<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
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Cytel Corporation
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(Name of Registrant as Specified In Its Charter)
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<PAGE> 2
CYTEL CORPORATION
3525 JOHN HOPKINS COURT
SAN DIEGO, CA 92121
To Our Stockholders:
We have enclosed with this letter the proxy materials for our upcoming
Annual Meeting, including detailed descriptions of two stock plan proposals and
an option repricing proposal. We are asking for your approval of these proposals
to allow us to attract, retain and motivate highly qualified employees, and by
doing so, to enhance the value of the Company on behalf of all stockholders of
the Company.
Proposed Option Repricing
Although option programs are critical incentive tools, when stock
prices fall, these programs can amplify the challenge of restoring stockholder
values. Employees are demoralized by the loss of their expected profits, and
retention value disappears. If stock prices drop well below exercise prices,
employees who are not financially sophisticated will consider the options to be
worthless - in spite of favorable long-term prospects for their companies.
When companies experience a substantial decline in stock price, their
Boards of Directors may be asked to reprice (i.e. lower the exercise prices of)
employee stock options which have lost their near-term compensation value. On
______, 1998, the closing price of the Company's Common Stock was $___ per
share. Of the Company's approximately 4,600,000 options outstanding under the
Company's 1989 Stock Option Plan, over 900,000 options have an exercise price in
excess of $6.00 per share and over 2,400,000 have an exercise price of $4.00 per
share or higher. As a result, the exercise price that most Cytel employees would
have to pay in order to exercise their stock options substantially exceeds the
price at which anyone could buy stock in the market. We believe that such
"out-of-the-money" stock options have little incentive value to employees and in
fact undermine morale and motivation.
In December 1996, the Board of Directors agreed at the request of the
State of Wisconsin Investment Board, a major shareholder of the Company (the
"Wisconsin Board"), not to reprice any options prior to December 1998 without
prior stockholder approval. We are concerned that the Company may be at risk of
losing employees because most of the outstanding stock options are not providing
incentives to the Company's management team and other employees. After careful
consideration of market conditions, employee turnover, employee morale and the
challenges and opportunities facing the Company, the Board of Directors has
determined that it is in the best interests of the stockholders of the Company
to give employees the opportunity to consider replacing "underwater" stock
options with options having an exercise price equal to the current fair market
value of the stock. The decision to do so requires balancing two apparently
conflicting points of view:
- FOR EMPLOYEES repricing is viewed as a good thing. Repricing
restores value to options which were offered as inducement to
join the company and which have been earned by employees through
vesting. A standardized repricing formula allows employees to
decide for themselves whether to accept the terms of the
repricing. Moreover, it alleviates the problem of deciding on new
option grants which must be designed to meet each employee's
individual option situation (i.e. depending on exercise prices
and vesting status of previous grants, as well as eligibility for
future grants). For management, repricing is inherently
equitable; it is easy to implement without disrupting
compensation administration, and it can quickly solve serious
problems of employee motivation and retention.
- FOR STOCKHOLDERS repricing is viewed as a bad thing: stockholders
approve stock option programs on the basis that employees can
participate in the upside valuation potential of the stock, if
they accept the risk of receiving zero compensation when the
upside does not materialize. Since stockholders do not receive a
partial refund when stock prices decline, they justifiably
consider it unfair to provide this benefit to employees - in
particular the senior management team responsible for building
shareholder value. For stockholders, repricing can violate the
basic rationale for
<PAGE> 3
stock options.
How can this conflict be resolved? The answer is in devising a
repricing proposal that restores motivational value from an employee viewpoint
without providing a windfall gain from a stockholder viewpoint.
Employees and stockholders tend to view the present value of stock
options in very different ways:
- EMPLOYEES usually focus on the cash value of stock options. In
their view, the cash value is simply the difference between the
option exercise price and the current (or expected near-term)
stock market price, times the number of vested shares (i.e. "how
much would my options be worth to me if I cash them in"). Most
employees tend to relate their stock options to tangible
compensation benefits, e.g. buying a new car, financing a house,
or paying for college. As a result, most employees would choose
to have fewer options that are exercisable well above the current
market price.
- STOCKHOLDERS usually focus on the investment value of stock
options. In their view this investment value is determined by the
dilution effect of selling stock below the market, which is a
cost that can be quantified using the Black-Scholes option
repricing model. As a result, most stockholders would not object
to lowering exercise prices if the Black-Scholes fair value of
the option grants did not change - a result that can be achieved
by lowering the number of option shares by an appropriate amount.
This difference in valuation perceptions offers a way to design an
effective and acceptable option repricing proposal: revise the parameters of
stock option contracts to restore near-term cash value to employees without
changing the investment value of these contracts for stockholders. In other
words, offer employees the opportunity to benefit from lower exercise prices by
accepting a smaller number of option shares calculated to maintain the fair
value of each option contract before and after repricing.
In light of the Company's current position, the Board of Directors has
worked closely with the Wisconsin Board to develop an option exchange program,
the details of which are described in Proposal 3 and summarized below, that is
acceptable to the Wisconsin Board and which aligns the interests of stockholders
and employees. We believe that the Company is at a critical stage in its
development and that the option exchange program will be critical to employee
retention.
The proposed option exchange program would offer Cytel employees,
including management, the opportunity to exchange their out-of-the-money stock
options for fewer new options exercisable at the market price of the Company's
Common Stock when the exchange is made. Moreover, this exchange ratio will not
be fixed, but rather will vary over the term of the option grant, depending upon
how long the employees hold the repriced options before exercising them: If
employees exercise relatively soon after the repricing, the exchange ratio will
be very low; if they hold their options for a long time, the exchange ratio will
approach 100%. This exchange ratio schedule will be calculated so that the
Black-Scholes fair value of the repriced option grants is the same as the fair
value of the grants before repricing, regardless of how long the options are
actually held.
The original vesting schedule will be replaced by an exchange ratio
which is a function of when the employee exercises the new options. The term of
the repriced options will be extended to six years from the repricing date.
Options which are forfeited because the exchange ratio is below 100% will be
extinguished, i.e.
they will not be returned to the unused option pool.
Cytel and the Wisconsin Board believe that both employees and
shareholders benefit from this rising exchange ratio, which is designed to
equalize the Black-Scholes fair value before and after repricing regardless of
how long the options are held. Employees are offered an opportunity to hold
stock options which they perceive to be of greater near-term incentive value,
and which increase in quantity if they continue to hold as employees.
Shareholders can view the repricing as a neutral financial transaction in terms
of its impact on dilution as measured by the Black-Scholes fair value. We have
designed the exchange program in consultation with the Wisconsin
<PAGE> 4
Board, and your Board of Directors, management and the Wisconsin Board recommend
approval of the repricing proposal.
Increase In Employee Stock Pool
The Company's long-term incentive compensation program includes stock
options and other stock awards and an employee stock purchase plan. Stock
options are an important component of employee compensation for biotechnology
companies. When stock prices rise, in-the-money stock options can provide
significant compensation without using essential cash resources, and the
unvested portions of those options provide incentives to stay, thereby raising
recruiting costs to competitive employers. Virtually all companies in the
biotechnology industry use stock options to attract and retain outstanding
employees, and there is substantial competition to obtain and/or retain skilled
and experienced scientists and managers in the industry. Many biotechnology
companies also offer cash bonuses to their employees, but Cytel does not. As a
result, stock option-based incentives are a particularly important part of the
benefits package for employees of the Company.
Because a stock option only becomes exercisable if an employee remains
with the Company, stock options are an important means of motivating employees
to remain at Cytel. As stock options become fully exercisable and are exercised,
their impact in motivating employees and directors dissipates, and it becomes
necessary to grant new stock options to those employees and directors. Proposal
5 provides for amendments to the Company's 1989 Option Plan and 1994
Non-Employee Directors' Plan to increase the number of shares available for
issuance under such plans. At present, the Company has only 185,144 shares
available for option grants to be used to attract new employees or as incentives
to retain current employees.
We want to assure you that we are very sensitive to the dilutive nature
of stock options. However, we also believe that our shareholders understand the
critical role that properly designed stock options play in attracting,
motivating, and retaining the employee talent necessary to develop important new
medicines. Thus, we have given very careful consideration to how we should
update our option program in light of recent events and future challenges. As a
result, your Board of Directors and management recommend approval of the three
compensation proposals.
Sincerely,
Howard E. Greene, Jr.
Chairman of the Board
<PAGE> 5
CYTEL CORPORATION
3525 JOHN HOPKINS COURT
SAN DIEGO, CA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Cytel
Corporation, a Delaware corporation (the "Company"), will be held on Friday,
June 12, 1998 at 1:30 p.m. at 3525 John Hopkins Court, San Diego, California,
for the following purposes:
1. To elect nine directors to hold office for the ensuing year or until
their successors are elected.
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the Company's authorized shares
of Common Stock from 50,000,000 shares to 75,000,000 shares.
3. To approve an option exchange program.
4. To approve an amendment to the Company's Employee Stock Purchase Plan to
provide that the aggregate number of shares of Common Stock authorized
for issuance will be 750,000 (an increase of 250,000 shares from 500,000
shares previously authorized under the Employee Stock Purchase Plan).
5. To approve amendments to the Company's 1989 Option Stock Plan (the "1989
Plan") and the Company's 1994 Non-Employee Directors' Stock Option Plan
(the "Non-Employee Directors' Plan") to provide that the aggregate
number of shares of Common Stock authorized for issuance on a combined
basis under both the Company's 1989 Stock Plan and the Non-Employee
Directors' Plan will be 7,750,000 shares (an increase of 1,350,000
shares from 6,400,000 shares previously authorized under the 1989 Plan
and the Non-Employee Directors' Plan).
6. To ratify the selection of Ernst & Young LLP, as independent auditors of
the Company for the year ending December 31, 1998.
7. 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 18, 1998 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
Edward C. Hall
Vice President, Finance, Chief Financial
Officer and Secretary
San Diego, California
[May __, 1998]
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> 6
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 12, 1998 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 ____, 1998] 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 the Company's Common Stock and Series B
Convertible Preferred Stock (the "Series B Preferred Stock") at the close of
business on April 18, 1998 will be entitled to notice of and to vote at the
Annual Meeting. At the close of business on April 18, 1998, the Company had
outstanding and entitled to vote _________________ shares of Common Stock. At
the close of business on April 18, 1998, the Company had outstanding 659,898
shares of Series B Preferred Stock, of which ______ shares are entitled to vote.
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. Each holder of record of Series B Preferred Stock will be entitled to
one vote for each ________ shares 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.
<PAGE> 7
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company no
later than [December __, 1998] 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 nine nominees for the nine Board positions presently
authorized in the Company's By-laws. Each nominee listed below is currently a
director of the Company, eight such directors having been elected by the
stockholders and one director, Nancy Rasmussen, having been appointed 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. 55 Director and founder of Amylin Pharmaceuticals, Inc. and Chairman
of the Board of Directors
Virgil Thompson 58 President, Chief Executive Officer and Director
Robert L. Roe, M.D., F.A.C.P. 57 Executive Vice President, Chief Operating Officer and Director
James C. Paulson, Ph.D. 50 Vice President, Chief Scientific Officer, General Manager,
Glytec(TM) and Director
David L. Anderson 54 Managing Director, Sutter Hill Ventures/Director
William T. Comer, Ph.D. 62 President and Chief Executive Officer of SIBIA Neurosciences,
Inc./Director
Nicole Vitullo 40 Senior Vice President, Rothschild Asset Management Ltd./Director
David L. Mahoney 43 Group President, Pharmaceutical Services and International Group,
McKesson Corporation/Director
Nancy D. Rasmussen 39 Vice President, Global New Business Franchise, G.D. Searle & Co./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
1.
<PAGE> 8
is a director and founder of Amylin Pharmaceuticals, Inc., a biotechnology
company involved in research and development of medicines for treating diabetes
and served as Chairman of the Board from 1987 to 1998. 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
drug delivery 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 managing director or 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 two publicly traded biotechnology funds: 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, Corvas International and Onyx
Pharmaceuticals.
Mr. Mahoney has served as a director of the Company since September
1996. He has been Group President, Pharmaceutical Services and International
Group, McKesson Corporation ("McKesson") since September 1997 and served as
President of Pharmaceutical and Retail Services, McKesson from August 1996 to
August 1997. Mr. Mahoney 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.
Ms. Rasmussen has served as a director of the Company since March 1998.
She has been with G.D. Searle & Co. ("Searle") since 1985, most recently as Vice
President, Global New Business Franchise. Ms. Rasmussen's
2.
<PAGE> 9
responsibilities include membership on Searle's Priority Committee, Operations
Management Team and Portfolio Steering Committee. She is active in management of
Searle's collaborations serving on the Board of Directors of Lorex, a joint
venture with Synthelabo, and the executive committee of Co-Sensys.
COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997, the Board of Directors
held eleven 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 1997, 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. Greene, Anderson and
Mahoney, none of whom are employees of the Company. This Committee, which held
four meetings during 1997, 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 1997. 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, 1997, each director attended
at least 75% of the meetings of the Board of Directors and the committees on
which he served during such period.
3.
<PAGE> 10
PROPOSAL 2
APPROVAL OF THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION, AS AMENDED
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Amended and Restated Certificate of Incorporation
(the "Amended and Restated Certificate") to increase the authorized number of
shares of Common Stock from 50,000,000 shares to 75,000,000 shares (the
"Amendment").
As of March 13, 1998, there were 32,859,887 shares of Common Stock
outstanding and 659,898 shares of Series B Preferred Stock outstanding. In
addition, the Board has reserved 6,400,000 shares of Common Stock for issuance
upon exercise of options and rights granted under the Company's stock option
plans, and 500,000 shares for issuance under the Company's Employee Stock
Purchase Plan. In addition, the Board has approved an increase of an additional
1,600,000 shares reserved under such plans as described in Proposals 4 and 5.
The additional Common Stock to be authorized by adoption of the
Amendment would have rights identical to the currently outstanding Common Stock
of the Company. Adoption of the Amendment and issuance of the Common Stock would
not affect the rights of the holders of currently outstanding Common Stock of
the Company, except for effects incidental to increasing the number of shares of
the Company's Common Stock outstanding such as dilution of the earnings per
share and percentage share of voting rights of current holders of Common Stock.
If the Amendment is adopted, it will become effective upon filing of a
Certificate of Amendment of the Company's Amended and Restated Certificate with
the Secretary of State of the State of Delaware.
The Board believes that the availability of such additional shares will
provide the Company with increased flexibility to use its capital stock for
business and financial purposes in the future. The additional shares may be
used, without further stockholder approval, for various purposes including,
without limitation, raising capital, providing equity incentives to employees,
officers or directors, establishing strategic relationships with other companies
and expanding the Company's business or service offerings through the
acquisition of other businesses.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board could strategically sell shares of Common Stock in a private
transaction to purchasers who would oppose a takeover or favor the current
Board. Although this proposal to increase the authorized Common Stock has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), nevertheless, stockholders should be aware that
approval of this proposal could facilitate future efforts by the Company to
deter or prevent changes in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
then current market prices.
Under the Company's Amended and Restated Certificate, no stockholder is
entitled to preemptive rights with respect of any future issuances of capital
stock. In addition, the Company does not presently contemplate seeking
stockholder approval for any future issuances of capital stock unless required
to do so by an obligation imposed by applicable law, a regulatory authority or a
third party.
The affirmative vote of the holders of a majority of the shares
entitled to vote will be required to approve this amendment to the Company's
Amended and Restated Certificate of Incorporation. As a result, abstentions and
broker nonvotes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
4.
<PAGE> 11
PROPOSAL 3
APPROVAL OF OPTION EXCHANGE PROGRAM
In December 1996, the Board of Directors agreed at the request of the
State of Wisconsin Investment Board, a major stockholder of the Company (the
"Wisconsin Board"), not to reprice any options without prior stockholder
approval until December 1998. In light of the Company's current position, the
Board of Directors has worked closely with the Wisconsin Board to develop an
option exchange program, the details of which are described below, that the
Board of Directors in good faith believes is in the best interests of the
Company's stockholders and that is acceptable to the Wisconsin Board. The Board
of Directors has approved the option exchange program, subject to stockholder
approval. In addition, the Wisconsin Board has advised the Company that it
intends to vote in favor of this proposal.
The Board of Directors believes that the Company is at a very important
stage in its development. During the past several years in general, and the past
year in particular, there have been a number of significant developments at the
Company and a number of important changes for its employees. We now have
underway a multi-center Phase II/III clinical study with Cylexin designed to
show a therapeutic benefit in ischemia/reperfusion injury in infants undergoing
cardiopulmonary bypass associated with open heart surgery to correct
life-threatening congenital heart defects. We are actively pursuing many
opportunities to use our proprietary enzymatic synthesis technology for
manufacturing bioactive carbohydrates for use in pharmaceuticals, nutritionals
and other products. Further, in October 1997, the Company formed and funded a
subsidiary, Epimmune Inc. ("Epimmune"), and transferred certain patents, fixed
assets and approximately 25 employees associated with Cytel's immune stimulation
program to Epimmune. In light of the various developments described above, the
Board of Directors believes that it is of critical strategic importance to
motivate management and employees to remain at the Company and provide an
incentive for them to exert maximum efforts on behalf of the Company and its
stockholders.
The market price for the Company's Common Stock has declined
significantly in recent years from over $9.00 per share, putting many employees'
options underwater. During the last four quarters, the closing price of the
Company's Common Stock has ranged between $1.38 and $2.81 per share. On ______,
1998, the closing price of the Company's Common Stock was $___ per share. Of the
Company's approximately 4,600,000 options outstanding under the Company's 1989
Stock Option Plan at April , 1998, over 900,000 options have an exercise price
in excess of $6.00 per share and over 2,400,000 have an exercise price of $4.00
per share or higher. Accordingly, the exercise price that most employees would
have to pay in order to exercise their stock options substantially exceeds the
current price of $_____ at which anyone could buy stock in the market. The Board
of Directors believes that such "out-of-the-money" stock options have little
incentive value to employees and in fact undermine morale and motivation. In
addition, virtually all companies in the biotechnology industry use stock
options to attract and retain outstanding employees, and there is substantial
competition to obtain and/or retain skilled and experienced scientists and
managers in the industry. Many biotechnology companies also offer cash bonuses
to its employees, but Cytel does not. Accordingly, stock option-based
performance incentives are a particularly important part of a competitive
overall compensation package for employees of the Company.
The Board of Directors is concerned that the Company may be at risk of
losing valued employees because most of the outstanding stock options are not
providing incentives to the Company's management team and other employees. After
careful consideration of market conditions, employee turnover, employee morale
and the challenges and opportunities facing the Company, the Board of Directors
believes that this situation is likely to be more damaging to the Company and
its stockholders than the effect of an option exchange program. As a result, in
the good faith judgment of the Board of Directors, it is in the best interests
of the stockholders of the Company to replace "underwater" stock options with
options having an exercise price equal to the current fair market value of the
stock, thus restoring the opportunity for employees to receive value in the near
term by building the Company and causing the market value of the stock to
increase.
The Company has worked closely with the Wisconsin Board to structure
the option exchange program in such a manner as to align the interests of
stockholders and employees as closely as possible. The principal
5.
<PAGE> 12
components of the option exchange program, including the unique exchange ratio
features it incorporates, are described below.
The proposed option exchange program would allow members of management
and other employees a one-time opportunity to exchange their outstanding
out-of-the-money stock options for fewer new options at the market price of the
Company's Common Stock at the time of the exchange. The exchange ratio for the
new options is as shown in the table below as a percentage of the number of
options in the out-of-the-money option grant. The exchange ratio is dependent on
the exercise price of the out-of-the-money option. Under the structure of the
new options, in order to achieve the maximum number of shares, the employee is
required to hold the new options for six years, as opposed to approximately four
years under the typical outstanding option. The exchange percentages were
calculated by a third-party mathematical modeling consulting firm employed by
the Wisconsin Board using the widely-accepted Black-Scholes option valuation
model and assumes the new options would have a six-year term. The Board intends
to grant new options with a term of six years. For example, a current
out-of-the-money option at $6.125 to purchase 100,000 shares of Common Stock
could be exchanged under the proposed option exchange program for a new six-year
option to purchase 85,120 shares of Common Stock. Shares of Common Stock
reserved for issuance under old options in excess of the amount exchanged for
new options will not be returned to the pool of shares available for issuance
under the Company's 1989 Plan.
Outside or non-executive directors of the Company will not be eligible
to participate in the option exchange program. A critical component of the
proposed option exchange program is the unique exchange ratio and exercise
provisions it incorporates. The Company's existing stock options typically vest
over a four-year period. All of the shares subject to the new stock options will
begin the new exchange ratio on the date of exchange. In addition, the exchange
ratio will occur over a six-year period. The exchange ratio will be calculated
based on a mathematical formula which incorporates components of a Black-Scholes
option repricing model, including the exercise price of the previous options and
new options, and the volatility and price of the Company's Common Stock at the
date of award of the new options.
The table below shows the exchange ratios for repriced options relative
to the range of exercise prices of out-of the-money options currently held by
Cytel's employees. The table sets forth the exchange ratios for a new option
with an assumed exercise price of $1.625 per share that replaces old options.
The exchange schedule will be revised in accordance with the Black-Scholes
option valuation model if the exercise price of the new option (market price at
time of award of the new option) is different than $1.625.
NEW OPTION EXCHANGE RATIO AS PERCENTAGE OF OLD OPTIONS
<TABLE>
<CAPTION>
Original Option Price $2.688 $4.00 $5.50 $6.125 $7.50 $12.00
------ ----- ----- ------ ----- ------
Year
----
<S> <C> <C> <C> <C> <C> <C>
1 67.72 45.64 31.29 27.19 20.50 9.66
2 81.40 66.55 55.12 51.42 44.75 31.06
3 87.59 77.07 68.43 65.50 60.04 47.79
4 91.16 83.40 76.81 74.52 70.17 59.95
5 93.46 87.59 82.49 80.70 77.24 68.88
6 95.04 90.52 86.54 85.12 82.37 75.56
</TABLE>
In addition, each new option will be subject to special exercise
provisions that can limit the number of shares available for exercise in
accordance with the table. In the event that an optionee exercises the full
amount of any available portion of an option in a given year, the optionee will
be required to wait until the end of the sixth year to exercise the remaining
shares under the option. If the optionee exercises less than the full amount of
any available portion of any option, the exchange ratios as set forth in the
table will continue for the number of remaining shares that were unexercised
(the "Remaining Shares"). The exchange ratios for the Remaining Shares will
continue to follow the mathematical progression reflected in the table. As with
the full-exercise above, with
6.
<PAGE> 13
respect to the partial portion exercised, the optionee must wait until the end
of the sixth year to get the benefit of the remaining mathematical progression
reflected in the table. The Company and the Wisconsin Board believe that these
exercise and exchange ratios may provide an incentive for the optionee to
exercise stock options later during the option term than would occur with one of
the Company's current options and therefore benefit the stockholders of the
Company.
The price of the new stock options will be set at the fair market value
of the Company's Common Stock on the date of exchange. If this Proposal 3 is
approved by the stockholders of the Company, the Board of Directors intends to
authorize the repricing immediately following the Annual Meeting, with an
approximate effective date of June 30, 1998.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to approve the option exchange program. Abstentions will be counted
toward the tabulation of votes counted and will have the same effect as negative
votes, while broker non-votes will not be counted for any purpose in determining
whether this matter has been approved. The Wisconsin Board has advised the
Company that it intends to vote in favor of this Proposal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
7.
<PAGE> 14
PROPOSAL 4
APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
In October 1991, the Board of Directors adopted and the stockholders
subsequently approved the Employee Stock Purchase Plan (the "Purchase Plan")
authorizing the issuance of 200,000 shares of the Company's Common Stock. As a
result of one amendment, there were 500,000 shares of Common Stock reserved for
issuance under the Purchase Plan. The Purchase Plan provides a means by which
employees of the Company and its affiliates may purchase Common Stock of the
Company at a discount through accumulated payroll deductions. At December 31,
1997, an aggregate of 452,334 shares had been issued under the Purchase Plan,
and only 47,666 shares remained available for the grant of future rights under
the Purchase Plan. On March 13, 1998, the Board of Directors adopted an
amendment to the Purchase Plan, subject to stockholder approval, to increase the
number of shares authorized for issuance under the Purchase Plan, from 500,000
shares to 750,000 shares. At March 13, 1998, there remained an aggregate of
1,603 shares available for grant under the Purchase Plan. This amendment affords
the Company greater flexibility in providing employees with stock incentives and
ensures that the Company can continue to provide such incentives at levels
determined appropriate by the Compensation Committee.
Stockholders are requested in this Proposal 4 to approve the Purchase
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 at the
meeting will be required to approve the Purchase Plan, as amended. Abstentions
will be counted toward the tabulation of votes counted and will have the same
effect as negative votes, while broker non-votes will not be counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
The essential features of the Purchase Plan, as amended, are outlined
below:
PURPOSE
The purpose of the Purchase Plan is to provide a means by which
employees of the Company (and any parent or subsidiary of the Company designated
by the Board of Directors to participate in the Purchase Plan) may be given an
opportunity to purchase Common Stock of the Company through payroll deductions,
without payment of broker commissions, at a discounted price and upon terms
which offer certain tax advantages.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Internal Revenue Code of 1986, as
amended (the "Code").
ADMINISTRATION
The Purchase Plan is administrated by the Board of Directors, which has
the final power to construe and interpret the Purchase Plan and the rights
granted under it. The Board has the power, subject to the provisions of the
Purchase Plan, to determine when and how rights to purchase Common Stock of the
Company will be granted, the provisions of each offering of such rights (which
need not be identical), and whether any parent or subsidiary of the Company
shall be eligible to participate in such plan and to construe and interpret the
Plan and rights granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board has the power, which it has not
exercised, to delegate administration of such plan to a committee of not less
than two Board members. The Board has delegated administration of the Purchase
Plan to the Compensation Committee of the Board. As used herein with respect to
the Purchase Plan, the "Board" refers to the Compensation Committee, as well as
to the Board of Directors itself. The Board may abolish any such committee at
any time and revest in the Board to administration of the Purchase Plan.
8.
<PAGE> 15
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. Generally, each such offering is of
two years duration.
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and
five months of the calendar year by the Company (or by any parent or subsidiary
of the Company designated from time to time by the Board) on the first day of an
offering period is eligible to participate in that offering under the Purchase
Plan, provided such employee is employed by the Company on the offering date.
Notwithstanding the foregoing, no employee is eligible for the grant of
any rights under the Purchase Plan if, immediately after such grant, the
employee would own, directly or indirectly, stock possessing 5% of more of the
total combined voting power or value of all classes of stock of the Company or
of any parent or subsidiary of the Company (including any stock which such
employee may purchase under all outstanding rights and options), nor will any
employee be granted rights that would permit him to buy more than $25,000 worth
of stock (determined at the fair market value of the shares at the time such
rights are granted) under all employee stock purchase plans of the Company in
any calendar year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by
delivering to the Company, prior to the date selected by the Board as of the
offering date for the offering, an agreement authorizing payroll deductions of
up to 12% of such employees' base compensation during the purchase period.
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering
under the Purchase Plan cannot be less than the lower of (a) 85% of the fair
market value of a share of Common Stock on the date of commencement of the
offering, or (b) 85% of the fair market value of a share of Common Stock on the
exercise date.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
over the offering period. At any time during the purchase period, a participant
may reduce or terminate his or her payroll deductions. A participant may not
increase or begin such payroll deductions after the beginning of any offering
period. All payroll deductions made for a participant are credited to his or her
account under the Purchase Plan and deposited with the general funds of the
Company. A participant may not make any additional payments into such account.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the
employee is entitled to purchase shares under such plan. In connection with
offerings made under the Purchase Plan, the Board specifies a maximum number of
shares any employee may be granted the right to purchase and the maximum
aggregate number of shares which may be purchased pursuant to such offering by
all participants. If the aggregate number of shares to be purchased upon
exercise of rights granted in the offering would exceed the maximum aggregate
number, the Board would make a pro rata allocation of shares available in a
uniform and equitable manner. Unless the employee's participation is
discontinued, his right to purchase shares is exercised automatically at the end
of the offering period at the applicable price. See "Withdrawal" below.
9.
<PAGE> 16
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions and by delivering to
the Company a notice of withdrawal from the Purchase Plan. Such withdrawal may
be elected at any time prior to 10 days before an exercise date.
Upon withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, and such employee's interest in the offering will be automatically
terminated. The employee is not entitled to again participate in such offering.
An employee's withdrawal from an offering will not have any effect upon such
employee's eligibility to participate in subsequent offerings under the Purchase
Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan
terminate immediately upon cessation of an employee's employment for any reason,
and the Company will distribute to such employee all of his or her accumulated
payroll deductions, without interest.
RESTRICTIONS OF TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan at any time.
Unless terminated earlier, such plan will terminate on August 1, 2001.
The Board may amend the Purchase Plan at any time. Any amendment of the
Purchase Plan must be approved by the stockholders within 12 months of its
adoption by the Board if the amendment would (a) increase the number of shares
of Common Stock reserved for issuance under the Purchase Plan, (b) modify the
requirements relating to eligibility for participation in the Purchase Plan, or
(c) modify any other provision of the Purchase Plan in a manner that would
materially increase the benefits accruing to participants under the Purchase
Plan, if such approval is required in order to comply with the requirements of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
Rights granted before amendment or termination of the Purchase Plan
will not be altered or impaired by any amendment or termination of such plan
without consent of the person to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger
of the Company, the surviving corporation either will assume the rights under
the Purchase Plan or substitute similar rights, or the exercise date of any
ongoing offering will be accelerated such that the outstanding rights may be
exercised immediately prior to, or concurrent with, any such event.
STOCK SUBJECT TO PURCHASE PLAN
If rights granted under the Purchase Plan expire, lapse or otherwise
terminate without being exercised, the Common Stock not purchased under such
rights again becomes available for issuance under such plan.
10.
<PAGE> 17
FEDERAL INCOME TAX INFORMATION
The following is only a summary of the effect of federal income
taxation upon the participant and the Company with respect to the rights granted
under the Purchase Plan. This summary does not purport to be complete and does
not discuss the income tax laws of any state or foreign country in which a
participant may reside. Rights granted under the Purchase Plan are intended to
qualify for favorable federal income tax treatment associated with rights
granted under an employee stock purchase plan which qualifies under provisions
of Section 423 of the Code. A participant will be taxed on amounts withheld for
the purchase of shares as if such amounts were actually received. Other than
this, no income will be taxable to a participant until disposition of the shares
acquired, and the method of taxation will depend upon the holding period of the
purchase shares.
If the stock is disposed of at least two years after the beginning of
the offering period and at least one year after the stock is transferred to the
participant, then the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (ii) the excess
of the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the offering period)
will be treated as ordinary income. Any further gain or any loss will be taxed
as a long-term capital gain or loss if the stock is held for more than 18
months, and as a mid-term capital gain or loss if the stock is held for more
than 12 months and less than 18 months and one day. Capital gains currently are
subject to lower tax rates than ordinary income. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% and the maximum
mid-term capital gains rate is 28% while the maximum ordinary income rate is
effectively 39.6% at the present time.
If the stock is sold or disposed of before the expiration of either of
the holding periods described above, then the excess of the fair market value of
the stock on the exercise date over the exercise price generally will be treated
as ordinary income at the time of such disposition, and the Company may, in the
future, be required to withhold income taxes relating to such ordinary income
from other payments made to the participant. The balance of any gain will be
treated as capital gain. Even if the stock is later disposed of for less than
its fair market value on the exercise date, the same amount of ordinary income
is attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss realized by a participant upon the
disposition of stock acquired under the Purchase Plan will be long-term,
mid-term or short-term depending on the length of time the stock has been held.
There are no federal income tax consequences to the Company by reason
of the grant or exercise of rights under the Purchase Plan. The Company is
entitled to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation).
11.
<PAGE> 18
PROPOSAL 5
APPROVAL OF THE 1989 STOCK OPTION PLAN, AS AMENDED AND
RESTATED AND THE 1994 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN, AS AMENDED
In October 1991, the Board of Directors adopted and the stockholders
subsequently approved, the Company's 1989 Stock Option Plan as amended and
restated (the "1989 Plan"). 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 1989 Plan and the Non-Employee
Directors' Plan (collectively, the "Plans") on December 31, 1997.
At December 31, 1997, options (net of canceled or expired options)
covering an aggregate of 5,385,009 shares of the Company's Common Stock had been
granted under the Plans, of which 1,600,854 shares have been exercised and
3,784,155 shares remain outstanding on a combined basis under the Plans. As a
result, only 1,014,991 shares (plus any shares that might in the future be
returned to the Plans as a result of cancellations or expiration of options)
remained available for future grant on a combined basis under the Plans. As of
March 13, 1998, only 185,144 shares (plus any shares that might in the future be
returned to the plans as a result of cancellations or expiration of options)
remained available for future grant on a combined basis under the Plans.
On March 13, 1998, the Board approved amendments to the Plans, subject
to stockholder approval, to increase the number of shares authorized for
issuance on a combined basis under the Plans from 6,400,000 to 7,750,000 shares.
The Board adopted these amendments to ensure that the Plans have sufficient
shares reserved to allow for future automatic grants under such Plans.
Stockholders are requested in this Proposal 5 to approve the Plans, as
amended. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and voting at the meeting will be required to
approve the Plans, as amended. Abstentions will be counted toward the tabulation
of votes counted and will have the same effect as negative votes, while broker
non-votes will not be counted for any purpose in determining whether this matter
has been approved.
MANAGEMENT AND THE BOARD OF DIRECTORS
RECOMMEND A VOTE IN FAVOR OF PROPOSAL 5.
DESCRIPTION OF THE 1989 STOCK OPTION PLAN
The essential features of the Company's 1989 Plan are outlined below.
GENERAL
The 1989 Plan provides for the grant of both incentive and nonstatutory
stock options and the issuance of Common Stock pursuant to stock purchase
agreements and stock bonuses (collectively, "Stock Awards"). Incentive stock
options granted under the 1989 Plan are intended to qualify as "incentive stock
options" within the meaning of the Code. Nonstatutory stock options granted
under the 1989 Plan are not intended to qualify as incentive stock options under
the Code. See "Federal Income Tax Information" for a discussion of the tax
treatment of incentive and nonstatutory stock options.
PURPOSE
The 1989 Plan was adopted to provide a means by which selected
employees and directors of and consultants and advisors to the Company and its
affiliates could be given an opportunity to benefit from increases in value of
the Common Stock of the Company through the granting of Stock Awards, to assist
in retaining the
12.
<PAGE> 19
services of persons holding key positions, to secure and retain the services of
persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for the success of the Company.
ADMINISTRATION
The 1989 Plan is administered by the Board of Directors of the Company.
The Board has the power to construe and interpret the 1989 Plan and subject to
the provisions of the 1989 Plan, to determine: the persons to whom Stock Awards
will be granted; when and how Stock Awards will be granted; whether a Stock
Award will be an incentive stock option, a nonstatutory stock option, a stock
bonus, a right to purchase stock or a combination of the foregoing; the
provisions of each Stock Award granted, including the time or times when a
person will be permitted to receive stock pursuant to a Stock Award; and the
number of shares with respect to which Stock Awards will be granted to each
person. The Board of Directors is authorized to delegate administration of the
1989 Plan to a committee composed of not fewer than two members of the Board.
The Board has delegated administration of the 1989 Plan to the Compensation
Committee of the Board. As used herein with respect to the 1989 Plan, the
"Board" refers to the Compensation Committee as well as to the Board of
Directors itself.
The proposed regulations under Section 162(m) (described more fully in
the section entitled "Federal Income Tax Information" below) also provide that
the directors who may serve as members of the Compensation Committee must be
"outside directors." The Company currently intends to limit the directors who
may serve as members of the Compensation Committee to those who are "outside
directors." This limitation excludes from the Compensation Committee (i) current
employees of the Company, (ii) former employees of the Company receiving
compensation for past services (other than benefits under a tax-qualified
pension plan), (iii) current and former officers of the Company, and (iv)
directors currently receiving compensation from the Company for personal
services (other than as a director).
ELIGIBILITY
Incentive stock options may be granted under the 1989 Plan only to
employees (including officers) of the Company and its affiliates. Stock Awards
other than incentive stock options may be granted under the 1989 Plan only to
employees (including officers) and directors of and advisors and consultants to
the Company or its affiliates.
No incentive stock option may be granted under the 1989 Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the date of
grant. For incentive stock options granted under the 1989 Plan, the aggregate
fair market value, determined at the time of grant, of the shares of Common
Stock with respect to which such options are exercisable for the first time by
an optionee during any calendar year (under all such plans of the Company and
its affiliates) may not exceed $100,000.
STOCK SUBJECT TO THE 1989 PLAN
Stock subject to the 1989 Plan may be unissued shares or reacquired
shares, bought on the market or otherwise. If any Stock Award granted under the
1989 Plan expires or otherwise terminates without being exercised in full, the
Common Stock not purchased pursuant to such Stock Award shall again become
available for issuance under the 1989 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options
under the 1989 Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1989 Plan may not be less than 100% of the fair market value of the
Common Stock subject to the option on the date of the option grant,
13.
<PAGE> 20
and in some cases (see "Eligibility" above) may not be less than 110% of such
fair market value. The exercise price of nonstatutory options under the 1989
Plan may not be less than 85% of the fair market value of the Common Stock
subject to the option on the date of the option grant. The Board has the
authority to offer employees the opportunity to have outstanding options
repriced or to replace outstanding higher priced options, whether incentive or
nonstatutory, with new lower priced options. At March 13, 1998, the closing
price of the Company's Common Stock as reported on the Nasdaq National Market
System was $2.28.
The exercise price of options granted under the 1989 Plan must be paid
either: (i) in cash at the time the option is exercised; or (ii) at the
discretion of the Board at the time the option is granted or exercised, either
(a) by delivery of other Common Stock of the Company, (b) pursuant to a deferred
payment arrangement or (c) in any other form of legal consideration acceptable
to the Board.
Transferability. Under the 1989 Plan, an option may not be transferred
by the optionee other than 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.
Option Exercise. Options granted under the 1989 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the 1989 Plan typically vest 25% at the end
of the first year of the optionee's employment or service as a director, advisor
or consultant and thereafter daily at the rate of 25% per year during such
period of employment or service. Shares covered by options granted in the future
under the 1989 Plan may be subject to different vesting terms. The Board has the
power to accelerate the time during which an option may be exercised. In 1998,
the Company implemented a performance management system (the "Performance
Management System") for members of certain employee teams organized under the
Performance Management System. Under the Performance Management System, options
are subject to acceleration of vesting upon the achievement of certain
performanced-based objectives by such teams.
In addition, options granted under the 1989 Plan may permit exercise prior
to vesting, but in such event the optionee may be subject to a repurchase right
in favor of the Company with respect to shares not yet vested (which repurchase
right would typically be at the exercise price), should the optionee leave the
employ of the Company before vesting. To the extent provided by the terms of an
option, an optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such option by a cash payment upon
exercise, by authorizing the Company to withhold a portion of the stock
otherwise issuable to the optionee, by delivering already-owned stock of the
Company or by a combination of these means.
Term. The maximum term of options under the 1989 Plan is ten years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1989 Plan terminate three months after the optionee's
termination of employment with or relationship as a director, advisor or
consultant to the Company or any affiliate of the Company, unless (i) the
termination of employment or relationship is due to such person's permanent and
total disability (as defined in the Code), in which case the option may, but
need not, provide that it may be exercised at any time within six months of such
termination; (ii) the optionee dies while employed by or serving as a director,
advisor or consultant to the Company or any affiliate of the Company, or within
not more than three months after termination of such employment or service, in
which case the option may, but need not, provide that it may be exercised (to
the extent the option was exercisable at the time of the optionee's death)
within six months of the optionee's death by the person or persons to whom the
rights to such option pass by will or by the laws of descent and distribution;
or (iii) the option by its terms specifically provides otherwise. The 1989 Plan
provides that, in the event that holder of an option or other stock award is
permitted to take a leave of absence, the Company has the unilateral right to
determine whether such leave of absence will be treated as a termination of
employment or other relationship or to suspend or otherwise delay the time at
which exercisability or vesting would otherwise occur with respect to any
outstanding option or other stock award.
TERMS OF STOCK BONUSES AND RESTRICTED STOCK
The following is a description of the permissible terms of stock
bonuses and purchases of restricted stock under the 1989 Plan. Individual stock
bonuses or purchases of restricted stock may be more restrictive as to any or
all of the permissible terms described below.
14.
<PAGE> 21
Purchase Price; Payment. The purchase price for restricted stock shall
be determined by the Board. The Board may determine that eligible participants
may be awarded stock pursuant to a stock bonus agreement in consideration for
past services rendered to the Company.
The purchase price of stock acquired pursuant to a restricted stock
purchase agreement must be paid either (i) in cash at the time of purchase; (ii)
at the discretion of the Board, according to a deferred payment arrangement; or
(iii) in any other form of legal consideration acceptable to the Board.
Repurchase Option. Shares of Common Stock sold or awarded under the
1989 Plan may, but need not, be subject to a repurchase option in favor of the
Company in accordance with a vesting schedule to be determined by the Board. In
the event a person ceases to be an employee of, or an advisor, consultant or
director to, the Company, the Company may repurchase or otherwise reacquire any
or all of the unvested Common Stock held by that person on the date of
termination, if provided for pursuant to the terms of the stock bonus or
restricted stock purchase agreement.
Transferability. No rights under a stock bonus or restricted stock
purchase agreement may be assigned by any participant under the 1989 Plan,
except where such assignment is required by law or expressly authorized by the
terms of the applicable stock bonus or restricted stock purchase agreement.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1989 Plan or subject
to any Stock Award granted under the 1989 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 1989 Plan and Stock
Awards 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 subject to such outstanding Stock Awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1989 Plan provides that, in the event of a dissolution or
liquidation of the Company, specified types of merger or other corporate
reorganization, then at the discretion of the Board and to the extent permitted
by law, any surviving corporation shall either: assume Stock Awards outstanding
under the 1989 plan or substitute similar Stock Awards for those outstanding
under the 1989 Plan, such outstanding Stock Awards will continue in full force
and effect; or, with respect to Stock Awards held by persons then employed by or
serving as advisors, consultants or directors to the Company, then at the
discretion of the Board, the Company may either arrange to pay a cash settlement
for such Stock Award or accelerate such Stock Awards and terminate those Stock
Awards not exercised before such corporate event.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1989 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1989 Plan will terminate on December 31, 2000.
The Board may also amend the 1989 Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve months or before or after its adoption
by the Board if the amendment would: (i) increase the number of shares reserved
for Stock Awards under the 1989 Plan; (ii) modify the requirements as to
eligibility for participation (to the extent such modification requires
stockholder approval in order for the Plan to satisfy Section 422(b) of the
Code, if applicable, or Rule 16b-3 ("Rule 16b-3") of the Exchange Act); or (iii)
change any other provision of the Plan in any other way if such modification
requires stockholder approval in order to satisfy the requirements of Section
422(b) of the Code or to comply with Rule 16b-3.
15.
<PAGE> 22
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1989 Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will recognize taxable
ordinary income equal to the lesser of (i) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (ii) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain or
any loss upon the disqualifying disposition will be a capital gain or loss. Any
capital gain or loss recognized by an optionee on a qualifying disposition or a
disqualifying disposition of stock acquired through exercise of an incentive
stock option will be long-term, mid-term or short-term depending on how long the
stock was held. Capital gains currently are generally subject to lower tax rates
than ordinary income. Slightly different rules may apply to optionees who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and perhaps, in the future, the satisfaction of a withholding obligation) to a
corresponding business expense deduction in the tax year in which the
disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under
the 1989 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionee normally recognizes taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of any withholding obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
recognized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be
long-term, mid-term or short-term depending on how long the stock was held.
Slightly different rules apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. Code Section 162(m) denies
a deduction to any publicly held corporation for compensation paid to certain
employees in a taxable year to the extent that compensation exceeds $1 million
for a covered employee. It is possible that compensation attributable to stock
options, when combined with all other types of compensation received by a
covered employee from the Company, may cause this limitation to be exceeded in
any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation", are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that (i) the option plan contains a per-employee limitation on the
number of shares for which options may be granted during a specified period,
(ii) the per employee limitation is approved by the stockholders, (iii) the
option is granted by a
16.
<PAGE> 23
compensation committee comprised solely of "outside directors," and (iv) the
exercise price of the option is not less than the fair market value of the stock
on the date of grant, or the option is granted (or becomes exercisable) only
upon the achievement (as certified by the Compensation Committee) of an
objective performance goal established by the Compensation Committee while the
outcome is substantially uncertain.
Stock Bonuses and Restricted Stock. Stock bonuses and restricted stock
purchases granted under the 1989 Plan have the following federal income tax
consequences:
Generally, at the time of receipt of the stock, the recipient's tax
treatment depends on whether or not he or she timely files an election under
Section 83(b) of the Code. If such an election is timely filed, the recipient
will recognize ordinary income in the amount of the difference, if any, between
the purchase price and the fair market value of the shares at the time of the
purchase. If the election is not timely filed, the recipient will recognize
ordinary income at the time of receipt only in the amount of the difference
between the purchase price and the fair market value of the shares which are not
at the time subject to the Company's repurchase option. Thereafter, whenever the
Company's repurchase option lapses with respect to a given number of shares, the
recipient will recognize ordinary income in the amount of the difference between
the purchase price and the fair market value of the shares with respect to which
the repurchase option has just lapsed.
With respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, the provisions
of Section 162(m) of the Code and the satisfaction of any withholding
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income recognized by the recipient. Upon
disposition of stock, the recipient 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 vesting of the
stock. Such gain or loss will be long-term, mid-term or short-term depending on
how long the stock was held. Slightly different rules may apply to recipients
whose stock is subject to forfeiture under Section 16(b) of the Exchange Act.
Other Tax Consequences. The foregoing discussion is not intended to be
a complete description of the federal income tax aspects of Stock Awards granted
under the 1989 Plan. In addition, administrative and judicial interpretations of
the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable.
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 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.
17.
<PAGE> 24
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. Six
of the Company's nine 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.
Option Exercise. An option granted under the Non-Employee Directors'
Plan vests daily at the rate of 25% per year, 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 preceding the date preceding 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.
18.
<PAGE> 25
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 requirements of Rule 16b-3); or
(iii) modify the Non-Employee Directors' Plan in any other way if such
modification requires 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
The following is only a summary of the effect of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of options under the Non-Employee Directors' Plan, does not purport to
be complete and does not discuss the income tax laws of any state or foreign
country in which an optionee may reside.
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-term,
mid-term or short-term depending on the length of time the stock was held.
Slightly different rules apply to optionees who are subject to Section 16(b) of
the 1934 Act.
19.
<PAGE> 26
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 25,000 shares of Common Stock
in fiscal year 1997 at a dollar value of $85,950 (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 6
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, 1998, 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, 1998. 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 6.
20.
<PAGE> 27
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 13, 1998 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>
International Biotechnology Trust plc
Five Arrows House, St. Swithin's Lane,
London, England........................................... 3,275,949 9.81%
G.D. Searle & Co. (2)
5200 Old Orchard Road
Skokie, IL 60077.......................................... 2,742,222 8.22%
State of Wisconsin Investment Board
121 East Wilson Street
Madison, WI 53702......................................... 2,425,000 7.26%
Sandoz Holding Ltd.
CH-4002 Basel Switzerland................................. 2,166,700 6.49%
Equitable Life Assurance Company
City Place House
Basinghall Street
London, England C2V SDK................................... 1,714,285 5.14%
Howard E. Greene, Jr. (3)(6)................................ 791,761 2.37%
James C. Paulson (4)(6)..................................... 438,631 1.30%
Virgil Thompson (6)......................................... 436,296 1.29%
Robert L. Roe (6)........................................... 317,959 *
David L. Anderson (5)(6).................................... 236,434 *
Robert W. Chesnut (6)....................................... 205,212 *
Deborah Schueren (6)........................................ 83,274 *
Jennifer Lorenzen (6)....................................... 42,560 *
William T. Comer (6)........................................ 40,509 *
David L. Mahoney............................................ 30,249 *
Nicole Vitullo (6).......................................... 1,807 *
Nancy D. Rasmussen.......................................... 0 *
Karin Eastham............................................... 0 *
All executive officers and directors
as a group (12 persons)(7)................................ 2,624,692 7.58%
</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 33,379,887 shares of
Common Stock outstanding on March 13, 1998 (assuming conversion of the
outstanding shares of the Company's Series B Preferred Stock), adjusted as
required by rules promulgated by the SEC.
21.
<PAGE> 28
(2) Includes 659,898 shares of Series B Preferred Stock reflected on an as
converted basis, at a conversion rate of .788 shares of Common Stock for
each share of Series B Preferred Stock (for an aggregate of 520,000 shares
of Common Stock).
(3) Includes 453,604 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 and 314,632 held individually by Mr. Greene. 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. In addition, Mr. Greene is a director of
International Biotechnology Trust plc and disclaims beneficial ownership of
shares held by such entity.
(4) Includes 31,500 shares held in trust for the benefit of Dr. Paulson's three
minor children.
(5) 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, over which Mr. Anderson exercises voting and investing power as a
managing director of Sutter Hill Ventures LLC, the general partner of
Sutter Hill. Mr. Anderson disclaims beneficial ownership of shares held by
Anvest, L.P. and Sutter Hill except to his proportionate partnership
interest therein.
(6) 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, 7,525
shares; James C. Paulson, 285,618 shares; Virgil Thompson, 325,844 shares;
Robert L. Roe, 308,713 shares; David L. Anderson, 7,525 shares; Robert W.
Chesnut, 156,292 shares; Deborah Schueren, 81,334 shares; Jennifer
Lorenzen, 42,560 shares; William T. Comer, 34,109 shares; David L. Mahoney,
10,249 shares; Nicole Vitullo, 1,807 shares; and all executive officers and
directors as a group, 1,261,576 shares.
(7) Includes shares described in notes (3) through (6) above.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees of the Company are paid
$2,000 per meeting attended in person and $500 per meeting attended by phone 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, 1997,
1996 and 1995, compensation awarded or paid to, or earned by the Company's Chief
Executive Officer, its other four most highly compensated
22.
<PAGE> 29
executive officers at December 31, 1997 and two former executive officers who
departed from the Company during the last fiscal year (collectively, 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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS OPTIONS COMPENSATION
POSITION YEAR ($) ($) (#) ($)(1)
- ------------------------------------ ---- -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Mr. Virgil Thompson 1997 315,000 0 200,000 5,426
President and Chief 1996 300,000 78,580(2) 500,000 4,950
Executive Officer
Dr. Robert L. Roe 1997 286,000 0 180,000 4,874
Executive Vice President 1996 205,354 23,000(3) 400,000 3,525
and Chief Operating Officer
Dr. James C. Paulson 1997 257,578 0 0 1,674
Vice President and 1996 216,324 28,988 80,000 1,333
General Manager, Glytec(TM) 1995 206,023 41,205 60,000 890
Ms. Deborah Schueren (4) 1997 133,572 0 120,000(5) 295
Vice President, Cytel and
President, Epimmune
Jennifer Lorenzen (6) 1997 134,055 0 90,000 691
Vice President, Business
Development
Dr. Robert W. Chesnut (7) 1997 147,684 0 0 1,553
Former Vice President, 1996 165,375 22,160 60,000 1,619
Immune Stimulation Program 1995 157,500 31,500 60,000 680
Ms. Karin Eastham (8) 1997 86,864 0 0 368
Former Vice President, 1996 177,197 23,744 60,000 1058
Finance and Administration 1995 168,759 33,752 60,000 729
And Chief Financial Officer
</TABLE>
- ------------
(1) Consists of life insurance premiums paid by the Company.
(2) Represents relocation payments made by the Company to Mr. Thompson.
(3) Represents reimbursement of Dr. Roe's relocation expenses which were paid
by the Company to Dr. Roe's previous employer.
(4) Ms. Schueren was appointed Vice President, Finance and Chief Financial
Officer in March 1997. Ms Schueren resigned as Vice President, Finance and
Chief Financial Officer effective October 1997, at which time she was
(5) Does not include certain options to purchase shares of Epimmune Common
Stock granted to Ms. Schueren. See "Employment Agreements."
23.
<PAGE> 30
appointed Vice President of the Company and President of Epimmune Inc., a
subsidiary of the Company ("Epimmune").
(6) Ms. Lorenzen was Vice President, Development Program Management of the
Company from April 1997 to February 1998, at which time she was appointed
Vice President, Business Development of the Company.
(7) Dr. Chesnut resigned from the Company effective October 1997, at which time
he was appointed Executive Vice President of Research and Development of
Epimmune.
(8) Ms. Eastham resigned from the Company effective April 1997.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under the 1989
Plan. As of March 13, 1998, options to purchase a total of 4,614,002 shares had
been granted and were outstanding under the 1989 Plan, and options to purchase
185,144 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, 1997,
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> <C>
Mr. Virgil Thompson ............ 200,000(4) 21.4 4.00 1/1/07 320,028 983,457
Dr. Robert L. Roe .............. 180,000(4) 19.2 4.00 1/1/07 -- --
Dr. James C. Paulson ........... -- -- -- -- 288,025 885,112
Ms. Deborah Schueren ........... 120,000 12.8 2.375 3/20/07 179,235 454,217
Ms. Jennifer Lorenzen .......... 90,000 9.6 1.375 4/29/07 77,826 197,226
Dr. Robert W. Chesnut .......... -- -- -- -- -- --
Ms. Karin Eastham .............. -- -- -- -- -- --
</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 the Wisconsin Board not to
reprice any options without prior stockholder approval until June 2000. As
set forth in Proposal 3, the Company is seeking stockholder approval of an
option exchange program at the Annual Meeting. The Wisconsin Board has
advised the Company that it intends to vote in favor of Proposal 3. The
Board of Directors has further agreed with The Wisconsin Board not to
reprice any options additional to those covered by Proposal 3 until
December 1998.
(2) Based on 936,518 options granted in 1997, including grants to executive
officers.
24.
<PAGE> 31
(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.
(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 could have accelerated
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. Such
objectives were not achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT OPTIONS AT IN-THE-MONEY 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 Thompson -- -- 199,658/500,342 --/--
Dr. Robert L. Roe -- -- 191,507/388,493 --/--
Dr. James C. Paulson -- -- 252,695/165,162 $20,523/--
Ms. Deborah Schueren -- -- 63,663/133,127 --/--
Ms. Jennifer Lorenzen -- -- 30,082/109,918 $1,894/$9,356
Dr. Robert W. Chesnut -- -- 156,292/-- $5,308/--
Ms. Karin Eastham -- -- --/-- --/--
</TABLE>
- ------------
(1) Fair market value of the Company's Common Stock at December 31, 1997 ($1.50
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 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 January 1996, the Company entered into an employment agreement with
Mr. Thompson. 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 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.
In October 1997, the Company and Epimmune entered into an employment
agreement with Ms. Schueren. The agreement guaranteed Ms. Schueren a base salary
of $185,000 and a cash bonus of up to $50,000 at the discretion of the Board, if
certain objectives are met. In addition, pursuant to the agreement, Ms. Schueren
was granted an incentive stock option to purchase 385,000 shares of Epimmune
Common Stock at the fair market value as determined by the board of directors of
Epimmune. Shares subject to such option vest equally over 48 months, provided
that said option will be subject to acceleration with respect to up to two years
of vesting upon achievement of certain objectives. The option issued to Ms.
Schueren represents approximately 4% of the outstanding Epimmune Common Stock on
an as-converted, fully-diluted basis, assuming exercise of all options
outstanding and
25.
<PAGE> 32
available for issuance under Epimmune's stock option plan. The agreement may be
terminated by either the Company or Ms. Schueren.
In February 1998, the Company entered severance benefits agreements
covering the following officers of the Company: Mr. Thompson, Dr. Roe, Dr.
Paulson and Ms. Lorenzen (collectively, the Officers and individually, the
"Officer"). Under the agreements, in the event that an Officer is either
terminated without cause or within one year of a change of control of the
Company such Officer shall receive a lump-sum payment equal to six months of
such Officer's annual base salary. If such Officer is terminated other than for
cause, all unvested stock options held by such Officers shall immediately
accelerate by six months. If such Officer is terminated following a change of
control, 50% of all unvested stock options held by such Officer shall
immediately vest and become exercisable. Ms. Schueren's employment agreement
provides for similar severance benefits except in the event of termination
following a change in control, all unvested Epimmune stock options held by Ms.
Schueren shall immediately vest and become exercisable. In addition, generally,
if Ms. Schueren is terminated without cause or if Ms. Schueren terminates her
employment under certain conditions, all unvested stock options held by Ms.
Schueren shall accelerate by six months.
26.
<PAGE> 33
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. 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 and long-term compensation in the form of stock options. The Company's
executive officer compensation program is designed to achieve the following
objectives:
- Attract, retain and motivate quality executives who possess
the necessary leadership and management skills.
- Provide an incentive to advance the research and development
of the Company's therapeutic products.
- 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 29 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 and relative responsibility and
experience, to determine appropriate base salaries. In evaluating Company
performance, the Committee considers the meeting of certain product milestones,
achieving certain corporate objectives (related to financings and
collaborations) and organizational effectiveness. 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
- --------
(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.
27.
<PAGE> 34
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.
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. In 1998, the Company implemented a performance management system
(the "Performance Management System") for members of certain employee teams
organized under the Performance Management System. Under the Performance
Management System, options are subject to acceleration of vesting upon the
achievement of certain performance-based objectives by such teams. Prior to
December 1996, the time-based 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 limit the number of shares that
can be granted to any person to 500,000 shares in any calendar year 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 Board of Directors has agreed at the request of the Wisconsin Board
not to reprice any options without prior stockholder approval until December
1998. As set forth in Proposal 3, the Company is seeking stockholder approval of
an option exchange program at the Annual Meeting. The Wisconsin Board has
advised the Company that it intends to vote in favor of Proposal 3.
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 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 1997, 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.
CEO COMPENSATION
The total compensation program for Mr. Virgil Thompson, Chief Executive
Officer of the Company, 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.
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 implementing 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. In
addition, based on such factors,
28.
<PAGE> 35
the Board of Directors also granted Mr. Thompson an option to purchase 200,000
shares of the Company's Common Stock under the 1989 Plan at an exercise price of
$4.00 per share. The fair market value on the date of grant of such option was
$3.44 per share.
In February 1998, the Committee reviewed the achievement of objectives
for 1997, and, based on the Company's performance in 1997 and Mr. Thompson's
significant efforts in planning and implementing strategic and financial
initiatives, the Committee approved a base salary for Mr. Thompson of $326,000
for 1998, an increase of 3.5% over Mr. Thompson's 1997 base salary. In addition,
based on such factors, the Board of Directors also granted Mr. Thompson an
option to purchase 200,000 shares of the Company's Common Stock under the 1989
Plan at an exercise price of $1.594, the fair market value on the date of grant.
From the members of the Compensation Committee of Cytel:
Howard E. Greene, Jr.
David L. Anderson
David L. Mahoney
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Greene, a member of the Compensation Committee, is Chairman of the
Board of the Company.
29.
<PAGE> 36
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,
1992.
COMPARISON OF TOTAL CUMULATIVE RETURN ON INVESTMENT(3)
<TABLE>
<CAPTION>
12/92 12/93 12/94 12/95 12/96 12/97
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cytel Corporation .................. 100 51 35 65 37 16
Nasdaq Stock Market - US ........... 100 51 67 123 123 127
Nasdaq Pharmaceutical .............. 100 115 134 159 195 240
</TABLE>
(1) This Section 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 1933 Act or the 1934 Act, whether made before or after the date
hereof and irrespective of any general incorporation language in 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 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, 1992 in each of Cytel's Common Stock (at the
then-market price of $9.38 per share), the Nasdaq CRSP Total Return Index
for the Nasdaq Stock (U.S. Companies) Index and the NASDAQ CRSP
Pharmaceutical Index.
30.
<PAGE> 37
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.
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 1997 calendar year, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.
31.
<PAGE> 38
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
Edward C. Hall
Vice President, Finance, Chief Financial
Officer and Secretary
[May __, 1998]
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, 1997 IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO CORPORATE SECRETARY, CYTEL CORPORATION, 3525 JOHN
HOPKINS COURT, SAN DIEGO, CA 92121.
32.
<PAGE> 39
CYTEL CORPORATION
1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED ON MARCH 18, 1994
APPROVED BY STOCKHOLDERS
ON JUNE 17,1994
AMENDED ON MARCH 15, 1996, SEPTEMBER 20, 1996,
MARCH 21, 1997, AND MARCH 13, 1998
1. PURPOSE.
(a) The purpose of the 1994 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of Cytel Corporation
(the "Company") who is not otherwise an employee of the Company or of any
Affiliate of the Company (each such person being hereafter referred to as a
"Non-Employee Director") will be given an opportunity to purchase stock of the
Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
1.
<PAGE> 40
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate seven million seven hundred
fifty thousand (7,750,000) shares of the Company's common stock less the number
of shares of the Company's common stock which has been sold under, or may be
sold pursuant to outstanding stock awards granted under, the Company's 1989
Stock Plan. If any option granted under the Plan shall for any reason expire or
otherwise terminate without having been exercised in full, the stock not
purchased under such option shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
2.
<PAGE> 41
4. ELIGIBILITY.
(a) Options shall be granted only to Non-Employee Directors of the
Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is, after the Adoption Date, elected for the first
time to be a Non-Employee Director shall, upon the date of his initial election
to be a Non-Employee Director by the Board or stockholders of the Company, be
granted an option to purchase twenty-five thousand (25,000) shares of common
stock of the Company on the terms and conditions set forth herein.
(b) On January 1 of each year, commencing with January 1, 1995, each
person who is then a Non-Employee Director and has been a Non-Employee Director
for at least three (3) months shall be granted an option to purchase five
thousand (5,000) shares of common stock of the Company on the terms and
conditions set forth herein.
6. OPTION PROVISIONS.
Each option shall contain the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's service as a
director or employee of or consultant to the Company or any Affiliate terminates
for any reason or for no reason, the option shall terminate on the earlier of
the Expiration Date or the date three (3) months following the date of
termination of all such service; provided, however, that if such termination of
service is due to the optionee's death, the option shall terminate on the
earlier of the Expiration Date or six (6) months following the date of the
optionee's death.
3.
<PAGE> 42
In any and all circumstances, an option may be exercised following termination
of the optionee's service as a director or employee of or consultant to the
Company or any Affiliate only as to that number of shares as to which it was
exercisable on the date of termination of all such service under the provisions
of subparagraph 6(e).
(b) Subject to subparagraph 4(b), the exercise price of each option
shall be one hundred percent 100% of the fair market value of the stock subject
to such option on the date such option is granted.
(c) The exercise price of stock acquired pursuant to each option shall
be paid, to the extent permitted by applicable statutes and regulations, either
(i) in cash at the time of exercise; or (ii) by delivery of shares of common
stock of the Company already owned by the optionee, held for the period required
to avoid a charge to the Company's reported earnings, and owned free and clear
of any liens, claims, encumbrances or security interest, which common stock
shall be valued at fair market value on the date preceding the date of exercise;
or (iii) by a combination of such methods of payment.
Notwithstanding the foregoing, this option may be exercised pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board which results in the receipt of cash (or check) by the Company prior to
the issuance of shares of the Company's common stock.
(d) Except as otherwise expressly provided in an optionholder's option
agreement, an option shall not be transferable except by will or by the laws of
descent
4.
<PAGE> 43
and distribution, and shall be exercisable during the lifetime of the person to
whom the option is granted only by such person or by his guardian or legal
representative.
(e) The option shall become exercisable in installments over a period of
four (4) years from the date of grant on a daily basis at the rate of
twenty-five percent (25%) per year of the total number of shares subject to the
option; provided that prior to the first anniversary of the date of commencement
of the optionee's service as a Non-Employee Director, the option shall not be
exercisable for any number of shares; and provided further that the optionee
has, during the entire period prior to such vesting date, continuously served as
a director or as an employee of or consultant to the Company or any Affiliate of
the Company, whereupon such option shall become fully exercisable in accordance
with its terms with respect to that portion of the shares represented by that
installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration
5.
<PAGE> 44
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or (ii), as to any particular requirement, a determination is made by counsel
for the Company that such requirement need not be met in the circumstances under
the then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be
6.
<PAGE> 45
relieved from any liability for failure to issue and sell stock upon exercise of
such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Throughout the term of any option granted pursuant to the Plan, the
Company shall make available to the holder of such option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the option term, upon request, such financial and other information
regarding the Company as comprises the annual report to the stockholders of the
Company provided for in the By-laws of the Company and such other information
regarding the Company as the holder of such option may reasonably request.
(c) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate or shall affect any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any
Non-Employee Director with or without cause.
7.
<PAGE> 46
(d) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(e) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to the
Company to insure that the amount of any federal or other withholding tax
required to be withheld with respect to such sale or transfer, or such removal
or lapse, is made available to the Company for timely payment of such tax.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the 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 Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
8.
<PAGE> 47
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation; (2) 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 are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; or (3) any other capital reorganization in which more than fifty
percent (50%) of the shares of the Company entitled to vote are exchanged, the
time during which options outstanding under the Plan may be exercised shall be
accelerated and the options terminated if not exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than once every
six months, with respect to the provisions of the plan which relate to the
amount, price and timing of grants, other than to comport with changes in the
Code, the Employee Retirement Income Security Act, or the rules thereunder.
Except as provided in paragraph 10 relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares which may be issued under the
Plan;
(ii) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires stockholder approval in order
for the Plan to comply with the requirements of Rule 16b-3); or
9.
<PAGE> 48
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to comply with the requirements of
Rule 16b-3.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be altered or impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on March 17, 2004. No options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
10.
<PAGE> 49
CYTEL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Adopted October 12, 1991
Amended March 27, 1995
Amended March 13, 1998
1. PURPOSE.
(a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Cytel Corporation, a Delaware corporation
(the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are
designated as provided in subparagraph 2(b), may be given an opportunity to
purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
1.
<PAGE> 50
(iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate seven hundred fifty thousand
(750,000) shares of the Company's $.01 par value common stock (the "Common
Stock"). If any right granted under the Plan shall for any reason terminate
without having been exercised, the Common Stock not purchased under such right
shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate. If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised. The provisions of
separate Offerings need not be identical, but each Offering shall include
(through incorporation of the provisions of this Plan by reference in the
Offering or otherwise) the substance of the provisions contained in paragraphs 5
through 8, inclusive.
5. ELIGIBILITY.
2.
<PAGE> 51
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliate is at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that, each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(ii) the Purchase Period (as defined below) for such right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Purchase Period (as defined below) for such Offering, he or she will
not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at
3.
<PAGE> 52
the time such rights are granted) for each calendar year in which such rights
are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in Section 7(a)) during the period which
begins on the Offering Date (or such later date as the Board or the Committee
determines for a particular Offering) and ends on the date stated in the
Offering, which date shall be no more than twenty-seven (27) months after the
Offering Date (the "Purchase Period"). In connection with each Offering made
under this Plan, the Board or the Committee shall specify a maximum number of
shares which may be purchased by any employee as well as a maximum aggregate
number of shares which may be purchased by all eligible employees pursuant to
such Offering. In addition, in connection with each Offering which contains more
than one Exercise Date (as defined in the Offering), the Board or the Committee
may specify a maximum aggregate number of shares which may be purchased by all
eligible employees on any given Exercise Date under the Offering. If the
aggregate purchase of shares upon exercise of rights granted under the Offering
would exceed any such maximum aggregate number, the Board or the Committee shall
make a pro rata allocation of the shares available in as nearly a uniform manner
as shall be practicable and as it shall deem to be equitable.
(b) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Exercise Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in an Offering by
delivering a participation agreement to the Company within the time specified in
the Offering, in such form as the Company provides. Each such agreement shall
authorize payroll deductions of up to the maximum percentage specified by the
Board or the Committee of such employee's Earnings during the Purchase Period.
"Earnings" is defined as the total compensation paid to an employee, including
all salary, wages (including amounts elected to be deferred by the employee,
that would otherwise have been paid, under any cash or deferred arrangement
established by the Company),
4.
<PAGE> 53
overtime pay, commissions, bonuses, and other remuneration paid directly to the
employee, but excluding profit sharing, the cost of employee benefits paid for
by the Company, education or tuition reimbursements, imputed income arising
under any Company group insurance or benefit program, traveling expenses,
business and moving expense reimbursements, income received in connection with
stock options, contributions made by the Company under any employee benefit
plan, and similar items of compensation. The payroll deductions made for each
participant shall be credited to an account for such participant under the Plan
and shall be deposited with the general funds of the Company. A participant may
reduce (including to zero), increase or begin such payroll deductions after the
beginning of any Purchase Period only as provided for in the Offering. A
participant may make additional payments into his or her account only if
specifically provided for in the Offering and only if the participant has not
had the maximum amount withheld during the Purchase Period.
(b) At any time during a Purchase Period a participant may terminate his
or her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Purchase Period except as provided by the Board or the Committee in the
Offering. Upon such withdrawal from the Offering by a participant, the Company
shall distribute to such participant all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the participant) under the Offering, without interest, and
such participant's interest in that Offering shall be automatically terminated.
A participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee), under the Offering, without
interest. In the event that an employee is permitted or otherwise entitled to
take a military, sick leave, or other bona fide leave of absence, for purposes
of this Plan the employee will be deemed to have terminated employment with the
Company or any designated Affiliate on the 91st day of such leave, unless the
employee's right to reemployment upon the expiration of such leave is guaranteed
either by statute or contract.
(d) Rights granted under the Plan shall not be transferable, and shall
be exercisable only by the person to whom such rights are granted.
(e) A participant's right to receive stock under the Plan may be
conditioned upon the participant making arrangements satisfactory to the Company
to insure that the amount of any federal or other withholding tax required to be
withheld as a result of the disposition of such stock by the participant is made
available to the Company for timely payment of such tax.
8. EXERCISE.
5.
<PAGE> 54
(a) On each exercise date, as defined in the relevant Offering (an
"Exercise Date"), each participant's accumulated payroll deductions and other
additional payments specifically provided for in the Offering (without any
increase for interest) will be applied to the purchase of whole shares of stock
of the Company, up to the maximum number of shares permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase price specified
in the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of shares
which is less than the amount required to purchase one share of stock on the
final Exercise Date of an Offering shall be held in each such participant's
account for the purchase of shares under the next Offering under the Plan,
unless such participant withdraws from such next Offering, as provided in
subparagraph 7(b), or is no longer eligible to be granted rights under the Plan,
as provided in paragraph 5, in which case such amount shall be distributed to
the participant after said final Exercise Date, without interest. The amount, if
any, of accumulated payroll deductions remaining in any participant's account
after the purchase of shares which is equal to the amount required to purchase
whole shares of stock on the final Exercise Date of an Offering shall be
distributed in full to the participant after such Exercise Date, without
interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the Plan (including rights granted thereunder) is covered by an effective
registration statement pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). If on an Exercise Date of any Offering hereunder the Plan is
not so registered, no rights granted under the Plan or any Offering shall be
exercised on said Exercise Date and the Exercise Date shall be delayed until the
Plan is subject to such an effective registration statement, except that the
Exercise Date shall not be delayed more than two (2) months and the Exercise
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Exercise Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered, no rights granted under
the Plan or any Offering shall be exercised and all payroll deductions
accumulated during the purchase period (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the rights granted under the
Plan. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such rights unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
6.
<PAGE> 55
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11.
7.
<PAGE> 56
12. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until certificates representing such shares shall have
been issued.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the 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 Plan and outstanding
rights will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding rights.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) 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 are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, as determined by the Board in its
sole discretion (i) any surviving corporation may assume outstanding rights or
substitute similar rights for those under the Plan, (ii) such rights may
continue in full force and effect, or (iii) participants' accumulated payroll
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
Offering terminated.
14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan (to the extent such modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended ("Rule 16b-3")); or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
8.
<PAGE> 57
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted or except as
necessary to comply with any laws or governmental regulation.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on August 1, 2001. No rights may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom such rights were granted or
except as necessary to comply with any laws or governmental regulation.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
rights granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company.
9.
<PAGE> 58
CYTEL CORPORATION
1989 STOCK PLAN
As Amended and Restated October 11, 1991
and Amended December 4, 1992,
March 19, 1993, March 18, 1994, March 15, 1996,
September 20, 1996 and March 13, 1998
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which selected
employees and directors of and advisors and consultants to Cytel Corporation, a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), may be given an opportunity to benefit from increases in
value of the stock of the Company through the granting of (i) incentive stock
options, (ii) nonstatutory stock options, (iii) stock bonuses, and (iv) rights
to purchase stock, all as defined below.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now employed by or serving as advisors, consultants or directors to the
Company and its Affiliates, to secure and retain the services of new
employees/persons capable of filling such positions, and to provide incentives
for such persons to exert maximum efforts for the success of the Company.
(d) The Company intends that the rights issued under the Plan ("Stock
Awards") shall, in the discretion of the Board of Directors of the Company (the
"Board") or any committee to which responsibility for administration of the Plan
has been delegated pursuant to subparagraph 2(c), be either (i) stock options
granted pursuant to paragraph 5 hereof, including incentive stock options as
that term is used in Section 422 of the Code ("Incentive Stock Options"), or
options which do not qualify as Incentive Stock Options ("Nonstatutory Stock
Options") (together hereinafter referred to as "Options"), or (ii) stock bonuses
or rights to purchase restricted stock granted pursuant to paragraph 6 hereof.
All Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and in such form as issued
pursuant to paragraph 5, and a separate certificate or certificates shall be
issued for shares purchased on exercise of each type of Option. An Option
designated as a Nonstatutory Stock Option shall not be treated as an Incentive
Stock Option.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a committee, as provided in subparagraph 2(c).
1.
<PAGE> 59
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how Stock Awards shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory
Stock Option, a stock bonus, a right to purchase restricted stock, or a
combination of the foregoing; the provisions of each Stock Award granted (which
need not be identical), including the time or times when a person shall be
permitted to purchase or receive stock pursuant to a Stock Award; and the number
of shares with respect to which Stock Awards shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award, in a manner
and to the extent it shall deem necessary or expedient to make the Plan fully
effective.
(iii) To amend the Plan as provided in paragraph 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee shall be non-employee directors and may also be,
in the discretion of the Board, outside directors. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee of two (2) or more Outside
Directors any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or such a subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(d) The term "non-employee director," as used in this Plan, shall mean a
director who either (A) is not a current employee or officer (as defined for
purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of the Company or its parent or subsidiary, does not receive
compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K ("Regulation S-K") promulgated pursuant to
the Securities Act of 1933 (the "Securities Act")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K, and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (B)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
2.
<PAGE> 60
(i) The term "outside director," as used in this Plan shall mean a
director who either (A) is not a current employee of the Company or an
"affiliated corporation" (within the meaning of the Treasury regulations
promulgated under Section 162(m) of the Code), is not a former employee of the
Company or an "affiliated corporation" receiving compensation for prior services
(other than benefits under a tax qualified pension plan), was not an officer of
the Company or an "affiliated corporation" at any time, and is not currently
receiving direct or indirect remuneration from the Company or an "affiliated
corporation" for services in any capacity other than as a director, or (B) is
otherwise considered an "outside director" for purposes of Section 162(m) of the
Code.
(e) Any requirement that an administrator of the Plan be a "non-employee
director" shall not apply if the Board or the Committee expressly declares that
such requirement shall not apply.
(f) Notwithstanding anything in this Section 2 to the contrary, the
Board or Committee may delegate to a committee of one or more members of the
Board the authority to grant options to persons not subject to the requirements
of Section 16 of the Exchange Act.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 11 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
granted under the Plan shall not exceed in the aggregate seven million seven
hundred fifty thousand (7,750,000) shares of the Company's common stock less the
number of shares of the Company's common stock which has been sold under, or may
be sold pursuant to outstanding options granted under, the Company's 1994
Non-Employee Directors' Stock Option Plan. If any Stock Award granted under the
Plan shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such Stock Award shall again
become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
(c) An Incentive Stock Option may be granted to an eligible person under
the Plan only if the aggregate fair market value (determined at the time the
Option is granted) of the stock with respect to which incentive stock options
(as defined in the Code) granted after 1986 are exercisable for the first time
by such optionee during any calendar year under all incentive stock option plans
of the Company and its Affiliates does not exceed one hundred thousand dollars
($100,000). If it is determined that an entire Option or any portion thereof
does not qualify for treatment as an Incentive Stock Option by reason of
exceeding such maximum, such Option or the applicable portion shall be
considered a Nonstatutory Stock Option.
4. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to employees (including
officers) of the Company or its Affiliates. A director of the Company shall not
be eligible to receive Incentive Stock Options unless such director is also an
employee (including an officer) of
3.
<PAGE> 61
the Company or any Affiliate. Stock Awards other than Incentive Stock Options
may be granted only to employees (including officers) or directors of or
advisors or consultants to the Company or its Affiliates.
(b) No person shall be eligible for the grant of an Incentive Stock
Option under the Plan if, at the time of grant, such person owns (or is deemed
to own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates unless the exercise price of such Option is
at least one hundred ten percent (110%) of the fair market value of such stock
at the date of grant and the term of such Option does not exceed five (5) years
from the date of grant.
(c) In any calendar year, no person shall be eligible to be granted
Incentive Stock and Nonstatutory Stock Options under the Plan covering an
aggregate number of shares of the Company's common stock greater than three
hundred thousand (300,000) shares.
5. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. The provisions
of separate Options need not be identical, but each Option shall include
(through incorporation of provisions hereof by reference in the Option or
otherwise) the substance of each of the following provisions:
(a) No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) The exercise price of each Incentive Stock Option shall be not less
than one hundred percent (100%) of the fair market value of the stock subject to
the Option on the date the Option is granted. The exercise price of each
Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of
the fair market value of the stock subject to the Option on the date the Option
is granted.
(c) The purchase price of stock acquired pursuant to an Option shall be
paid, to the extent permitted by applicable statutes and regulations, either (i)
in cash at the time the Option is exercised, or (ii) at the discretion of the
Board or the Committee, either at the time of the grant or exercise of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subparagraph 5(d), or (C) in any other form of legal
consideration that may be acceptable to the Board or the Committee.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
4.
<PAGE> 62
(d) An Incentive Stock Option shall not be transferable except by will
or by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person. A
Nonstatutory Stock Option shall only be transferable by the Optionee upon such
terms and conditions as are set forth in the Option Agreement for such
Nonstatutory Stock Option, as the Board or the Committee shall determine in its
discretion.
(e) The total number of shares of stock subject to an Option may, but
need not, be allotted in periodic installments (which may, but need not, be
equal). From time to time during each of such installment periods, the Option
may become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or all of the
shares allotted to such period and/or any prior period as to which the Option
was not fully exercised. During the remainder of the term of the Option (if its
term extends beyond the end of the installment periods), the Option may be
exercised from time to time with respect to any shares then remaining subject to
the Option. The provisions of this subparagraph 5(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) The Company may require any optionee, or any person to whom an
Option is transferred under subparagraph 5(d), as a condition of exercising any
such Option, (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters, and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Option for such person's own account and not
with any present intention of selling or otherwise distributing the stock. These
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (A) the issuance of the shares upon the exercise of the Option
has been registered under a then currently effective registration statement
under the Securities Act or (B) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws.
(g) An Option shall terminate three (3) months after termination of the
optionee's employment or relationship as a advisor, consultant or director with
the Company or an Affiliate, unless (i) such termination is due to such person's
permanent and total disability, within the meaning of Section 422(c)(6) of the
Code, in which case the Option may, but need not, provide that it may be
exercised at any time within six (6) months following such termination of
employment or relationship as an advisor, consultant or director; or (ii) the
optionee dies while in the employ of or while serving as an advisor, consultant
or director to the Company or an Affiliate, or within not more than three (3)
months after termination of such relationship, in which case the Option may, but
need not, provide that it may be exercised at any time within six (6) months
following the death of the optionee by the person or persons to whom the
optionee's rights under such Option pass by will or by the laws of descent and
distribution; or (iii) the Option by its terms specifies either (A) that it
shall terminate sooner than three (3) months after termination of the optionee's
employment or relationship as an advisor, consultant or director or (B) that it
may be exercised more than three (3) months after termination of the
relationship
5.
<PAGE> 63
with the Company or an Affiliate. This subparagraph 5(g) shall not be construed
to extend the term of any Option or to permit anyone to exercise the Option
after expiration of its term, nor shall it be construed to increase the number
of shares as to which any Option is exercisable from the amount exercisable on
the date of termination of the optionee's employment or relationship as an
advisor, consultant or director.
(h) The Option may, but need not, include a provision whereby the
optionee may elect at any time during the term of his or her employment or
relationship as an advisor, consultant or director with the Company or any
Affiliate to exercise the Option as to any part or all of the shares subject to
the Option prior to the stated vesting date of the Option or of any installment
or installments specified in the Option. Any shares so purchased from any
unvested installment or Option may be subject to a repurchase right in favor of
the Company or to any other restriction the Board or the Committee determines to
be appropriate.
(i) To the extent provided by the terms of an Option, the optionee may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such Option by any of the following means or by a combination of
such means: (i) tendering a cash payment; (ii) authorizing the Company to
withhold from the shares of the common stock otherwise issuable to the
participant as a result of the exercise of the Option a number of shares having
a fair market value less than or equal to the amount of the withholding tax
obligation; or (iii) delivering to the Company owned and unencumbered shares of
the common stock having a fair market value less than or equal to the amount of
the withholding tax obligation.
6. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) The purchase price under each stock purchase agreement shall be such
amount as the Board or Committee shall determine and designate in such
agreement. Notwithstanding the foregoing, the Board or the Committee may
determine that eligible participants in the Plan may be awarded stock pursuant
to a stock bonus agreement in consideration for past services actually rendered
to the Company or for its benefit.
(b) No rights under a stock bonus or restricted stock purchase agreement
shall be assignable by any participant under the Plan, either voluntarily or by
operation of law, except where such assignment is required by law or expressly
authorized by the terms of the applicable stock bonus or restricted stock
purchase agreement.
(c) The purchase price of stock acquired pursuant to a stock purchase
agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the
discretion of the Board or the Committee, according to a deferred payment or
other arrangement with the person
6.
<PAGE> 64
to whom the stock is sold; or (iii) in any other form of legal consideration
that may be acceptable to the Board or the Committee in their discretion.
Notwithstanding the foregoing, the Board or the Committee to which
administration of the Plan has been delegated may award stock pursuant to a
stock bonus agreement in consideration for past services actually rendered to
the Company or for its benefit.
(d) Shares of stock sold or awarded under the Plan may, but need not, be
subject to a repurchase option in favor of the Company in accordance with a
vesting schedule to be determined by the Board or the Committee.
(e) In the event a person ceases to be an employee of or ceases to serve
as an advisor, consultant or director to the Company or an Affiliate, the
Company may repurchase or otherwise reacquire any or all of the shares of stock
held by that person which have not vested as of the date of termination under
the terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock under the Stock Awards granted under the Plan;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Stock Award granted under
the Plan or any stock issued or issuable pursuant to any such Stock Award. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards granted under
the Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) The Board or the Committee shall have the power to accelerate the
time during which a Stock Award may be exercised or the time during which a
Stock Award or any part thereof will vest, notwithstanding the provisions in the
Stock Award stating the time during which it may be exercised or the time during
which it will vest.
(b) Neither an optionee nor any person to whom an Option is transferred
under subparagraph 5(d) shall be deemed to be the holder of, or to have any of
the rights of a holder
7.
<PAGE> 65
with respect to, any shares subject to such Option unless and until such person
has satisfied all requirements for exercise of the Option pursuant to its terms.
(c) Throughout the term of any Option granted pursuant to the Plan, the
Company shall make available to the holder of such Option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the Option term, upon request, such financial and other information
regarding the Company as comprises the annual report to the stockholders of the
Company provided for in the bylaws of the Company.
(d) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any eligible employee, advisor,
consultant, director or holder of Stock Awards under the Plan any right to
continue in the employ of the Company or any Affiliate (or to continue acting as
an advisor, consultant or director) or shall affect the right of the Company or
any Affiliate to terminate the employment or consulting relationship or
directorship of any eligible employee, advisor, consultant, director or holder
of Stock Awards under the Plan with or without cause. In the event that a holder
of Stock Awards is permitted or otherwise entitled to take a leave of absence,
the Company shall have the unilateral right to (i) determine whether such leave
of absence will be treated as a termination of employment or relationship as
advisor, consultant or director for purposes of paragraphs 5(g) or 6(e) hereof
and corresponding provisions of any outstanding Stock Awards, and (ii) suspend
or otherwise delay the time or times at which exercisability or vesting would
otherwise occur with respect to any outstanding Stock Awards under the Plan.
10. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, (i)
the repricing of any or all outstanding Options under the Plan and/or (ii) the
cancellation of any or all outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of common stock, but having an exercise price per
share not less than eighty-five percent (85%) of the fair market value (one
hundred percent (100%) of the fair market value in the case of an Incentive
Stock Option or, in the case of a 10% stockholder (as defined in subparagraph
4(c)), not less than one hundred and ten percent (110%) of the fair market value
per share of common stock on the new grant date.
(b) Shares subject to an option canceled under this Section 10 shall
continue to be counted against the maximum award of options permitted to be
granted to any person pursuant to subsection 4(c) of the Plan. The repricing of
an option under this Section 10, resulting in a reduction of the exercise price,
shall be deemed to be a cancellation of the original option and the grant of a
substitute option; in the event of such repricing, both the original and the
substituted options shall be counted against the maximum awards of options
permitted to be granted to any person pursuant to subsection 4(c) of the Plan.
The provisions of this subsection 10(b) shall be applicable only to the extent
required by Section 162(m) of the Code.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
8.
<PAGE> 66
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award granted under the 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 Plan and outstanding
Stock Awards will be appropriately adjusted in the class(es) and maximum number
of shares subject to the Plan and the class(es) and number of shares and price
per share of stock subject to outstanding Stock Awards.
(b) In the event of: (i) a dissolution or liquidation of the Company;
(ii) a merger or consolidation in which the Company is not the surviving
corporation; or (iii) 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 are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise then at the discretion of
the Board or Committee, and to the extent permitted by applicable law: (A) any
surviving corporation shall assume any Stock Awards outstanding under the Plan
or shall substitute similar Stock Awards for those outstanding under the Plan,
(B) such Stock Awards shall continue in full force and effect, or (C) respect to
Stock Awards held by persons then performing services as employees of or as
advisors, consultants or directors for the Company and its Affiliates, as the
case may be, the Company may either (1) arrange to pay a cash settlement for
such Stock Awards equal to the difference between the amount to be paid for an
equivalent amount of stock pursuant to such corporate transaction and the
exercise price under such Stock Award, or (2) accelerate the time during which
such Stock Awards become vested or may be exercised and terminate the Stock
Awards not exercised prior to such event.
12. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards under
the Plan;
(ii) Modify the requirements as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to satisfy the requirements of Section 422(b) of the Code or to
comply with the requirements of Rule 16b-3 promulgated under the Exchange Act;
or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422(b) of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated
9.
<PAGE> 67
thereunder regarding the exclusion of performance-based compensation from the
limit on corporate deductibility of compensation paid to certain executive
officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on December 31, 2000. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the Stock Award was
granted.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercisable unless and until the Plan has
been approved by the stockholders of the Company, and, if required, an
appropriate permit has been issued by the Commissioner of Corporations of the
State of California.
10.
<PAGE> 68
CYTEL CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 1998
The undersigned hereby appoints VIRGIL THOMPSON and ROBERT L. ROE, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Cytel Corporation which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
Cytel Corporation to be held at 3525 John Hopkins Court, San Diego, California,
on Friday, June 12, 1998 at 1:30 p.m. (local time), and at any and all
postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4, 5 AND 6 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEE FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect nine directors to hold office until the 1999
Annual Meeting of Stockholders.
[ ] FOR the nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for the nominees
below). listed below.
NOMINEES: Howard E. Greene, Jr., Virgil Thompson, Robert L. Roe, M.D., James
C. Paulson, Ph.D., David L. Anderson, William T. Comer, Ph.D.,
Nicole Vitullo, David L. Mahoney and Nancy D. Rasmussen
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Continued and to be signed on other side)
<PAGE> 69
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3, 4 AND 5.
PROPOSAL 2: To approve the amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the Company's authorized
shares of Common Stock from 50,000,000 shares to 75,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3: To approve an option exchange program.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 4: To approve an amendment of the Company's Employee Stock Purchase
Plan to provide that the aggregate number of shares of Common Stock
authorized for issuance will be increased from 500,000 shares to
750,000 shares (an increase of 250,000 shares from 500,000 shares
previously authorized under the Employee Stock Purchase Plan).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 5: To approve amendments to the Company's 1989 Stock Option Plan
(the "1989 Plan") and the Company's 1994 Non-Employee Directors'
Stock Option Plan (the "Non-Employee Directors' Plan") to provide
that the aggregate number of shares of Common Stock authorized for
issuance on a combined basis under both the 1989 Plan and the
Non-Employee Directors' Plan will be 7,750,000 shares (an increase
of 1,350,000 shares from 6,400,000 shares previously authorized
under the 1989 Plan and the Non-Employee Directors Plan).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 6: To ratify selection of ERNST & YOUNG LLP as independent auditors
of the Company for its fiscal year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED _________________ ________________________________________
________________________________________
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in
the names of two or more persons, each
should sign. Executors, administrators,
trustees, guardians and
attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and have
a duly authorized officer sign, stating
title. If signer is a partnership,
please sign in partnership name by
authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
