<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Epimmune Inc.
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[X] No fee required.
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<PAGE> 2
EPIMMUNE INC.
5820 NANCY RIDGE DRIVE
SAN DIEGO, CA 92121
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 8, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Epimmune
Inc., a Delaware corporation (the "Company"), will be held on Wednesday,
September 8, 1999 at 2:00 p.m. at 5820 Nancy Ridge Drive, San Diego, California,
for the following purposes:
1. To elect six 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 decrease the Company's authorized shares
of Common Stock from 75,000,000 shares to 25,000,000 shares.
3. To ratify the selection of Ernst & Young LLP, as independent auditors of
the Company for the year ending December 31, 1999.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on July 26, 1999 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
Deborah A. Schueren
President, Chief Executive Officer and
Chief Financial Officer
San Diego, California
July 30, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
EPIMMUNE INC.
5820 NANCY RIDGE DRIVE
SAN DIEGO, CA 92121
------------------------
PROXY STATEMENT
GENERAL INFORMATION
The enclosed proxy is solicited by the Board of Directors of Epimmune Inc.,
a Delaware corporation (the "Company" or "Epimmune"), for use at the Annual
Meeting of Stockholders to be held on Wednesday, September 8, 1999 at 2:00 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, 5820 Nancy Ridge
Drive, San Diego, California, 92121. The Company intends to mail this proxy
statement and accompanying proxy card on or about July 30, 1999 to all
stockholders entitled to vote at the Annual Meeting.
MERGER OF CYTEL AND EPIMMUNE
Prior to July 1, 1999, the Company was known as Cytel Corporation. On July
1, 1999, in a series of related transactions, the Company acquired 100%
ownership of, and merged with, its subsidiary, Epimmune Inc. (the "Subsidiary"),
with the Company remaining as the surviving entity (the "Merger"). See "Certain
Transactions." In connection with the Merger, the Company changed its name from
Cytel Corporation to Epimmune Inc.
INFORMATION CONCERNING SOLICITATION AND VOTING
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, Series S Convertible
Preferred Stock (the "Series S Preferred Stock") and Series S-1 Convertible
Preferred Stock (the "Series S-1 Preferred Stock") at the close of business on
July 26, 1999 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on July 26, 1999, the Company had outstanding and
entitled to vote [6,026,655] shares of Common Stock. Each holder of record of
Common Stock on such date will be entitled to one vote for each share held on
all matters to be voted upon at the Annual Meeting. At the close of business on
July 26, 1999, the Company had outstanding 859,666 shares of Series S Preferred
Stock and 549,622 shares of Series S-1 Preferred Stock held by G.D. Searle & Co.
("Searle"). Searle will be entitled to one vote for each share of Series S
Preferred Stock and Series S-1 Preferred Stock held on all matters to be voted
upon at the Annual Meeting, provided that Searle will not be entitled to vote
such shares to the extent that the total number of shares of voting capital
stock held by Searle and its affiliates would exceed 19.9%.
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
1
<PAGE> 4
the tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Except for Proposal 2, broker non-votes
are counted towards a quorum but are not counted for any purpose in determining
whether a matter has been approved. With respect to Proposal 2, abstentions and
broker non-votes will have the same effect as negative votes.
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, 5820 Nancy
Ridge Drive, 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.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 2000 Annual Meeting of Stockholders must be received by the Company no
later than December 30, 1999 in order to be included in the proxy statement and
proxy relating to that Annual Meeting. Stockholders are also advised to review
the Company's Bylaws which contain additional requirements with respect to
advance notice of stockholder proposals.
2
<PAGE> 5
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 six nominees for the six Board positions presently authorized in the
Company's Bylaws. With the exception of Deborah A. Schueren and Michael G. Grey,
each nominee listed below is currently a director of the Company having been
elected by the stockholders. Ms. Schueren was appointed to the Board of
Directors of the Company in connection with the Merger.
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...................... 56 Director and founder of Amylin Pharmaceuticals, Inc.
and Chairman of the Board of Directors
William T. Comer, Ph.D.................... 63 President and Chief Executive Officer of SIBIA
Neurosciences, Inc./Director
Nicole Vitullo............................ 42 Managing Director of Domain Associates
L.L.C./Director
Nancy D. Rasmussen........................ 41 Vice President, U.S. Marketing, G.D. Searle & Co./
Director
Deborah A. Schueren....................... 35 President, Chief Executive Officer and Chief
Financial Officer/Director
Michael G. Grey........................... 46 President and Chief Executive Officer, Trega
Biosciences, Inc./ 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 is a director and
founder of Amylin Pharmaceuticals, Inc. ("Amylin"), 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 Amylin, Biosite Diagnostics
Incorporated and International Biotechnology Trust plc.
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. 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 Managing Director of Domain Associates, L.L.C. ("Domain"), a
venture capital management company focused on life
3
<PAGE> 6
sciences, since April 1999. Prior to joining Domain, Ms. Vitullo was with
Rothschild Asset Management Ltd. from November 1992 to April 1999, most recently
serving as Senior Vice President, advising and managing two publicly traded
biotechnology funds: Biotechnology Investments Limited and International
Biotechnology Trust plc. Ms. Vitullo is also a member of the Board of Directors
of Anergen, Cadus Pharmaceuticals, Corvas International and Onyx
Pharmaceuticals.
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, U.S. Marketing. Ms. Rasmussen's 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.
Ms. Schueren has served as President, Chief Executive Officer and Chief
Financial Officer and a director of the Company since July 1999. From October
1997 to July 1999, she served as Vice President of the Company and President of
Epimmune Inc., which was then a subsidiary of the Company. She also served as
Vice President, Finance and Chief Financial Officer of the Company from March
1997 to October 1997 and as Director, Business Development of the Company from
1994 to March 1997.
Mr. Grey has served as a director of the Company since July 1999. He has
been President and Chief Executive Officer of Trega Biosciences, Inc. ("Trega"),
a biotechnology company, since January 1999. Prior to joining Trega, Mr. Grey
served as President of BioChem Therapeutics, Inc., a pharmaceutical division of
BioChem Pharma, Inc., from November 1994 to August 1998. Previously, Mr. Grey
served as President and Chief Operating Officer of Ansan, Inc., a
biopharmaceutical Company, during 1994. From 1974 to 1993, Mr. Grey served in
various roles with Glaxo, Inc. and Glaxo Holdings, p.l.c., culminating in his
position as Vice President, Corporate Development. Mr. Grey serves on the Board
of Directors of Cortex Pharmaceuticals, Inc.
COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998, 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.
During 1998, the Audit Committee was comprised of Mr. Greene and Dr. Comer,
neither of whom is an employee of the Company. During 1998, 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. In connection with
the Merger, the Audit Committee was reconstituted to include Mr. Greene and Ms.
Rasmussen, neither of whom is an employee of the Company.
During 1998, the Compensation Committee was comprised of Mr. Greene and
David L. Anderson and David L. Mahoney, former directors of the Company, none of
whom is an employee of the Company. This Committee, which held two meetings
during 1998, 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. In connection with the Merger, the
Compensation Committee was reconstituted to include Mr. Greene, Dr. Comer and
Ms. Vitullo, none of whom is an employee of the Company.
During 1998, the members of the Executive Committee was comprised of Mr.
Greene and David L. Anderson and Virgil Thompson, former directors of the
Company. The Executive Committee did not hold any meetings during 1998. This
Committee was established to act when the full Board of Directors is
unavailable.
4
<PAGE> 7
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, 1998, each director attended at
least 75% of the meetings of the Board of Directors and the committees on which
he or she served during such period.
5
<PAGE> 8
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 decrease the authorized number of
shares of Common Stock from 75,000,000 shares to 25,000,000 shares (the
"Amendment").
On November 12, 1998, the Company filed an amendment to the Amended and
Restated Articles of Incorporation to effect a one-for-seven reverse stock split
of the Company's Common Stock (the "Reverse Split"). As a result of the Reverse
Split, the number of outstanding shares of Common Stock was substantially
reduced. As of July 26, 1999, there were [6,026,655] shares of Common Stock,
859,666 shares of Series S Preferred Stock and 549,622 shares of Series S-1
Preferred Stock outstanding. In addition, the Board has reserved 832,769 shares
of Common Stock for issuance upon exercise of options and rights granted under
the Company's stock option plans. The Company has also reserved approximately
264,000 shares for issuance pursuant to certain outstanding warrants.
In light of the Reverse Split and in order to reduce franchise taxes
payable by the Company, the Board has determined that it is in the best
interests of the Company and its stockholders to reduce the number of shares of
Common Stock which the Company is authorized to issue. Adoption of the Amendment
would not affect the rights of the holders of currently outstanding Common Stock
or Preferred Stock of the Company. 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 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.
6
<PAGE> 9
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999, 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 Bylaws 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, 1999. Even if the selection is ratified, the Board in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if the Board determines such a change would be in
the best interest of the Company and its stockholders.
The affirmative vote of a majority of the shares present in person or
represented by proxy and entitled to vote on the proposal at the meeting will be
required to ratify the selection of Ernst & Young LLP.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND
A VOTE IN FAVOR OF PROPOSAL 3.
7
<PAGE> 10
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of Common Stock of the Company as of July 1, 1999 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 SHARES
---------------- --------- ----------
<S> <C> <C>
G.D. Searle & Co.(2)........................................ 1,726,748 28.65%
5200 Old Orchard Road
Skokie, IL 60077
State of Wisconsin Investment Board......................... 346,290 5.75%
121 East Wilson Street
Madison, WI 53702
Deborah A. Schueren(4)(5)................................... 339,465 5.62%
Robert W. Chesnut(4)(5)..................................... 331,614 5.49%
Alessandro Sette(4)(5)...................................... 324,092 5.37%
Novartis Holding AG......................................... 309,529 5.14%
Lichstrasse 35, Basel Switzerland
Howard E. Greene, Jr.(3)(5)................................. 114,011 1.89%
William T. Comer(5)......................................... 7,520 *
Nicole Vitullo(5)........................................... 794 *
Nancy D. Rasmussen(5)....................................... 0 *
OFFICERS NO LONGER AFFILIATED WITH THE COMPANY
Virgil Thompson(5)(6)....................................... 191,753 3.15%
Robert L. Roe(5)(6)......................................... 167,362 2.78%
James C. Paulson(5)......................................... 54,987 *
Jennifer Lorenzen(5)........................................ 0 *
Edward C. Hall(5)........................................... 0 *
All executive officers and directors as a group (12
persons)(7)............................................... 1,531,598 24.68%
</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 6,026,655 shares of Common Stock
outstanding on July 1, 1999.
(2) Includes 859,666 shares of Series S Preferred Stock and 549,622 shares of
Series S-1 Preferred Stock held by Searle, provided that Searle is not
entitled to vote such shares to the extent that the total number of shares
of voting capital stock held by Searle and its affiliates would exceed
19.9%. Searle owns 100% of the outstanding shares of the Series S Preferred
Stock and Series S-1 Preferred Stock. The Series S Preferred Stock and
Series S-1 Preferred Stock are convertible into Common Stock at any time. In
addition, Searle has the option to deliver shares of the Series S-1
Preferred Stock in lieu of up to 50% of certain milestone payments to
Epimmune. See "Certain Transactions."
(3) Includes 109,745 shares held in trust for the benefit of Mr. Greene's family
and 2,285 shares held in trust for the benefit of Mr. Greene's children. Mr.
Greene is a trustee of both trusts. Mr. Greene acting as trustee has voting
and investment power with respect to such shares and may be deemed to be the
beneficial owner of such shares. In addition, Mr. Greene is a director of
International Biotechnology Trust plc and disclaims beneficial ownership of
shares held by such entity.
8
<PAGE> 11
(4) Of the shares held by each of Ms. Schueren, President, Chief Executive
Officer, Chief Financial Officer and director, Dr. Chesnut, Executive Vice
President Research and Development, and Dr. Sette, Vice President and Chief
Scientific Officer, 180,372 shares were subject to a right of repurchase in
favor of the Company as of July 1, 1999.
(5) Includes shares which certain executive officers and directors of the
Company have the right to acquire within 60 days after the date of this
table pursuant to outstanding options, as follows:
Virgil Thompson, 56,408 shares;
Robert L. Roe, 44,363 shares;
James C. Paulson, 35,628 shares;
Deborah A. Schueren, 18,526 shares;
Robert W. Chesnut, 10,952 shares;
William T. Comer, 6,606 shares;
Alessandro Sette, 3,430 shares;
Howard E. Greene, 1,981 shares;
Nicole Vitullo, 794 shares; and
All executive officers and directors as a group, 178,688 shares.
(6) Includes 117,600 warrants issued to Mr. Thompson and Dr. Roe in connection
with their resignation from the Company. See "-- Employment Agreements."
(7) Includes shares described in notes (3) through (5) above.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees of the Company are paid
$2,000 per meeting 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 compensation account pursuant to which the deferred
fees are credited in the form of share units having a value equal to shares of
the Company's Common Stock ("Share Units"), based on the market price of the
stock at the time the deferred fees are earned. The Company will continue to
credit Share Units to the participants' deferred compensation 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 was not an employee of the Company and had served on the Board for
at least three months, has been granted an option to acquire 714 shares of the
Company's Common Stock. In addition, each new Non-Employee Director has been
granted an option to acquire 3,571 shares of the Company's Common Stock upon
initial election to the Board of Directors. The exercise price of all such stock
options granted was equivalent to the fair market value on the date of each
grant. The Board has terminated the Non-Employee Director's Plan and no further
options will be granted under such plan. Directors are eligible to receive
option grants under the Company's 1989 Stock Plan (the "1989 Plan").
9
<PAGE> 12
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1998,
1997 and 1996, compensation awarded or paid to, or earned by the Company's Chief
Executive Officer, its other four most highly compensated executive officers at
December 31, 1998 and one former executive officer 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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#)(1) ($)(2)
--------------------------- ---- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Ms. Deborah A. Schueren............... 1998 185,000 30,000 26,391 360
President, Chief Executive Officer 1997 133,572 0 17,142(4) 295
and Chief Financial Officer(3)
EXECUTIVE OFFICERS NO LONGER
AFFILIATED WITH THE COMPANY
Mr. Virgil Thompson(5)................ 1998 325,900 0 114,463 5,644
Former President and 1997 315,000 0 28,571 5,426
Chief Executive Officer 1996 300,000 78,580(6) 71,428 4,950
Dr. Robert L. Roe(7).................. 1998 294,862 0 95,399 5,082
Former Executive Vice President, 1997 286,000 0 25,714 4,874
Chief Operating Officer, and
Secretary 1996 205,354 23,000(8) 57,142 3,525
Jennifer Lorenzen(9).................. 1998 185,000 0 13,678 1,160
Former Vice President, 1997 134,055 0 12,857 691
Business Development
Dr. James C. Paulson(10).............. 1998 266,500 0 63,339 2,898
Former Vice President and 1997 257,578 0 0 1,674
General Manager, Glytec(TM) 1996 216,324 28,988 11,428 1,333
Mr. Edward C. Hall(11)................ 1998 115,696 0 14,285 1,594
Former Vice President, Finance,
Chief Financial Officer and
Secretary
</TABLE>
- ---------------
(1) Options granted pursuant to the option exchange program approved by the
stockholders on June 11, 1998 and implemented on June 15, 1998 (the
"Exchange Program"). For more information see "Report of Compensation
Committee -- Report on Repricing of Options." All option numbers and prices
in this table reflect the Company's 1:7 reverse stock split which occurred
on November 13, 1998.
(2) Consists of life insurance premiums paid by the Company.
(3) Ms. Schueren was appointed Vice President, Finance and Chief Financial
Officer of the Company in March 1997. Ms Schueren resigned as Vice
President, Finance and Chief Financial Officer effective October 1997. Ms.
Schueren was Vice President of Cytel Corporation and President of the
Subsidiary from October 1997 through to the Merger.
(4) Does not include certain options to purchase shares of Epimmune Common
Stock granted to Ms. Schueren. See "-- Employment Agreements."
(5) Mr. Thompson resigned from the Company effective April 30, 1999.
(6) Represents relocation payments made by the Company to Mr. Thompson.
(7) Dr. Roe resigned from the Company effective July 1, 1999.
(8) Represents reimbursement of Dr. Roe's relocation expenses which were paid
by the Company to Dr. Roe's previous employer.
10
<PAGE> 13
(9) 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 Cytel. Ms. Lorenzen resigned from
the Company effective March 31, 1999.
(10) Dr. Paulson resigned from the Company effective February 15, 1999.
(11) Mr. Hall resigned from the Company effective November 20, 1998.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1989 Plan.
As of July 1, 1999, options to purchase a total of 301,731 shares had been
granted and were outstanding under the 1989 Plan, and options to purchase
529,508 shares remained available for grant thereunder. Material terms of
options granted under the 1989 Plan are described generally in footnotes 2 and 5
below.
The following tables show for the fiscal year ended December 31, 1998,
certain information regarding options granted to, exercised by, and held at year
end by the Named Executive Officers:
OPTIONS GRANTED IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
% TOTAL ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(4)
OPTIONS IN FISCAL BASE PRICE EXPIRATION -------------------------
NAME GRANTED(2) YEAR(3) ($/SH) DATE 5%($) 10%($)
---- ----------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ms. Deborah A. Schueren(5).... 26,391(7) 6.0% 10.71880 6/15/08 177,901.62 450,837.63
Mr. Virgil Thompson(6)........ 28,571 6.5% 11.15630 2/2/08 200,458.05 508,000.07
85,892(7) 19.6% 10.71880 6/15/08 578,997.61 1,467,293.61
Dr. Robert L. Roe(6).......... 25,714 5.9% 11.15630 2/2/08 180,412.95 457,201.84
69,685(7) 15.9% 10.71880 6/15/08 469,746.28 1,190,429.32
Ms. Jennifer Lorenzen......... 6,536(7) 1.5% 10.71880 6/15/08 44,059.15 111,654.53
7,142 1.6% 11.15630 2/2/08 50,109.25 126,986.68
Dr. James C. Paulson.......... 11,428 2.6% 11.15630 2/2/08 80,180.42 203,192.91
51,911(7) 11.9% 10.71880 6/15/08 349,931.83 886,795.96
Mr. Edward C. Hall(8)......... 14,285(7) 3.3% 11.15630 2/2/08 100,225.52 253,991.14
</TABLE>
- ---------------
(1) All numbers and prices in this table reflect the Company's 1:7 reverse stock
split which occurred on November 13, 1998.
(2) Options granted under the 1989 Plan 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 under the 1989 Plan 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.
(3) Based on 437,671 options granted in 1998 under the 1989 Plan, including
grants to executive officers. This figure includes 303,145 options granted
to employees and executive officers in connection with the Exchange Program
approved by the stockholders on June 11, 1998 and implemented on June 15,
1998. For more information about the Exchange Program, see "Report of
Compensation Committee -- Report on Repricing of Options."
(4) 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
11
<PAGE> 14
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.
(5) Does not include any options granted to Ms. Schueren by the Subsidiary
during 1998.
(6) In connection with their resignation from the Company, the Company's
severance agreements with Mr. Thompson and Dr. Roe were amended, among other
things, to provide for six months accelerated vesting of their outstanding
options and to provide that their vested options would remain exercisable
for four years from the date of Severance. See "Employment Agreements."
(7) Options granted pursuant to the Exchange Program approved by the
stockholders on June 11, 1998 and implemented on June 15, 1998. These
options vest over a six year period according to a schedule developed by the
State of Wisconsin Investment Board, a major stockholder of the Company (the
"Wisconsin Board"). For more information, see "Report of Compensation
Committee -- Report on Repricing of Options."
(8) Mr. Hall's options were terminated in connection with his resignation from
the Company on November 20, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT FY-END(#) AT FY-END($)(1)
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE
---- -------------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Ms. Deborah A. Schueren(2)... -- -- 9,621/16,770 --/--
Mr. Virgil Thompson(3)....... -- -- 16,425/98,038 --/--
Dr. Robert L. Roe(3)......... -- -- 11,840/83,559 --/--
Ms. Jennifer Lorenzen........ -- -- 7,331/19,204 --/--
Dr. James C. Paulson......... -- -- 25,840/39,885 --/--
Mr. Edward C. Hall........... -- -- --/-- --/--
</TABLE>
- ---------------
(1) Fair market value of the Company's Common Stock at December 31, 1998 ($2.25
per share) minus the exercise price of the options. As of December 31, 1998,
all unexercised options held by the named executive officers were
out-of-the-money.
(2) Does not include shares of Common Stock of the Subsidiary acquired during
1998 upon exercise of outstanding options, which shares were exchanged for
shares of the Company's Common Stock in connection with the Merger. See
"Certain Transactions."
(3) In connection with their resignation from the Company, the Company's
severance agreements with Mr. Thompson and Dr. Roe were amended, among other
things, to provide for six months accelerated vesting of their outstanding
options and to provide that their vested options would remain exercisable
for four years from the date of Severance. See "Employment Agreements."
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. Dr. Paulson resigned from the Company effective
February 15, 1999.
12
<PAGE> 15
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. Mr. Thompson resigned from the Company on April
30, 1999.
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. Dr. Roe resigned from the Company on July 1, 1999.
In October 1997, the Company 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 the Subsidiary's
Common Stock at the fair market value as determined by the board of directors of
the Subsidiary. 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. In March 1999, Ms.
Schueren exercised such option for shares of the Subsidiary's Common Stock,
subject to a repurchase option in favor of the Subsidiary with respect to
unvested shares, and such shares were exchanged for shares of the Company's
Common Stock in connection with the Merger. See "Certain Transactions." The
agreement may be terminated by either the Company or Ms. Schueren.
In February 1998, the Company entered into severance benefits agreements
covering the following officers of the Company: Mr. Thompson, Dr. Roe, Dr.
Paulson and Ms. Lorenzen. In February 1998, the Subsidiary entered into
severance benefits agreements with Dr. Chestnut and Dr. Sette, which agreements
were assumed by the Company in the Merger. Such officers are referred to
collectively as the "Officers" and individually as 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 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.
In December 1998, the Company and Dr. Paulson entered into a agreement
regarding Dr. Paulson's severance arrangement. The Company agreed to extend the
vesting of Dr. Paulson's options for one year, and agreed that Dr. Paulson would
be entitled to accelerated vesting of his outstanding stock options equal to 1)
six months if his termination occurred on or after February 15, 1999 and the
Company had not sold its Glytec business unit by such date, or 2) 50% of his
outstanding unvested shares as of the date of his termination if the termination
followed the sale of the Company's Glytec business unit. Dr. Paulson voluntarily
terminated his employment with the Company on February 15, 1999, at which time
the Company had not sold its Glytec business unit.
In June 1998, the Company entered into agreements with Mr. Thompson and Dr.
Roe regarding their severance arrangements. The Company agreed, instead of
making a lump-sum payment equal to six months of such officer's annual base
salary, to issue each officer a warrant to purchase shares of the Company's
Common Stock equal to 140% of such amount at an exercise price equal to the fair
market value of the Company's Common Stock on the date of severance. Each
warrant has a term of four years. In addition, all unvested stock options held
by such officers were accelerated by six months, and such officers will have
four years from the date of severance to exercise their vested options. The
Company also agreed to pay each officer a success bonus on the closing of the
Merger and on December 31, 1999 if the Company's cash and similar assets
(including net proceeds from the sale of non-Subsidiary assets) exceed
liabilities by more than a specified amount as of such dates, such bonus to
equal 5% of such excess cash value, if any. Such officers may elect to
13
<PAGE> 16
receive such success bonus in cash or in the form of a four-year warrant to
purchase shares of the Company's Common Stock at an exercise price equal to the
fair market value of the Company's Common Stock as of the date of severance.
COMPENSATION COMMITTEE REPORT(1)
During 1998, the Compensation Committee of the Board of Directors (the
"Committee") consisted of Howard E. Greene, Jr. and David L. Anderson and David
L. Mahoney, former directors of the Company. In connection with the Merger, the
Compensation Committee was reconstituted to include Mr. Greene, William T.
Comer, Ph.D. and Nicole Vittulo. 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 the Company 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 and stage of development 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 18 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, collaborations
and other strategic transactions) and organizational effectiveness. In
- ---------------
(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 Securities Exchange Act of 1934, as amended (the "1934
Act"), whether made before or after the date hereof and irrespective of any
general incorporation language contained in such filing.
14
<PAGE> 17
addition, the Company compares its executives' base salaries to management
salaries at companies in the biotechnology industry, in comparable geographic
areas and at similar stages of growth and considers industry surveys regarding
executive compensation. The Committee uses these criteria as a frame of
reference for annual salary adjustments although other factors are considered,
as appropriate, and no specific weights are ascribed to the factors considered
by the Committee.
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 Employee Stock
Purchase Plan; however, the Company has terminated the 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 under the 1989 Plan 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. Section 4(c) of the 1989 Plan limited the number of shares that
can be granted to any person 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 Internal
Revenue Code of 1986, as amended (the "Code").
The Committee believes that providing management a substantial economic
interest in the long-term appreciation of the Company's Common Stock further
aligns the interests of stockholders and management. The size of option grants
to an individual is primarily determined by such individual's position within
management of the Company, as well as competitive practices at biotechnology
companies of comparable size. The Committee also considered the size of grants
to individuals in previous years and internal relativity.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million paid to certain Named Executive
Officers in a taxable year. Compensation above $1 million may be deducted if it
is "performance-based compensation" within the meaning of the Code. The
Compensation Committee intends to continue to evaluate the effects of Code
Section 162(m) and to comply with the requirements of that statute to the extent
consistent with the best interests of the Company. 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 1998, 1997 and 1996 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 during 1998, was largely based on the same components as
for other senior executives of the Company. 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 June 1998, the Board approved the grant of options to purchase a total
of 85,892 shares of the Company's Common Stock under the 1989 Plan at an
exercise price of $10.71880, the fair market value on the date of grant, in
connection with the Exchange Program more fully described below in the "Report
on Repricing of Options."
15
<PAGE> 18
In December 1998, the Committee reviewed the achievement of objectives for
1998 and determined not to increase Mr. Thompson's base salary for 1999.
REPORT ON REPRICING OF OPTIONS
On June 11, 1998, at the 1998 Annual Meeting of Stockholders, the
stockholders approved the Exchange Program whereby employees were given the
opportunity to exchange outstanding out-of-the-money stock options for a lesser
number of new options priced at the market price of the Company's Common Stock
at the time of exchange. All employees who held out-of-the-money stock options
were entitled to participate in the Exchange Program. On June 15, 1998, the
Company implemented the Exchange Program.
Under the Exchange Program, outstanding out-of-the-money options were
exchanged for new options under the 1989 Plan with an exercise price of
$10.71880 (the fair market value of the Company's Common Stock on June 15,
1998). The number of shares of Common Stock underlying the new options was based
on a formula developed by the Wisconsin Board, and depended upon the exercise
price of the out-of-the-money options which were cancelled in conjunction with
the exchange. Vesting of the new options occurs over a six year period according
to a formula developed by the Wisconsin Board.
The Board of Directors believes that 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 the Company 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 approved the Exchange Program because it was
concerned that the Company may have been at risk of losing valued employees
because most of the then outstanding stock options were 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 believed
that this situation was 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 was in the best interests of
the stockholders of the Company to replace underwater stock options with options
having an exercise price equal to the then 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.
No options held by members of the Compensation Committee were repriced in
the Exchange Program.
16
<PAGE> 19
TEN-YEAR OPTION REPRICINGS(1)
<TABLE>
<CAPTION>
MARKET LENGTH OF
NUMBER OF PRICE OF EXERCISE ORIGINAL
SECURITIES STOCK AT PRICE AT OPTION TERM
UNDERLYING TIME OF TIME OF NEW REMAINING
OPTIONS REPRICING REPRICING EXERCISE AT DATE OF
NAME DATE REPRICED(#) ($) ($) PRICE($) REPRICING
---- -------- ----------- --------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ms. Deborah A. Schueren...... 12/15/94 4,285 18.81600 43.75 18.81600 7 yrs 355 days
President, Chief Executive 12/15/94 184 18.81600 54.25 18.81600 8 yrs 7 days
Officer and Chief 6/15/98 1,885 10.71880 32.375 10.71880 5 yrs 190 days
Financial Officer 6/15/98 1,640 10.71880 31.50 10.71880 7 yrs 184 days
6/15/98 1,923 10.71880 28.00 10.71880 8 yrs 181 days
6/15/98 3,331 10.71880 18.816 10.71880 6 yrs 185 days
6/15/98 1,203 10.71880 21.875 10.71880 6 yrs 202 days
6/15/98 16,409 10.71880 16.625 10.71880 8 yrs 280 days
Mr. Virgil Thompson.......... 6/15/98 60,235 10.71880 42.875 10.71880 7 yrs 202 days
Former President and Chief 6/15/98 25,657 10.71880 28.00 10.71880 8 yrs 202 days
Executive Officer
Dr. Robert L. Roe............ 6/15/98 46,594 10.71880 52.50 10.71880 7 yrs 232 days
Former Executive Vice 6/15/98 23,091 10.71880 28.00 10.71880 8 yrs 202 days
President, Chief Operating
Officer, Chief Financial
Officer and Secretary
Jennifer Lorenzen............ 6/15/98 1,923 10.71880 28.00 10.71880 8 yrs 181 days
Former Vice President, 6/15/98 4,613 10.71880 22.750 10.71880 8 yrs 60 days
Business Development
Dr. James C. Paulson......... 12/15/94 10,714 18.81600 42.00 18.81600 6 yrs 300 days
Former Vice President and 12/15/94 8,738 18.81600 54.25 18.81600 8 yrs 5 days
General Manager, Glytec(TM) 6/15/98 7,572 10.71880 31.50 10.71880 7 yrs 184 days
6/15/98 10,262 10.71880 28.00 10.71880 8 yrs 181 days
6/15/98 18,363 10.71880 18.816 10.71880 6 yrs 185 days
6/15/98 15,714 10.71880 32.375 10.71880 5 yrs 190 days
Mr. Edward C. Hall........... -- -- -- -- -- --
Former Vice President,
Finance, Chief Financial
Officer and Secretary
Jay D. Kranzler.............. 12/15/94 14,285 18.81600 42.00 18.81600 6 yrs 300 days
Former President and Chief 12/15/94 11,290 18.81600 54.25 18.81600 8 yrs 5 days
Executive Officer
Richard M. Rose.............. 12/15/94 28,571 18.81600 50.61 18.81600 7 yrs 269 days
Former Vice President,
Medical Affairs and Chief
Medical Officer
Karin Eastham................ 12/15/94 14,285 18.81600 49.00 18.81600 7 yrs 353 days
Former Vice President, 12/15/94 718 18.81600 54.25 18.81600 8 yrs 5 days
Finance and Administration
and Chief Financial Officer
Michael P. Kriegler.......... 12/15/94 614 18.81600 42.00 18.81600 6 yrs 300 days
Former Vice President, 12/15/94 1,428 18.81600 64.75 18.81600 7 yrs 167 days
Research and Development 12/15/94 1,516 18.81600 54.25 18.81600 8 yrs 5 days
Operations 12/15/94 3,571 18.81600 6.13 18.81600 8 yrs 184 days
Robert W. Chestnut........... 12/15/94 614 18.81600 42.00 18.81600 6 yrs 300 days
12/15/94 2,142 18.81600 64.75 18.81600 7 yrs 167 days
12/15/94 1,451 18.81600 54.25 18.81600 8 yrs 5 days
12/15/94 3,571 18.81600 6.13 18.81600 8 yrs 184 days
</TABLE>
- ---------------
(1) All numbers and prices in this table reflect the Company's 1:7 reverse stock
split which occurred on November 13, 1998.
17
<PAGE> 20
From the Compensation Committee of the Company:
Howard E. Greene, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Greene, a member of the Compensation Committee, is Chairman of the
Board of the Company.
18
<PAGE> 21
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 (U.S. 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, 1993.
Effective July 1, 1999 as a result of the Merger the Company changed its
name from Cytel Corporation to Epimmune Inc. and changed its Nasdaq ticker
symbol to EPMN.
COMPARISON OF TOTAL CUMULATIVE RETURN ON INVESTMENT(3)
<TABLE>
<CAPTION>
NADAQ STOCK MARKET
CYTE, CORPORATION (U.S.) NASDAQ PHARMACEUTICAL
----------------- ------------------ ---------------------
<S> <C> <C> <C>
'12/93' 100 100 100
'12/94' 66 98 75
'12/95' 129 138 138
'12/96' 72 170 138
'12/97' 32 208 143
'12/98' 7 294 183
</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, Epimmune Inc., 5820 Nancy Ridge
Drive, San Diego, California 92121.
(3) The total return on investment (including investment of dividends) assumes
$100 invested on December 31, 1993 in the Company's Common Stock, the Nasdaq
CRSP Total Return Index for the Nasdaq Stock (U.S. Companies) Index and the
NASDAQ CRSP Pharmaceutical Index.
19
<PAGE> 22
CERTAIN TRANSACTIONS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and officers.
In addition, the Company's Certificate of Incorporation provides that to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, for acts or omissions that
the director believes to be contrary to the best interests of the Company or its
stockholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Company or its stockholders when the director was aware
or should have been aware of a risk of serious injury to the Company or its
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company, and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
On July 1, 1999, the Company completed a series of transactions (the
"Exchange Transactions") in which it (i) transferred all of the outstanding
shares of the Subsidiary's Series B-1 Preferred Stock then held by the Company
to Searle in exchange for all of the outstanding shares of the Company's Series
B Preferred Stock, (ii) issued 859,622 shares of the Company's Series S
Preferred Stock and 549,622 shares of the Company's Series S-1 Preferred Stock
to Searle in exchange for all outstanding shares of the Subsidiary's Series B
Preferred Stock and Series B-1 Preferred Stock and (iii) issued a total of
1,027,782 shares of the Company's Common Stock to the holders of Common Stock of
the Subsidiary in exchange for all outstanding shares of the Subsidiary's Common
Stock. Searle is a holder of more than 5% of the outstanding stock of the
Company. Ms. Schueren, President, Chief Executive Officer, Chief Financial
Officer and a director of the Company, Robert W. Chesnut, Ph.D., Executive Vice
President, Research and Development of the Company and Alessandro Sette, Ph.D.,
Vice President and Chief Scientific Officer of the Company each received 320,662
shares of the Company's Common Stock in the Exchange Transactions. Following the
Exchange Transactions, the Company held all of the outstanding shares of Common
Stock and Preferred Stock of the Subsidiary and completed the Merger, in which
the Subsidiary merged into the Company, with the Company remaining as the
surviving entity. In connection with the Merger, the Company assumed all of the
outstanding options to purchase Common Stock of the Subsidiary, and the Company
changed its name from Cytel Corporation to Epimmune Inc.
On July 13, 1999 the Company granted each Non-Employee Director (all
directors except Ms. Schueren) an option under its 1989 Plan to purchase 20,000
shares of the Company's Common Stock.
The Company has entered into certain additional transactions with its
directors and officers, as described under the captions "Executive Compensation"
and "Employment Agreements."
20
<PAGE> 23
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 1998 calendar year, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
OTHER MATTERS
The Board of Directors knows 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
Deborah A. Schueren
President, Chief Executive Officer and
Chief Financial Officer
July 30, 1999
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, 1998 IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO CORPORATE SECRETARY, EPIMMUNE INC., 5820 NANCY
RIDGE DRIVE, SAN DIEGO, CA 92121.
21
<PAGE> 24
CERTIFICATE OF AMENDMENT
OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF EPIMMUNE INC.
Epimmune Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
FIRST: The name of the Corporation is Epimmune Inc.
SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is July 10, 1987.
THIRD: The Board of Directors of the Corporation, acting in accordance
with the provision of Sections 141 and 242 of the General Corporation Law of the
State of Delaware adopted resolutions at a meeting held on March 4, 1999 to
amend the first paragraph of Article V of the Amended and Restated Certificate
of Incorporation of the Corporation to read in its entirety as follows:
"The Corporation is authorized to issue two classes of shares
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares of all classes of stock which the Corporation has
authority to issue is 35,000,000 shares, consisting of 25,000,000 shares
of Common Stock, each having a par value of $.01, and 10,000,000 shares
of Preferred Stock, each having a par value of $.01."
FOURTH:Thereafter, pursuant to a resolution of the Board of Directors,
this Certificate of Amendment of Amended and Restated Certificate of
Incorporation was submitted to the stockholders of the Corporation and was duly
approved by the required vote of stockholders of the Corporation in accordance
with Sections 228 and 242 of the Delaware General Corporation Law. The total
number of outstanding shares entitled to vote or consent to this Amendment was
shares of Common Stock and shares of Series B Convertible Preferred
Stock. A majority of the outstanding shares of Common Stock and Series B
Convertible Preferred Stock, voting together as a single class, voted in favor
of this Certificate of Amendment of Amended and Restated Certificate of
Incorporation.
<PAGE> 25
IN WITNESS WEREOF, Epimmune Inc. has caused this Certificate of
Amendment to be signed by its President and attested to by its Assistant
Secretary this day of , 1999.
EPIMMUNE INC.
--------------------------------
Deborah A. Schueren
President, Chief Executive Officer
and Chief Financial Officer
ATTEST:
- -------------------------------
Robert W. Chesnut
Secretary
2.
<PAGE> 26
CERTIFICATE OF DECREASE
OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
OF EPIMMUNE INC.
(Pursuant to Section 151(g) of the
Delaware General Corporation law)
Epimmune Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, hereby certifies:
FIRST: In a Certificate of Designation Filed with the Secretary of State
of the State of Delaware on April 2, 1993, pursuant to Section
151 of the General Corporation Law of the State of Delaware, the
Corporation was authorized to issue Three Hundred Thousand
(300,000) shares of Series A Junior Participating Preferred
Stock, as a series of the Corporation's authorized Preferred
Stock, par value $.01 per share;
SECOND: In a Certificate of Increase of Series A Junior Participating
Preferred Stock filed with the Secretary of State of the State of
Delaware on July 5, 1995, pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware, the Corporation
was authorized to issue Five Hundred Thousand (500,000) shares of
Series A Junior Participating Preferred Stock, as a series of the
Corporation's authorized Preferred Stock, par value $.01 per
share;
THIRD: In a Certificate of Increase of Series A Junior Participating
Preferred Stock filed with the Secretary of State of the State of
Delaware on July 2, 1998, pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware, the Corporation
was authorized to issued Seven Hundred Fifty Thousand (750,000)
shares of Series A Junior Participating Preferred Stock, as a
series of the Corporation's authorized Preferred Stock, par value
$.01 per share; and
FOURTH: The Board of Directors of the Corporation by resolution adopted
at a meeting duly called and held on March 4, 1999 duly
authorized and directed that the number of shares of the
Corporation's Series A Junior Participating Preferred Stock be
decreased from Seven Hundred Fifty Thousand (750,000) shares to
Two Hundred Fifty Thousand (250,000) shares.
<PAGE> 27
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officers this day of , 1999.
EPIMMUNE INC.
------------------------------------
Deborah A. Schueren
President, Chief Executive Officer
and Chief Financial Officer
ATTEST:
- -------------------------------
Robert W. Chesnut, Secretary
2.
<PAGE> 28
EPIMMUNE INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 8, 1999
The undersigned hereby appoints DEBORAH A. SCHUEREN and ROBERT W.
CHESNUT, 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 Epimmune Inc.
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Epimmune Inc. to be held at 5820 Nancy Ridge Drive, San Diego,
California, on Wednesday, September 8, 1999 at 2:00 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 AND 3 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 six directors to hold office until the 2000 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., William T. Comer, Ph.D., Nicole Vitullo, Nancy
D. Rasmussen, Deborah A. Schueren and Michael G.Grey.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3.
PROPOSAL 2: To approve the amendment to the Company's Amended and Restated
Certificate of Incorporation to decrease the Company's
authorized shares of Common Stock from 75,000,000 shares to
25,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on other side)
<PAGE> 29
(Continued from other side)
PROPOSAL 3: To ratify selection of ERNST & YOUNG LLP as independent auditors of
the Company for its fiscal year ending December 31, 1999.
[ ] 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.
