<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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Epimmune Inc.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
----------------------------------------------------------------------------
2. Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------------
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------------
4. Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------------
5. Total fee paid:
----------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
------------------------------------------------------------------------
2. Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3. Filing Party:
------------------------------------------------------------------------
4. Date Filed:
-------------------------------------------------------------
<PAGE> 2
EPIMMUNE INC.
5820 NANCY RIDGE DRIVE
SAN DIEGO, CA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 9, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Epimmune
Inc., a Delaware corporation (the "Company"), will be held on Friday, June 9,
2000 at 9:00 a.m. at 5820 Nancy Ridge Drive, San Diego, California, for the
following purposes:
1. To elect five directors to hold office for the ensuing year or until
their successors are elected.
2. To approve the Company's 2000 Stock Plan which replaces the Company's
expiring 1989 Stock Plan.
3. To ratify the selection of Ernst & Young LLP, as independent auditors of
the Company for the year ending December 31, 2000.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 11, 2000 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
/s/ DEBORAH A. SCHUEREN
Deborah A. Schueren
President, Chief Executive Officer
and Chief Financial Officer
San Diego, California
May 1, 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 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 Friday, June 9, 2000 at 9:00 a.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, located at 5820
Nancy Ridge Drive, San Diego, California, 92121. The Company intends to mail
this proxy statement and accompanying proxy card on or about May 1, 2000 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 April 11, 2000 will be entitled to notice of and to vote at the
Annual Meeting. At the close of business on April 11, 2000, the Company had
outstanding and entitled to vote 7,344,764 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 April 11, 2000, the Company had outstanding 859,666 shares of
Series S Preferred Stock and 549,622 shares of Series S-1 Preferred Stock held
by Pharmacia Corporation ("Pharmacia"). Pharmacia will be entitled to vote its
shares of Series S Preferred Stock and Series S-1 Preferred Stock held on all
matters to be voted upon at the Annual Meeting on an as-converted to common
stock basis which will entitle Pharmacia to 1,466,377 votes, provided that
Pharmacia will not be entitled to vote such shares to the extent that the total
number of shares of voting capital stock held by Pharmacia and its affiliates
would exceed 19.9%. The total number of shares outstanding on an as-converted
basis at the close of business on April 11, 2000 was 8,811,141.
1.
<PAGE> 4
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, 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 2001 Annual Meeting of Stockholders must be received by the Company no
later than January 1, 2001 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. Ms. Nicole Vitullo, currently a director of the Company, has indicated
that because of business commitments she will not seek re-election to the Board
of Directors at the Annual Meeting. Accordingly, effective as of the Annual
Meeting, the Board has authorized the reduction in the size of the Board from
six directors to five directors. There are five nominees for the five Board
positions. Each nominee listed below is currently a director of the Company
having been elected by the stockholders, with the exception of Dr. McKearn. Dr.
McKearn was elected to serve on the Board by the Board on April 21, 2000.
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.
3.
<PAGE> 6
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>
NAME AGE PRINCIPAL OCCUPATION/POSITION HELD WITH THE COMPANY
---- --- ---------------------------------------------------
<S> <C> <C>
Howard E. Greene, Jr. 57 Director and founder of Amylin Pharmaceuticals, Inc./
Chairman of the Board of Directors
William T. Comer, Ph.D. 64 Advisor to pharmaceutical and biotechnology companies/
Director
Michael G. Grey 47 President and Chief Executive Officer, Trega
Biosciences, Inc./ Director
John P. McKearn, Ph.D. 46 Vice President, Discovery Research, Pharmacia
Corporation/Director
Deborah A. Schueren 36 President, Chief Executive Officer and Chief Financial
Officer and 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.
Since January 2000, he has acted as an advisor to a number of pharmaceutical and
biotechnology companies. He served as President and Chief Executive Officer and
a member of the Board of Directors of SIBIA Neurosciences, Inc. ("SIBIA"), a
biotechnology company, from April 1991 to November 1999. SIBIA was acquired by
Merck & Co., Inc. ("Merck") in November 1999. Dr. Comer resigned from Merck on
December 31, 1999. Dr. Comer previously served in various roles with
Bristol-Myers Squibb culminating in his position as Senior Vice President of
Strategic Management, Pharmaceuticals and Nutritionals.
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. and Chem.Navigator.com, Inc.
Dr. McKearn has been with G.D. Searle and Co., now Pharmacia, since
1987. Since August 1999, he has served as Vice President of Discovery Research,
responsible for research activities in cardiovascular diseases, arthritis and
oncology. In addition, since November 1997, he has served as the interim leader
of Discovery Research. Dr. McKearn was Executive Director of Oncology from 1995
to 1999. Prior to joining Searle, Dr, McKearn was a Senior Scientist at DuPont
and a member of the Basel Institute for Immunology in Basel, Switzerland.
4.
<PAGE> 7
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
the Subsidiary. 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. Previously Ms. Schueren was
employed by the Boston Consulting Group and Lehman Brothers Investment Banking.
COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1999, the Board of Directors
held ten meetings. The standing committees of the Board of Directors include an
Audit Committee and a Compensation Committee. The Board does not have a
nominating committee or committee performing similar functions.
During the first half of 1999, the Audit Committee was comprised of Mr.
Greene and Dr. Comer, neither of whom is an employee of the Company. In
connection with the Merger, Ms. Rasmussen, who is not an employee of the
Company, replaced Dr. Comer on the Audit Committee. The Audit Committee met one
time immediately following the 1999 fiscal year end to discuss the annual audit
with the Company's independent auditors. 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.
During the first half of 1999, the Compensation Committee was comprised
of Mr. Greene 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, Dr. Comer and Ms. Vitullo, none of whom is
an employee of the Company. This Committee, which held four meetings during
1999, 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.
During the fiscal year ended December 31, 1999, 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 2000 STOCK PLAN
The Company's 1989 Stock Plan, as amended and restated (the "1989
Plan"), expires December 31, 2000. The 1989 Plan is the Company's only equity
incentive plan currently in effect. In consideration of the expiration of the
1989 Plan this year, the Board has adopted the Company's 2000 Stock Plan (the
"2000 Plan") and believes that approval of the 2000 Plan is in the best
interests of the Company and its stockholders to enable the Company to continue
to secure and retain the services of employees, directors and consultants and
provide them with incentives to exert maximum efforts on behalf of the Company.
On April 21, 2000, the Board of Directors adopted the 2000 Plan, subject
to stockholder approval, and reserved an aggregate of 700,000 shares of its
Common Stock for issuance under the 2000 Plan. The Board adopted the 2000 Plan
so that the Company could grant stock options and other stock awards to
employees, directors and consultants at levels determined appropriate by the
Board and the Compensation Committee, and to allow the Company more flexibility
in attracting and retaining qualified employees (including officers), directors
and consultants of the Company and promoting the success of the Company's
business.
As of April 11, 2000, options to purchase approximately 661,496 shares
were outstanding under the 1989 Plan and 165,456 shares (plus any shares that
might in the future be returned to the plan as a result of cancellations or
expiration of options) remained available for future grant under the 1989 Plan.
Upon stockholder approval of the 2000 Plan, the Company will not grant any
further options under the 1989 Plan and any shares granted under the 1989 Plan
that in the future are cancelled or expire will not be available for re-grant.
In July 1999, the Company terminated its Employee Stock Purchase Plan and the
1994 Non-Employee Directors' Stock Option Plan (the "Non-Employee Directors'
Plan").
In conjunction with the Merger, the Company assumed 423,283 options
granted under the Subsidiary's option plan. As of April 11, 2000, there were
265,226 of such options outstanding. Assumed options that terminate will not be
available for re-grant.
Stockholders are requested in this Proposal 2 to approve the 2000 Plan.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the 2000 Plan. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
MANAGEMENT AND THE BOARD OF DIRECTORS
RECOMMEND A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 2000 Plan are described below.
GENERAL
The 2000 Plan provides for the grant of incentive stock options to
employees and the grant or issuance, respectively, of nonstatutory stock
options, restricted stock purchase awards and stock bonuses to consultants,
employees (including officers) and directors (collectively, "Stock Awards").
Incentive stock options granted under the 2000 Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock options
granted under the 2000 Plan are intended not to qualify as incentive stock
options under the Code. See "Federal Income Tax Information" below for a
discussion of the tax treatment of the various Stock Awards permitted under the
2000 Plan.
6.
<PAGE> 9
PURPOSE
The 2000 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 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 Board administers the 2000 Plan. The Board has the power to construe
and interpret the 2000 Plan and, subject to the provisions of the 2000 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 has the power to delegate administration of the 2000 Plan to a
committee composed of one or more members of the Board. In the discretion of the
Board, a committee may consist solely of two or more "non-employee directors"
within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or solely of two or more "outside directors" within
the meaning of Section 162(m) of the Code. For this purpose, a "non-employee
director" generally is a director who does not receive remuneration from the
Company other than compensation for service as a director (except for amounts
not in excess of specified limits applicable pursuant to Rule 16b-3 of the
Exchange Act). An "outside director" generally is a director who is neither a
current or former officer of the Company nor a current employee of the Company,
does not receive any remuneration from the Company other than compensation for
service as a director, and is not employed by or have certain ownership
interests in an entity that receives remuneration from the Company (except
within specified limits applicable under regulations issued pursuant to Section
162(m) of the Code). If administration is delegated to a committee, the
committee has the power to delegate administrative powers to a subcommittee. As
used herein with respect to the 2000 Plan, the "Board" refers to any committee
the Board appoints or, if applicable, any such subcommittee, as well as to the
Board itself. In accordance with the foregoing provisions, the Board has
delegated administration of the 2000 Plan to the Compensation Committee.
ELIGIBILITY
Incentive stock options may be granted under the 2000 Plan only to
employees (including officers) of the Company and its affiliates. Stock Awards
other than incentive stock options may be granted under the 2000 Plan only to
employees (including officers) and directors of and advisors and consultants to
the Company or its affiliates. The 2000 Plan specifically provides that Stock
Awards other than incentive stock options may be granted to Non-Employee
Directors of the Company. For this purpose, a "Non-Employee Director" is defined
in the 2000 Plan as a director of the Company who is not otherwise an employee
of the Company or any affiliate. Each of the Company's current Directors except
Ms. Schueren is currently a Non-Employee Director.
No incentive stock option may be granted under the 2000 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. In addition, the aggregate fair market value, determined at the time of
grant, of the shares of Common Stock with respect to which incentive stock
options are exercisable for the first time by an optionholder during any
calendar year (under all plans of the Company and its affiliates) may not exceed
$100,000.
Under the 2000 Plan, no employee may be granted options and restricted
stock purchase awards exercisable for more than an aggregate of 500,000 shares
of Common Stock during any calendar year (the "Section 162(m) Limitation").
7.
<PAGE> 10
STOCK SUBJECT TO THE 2000 PLAN
Subject to this Proposal 2, an aggregate of 700,000 shares of Common
Stock is reserved for issuance under the 2000 Plan. Stock subject to the 2000
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise. If any Stock Award granted under the 2000 Plan expires or otherwise
terminates without being exercised in full, the shares of Common Stock not
acquired pursuant to such Stock Award shall again become available for issuance
under the 2000 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of stock options
under the 2000 Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below. In addition, the Board may at
any time amend outstanding options; provided, however, that, pursuant to the
terms of the 2000 Plan, the repricing of stock options requires stockholder
approval.
Exercise Price; Payment. The exercise price of incentive stock options
under the 2000 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, 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 2000 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. The exercise price of nonstatutory
options granted to Non-Employee Directors under the 2000 Plan shall be 100% of
the fair market value of the Common Stock subject to the option on the date of
the option grant unless a higher exercise price is established by the Board and
specifically provided in the option grant agreement. At March 1, 2000, the
closing price of the Company's Common Stock as reported on the Nasdaq National
Market System was $16.25.
The exercise price of options granted under the 2000 Plan must be paid
either in cash at the time the option is exercised or, at the discretion of the
Board, either (i) by delivery of other Common Stock of the Company, (ii)
pursuant to a deferred payment arrangement or (iii) in any other form of legal
consideration acceptable to the Board.
Transferability. Under the 2000 Plan, an incentive stock option granted
to an employee may not be transferred by the employee other than by will or by
the laws of descent and distribution. During the lifetime of the employee, an
incentive stock option may be exercised only by the employee. A nonstatutory
stock option shall be transferable to the extent provided in a participant's
option grant agreement. If the nonstatutory stock option does not provide for
transferability, then the nonstatutory stock option shall not be transferable
other than by will or by the laws of descent and distribution.
Option Exercise. Options granted under the 2000 Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Vesting typically will occur during the optionholder's continued service with
the Company or an affiliate, whether such service is performed in the capacity
of employee, director or consultant (collectively, "service") and regardless of
any change in the capacity of such service. Shares covered by different options
granted under the 2000 Plan may be subject to different vesting terms. The Board
has the power to accelerate the time during which an option may vest or be
exercised. In addition, options granted under the 2000 Plan may permit exercise
prior to vesting, but in such event the optionholder may be required to enter
into an early exercise stock purchase agreement that allows the Company to
repurchase unvested shares, generally at their exercise price, should the
optionholder's service terminate before vesting. Shares subject to repurchase by
the Company under an early exercise stock purchase agreement also may be subject
to such restrictions on transfer that the Board deems appropriate.
To the extent provided by the terms of an option, an optionholder 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
optionholder, by delivering already-owned stock of the Company or by a
combination of these means.
8.
<PAGE> 11
Term. The maximum term of options under the 2000 Plan is ten years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Unless a shorter term is established by the Board and specifically provided in
the option grant agreement, nonstatutory options granted to Non-Employee
Directors shall have a term of ten years. Options under the 2000 Plan generally
terminate three months after the optionholder's service, unless (i) such
termination of service 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 twelve months of such termination;
(ii) the optionholder dies before his or her termination of service, or within
not more than three months after termination of 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 optionholder's death) within eighteen
months of the optionholder'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. With respect to
nonstatutory options granted to Non-Employee Directors, the 2000 Plan provides
that such options terminate twelve months after the termination of the
Non-Employee Director's service to the Company, unless otherwise determined by
the Board and provided in the option grant agreement. An optionholder may
designate a beneficiary who may exercise the option following the optionholder's
death. The option term may be extended in the event that exercise of the option
within these periods is prohibited.
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 2000 Plan. Individual stock bonuses
or purchases of restricted stock may be more restrictive as to any or all of the
permissible terms described below. In addition, the Board may at any time amend
outstanding stock bonuses and restricted stock.
Purchase Price; Payment. The purchase price for restricted stock shall
be determined by the Board, but in no event shall be less than 85% of the fair
market value on the date of the grant. 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
2000 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 participant terminates service, 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 2000 Plan,
except as expressly authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company, such
as a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of Common Stock subject to the 2000 Plan
and outstanding Stock Awards. In that event, the 2000 Plan will be appropriately
adjusted as to the class and the maximum number of shares of Common Stock
subject to the 2000 Plan and the Section 162(m) Limitation, and outstanding
Stock Awards will be adjusted as to the class, number of shares and price per
share of Common Stock subject to such Stock Awards.
9.
<PAGE> 12
EFFECT OF CERTAIN CORPORATE EVENTS
The 2000 Plan provides that, in the event of a sale of substantially all
of the assets of the Company, specified types of merger, or other corporate
reorganization ("corporate transaction"), any surviving corporation may either
assume Stock Awards outstanding under the 2000 Plan or substitute similar Stock
Awards for those outstanding under the 2000 Plan. If any surviving corporation
declines to assume Stock Awards outstanding under the 2000 Plan, or to
substitute similar Stock Awards, then, with respect to participants whose
service has not terminated, the vesting and, if applicable, the time during
which such Stock Awards may be exercised will be accelerated. An outstanding
Stock Award that is not assumed or substituted will terminate to the extent the
participant does not exercise it before a corporate transaction. The
acceleration of Stock Awards in the event of an acquisition or similar corporate
event may be viewed as an anti-takeover provision, which may have the effect of
discouraging a proposal to acquire or otherwise obtain control of the Company.
In addition, in the event there occurs a securities acquisition
representing 50 percent or more of the Company's combined voting power or a
change in the Board composition representing 50 percent or more of the incumbent
Board members, other than in a corporate transaction described above, then, with
respect to participants whose service has not terminated, the vesting and, if
applicable, exercisability of outstanding Stock Awards will be accelerated in
full.
If any corporate transaction or other event described above occurs, the
vesting and exercisability of nonstatutory options held by Non-Employee
Directors who have not terminated service shall be accelerated in full, unless
otherwise specifically provided in the applicable option grant agreement.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 2000 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 2000 Plan will terminate on April 20, 2010.
The Board also may amend the 2000 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company to the extent that stockholder approval is necessary in order to
satisfy the requirements of Section 422 of the Code or any Nasdaq or other
applicable securities exchange listing requirements. The Board may submit any
other amendment to the 2000 Plan for stockholder approval, including, but not
limited to, amendments intended to satisfy the requirements of Section 162(m) of
the Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax
rates than ordinary income or short-term capital gains. The maximum long-term
capital gains rate for federal income tax purposes is currently 20% while the
maximum ordinary income rate and short-term capital gains rate is effectively
39.6%. Slightly different rules may apply to optionholders who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Incentive Stock Options. Incentive stock options under the 2000 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
optionholder or the Company by reason of the grant or exercise of an incentive
stock option. However, the exercise of an incentive stock option may cause the
optionholder to incur liability for alternative minimum tax or result in an
increase in the amount of alternative minimum tax otherwise payable by the
optionholder, if any.
If an optionholder 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
10.
<PAGE> 13
the optionholder upon exercise of the option, any gain or loss on a disposition
of such stock will be a long-term capital gain or loss if the optionholder held
the stock for more than one year.
Generally, if the optionholder disposes of the stock before the
expiration of either of these holding periods (a "disqualifying disposition"),
then at the time of disposition the optionholder will realize taxable ordinary
income equal to the lesser of (i) the excess of the stock's fair market value on
the date of exercise over the exercise price, or (ii) the optionholder's actual
gain, if any, on the purchase and sale. The optionholder's additional gain or
any loss upon the disqualifying disposition will be a capital gain or loss,
which will be long-term or short-term depending on whether the stock was held
for more than one year.
To the extent the optionholder recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
2000 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionholder or the Company by
reason of the grant of a nonstatutory stock option. Upon exercise of a
nonstatutory stock option, the optionholder normally will recognize taxable
ordinary income equal to the excess, if any, of the stock's fair market value on
the date of exercise over the option exercise price. However, to the extent the
stock is subject to certain types of vesting restrictions, the taxable event
will be delayed until the vesting restrictions lapse unless the participant
elects to be taxed on receipt of the stock. With respect to employees, the
Company is generally required to withhold from regular wages or supplemental
wage payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionholder.
Upon disposition of the stock, the optionholder 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 (or subsequent vesting of the stock, where
applicable). Such gain or loss will be long-term or short-term depending on
whether the stock was held for more than one year. Slightly different rules may
apply to optionholders who acquire stock subject to certain repurchase options
or who are subject to Section 16(b) of the Exchange Act.
Stock Bonuses and Restricted Stock. Stock bonuses and restricted stock
purchases granted under the 2000 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 or other transfer. 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 generally required to withhold from regular
wages or supplemental wage payments an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation,
the Company will generally be entitled to a business expense deduction equal to
the taxable ordinary income realized by the participant.
11.
<PAGE> 14
Upon disposition of the stock, the optionholder will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income
upon acquisition (or vesting) of the stock. Such gain or loss will be long-term
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionholders 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. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that compensation to
such covered employee exceeds $1 million. It is possible that compensation
attributable to Stock Awards, when combined with all other types of
compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation if
the option is granted by a compensation committee comprised solely of "outside
directors" and either (i) the plan contains a per-employee limitation on the
number of shares for which options may be granted during a specified period, the
per-employee limitation is approved by the stockholders, and the exercise price
of the option is no less than the fair market value of the stock on the date of
grant, or (ii) the option is granted (or exercisable) only upon the achievement
(as certified in writing by the compensation committee) of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, and the option is approved by stockholders.
Compensation attributable to restricted stock, if any, will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors," (ii) the plan
contains a stockholder-approved per-employee limit on the number of shares that
may be subject to restricted stock purchases during a specific period and (iii)
the purchase price under the award is no less than the fair market value of the
stock on the date of grant. Stock bonuses qualify as performance-based
compensation under the Treasury regulations only if (i) the award is granted by
a compensation committee comprised solely of "outside directors," (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award, shareholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum
amount, or formula used to calculate the amount, payable upon attainment of the
performance goal).
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 2000 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.
12.
<PAGE> 15
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, 2000, 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, 2000. 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.
13.
<PAGE> 16
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 1, 2000 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>
Pharmacia Corporation(2)
5200 Old Orchard Road
Skokie, IL 60077 ....................................... 1,783,837 20.4%
State of Wisconsin Investment Board
121 East Wilson Street
Madison, WI 53702 ...................................... 1,186,427 16.3%
International Biotechnology Trust plc
Five Arrows House
St. Swithin's Lane
London, EC4N 8NR, England .............................. 467,992 6.4%
Biotechnology Value Fund LP
One Sansome Street, 39th Floor
San Francisco, CA 94104 ............................... 403,500 5.5%
Deborah A. Schueren(4)(5) ............................... 348,162 4.8%
Robert W. Chesnut(4)(5) ................................. 340,407 4.7%
Alessandro D. Sette(4)(5) ............................... 331,363 4.5%
Virgil Thompson(6)(7) ................................... 183,272 2.5%
Robert L. Roe(6)(7) ..................................... 161,963 2.2%
Howard E. Greene, Jr.(3)(5) ............................. 118,240 1.6%
Mark J. Newman(5) ....................................... 64,424 *
James C. Paulson(7) ..................................... 16,659 *
William T. Comer(5) ..................................... 11,940 *
Nicole Vitullo(5)(8) .................................... 4,878 *
Michael G. Grey(5) ...................................... 2,917 *
Nancy Rasmussen(8) ...................................... 0 *
John P. McKearn(5) ...................................... 0 *
All executive officers and directors
as a group (10 persons)(9) ............................. 1,222,331 16.4%
</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 7,296,795 shares of Common Stock
outstanding on March 1, 2000, as adjusted by the rules promulgated by the
SEC.
(2) Includes 1,466,377 shares issuable upon conversion of shares of Series S
Preferred Stock and Series S-1 Preferred Stock held by G.D. Searle, now
Pharmacia Corporation, provided that Pharmacia is not entitled to vote such
shares to the extent that the total number of shares of voting capital stock
held by Pharmacia and its affiliates would exceed 19.9%. Pharmacia 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
14.
<PAGE> 17
Stock are convertible into Common Stock at any time. In addition, Pharmacia
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 wife
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.
(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, 126,928 shares were subject to a right of repurchase in
favor of the Company as of March 1, 2000.
(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:
Deborah A. Schueren, 27,223 shares;
Robert W. Chesnut, 18,903 shares;
William T. Comer, 11,026 shares;
Alessandro D. Sette, 8,416 shares;
Mark J. Newman, 64,424 shares;
Howard E. Greene, 6,210 shares;
Nicole Vitullo, 4,878 shares;
Michael G. Grey, 2,917 shares; and
All executive officers and directors as a group, 143,997 shares.
(6) Includes 123,404 and 117,600 shares of common stock issuable upon the
exercise of warrants issued to Mr. Thompson and to Dr. Roe, respectively, in
connection with their resignations from the Company. See "--Employment
Agreements." Also includes shares which certain former executive officers 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; and
Robert L. Roe, 44,363 shares.
(7) Mr. Thompson resigned from the Company effective April 30, 1999. Dr. Roe
resigned from the Company effective July 1, 1999. Dr. Paulson resigned from
the Company effective February 15, 1999.
(8) Ms. Rasmussen and Ms. Vitullo were directors of the Company in 1999. Ms.
Rasmussen resigned from the Board on April 20, 2000 and Ms. Vitullo is not
seeking re-election to the Board at the Annual Meeting.
(9) Includes shares described in notes (3) through (5) above:
15.
<PAGE> 18
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.
Until the Merger, the Company maintained the Non-Employee Directors'
Plan. Pursuant to such 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, was granted an option to acquire 714 shares of the Company's Common
Stock. In addition, each new Non-Employee Director was 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.
In July 1999, the Company terminated the Non-Employee Directors' Plan.
Directors are currently eligible to receive option grants under the 1989 Plan or
the 2000 Plan if it is approved by the stockholders. (See Proposal 2 for a
description of the 2000 Plan). In July 1999, each of the following directors
were granted options to purchase 20,000 shares of the Company's Common Stock
under the 1989 Plan at an exercise price of $3.75 per share: Mr. Greene, Dr.
Comer, Ms. Vitullo and Mr. Grey.
16.
<PAGE> 19
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1999,
1998, and 1997 compensation awarded or paid to, or earned by the Company's Chief
Executive Officer, its other four most highly compensated executive officers at
December 31, 1999, as well as the former Chief Executive Officer and two former
executive officers who departed from the Company during the last fiscal year
(collectively, the "Named Executive Officers"). During the last three fiscal
years, none of the executive officers received any restricted stock awards or
long-term incentive payouts.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- -------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS OPTIONS COMPENSATION
POSITION YEAR ($) ($) (#)(1) ($)(2)
- -------------------------------- ---------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Ms. Deborah A. Schueren 1999 205,000 25,000 60,000 429
President, Chief 1998 185,000 30,000 26,391 360
Executive Officer and 1997 171,538 0 17,142(4) 295
Chief Financial
Officer(3)
Dr. Robert W. Chesnut 1999 212,980 0 50,000 2,653
Executive Vice 1998 204,788 0 19,450 3,371
President, Research 1997 196,912 0 0(4) 1,553
and Development and
Secretary
Dr. Alessandro D. Sette(5) 1999 165,000 0 40,000 330
Vice President and
Chief Scientific Officer
Dr. Mark J. Newman(5) 1999 116,666 0 82,466 44,471
Vice President,
Infectious Disease
Program
EXECUTIVE OFFICERS NO
LONGER AFFILIATED WITH
THE COMPANY
- -----------------------------
Mr. Virgil Thompson(6) 1999 148,691 0 0 2,822
Former President and 1998 325,900 0 114,463 5,644
Chief Executive 1997 315,000 0 28,571 5,426
Officer
Dr. Robert L. Roe(7) 1999 120,232 10,883 0 2,036
Former Executive Vice 1998 294,862 0 95,399 5,082
President, Chief 1997 286,000 0 25,714 4,874(8)
Operating Officer and
Secretary
James C. Paulson(9) 1999 77,324 0 0 133,598
Former Vice President 1998 266,500 0 63,339 2,898
and General Manager, 1997 257,578 0 0 1,674
Glytec
</TABLE>
- ------------
17.
<PAGE> 20
(1) Includes options granted in 1998 pursuant to the option exchange program
approved by the stockholders on June 11, 1998 and implemented on June 15,
1998 (the "Exchange Program"). All option numbers and prices for 1997 and
1998 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. Includes
relocation payments of $44,176 made by the Company to Dr. Newman. Includes
severance payments of $133,250 made to Dr. Paulson.
(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 the Company and President of the Subsidiary
from October 1997 through to the Merger.
(4) Does not include certain options to purchase shares of the Subsidiary's
Common Stock granted to Ms. Schueren or Dr. Chesnut. See "- Employment
Agreements."
(5) Dr. Sette did not qualify as a Named Executive Officer in 1998 and 1997.
Dr. Newman joined the Company in March 1999.
(6) Mr. Thompson resigned from the Company effective April 30, 1999.
(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.
(9) Dr. Paulson resigned from the Company effective February 15, 1999.
18.
<PAGE> 21
STOCK OPTION GRANTS AND EXERCISES
The Company currently grants options to its executive officers under its
1989 Plan. As of April 11, 2000, options to purchase a total of 661,496 shares
had been granted and were outstanding under the 1989 Plan, and options to
purchase 165,456 shares remained available for grant thereunder. Material terms
of options granted under the 1989 Plan are described generally in footnotes 2
and 5 below. In connection with the Merger, the Company assumed all of the
outstanding options to purchase 423,283 shares of Common Stock of the Subsidiary
and as of April 11, 2000, 265,226 options to purchase shares remain outstanding.
The following tables show for the fiscal year ended December 31, 1999,
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
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 YEAR(2) ($/SH) DATE 5%($) 10%($)
---- ----------- ----------- ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ms. Deborah A. Schueren ......... 60,000 13.78% 3.1875 12/09/09 120,276 304,803
Dr. Robert W. Chesnut ........... 50,000 11.48% 3.1875 12/09/09 100,230 254,003
Dr. Alessandro D. Sette ......... 40,000 9.19% 3.1875 12/09/09 80,184 203,202
Dr. Mark J. Newman(4) .......... 20,000 4.59% 3.1875 12/09/09 40,092 101,601
62,466 14.35% 0.48026 03/03/09 18,866 47,812
Mr. Virgil Thompson(5)(6) ...... 0 -- -- -- -- --
Dr. Robert L. Roe(5)(6) ........ 0 -- -- -- -- --
Dr. James C. Paulson(6) ........ 0 -- -- -- -- --
</TABLE>
- ------------
(1) 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. The options
granted on December 9, 1999 vest daily over a period of four years. Options
granted under the Subsidiary's 1997 Stock Plan generally vest 25% at the end
of the first year of the optionee's employment and thereafter monthly 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.
(2) Based on 358,785 options granted in 1999 under the 1989 Plan and 76,622
options granted in 1999 under the Subsidiary's 1997 Stock Plan, including
grants to executive officers.
(3) The potential realizable value is calculated based on the terms of the
option at its time of grant (10 years in the case of all options). It is
calculated by assuming that the stock price on the date of grant appreciates
at the indicated annual rate, compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its term
for the appreciated stock price. These amounts represent certain assumed
rates of
19.
<PAGE> 22
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) The grant of an option to purchase 62,466 shares of the Company's common
stock to Dr. Newman indicated above represents the option Dr. Newman
received in exchange for his options to purchase the common stock of the
Subsidiary that were assumed by the Company in connection with the Merger.
(5) 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."
(6) Mr. Thompson resigned from the Company effective April 30, 1999. Dr. Roe
resigned from the Company effective July 1, 1999. Dr. Paulson resigned from
the Company effective February 15, 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#)(3) AT FY-END($)(1)
SHARES VALUE ----------------------- --------------------
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#)(2) ($) UNEXERCISABLE UNEXERCISABLE
---- ----------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Ms. Deborah A. Schueren ...... 320,622 103,952 20,851/65,540 --/--
Dr. Robert W. Chesnut ........ 320,622 103,952 13,245/56,837 312/--
Dr. Alessandro D. Sette ...... 320,622 103,952 4,574/42,092 --/--
Dr. Mark J. Newman ........... -- -- 301/82,165 --/132,024
Mr. Virgil Thompson(4) ...... -- -- 56,408/-- --/--
Dr. Robert L. Roe(4) ........ -- -- 44,363/-- --/--
Dr. James C. Paulson(5)...... -- -- 35,628/-- 1,680/--
</TABLE>
- -------------
(1) Fair market value of the Company's Common Stock at December 31, 1999
($2.5938 per share) minus the exercise price of the options.
(2) Reflects exercises of stock options of the Subsidiary on an as-converted to
Common Stock of the Company basis. The shares acquired upon the exercise of
options in the Subsidiary were converted to shares of the Company's Common
Stock in connection with the Merger.
See "Certain Transactions."
(3) Reflects shares vested and unvested at December 31, 1999. Certain options
granted under the Subsidiary's 1997 Stock Plan are immediately exercisable,
but are subject to the Company's right to repurchase unvested shares on
termination of employment. Such unvested shares are therefore considered
unexercisable.
(4) 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."
(5) Dr. Paulson's options will continue to be exercisable until the first
anniversary of his termination.
20.
<PAGE> 23
EMPLOYMENT AGREEMENTS
In January 1996, the Company entered into an employment agreement with
Mr. Thompson. The agreement was terminable by either the Company or Mr.
Thompson. The terms of the employment agreement were consistent with the
Company's executive compensation policies. Mr. Thompson resigned from the
Company effective April 30, 1999.
In January 1996, the Company entered into an employment agreement with
Dr. Roe. The agreement was terminable by either the Company or Dr. Roe. The
terms of the employment agreement were consistent with the Company's executive
compensation policies. Dr. Roe resigned from the Company effective 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 and Dr.
Paulson. In February 1998, the Subsidiary entered into severance benefits
agreements with Dr. Chesnut 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 October 1999, the
Company entered a similar severance benefits agreement with Mr. Stephen Keane,
Vice President, Corporate Development.
In December 1998, the Company and Dr. Paulson entered into a agreement
regarding Dr. Paulson's severance arrangement. Dr. Paulson's severance agreement
superceded his employment agreement with the Company. 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 (i) 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
(ii) 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 1999, 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
21.
<PAGE> 24
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 could elect to receive
such success bonus in the form of cash or 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 the first half of 1999, the Compensation Committee (the
"Committee") was comprised of Mr. Greene and David L. Anderson and David L.
Mahoney, former directors of the Company. In connection with the Merger, the
Committee was reconstituted to include Mr. Greene, Dr. Comer and Ms. Vitullo.
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 24 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.
- --------
(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.
22.
<PAGE> 25
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 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 and the 2000 Plan, if approved by the
stockholders, other stock options and the Employee Stock Purchase Plan; however,
the Company terminated the Employee Stock Purchase Plan following the Merger.
Stock options are an important part of the Company's performance-based
compensation. Option grants include vesting periods (generally over four years)
to encourage key employees to continue in the employ of the Company. Prior to
December 1996, the 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.
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 1999, 1998, and 1997 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
During 1999, the total compensation program for Ms. Deborah Schueren,
Chief Executive Officer of the Company and Mr. Virgil Thompson, the former Chief
Executive Officer of the Company, was largely based on the same components as
for other senior executives of the Company, except that in 1999, Ms. Schueren
was eligible to receive a performance bonus. 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.
23.
<PAGE> 26
In December 1999, the Committee reviewed the achievement of objectives
for 1999 and determined to increase Ms. Schueren's base annual salary for 2000
to $220,000 and granted her a year-end bonus of $25,000 and a year-end stock
option to purchase 60,000 shares of the Company's Common Stock.
From the members of the Compensation Committee of Epimmune Inc.:
Howard E. Greene, Jr.
William T. Comer; and
Nicole Vitullo
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Greene, a member of the Compensation Committee, is Chairman of the
Board of the Company.
24.
<PAGE> 27
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,
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>
CUMULATIVE TOTAL RETURN
----------------------------------------
12/94 12/95 12/96 12/97 12/98 12/99
<S> <C> <C> <C> <C> <C> <C>
EPIMMUNE INC. 100 196 110 48 10 12
NASDAQ STOCK MARKET (U.S.) 100 141 174 213 300 556
NASDAQ PHARMACEUTICAL 100 183 184 190 242 450
</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.
25.
<PAGE> 28
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, now Pharmacia, 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, now Pharmacia, 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.
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 1999 calendar year, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial
26.
<PAGE> 29
owners were complied with; except that one report, covering an aggregate of one
transaction, was filed late by Dr. Sette and an initial report of ownership was
filed late by Mr. Keane.
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
/s/ DEBORAH A. SCHUEREN
Deborah A. Schueren
President, Chief Executive Officer and Chief
Financial Officer
May 1, 2000
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, 1999 IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO CORPORATE SECRETARY, EPIMMUNE INC., 5820 NANCY
RIDGE DRIVE, SAN DIEGO, CA 92121.
27.
<PAGE> 30
EPIMMUNE INC.
2000 STOCK PLAN
ADOPTED: APRIL 21, 2000
APPROVED BY STOCKHOLDERS: [JUNE __, 2000]
TERMINATION DATE: APRIL 20, 2010
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Epimmune Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company
1
<PAGE> 31
for their services as Directors or Directors who are merely paid a director's
fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate. Mere service as a Director or payment
of a director's fee by the Company or an Affiliate shall not be sufficient to
constitute "employment" by the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
2
<PAGE> 32
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a 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 promulgated pursuant to the
Securities Act ("Regulation S-K")), 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 (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3. In
addition, for purposes of Section 8 only, "Non-Employee Director" also shall
include any Director who is not an Employee of the Company or an Affiliate at
the time an Option is granted to such Director.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
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 (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(x) "PLAN" means this Epimmune Inc. 2000 Stock Plan.
3
<PAGE> 33
(y) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cc) "TEN PERCENT STOCKHOLDER" means a person who 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.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision by
the Board under the Plan shall be final and binding on all persons.
(b) POWERS OF BOARD. 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 each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award 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 Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 13.
(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 which are not in conflict with the provisions of the Plan.
4
<PAGE> 34
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. 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 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
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.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
times when the Common Stock is publicly traded, in the discretion of the Board,
a Committee may consist solely of two or more Outside Directors, in accordance
with Section 162(m) of the Code, and/or solely of two or more Non-Employee
Directors, in accordance with Rule 16b-3. Within the scope of such authority,
the Board or the Committee may (1) delegate to a committee of one or more
members of the Board who are not Outside Directors, the authority to grant Stock
Awards to eligible persons who are either (a) not then Covered Employees and are
not expected to be Covered Employees at the time of recognition of income
resulting from such Stock Award or (b) not persons with respect to whom the
Company wishes to comply with Section 162(m) of the Code and/or (2) delegate to
a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 12 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate seven hundred
thousand (700,000) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
5
<PAGE> 35
(b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 12
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options subject to Section 6 and restricted
stock purchase rights subject to subsection 7(b) covering, in the aggregate,
more than five hundred thousand (500,000) shares of the Common Stock during any
calendar year.
(d) CONSULTANTS.
(i) A Consultant shall not be eligible for the grant of a Stock
Award if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act ("Form S-8") is not available to register either the offer or the
sale of the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
(ii) Form S-8 generally is available to consultants and advisors
only if (i) they are natural persons; (ii) they provide bona fide services to
the issuer, its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not promote or maintain, directly or indirectly, a market
for the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. 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) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock
6
<PAGE> 36
Option shall be not less than one hundred percent (100%) of the Fair Market
Value of the Common Stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than one hundred percent (100%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common 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 at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded 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.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. 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 Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory 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 Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
7
<PAGE> 37
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified, the Option shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified, the Option shall
terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in
8
<PAGE> 38
the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate.
(m) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) except as provided in this subsection 6(m)
below, be exercisable for a number of shares of Common Stock equal to the number
of shares of Common Stock surrendered as part or all of the exercise price of
such Option; (ii) have an expiration date which is the same as the expiration
date of the Option the exercise of which gave rise to such Re-Load Option; and
(iii) have an exercise price which is equal to one hundred percent (100%) of the
Fair Market Value of the Common Stock subject to the Re-Load Option on the date
of exercise of the original Option. Notwithstanding the foregoing, a Re-Load
Option shall be subject to the same exercise price and term provisions
heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 11(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
9
<PAGE> 39
(i) CONSIDERATION. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event
a Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the stock bonus agreement.
(iv) TRANSFERABILITY. Rights to acquire shares under the stock bonus
agreement shall be transferable by the Participant only upon such terms and
conditions as are set forth in the stock bonus agreement, as the Board shall
determine in its discretion, so long as Common Stock awarded under the stock
bonus agreement remains subject to the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of restricted stock purchase
agreements may change from time to time, and the terms and conditions of
separate restricted stock purchase agreements need not be identical, but each
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:
(i) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) VESTING. Shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise
10
<PAGE> 40
reacquire any or all of the shares of Common Stock held by the Participant which
have not vested as of the date of termination under the terms of the restricted
stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares under the restricted
stock purchase agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the restricted stock purchase
agreement, as the Board shall determine in its discretion, so long as Common
Stock awarded under the restricted stock purchase agreement remains subject to
the terms of the restricted stock purchase agreement.
8. NON-EMPLOYEE DIRECTORS.
(a) Non-Employee Directors shall be eligible to receive any form of
Stock Award provided for by the Plan, other than Incentive Stock Options, and
such Stock Awards shall be subject to all the terms of the Plan, including
Sections 6 and 12, except as modified by this Section 8. Unless otherwise
specifically provided in the applicable Option Agreement, Nonstatutory Options
granted to Non-Employee Directors ("Non-Employee Director Options") shall be
subject to the provisions of this Section 8.
(b) The term of each Non-Employee Director Option shall commence on the
date it is granted and expire on the date ten (10) years from the date of grant,
unless sooner terminated due to the Non-Employee Director's termination of
Continuous Service. Non-Employee Director Options may be exercised following the
Optionholder's termination of Continuous Service, for whatever reason (to the
extent such Optionholder was entitled to exercise such Option on the date of
such termination), within the period of time ending on the earlier of (i) the
date twelve (12) months following such termination or (ii) the expiration of the
Option as set forth in the Option Agreement.
(c) The exercise price of each Nonstatutory Option granted to a
Non-Employee Director Option shall be one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Option on the date of grant.
(d) In the event of a transaction or event described in any of
subsections 12(b), 12(c), 12(d) or 12(e), then, with respect to Non-Employee
Director Options held by Participants whose Continuous Service has not
terminated, the vesting of such Non-Employee Director Options (and, if
applicable, the time during which such Non-Employee Director Options may be
exercised) shall be accelerated in full.
9. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of
11
<PAGE> 41
the Stock Awards; provided, however, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any Stock Award or any
Common 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 Common Stock under the Plan, the Company
shall be relieved from any liability for failure to issue and sell Common Stock
upon exercise of such Stock Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
11. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant'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
12
<PAGE> 42
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 Stock
Award; and (ii) to give written assurances satisfactory to the Company stating
that the Participant is acquiring Common Stock subject to the Stock Award for
the Participant's own account and not with any present intention of selling or
otherwise distributing the Common Stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (1) the
issuance of the shares of Common Stock upon the exercise or acquisition of
Common Stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (2) 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. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the Common
Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; provided, however, that no
shares are withheld with a value exceeding the minimum amount of tax required to
withheld by law; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
13
<PAGE> 43
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then, with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full, and the Stock Awards shall terminate if
not exercised (if applicable) at or prior to such event, except to the extent
that such Stock Awards are assumed or substituted by a surviving or acquiring
corporation pursuant to subsection 12(c). With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior to such event.
(c) ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the event of
(i) a sale, lease or other disposition of all or substantially all of the assets
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 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 any surviving
corporation or acquiring corporation may assume or continue any Stock Awards
outstanding under the Plan or may substitute similar stock awards (including an
award to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 12(c)) for those outstanding under the
Plan. In the event any surviving corporation or acquiring corporation does not
assume or continue such Stock Awards or substitute similar stock awards for
those outstanding under the Plan, then, with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full, and the Stock Awards shall terminate if
not exercised (if applicable) at or prior to such event. With respect to any
other Stock Awards outstanding under the Plan, such Stock Awards shall terminate
if not exercised (if applicable) prior to such event.
(d) CHANGE IN CONTROL--SECURITIES ACQUISITION. In the event of an
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or an Affiliate) of the beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of Directors, then with
respect to Stock Awards held by Participants whose Continuous Service has not
terminated, the vesting of such Stock Awards (and, if applicable, the time
during which such Stock Awards may be exercised) shall be accelerated in full;
provided, however, that this subsection 12(d) shall not apply if the securities
acquisition described in this subsection 12(d) is the result of or also
constitutes a transaction described in subsection 12(c) above, in which case the
provisions of subsection 12(c) shall apply.
(e) CHANGE IN CONTROL--CHANGE IN INCUMBENT BOARD. In the event that the
individuals who, as of the date of the adoption of this Plan, are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least fifty
percent (50%) of the Board, then with respect to Stock Awards held by persons
whose Continuous Service has not terminated, the vesting of such Stock Awards
(and, if applicable, the time during which such
14
<PAGE> 44
Stock Awards may be exercised) shall be accelerated in full; provided, however,
that this subsection 12(e) shall not apply if the change in the Incumbent Board
described in this subsection 12(e) occurs solely as a result of and/or following
a transaction described in subsection 12(c), in which case the provisions of
subsection 12(c) shall apply. If the election, or nomination for election, by
the Company's stockholders of any new Director was approved by a vote of at
least fifty percent (50%) of the Incumbent Board, such new Director shall be
considered as a member of the Incumbent Board.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 12 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. 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 thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. 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 Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing. Notwithstanding the foregoing, any
action by the Board to (A) reduce the exercise price of outstanding Options
previously granted, (B) cancel outstanding Options and replace them with Options
with a lower exercise price, or (C) effect an exchange of outstanding Options
for new Options with a lower exercise price, shall be effective only if approved
by the Company's stockholders, unless taken pursuant to subsection 12(a), in
connection a transaction described in subsection 12(c) or otherwise in a manner
that would satisfy the provisions of Section 424(a) of the Code or regulations
promulgated thereunder.
15
<PAGE> 45
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect, except with the written consent of the Participant.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the date the Plan is approved by the
stockholders, which approval shall be within twelve (12) months before or after
the date the Plan is adopted by the Board.
16. CHOICE OF LAW.
The law of the State of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.
16
<PAGE> 46
EPIMMUNE INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 9, 2000
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, June 9, 2000 at 9:00 a.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, WHEN SIGNED, 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.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE> 47
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
EPIMMUNE INC.
JUNE 9, 2000
Please Detach and Mail in the Envelope Provided
Please mark your
A [X] votes as in this
example.
<TABLE>
<S> <C> <C>
FOR the nominees WITHHOLD MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND
listed at right (except AUTHORITY FOR PROPOSALS 2 AND 3.
as marked to the to vote for the nominees
contrary below) listed at right
[ ] [ ]
PROPOSAL 2: To approve the Company's 2000 Stock
PROPOSAL 1: Nominees: Howard E. Greene, Jr. Option Plan which replaces the Company's
To elect five William T. Comer, Ph.D. expiring 1989 Stock Plan.
directors to John P. McKearn, Ph.D. FOR AGAINST ABSTAIN
hold office until Deborah A. Schueren [ ] [ ] [ ]
the 2001 Annual Michael G. Grey PROPOSAL 3: To ratify selection of ERNST & YOUNG
Meeting of LLP as independent auditors of the Company
Stockholders. for its fiscal year ending December 31, 2000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
To withhold authority to vote for any nominee(s) write such nominee(s)' name(s)
below:
- -------------------------------------------
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED
RETURN ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED
STATES.
SIGNATURE(S)__________________________________________ ____________________________________________ Dated:____________________,2000
NOTE: 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.
</TABLE>
