no postage need be affixed if mailed in the United
States. If you attend the Annual Meeting and vote by ballot, your proxy will be
revoked automatically and only your vote at the Annual Meeting will be counted.
The prompt return of your proxy will assist us in preparing for the Annual
Meeting. Your shares can not be voted unless you sign and return a proxy or
vote by ballot at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
By Order of the Board of Directors
/s/ Michael W. Sund
Michael W. Sund, as Secretary
San Diego, California
November 24, 1997
<PAGE>
MYCOGEN CORPORATION
5501 Oberlin Drive
San Diego, California 92121-1718
_______________________
PROXY STATEMENT
_______________________
For the Annual Meeting of Stockholders
To Be Held
January 8, 1998
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board of Directors" or the "Board") of Mycogen Corporation, a California
corporation (the "Company" or "Mycogen"), for use at the Annual Meeting of
stockholders to be held on January 8, 1998 (the "Annual Meeting"). The Annual
Meeting will be held at 10:00 a.m. at the headquarters of Mycogen Corporation,
5501 Oberlin Drive, San Diego, California 92121-1718. Stockholders of record on
November 19, 1997, will be entitled to notice of and to vote at the Annual
Meeting. This proxy statement (the "Proxy Statement") and accompanying proxy
(the "Proxy") will be mailed to stockholders on or about December 10, 1997.
Voting
On November 19, 1997, the record date for determination of stockholders
entitled to vote at the Annual Meeting, there were ____________ shares of the
Company's common stock ("Common Stock") outstanding. Each stockholder is
entitled to one vote for each share of Common Stock held by such stockholder
except that the election of directors will be conducted pursuant to cumulative
voting. Under cumulative voting, each share of Common Stock is entitled to one
vote multiplied by the number of directors to be elected, and that number of
votes may be cast for one director or may be distributed among any number of
directors as designated by the stockholder or his or her proxy. Abstentions and
broker non-votes are counted as present for the purpose of determining the
presence of a quorum for the transaction of business at the Annual Meeting. In
the election of the Company's Board of Directors, the six candidates receiving
the highest number of affirmative votes will be elected. Proposal 2 requires
the affirmative vote of a majority of the outstanding shares of Common Stock for
approval. Proposals 3 and 4 require (i) the affirmative vote of a majority of
the shares present and entitled to vote and (ii) the affirmative vote of a
majority of the required quorum for approval. Thus, abstentions and broker non-
votes can have the effect of preventing approval of a proposal where the number
of affirmative votes, though a majority of the votes cast, do not constitute a
majority of the required quorum.
Revocability of Proxies
Any person giving a proxy has the power to revoke it at any time before its
exercise. It may be revoked by filing with the Secretary of the Company at the
Company's principal executive office, 5501 Oberlin Drive, San Diego, California
92121-1718, a notice of revocation or another signed proxy with a later date.
You may also revoke your proxy by attending the Annual Meeting and voting in
person.
Solicitation
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting material furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram or other means by directors, officers, employees or agents
of the Company. No additional compensation will be paid to these individuals
for any such services. Except as described above, the Company does not
presently intend to solicit proxies other than by mail.
1
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Fiscal Year
All references herein to a particular year refer to the Company's fiscal year
which ends or ended August 31 of the year indicated.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The persons named below are nominees for director of the Company ("Director")
to serve until the Company's next annual meeting of stockholders and until their
successors have been elected and qualified. The Company's bylaws provide that
the authorized number of Directors shall be determined by resolution of the
Board of Directors or by the stockholders at the annual meeting. The authorized
number of Directors is currently between five and nine. The Board of Directors
has selected six nominees, all of whom are currently Directors, except Mr. Eibl,
who is being nominated for election by the stockholders for the first time. Each
person nominated for election has agreed to serve if elected, and management has
no reason to believe that any nominee will be unavailable to serve. It is the
intention of the Board to fill all nine Director positions authorized by the
Company's bylaws by electing three additional Directors as soon as practicable.
New Director candidates will be recruited from the food, agricultural and
financial industries to complement the knowledge base of the nominees currently
standing for election. Unless otherwise instructed, the proxy holders will vote
the proxies received by them for the nominees named below. The six candidates
receiving the highest number of affirmative votes of the shares entitled to vote
at the Annual Meeting will be elected Directors of the Company.
Nominees
The following table sets forth information regarding the nominees for the
Board of Directors:
<TABLE>
<CAPTION>
Year First Elected
Name Positions and Offices Held Director
- ------------------------------------------------------------------------------
<S> <C> <C>
Carlton J. Eibl President --
Perry J. Gehring, Ph.D. Director 1996
Nickolas D. Hein Chairman of the Board, Director 1997
Louis W. Pribila, Esq. Director 1996
William C. Schmidt Director 1996
G. William Tolbert Director 1996
- ------------------------------------------------------------------------------
</TABLE>
Business Experience of Directors
Mr. Eibl, 37, is being nominated for election to the Board of Directors for
the first time. Mr. Eibl joined the Company in December of 1992 and currently
serves as President of the Company and is responsible for overseeing the
Company's strategic development, operations and resources. From December, 1992,
to September, 1995, Mr. Eibl served as Executive Vice President of the Company.
Prior to joining the Company, Mr. Eibl was employed as a corporate attorney with
the law firms of Brobeck, Phleger & Harrison in San Diego (1989-1992) and Paul,
Weiss, Rifkind, Wharton & Garrison in New York (1985-1989).
Dr. Gehring, 61, has served as a Director since February, 1996. Dr. Gehring
is Vice President - Research and Development for DowElanco LLC ("DowElanco"), a
subsidiary of The Dow Chemical Company, and has served in that position since
1989. DowElanco's name will change effective January 1, 1998, to Dow
AgroSciences LLC. Dr. Gehring is also Vice President - Research and Development
for DowElanco B.V. Prior to working at DowElanco, Dr. Gehring held various
positions at The Dow Chemical Company including Vice President of Global
Agricultural Products Research and Development (1981-1989).
Mr. Hein, 52, has served as a Director since March, 1997, and Chairman of the
Board since May, 1997. Mr. Hein is Vice President of Global Growth for
DowElanco and has served in that position since March, 1997, and previously
served as DowElanco's Vice President Global (1990-1997) and Commercial Director
- - Ag. Products - North America (1989-1990). Prior to working for DowElanco, Mr.
Hein held various positions at The Dow Chemical Company including Director -
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Sales and Marketing North America Ag. Products (1987-1989) and Director -
Government & Public Affairs - Ag. Products Department (1985-1987). Mr. Hein is
Vice President of DowElanco B.V.
Mr. Pribila, 59, has served as a Director since December, 1996. Mr. Pribila
is Vice President, Secretary and General Counsel of DowElanco. Prior to serving
in his current position at DowElanco, Mr. Pribila served as Assistant General
Counsel of The Dow Chemical Company (1989-1995), General Counsel and Secretary
of Dow Chemical Pacific (1984 - 1989) and General Counsel - Dowell Division
(1978-1984). Mr. Pribila is also Vice President, Secretary and General Counsel
of DowElanco B.V. and the Secretary and a Director of Dintec Agrichemicals, a
privately held company.
Mr. Schmidt, 59, has served as a Director since June, 1996. Mr. Schmidt is
Vice President and Chief Financial Officer of DowElanco. Mr. Schmidt is also
President of DowElanco (Barbados) Limited, Vice President and Chief Financial
Officer of DowElanco B.V. and Treasurer of DowElanco China Ltd. and DowElanco
International Ltd. Prior to working for DowElanco, Mr. Schmidt held various
positions at The Dow Chemical Company including Assistant Controller (1986-1989)
and Controller for Dow U.S.A. (1978-1986). Mr. Schmidt is a director of
DowElanco B.V., DowElanco International Ltd., DERe Insurance Company, Dintec
Agroquimica and Dintec Agrichemicals, all of which are privately held companies.
Mr. Tolbert, 46, has served as a Director since February, 1996. Mr. Tolbert
is Director of Global Business Development for DowElanco. Prior to joining
DowElanco, Mr. Tolbert held various positions at Eli Lilly and Company including
Global Director of Elanco Ag Chem Business Planning, Licensing and Acquisition
(1986-1989); Global Manager of Agricultural Licensing and Acquisition in Elanco
Products Company (1984-1986); Manager of Professional Recruitment (1983-1984)
and Manager of Strategic Planning for Elanco Products (1981-1983).
Board Meetings and Committees
The Board of Directors of the Company held a total of nine meetings during the
fiscal year ended August 31, 1997. In the past fiscal year, one Director, John
L. Hagaman, resigned from the Board and was replaced by Mr. Hein. Four current
Directors, Thomas J. Cable; Jerry D. Caulder, Ph.D.; David H. Rammler, Ph.D. and
W. Wayne Withers, Esq. are not seeking re-election to the Board. The Board of
Directors has an Audit Committee, a Compensation Committee and a Technology
Committee. The Company does not have a Nominating Committee or a committee that
performs the functions of a Nominating Committee. The Audit Committee was
established in 1987 and is primarily responsible for reviewing the financial
reporting process and the Company's internal accounting controls, and approving
the services performed by, and the independence of, the Company's auditors. The
Audit Committee currently consists of Messrs. Cable, Pribila and Schmidt. The
Audit Committee held two meetings during the fiscal year ended August 31, 1997.
The Compensation Committee was established in 1985 and is responsible for
determining the Company's executive compensation policy. The Compensation
Committee currently consists of Messrs. Hein, Pribila and Withers. The
Compensation Committee held a total of six meetings during the fiscal year ended
August 31, 1997. The Technology Committee was established in 1997 and is
responsible for establishing the Company's research and development priorities.
The Technology Committee currently consists of Drs. Gehring and Rammler and Mr.
Tolbert. The Technology Committee held one meeting during the fiscal year ended
August 31, 1997.
All incumbent nominees for the Board of Directors attended 75% or more of the
aggregate meetings of the Board of Directors and the Board Committees on which
they served in 1997.
Director Compensation
Current members of the Board of Directors are each eligible to receive an
annual retainer fee of $16,000, plus reimbursement of all out-of-pocket costs
incurred in connection with their attendance at Board of Directors, Audit
Committee, Compensation Committee or Technology Committee meetings. Dr. Gehring
and Messrs. Hein, Pribila, Schmidt and Tolbert, have each waived their right to
receive the annual retainer fee. Under the Company's current 1992 Stock Option
Plan (as amended, the "Stock Option Plan"), each Director, who is not an officer
of DowElanco or an employee of the Company, will automatically receive an option
grant for 7,500 shares of Common Stock on the date of each annual stockholders'
meeting at which such Director is re-elected to the Board. For Directors who
are officers of DowElanco, the number of shares of Common Stock granted on the
date of each annual stockholders' meeting at which such DowElanco officer is re-
elected to the Board will be 5,000 shares. Accordingly, on December 12, 1996,
the date of the 1996 Annual Stockholders' Meeting, (i) Messrs. Cable and Withers
and Dr. Rammler each received an automatic option grant for 7,500 shares with an
exercise price of $22.875 per share; (ii) Dr. Gehring and Messrs. Hagaman,
Pribila, Schmidt
4
<PAGE>
and Tolbert each received an automatic option grant for 5,000 shares with an
exercise price of $22.875 per share and (iii) Dr. Caulder, as an employee of the
Company at that time, did not receive an automatic option grant.
Each individual who first becomes a Director, and is not a current or prior
employee of the Company, whether through election by the stockholders or
appointment by the Board of Directors, will automatically be granted, at the
time of such initial election or appointment, a non-statutory stock option to
purchase 20,000 shares of Common Stock. Each automatic grant will have an
exercise price per share equal to the fair market value of the Common Stock on
the grant date. Accordingly, (i) on December 6, 1996, the date the Board
elected Mr. Pribila a Director, he received an automatic grant of 20,000 shares
with an exercise price of $19.00; and (ii) on March 27, 1997, the date the Board
elected Mr. Hein a Director, he received 13,333 shares with an exercise price of
$24.75 per share. Mr. Hein elected to receive only a portion of the 20,000
shares since he replaced Mr. Hagaman, also an officer of DowElanco, prior to the
full vesting of Mr. Hagaman's automatic grant of 20,000 shares. At the time Mr.
Hein replaced Mr. Hagaman, only 6,667 shares of the automatic grant had vested
and thus, Mr. Hein received 13,333 shares, or the difference between the
automatic grant of 20,000 shares and the vested shares. Any stock options
granted to Dr. Gehring and Messrs. Hein, Pribila, Schmidt and Tolbert will be
received for the benefit of DowElanco.
The options granted to the Directors will become exercisable over the
optionee's period of service on the Board of Directors in three equal annual
installments, beginning one year after the grant date. However, the option will
immediately become exercisable for all of the option shares should the Company
be acquired by merger or asset sale or through a hostile take-over effected
through a tender offer for more than 50% of the outstanding Common Stock or a
proxy contest for Board membership. The option will have a maximum term of ten
years measured from the grant date, subject to earlier termination upon the
optionee's cessation of service on the Board of Directors. Upon the successful
completion of a hostile tender offer for more than 50% of the Company's
outstanding Common Stock, members of the Board, who are not current or prior
employees of the Company, will have a 30-day period in which to surrender each
of his or her automatic option grants to the Company for a cash distribution
based upon the tender offer price of the shares of Common Stock subject to each
surrendered option.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends a vote FOR the nominees listed
herein.
5
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PROPOSAL NO. 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION TO INCREASE THE AUTHORIZED NUMBER
OF SHARES
On November 12, 1997, the Board of Directors approved an amendment to the
Company's Articles of Incorporation to increase the total number of the
Company's authorized shares from the current 45,000,000 shares to 55,000,000
shares, of which 50,000,000 shares shall be Common Stock, par value $0.001 per
share and 5,000,000 shall be Preferred Stock. This amendment is being presented
to the stockholders for their approval.
At November 12, 1997, 31,447,506 shares of Common Stock were issued and
outstanding, and the Company had reserved an additional 1,048,378 shares of
Common Stock for issuance under its various benefit plans. Upon approval of this
proposed amendment, the Company would have approximately 18.5 million shares of
Common Stock authorized but not outstanding.
The additional shares to be authorized pursuant to this Proposal No. 2 may be
used by the Company in connection with new equity financings, acquisition of
businesses and other corporate purposes. The Company has been looking for
opportunities for business combinations and has held discussions with other
companies concerning business combinations from time to time. At this time, no
definitive agreements have been reached for any such combination. The existence
of additional authorized shares would increase the number of shares of Common
Stock the Board of Directors could issue under certain circumstances without
further stockholder action. The Board of Directors considers it appropriate for
the Company to have additional authorized shares available for issuance without
stockholder action to permit the Company to respond rapidly to potential
business opportunities and to give the Company added flexibility. Separate
stockholder approval of the issuance of shares of the Common Stock authorized
pursuant to this Proposal No. 2 would be obtained in the event that the federal
securities laws, the Schedules to the Bylaws of the National Association of
Securities Dealers, Inc. or any state laws require such authorization.
If the proposed amendment is approved, the second and third sentences of
Section (A) of Article IV of the Company's Articles of Incorporation will read
as follows:
The total number of shares which this Corporation is authorized to issue
is fifty-five million (55,000,000) shares. Fifty million (50,000,000)
shares shall be Common Stock and five million (5,000,000) shares shall be
Preferred Stock.
The affirmative vote of a majority of the outstanding shares of the Company's
Common Stock is required for the approval of the amendment to the Articles of
Incorporation increasing the number of authorized shares of Common Stock.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the stockholders vote FOR
the approval of the amendment to the Company's Articles of Incorporation to
increase the authorized number of shares of Common Stock.
6
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PROPOSAL NO. 3
APPROVAL OF AN AMENDMENT TO
THE COMPANY'S 1992 STOCK OPTION PLAN
In November 1997, the Board of Directors adopted, subject to stockholder
approval at the Annual Meeting, an amendment to the Stock Option Plan to effect
the following changes: (i) to reduce the number of shares subject to the
automatic grant of non-statutory stock options upon the appointment or initial
election of a Director, who is not a current or prior employee of the Company,
from 20,000 shares to 7,500 shares of common stock and (ii) to provide that,
upon re-election, all non-employee Directors (including officers and employees
of DowElanco) will automatically receive a grant of a non-statutory stock option
to purchase 7,500 shares of common stock.
As of September 30, 1997, options covering an aggregate of 4,474,066 shares of
the Common Stock were outstanding, 2,226,285 shares of Common Stock had been
issued under the Stock Option Plan, and 866,368 shares of Common Stock remained
available for option grant.
Plan Structure
The Stock Option Plan is divided into two separate components: the
Discretionary Grant Program and the Automatic Grant Program. Under the
Discretionary Grant Program, options may be issued to key employees (including
officers), non-employee Board members, consultants and other independent
contractors of the Company or its subsidiaries (which shall include corporate
subsidiaries or entities owned 50% or more by the Company) who contribute to the
management, growth and financial success of the Company or its subsidiaries.
Under the Automatic Grant Program, a special one-time option grant will be made
to each individual who first joins the Board of Directors as a non-employee
Director on or after the effective date of the Stock Option Plan and subsequent
annual automatic option grants will be made to each individual who continues to
serve as a non-employee Director of the Company.
As of September 30, 1997, seven executive officers and approximately 900 other
employees were eligible to participate in the Discretionary Grant Program. As
of September 30, 1997, nine Board members were eligible to participate in the
Automatic Grant Program, however, only five of the eligible Board members are
being considered for re-election.
Effective retroactive to January 1, 1996, no one participant in the Stock
Option Plan may receive stock option grants and separately exercisable stock
appreciation rights for more than 200,000 shares of Common Stock in the
aggregate per calendar year.
Plan Administration
The Discretionary Grant Program is administered by the Compensation Committee.
The Compensation Committee has the sole and exclusive authority, subject to the
provisions of the Stock Option Plan, to determine the eligible individuals who
are to receive options under the Discretionary Grant Program, the number of
shares to be covered by each granted option, the date or dates on which the
option is to become exercisable and the maximum term for which the option is to
remain outstanding. The Compensation Committee also has the authority to
determine whether the granted option is to be an incentive stock option
("Incentive Option") under the Federal tax laws and to establish rules and
regulations for proper plan administration.
Issuable Shares
The aggregate number of shares available for issuance over the term of the
Stock Option Plan may not exceed 7,566,719 shares of Common Stock, subject to
adjustment from time to time in the event of certain changes to the Company's
capital structure. The authorized share reserve includes (i) the aggregate
number of shares currently available for issuance under the Stock Option Plan,
including the shares subject to outstanding options, plus (ii) the proposed
additional increase of 2,000,000 shares of Common Stock. As of September 30,
1997, 2,226,285 shares have been issued under the Stock Option Plan.
7
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Should any option under the Stock Option Plan expire or terminate prior to
exercise or surrender in full, the shares subject to the portion of the option
not so exercised or surrendered will be available for subsequent option grants.
Shares subject to any option surrendered in accordance with the option surrender
provisions of the Stock Option Plan will reduce on a share-for share basis, the
number of shares available for subsequent option grants. Unvested shares
repurchased by the Company at the original option price paid per share pursuant
to its repurchase rights under the Stock Option Plan will be added back to share
reserve and will accordingly be available for future option grants.
Option Price and Exercisability
The exercise price of options issued under the Discretionary Grant Program may
not be less than 85% of the fair market value of the Common Stock on the grant
date, and the maximum period during which any option may remain outstanding may
not exceed 10 years.
Options issued under the Discretionary Grant Program may either be immediately
exercisable for the full number of shares purchasable thereunder or may become
exercisable in cumulative increments over a period of months or years as
determined by the Compensation Committee.
The option price may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date. Outstanding options may also be
exercised through a same-day sale program, pursuant to which a designated
brokerage firm is to effect an immediate sale of the shares purchased under the
option and pay over to the Company, out of the sales proceeds available on the
settlement date, sufficient funds to cover the option price for the purchased
shares, plus all applicable withholding taxes.
The Compensation Committee may also assist any optionee (including an officer)
in the exercise of outstanding options under the Discretionary Grant Program by
authorizing a loan from the Company or permitting the optionee to pay the option
price in installments over a period of years. The terms and conditions of any
such loan or installment payment will be established by the Compensation
Committee in its sole discretion, but in no event may the maximum credit
extended to the optionee exceed the aggregate option price payable for the
purchased shares, plus any Federal, State or local income taxes or Federal
employment taxes incurred by the optionee in connection with the option
exercise.
Valuation
For purposes of establishing the option price and for all other valuation
purposes under the Stock Option Plan, the fair market value per share of Common
Stock on any relevant date will be the closing selling price per share on such
date, as reported on the Nasdaq National Market System ("NMS"). If there is no
reported selling price for such date, then the closing selling price for the
last previous date for which such quotation exists will be determinative of fair
market value. On September 30, 1997, the fair market value per share of Common
Stock was $23.50 on the basis of the closing selling price on that date.
Stockholder Rights and Assignability of Options
No optionee is to have any stockholder rights with respect to the option
shares until such individual has exercised the option, paid the option price and
been issued a stock certificate for the purchased shares. Options are not
assignable or transferable other than by will or by the laws of inheritance,
and, during the optionee's lifetime, the option may be exercised only by the
optionee.
Repurchase Rights
Any unvested shares of Common Stock issued under the Stock Option Plan will be
subject to repurchase by the Company, at the original exercise price paid per
share, upon the optionee's cessation of service prior to vesting in such shares.
The Compensation Committee will have complete discretion in establishing the
vesting schedule for any such unvested shares and will have full authority to
cancel the Company's outstanding repurchase rights with respect to one or more
unvested shares held by the optionee and may exercise this discretion at any
time, whether before or after the optionee's service actually ceases.
8
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Acceleration of Options
Corporate Transaction
In the event of any of the following stockholder-approved transactions to
which the Company is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the surviving
entity (except for a transaction the principal purpose of which is
to change the State of the Company's incorporation);
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company in complete liquidation or
dissolution of the Company; or
(iii) a reverse merger in which the Company is the surviving entity but in
which the holders of securities possessing more than 50% of the
combined voting power of the Company's outstanding securities (as
determined immediately prior to such merger) transfer their
ownership of those securities to person or persons not otherwise
part of the transferor group,
each outstanding option under the Discretionary Grant Program will automatically
become exercisable for all of the option shares and may be exercised for all or
any portion of such fully-vested shares. However, an outstanding option under
the Discretionary Grant Program will not be so accelerated if and to the extent:
(i) such option is either to be assumed by the successor corporation (or its
parent corporation) in such Corporate Transaction or is otherwise to be replaced
with a comparable option to purchase shares of the capital stock of the
successor corporation, (ii) such option is to be replaced by a cash incentive
program of the successor corporation which preserves the option spread existing
at the time of the Corporate Transaction and provides for pay-out in accordance
with the same vesting schedule in effect for the option or (iii) the
acceleration of such option is subject to other limitations imposed by the
Compensation Committee at the time of grant. The Compensation Committee will,
however, have full power and authority to grant options under the Discretionary
Grant Program, which are to automatically accelerate in whole or in part
immediately prior to the Corporate Transaction, whether or not those options are
otherwise to be assumed or replaced in connection with the consummation of such
Corporate Transaction.
The Company's outstanding repurchase rights under the Stock Option Plan will
also terminate, and the shares subject to such terminated rights will become
fully vested, upon the Corporate Transaction, except to the extent (i) one or
more of such repurchase rights are expressly assigned to the successor
corporation (or its parent company) or (ii) such termination and accelerated
vesting are precluded by other limitations imposed by the Compensation Committee
at the time the repurchase rights are issued.
Upon the consummation of the Corporate Transaction, all outstanding options
under the Stock Option Plan will terminate and cease to be exercisable, except
to the extent assumed by the successor corporation.
Change in Control
The Compensation Committee will have full power and authority, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more options
under the Discretionary Option Grant Program so that each such option may,
immediately prior to a Change in Control, be exercised for any or all of the
shares of Common Stock at the time subject to such option. The Compensation
Committee will have complete discretion in establishing the specific terms and
conditions upon which one or more outstanding options are to accelerate in
connection with the Change in Control or upon which any of the Company's
outstanding repurchase rights under the Stock Option Plan are to terminate.
Accordingly, the Compensation Committee may in its discretion condition such
accelerated vesting (and the termination of any outstanding repurchase rights)
upon the termination of the optionee's service within a specified period
following the Change in Control.
A Change in Control will be deemed to occur under the Stock Option Plan in the
event:
(i) any person or related group of persons (other than the Company or
any affiliate) acquires beneficial ownership of securities
possessing more than 50% of the combined voting power of the
Company's outstanding securities pursuant to a tender or exchange
offer made directly to
9
<PAGE>
the Company's stockholders which the Board of Directors does not
recommend such stockholders to accept; or
(ii) there is a change in the composition of the Board over a period of
24 consecutive months or less such that a majority of the Board
members ceases by reason of one or more proxy contests for the
election of Board members, to be comprised of individuals who either
(A) have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the members of
the Board described in clause (A) who were still in office at the
time such election or nomination was approved by the Board.
The acceleration of options in the event of a Corporate Transaction or Change
in Control may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company. The acceleration of options also could have the effect
of discouraging a Change in Control of the Company and in management, even
though such Changes in Control could be favored by a majority of stockholders.
Stock Appreciation Rights
At the Compensation Committee's discretion, options may be granted with stock
appreciation rights. Two types of stock appreciation rights are authorized for
issuance under the Stock Option Plan: (i) tandem rights which require the
option holder to elect between the exercise of the underlying option for shares
of Common Stock and the surrender of such option for an appreciation
distribution from the Company and (ii) limited rights which will become
exercisable upon the occurrence of a Hostile Take-Over (as defined below).
Tandem stock appreciation rights provide the holders with the right to receive
an appreciation distribution from the Company equal in amount to the excess of
(i) the fair market value (on the date such right is exercised) of the shares of
Common Stock in which the optionee is at the time vested under the surrendered
option over (ii) the aggregate exercise price payable for such shares. Such
appreciation distribution may, at the Compensation Committee's discretion, be
made in shares of Common Stock valued at fair market value on the exercise date,
in cash or in a combination of cash and Common Stock.
One or more officers of the Company subject to the short-swing profit
restrictions of the Federal securities laws may, at the Compensation Committee's
discretion, be granted limited stock appreciation rights as part of any stock
option grants made to such officers under the Stock Option Plan. Any option with
such a limited stock appreciation right may, at the officer's election, be
surrendered to the Company upon the occurrence of a Hostile Take-Over, to the
extent the option is at such time exercisable for vested shares (including any
shares which vest in connection with such Hostile Take-Over). In return, the
optionee will be entitled to a cash distribution from the Company in an amount
equal to the excess of (i) the Take-Over Price (as defined below) of the vested
shares of Common Stock at the time subject to the surrendered option (or the
surrendered portion) over (ii) the aggregate exercise price payable for such
shares. The balance of the option (if any) will continue to remain outstanding
and exercisable in accordance with the agreement evidencing such grant.
For purposes of such limited stock appreciation right, the following
definitions will be in effect under the Stock Option Plan:
Hostile Take-Over: the acquisition by any person or related group of
persons (other than the Company or its affiliates) of securities possessing
more than 50% of the combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the
Company's stockholders which the Board of Directors does not recommend such
stockholders to accept.
Take-Over Price: the greater of (A) the fair market value of the shares
subject to the surrendered option, measured on the option surrender date in
accordance with the valuation provisions of the Stock Option Plan described
above, or (B) the highest reported price per share paid by the acquiring
entity in effecting the Hostile Take-Over.
10
<PAGE>
Termination of Service
Outstanding options under the Discretionary Grant Program will terminate, with
respect to any shares for which such options are exercisable at the time of the
optionee's cessation of service with the Company, within a specified period
(generally not in excess of 12 months) following such cessation of service,
unless the Compensation Committee determines that such exercise period should be
further extended for one or more additional months or years. Under no
circumstances, however, may any such option remain exercisable after the
specified expiration date of the option term. To the extent the option is not
exercisable for one or more shares at the time of the optionee's cessation of
service, the option will immediately terminate and cease to be outstanding with
respect to those shares.
Should the optionee die while holding one or more exercisable options, then
those options may subsequently be exercised by the personal representative of
the optionee's estate or by the persons to whom such options are transferred by
the optionee's will or by the laws of inheritance. Should the optionee's service
be terminated for misconduct, all outstanding options held by the optionee will
be terminated immediately and cease to be outstanding.
During the applicable exercise period following the optionee's cessation of
service, the option may not be exercised for more than the number of option
shares for which the option is exercisable at the time of such cessation of
service. However, the Compensation Committee will have the discretionary
authority to accelerate in whole or in part the vesting of any outstanding
options held by the optionee and may exercise this discretion at any time while
the option remains outstanding.
For purposes of the Stock Option Plan, the optionee will be deemed to be in
the service of the Company for so long as such individual renders periodic
services to the Company or any subsidiary, whether as an employee, Board member
or independent consultant.
Cancellation and New Grant of Options
The Compensation Committee has the authority to effect the cancellation of
outstanding options under the Discretionary Grant Program and to grant
replacement options covering the same or different numbers of shares of Common
Stock but having an option price per share not less than 85% of the fair market
value of the Common Stock on the new grant date.
Special Tax Withholding Election
The Compensation Committee may, in its discretion and upon such terms and
conditions as it may deem appropriate, provide one or more option holders under
the Discretionary Grant Program with the election to have the Company withhold,
from the shares of Common Stock otherwise issuable upon the exercise of their
options, a portion of such shares with an aggregate fair market value equal to
the designated percentage (up to 100% as specified by the option holder) of the
Federal, State and local income tax liability and Federal employment tax
liability incurred by such option holder in connection with the exercise of such
option. Any election so made will be subject to the approval of the Compensation
Committee, and no shares will actually be withheld in satisfaction of such taxes
except to the extent approved by the Compensation Committee. One or more option
holders may also be granted the alternative right, subject to Compensation
Committee approval, to deliver previously-issued shares of Common Stock in
satisfaction of such tax liability.
Automatic Grant Program
Under the Automatic Grant Program, each individual who first becomes a non-
employee Board member, whether through election by the stockholders or
appointment by the Board, will automatically be granted, at the time of such
initial election or appointment, a non-statutory stock option to purchase 7,500
shares of Common Stock, provided such individual has not otherwise been in the
prior employ of the Company. In addition, on the date of each Annual
Stockholders' Meeting, each individual re-elected to serve as a non-employee
member of the Board will automatically be granted a stock option to purchase
7,500 shares of Common Stock. There will be no limit on the number of such
7,500-share option grants any one non-employee Board member may receive over his
or her period of Board service, and non-employee Board members who have
previously served in the Company's employ will be fully eligible for one or more
annual option grants.
11
<PAGE>
Each such option grant will be subject to the following terms and conditions:
(i) The option price per share will be equal to 100% of the fair market
value per share of Common Stock on the grant date;
(ii) Each option is to have a maximum term of ten years measured from
the grant date;
(iii) Each automatic grant will become exercisable in a series of three
equal annual installments over the optionee's period of service on
the Board, with the first such installment to become exercisable one
year after the automatic grant date;
(iv) The option will remain exercisable for a six-month period following
the optionee's cessation of Board service for any reason other than
death. Should the optionee die while holding the automatic grant,
then such option will remain exercisable for a twelve month period
following such optionee's death and may be exercised by the personal
representative of the optionee's estate or the person to whom the
grant is transferred by the optionee's will or the laws of
inheritance. In no event, however, may the option be exercised after
the expiration date of the option term. During the applicable
exercise period, the option may not be exercised for more than the
number of shares (if any) for which it is exercisable at the time of
the optionee's cessation of Board service. To the extent the option
is not exercisable for one or more option shares at the time of the
optionee's cessation of service on the Board, the option will
immediately terminate and cease to be outstanding with respect to
those shares;
(v) The option will become immediately exercisable for all of the shares
at the time subject to such option in the event of a Corporate
Transaction. Upon the consummation of the Corporate Transaction,
each automatic option grant will terminate and cease to be
outstanding, except to the extent assumed by the successor entity;
(vi) The option will become immediately exercisable for all of the shares
at the time subject to such option in the event of a Change in
Control. Except as otherwise provided in paragraph (vii) below, the
accelerated option will continue to remain outstanding until the
expiration or sooner termination of the option term;
(vii) Upon the occurrence of a Hostile Take-Over, the non-employee Board
member will have a thirty-day period in which he or she may elect to
surrender the automatic option grant to the Company. In return for
the surrendered option, the non-employee Board member will be
entitled to a cash distribution from the Company in an amount equal
to the excess of (i) the Take-Over Price of the shares of Common
Stock at the time subject to the surrendered option (whether or not
the option is otherwise at the time exercisable for such shares)
over (ii) the aggregate exercise price payable for such shares; and
(viii) The remaining terms and conditions of the option will in general
conform to the terms described above for option grants made under
the Discretionary Grant Program and will be incorporated into the
option agreement evidencing the automatic grant.
Changes in Capitalization
In the event any change is made to the Common Stock issuable under the Stock
Option Plan by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and/or class of securities issuable under
the Stock Option Plan, (ii) the maximum number of shares for which any one
participant may be granted stock options and separately exercisable stock
appreciation rights per calendar year, (iii) the number and/or class of
securities and price per share in effect under each outstanding option
(including all discretionary and automatic option grants under the Stock Option
Plan) and (iv) the number and/or class of securities per non-employee member of
the Board of Directors for which the special option grants will subsequently be
made under the Automatic Grant Program.
12
<PAGE>
Each outstanding option which is assumed or is otherwise to continue in effect
after a Corporate Transaction will be appropriately adjusted to apply and
pertain to the number and class of securities which would have been issuable, in
connection with such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction. Appropriate adjustments will also be made to the
option price payable per share and to number and class of securities available
for issuance under the Stock Option Plan.
Option grants under the Stock Option Plan will not affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
Amendment and Termination of the Stock Option Plan
The Board of Directors may amend or modify the Stock Option Plan in any or all
respects whatsoever, subject, however, to any required stockholder approval
under applicable law or regulation. No such amendment, however, may adversely
affect the rights of outstanding option holders without their consent.
The Board may terminate the Stock Option Plan at any time, and the Stock
Option Plan will in all events terminate no later than December 31, 2002. Any
options outstanding at the time of such plan termination will continue to remain
outstanding and exercisable in accordance with the terms and provisions of the
instruments evidencing those grants. The Stock Option Plan will, however,
automatically terminate on the date all shares available for issuance under the
Stock Option Plan are issued or canceled pursuant to the exercise, surrender or
cash-out of outstanding options under the Stock Option Plan.
Federal Tax Consequences
Options granted under the Stock Option Plan may be either Incentive Options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which do not meet such requirements. The Federal income
tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the time
of the option grant, and no taxable income is generally recognized at the time
the option is exercised. The optionee will, however, recognize taxable income in
the year in which the purchased shares are sold or otherwise made the subject of
disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or disposition is made more than
two years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to sale or disposition, then a disqualifying disposition of the
purchased shares will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the option price paid for
the shares. If there is a disqualifying disposition of the shares, then the
excess of (i) the fair market value of those shares on the exercise date over
(ii) the option price paid for the shares will be taxable as ordinary income.
Any additional gain recognized upon the disposition will be capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
option price paid for such shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon the
grant of a non-statutory option. The optionee will in general recognize ordinary
income, in the year in which the option is exercised, equal to the excess of the
fair market value of the purchased shares on the exercise date over the option
price paid for such shares, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a non-statutory option, if the purchased shares are subject
to repurchase by the Company. These special provisions may be summarized as
follows:
13
<PAGE>
(a) If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original option price in the
event the optionee should terminate service prior to vesting in the shares,
the optionee will not recognize any taxable income at the time of exercise
but will have to report as ordinary income, as and when the Company's
repurchase right lapses, an amount equal to the excess of (i) the fair
market value of the shares on the date the Company's repurchase right
lapses with respect to those shares over (ii) the option price paid for
such shares.
(b) The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise an
amount equal to the excess of (i) the fair market value of the purchased
shares on the exercise date (determined as if the shares were not subject
to the Company's repurchase right) over (ii) the option price paid for such
shares. If the Section 83(b) election is made, the optionee will not
recognize any additional income as and when the Company's repurchase right
lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which ordinary income is recognized by the
optionee in connection with the acquisition of the option shares.
Surrender Rights. An optionee who surrenders an outstanding option for a cash
or stock distribution from the Company will recognize ordinary income in the
year of surrender equal to the amount of the appreciation distribution. The
Company will be entitled to a corresponding business expense deduction for such
appreciation distribution. The deduction will be allowed in the taxable year of
the Company in which the ordinary income is recognized by the optionee.
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions of
incentive stock option shares or exercises of non-statutory options granted with
an exercise price equal to the fair market value of the option shares at the
time of grant will qualify as performance-based compensation for purposes of
Internal Revenue Code Section 162(m) and will not have to be taken into account
for purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those
options will remain deductible by the Company without limitation under Internal
Revenue Code Section 162(m).
Accounting Treatment
The grant of options with an exercise price less than the fair market value of
the option shares on the grant date will result in a compensation expense equal
to the discount at the time of grant, and the Company will have to amortize that
expense against the Company's reported earnings over the vesting period in
effect for the option shares. Option grants with an exercise price equal to the
fair market value of the option shares at the time of grant will generally not
result in any charge to the Company's earnings, but the Company must disclose,
in pro-forma statements to the Company's financial statements, the impact those
options would have upon the Company's reported earnings were the value of those
options at the time of grant treated as compensation expense. Whether or not
granted at a discount, the number of outstanding options is a factor in
determining the Company's earnings per share.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to the
Company's earnings.
14
<PAGE>
Outstanding Grants
For each of the executive officers named in the Summary Compensation Table and
the various indicated groups, the table below shows (i) the number of shares of
Common Stock subject to options granted under the Stock Option Plan during the
period from September 1, 1996, to September 30, 1997, and (ii) the weighted
average exercise price payable per share under such options.
<TABLE>
<CAPTION>
Number of Weighted Average Exercise Price
Name and Position Option Shares of Granted Options
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carlton J. Eibl 90,000 $14.438
President
Andrew C. Barnes 35,000 $14.438
Executive Vice President
Leo Kim 35,000 $14.438
Executive Vice President, Chief
Technical Officer
Michael W. Sund 20,000 $14.438
Vice President and Secretary
James A. Baumker 35,000 $14.438
Vice President and Chief Financial
Officer
Naomi D. Whitacre 20,000 $14.438
Vice President
Michael J. Muston 70,000 $19.571
Vice President
All current executive officers as a 305,000 $15.616
group (7 persons)
All current directors 165,834 $17.980
as a group (9 persons)
All employees, including current 616,500 $18.825
officers who are not executive
officers, as a group (183 persons)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
New Plan Benefits
If this Proposal is approved, Dr. Gehring and Messrs. Hein, Pribila, Schmidt
and Tolbert will each receive an automatic grant for 7,500 shares upon their re-
election to the Board at the Annual Meeting.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendment to the Stock Option Plan. If such
approval is not obtained, then (i) the initial automatic option grant to non-
employee Board members will remain at 20,000 shares per individual and (ii) the
automatic option grants to be made to eligible Board members who are officers or
employees of DowElanco and who are re-elected at the Annual Meeting will remain
at 5,000 shares per individual.
15
<PAGE>
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the approval
of the amendment to the Stock Option Plan. The Board believes that it is in the
best interests of the Company to maintain a comprehensive equity incentive
program for the Company's officers, employees, non-employee Board members and
consultants which will encourage such individuals to remain in the Company's
service and more closely align their interests with those of the stockholders.
16
<PAGE>
PROPOSAL NO. 4
RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITORS
The Company is asking the stockholders to ratify the selection of Deloitte &
Touche LLP as the Company's independent auditors for the year ending August 31,
1998. The affirmative vote of the holders of a majority of the shares
represented and voting at the Annual Meeting together with the affirmative vote
of the majority of the required quorum, will be required to ratify the selection
of Deloitte & Touche LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors, in its discretion, may direct the appointment of a different
independent auditing firm at any time during the year if the Board of Directors
feels that such a change would be in the Company's and its stockholders' best
interests. Representatives of Deloitte & Touche LLP are expected to be at the
Annual Meeting, and may make a statement, if they desire to do so, and will be
available to respond to appropriate questions.
Dismissal of Ernst & Young LLP
Effective November 12, 1997, the Company dismissed its prior certifying
accountants, Ernst & Young LLP, and retained as its new certifying accounts,
Deloitte & Touche LLP. Ernst & Young's report on the Company's financial
statements during the two most recent fiscal years and all subsequent interim
periods preceding the date hereof contained no adverse opinion or a disclaimer
of opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. The Board of Directors made the change from Ernst & Young
LLP to Deloitte & Touche LLP so that the Company would have the same certifying
accountants as the Company's majority shareholder, DowElanco. The decision to
change accountants was approved by the Company's Board of Directors.
None of the reportable events described in Item 304(a)(1)(ii) of Regulation S-
K occurred with respect to the Company within the two fiscal years and the
subsequent interim period to the date hereof. During that period, there were no
disagreements between the Company and Ernst & Young on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Ernst &
Young LLP would have caused Ernst & Young LLP to make a reference to the subject
matter of the disagreements in connection with its reports.
Representatives of Ernst & Young LLP are expected to be at the Annual Meeting,
and may make a statement, if they desire to do so, and will be available to
respond to appropriate questions.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the stockholders vote FOR
the proposal to ratify its selection of Deloitte & Touche LLP to serve as the
Company's independent auditors for the year ending August 31, 1998.
17
<PAGE>
ADDITIONAL INFORMATION
Principal Stockholders
The following table sets forth certain information regarding the ownership of
Common Stock as of September 30, 1997, for each person known to the Company to
be the beneficial owner of more than 5% of Common Stock. Unless otherwise
indicated, each of the stockholders listed below has sole voting and investment
power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
Number of Shares
Beneficial Owner Beneficially Percent Owned/1/
Owned
- ------------------------------------------------------------------------------
<S> <C> <C>
DowElanco/2,3/ 17,923,245 57.1%
9330 Zionsville Road
Indianapolis, IN 46268-1054
Pioneer Hi-Bred International, Inc.
700 Capital Square 2,000,000 6.4%
400 Locust Street
Des Moines, IA 50309
The State of Wisconsin Investment Board 1,800,500 5.7%
PO Box 7842
Madison, WI 53707
Capital Research & Management Co. 1,700,000 5.4%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
/1/ Percentage of beneficial ownership is calculated pursuant to Securities
and Exchange Commission ("SEC") Rule 13d-3(d)(1).
/2/ Mr. Hein (Vice President of Global Growth of DowElanco), Mr. Pribila (Vice
President, Secretary and General Counsel of DowElanco), Mr. Schmidt (Vice
President and Chief Financial Officer of DowElanco), Dr. Gehring (Vice
President of Research and Development of DowElanco) and Mr. Tolbert
(Director of Global Business Development of DowElanco) are members of the
Board of Directors.
/3/ The Dow Chemical Company owns 100% of DowElanco.
Executive Officers
<TABLE>
<CAPTION>
Name Age Position Held With the Company
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Andrew C. Barnes 44 Executive Vice President
James A. Baumker 46 Vice President and Chief Financial Officer
Carlton J. Eibl 37 President
Leo Kim, Ph.D. 55 Executive Vice President and Chief
Technical Officer
Michael J. Muston 41 Vice President
Michael W. Sund 54 Vice President and Secretary
Naomi D. Whitacre 49 Vice President
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Responsibilities and Business Experience of Executive Officers
Mr. Barnes, a founder of the Company, currently serves as Executive Vice
President responsible for the Company's business development. Prior to joining
the Company, Mr. Barnes served as President of Zymogenetics Corporation, a
genetic engineering company, and managed that company's initial growth and
financing. Mr. Barnes began his career as a project and process engineer with
G.D. Searle & Co. and then served as a biotechnology licensing associate for
Stanford University's Office of Technology Licensing.
Mr. Baumker joined the Company in August of 1987 as Controller of the Company
and currently serves as Vice President and Chief Financial Officer. From June,
1995, to September, 1995, Mr. Baumker served as the Company's Chief Accounting
Officer. Prior to joining the Company, Mr. Baumker served as Project Manager,
Latin America, for Monsanto Agricultural Company (1983-1987) and Accounting
Manager, Asia Pacific, for Monsanto International (1978-1982).
Mr. Eibl is being considered for the position of Director of the Company. See
"Election of Directors - Business Experience of Directors."
Dr. Kim joined the Company in September of 1986 and currently serves as
Executive Vice President and Chief Technical Officer of the Company. Prior to
joining the Company, Dr. Kim was employed by Shell Oil Company for 18 years in a
variety of positions, including Principal Scientist involved in agricultural
biotechnology, Research and Development Director-Biomedical, Research and
Development Director-Interferon and Manager Biological Chemistry in Shell's
Agricultural Research Center.
Mr. Muston joined the Company in July of 1996, and currently serves as Vice
President responsible for the Company's North American seed business unit,
Agrigenetics, Inc., doing business as Mycogen Seeds. Prior to joining the
Company, Mr. Muston was employed at DowElanco from 1989 through 1996 where he
held various positions including General Manager - Western Agriculture, Global
Business Operations Manager - Herbicides and Global Third Party Manufacturing
Manager. Mr. Muston also was employed by Elanco from 1978 through 1989 in
various positions.
Mr. Sund joined the Company in January of 1993 and currently serves as Vice
President and Secretary of the Company and is responsible for communications and
investor relations. Prior to joining the Company, Mr. Sund was President of Mike
Sund Public Relations, Inc. (1986-1992) and Director of Public Relations, Joan
B. Kroc Foundation (1984-1986).
Ms. Whitacre joined the Company in January of 1993 and currently serves as
Vice President responsible for overseeing the Company's facilities and human
resources department. Prior to joining the Company, Ms. Whitacre served as
Assistant Vice President at Glendale Federal Bank (1990-1993) and Human
Resources Manager at Wavetek Corporation (1985-1990).
19
<PAGE>
Executive Compensation
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
compensation earned by the Company's President, each of the other four most
highly compensated executive officers of the Company and the former Chief
Executive Officer of the Company for services rendered in all capacities to the
Company and its subsidiaries for the fiscal years ended August 31, 1997, 1996
and 1995.
<TABLE>
<CAPTION> Long-term
Annual Compensation Compensation Awards
----------------------------------------- -------------------------------
Securities
Other Restricted Underlying
Name and Annual Stock Options/ All Other
Principal Position Year Salary/1/ Bonus Compensation Award(s)/2/ SARs/3/ Compensation
($) ($) ($) ($) (#) ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Carlton J. Eibl 1997 $284,813 -- -- -- 90,000 $ 2,000/4/
President 1996 $200,417 $ 75,000 -- $138,130 200,000 $ 2,000/4/
1995 $150,000 -- -- $ 58,440 150,000 $ 2,000/4/
1995 -- -- -- -- 80,000/5/ --
Jerry D. Caulder, Ph.D. 1997 $301,524 -- $ 8,000/6/ -- 90,000 $2,813,350/7/
(resigned as of May 1997 1996 $297,500 $100,000 -- $276,260 175,000 $ 2,238/4/
from the position of 1995 $285,000 -- -- $116,880 100,000 $ 2,000/4/
Chief Executive Officer) 1995 -- -- -- -- 260,000/5/ --
Andrew C. Barnes 1997 $185,000 -- -- -- 35,000 $ 2,000/4/
Executive Vice President 1996 $173,333 $ 50,000 -- $138,130 100,000 $ 2,000/4/
1995 $165,000 -- -- $ 58,440 50,000 $ 2,000/4/
1995 -- -- -- -- 160,000/5/ --
James A. Baumker 1997 $157,646 $ 25,000 -- -- 35,000 $ 2,000/4/
Vice President, Chief 1996 $110,000 -- -- $ 69,065 50,000 $ 2,000/4/
Financial Officer
Leo Kim, Ph.D. 1997 $186,250 -- -- -- 35,000 $ 2,000/4/
Executive Vice President 1996 $173,333 $ 50,000 -- $138,130 100,000 $ 2,000/4/
Chief Technical Officer 1995 $165,000 -- -- $ 58,440 50,000 $ 1,430/4/
1995 -- -- -- -- 135,000/5/ --
Michael J. Muston 1997 $139,167 $ 20,000 $48,953/8/ -- 70,000 $ 2,633/4/
Vice President 1996 $ 22,500 $ 11,250 -- -- -- $ 101/4/
</TABLE>
20
<PAGE>
/1/ The Salary column of the Summary Compensation table shows the full salary
received by the named executive officer although some of the officer's
salary may have been deferred under the Company's 401(k) Plan or Executive
Deferred Compensation Plan.
/2/ Restricted Stock holdings at the end of the 1997 fiscal year were as
follows:
<TABLE>
<CAPTION>
Name # of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Andrew C. Barnes 11,667 $288,758
James A. Baumker 8,334 $206,267
Carlton J. Eibl 11,667 $288,758
Leo Kim, Ph.D. 11,667 $288,758
- ------------------------------------------------------------------------------
</TABLE>
For grants issued prior to fiscal year 1996, the shares of restricted
stock will vest upon the named officers' completion of three years of
service, measured from the award date. Messrs. Barnes and Eibl, and Dr.
Kim's restricted stock vests as follows: 3,333 shares on December 13,
1997; 3,334 shares on December 13, 1998 and 5,000 shares on February 16,
1999. Mr. Baumker's restricted stock vests as follows: 1,667 shares on
December 13, 1997; 1,667 shares on December 13, 1998; 2,000 shares on
April 20, 1998 and 3,000 shares on July 21, 1998. For grants issued in
fiscal year 1996, the shares of restricted stock will vest annually over
three years of service, measured from the award date. However, in the
event the Company is acquired by merger or asset sale or there is a
hostile take-over of the Company by tender offer for 25% or more of the
outstanding Common Stock or a proxy contest for Board membership, then
each restricted stock award which has been outstanding for at least six
months will immediately vest in full. In connection with Dr. Caulder's
resignation, 23,333 shares of his restricted stock vested.
/3/ Two option grants are shown in year 1995 because the chart is based on a
fiscal year beginning September 1 and ending August 31. Previously, the
Company's fiscal year began January 1 and ended December 31 and options
were granted only once during such period. Therefore, calendar year 1995
includes option grants occurring in fiscal years 1994 and 1995.
/4/ These figures reflect contributions made by the Company on behalf of the
named executive officer under the Company's 401(k) Plan.
/5/ These options were granted on December 21, 1994, pursuant to an option
cancellation/regrant program for all full-time employees of the Company.
Under the program, each named officer exchanged his outstanding options
with exercise prices in excess of $8.50 for new options for the same
number of shares with an exercise price of $8.50 per share, the fair
market value of the Common Stock on the date of the new grant. Each option
granted to an executive officer is immediately exercisable for all the
option shares, but any shares purchased under the option will be subject
to repurchase by the Company, at the original exercise price paid per
share, upon the optionee's cessation of service prior to vesting in those
shares. The shares subject to each December 21, 1994 grant will vest in 36
successive equal monthly installments upon the optionee's completion of
each month of service over the 36-month period measured from the date of
the new grant.
/6/ This figure reflects the amount of Director's fees paid to Dr. Caulder by
the Company.
/7/ This figure includes a $2,000 contribution made by the Company under its
401(k) Plan, and severance paid by the Company to Dr. Caulder in May of
1997 which consisted of (i) a one-time cash payment of $1,537,500, (ii)
$1,232,850 for the value of 65,752 shares of Common Stock issued to Dr.
Caulder and (iii) $41,000 for the value of a country club membership
transferred to Dr. Caulder upon his resignation.
/8/ This figure reflects amounts paid by the Company for relocation costs
incurred by Mr. Muston.
21
<PAGE>
Stock Options and Stock Appreciation Rights
The following table contains information concerning the grant of stock options
and stock appreciation rights ("SARs") under the Stock Option Plan to the named
executive officers:
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
---------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Number of
Securities Securities
Underlying Underlying
Options/ Options/SARs Exercise
SARs Granted to or Base
Name Granted1 Employees in Price/2/ Expiration 5%/3/ 10%/3/
(#) Fiscal Year ($/Share) Date ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carlton J. Eibl 90,000/4/ 9.4% $14.438 10-17-06 $817,198 $2,070,940
Jerry D. Caulder, Ph.D. 90,000/5/ 9.4% $14.438 5-1-00 $244,959 $ 521,405
(resigned as of May,
1997)
Andrew C. Barnes 35,000/4/ 3.6% $14.438 10-17-06 $317,799 $ 805,366
James A. Baumker 35,000/4/ 3.6% $14.438 10-17-06 $317,799 $ 805,366
Leo Kim, Ph.D. 35,000/4/ 3.6% $14.438 10-17-06 $317,799 $ 805,366
Michael J. Muston 40,000/6/ 4.2% $16.250 9-5-06 $408,782 $1,035,933
30,000/7/ 3.1% $24.000 1-29-07 $452,804 $1,147,494
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Compensation Committee, as Plan Administrator, may grant two types of
SARs in connection with option grants made under the Stock Option Plan:
(i) tandem rights which require the holder to elect between the exercise
of the underlying option for shares of Common Stock and the surrender of
such option for a distribution from the Company, payable in cash or shares
of Common Stock, based upon the appreciated value of the option shares and
(ii) limited rights which provide the optionee with a 30-day period
following the successful completion of a hostile tender offer for 25% or
more of the outstanding Common Stock in which to surrender the option to
the Company for a cash distribution equal to the excess of the tender
offer price per share of the vested shares of Common Stock subject to the
surrendered option over the option exercise price otherwise payable for
such shares. To date, the Plan Administrator has not granted any tandem
SARs to the Company's executive officers, but each of their options does
include a limited SAR. The shares subject to each option will immediately
vest in the event the Company is acquired by a merger or asset sale,
unless the Company's repurchase rights with respect to those shares are
transferred to the acquiring entity. Each option has a maximum term of ten
years, subject to earlier termination in the event of the optionee's
cessation of service with the Company.
/2/ The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. If shares of
Common Stock are used to pay the option price, the option holder
surrenders to the Company a sufficient number of fully paid shares of
Common Stock, valued at the fair market value on the exercise date, to
fully pay the option price on the options being exercised. The Company may
also finance the option exercise by loaning the optionee sufficient funds
to pay the
22
<PAGE>
exercise price for the purchased shares and the Federal and State tax
liability incurred in connection with such exercise. The optionee may be
permitted, subject to the approval of the Plan Administrator, to apply a
portion of the shares purchased under the option (or to deliver existing
shares of Common Stock) in satisfaction of such tax liability.
/3/ There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the ten-year option term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of the
Common Stock does in fact appreciate over the option term, no value will
be realized from the option grants made to the executive officers.
/4/ These options were granted on October 17, 1996. Each option granted to an
executive officer is immediately exercisable for all the option shares,
but any shares purchased under the option will be subject to repurchase by
the Company, at the original exercise price paid per share, upon the
optionee's cessation of service prior to vesting in those shares. The
shares subject to each grant will vest annually over three years of
service measured from the grant date.
/5/ These options were granted on October 17, 1996 and vested on May 1, 1997,
in connection with Dr. Caulder's severance agreement with the Company.
These options expire on May 1, 2000.
/6/ These options were granted on September 5, 1996. The terms of the grant,
other than exercise price, are the same as set forth above in footnote 4.
/7/ These options were granted on January 1, 1997. The terms of the grant,
other than exercise price, are the same as set forth above in footnote 4.
23
<PAGE>
Option/SAR Exercises and Holdings
The following table provides information, with respect to the named executive
officers, concerning the exercise of options and/or SARs held as of the end of
the 1997 fiscal year:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-the-Money Options/SARs
at August 31, 1997 at August 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Shares
Acquired on Value
Exercise Realized Exercisable/1/ Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carlton J. Eibl 121,666 $1,804,490 398,334 -- $ 4,899,657 --
Jerry D. Caulder, Ph.D.
(resigned as of May 1997) -- -- 722,000 -- $10,580,225 --
Andrew C. Barnes 45,000 $ 978,750 377,000 -- $ 5,446,540 --
James A. Baumker -- -- 147,444 6,556 $ 1,950,084 $106,535
Leo Kim, Ph.D. 86,667 $1,283,650 180,833 -- $ 2,203,572 --
Michael Muston -- -- 70,000 -- $ 362,500 --
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The exercisable options are immediately exercisable for all of the option
shares, but any shares purchased under the option will be subject to
repurchase by the Company at the option exercise price upon optionee's
termination of employment prior to vesting in those shares. As of August
31, 1997, the number of unvested shares underlying the options held by
each named executive officer is as follows: Mr. Barnes 169,445; Mr.
Baumker 74,890; Mr. Eibl 348,889; Dr. Kim 166,667 and Mr. Muston 70,000.
Security Ownership of Directors and Management as of September 30, 1997
The following table provides information, as of September 30, 1997, with
respect to the Directors and named executive officers, concerning the amount and
nature of beneficial ownership of Common Stock.
<TABLE>
<CAPTION>
Amount and Nature of
Title of Class Name of Beneficial Owner Beneficial Ownership Percent of Class+
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Andrew C. Barnes 465,747/1/ 1.5%
Common Stock James A. Baumker 160,808/2/ *
Common Stock Thomas J. Cable 43,332/3/ *
Common Stock Jerry D. Caulder, Ph.D. 742,080/4/ 2.3%
Common Stock Carlton J. Eibl 421,543/5/ 1.3%
Common Stock Perry J. Gehring, Ph.D. --/6/ --
Common Stock Nickolas D. Hein --/6/ --
Common Stock Leo Kim, Ph.D. 192,585/7/ *
Common Stock Michael J. Muston 70,278/8/ *
Common Stock Louis W. Pribila, Esq. --/6/ --
Common Stock David H. Rammler, Ph.D. 151,626/9/ *
Common Stock William C. Schmidt --/6/ --
Common Stock G. William Tolbert --/6/ --
Common Stock W. Wayne Withers, Esq. 6,966/10/ *
Common Stock Directors and executive 2,433,688/11/ 7.3%
officers as a group
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
* Less than 1%.
+ Percentage of beneficial ownership is calculated pursuant to SEC Rule 13d-
3(d)(1).
/1/ This figure includes 377,000 shares of Common Stock, issuable upon
exercise of options held by Mr. Barnes, which are currently exercisable or
will become exercisable within sixty days of September 30, 1997, 88,287
shares held by the Andrew C. Barnes Family Trust and 85 shares held by the
Mycogen 401(k) Plan.
/2/ This figure includes 150,721 shares of Common Stock, issuable upon
exercise of options held by Mr. Baumker, which are currently exercisable
or will be exercisable within sixty days of September 30, 1997, and 87
shares held by the Mycogen 401(k) Plan.
/3/ This figure includes 43,332 shares of Common Stock, issuable upon exercise
of options held by Mr. Cable, which are currently exercisable or will
become exercisable within sixty days of September 30, 1997.
/4/ This figure includes 722,000 shares of Common Stock, issuable upon
exercise of options held by Dr. Caulder, which are currently exercisable
or will become exercisable within sixty days of September 30, 1997, 2,968
shares held by the Jerry D. Caulder Family Trust and 78 shares held by the
Mycogen 401(k) Plan.
/5/ This figure includes 398,334 shares of Common Stock, issuable upon
exercise of options held by Mr. Eibl, which are currently exercisable or
will become exercisable within sixty days of September 30, 1997, and 78
shares held by the Mycogen 401(k) Plan.
/6/ This figure does not include 17,923,245 shares of Common Stock owned by
DowElanco. Dr. Gehring and Messrs. Hein, Pribila, Schmidt and Tolbert are
all officers of DowElanco. See "Certain Relationships and Related
Transactions."
/7/ This figure includes 180,833 shares of Common Stock, issuable upon
exercise of options held by Dr. Kim, which are currently exercisable or
will become exercisable within sixty days of September 30, 1997, and 85
shares held by the Mycogen 401(k) Plan.
/8/ This figures includes 70,000 shares of Common Stock, issuable upon
exercise of options held by Mr. Muston, which are currently exercisable or
will become exercisable within sixty days of September 30, 1997, and 89
shares held by the Mycogen 401(k) Plan.
/9/ This figure includes 48,332 shares of Common Stock, issuable upon exercise
of options held by Dr. Rammler, which are currently exercisable or will
become exercisable within sixty days of September 30, 1997.
/10/ This figure includes 6,666 shares of Common Stock, issuable upon exercise
of options held by Mr. Withers, which are currently exercisable or will
become exercisable within sixty days of September 30, 1997.
/11/ This figure includes 2,157,602 shares of Common Stock which are currently
exercisable or will become exercisable within sixty days of September 30,
1997, issuable upon options held by all Directors and executive officers
as a group.
25
<PAGE>
Employment Contracts, Termination of Employment Agreements and Change of
Control Arrangements
The Company has entered into employment/severance agreements ("Employment
Agreements") with the following named executive officers: Messrs. Eibl, Barnes
and Baumker and Dr. Kim. The Employment Agreements provide that upon
involuntary termination of the named executive officer's employment (whether or
not effected in connection with a Change of Control of the Company) the named
executive officer is entitled to certain severance benefits including immediate
vesting of the executive officer's restricted stock and stock options.
Mr. Eibl, under his Employment Agreement, will be entitled to, if his
involuntary termination is prior to January 1, 1999, (i) a lump sum payment
equal to four times the sum of his average annual rate of base salary and the
average bonus paid by the Company, in each case for services rendered in the
four immediately preceding calendar years and (ii) health care coverage for a
four year period. If Mr. Eibl's involuntary termination occurs after January 1,
1999, he will be entitled to (i) a lump sum payment equal to three times the sum
of his average annual rate of base salary and the average bonus paid by the
Company, in each case for services rendered in the three immediately preceding
calendar years and (ii) health care coverage for a three year period.
Dr. Kim and Mr. Barnes, under their respective Employment Agreements, each
will be entitled to, if their involuntary termination is prior to January 1,
1999, (i) a lump sum payment equal to three times the sum of their average
annual rate of base salary and the average bonus paid by the Company, in each
case for services rendered in the two immediately preceding calendar years and
(ii) health care coverage for a three year period. If Dr. Kim's and/or Mr.
Barnes' involuntary termination occurs after January 1, 1999, they each will be
entitled to (i) a lump sum payment equal to two times the sum of their average
annual rate of base salary and the average bonus paid by the Company, in each
case for services rendered in the two immediately preceding calendar years and
(ii) health care coverage for a two year period.
Mr. Baumker, under his Employment Agreement, will be entitled to, if his
involuntary termination is prior to January 1, 1999, (i) a lump sum payment
equal to two times the sum of his average annual rate of base salary and the
average bonus paid by the Company, in each case for services rendered in the two
immediately preceding calendar years and (ii) health care coverage for a two
year period. If Mr. Baumker's involuntary termination occurs after January 1,
1999, he will be entitled to (i) a lump sum payment equal to his average annual
rate of base salary and the average bonus paid by the Company, in each case for
services rendered for the immediately preceding two calendar years and (ii)
health care coverage for a one year period.
The severance benefits provided by the Employment Agreements will not be
granted if the officer is terminated for one or more alleged acts of fraud,
embezzlement, misappropriation of proprietary information or any other
verifiable misconduct adversely affecting the business reputation of the Company
in a material manner.
One executive officer of the Company, Dr. Caulder, resigned in fiscal year
1997. Prior to Dr. Caulder's resignation, the Company had entered into an
Employment Agreement with him which terminated upon his resignation. Dr. Caulder
received $2,811,350 as total severance with the Company consisting of (i) a lump
sum cash payment of $1,537,500 paid on May 1, 1997, (ii) $1,232,850 in the form
of Common Stock valued at the date of his resignation and (iii) a country club
membership valued at $41,000. As an additional part of his severance with the
Company, Dr. Caulder will receive medical and dental insurance coverage for ten
years following his resignation and life and disability insurance continuing for
five years following his resignation. Upon his resignation, 23,337 shares of Dr.
Caulder's restricted stock vested and 389,445 of Dr. Caulder's stock options
vested.
As indicated in footnote (1) to the table under the heading "Stock Options and
Stock Appreciation Rights," the shares subject to option grants made to date
under the Stock Option Plan will immediately vest upon a merger in which the
Company is not the surviving entity, a sale of substantially all of the
Company's assets in liquidation or dissolution of the Company or a reverse
merger in which the Company is the surviving entity but in which 50% or more of
the Company's outstanding voting stock is transferred to person or persons
different from those who held such stock immediately prior to the merger, unless
the Company's repurchase rights with respect to those shares are transferred to
the successor entity.
Compensation Committee Interlocks and Insider Participation
Mr. Withers has served on the Compensation Committee for the entire 1997
fiscal year. Messrs. Hagaman and Cable served on the Compensation Committee from
September 1, 1996 to March 27, 1997. Messrs. Hein and Pribila have served on the
Compensation Committee since March 27, 1997.
26
<PAGE>
No member of the Compensation Committee was at any time during the 1997 fiscal
year or at any other time an officer or employee of the Company.
No executive officer of the Company served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
The following Compensation Committee Report on Executive Compensation and the
Performance Graph should not be considered to be part of this Proxy Statement
and any current or future cross references to this Proxy Statement in filings
with the SEC under either the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, shall not include the Compensation
Committee Report on Executive Compensation, or the Performance Graph.
Compensation Committee Report on Executive Compensation
The following is the report delivered by the Compensation Committee with
respect to the principal factors considered by such Committee in determining the
compensation of the Company's executive officers. This report comments on the
factors considered in determining compensation paid to the executive officers in
fiscal year 1997 and in setting compensation for fiscal year 1998.
Role of the Compensation Committee. As members of the Compensation Committee,
it is our duty, after discussions with the Company's President and Vice
President of Human Resources, to set the base salary, annual rewards, long-term
awards and other compensation of the Company's executive officers. The
Compensation Committee is also responsible for reviewing and approving the
design of compensation and benefit programs for the Company and to administer
the Stock Option Plan under which grants may be made to officers and other key
employees.
General Compensation Policy. The Compensation Committee's fundamental policy
is to provide competitive compensation to the Company's executive officers based
upon their contribution to the success of the Company in achieving its corporate
objectives and enhancing stockholder value.
In the 1997 fiscal year, the Company completed and presented to the
Compensation Committee an extensive analysis of executive compensation pay
practices within the agricultural seed and biotechnology industries. The study
included a review of compensation paid to executives from a comparator group of
ten biotechnology companies and five agricultural seed companies, all of which
are located in the United States. The compensation information was compiled from
two independent salary surveys. The targeted group of comparator biotechnology
companies have one or more of the following attributes: related industry,
similar market capitalization ($500 million to $1 billion) and/or a strong
technology orientation. Those companies are all represented in the current
Performance Graph included in this Proxy Statement. The agricultural seed
companies chosen for the comparator group are leaders in their respective
businesses and direct competitors of Mycogen. The Compensation Committee
believes that the Company's most direct competitors for executive talent are not
necessarily all of the companies that should be included in an index established
for comparing shareholder returns for the following reasons: i) direct
competitors for executive talent are not necessarily the same companies that are
relevant for comparing shareholder returns because such factors as the
geographical location, size and type of organization can have a greater impact
on salaries than on investor decisions and ii) the ability to obtain accurate
information influences which companies are included in the pay comparison.
Compensation Elements. It is the Compensation Committee's continuing objective
to have a substantial portion of each officer's compensation contingent upon the
Company's performance as well as upon his or her own level of performance.
Accordingly, each executive officer's compensation package is comprised of three
elements: (i) base salary which reflects individual performance and is intended
to be competitive with salary levels in the industry; (ii) annual performance
awards, if awarded, are payable in cash and tied to the achievement of the
Company's corporate objectives and to specific individual performance objectives
and (iii) long-term stock-based incentive awards that strengthen mutual
interests between the executive officers and the Company's stockholders. As an
officer's level of responsibility increases, it is the Compensation Committee's
intent to have a greater portion of his or her total compensation be dependent
upon Company performance and stock price appreciation rather than base salary.
For fiscal year 1997, the Compensation Committee approved base salary
adjustments for individual executive officers to close the gap identified
between an individual executive's base salary and base salaries of the
comparator group and approved the award of annual variable bonuses (short-term
cash bonuses) and long-term incentives to the executive officers based upon the
progress the Company had made in reaching its strategic objectives. For fiscal
year 1998, the Compensation Committee endorsed the Company's use of an
independent compensation consulting firm to assist the Company in
27
<PAGE>
redesigning its incentive programs, specifically to replace Mycogen's variable
bonus awards with targeted incentive awards. Generally, the Company, as part of
its fiscal year business planning process, sets key strategic objectives which,
if achieved, would add the greatest value to the Company and its shareholders.
For fiscal year 1998, the Company will establish incentive target awards for
each executive officer based on his or her level of responsibility and upon each
executive's ability to impact the Company's performance and the correlation of
such performance to shareholder value.
The total cash compensation paid to the Company's executive officers in fiscal
year 1997 placed approximately in the 10th to 25th percentile of executive
compensation paid to executive officers in companies included in the
compensation analysis described above. Long-term incentive compensation (stock
options) awarded to the Company's executive officers in fiscal year 1997 placed
approximately in the 65th to 75th percentile. Base salary for the Company's
executive officers for fiscal year 1997 was generally in the 25th to 35th
percentile range of executive compensation of comparator companies.
Factors. Executive compensation is based primarily on the Company's
achievement of corporate objectives established at the start of each fiscal
year. For fiscal year 1997, the corporate objectives were (i) to make
substantial progress toward profitability in 1997, (ii) to position the Company
for continued future profitability, (iii) to continue the Company's growth in
terms of technological and product developments, (iv) to increase market
acceptance of the Company's products, (v) to maintain market share following
merger and acquisition activities in North and South America, (vi) to increase
sales and earnings per share growth and broadened participation in the seed
industry through strategic transactions and (vii) to strategically realign the
crop protection business. The Company will use these same corporate objectives
as the foundation for developing objectives for fiscal year 1998. In the future,
the Company may, in its discretion, apply entirely different factors,
particularly different measures of corporate growth and financial performance,
in setting executive compensation.
. Base Salary. The base salary for each executive officer is set on the basis
of the level of responsibility of the executive officers and the salary
levels in effect for comparable positions within the Company's comparator
group. The Compensation Committee supported base salary adjustments for the
executive officers beginning in fiscal 1997 to bring them up to or near the
50th percentile range of executive compensation of the comparator group for
fiscal 1998.
. Annual Incentive Compensation Program. In February, 1996, the Company
implemented a strategic alliance with DowElanco, which, together with other
strategic alliances completed by the Company, has resulted in the Company
dramatically improving its revenues and pre-tax operating results, boosting
its product development efforts, expanding and upgrading the Company's seeds
business, realigning its biopesticide business and expanding distribution
into new geographic markets. This progress has resulted in significant
appreciation of the Company's stock value in fiscal year 1997 as compared to
fiscal year 1996. With reference to this progress, cash bonuses were paid in
March, 1996, to the Company's executive officers who had served as executive
officers during the prior two fiscal years, and September, 1996 to executive
officers who had served as officers beginning in fiscal year 1996.
. Long-Term Incentive Compensation. Stock options are granted to align the
interest of each executive officer with those of the stockholders and provide
each executive officer with a significant incentive to manage the Company
from the perspective of an owner with an equity stake in the business. For
fiscal year 1997, stock option grant awards were made to each executive
officer. The number of shares subject to each option grant was based on the
officer's level of responsibilities, relative position in the Company and
contribution to the Company's corporate objectives discussed above. The
options granted to the executive officers in fiscal year 1997 vest in three
equal annual installments. The three-year vesting intends to provide an
incentive for the executive group to remain intact and to try to aggressively
build shareholder value over that time frame. Each stock option has a maximum
term of ten years from the grant date. Each stock option grant allows the
executive officer to acquire shares of Common Stock at a fixed price per
share (the market price on the grant date) over a specified period of time.
Accordingly, the option will provide a return to the executive officer only
if the market price of the shares appreciates over the option term.
President's and CEO's Compensation. In May, 1997, Dr. Caulder resigned from
his position of Chief Executive Officer of the Company and Mr. Eibl assumed sole
responsibility for overseeing all the Company's functions and directing the
organization to ensure the attainment of sales and profit goals, maximum return
on invested capital and, subject to the approval of the Board of Directors,
formulation of the Company's current and long-range plans and objectives.
In setting the compensation payable to Mr. Eibl, the Compensation Committee
has sought to be competitive with other companies in the industry and has
recognized Mr. Eibl's expanded responsibilities while, at the same time, tying a
significant percentage of such compensation to Company performance and stock
price appreciation. Mr. Eibl's total cash compensation was analyzed as part of
the extensive study presented to the Compensation Committee cited above and
places approximately in the 10th percentile of chief executive compensation of
the comparator group. Base salary for Mr. Eibl for
28
<PAGE>
fiscal year 1997 was in the 25th percentile range. With respect to Mr. Eibl's
base salary, it is the Compensation Committee's intent to provide him with a
level of stability and certainty each year and not have this particular
component of compensation affected to any significant degree by Company
performance factors.
In setting the fiscal year 1997 compensation payable to the Company's Chief
Executive Officer, Dr. Caulder, the Compensation Committee sought to be
competitive with other companies in the industry, while at the same time tying a
significant percentage of such compensation to Company performance and stock
price appreciation. Dr. Caulder's total cash compensation places approximately
in the 10th percentile of chief executive compensation of comparator companies.
Base salary for Dr. Caulder for fiscal year 1997 was in the 35th percentile
range. The Compensation Committee determined the severance for Dr. Caulder,
which consisted of a cash payment of $1,537,500, $1,232,850 in the form of
Common Stock, and the acceleration of the vesting of 23,337 shares of restricted
stock and 389,445 stock options held by Dr. Caulder.
The stock option grants awarded to Mr. Eibl and Dr. Caulder during the 1997
fiscal year were intended to place a significant portion of their total
compensation for the year at risk, since the options would have no value unless
there was appreciation in the value of the Common Stock over the option term. As
indicated, it is the Compensation Committee's objective to have an increasing
percentage of Mr. Eibl's total compensation each year tied to the attainment of
the Company's corporate objectives and stock price appreciation on his option
shares.
As a result of Section 162(m) of the Internal Revenue Code, which was enacted
into law in 1993, the Company will not be allowed a Federal income tax deduction
for compensation paid to certain officers, to the extent that compensation
exceeds $1 million per officer in any one year. This limitation is in effect for
all taxable years of the Company beginning after December 31, 1993, and will
apply to all compensation which is not considered to be performance-based.
Compensation which does qualify as performance-based compensation will not have
to be taken into account for purposes of this limitation. Any compensation
deemed paid in connection with options granted under the Stock Option Plan at an
exercise price equal to the fair market value of the option shares at the time
of grant will qualify as performance-based compensation.
The cash compensation paid to the Company's executive officers during the 1997
fiscal year did not exceed the $1 million limit per officer, except for the
severance payment awarded Dr. Caulder. Dr. Caulder's severance award exceeded
the $1 million threshold and, thus, the Company will not be allowed a Federal
income tax deduction for any of his severance over $1 million. The Compensation
Committee decided, in recognition of Dr. Caulder's exemplary services to the
Company over the last ten years, to award him a severance in excess of $1
million. The Compensation Committee does not believe that a similar event will
occur in fiscal year 1998. Therefore, the Committee has decided not to take any
action at this time to limit or restructure the elements of cash compensation
payable to the Company's executive officers. The Compensation Committee will
reconsider this should the individual compensation of any executive officer, in
the future, approach the $1 million level.
The Compensation Committee
Through March 27, 1997:
Thomas J. Cable
John L. Hagaman
W. Wayne Withers, Esq.
From March 27, 1997 to the present:
Nickolas D. Hein
Louis W. Pribila, Esq.
W. Wayne Withers, Esq.
29
<PAGE>
Performance Graph
The following graph compares total stockholder returns of the Company over the
last five fiscal years to the weighted average return of stocks of companies
included in the Nasdaq Stock Market Total Return Index (the "NMS Index") and in
the Nasdaq Non-Financial Stocks Industry Index. The Common Stock is traded on
the NMS. The total return for each of the Company's Common Stock, the NMS Index
and the Nasdaq Non-Financial Stocks Industry Index assumes the reinvestment of
dividends, although dividends have not been declared on the Common Stock, and is
based on the returns of the component companies weighted according to their
market capitalization as of the end of each monthly period for which returns are
indicated. The NMS Index tracks the aggregate price performance of equity
securities of companies traded on the NMS. The Nasdaq Non-Financial Stocks
Industry Index tracks all non-financial stocks traded on the NMS.
Last year, a peer group index of companies identified by the Company was used
because there were no published industry or line-of-business indices that
paralleled the agricultural-biotechnology industry. Because of the rapid changes
in equity ownership and consolidations within this industry, the Nasdaq Non-
Financial Stocks Industry Index has been selected as the Company's industry
index. The former peer group index consisted of the following agricultural
biotechnology companies, which were the only agricultural, crop-protection
biotechnology companies known to the Company to have their shares traded on NMS
at that time: Calgene, Inc.; DeKalb Genetics Corporation, Inc.; Ecogen, Inc.;
Ringer Corporation; Biosys, Inc.; DNA Plant Technology Corporation, Inc. and
Ecoscience Corporation. The graph below includes this former peer group index
for comparative purposes only. The stockholder return shown on the graph below
is not necessarily indicative of future performance and the Company will not
make or endorse any predictions as to future stockholder returns.
COMPARISON OF CUMULATIVE FIVE-YEAR RETURNS
Assumes $100 Invested on 8/31/92 and Dividend Reinvestment
<TABLE>
<CAPTION>
NASDAQ
Non-
Mycogen NASDAQ Financial Former
Corporation NMS Stocks Peer Index
----------- ------ --------- ----------
<S> <C> <C> <C> <C>
8/31/92 100 100 100 100
9/30/92 98 104 104 101
10/30/92 96 108 108 104
11/30/92 96 116 117 119
12/31/92 106 121 120 128
1/29/93 113 124 124 116
2/26/93 100 119 117 105
3/31/93 92 123 121 97
4/30/93 94 118 116 98
5/28/93 94 125 125 104
6/30/93 100 125 125 110
7/30/93 96 125 124 95
8/31/93 100 132 131 97
9/30/93 96 136 135 106
10/29/93 85 139 139 119
11/30/93 77 135 135 106
12/31/93 77 139 139 100
1/31/94 88 143 144 108
2/28/94 83 141 142 107
3/31/94 70 133 132 98
4/29/94 85 131 129 88
5/31/94 79 131 128 103
6/30/94 81 126 122 93
7/29/94 75 129 125 84
8/31/94 79 137 134 89
9/30/94 75 137 134 76
10/31/94 75 140 138 70
11/30/94 75 135 134 62
12/30/94 63 135 134 60
1/31/95 86 136 133 59
2/28/95 70 143 140 61
3/31/95 74 148 145 58
4/28/95 70 152 150 57
5/31/95 63 156 154 53
6/30/95 62 169 168 58
7/31/95 65 181 181 55
8/31/95 77 185 183 54
9/29/95 104 189 187 56
10/31/95 101 188 185 51
11/30/95 99 193 189 47
12/29/95 128 191 186 47
1/31/96 123 192 188 60
2/29/96 147 200 196 60
3/29/96 130 200 196 61
4/30/96 130 217 215 64
5/31/96 138 227 225 66
6/28/96 113 217 213 65
7/31/96 116 197 191 66
8/30/96 120 209 202 65
9/30/96 108 224 218
10/31/96 121 222 214
11/29/96 126 236 227
12/31/96 162 236 226
1/31/97 192 252 244
2/28/97 197 238 227
3/31/97 175 223 211
4/30/97 137 230 218
5/30/97 177 256 245
6/30/97 148 264 250
7/31/97 169 291 278
8/31/97 187 291 277
</TABLE>
30
<PAGE>
Certain Relationships and Related Transactions
DowElanco
On February 19, 1996, the Company issued 4.5 million shares of Common Stock to
DowElanco in exchange for one of its subsidiaries, United AgriSeeds, Inc., and
$26.4 million in cash. In connection with this transaction, the Company and
DowElanco entered into a five year, royalty-free, cross-licensing agreement for
the use of certain current and future biological tools for genetic modification
of plants and other organisms. In April of 1997, DowElanco and Mycogen entered
into a loan agreement whereby DowElanco agreed to make, from time to time,
advances to Mycogen up to an aggregate of $50 million. Messrs. Pribila, Hein,
Tolbert, Schmidt, and Dr. Gehring are all officers of DowElanco and current
members of the Company's Board of Directors.
Pioneer Hi-Bred International, Inc.
On December 13, 1995, Pioneer Hi-Bred International, Inc. ("Pioneer")
purchased 3 million shares of Common Stock for $30 million. Concurrent with the
purchase, the Company entered into a collaboration agreement with Pioneer
whereby Pioneer will provide $21 million in research and development funding to
the Company and will also devote extensive research and development staff and
resources to the joint development program. The Company had previously licensed
gene promoter technology to Pioneer in 1994 in exchange for an up-front license
payment, and license maintenance fees of $10,000 per year until January 15,
2004, unless the license is terminated earlier. On August 30, 1996, the Company
entered into two additional gene promoter licenses for an up-front license fee
of $400,000 for each license.
Transactions with Executive Officers
On September 13, 1996, the Company made a $200,000 loan to Mr. Eibl, which
accrues interest at 6.64% and is due and payable in five years. Mr. Eibl used a
portion of the loan proceeds to purchase shares of Common Stock. The Company
made a second loan of $39,996 on December 31, 1996, to Mr. Eibl which accrued
interest at 6.64% and was due and payable on August 29, 1997. On July 30, 1997,
Mr. Eibl paid the Company $41,655 as full payment on the outstanding balance of
his second loan. The largest combined balance of these two loans during fiscal
year 1997 was $253,284.
On December 31, 1996, the Company made a $79,992 loan to Dr. Caulder which
accrued interest at 6.64% and was due and payable on August 29, 1997. On March
31, 1997, Dr. Caulder paid the Company $81,564 as full payment of the
outstanding balance of his loan.
STOCKHOLDER PROPOSALS FOR 1998 PROXY STATEMENT
Stockholder proposals that are intended to be presented at the Company's
annual meeting of stockholders to be held in 1999 must be received by the
Company no later than August 12, 1998, in order to be included in the proxy
statement and related proxy materials.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON VERBAL REQUEST, A COPY OF THE
ANNUAL REPORT AND FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND
LIST OF EXHIBITS. REQUESTS SHOULD BE MADE BY CALLING 1-888-SEE-MYCO (1-888-733-
6926). The Company's filings with the SEC are also available at the Company's
web site located at http://www.mycogen.com.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and Nasdaq. Officers, Directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company,
the Company believes that, during the period from September 1, 1996 to August
31, 1997, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were satisfied.
31
<PAGE>
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented for
consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
Dated: November 24, 1997 By Order of the Board of Directors
/s/ Michael W. Sund
MICHAEL W. SUND, as Secretary
32
<PAGE>
MYCOGEN CORPORATION
1992 STOCK OPTION PLAN
AS AMENDED AND RESTATED EFFECTIVE NOVEMBER 12, 1997
----------------------------------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSES OF THE PLAN
--------------------
A. This 1992 Stock Option Plan (the "Plan") is intended to promote
the interests of Mycogen Corporation, a Delaware corporation (the "Company"), by
providing a method whereby (i) key employees (including officers and directors)
of the Company (or its parent or subsidiaries) who are primarily responsible for
the management, growth and financial success of the Company (or its parent or
subsidiaries), (ii) the non-employee members of the Company's Board of Directors
and (iii) consultants and other independent contractors who provide valuable
services to the Company (or its parent or subsidiaries) may be offered the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company as an incentive for them to remain in the
service of the Company (or its parent or subsidiaries).
B. The Plan initially became effective immediately upon approval by
the Company's stockholders at the 1992 Special Stockholders Meeting on October
27, 1992. Such date is hereby designated as the Effective Date of the Plan. This
November 1997 restatement of the Plan (the "November 1997 Restatement") shall
become effective immediately upon adoption by the Board of Directors, subject,
however, to stockholder approval at the 1997 Annual Meeting. The Plan shall be
administered in compliance with the applicable requirements of SEC Rule 16b-3,
as in effect from time to time.
C. This Plan shall serve as the successor to the Mycogen Corporation
1983 Stock Option Plan (the "1983 Plan"), and no further option grants shall be
made under the 1983 Plan from and after the Effective Date of this Plan. All
options outstanding under the 1983 Plan on such Effective Date are hereby
incorporated into this Plan and shall accordingly be treated as outstanding
options under this Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the express terms and conditions of the
instrument
<PAGE>
evidencing such grant, and no provision of this Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of the
Company's common stock thereunder or their exercise of any outstanding stock
appreciation rights thereunder.
D. For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiaries of the Company:
Any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company shall be considered to be a parent
corporation of the Company, provided each such corporation in the unbroken
chain (other than the Company) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
Each corporation, partnership or other entity (other than the
Company) in an unbroken chain of corporations, partnerships or other
entities beginning with the Company shall be considered to be a subsidiary
of the Company, provided each such corporation, partnership or other entity
(other than the last corporation, partnership or other entity) in the
unbroken chain owns, at the time of the determination, stock or other
ownership interests possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock or other ownership interests
in one of the other corporations, partnerships or other entities in such
chain.
II. STRUCTURE OF THE PLAN
---------------------
A. Stock Programs. The Plan shall be divided into two separate
--------------
components: the Discretionary Option Grant Program specified in Article Two and
the Automatic Option Grant Program specified in Article Three. Under the
Discretionary Option Grant Program, key employees (including officers), non-
employee Board members, consultants and other independent contractors of the
company or its subsidiaries who contribute to the management, growth and
financial success of the Company or its subsidiaries, may, at the discretion of
the Plan Administrator, be granted options to purchase shares of Common Stock in
accordance with the provisions of Article Two. Under the Automatic Option Grant
Program, certain non-employee members of the Company's Board of Directors (the
"Board") will automatically receive special option grants to purchase shares of
Common Stock in accordance with the provisions of Article Three.
<PAGE>
B. General Provisions. Unless the context clearly indicates
------------------
otherwise, the provisions of Articles One and Four of the Plan shall apply to
both the Discretionary Option Grant Program and the Automatic Option Grant
Program and shall accordingly govern the interests of all individuals under the
Plan.
III. ADMINISTRATION OF THE PLAN
--------------------------
A. The Discretionary Option Grant Program shall be administered by a
committee ("Committee") of two (2) or more non-employee Board members appointed
by the Board.
B. The Committee as Plan Administrator shall have the sole and
exclusive power and authority (subject to the express provisions of the
Discretionary Option Grant Program) to establish such rules and regulations as
it may deem appropriate for the proper administration of such program and to
make such determinations under the program and any outstanding option as it may
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties with an interest in any outstanding option under the
Discretionary Option Grant Program.
C. Service on the Committee shall constitute service as a Board
member, and members of the Committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on the
Committee. No member of the Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option granted under the
Plan.
D. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three.
IV. ELIGIBILITY FOR OPTION GRANTS
-----------------------------
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two of the Plan shall be limited to the following:
(i) officers and other key employees of the Company (or its
parent or subsidiaries) who render services which contribute to the
management, growth and financial success of the Company (or its parent or
subsidiaries);
(ii) non-employee Board members; and
<PAGE>
(iii) those consultants and other independent contractors
who provide valuable services to the Company (or its parent or
subsidiaries).
B. The Plan Administrator shall have the sole and exclusive
authority to determine which eligible individuals are to receive option grants
under the Discretionary Option Grant Program, the number of shares to be covered
by each such grant, the status of the granted option as either an incentive
stock option ("Incentive Option") which satisfies the requirements of Section
422 of the Internal Revenue Code or a non-statutory option not intended to meet
such requirements, the time or times at which each such option is to become
exercisable, and the maximum term for which the option is to remain outstanding.
V. STOCK SUBJECT TO THE PLAN
-------------------------
A. Shares of the Company's Common Stock shall be issuable under the
Plan, and such shares may be obtained from either the Company's authorized but
unissued shares of Common Stock or from shares of Common Stock reacquired by the
Company and held as treasury shares. The maximum number of shares available for
issuance over the term of the Plan shall not exceed 7,566,719 shares of Common
Stock, subject to adjustment from time to time in accordance with the provisions
of this Section V. To the extent one or more outstanding options under the 1983
Plan which have been incorporated into this Plan are subsequently exercised, the
number of shares issued with respect to each such option shall reduce, on a
share-for-share basis, the number of shares available for issuance under this
Plan.
B. In no event shall any one individual participating in the Plan be
granted stock options and separately exercisable stock appreciation rights for
more than 200,000 shares of Common Stock in the aggregate per calendar year,
effective retroactive to January 1, 1996.
C. Should an outstanding option under this Plan (including any
outstanding options under the 1983 Plan incorporated into this Plan) expire or
terminate for any reason prior to exercise in full (including any option
canceled in accordance with the cancellation-regrant provisions of Section IV of
Article Two of this Plan), the shares subject to the portion of the option not
so exercised shall be available for subsequent option grants under this Plan.
Unvested shares issued under the Plan and subsequently repurchased by the
Company at the original option or issue price paid per share shall be added back
to the share reserve and shall accordingly be made available for subsequent
issuance under the Plan. Shares
<PAGE>
subject to any option or portion thereof surrendered in accordance with Section
V of Article Two or Section III of Article Three shall not be available for
subsequent issuance under the Plan. In addition, should the exercise price of an
outstanding option under the Plan (including any option incorporated from the
1983 Plan) be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Company in satisfaction of
the withholding taxes incurred in connection with the exercise of an outstanding
option under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised, and not by the net number of shares of Common Stock
actually issued to the option holder.
D. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum
number and/or class of securities for which any one participant may be granted
stock options and separately exercisable stock appreciation rights per calendar
year, (iii) the number and/or class of securities and price per share in effect
under each outstanding option under the Discretionary Option Grant Program, (iv)
the number and/or class of securities per non-employee Board member for which
automatic option grants are subsequently to be made under the Automatic Option
Grant Program to both newly-elected and re-elected non-employee Board members,
(v) the number and/or class of securities and price per share in effect under
each grant outstanding under the Automatic Option Grant Program and (vi) the
number and /or class of shares and price per share in effect under each
outstanding option incorporated into this Plan from the 1983 Plan. The purpose
of such adjustments to the outstanding options shall be to preclude the
enlargement or dilution of rights and benefits thereunder.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
VI. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Options granted pursuant to this Article Two shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non-statutory options. Individuals
who are not employees of the Company or its parent or subsidiaries may only be
granted non-statutory options under this Article Two. Each option granted shall
be evidenced by one or more instruments in the form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
--------
the terms and conditions
<PAGE>
specified below. Each instrument evidencing an Incentive Option shall, in
addition, be subject to the applicable provisions of Section II of this Article
Two.
A. Option Price.
------------
1. The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than eighty-five percent (85%) of the fair market value per share of Common
Stock on the date of the option grant.
2. The option price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section VI of this
Article Two and the instrument evidencing the grant, be payable in one of the
alternative forms specified below:
(i) full payment in cash or check drawn to the Company's order;
or
(ii) full payment in shares of Common Stock held by the optionee
for the requisite period necessary to avoid a charge to the Company's
earnings for financial reporting purposes and valued at fair market value
on the Exercise Date (as such term is defined below); or
(iii) full payment through a combination of shares of Common
Stock held by the optionee for the requisite period necessary to avoid a
charge to the Company's earnings for financial reporting purposes and
valued at fair market value on the Exercise Date and cash or check drawn to
the Company's order; or
(iv) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the optionee (I) shall provide
irrevocable written instructions to a Company-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the Company,
out of the sale proceeds available on the settlement date, sufficient funds
to cover the aggregate option price payable for the purchased shares plus
all applicable Federal, State and local income and employment taxes
required to be withheld by the Company by reason of such purchase and (II)
shall provide written directives to the Company to deliver the certificates
for the purchased shares directly to such brokerage firm in order to
complete the sale transaction.
<PAGE>
For purposes of this subparagraph 2, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the Company.
Except to the extent the sale and remittance procedure above is utilized in
connection with the exercise of the option, payment of the option price for the
purchased shares must accompany such notice.
3. The fair market value per share of Common Stock on any
relevant date under subparagraph 1 or 2 above (and for all other valuation
purposes under the Plan) shall be determined in accordance with the following
provisions:
(i) If the Common Stock is not at the time listed or
admitted to trading on any national stock exchange but is traded on the
Nasdaq National Market, then the fair market value shall be the closing
selling price per share of Common Stock on the date in question, as
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no reported closing
selling price for the Common Stock on the date in question, then the
closing selling price on the last preceding date for which such quotation
exists on the Nasdaq National Market shall be determinative of fair market
value.
(ii) If the Common Stock is at the time listed or admitted
to trading on any national stock exchange, then the fair market value shall
be the closing selling price per share of Common Stock on the date in
question on the stock exchange determined by the Plan Administrator to be
the primary market for the Common Stock, as such price is officially quoted
in the composite tape of transactions on such exchange. If there is no such
reported price on the date in question, then the fair market value shall be
the closing selling price on the exchange on the last preceding date for
which such quotation exists.
B. Term and Exercise of Options.
----------------------------
Each option granted under this Article Two shall be exercisable at
such time or times, during such period, and for such number of shares as shall
be determined by the Plan Administrator and set forth in the instrument
evidencing such option. No such option, however, shall have a maximum term in
excess of ten (10) years from the grant date. During the lifetime of the
optionee, the option, together with any stock appreciation rights pertaining to
such option, shall be exercisable only by the optionee and shall not be
assignable or transferable by the optionee other than a transfer of the option
effected by will or by the laws of descent and distribution following the
optionee's death.
<PAGE>
C. Termination of Service.
----------------------
1. Should an optionee cease to remain in Service for any reason
(including death or permanent disability as defined in Section 22(e)(3) of the
Internal Revenue Code) while the holder of one or more outstanding options
under this Article Two, then each such option shall not (except to the extent
otherwise provided pursuant to Section VII of this Article Two) remain
exercisable for more than a twelve (12) month period (or such shorter period
as is determined by the Plan Administrator and specified in the instrument
evidencing the grant) measured from the date of such cessation of Service.
Under no circumstances, however, shall any such option be exercisable after
the specified expiration date of the option term. Each such option shall,
during such twelve (12) month or shorter period, be exercisable only to the
extent of the number of shares (if any) for which the option is exercisable on
the date of the optionee's cessation of Service. Upon the expiration of such
twelve (12) month or shorter period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for any
unexercised shares for which the option was exercisable at the time of the
optionee's cessation of Service. The option, however, shall immediately
terminate and cease to be outstanding, at the time of the optionee's cessation
of Service, with respect to any shares for which such option is not otherwise
at that time exercisable or in which the optionee is not otherwise at that
time vested.
2. Should the optionee die while holding one or more outstanding
options under this Article Two, then each such option shall be exercisable,
subject to the limitations of subparagraph 1 above, by the personal
representative of the optionee's estate or by the person or persons to whom
the option is transferred pursuant to the optionee's will or the laws of
descent and distribution.
3. Should (i) the optionee's Service be terminated for misconduct
(including, but not limited to, any act of dishonesty, willful misconduct,
fraud or embezzlement) or (ii) the optionee make any unauthorized use or
disclosure of confidential information or trade secrets of the Company or its
parent or subsidiaries, then in any such event all outstanding options held by
the optionee under this Article Two shall terminate immediately and cease to
be outstanding.
4. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time the option
remains outstanding, to permit one or more options granted under this Article
Two to be exercised, during the applicable exercise period under subparagraph
1 above, not only for the number of shares for which each such option is
exercisable at the time of the optionee's cessation of Service but also for
one or
<PAGE>
more subsequent installments of purchasable shares for which the option would
otherwise have become exercisable had such cessation of Service not occurred.
5. For purposes of the foregoing provisions of this Section I.C
(and for all other purposes under the Plan):
The optionee shall be deemed to remain in the Service of the Company
for so long as such individual renders services on a periodic basis to the
Company (or any parent or subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant
or advisor.
The optionee shall be considered to be an Employee for so long as
such individual remains in the employ of the Company or one or more of its
parent or subsidiaries, subject to the control and direction of the
employer entity not only as to the work to be performed but also as to the
manner and method of performance.
D. Stockholder Rights.
------------------
An optionee shall have none of the rights of a stockholder with
respect to the shares of Common Stock subject to the option until such
individual shall have exercised the option, paid the option price for the
purchased shares and been issued a stock certificate for such shares.
E. Repurchase Rights.
-----------------
The shares of Common Stock issued under this Article Two may be
subject to repurchase by the Company in accordance with the following
provisions:
1. The Plan Administrator shall have the discretion to authorize
the issuance of unvested shares of Common Stock under this Article Two.
Should the Optionee cease Service while holding such unvested shares, the
Company shall have the right to repurchase any or all of those unvested shares
at the option price paid per share. The terms and conditions upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the issued shares) shall be
established by the Plan Administrator and set forth in the instrument
evidencing such repurchase right.
2. All of the Company's outstanding repurchase rights shall
automatically terminate, and all shares subject to such terminated rights
shall immediately vest in full, upon the occurrence of any Corporate
Transaction under Section III of this Article Two, except to the extent: (i)
any such repurchase
<PAGE>
right is, in connection with a Corporate Transaction, expressly assigned to
the successor corporation (or parent thereof) or (ii) such termination is
precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is granted.
3. The Plan Administrator shall have the discretionary authority,
exercisable either before or after the optionee's cessation of Service, to
cancel the Company's outstanding repurchase rights with respect to one or more
shares purchased or purchasable by the optionee under this Article Two and
thereby accelerate the vesting of such shares at any time.
VII. INCENTIVE OPTIONS
-----------------
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees of the Company. Options which are
specifically designated as "non-statutory" options when issued under the Plan
shall not be subject to such terms and conditions.
---
A. Option Price. The option price per share of the Common Stock
------------
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the fair market value of such Common Stock on the grant
date.
B. Dollar Limitation. The aggregate fair market value (determined as
-----------------
of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee under this Plan (or any other
option plan of the Company or its parent or subsidiaries) may for the first
time become exercisable as incentive stock options under the Federal tax
laws during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two or more
such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such
options as incentive stock options under the Federal tax laws shall be
applied on the basis of the order in which such options are granted. To the
extent the One Hundred Thousand Dollar ($100,000) limitation is exceeded in
any calendar year, the option shall nevertheless be exercisable for the
excess number of shares as a non-statutory option.
<PAGE>
C. 10% Stockholder. If any individual to whom an Incentive Option is
---------------
granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing 10% or more of the total combined voting
power of all outstanding classes of stock of the Company or any parent or
subsidiary, then the option price per share shall not be less than one
hundred and ten percent (110%) of the fair market value per share of the
Common Stock on the grant date, and the option term shall not exceed five
(5) years, measured from the grant date.
Except as modified by the preceding provisions of this Section II,
the provisions of Articles One, Two and Four of the Plan shall apply to all
Incentive Options granted hereunder.
VIII. CORPORATE TRANSACTION/CHANGE IN CONTROL
---------------------------------------
A. In the event of any of the following stockholder-approved
transactions to which the Company is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, or
(iii) any reverse merger in which the Company is the surviving
entity but in which the holders of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities (as measured immediately prior to such merger)
transfer ownership of those securities to person or persons not otherwise
part of the transferor group,
the exercisability of each option at the time outstanding under
this Article Two shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares. However, an outstanding option under this Article Two
shall not so
<PAGE>
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation or parent thereof, (ii) such option
is to be replaced by a cash incentive program of the successor corporation which
preserves the option spread existing at the time of the Corporate Transaction
and provides for pay-out in accordance with the same vesting schedule in effect
for such option, or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of grant. The
determination of option comparability under clause (i) above shall be made by
the Plan Administrator, and its determination shall be final, binding and
conclusive. The Plan Administrator shall also have full power and authority to
grant options under the Plan which are to automatically accelerate in whole or
in part immediately prior to the Corporate Transaction, whether or not those
options are otherwise to be assumed or replaced in connection with the
consummation of such Corporate Transaction.
B. Upon the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
C. Each outstanding option under this Article Two which is assumed
in connection with the Corporate Transaction or is otherwise to continue in
effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issuable, in consummation of such Corporate Transaction, to an
actual holder of the same number of shares of Common Stock as are subject to
such option immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the option price payable per share, provided
--------
the aggregate option price payable for such securities shall remain the same. In
addition, the class and number of securities available for issuance under the
Plan following the consummation of the Corporate Transaction shall be
appropriately adjusted.
D. The grant of options under this Article Two shall in no way
affect the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
E. The Plan Administrator shall have the discretionary authority,
exercisable in advance of any actually-anticipated Change in Control or at the
time of an actual Change in Control, to provide for the automatic acceleration
of one or more outstanding options under this Article Two (and the automatic
termination of one or more of the Company's outstanding repurchase rights under
this Article
<PAGE>
Two) upon the occurrence of the Change in Control. Alternatively, the Plan
Administrator shall have full power and authority to condition any such option
acceleration (and the termination of any outstanding repurchase rights) upon the
subsequent termination of the optionee's Service within a specified period
following the Change in Control. For purposes of this Article Two, a Change in
Control shall be deemed to occur in the event:
(i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Company) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept; or
(ii) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a majority
of the Board members (rounded up to the next whole number) cease, by reason
of one or more proxy contests for the election of Board members, to be
comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.
F. Each option accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term or the cancellation of such option in accordance with Section V of
this Article Two (if applicable).
G. The exercisability as incentive stock options under the Federal
tax laws of any options accelerated under this Section III in connection with a
Corporate Transaction or Change in Control shall remain subject to the
applicable dollar limitation specified in Section II of this Article Two.
IX. CANCELLATION AND REGRANT OF OPTIONS
-----------------------------------
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected optionees, the
cancellation of
<PAGE>
any or all outstanding options under this Article Two and to grant in
substitution new options under the Plan covering the same or different numbers
of shares of Common Stock but having an option price per share not less than (i)
eighty-five percent (85%) of the fair market value of the Common Stock on the
new grant date, or (ii) one hundred percent (100%) of such fair market value in
the case of an Incentive Option, or (iii) one hundred ten percent (110%) of such
fair market value in the case of an Incentive Option to be granted to a 10%
Stockholder.
X. STOCK APPRECIATION RIGHTS
-------------------------
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Company in an amount equal to the excess of (i) the fair market value
(on the option surrender date) of the number of shares in which the optionee is
at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate option price payable for such vested shares.
B. No such option surrender shall be effective unless it is approved
by the Plan Administrator. If the surrender is so approved, then the
distribution to which the optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at fair market value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the optionee shall retain whatever rights the optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
-----
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years (or five (5) years in the case of an
Incentive Option granted to a 10% Stockholder) after the date of the option
grant.
D. One or more officers of the Company subject to the short-swing
profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Discretionary Option Grant
Program. Upon the occurrence of a Hostile Take-Over, each such officer holding
one or more options
<PAGE>
with such a limited stock appreciation right in effect shall have the
unconditional right (exercisable for a thirty (30)-day period following such
Hostile Take-Over) to surrender each such option to the Company, to the extent
the option is at the time exercisable for vested shares of Common Stock. In
return for the surrendered option, the officer shall be entitled to a cash
distribution from the Company in an amount equal to the excess of (i) the Take-
Over Price of the shares of Common Stock which are at the time vested under each
surrendered option (or surrendered portion) over (ii) the aggregate exercise
price payable for such vested shares. Such cash distribution shall be paid
within five (5) days following the option surrender date. At the time any such
limited stock appreciation right is granted, the Plan Administrator shall
concurrently pre-approve the subsequent exercise of that right in accordance
with the provisions of this Section V.D, and no additional approval of the Board
or any Plan Administrator shall accordingly be required at the time of the
actual option surrender and cash distribution. The balance of the option (if
any) shall continue in full force and effect in accordance with the instrument
evidencing such grant.
E. For purposes of Section V.D, the following definitions shall be
in effect:
A Hostile Take-Over shall be deemed to occur in the event (i) any
person or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Company) directly or indirectly acquires beneficial ownership (within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept.
The Take-Over Price per share shall be deemed to be equal to the
greater of (a) the fair market value per share on the option surrender date, as
- -------
determined pursuant to the valuation provisions of Section I.A.3 of this Article
Two, or (b) the highest reported price per share paid by the tender offeror in
effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (a) price per
share.
F. The shares of Common Stock subject to any option surrendered for
an appreciation distribution pursuant to this Section V shall not be available
for subsequent option grants under the Plan.
XI. LOANS OR INSTALLMENT PAYMENTS
-----------------------------
<PAGE>
The Plan Administrator may assist any optionee (including any
officer) in the exercise of one or more outstanding options under this Article
Two by (a) authorizing the extension of a loan to such optionee from the Company
or (b) permitting the optionee to pay the option price for the purchased Common
Stock in installments over a period of years. The terms of any such loan or
installment method of payment (including the interest rate and terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Loans and installment payments may be granted without security or
collateral, but the maximum credit available to the optionee shall not exceed
the sum of (i) the aggregate option price (less par value) of the purchased
---
shares plus (ii) any Federal, State and local income tax and employment tax
liabilities incurred by the optionee in connection with the exercise of the
option.
XII. EXTENSION OF EXERCISE PERIOD
----------------------------
The Plan Administrator shall have full power and authority to extend
the period of time for which any option granted under this Article Two is to
remain exercisable following the optionee's cessation of Service or death from
the limited period in effect under Section 1.C.1 of this Article Two to such
greater period of time as the Plan Administrator shall deem appropriate;
provided, however, that in no event shall such option be exercisable after the
- --------
specified expiration date of the option term.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
XIII. ELIGIBILITY
-----------
A. Eligible Optionees. The individuals eligible to receive
------------------
automatic option grants pursuant to the provisions of this successor Article
Three program shall be limited to (i) those individuals who are first elected or
appointed as non-employee Board members on or after the Effective Date of this
Plan, whether through appointment by the Board or election by the Company's
stockholders, provided they have not otherwise been in the prior employ of the
Company (or any parent or subsidiary) and (ii) those individuals who are re-
elected as non-employee Board member at one or more stockholder meetings held
after the Effective Date, whether or not such individuals are otherwise serving
as non-employee Board members on the Effective Date.
<PAGE>
XIV. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
-----------------------------------------------
A. Grant Dates. Option grants will be made under this Article Three
-----------
on the dates specified below:
(i) Each individual who first becomes a non-employee Board
member on or after the Effective Date of the Plan, whether through election
by the Company's stockholders or appointment by the Board, and who has not
otherwise been in the prior employ of the Company shall automatically be
granted, at the time of such initial election or appointment, a non-
statutory stock option to purchase 7,500 shares of Common Stock upon the
terms and conditions of this Article Three.
(ii) Each individual re-elected as a non-employee Board
member at one or more annual stockholder meetings, beginning with the 1997
Annual Meeting at which this November 1997 Restatement is approved, shall
automatically be granted, at each such meeting at which he or she is so re-
elected, a non-statutory stock option to purchase an additional 7,500
shares of Common Stock upon the terms and conditions of this Article Three.
There shall be no limit on the number of annual option grants any one non-
employee Board member may receive over the period of Board service.
The applicable 7,500-share limitation on the automatic grants to be made to
each newly-elected or re-elected non-employee Board member shall be subject to
periodic adjustment pursuant to the applicable provisions of Section V.C of
Article One.
B. Exercise Price. The exercise price per share of each automatic
--------------
option grant made under this Article Three shall be equal to one hundred percent
(100%) of the fair market value per share of Common Stock on the automatic grant
date.
C. Payment.
-------
The exercise price shall be payable in one of the alternative
forms specified below:
(i) full payment in cash or check made payable to the
Company's order; or
<PAGE>
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Company's reported
earnings and valued at fair market value on the Exercise Date (as such term
is defined below); or
(iii) full payment in a combination of shares of Common
Stock held for the requisite period necessary to avoid a charge to the
Company's reported earnings and valued at fair market value on the Exercise
Date and cash or check payable to the Company's order; or
(iv) full payment through a sale and remittance procedure
pursuant to which the non-employee Board member shall provide irrevocable
written directives to a designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares and shall
concurrently provide written instructions to the Company to deliver the
certificates for the purchased shares directly to such brokerage firm in
order to complete the sale transaction.
For purposes of this subparagraph, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the Company,
and the fair market value per share of Common Stock on any relevant date shall
be determined in accordance with the provisions of Section I.A.3 of Article Two.
Except to the extent the sale and remittance procedure specified above is
utilized for the exercise of the option, payment of the option price for the
purchased shares must accompany the exercise notice.
D. Option Term. Each automatic grant under this Article Three shall
-----------
have a maximum term of ten (10) years measured from the automatic grant date.
E. Exercisability. Each automatic grant shall become exercisable in
--------------
a series of three (3) equal annual installments over the optionee's period of
service on the Board, with the first such installment to become exercisable one
(1) year after the automatic grant date. The option shall not become exercisable
for any additional option shares following the optionee's cessation of Board
service for any reason.
<PAGE>
F. Non-Transferability. During the lifetime of the optionee, each
-------------------
automatic option grant, together with the limited stock appreciation right
pertaining to such option, shall be exercisable only by the optionee and shall
not be assignable or transferable by the optionee other than a transfer of the
option effected by will or by the laws of descent and distribution following
optionee's death.
G. Effect of Termination of Board Membership.
-----------------------------------------
1. Should the optionee cease to serve as a Board member for
any reason (other than death) while holding one or more automatic option
grants under this Article Three, then such optionee shall have a six (6) month
period following the date of such cessation of Board membership in which to
exercise each such option for any or all of the shares of Common Stock for
which the option is exercisable at the time of such cessation of Board
service. Each such option shall immediately terminate and cease to be
outstanding, at the time of such cessation of Board service, with respect to
any shares for which the option is not otherwise at that time exercisable.
2. Should the optionee die while serving as a member of the
Board or within six (6) months after cessation of Board service, then each
outstanding automatic option grant held by the optionee at the time of death
may subsequently be exercised, for any or all of the shares of Common Stock
for which the option is exercisable at the time of the optionee's cessation of
Board service (less any option shares subsequently purchased by the optionee
prior to death), by the personal representative of the optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of descent and distribution.
Any such exercise must occur within twelve (12) months after the date of the
optionee's death. However, each such automatic option grant shall immediately
terminate and cease to be outstanding, at the time of the optionee's cessation
of Board service, with respect to any option shares for which it is not
otherwise at such time exercisable.
3. In no event shall any automatic grant under this Article
Three remain exercisable after the specified expiration date of the ten (10)-
year option term. Upon the expiration of the applicable exercise period in
accordance with subparagraphs 1 and 2 above or (if earlier) upon the
expiration of the ten (10)-year option term, the automatic grant shall
terminate and cease to be outstanding for any unexercised shares for which the
option was exercisable at the time of the optionee's cessation of Board
service.
H. Stockholder Rights. The holder of an automatic option grant
------------------
under this Article Three shall have none of the rights of a stockholder with
respect to any shares subject to such option until such individual shall have
exercised the option, paid the exercise price for the purchased shares and been
issued a stock certificate for such shares.
<PAGE>
I. Remaining Terms. The remaining terms and conditions of each
---------------
automatic option grant shall be as set forth in the prototype Non-statutory
Stock Option Agreement attached as Exhibit A to the Plan.
XV. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
----------------------------------------------------------
A. In the event of any of the following stockholder-approved
transactions to which the Company is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State of the Company's incorporation,
(ii) the sale, transfer or disposition of all or substantially
all of the assets of the Company in liquidation or dissolution of the
Company, or
(iii) any reverse merger in which the Company is the surviving
entity but in which the holders of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities (as measured immediately prior to such merger)
transfer ownership of those securities to person or persons not otherwise
part of the transferor group,
the exercisability of each automatic option grant at the time
outstanding under this Article Three shall automatically accelerate so that each
such option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable with respect to the total number
of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. Upon the consummation of the
Corporate Transaction, all automatic option grants under this Article Three
shall terminate and cease to be outstanding.
B. In connection with any Change in Control of the Company, the
exercisability of each automatic option grant at the time outstanding under this
Article Three shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Change in Control,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such
<PAGE>
shares. For purposes of this Article Three, a Change in Control shall be deemed
to occur in the event:
(i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Company) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept; or
(ii) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a majority
of the Board members (rounded up to the next whole number) cease, by reason
of one or more proxy contests for the election of Board members, to be
comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.
C. Upon the occurrence of a Hostile Take-Over, each non-employee
Board member holding an automatic option grant under this Article Three shall
have the unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender such option in return for a cash
distribution from the Company in an amount equal to the excess of (i) the Take-
Over Price of the shares of Common Stock at the time subject to the surrendered
option (whether or not the option is otherwise at the time exercisable for such
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the option
surrender date. At the time of each Article Three option grant, the Board shall
concurrently pre-approve any subsequent surrender of that option in accordance
with the provisions of this Section III.C, and no additional approval of the
Board or any Plan Administrator shall accordingly be required at the time of the
actual option surrender and cash distribution.
D. For purposes of this Section III, the following definitions
shall be in effect:
A Hostile Take-Over shall be deemed to occur in the event (i) any
person or related group of persons (other than the Company or a person that
<PAGE>
directly or indirectly controls, is controlled by, or is under common control
with, the Company) directly or indirectly acquires beneficial ownership (within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept.
The Take-Over Price per share shall be deemed to be equal to the
greater of (a) the fair market value per share on the option surrender date, as
determined pursuant to the valuation provisions of Section I.A.3 of Article Two,
or (b) the highest reported price per share paid by the tender offeror in
effecting such Hostile Take-Over.
E. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall not be available for subsequent
issuance under this Plan.
F. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
ARTICLE FOUR
MISCELLANEOUS
-------------
XVI. AMENDMENT OF THE PLAN
---------------------
The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects whatsoever; provided, however,
--------
that no such amendment or modification shall, without the consent of the
holders, adversely affect rights and obligations with respect to options at the
time outstanding under the Plan. In addition, amendments to the Plan shall be
subject to stockholder approval to the extent required under applicable law or
regulation.
XVII. TAX WITHHOLDING
---------------
A. The Company's obligation to deliver shares of Common Stock or
cash upon the exercise of stock options or stock appreciation rights granted
under
<PAGE>
the Discretionary Option Grant Program shall be subject to the satisfaction of
all applicable Federal, State and local income tax and employment tax
withholding requirements.
B. The Plan Administrator may, in its discretion and in
accordance with the provisions of this Section II of Article Four and such
supplemental rules as the Plan Administrator may from time to time adopt
(including the applicable safe-harbor provisions of Securities and Exchange
Commission Rule 16b-3), provide any or all holders of non-statutory options
(other than the automatic grants made pursuant to Article Three of the Plan) or
unvested shares under the Plan with the right to use shares of the Company's
Common Stock in satisfaction of all or part of the Federal, State and local
income tax and employment tax liabilities incurred by such holders in connection
with the exercise of their options or the vesting of their shares(the "Taxes").
Such right may be provided to any such option holder in either or both of the
following formats:
1. Stock Withholding: The holder of the non-statutory option or
-----------------
unvested shares may be provided with the election to have the Company withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
non-statutory option or the vesting of such shares, a portion of those shares
with an aggregate fair market value not to exceed one hundred percent (100%) of
the applicable Taxes.
2. Stock Delivery: The Plan Administrator may, in its
--------------
discretion, provide the holder of the non-statutory option or the unvested
shares with the election to deliver to the Company, at the time the non-
statutory option is exercised or the shares vest, one or more shares of Common
Stock previously acquired by such individual (other than in connection with the
option exercise or share vesting triggering the Taxes) with an aggregate fair
market value equal to the designated percentage (up to 100% as specified by the
option holder) of the Taxes incurred in connection with such option exercise or
share vesting.
XVIII. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
A. This Plan, as successor to the Company's 1983 Plan, became
effective immediately upon approval by the Company's stockholders at the 1992
Special Stockholders Meeting.
B. Each option issued and outstanding under the 1983 Plan
immediately prior to the Effective Date of this Plan was incorporated into this
Plan and treated as an outstanding option under this Plan, but each such option
continued to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
<PAGE>
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder or their
exercise of outstanding stock appreciation rights thereunder.
C. The Plan was amended and restated on November 12, 1997 to effect
the following changes: (i) to decrease the number of shares of Common Stock for
which options are to be granted upon the appointment or intital election of a
non-employee Board member from 20,000 shares to 7,500 and (ii) to increase from
5,000 to 7,500 the number of shares of Common Stock for which options are to be
granted on an annual basis to non-employee Board members who are also an officer
or other executive of DowElanco LLC, the Company's majority shareholder, upon
their re-election to the Board at each Annual Stockholders Meeting, beginning
with the 1997 Annual Meeting. The November 1997 Restatement is subject to
stockholder approval at the 1997 Annual Meeting, and no option grants made on
the basis of the share increase included in this November 1997 Restatement shall
become exercisable in whole or in part unless and until this November 1997
Restatement is approved by the stockholders. Should such stockholder approval
not be obtained at the 1997 Annual Meeting, then each option grant made pursuant
to the share increase included in this November 1997 Restatement shall terminate
and cease to remain outstanding, and no further option grants shall be made on
the basis of that share increase. However, the provisions of the Plan as in
effect immediately prior to the amendments effected by this November 1997
Restatement shall automatically be reinstated, and option grants may thereafter
continue to be made pursuant to the reinstated provisions of the Plan. All
option grants made prior to this November 1997 Restatement shall remain
outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options, and nothing in this November 1997
Restatement shall be deemed to modify or in any way affect those outstanding
options. Subject to the foregoing limitations, the Plan Administrator may make
option grants under the Plan at any time before the date fixed herein for the
termination of the Plan.
D. Unless sooner terminated in accordance with Section III of
Article Two and Section III of Article Three, the Plan shall terminate upon the
earlier of (i) December 31, 2002 or (ii) the date on which all shares available
- -------
for issuance under the Plan shall have been issued or cancelled pursuant to the
exercise, surrender or cash-out of the options granted hereunder. If the date of
termination is determined under clause (i) above, then options outstanding on
such date shall thereafter continue to have force and effect in accordance with
the provisions of the instruments evidencing such options.
E. Options may be granted under this Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided each option so granted is not to become exercisable, in whole
--------
or in part, at any time prior to stockholder approval of an amendment
authorizing a sufficient increase in the number of shares issuable under the
Plan.
<PAGE>
XIX. USE OF PROCEEDS
---------------
Any cash proceeds received by the Company from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
XX. REGULATORY APPROVALS
--------------------
The implementation of the Plan, the granting of any option
hereunder, and the issuance of stock upon the exercise or surrender of any such
option shall be subject to the procurement by the Company of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the stock issued pursuant to it.
XXI. NO EMPLOYMENT/SERVICE RIGHTS
----------------------------
Neither the action of the Company in establishing this Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of this Plan
shall be construed so as to grant any individual the right to remain in the
employ or service of the Company (or any parent or subsidiary) for any period of
specific duration, and the Company (or any parent or subsidiary corporation
retaining the services of such individual) may terminate such individual's
employment or service at any time and for any reason, with or without cause.
<PAGE>
PROXY
MYCOGEN CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael W. Sund, the Secretary of the
Company, as proxy, with full power of substitution, to vote all shares of stock
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of Mycogen Corporation to be held on Thursday, January 8, 1998, or at any
adjournment(s) thereof, as specified on the reverse side, and to vote in his
discretion on such other business as may properly come before the Meeting and
any adjournment(s) thereof.
(Please sign and date on reverse side)
<PAGE>
1997 HIGHLIGHTS
DETACH HERE
MYCF
----
[X] Please mark votes as in this example.
Unless otherwise specified by the undersigned this proxy will be voted in the
manner directed below, but if no contrary direction is made, it will be voted
FOR the director nominees listed below, and by the proxyholder at his or her
discretion as to any other matters properly transacted at the Annual Meeting or
any adjournment(s) thereof.
1. Election of Directors
NOMINEES: Carlton J. Eibl, Perry J. Gehring, Nickolas D. Hein, Louis W.
Pribila, William C. Schmidt, and G. William Tolbert
FOR [_] WITHHELD [_] MARK HERE IF YOU PLAN
TO ATTEND THE MEETING [_]
MARK HERE FOR ADDRESS
CHANGE AND NOTE BELOW [_]
[_]
-------------------------------------
For all nominees except as noted above.
2. To approve the amendment to the Company's Articles of Incorporation to
increase the total authorized number of shares from 45,000,000 to 55,000,000.
FOR [_] AGAINST [_] ABSTAIN [_]
3. To approve two amendments to the Company's 1992 Stock Option Plan: (i) a
reduction in the initial automatic stock option grant to a non-employee Director
from 20,000 shares to 7,500 shares, and (ii) to provide that all non-employee
Directors be entitled to a grant of 7,500 shares.
FOR [_] AGAINST [_] ABSTAIN [_]
4. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending August 31, 1998.
FOR [_] AGAINST [_] ABSTAIN [_]
5. The undersigned confers upon the proxy hereby appointed discretion to
transact any other business which may properly come before the Meeting or any
adjournment(s) thereof.
Please sign exactly as name appears on your stock certificates. If signing as
attorney, executor, administrator, trustee, or guardian, please give full title
as such and if signing for an organization, give your title. When shares are in
the names of more than one person, each should sign.
Signature: Date:
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Signature: Date:
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