<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Cytel Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
2. Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
4. Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
5. Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
-----------------------------------------------------------------------
2. Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
3. Filing Party:
-----------------------------------------------------------------------
4. Date Filed:
-----------------------------------------------------------------------
<PAGE> 2
[LOGO]
CYTEL CORPORATION
3525 JOHN HOPKINS COURT
SAN DIEGO, CA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 27, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Cytel
Corporation, a Delaware corporation (the "Company"), will be held on Friday,
June 27, 1997 at 1:30 p.m. at 3525 John Hopkins Court, San Diego, California,
for the following purposes:
1. To elect eight directors to hold office for the ensuing year
or until their successors are elected.
2. To approve an amendment to the Company's 1994 Non-Employee
Directors' Stock Option Plan (the "Non-Employee Directors'
Plan") to provide that options granted under the Non-Employee
Directors' Plan vest daily at the rate of 25% per year (a
change from the 20% per year vesting rate currently provided
for under the Non-Employee Directors' Plan).
3. To ratify the selection of Ernst & Young LLP, as independent
auditors of the Company for the year ending December 31, 1997.
4. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 28, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
Virgil D. Thompson
-----------------------------------------
Virgil D. Thompson
President and Chief Executive Officer
San Diego, California
May 8, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
CYTEL CORPORATION
3525 JOHN HOPKINS COURT
SAN DIEGO, CA 92121
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by the Board of Directors of Cytel
Corporation, a Delaware corporation (the "Company" or "Cytel"), for use at the
Annual Meeting of Stockholders to be held on Friday, June 27, 1997 at 1:30 p.m.
(the "Annual Meeting"), or at any adjournment or postponement of that meeting,
for the purposes set forth herein and in the foregoing Notice of Annual Meeting.
The Annual Meeting will be held at the Company's headquarters, 3525 John Hopkins
Court, San Diego, California, 92121. The Company intends to mail this proxy
statement and accompanying proxy card on or about May 8, 1997 to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The entire cost of solicitation of proxies, including expenses in connection
with preparing and mailing this Proxy Statement, the proxy and any additional
information furnished to the stockholders will be borne by the Company. Copies
of solicitation materials will be furnished to banks, brokerage houses,
nominees, fiduciaries and custodians holding in their names shares of Common
Stock beneficially owned by others to forward to such beneficial owners. The
Company may reimburse persons representing beneficial owners of Common Stock for
their costs in forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram and personal solicitation by directors, officers or other regular
employees of the Company. No additional compensation will be paid to directors,
officers or other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April 28,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 28, 1997, the Company had outstanding and entitled to
vote 25,133,754 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any stockholder giving a proxy pursuant to this solicitation has the power
to revoke it any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 3525 John
Hopkins Court, San Diego, California, 92121, a written notice of revocation or a
duly executed proxy bearing a later date. It may also be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
2.
<PAGE> 4
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company not later
than December 31, 1997 in order to be included in the proxy statement and proxy
relating to that Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's directors are elected annually to serve until the next Annual
Meeting and until each such director's successor shall have been duly elected
and qualified or until such director's earlier death, resignation or removal.
There are eight nominees for the eight Board positions presently authorized in
the Company's By-laws. Each nominee listed below is currently a director of the
Company, seven of such directors having been elected by the stockholders and one
of such directors, David L. Mahoney, having been elected by the Board.
Shares represented by executed proxies will be voted for the election of the
nominees named below, unless the proxy is marked in such a manner as to withhold
authority to vote for any of them. In the event any nominee becomes unable or
unwilling to serve, the shares represented by the enclosed proxy will be voted
for the election of the balance of those named and such substitute nominee as
the Board of Directors may select. The Board of Directors has no reason to
believe that any nominee will be unable or unwilling to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting.
MANAGEMENT AND THE BOARD OF DIRECTORS
RECOMMEND A VOTE IN FAVOR OF EACH NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION/POSITION
NAME AGE HELD WITH THE COMPANY
---- --- ---------------------
<S> <C> <C>
Howard E. Greene, Jr. 54 Chairman of the Board of Amylin
Pharmaceuticals, Inc./Chairman of the Board of
Directors
Virgil D. Thompson 57 President, Chief Executive Officer and Director
Robert L. Roe, M.D. 56 Executive Vice President, Chief Operating
Officer and Director
James C. Paulson, Ph.D. 49 Vice President and General Manager, Glytec(TM)
and Director
David L. Anderson 52 Partner, Sutter Hill Ventures/Director
William T. Comer, Ph.D. 61 President and Chief Executive Officer of SIBIA
Neurosciences, Inc./Director
Nicole Vitullo 40 Senior Vice President, Rothschild Asset
Management Ltd./Director
David L. Mahoney 42 President, Pharmaceutical and Retail Services,
McKesson Corporation/Director
</TABLE>
Mr. Greene, a founder of the Company, has served as a director since the
Company's inception. He was elected Chairman of the Board in January 1989 and
served as President from July 1987 to January 1989. Mr. Greene has
3.
<PAGE> 5
been Chairman of the Board of Amylin Pharmaceuticals, Inc., a biotechnology
company involved in research and development of medicines for treating diabetes,
since 1987. He was a General Partner of Biovest Partners, a seed venture capital
firm specializing in medical technology companies from 1986 until 1993. Prior to
Biovest, he was Chief Executive Officer of Hybritech Incorporated, a
biotechnology company acquired by Eli Lilly & Company in 1986. Mr. Greene is a
director of Allergan Incorporated, Neurex Corporation, Biosite Diagnostics
Incorporated and International Biotechnology Trust, Ltd.
Mr. Thompson has served as a director and as President and Chief Executive
Officer since January 1996. From July 1994 to December 1995, he was President
and Chief Executive Officer of CIBUS Pharmaceutical, Inc. ("CIBUS"), a
biotechnology company. For the 25 years preceding his employment with CIBUS, he
was employed by Syntex Corporation, most recently as President, Syntex
Laboratories, Inc. Mr. Thompson is a director of Biotechnology General
Corporation, Cypros Pharmaceutical Corporation and Aradigm Corporation.
Dr. Roe has served as a director and as Executive Vice President and Chief
Operating Officer since January 1996. During 1995, Dr. Roe was Executive Vice
President and Chief Operating Officer of Chugai Biopharmaceuticals, Inc.
("Chugai"), a biopharmaceutical company. Prior to joining Chugai, Dr. Roe was
employed by Syntex Corporation from 1976 to 1995, most recently as President,
Development Research Division and as Senior Vice President.
Dr. Paulson has served as a director and as Vice President since January
1991. He has been employed by Cytel in various positions since September 1990,
most recently as Vice President and General Manager, Glytec(TM). He has also
been an adjunct member of The Scripps Research Institute since July 1990. From
1985 to July 1990, Dr. Paulson served as a Professor and Vice Chair of the
Department of Biological Chemistry at the University of California School of
Medicine-Los Angeles.
Mr. Anderson has been a director of the Company since May 1988. He has been
a general partner of the general partner of Sutter Hill Ventures, a California
Limited Partnership ("Sutter Hill"), a venture capital investment firm, since
1974. Mr. Anderson is also a director of Dionex Corporation, Neurex Corporation,
BroadVision, Inc., and Molecular Devices Corporation.
Dr. Comer has served as a director of the Company since January 1994. He has
been President and Chief Executive Officer of SIBIA Neurosciences, Inc.
("SIBIA"), a biotechnology company, since April 1991. Prior to joining SIBIA,
Dr. Comer held various positions at Bristol-Myers Squibb, a pharmaceutical
company, from September 1961 to March 1991, most recently as Senior Vice
President, Strategic Management, Pharmaceuticals and Nutritionals, from 1990 to
1991. Dr. Comer is a member of the Board of Directors of SIBIA.
Ms. Vitullo has served as a director of the Company since January 1995. Ms.
Vitullo has been with Rothschild Asset Management Ltd. ("Rothschild") since
November 1992, most recently serving as Senior Vice President. Rothschild
advises and manages three publicly traded biotechnology funds: Biotechnology
Investments Limited, International Biotechnology Investments Limited and
International Biotechnology Trust. From July 1991 to November 1992, Ms. Vitullo
was Director of Corporate Communications and Investor Relations at Cephalon Inc.
("Cephalon"), a neuropharmaceutical company. Prior to Cephalon, she spent 12
years with the Eastman Kodak Company, most recently as Manager, Healthcare
Investments. Ms. Vitullo is also a member of the Board of Directors of Anergen,
Inc., Cadus Pharmaceuticals and Corvas International.
Mr. Mahoney has served as a director of the Company since September 1996. He
has been President of Pharmaceutical and Retail Services, McKesson Corporation
("McKesson") since August 1996, and served as President of Healthcare Delivery
System ("HDS") from September 1994 until December 1995, and as Vice President of
strategic planning at McKesson from July 1990 to September 1994. Prior to
joining McKesson, he was a principal with McKinsey & Company in San Francisco.
Mr. Mahoney served on the Board of Directors of Armor All Corporation from 1992
to 1996.
4.
<PAGE> 6
COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996, the Board of Directors held
four meetings. The standing committees of the Board of Directors include an
Audit Committee, a Compensation Committee and an Executive Committee. The Board
does not have a nominating committee or committee performing similar functions.
The Audit Committee is comprised of Mr. Greene and Dr. Comer, neither of
whom is an employee of the Company. During 1996, the Audit Committee held one
meeting. The Audit Committee recommends the independent auditors to the Board
and provides a direct line of communication between the auditors and the Board.
The independent auditors separately meet with the Audit Committee, with and
without Company management present, to review and discuss various matters,
including the Company's financial statements, the report of the independent
auditors on the results, scope and terms of their work and their recommendations
concerning the Company's financial practices and procedures.
The Compensation Committee is comprised of Messrs. Anderson, Greene and
Mahoney, none of whom are employees of the Company. Harvey S. Sadow, Ph.D.
served on the Compensation Committee until he retired from the Board of
Directors of the Company in December 1996. This Committee, which held two
meetings during 1996, administers the Company's stock option plans, stock
purchase plan and 401(k) plan, approves salaries, bonuses and other compensation
arrangements for the Company's officers and performs such other functions
regarding compensation as the Board may delegate.
The members of the Executive Committee are Messrs. Anderson, Greene and
Thompson. The Executive Committee did not hold any meetings during 1996. This
Committee was established to act when the full Board of Directors is
unavailable. It has all the authority of the Board in the management of the
business and affairs of the Company, except those powers that by law cannot be
delegated by the Board of Directors.
During the fiscal year ended December 31, 1996, each director attended at
least 75% of the meetings of the Board of Directors and the committees on which
he served during such period.
PROPOSAL 2
APPROVAL OF THE 1994 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN, AS AMENDED
In March 1994, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1994 Non-Employee Directors' Stock Option
Plan (the "Non-Employee Directors' Plan"). As a result of a series of
amendments, there were 6,400,000 shares of Common Stock reserved for issuance on
a combined basis under the Non-Employee Directors' Plan and the Company's 1989
Stock Option Plan, as amended (the "1989 Plan"), on December 31, 1996.
In March 1997, the Board approved an amendment to the Non-Employee
Directors' Plan, subject to stockholder approval, which provides that stock
options granted under the Non-Employee Directors' Plan shall vest daily at the
rate of 25% per year (a change from the current 20% per year vesting rate). The
proposed amendment is intended to conform the rate of vesting of options granted
under the Non-Employee Directors' Plan to that of options granted under the 1989
Plan. The Company believes that the amended vesting schedules for stock options
granted to non-employee directors of the Company will facilitate recruitment and
retention of qualified outside directors. In the event this amendment is
approved by the stockholders, the automatic option grants made to the Company's
five non-employee directors on January 1, 1997 would reflect a 25% per year
vesting schedule.
5.
<PAGE> 7
Stockholders are requested in this Proposal 2 to approve the Non-Employee
Directors' Plan, as amended. The affirmative vote of the holders of a majority
of the shares, present in person or represented by proxy and entitled to vote on
the proposal at the meeting, will be required to approve the Non-Employee
Directors' Plan, as amended.
MANAGEMENT AND THE BOARD OF DIRECTORS
RECOMMEND A VOTE IN FAVOR OF PROPOSAL 2.
DESCRIPTION OF THE 1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The essential features of the Non-Employee Directors' Plan are outlined
below:
GENERAL
Options granted under the Non-Employee Directors' Plan are not intended to
qualify as incentive stock options, as defined under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). See "Federal Income Tax
Information" below for a discussion of the tax treatment of such options.
PURPOSE
The purpose of the Non-Employee Directors' Plan is to retain the services of
persons now serving as Non-Employee Directors of the Company (as defined below),
to attract and retain the services of persons capable of serving on the Board of
Directors of the Company and to provide incentives for such persons to exert
maximum efforts for the success of the Company.
ADMINISTRATION
The Non-Employee Directors' Plan is administered by the Board of Directors
of the Company. The Board of Directors has the final power to construe and
interpret the Non-Employee Directors' Plan and options granted under it, and to
establish, amend and revoke rules and regulations for its administration.
The Board of Directors is authorized to delegate administration of the
Non-Employee Directors' Plan to a committee not less than two members of the
Board. The Board of Directors does not presently contemplate delegating
administration of the Non-Employee Directors' Plan to any committee of the Board
of Directors.
ELIGIBILITY
The Non-Employee Directors' Plan provides that options may be granted only
to Non-Employee Directors of the Company. A "Non-Employee Director" is defined
in the Non-Employee Directors' Plan as a director of the Company and its
affiliates who is not otherwise an employee of the Company or any affiliate.
Five of the Company's eight current Directors (all except Mr. Thompson and Drs.
Paulson and Roe) are eligible to participate in the Non-Employee Directors'
Plan.
Option grants under the Non-Employee Directors' Plan are non-discretionary.
On January 1 of each year (or the first business day), each Non-Employee
Director who has been a Non-Employee Director for at least three months shall be
granted an option to purchase 5,000 shares of Common Stock of the Company. In
addition, each person who becomes a Non-Employee Director of the Company after
the adoption of the Non-Employee Directors' Plan shall, upon the date of initial
election to be a Non-Employee Director, be granted an option to purchase 25,000
shares of Common Stock of the Company.
TERMS OF OPTIONS
Each option under the Non-Employee Directors' Plan is subject to the
following terms and conditions.
6.
<PAGE> 8
Option Exercise. An option granted under the Non-Employee Directors' Plan
vests daily at the rate of 25% per year (subject to stockholder approval of
Proposal 2), except that in a Director's first year of service, no shares become
exercisable until the date one year after the commencement of service. Such
vesting is conditioned upon continued service as a director.
An option granted under the Non-Employee Directors' Plan may be exercised by
giving written notice of exercise to the Company, specifying the number of full
shares of Common Stock to be purchased and tendering payment of the purchase
price to the Company.
Exercise Price; Payment. The exercise price of options granted under the
Non-Employee Directors' Plan shall be equal to 100% of the fair market value of
the Common Stock subject to the options on the date such option is granted. The
exercise price of options granted under the Non-Employee Directors' Plan may be
paid in cash or by delivery of shares of Common Stock of the Company that have
been held for the period required to avoid a charge to the earnings of the
Company. Any shares so surrendered shall be valued at their fair market value on
the date of exercise.
Transferability; Term. Under the Non-Employee Directors' Plan an option may
not be transferred by the optionee, except by will or by the laws of descent and
distribution. During the lifetime of an optionee, an option may be exercised
only by the optionee.
No option granted under the Non-Employee Directors' Plan is exercisable by
any person after the expiration of 10 years from the date the option is granted.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Non-Employee Directors' Plan
as may be determined by the Board of Directors.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Non-Employee Directors'
Plan or subject to any option granted under the Non-Employee Directors' Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the Non-Employee Directors' Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such Plan and the class, number of shares
and price per share of stock subject to such outstanding options.
In the event of a dissolution or liquidation of the Company, a merger or
consolidation in which the Company is not the surviving corporation, a reverse
merger in which the Company is the surviving corporation but the shares of the
Company's Common Stock outstanding immediately preceding the merger were
converted by virtue of the merger into other property, or any capital
reorganization in which more than 50% of the shares of the Company entitled to
vote are exchanged, the vesting of any outstanding options under the
Non-Employee Directors' Plan shall accelerate and such options shall terminate
if unexercised prior to the occurrence of the event.
DURATION, AMENDMENT AND TERMINATION
The Board of Directors' may amend, suspend or terminate the Non-Employee
Directors' Plan at any time or from time to time; provided, however, that the
Board of Directors may not amend the Non-Employee Directors' Plan with respect
to the amount, price or timing of grants more often than once every six months.
No amendment will be effective unless approved by the stockholders of the
Company within 12 months before or after its adoption by the Board if the
amendment would: (i) increase the number of shares reserved for options under
the Non-Employee Directors' Plan; (ii) modify the requirements as to eligibility
for participation in the Non-Employee Directors' Plan (to the extent such
modification requires stockholder approval in order for the Non-Employee
Directors' Plan to comply with the requirement of Rule 16b-3 ("Rule 16b-3") of
the Securities Exchange Act of 1934, as amended (the "1934 Act")); or (iii)
modify the Non-Employee Directors' Plan in any other way if such modification
requires
7.
<PAGE> 9
stockholder approval in order for the Non-Employee Directors' Plan to meet the
requirements of Rule 16b-3. Unless sooner terminated, the Non-Employee
Directors' Plan will terminate in March 2004.
FEDERAL INCOME TAX INFORMATION
Options granted under the Non-Employee Directors' Plan generally have the
following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of an option under the Non-Employee Directors' Plan. Upon exercise of
such option, the optionee normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Because the optionee is a director of the Company, under
existing laws, the date of taxation (and the date of measurement of taxable
ordinary income) may in some instances be deferred unless the optionee files an
election under Section 83(b) of the Code. The filing of a Section 83(b) election
with respect to the exercise of an option may affect the time of taxation and
the amount of income recognized at each such time. Upon disposition of the stock
acquired upon exercise, the optionee will recognize a capital gain or loss equal
to the difference between the selling price and the sum of the amount paid for
such stock plus any amount recognized as ordinary income upon exercise of the
option. Such gain or loss will be long- or short-term depending on whether the
stock was held for more than one year. Slightly different rules apply to
optionees who are subject to Section 16(b) of the 1934 Act.
GRANTS
Only Non-Employee Directors of the Company are eligible to receive options
under the Non-Employee Directors' Plan. All Non-Employee Directors as a group
received options to purchase an aggregate of 50,000 shares of Common Stock in
1996 at a dollar value of $157,825 (based on the exercise price of each option
multiplied by the number of shares underlying such options). Such grants are not
necessarily indicative of the number of options that will be granted in the
future.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997, and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since the Company's inception in
1987. Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. The Board of Directors has elected to seek such ratification as a
matter of good corporate practice. Should the stockholders fail to ratify the
selection of Ernst & Young LLP as independent auditors, the Board of Directors
will reconsider whether or not to retain that firm for the fiscal year ending
December 31, 1997. Even if the selection is ratified, the Board in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if the Board determines such a change would be in
the best interest of the Company and its stockholders.
The affirmative vote of a majority of the shares present in person or
represented by proxy and entitled to vote on the proposal at the meeting will be
required to ratify the selection of Ernst & Young LLP.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND
A VOTE IN FAVOR OF PROPOSAL 3.
8.
<PAGE> 10
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of Common Stock of the Company as of March 3, 1997 by (i) each director and
nominee; (ii) each Named Executive Officer (as defined below); (iii) all
executive officers and directors as a group; and (iv) all those known by the
Company to be beneficial owners of more than five percent of its Common Stock:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- ------ -----
<S> <C> <C>
Wisconsin Board of Investments
121 East Wilson Street
Madison, WI 53702......................................... 2,425,000 9.6%
Sandoz Holding Ltd.
CH-4002 Basel SWITZERLAND................................. 2,166,700 8.6%
International Biotechnology Trust PLC.
Five Arrows House, St. Swithin's Lane,
London, ENGLAND........................................... 1,650,000 6.6%
Sumitomo Pharmaceuticals Co., Ltd.
I-98 Kasugade Naka 3-chome, Konohana-ku,
Osaka 554, JAPAN.......................................... 1,408,450 5.6%
The Scripps Research Institute
10666 North Torrey Pines Road, TPC-8,
La Jolla, CA 92037........................................ 1,252,664 5.0%
Howard E. Greene, Jr. (2)(5)................................ 645,375 2.6%
James C. Paulson (3)(5)..................................... 331,575 1.3%
David L. Anderson (4)(5).................................... 232,905 *
Robert W. Chesnut (5)....................................... 158,171 *
Virgil D. Thompson (5)...................................... 138,867 *
Karin Eastham (5)........................................... 101,109 *
Robert L. Roe (5)........................................... 100,622 *
William T. Comer (5)........................................ 29,788 *
Nicole Vitullo (5).......................................... 332 *
David L. Mahoney............................................ -- *
All executive officers and directors
as a group (10 persons)(6)................................ 1,738,744 6.7%
</TABLE>
- ------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and on any Schedules 13D or 13G filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, each stockholder named in this table has sole voting and
investment power with respect to the shares indicated as beneficially owned.
Applicable percentage ownership is based on 25,133,504 shares of Common
Stock outstanding on March 3, 1997, adjusted as required by rules
promulgated by the SEC.
(2) Includes 310,747 shares held in trust for the benefit of Mr. Greene's family
and 16,000 shares held in trust for the benefit of Mr. Greene's children.
Mr. Greene is a trustee of both trusts. Mr. Greene acting as trustee has
voting and investment power with respect to such shares and may be deemed to
be the beneficial owner of such shares.
(3) Includes 31,500 shares held in trust for the benefit of Dr. Paulson's three
minor children.
9.
<PAGE> 11
(4) Includes 10,000 shares held by Anvest, L.P. of which Mr. Anderson is the
general partner. Also includes 137,461 shares held of record by Sutter Hill
Ventures. Mr. Anderson is a general partner of the general partner of Sutter
Hill Ventures and shares voting and investment power with respect to these
shares. Mr. Anderson disclaims beneficial ownership of shares held by
Anvest, L.P. and Sutter Hill Ventures except to his proportionate
partnership interest therein.
(5) Includes shares which certain executive officers and directors of the
Company have the right to acquire within 60 days after the date of this
table pursuant to outstanding options, as follows: Howard E. Greene, 3,996
shares; James C. Paulson, 182,062 shares; David L. Anderson, 3,996 shares;
Robert W. Chesnut, 109,251 shares; Virgil D. Thompson, 133,128 shares; Karin
Eastham, 98,139 shares; Robert L. Roe, 99,932 shares; William T. Comer,
23,388 shares; Nicole Vitullo, 332 shares; and all executive officers and
directors as a group, 654,224 shares.
(6) Includes shares described in notes (2) through (5) above.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees of the Company are paid
$2,000 per meeting as compensation for their service on the Board of Directors.
Directors are not compensated for actions taken by written consent. The members
of the Board of Directors are eligible for reimbursement of expenses incurred in
connection with their service on the Board. Under the Directors' Deferred
Compensation Plan, participating directors may elect on an annual basis, to
defer all of their cash compensation in a deferred stock account pursuant to
which the deferred fees are credited in the form of shares of the Company's
Common Stock, based on the market price of the stock at the time the deferred
fees are earned. The Company will continue to credit shares of the Company's
Common Stock to the participants' deferred stock accounts on a quarterly basis.
When a participant ceases serving as a director, the participant shall be
entitled to receive the value of his or her account either in a single lump sum
payment or in equal annual installments, as determined by the Company in its
sole discretion. No participant entitled to receive a payment of benefits shall
receive payment in the form of the Company's Common Stock.
Under the Non-Employee Directors' Plan, on January 1 of each year, each
director who is not an employee of the Company and has served on the Board for
at least three months, is granted an option to acquire 5,000 shares of the
Company's Common Stock. In addition, each new Non-Employee Director will be
granted an option to acquire 25,000 shares of the Company's Common Stock upon
initial election to the Board of Directors. The exercise price of all such stock
options granted is equivalent to the fair market value on the date of each
grant.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1996, 1995
and 1994, compensation awarded or paid to, or earned by the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at December 31, 1996 (the "Named Executive Officers"). During the last three
fiscal years, none of the executive officers received any restricted stock
awards or long-term incentive payouts. The column marked Securities Underlying
Options includes options issued on December 15, 1994 under the Company's option
exchange program. For each employee, the receipt of the replacement grant was
subject to the employee's consent to the cancellation of the original grant,
thereby forfeiting all prior vesting of the original grant.
10.
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS OPTIONS COMPENSATION
POSITION YEAR ($)(1) ($) (#)(2) ($)(3)
- -------------------------- ---- ------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Mr. Virgil D. Thompson (4) 1996 300,000 78,580(5) 500,000 4,950
President and Chief
Executive Officer
Dr. James C. Paulson 1996 216,324 28,988 80,000 1,333
Vice President and 1995 206,023 41,205 60,000 890
General Manager, Glytec(TM) 1994 196,212 39,242 136,172 648
Dr. Robert L. Roe (6) 1996 205,354 23,000(7) 400,000 3,525
Executive Vice President
and Chief Operating Officer
Ms. Karin Eastham (8) 1996 177,197 23,744 60,000 1,058
Vice President, 1995 168,759 33,752 60,000 729
Finance and Administration 1994 160,723 53,783(9) 105,032 648
and Chief Financial Officer
Dr. Robert W. Chesnut 1996 165,375 22,160 60,000 1,619
Vice President, 1995 157,500 31,500 60,000 680
Immune Stimulation Program 1994 137,903 30,000 104,461 648
</TABLE>
- ------------
(1) Includes amounts earned but deferred at the election of the executive.
(2) In December 1994, the Compensation Committee of the Board of Directors
authorized the replacement of outstanding stock options with exercise prices
greater than $5.38 per share held by then-current employees. The new options
have a five-year vesting schedule beginning December 15, 1994, and an
exercise price equal to the market price of the Company's Common Stock on
December 15, 1994. For each employee, the receipt of the replacement grant
in 1994 was subject to the employee's consent to the cancellation of the
original grant thereby forfeiting all prior vesting of the original grant.
Dr. Paulson consented to the cancellation of 136,172 option shares; Ms.
Eastham, 105,032 option shares; and Dr. Chesnut, 54,461 option shares.
(3) Consists of life insurance premiums paid by the Company.
(4) Mr. Thompson was appointed President and Chief Executive Officer of the
Company effective January 1, 1996.
(5) Represents relocation payments made by the Company to Mr. Thompson.
(6) Dr. Roe was appointed Executive Vice President and Chief Operating Officer
of the Company effective January 31, 1996.
(7) Represents reimbursement of Dr. Roe's relocation expenses which were paid by
the Company to Dr. Roe's previous employer.
11.
<PAGE> 13
(8) Ms. Eastham resigned from the Company effective in April 1997.
(9) The amount set forth for Ms. Eastham under the Bonus column for 1994
includes $21,638 for reimbursement of relocation and temporary housing
expenses.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under the 1989 Plan. As
of March 3, 1997, options to purchase a total of 4,133,566 shares had been
granted and were outstanding under the 1989 Plan, and options to purchase
2,121,434 shares remained available for grant thereunder. Material terms of
options granted under the 1989 Plan are described generally in footnotes 1 and 4
below.
The following tables show for the fiscal year ended December 31, 1996,
certain information regarding options granted to, exercised by, and held at year
end by the Named Executive Officers:
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OR OPTION TERM(3)
GRANTED IN FISCAL BASE PRICE EXPIRATION -----------------------
NAME (1) YEAR(2) ($/SH) DATE 5%($) 10%($)
---- ---------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mr. Virgil D. Thompson 500,000 31.2 6.125 1/01/06 1,929,375 4,869,375
Dr. James C. Paulson..... 80,000(4) 5.0 4.00 12/11/06 201,600 508,800
Dr. Robert L. Roe........ 400,000 25.0 7.50 1/31/06 1,890,000 4,770,000
Ms. Karin Eastham........ 60,000(4) 3.7 4.00 12/11/06 151,200 381,600
Dr. Robert W. Chesnut.... 60,000(4) 3.7 4.00 12/11/06 151,200 381,600
</TABLE>
- ------------
(1) Options granted prior to 1996 generally vested 20% at the end of the first
year of the optionee's employment and thereafter daily at the rate of 20%
per year during such period of employment. Options granted after November
1996 generally vest 25% at the end of the first year of the optionee's
employment and thereafter daily at the rate of 25% per year during such
period of employment. Upon certain corporate events resulting in a change of
control, at the discretion of the Company's Board of Directors, (i) the
acquiring company will assume the options or substitute similar options,
(ii) the options will continue in full force and effect, or (iii) the
Company will pay a cash settlement for or accelerate such options. The Board
of Directors has agreed at the request of a major investor not to reprice
any options without prior stockholder approval until December 1998.
(2) Based on 1,600,500 options granted in 1996, including grants to executive
officers.
(3) The potential realizable value is calculated based on the terms of the
option at its time of grant (10 years in the case of all options). It is
calculated by assuming that the stock price on the date of grant appreciates
at the indicated annual rate, compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its term
for the appreciated stock price. These amounts represent certain assumed
rates of appreciation, in accordance with rules of the SEC, and do not
reflect the Company's estimate or projection of future stock price
performance. Actual gains, if any, are dependent on the actual future
performance of the Company's Common Stock, and no gain to the optionee is
possible unless the stock price increases over the option term, which will
benefit all stockholders.
12.
<PAGE> 14
(4) These options vest daily at the rate of 33% per year during the period of
the optionee's employment. The vesting of the options may accelerate over a
2-year period based upon achievement of certain objectives for 1997, with
two-thirds of the options vesting in the first year and the remaining
one-third of the options vesting in the second year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
OPTIONS AT FY-END(#) FY-END($)(1)
SHARES VALUE ---------------------- --------------
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE
---- -------------- --- ------------- -------------
<S> <C> <C> <C> <C>
Mr. Virgil D. Thompson -- -- --/500,000 --/--
Dr. James C. Paulson -- -- 160,593/257,264 57,593/60,341
Dr. Robert L. Roe -- -- --/400,000 --/--
Ms. Karin Eastham -- -- 85,768/189,264 32,180/46,542
Dr. Robert W. Chesnut -- -- 94,916/183,968 16,686/24,132
</TABLE>
- ------------
(1) Fair market value of the Company's Common Stock at December 31, 1996
($3.4375 per share) minus the exercise price of the options.
EMPLOYMENT AGREEMENTS
In March 1990, the Company entered into an employment agreement with Dr.
Paulson. The agreement provides that in the event Dr. Paulson's employment is
terminated by the Company without cause, he will receive a one-time payment of
$75,000. Subject to the provisions set forth above, the agreement may be
terminated by either the Company or Dr. Paulson. The terms of the employment
agreement are consistent with the Company's executive compensation policies.
In October 1992, the Company entered into an employment agreement with Ms.
Eastham. The agreement provided that in the event Ms. Eastham's employment was
terminated by the Company, the Company would be obligated to pay Ms. Eastham six
months salary. Subject to the provision set forth above, the agreement was
terminable by either the Company or Ms. Eastham. The terms of the employment
agreement were consistent with the Company's executive compensation policies. In
March 1997, Ms. Eastham resigned from the Company, effective in April 1997.
In January 1996, the Company entered into an employment agreement with Mr.
Thompson. The agreement guaranteed Mr. Thompson a base salary of $300,000 for
one year after commencement of employment. The agreement also provides that in
the event Mr. Thompson's employment is terminated by the Company, the Company is
obligated to pay Mr. Thompson six months salary. Subject to the provision set
forth above, the agreement may be terminated by either the Company or Mr.
Thompson. The terms of the employment agreement are consistent with the
Company's executive compensation policies.
In January 1996, the Company entered into an employment agreement with Dr.
Roe. The agreement provides that in the event Dr. Roe's employment is terminated
by the Company, the Company is obligated to pay Dr. Roe six months salary.
Subject to the provision set forth above, the agreement may be terminated by
either the Company or Dr. Roe. The terms of the employment agreement are
consistent with the Company's executive compensation policies.
13.
<PAGE> 15
COMPENSATION COMMITTEE REPORT(1)
The Compensation Committee of the Board of Directors (the "Committee")
consists of Mr. Howard E. Greene, Jr., Mr. David L. Anderson and Mr. David L.
Mahoney. Dr. Harvey S. Sadow served on the Committee until he retired from the
Board of Directors of the Company in December 1996. The Committee is responsible
for setting and administering the Company's policies governing annual executive
salaries, bonuses (if any) and stock ownership programs. The Committee evaluates
the performance of management and determines the compensation of the Chief
Executive Officer ("CEO") and the other executive officers of Cytel based upon
the accomplishment of defined objectives in the Company's research and product
development programs and achievement of financial targets. The full Board of
Directors reviews the Committee's recommendations regarding the compensation of
the CEO and the other executive officers.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program consists of base
salary, annual cash bonuses and long-term compensation in the form of stock
options. The Company's executive officer compensation program is designed to
achieve the following objectives:
o Attract, retain and motivate quality executives who possess the
necessary leadership and management skills.
o Provide an incentive to advance the research and development of the
Company's therapeutic products.
o Emphasize stock-based compensation to provide longer term motivation by
aligning the executives' interests with those of the Company and its
stockholders.
Compensation is based on the level of job responsibility and the level of
the individual's performance as well as the Company's performance. The Committee
endeavors to set executive compensation within a range which the Committee
believes is comparable to the average range of compensation set by companies of
comparable size in the biotechnology industry. The group of comparable companies
is not necessarily the same as the companies reflected in the market indices
included in the performance graph on page 17 of this Proxy Statement.
The Committee believes that the Company's executive compensation program
reflects the principles described above and provides executives strong
incentives to maximize Company performance and enhance stockholder value. The
Committee believes that a stock option program to reward performance is an
appropriate method of executive compensation, with relatively modest increases
in base compensation.
BASE SALARY
Base salary levels for each of the Company's executive officers are reviewed
annually. The Company applies various subjective criteria, including performance
of the individual and the Company (using the same Company goals as are used for
bonus decisions) and relative responsibility and experience, to determine
appropriate base salaries. In addition, the Company compares its executives'
base salaries to management salaries at companies in the biotechnology industry,
comparable geographic areas and at similar stages of growth and considers
industry surveys regarding executive compensation. The Committee uses these
criteria as a frame of reference for annual salary adjustments although other
factors are considered, as appropriate, and no specific weights are ascribed to
the factors considered by the Committee.
- --------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended (the
"1933 Act") or the 1934 Act, whether made before or after the date hereof
and irrespective of any general incorporation language contained in such
filing.
14.
<PAGE> 16
ANNUAL INCENTIVE COMPENSATION
The Company's Incentive Compensation Plan (the "Plan") is the variable
compensation component based upon the achievement of individual as well as
Company objectives. The total size of the bonus pool is based upon the Company's
performance in achieving stated objectives for the period under review. When
evaluating corporate performance, the Committee considers the meeting of certain
product milestones, achieving certain corporate objectives (related to
financing/collaborations) and organizational effectiveness. Distribution of the
pool is discretionary and is based upon achievement of corporate as well as
individual objectives.
The Company's total bonus pool for 1996 represented 67% of target incentive
compensation. This was based upon an assessment of performance against the
Company's objectives for 1996. Each of the executive officers other than the
Chief Executive Officer and the Chief Operating Officer earned 13% of his or her
base salary under the Plan in 1996. The Chief Executive Officer and the Chief
Operating Officer were retained under employment agreements exclusive of cash
incentive compensation and therefore did not receive bonuses pursuant to the
Plan in 1996. The cash bonus program was discontinued for 1997 subject to the
Compensation Committee's review in future years.
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive program includes stock options and other
awards granted under the 1989 Plan, other stock options and the Company's
Employee Stock Purchase Plan. Stock options are an important part of the
Company's performance-based compensation. Option grants include vesting periods
(generally over four years) to encourage key employees to continue in the employ
of the Company. Prior to December 1996, the vesting period of option grants was
five years, but the Board of Directors changed such vesting schedule to four
years to facilitate the recruitment and retention of key employees. Through
option grants, executives receive significant equity incentives to build
long-term stockholder value. Grants are generally made at 100% of fair market
value on the date of grant. The 1989 Plan has been amended to ensure that any
income recognized in connection with the exercise of options under the 1989 Plan
would qualify as "performance-based compensation" under Section 162(m) of the
Code.
The Committee believes that providing management a substantial economic
interest in the long-term appreciation of the Company's Common Stock further
aligns the interests of stockholders and management. The size of option grants
to an individual is primarily determined by such individual's position within
management of the Company, as well as competitive practices at biotechnology
companies of comparable size. The Committee also considered the size of grants
to individuals in previous years and internal relativity.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million paid to certain Named Executive
Officers in a taxable year. Compensation above $1 million may be deducted if it
is "performance-based compensation" within the meaning of the Code. The statute
containing this law and the applicable proposed Treasury regulations offer a
number of transitional exceptions to this deduction limitation for preexisting
compensation plans, arrangements and binding contracts. As a result, the
Compensation Committee believes that at the present time it is unlikely that the
compensation paid to any Named Executive Officer in a taxable year which is
subject to the deduction limit will exceed $1 million. Therefore, the
Compensation Committee has not yet established a policy for determining which
forms of incentive compensation awarded to Named Executive Officers will be
designed to qualify as performance-based compensation.
In each of fiscal 1996 and 1995, a pool of grants to a defined management
group was approved. Individual awards were based on an evaluation of previous
awards, vested status and retention goals. In addition, pursuant to an
employment agreement entered into with Dr. Roe in January 1996 when he joined
the Company, Dr. Roe was granted an option to purchase 400,000 shares of the
Company's Common Stock under the 1989 Plan at an exercise price of $7.50, the
fair market value of the stock on the date of grant.
15.
<PAGE> 17
CEO COMPENSATION
The total compensation program for the Chief Executive Officer is largely
based on the same components as for other Senior Executives. Each year the
Committee reviews the Chief Executive Officer's existing compensation
arrangement, the individual performance for the calendar year under review, as
well as the Company's performance relative to its peers.
Virgil D. Thompson was appointed as President and Chief Executive Officer
effective January 1, 1996. Under his employment agreement, Mr. Thompson's base
salary was $300,000 and he was not eligible for a bonus in 1996. On January 1,
1996, Mr. Thompson was granted an option to purchase 500,000 shares of the
Company's Common Stock under the 1989 Plan at an exercise price of $6.125, the
fair market value of the stock on the date of grant. In determining the base
salary and size of the option grant, the Committee considered Mr. Thompson's
previous experience and proven leadership in implementing strategic and
financial initiatives designed to augment the Company's development and
commercialization efforts. The Committee believes the size of the stock option
grant was appropriate in order to align Mr. Thompson's total compensation with
the performance of the Company and, ultimately, the interest of stockholders.
In December 1996, the Committee reviewed the achievement of objectives for
1996, and, based on continued progress in the Company's scientific programs and
Mr. Thompson's significant efforts in planning and implementating strategic and
financial initiatives, the Committee approved a base salary for Mr. Thompson of
$315,000 for 1997, an increase of 5% over Mr. Thompson's 1996 base salary.
From the members of the Compensation Committee of Cytel:
Howard E. Greene, Jr.
David L. Anderson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Greene, a member of the Compensation Committee, is Chairman of the Board
of the Company.
16.
<PAGE> 18
PERFORMANCE MEASUREMENT COMPARISON (1)
The following chart shows total shareholder return of the Nasdaq CRSP Total
Return Index ("Nasdaq Broad Index") for the Nasdaq Stock Market (US Companies)
and the Nasdaq CRSP Pharmaceutical Index ("Nasdaq Pharmaceutical Index")(2) and
for the Company as of the end of each year since December 31, 1991.
COMPARISON OF TOTAL CUMULATIVE RETURN ON INVESTMENT(3)
[GRAPHIC OMITTED]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Cytel Corp CYTL 100 66 33 22 43 24
NASDAQ STOCK MARKET - US INAS 100 116 134 131 185 227
NASDAQ PHARMACEUTICAL INAF 100 83 74 56 102 102
</TABLE>
- -------------
(1) This Section is not "soliciting material," is not deemed filed with the SEC
and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
(2) The Nasdaq Pharmaceutical Index is made up of all companies with the
Standard Industrial Classification (SIC) code 283 (category description
"Drugs"). Information regarding the companies comprising this index is
available upon written request to Assistant Secretary, Cytel Corporation,
3525 John Hopkins Court, San Diego, California 92121.
(3) The total return on investment (including investment of dividends) assumes
$100 invested on December 31, 1991 in each of Cytel's Common Stock (at the
then-market price of $14.25 per share), the Nasdaq CRSP Total Return Index
for the Nasdaq Stock (U.S. Companies) Index and the NASDAQ CRSP
Pharmaceutical Index.
17.
<PAGE> 19
CERTAIN TRANSACTIONS
The Company's By-laws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its By-laws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and officers.
In addition, the Company's Certificate of Incorporation provides that to the
fullest extent permitted by Delaware law, the Company's directors will not be
liable for monetary damages for breach of the directors' fiduciary duty of care
to the Company and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, for acts or omissions that
the director believes to be contrary to the best interests of the Company or its
stockholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Company or its stockholders when the director was aware
or should have been aware of a risk of serious injury to the Company or its
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company, and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
On January 1, 1997, the Company issued stock options under the 1989 Plan to
Mr. Thompson and Dr. Roe covering 200,000 and 180,000 shares, respectively. The
options vest daily at the rate of 33% per year, and the vesting of the options
may accelerate over a two-year period based upon achievement of certain
objectives for 1997, with two-thirds of the options vesting in the first year
and the remaining one-third of the options vesting in the second year. The
exercise price of the options is $4.00 per share and the fair market value of
the Company's Common Stock on the date of grant was $3.44 per share. The options
expire on January 1, 2007 if not exercised before such time.
The Company has entered into certain additional transactions with its
directors and officers, as described under the captions "Executive Compensation"
and "Employment Agreements."
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the 1934 Act 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 National Market System. Officers, directors and greater than 10%
beneficial owners are required by SEC regulations 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
or written representations from certain reporting persons that no Forms 5 were
required, the Company believes that, during the 1996 calendar year, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with, except for (i) the inadvertent late
filing in March 1996 by Mr. Anderson with respect to the sale of 11,000 shares
in September 1995, and (ii) the inadvertent late filing in April 1997 by Mr.
Greene with respect to the distribution of 247 shares in August 1995 to Mr.
Greene from a partnership of which he was a limited partner.
18.
<PAGE> 20
OTHER MATTERS
The Board of Directors know of no other business to be presented at the
meeting, but if other matters do properly come before the meeting, it is
intended that the persons named in the proxy will vote in respect thereof in
accordance with their best judgment.
By Order of the Board of Directors
/s/ Virgil D. Thompson
---------------------------------------
Virgil D. Thompson
President and Chief Executive Officer
May 8, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO CORPORATE SECRETARY, CYTEL CORPORATION, 3525 JOHN
HOPKINS COURT, SAN DIEGO, CA 92121.
19.
<PAGE> 21
CYTEL CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON JUNE 27, 1997
The undersigned hereby appoints Virgil D. Thompson and Deborah A.
Schueren as proxy of the undersigned, with full power of substitution, to vote
all of the shares of stock of Cytel Corporation (the "Company") which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
the Company to be held at the Company's headquarters, 3525 John Hopkins Court,
San Diego, California 92121, on Friday, June 27, 1997 at 1:30 p.m., and at any
and all continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND A VOTE FOR THE NOMINEES FOR
DIRECTOR LISTED ON THE REVERSE.
CONTINUED ON OTHER SIDE
<PAGE> 22
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
CYTEL CORPORATION
JUNE 27, 1997
Please Detach and Mail in the Envelope Provided
A [X] PLEASE MARK YOUR VOTES AS IN THE EXAMPLE.
1. Election of Directors. FOR WITHHELD NOMINEES:
[ ] [ ] Howard E. Greene, Jr.
Virgil D. Thompson
FOR, all the nominees listed at right (except as Robert L. Roe, M.D.
marked to the contrary below.) James C. Paulson, Ph.D.
David L. Anderson
William T. Comer, Ph.D.
Nicole Vitullo
David L. Mahoney
- -------------------------------------------------
2. Approval of an amendment to the Company's 1994 FOR AGAINST ABSTAIN
Non-Employee Directors' Stock Option Plan (the [ ] [ ] [ ]
"Plan") to provide that options granted under
the Plan vest daily at the rate of 25% per year (a change from the 20% per
year vesting rate currently provided for under the Plan).
3. To ratify selection of Ernst & Young LLP, as [ ] [ ] [ ]
independent auditors of the Company for the
year ending December 31, 1997.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 2 AND 3 AND TO GRANT AUTHORITY TO VOTE FOR ALL NOMINEES
NAMED IN PROPOSAL 1.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE ____________________________________________ DATE _________________
SIGNATURE ____________________________________________ DATE _________________
NOTE: Please sign exactly as name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees or guardians and attorneys-in-fact should add their titles. If signer
is a corporation, please give corporate name and have a duly authorized officer
sign, stating title. If signer is a partnership, please sign in partnership
name by authorized person.
