SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[ x ] Definitive proxy statement Commission Only (as permitted
[ ] Definitive additional materials by Rule 14a-6(e) (2) )
[ ] Soliciting material pursuant to
Rule 14a-11(c) or Rule 14a-12
NEUROGEN CORPORATION
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than registrant)
Payment of filing fee. (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
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(2) Aggregate number of securities to which transactions applies: N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: N/A
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(4) Proposed maximum aggregate value of transaction: N/A
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(5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
NEUROGEN CORPORATION
April 27, 1998
To the Stockholders of Neurogen Corporation:
On behalf of the Board of Directors, I cordially invite you to attend
the 1998 Annual Meeting of Stockholders of Neurogen Corporation. The Annual
Meeting will be held on Wednesday, May 27, 1998, at 10:00 a.m., local time, at
the Company's Corporate Headquarters at 35 Northeast Industrial Road, Branford,
CT 06405.
A description of business to be conducted at the Annual Meeting is set
forth in the attached Notice of Annual Meeting and Proxy Statement. Also
enclosed is a copy of our 1997 Annual Report to Stockholders.
It is important that your views be represented whether or not you are
able to be present at the Annual Meeting. Please mark, sign, date and return the
enclosed proxy card promptly in the accompanying postage-paid envelope. By
returning the proxy, you can help the Company avoid the expense of duplicate
proxy solicitations and possibly having to reschedule the Annual Meeting if a
quorum of outstanding shares is not present or represented by proxy. If you
attend the Annual Meeting and wish to change your proxy vote, you may do so
simply by voting in person at the Annual Meeting.
<PAGE>
NEUROGEN CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 27, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Neurogen Corporation will be held on Wednesday, May 27, 1998, at 10:00 a.m.,
local time, at the Company's Corporate Headquarters, 35 Northeast Industrial
Road, Branford, CT 06405, for the following purposes:
1. To elect eleven directors to the Board of Directors, each to hold
office until the next Annual Meeting of Stockholders of the Company and until
such director's respective successor shall have been duly elected and qualified.
2. To ratify the appointment by the Board of Directors of Ernst & Young
LLP as the independent auditors for the Company for the fiscal year ending
December 31, 1998.
3. To adopt an amendment to the Neurogen Corporation 1993 Omnibus
Incentive Plan, which as originally adopted provided for the granting of awards
aggregating up to 3,000,000 shares of Common Stock. Currently, approximately
400,000 shares remain available for future awards. The amendment will replenish
the plan by increasing the number of shares available for future awards by
adding 4,000,000 shares to the plan.
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
This Notice is accompanied by a form of proxy, a Proxy Statement and
the Company's 1997 Annual Report to Stockholders. The foregoing items of
business are more fully described in the Proxy Statement.
In accordance with the Company's By-laws, the close of business on
April 15, 1998 has been fixed as the Record Date for the determination of the
stockholders entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof.
Branford, Connecticut
April 27, 1998
IMPORTANT
To ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-paid envelope enclosed for that purpose. If you attend the meeting, you
may vote in person even if you returned a proxy.
<PAGE>
NEUROGEN CORPORATION
PROXY STATEMENT
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Neurogen Corporation (the "Company" or "Neurogen") for use at the Annual Meeting
of Stockholders to be held on May 27, 1998, at 10:00 a.m., local time, or at any
adjournment thereof (the "Annual Meeting"). The Annual Meeting will be held at
the corporate headquarters of Neurogen Corporation, 35 Northeast Industrial
Road, Branford, CT 06405. The purposes of the Annual Meeting are set forth in
the attached Notice of Annual Meeting of Stockholders.
This Proxy Statement, the Notice of Annual Meeting of Stockholders, the
form of proxy and Neurogen's Annual Report to Stockholders are being mailed to
stockholders on or about May 1, 1998.
Record Date and Share Ownership
Stockholders of record on the Company's books at the close of business
on April 15, 1998 (the "Record Date") are entitled to vote at the Annual
Meeting. At the Record Date, 14,401,359 shares of the Company's Common Stock,
par value $.025 per share (the "Common Stock"), were issued and outstanding. For
information concerning stock ownership by certain stockholders, see "Principal
Stockholders".
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation prior to the voting of the proxy or a duly executed
proxy bearing a later date or by attending the Annual Meeting and voting in
person.
Voting and Solicitation
Each stockholder is entitled to one vote for each share of the Common
Stock held of record in his or her name on the Record Date on each matter
submitted to a vote at the Annual Meeting. Cumulative voting is not permitted
with respect to any proposal to be acted upon at the Annual Meeting.
If properly executed and received by the Company before the Annual
Meeting, any proxy representing shares of Common Stock entitled to be voted at
the Annual Meeting and specifying how it is to be voted will be voted
accordingly. Any such proxy, however, which fails to specify how it is to be
voted on a proposal for which a specification may be made will be voted on such
proposal in accordance with the recommendation of the Board of Directors.
Abstentions are counted in tabulations of the votes cast on proposals presented
to stockholders, but broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock entitled to vote at the Annual Meeting,
excluding any shares owned by the Company, is necessary to constitute a quorum.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business.
The cost of soliciting proxies will be borne by the Company. In
addition, the Company expects to reimburse brokerage firms and other persons
representing beneficial owners of Common Stock for their expenses in forwarding
solicitation material to such beneficial owners. Proxies may be solicited by
certain of the Company's directors, officers and regular employees, without
additional compensation, in person or by mail, telephone, facsimile or telegram.
Pursuant to Delaware law, the Board of Directors has appointed an
inspector to act at the Annual Meeting. The inspector shall carry out the duties
imposed pursuant to Section 231 of the Delaware General Corporation Law,
including the counting of votes.
<PAGE>
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
Eleven directors are to be elected to the Board of Directors at the
Annual Meeting. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the eleven nominees of the Board of Directors named
below, all of whom are presently directors of the Company and have served
continuously since the month and year indicated opposite each such director's
name in the following table, each to hold office for a term expiring at the next
Annual Meeting of Stockholders of the Company and until such director's
successor shall have been duly elected and qualified. In the event that any
nominee of the Company is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. It is not
expected that any nominee will be unable or will decline to serve as a director.
In the event that additional persons are nominated for election as directors,
the proxy holders intend to vote all proxies received by them in such a manner
as will assure the election of as many of the nominees listed below as possible,
with any required selection among such nominees to be determined by the proxy
holders. The eleven persons receiving the highest vote totals shall be elected
as directors of the Company.
The Company's Board of Directors recommends a vote FOR the nominees
listed below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name of Nominees Age Principal Occupation Director Since
Barry M. Bloom, Ph.D. 69 Former Executive Vice President, Pfizer Inc December 1993
Robert N. Butler, M.D. 71 Brookdale Professor and Chairman of the July 1989
Department of Geriatrics and Adult Development,
Mount Sinai Medical Center
Frank C. Carlucci 67 Chairman of the Board, Neurogen Corporation; February 1989
Chairman, The Carlyle Group
Jeffrey J. Collinson 56 President, Collinson Howe Venture Partners, Inc. May 1989
Robert M. Gardiner 75 Senior Advisor, Dean Witter Discover & Co. June 1989
Mark Novitch, M.D. 65 Former Vice Chairman of the Board, The Upjohn
Company December 1993
Harry H. Penner, Jr. 52 President and Chief Executive Officer, Neurogen
Corporation December 1993
Robert H. Roth, Ph.D. 58 Professor of Psychiatry and Pharmacology, Yale
University; member of the Scientific Advisory December 1988
Board, Neurogen Corporation
John Simon 55 Managing Director, Allen & Company Incorporated
May 1989
Executive Vice President, Secretary, Scientific
John F. Tallman, Ph.D. 51 Director, and Chairman of the Scientific Advisory
Board, Neurogen Corporation July 1988
Chief Operating Officer, National Academy of
Suzanne H. Woolsey, Ph.D. 50 Sciences/National Research Council January 1998
</TABLE>
<PAGE>
Dr. Roth receives a fee of $1,500 per month for his services as a
director and an additional $1,250 per month for service on the Company's
Scientific Advisory Board. Mr. Carlucci receives an annual fee of $50,000 for
his services as Chairman of the Board. Dr. Bloom receives an annual fee of
$20,000 for consulting services provided to the Company. Directors of the
Company receive out-of-pocket travel expenses in connection with their
attendance at Board meetings. Pursuant to the Neurogen Corporation 1993
Non-Employee Directors Stock Option Program (the "Program"), every future
non-employee director will receive an option (an "Initial Grant") to acquire
20,000 shares of Common Stock at its then-current fair market value upon such
director's first election to the Board of Directors. The current non-employee
directors other than Dr. Woolsey were granted such options on December 30, 1993
with an exercise price of $6.50, per share, the fair market value of the Common
Stock on that date. Dr. Woolsey's Initial Grant was made on January 2, 1998, the
effective date of her election to the Board, with an exercise price of $14.00
per share, the fair market value of the Common Stock on that date. Under the
Program, each non-employee director will be granted annually an option to
acquire 5,000 shares of Common Stock on each anniversary of such director's
Initial Grant, each with an exercise price equal to the fair market value of the
Common Stock on such anniversary. The current non-employee directors other than
Dr. Woolsey were granted such options on December 30, 1994, December 29, 1995,
December 31, 1996, and December 31, 1997 with exercise prices of $6.50, $26.875,
$19.25 and $13.50, respectively, the fair market value of the Common Stock on
such dates. There is no family relationship between any director, executive
officer or person nominated or chosen by the Company to become a director or
executive officer of the Company.
Based solely on its review of the forms required by Section 16(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that have
been received by the Company, the Company believes that all filing requirements
for 1997 applicable to its officers, directors and beneficial owners of greater
than ten percent of its Common Stock have been complied with.
Harry H. Penner, Jr., has been President, Chief Executive Officer and a
director of Neurogen since December 1993. Mr. Penner was employed by Novo
Nordisk A/S from 1981 to 1993, most recently serving as an Executive Vice
President of Novo Nordisk A/S and as President of Novo Nordisk of North America
Inc. Mr. Penner holds an L.L.M. in International Law from New York University
and a J.D. from Fordham University. Mr. Penner also serves on the Board of
Directors of Anergen, Inc. and T Cell Sciences, Inc. (both of which are publicly
traded biotechnology companies), and PRA International, Inc. (a privately held
clinical research organization). Mr. Penner also chairs the Board of Directors
of the Connecticut Technology Council (CTC). In addition, Mr. Penner serves as a
member of the Board of Directors of the Connecticut Business and Industry
Association (CBIA) and the Emerging Companies Section of the Biotechnology
Industry Organization (BIO) and is a member of the professional advisory board
of Connecticut United for Research Excellence (CURE).
Frank C. Carlucci has served as a director and Chairman of the Board of
Neurogen since February 1989. Mr. Carlucci is principally employed as Chairman
of The Carlyle Group, a private merchant bank. Mr. Carlucci served as Secretary
of Defense of the United States from November 1987 through January 1989. Prior
to his appointment as Secretary of Defense, Mr. Carlucci was assistant to the
President of the United States for National Security Affairs. Mr. Carlucci had
been Chairman and Chief Executive Officer of Sears World Trade Inc. from 1984 to
1986, after having served as President and Chief Operating Officer since 1983.
Mr. Carlucci is also a director of Ashland Oil, Inc., Kaman Corporation,
Northern Telecom Limited, The Quaker Oats Company, Sun Resorts, Pharmacia and
Upjohn Inc., Texas Biotech Inc. and IRI International.
Barry M. Bloom, Ph.D., has served as a director of Neurogen since December
1993. Dr. Bloom retired in 1993 from Pfizer where he had been Executive Vice
President, Research and Development and a member of the board of directors. Dr.
Bloom is a director of Southern New England Telecommunications Company, Vertex
Pharmaceuticals, Inc., Incyte Pharmaceuticals, Inc. and Cubist Pharmaceuticals,
Inc.
Robert N. Butler, M.D., has served as a director of Neurogen since July
1989. Dr. Butler has served as the Brookdale Professor and Chairman of the
Department of Geriatrics and Adult Development at Mount Sinai Medical Center
since 1982. From 1976 until 1982, Dr. Butler was the founding director of the
National Institute of Aging of the National Institutes of Health. Dr. Butler won
the 1976 Pulitzer Prize for his book, Why Survive? Being Old in America. He is
the editor-in-chief of Geriatrics, a journal for primary care physicians, and
serves on the editorial board of several other professional publications. Dr.
Butler is presently Chief Executive Officer and President of the International
Longevity Center-USA. He is also a member of the Institute of Medicine of the
National Academy of Sciences and a founding Fellow of the American Geriatrics
Society. He has served as a consultant to the United States Special Committee on
Aging, the National Institute of Mental Health, the Commonwealth Fund, the
Brookdale Foundation and numerous other foundations and corporations.
Jeffrey J. Collinson has served as a director of Neurogen since May 1989.
Mr. Collinson has served as President of Collinson Howe Venture Partners Inc., a
venture capital firm, since 1990 and was President of Schroder Venture Managers,
Inc., a venture capital firm, from 1981 to 1990. Mr. Collinson is chairman of
the board of Incyte Pharmaceuticals, Inc. and is a director of Intensiva
HealthCare Corporation and Spare, Kaplan, Bischell & Associates, Inc.
Robert M. Gardiner has served as a director of Neurogen since June
1989. Mr. Gardiner is currently a Senior Advisor to Dean Witter, Discover & Co.,
having retired as Chairman and Chief Executive Officer of Dean Witter Financial
Services Group Inc. in August 1986. Prior to becoming Chairman and Chief
Executive Officer in 1982, Mr. Gardiner served as President of Dean Witter
Reynolds Inc., the predecessor of Dean Witter Financial Services Group Inc. Mr.
Gardiner has served as Chairman and President of the National Association of
Securities Dealers, Inc., as Chairman of the Securities Industry Association and
of its governing council, as Chairman of the National Securities Processing
Committee and as Vice Chairman of the New York Stock Exchange, Inc. He is also a
former governor or officer of the Association of Stock Exchange Firms, the
Investment Bankers Association of America, the National Clearing Corporation,
the Central Market System Advisory Committee of the Securities and Exchange
Commission, and the Securities Industry Association. He is a director of Dean
Witter, Discover & Co.
Mark Novitch, M.D., has served as a director of Neurogen since December
1993. Dr. Novitch was appointed Professor of Health Care Sciences at The George
Washington University in 1994 and since 1997 has served as Adjunct Professor. He
worked in senior executive positions at The Upjohn Company from 1985 until his
retirement as Vice Chairman of the Board in 1993. Dr. Novitch served at the
United States Food and Drug Administration as Deputy Commissioner and as Acting
Commissioner from 1983-1984. Dr. Novitch is a director of Alteon, Inc., Calypte
Biomedical, Inc., Guidant Corporation and KOS Pharmaceuticals, Inc.
Robert H. Roth, Ph.D., has served as a director of Neurogen since December
1988 and as a member of the Company's Scientific Advisory Board since July 1988.
Dr. Roth has been a Professor of Psychiatry and Pharmacology at Yale University
since 1974. Dr. Roth has a Ph.D. in Pharmacology from Yale University and has
published over 450 papers in the field of Neuropharmacology.
John Simon has served as a director of Neurogen since May 1989. Mr. Simon
is a Managing Director of the investment banking firm of Allen & Company
Incorporated. Mr. Simon is a director of Immune Response Corporation, Batteries
Batteries Inc. and Advanced Technical Products, Inc.
John F. Tallman, Ph.D., has been Executive Vice President, Scientific
Director, Chairman of the Scientific Advisory Board and a director of Neurogen
since July 1988. Dr. Tallman has served as Secretary of the Company since August
1994. Prior to joining Neurogen, Dr. Tallman was an Associate Professor of
Psychiatry and Pharmacology at Yale University and currently serves as an
Adjunct Professor in such departments. Dr. Tallman had previously served in
research director positions at the National Institute of Mental Health in
Bethesda, Maryland. Dr. Tallman received his Ph.D. in Biology from Georgetown
University.
Suzanne H. Woolsey, Ph.D., has served as a director of Neurogen since
January, 1998. Since 1993, Dr. Woolsey has served as Chief Operating Officer of
the National Academy of Sciences/National Research Council, an independent,
federally chartered policy institution. Prior to serving as Chief Operating
Officer, Dr. Woolsey served as the Executive Director of the Commission on
Behavioral and Social Sciences and Education at the National Academy of
Sciences/National Research Council. From 1980 to 1989, Dr. Woolsey served as a
Consulting Partner at Coopers and Lybrand, an accounting firm, where she
developed and directed the firm's consulting practice with healthcare
institutions, research organizations, major research universities and corporate
general counsels. Dr. Woolsey holds a Ph.D. in clinical and social psychology
from Harvard University.
Board Meetings and Committees
The Board of Directors of the Company held four meetings during the
fiscal year ended December 31, 1997. The Board of Directors has an Audit
Committee, a Compensation Committee and a Finance Committee. During the fiscal
year ended December 31, 1997, the Company did not have a nominating committee or
a committee performing the functions of a nominating committee. Mr. Harrison did
not attend any of the meetings of the Board of Directors or the Compensation
Committee held in 1997.
The Audit Committee, which consists of Messrs. Carlucci, Novitch and
Simon, held one meeting in the last fiscal year. The Audit Committee recommends
appointment of the Company's independent auditors and is primarily responsible
for approving the services performed by the Company's independent auditors and
for reviewing and evaluating the Company's accounting principles and its system
of internal accounting controls.
The Compensation Committee, which consists of Messrs. Gardiner,
Carlucci and Collinson, held one meeting during the last fiscal year. The
Compensation Committee reviews and makes recommendations to the Board concerning
the Company's executive and employee compensation and stock option policy,
reviews benefit programs and determines salaries for the executive officers of
the Company.
The Finance Committee, which consists of Messrs. Gardiner, Collinson,
Bloom and Simon, did not hold any meetings in the last fiscal year. The Finance
Committee reviews and makes recommendations to the Board concerning major
finance issues, considers possible finance ventures with third parties and
monitors the Company's existing financial condition.
Certain Relationships and Related Transactions
Pfizer Inc ("Pfizer"), a beneficial owner of more than five percent of
the Common Stock, paid $8.9 million in research funding and made certain
reimbursements to the Company in the last fiscal year pursuant to the terms of
various collaborative agreements between Pfizer and the Company which govern
their research and development collaborations with respect to anxiolytics,
hypnotics and cognition enhancers which act through the GABA family of receptors
and with respect to drugs for the treatment of eating disorders. These amounts
constituted payments in excess of five percent of Neurogen's consolidated gross
revenues for the last fiscal year. Neurogen expects to receive amounts in excess
of five percent of its consolidated gross revenues from Pfizer in fiscal year
1998. In connection with these collaborations with Pfizer, the Company has
granted Pfizer registration rights with respect to shares of the Company's
Common Stock purchased in connection with the collaborations as well as the
right to maintain its level of investment in the Company in future public
offerings of Common Stock.
In 1995, the Company made unsecured, non-interest bearing loans to
Harry H. Penner, Jr., its President and Chief Executive Officer, and to John F.
Tallman, its Executive Vice President and Scientific Director, of $200,000 and
$150,000, respectively. In 1994, the Company made an unsecured, non-interest
bearing loan to Alan J. Hutchison, its Vice President-Drug Discovery, of
$150,000. In 1997, the Company made an unsecured, non-interest bearing loan to
Stephen R. Davis, its Vice President-Finance and Chief Financial Officer, of
$75,000. The largest aggregate amount of indebtedness outstanding at any time
during 1997 with respect to each of Mr. Penner, Dr. Tallman, Dr. Hutchison and
Mr. Davis was $160,000, $120,000, $107,000 and $75,000, respectively. See
"Executive Officers - Summary Compensation Table" below for information
regarding forgiveness of indebtedness and forgiveness of interest on
indebtedness.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 1, 1998, certain
information with respect to the beneficial ownership of Common Stock by each
person known by Neurogen to own beneficially more than five percent of its
outstanding Common Stock, by each director and officer of Neurogen and by all
directors and officers as a group:
<TABLE>
<CAPTION>
Amount and Approximate
Name and Address Nature of Beneficial Percent
of Beneficial Owner Ownership(1) Owned(2)
<S> <C> <C>
Pfizer Inc .................................... 2,846,000 19.8%
235 East 42nd Street
New York, NY 10017
Biotechnology Value Fund.......................... 1,634,306 11.4%
One Sansone Street
San Francisco, CA 94104
Four Partners .................................... 1,408,200 9.8%
867 Madison Ave.
New York, NY 10021
Franklin Resources Inc............................ 769,100 5.3%
777 Mariners Island Blvd. 6th Floor
San Mateo, CA 94404...........................
Harry Penner, Jr. (3)............................. 308,836 2.1%
John F. Tallman, Ph.D. (4)........................ 254,211 1.8%
Alan J. Hutchison, Ph.D. (5)...................... 78,000 *
Stephen R. Davis (6).............................. 42,937 *
Barry M. Bloom, Ph.D. (7)......................... 32,811 *
Robert N. Butler, M.D. (8)........................ 14,019 *
Frank C. Carlucci (9)(11)......................... 141,136 1.0%
Jeffrey J. Collinson (7)(10)...................... 66,823 *
Robert M. Gardiner (7)............................ 66,811 *
Mark Novitch, M.D. (11)........................... 35,811 *
Robert H. Roth, Ph.D. (12)........................ 80,811 *
John Simon (11)(14)............................... 65,315 *
All directors and officers
as a group (13 persons) (15)................... 1,187,521 7.9%
</TABLE>
- ---------------
* Less than one percent (1%).
(1) Share ownership in each case includes shares issuable upon exercise of
outstanding common stock options exercisable within 60 days of March 1,
1998.
(2) Percentage of the outstanding shares of Common Stock, treating as
outstanding for each beneficial owner all shares of Common Stock which
such beneficial owner has indicated are issuable under stock options
exercisable within 60 days of March 1, 1998.
(3) Includes 294,000 shares of Common Stock that Harry H. Penner, Jr. has the
right to acquire under stock options exercisable within 60 days of March
1, 1998.
(4) Includes 106,000 shares of Common Stock that John F. Tallman, Ph.D. has
the right to acquire under stock options exercisable within 60 days of
March 1, 1998. Does not include 2,000 shares of Common Stock owned by
Kathleen Person, Dr. Tallman's spouse. Kathleen Person and Dr. Tallman
disclaim beneficial ownership of each other's shares.
(5) Includes 78,000 shares of Common Stock that Alan J. Hutchison, Ph.D., has
the right to acquire under stock options exercisable within 60 days of
March 1, 1998.
(6) Includes 42,500 shares of Common Stock that Stephen R. Davis has the
right to acquire under stock options exercisable within 60 days of March
1, 1998.
(7) Includes 11,811 shares of Common Stock subject to stock options
exercisable within 60 days of March 1, 1998.
(8) Includes 14,019 shares of Common Stock subject to stock options
exercisable by Robert N. Butler, M.D., within 60 days of March 1, 1998.
(9) Does not include 40,000 shares of Common Stock owned by Mr. Carlucci's
wife. Mr. Carlucci and his wife disclaim beneficial ownership of each
other's shares.
(10) Includes 23,500 shares of Common Stock held by Schroder's Incorporated,
for which Mr. Collinson acts as attorney-in-fact and shares investment
and voting power, and 3,880 shares of Common Stock held by a corporation
which Mr. Collinson controls.
(11) Includes 31,811 shares of Common Stock subject to stock options
exercisable within 60 days of March 1, 1998.
(12) Includes 43,811 shares of Common Stock subject to stock options
exercisable by Robert H. Roth, Ph.D. within 60 days of March 1, 1998.
(13) Does not include shares of Common Stock held by Allen & Company
Incorporated and by persons and entities which may be deemed to be
affiliated with Allen & Company Incorporated, of which shares Mr. Simon
disclaims beneficial ownership.
(14) Includes 709,196 shares of Common Stock subject to stock options
exercisable within 60 days of March 1, 1998.
<PAGE>
EXECUTIVE OFFICERS
In addition to Mr. Penner and Dr. Tallman (See "Election of
Directors"), the other executive officers of the Company who are elected by and
serve at the discretion of the Board of Directors, are as follows:
<TABLE>
<CAPTION>
Name Age Position Officer Since
<S> <C> <C> <C> <C>
Alan J. Hutchison ..........................44 Vice President-Drug Discovery June 1994
Stephen R. Davis ..........................37 Vice President-Finance, July 1994
Chief Financial Officer and
Treasurer
</TABLE>
Alan J. Hutchison, Ph.D., has been Vice President--Drug Discovery since
1992 and a member of Neurogen's Scientific Advisory Board since 1989. Dr.
Hutchison joined Neurogen in 1989 as Director of Chemistry. From 1981 through
1989, Dr. Hutchison was employed by Ciba Giegy, most recently as a Distinguished
Research Fellow. Dr. Hutchison received his B.S. in Chemistry from Stevens
Institute of Technology and received his Ph.D. from Harvard University.
Stephen R. Davis has been Vice President--Finance, Chief Financial Officer
and Treasurer of Neurogen since July 1994. From 1990 through June 1994, Mr.
Davis was employed by Milbank, Tweed, Hadley & McCloy as a corporate and
securities attorney. Previously, Mr. Davis practiced as a Certified Public
Accountant with Arthur Andersen & Co. Mr. Davis received his B.S. in Accounting
from Southern Nazarene University and a J.D. degree from Vanderbilt University.
Compensation of Executive Officers
Compensation Committee Report:1
The Compensation Committee of the Board of Directors consists entirely
of outside directors and is responsible for setting and administering the
policies which govern both annual compensation and stock ownership programs of
the Company. The Compensation Committee evaluates the performance of management
and determines the compensation of Mr. Penner and the other executive officers
of the Company on an annual basis. The Committee has developed and implemented
policies and programs that seek to retain and motivate executive officers in
furtherance of the Company's goal of increasing shareholder value. These
policies include the following objectives:
o Providing base salaries that take into consideration executive
compensation paid by other biopharmaceutical companies of
similar complexity and financial condition. This objective
also takes into account the competitive demand for quality
personnel in the pharmaceutical and biotechnology industries,
individual experience and specific issues particular to the
Company.
o Providing periodic bonus awards for completion of significant
achievements or attainment of significant objectives.
o Providing equity participation in the form of stock option
grants for the purpose of aligning executive officers' longer
term interests with those of the shareholders.
In the biopharmaceutical industry, traditional measures of corporate
performance, such as earnings per share or sales growth, may not readily apply
in reviewing performance of executives. Rather, at the Company's current stage
of development, in determining the compensation of the Company's executives the
Compensation Committee looks to other measures of performance, such as the
progress of the Company's research and development programs and corporate
development activities, the establishment and maintenance of strategic corporate
alliances and the Company's success in securing capital sufficient to assist the
Company in advancing and expanding its product development, including the
funding of clinical trials. The Compensation Committee believes that outstanding
performance in these areas will contribute to the long-term success of the
Company and the growth of shareholder value. The Committee specifically
considers the achievement of milestones related to expansion of the Company's
portfolio of drug development programs and the progress of drug development in
each such program. In addition, the Committee considers the extent to which the
Company's shares have changed in value. However, the Compensation Committee
recognizes that, in the short-term, the market price of the Company's shares may
be affected by industry events and market conditions which are transient in
nature and beyond the control of management. This is especially true in the
biotechnology industry, which is characterized by long product lead times, the
inherently unpredictable nature of drug development, highly volatile stock
prices and fluctuating availability of capital. Accordingly, the Compensation
Committee attempts to retain and appropriately motivate the Company's executives
by balancing the consideration of shorter-term strategic goals with objectives
which are essential in creating longer-term shareholder value.
In many instances the qualitative factors by which the Compensation
Committee judges corporate performance necessarily involve a subjective
assessment by the Committee of management's performance. Moreover, the Committee
does not base its considerations on any single performance factor nor does it
specifically assign relative weights to factors, but rather considers a mix of
factors and evaluates Company and individual performance against that mix.
Compensation paid by the Company to its executive officers is designed
to be competitive with compensation packages paid to the management of other
companies of comparable complexity and financial condition in the
biopharmaceutical industry. Toward that end, the Compensation Committee may
review both independent survey data as well as data gathered internally. Total
compensation for the Company's executive officers includes a base salary
component and may also include other forms of incentives. Incentive compensation
may consist of cash incentive bonuses based on satisfying corporate goals
established for the year as well as on meeting individual performance
objectives. In addition, executive officers of the Company may receive incentive
compensation under the Neurogen Corporation 1993 Omnibus Incentive Plan (the
"Incentive Plan") such as grants of options to purchase shares of the Company's
Common Stock, with exercise prices typically set at fair market value on the
date of grant. Executive compensation may also include loans, which are
typically forgiven over a period of five to seven years, provided the recipient
remains employed by the Company during such period.
Executive officers are eligible for stock option grants as an element
of their total annual compensation package. This component is intended to retain
and motivate executive officers to improve long-term stock performance. Options
are awarded at the discretion of the Compensation Committee. In 1997, all four
of the Company's executive officers received options under the Incentive Plan.
These options are exercisable during the term of the option at the fair market
value of the underlying Common Stock on the date of grant. With respect to
twenty-five percent of the year-end 1997 options granted to these executives
officers, the exercise price may drop to zero at the end of the ten year term of
the option, but only if the officer has remained employed by the Company for a
period of seven years from the date of grant. Generally, option grants vest in
equal amounts over five years and have a ten year term. As with cash bonuses,
the number of options to be granted to each executive officer is based on the
degree of attainment of predetermined Company and personal objectives, with
emphasis, in certain cases, on those which have long-term strategic value. The
Company generally grants stock options to all employees and uses stock options
as a bonus vehicle. The Compensation Committee administers the Incentive Plan.
During the fiscal years ended December 31, 1996 and 1997, the Company
made significant progress in several areas and met or exceeded most of its
performance goals. The Compensation Committee considered the following
developments in 1996 in establishing the base salaries of the executive officers
for fiscal year 1996 and in awarding incentive compensation based on the
Company's performance in 1996: the establishment and integration of Neurogen's
AIDD program for drug discovery, which includes the Company's combinatorial
chemistry, high-throughput screening, informatics and robotics programs; the
application of the AIDD program to expand the Company's portfolio of drug
development programs, such as the discovery of drug candidates which work
through the neurotransmitter systems corticotrophin releasing factor (CRF) and
galanin; the commencement and progress of human clinical trials for the
Company's lead anti-obesity drug; the discovery and advancement of additional
drug candidates in the Company's collaborative programs for drugs to treat
anxiety, schizophrenia, sleep disorders and cognition enhancement; the $10.5
million extension through December 1998 of the research programs with Pfizer
with respect to GABA-based drugs to treat anxiety, sleep disorders and cognition
impairment; and the consummation of an agreement to license to American Home
Products, working through its Wyeth-Ayerst Laboratories division, Neurogen's
rights to its anti-epilepsy drug, ADCI. The Compensation Committee considered
the following developments in 1997 in establishing the base salaries of the
executive officers for fiscal year 1998 and in awarding incentive compensation
based on the Company's performance in 1997: the commencement and progress of
human clinical trials for the Company's anti-anxiety drug candidate, NGD 91-2,
and the advancement of additional drug candidates in the anti-anxiety
collaboration with Pfizer; the commencement and progress of human clinical
trials for the Company's epilepsy drug candidate, ADCI; the conduct of human
clinical trials for the Company's anti-obesity drug candidate, NGD 95-1, to
explore safety and therapeutic potential of the NPY mechanism and the
advancement of additional drug candidates in the anti-obesity collaboration with
Pfizer; the development and selection of clinical candidates in the Company's
insomnia and cognition enhancement research programs partnered with Pfizer; the
discovery and advancement of additional drug candidates in the Company's
schizophrenia drug program partnered with Schering-Plough; the discovery and
advancement of a new class of compounds in the Company's CRF stress disorder
program; and the further advancement of the Company's proprietary AIDD drug
discovery program and the application of this technology to discover drug
candidates in new areas, including CRF agonists for the potential treatment of
obesity and GLP1 agonists for the potential treatment of Type II diabetes,
thereby expanding the Company's portfolio of drug development programs to
eleven. The Compensation Committee believes that the commitment and leadership
of the Company's executive officers were important factors in the Company's
achievements in fiscal 1997.
In December 1997, the Compensation Committee met to review the
Company's performance and the performance of the Company's executive officers
during fiscal 1997, to determine cash incentive bonuses and stock option grants
to such executive officers and to set base salary levels for fiscal 1998. Mr.
Penner is not present during the Compensation Committee's discussion and
determination of his compensation. In recognition of the achievement of Company
and individual performance criteria outlined above, the Compensation Committee
approved increases in the base salaries of, and awarded cash incentive bonuses
and stock options to, all the executive officers including Mr. Penner whose
compensation is further described below.
CEO Compensation - In evaluating the compensation of Harry H. Penner,
Jr., the Committee considered the significant role Mr. Penner played in each of
the above noted accomplishments. In December 1997, the Compensation Committee
raised Mr. Penner's base salary from $340,000 to $357,000, effective December 1,
1997, and awarded Mr. Penner a cash bonus of $136,000 or 38 percent of his base
salary. As additional recognition of Mr. Penner's efforts in 1997, and in
furtherance of the Committee's belief that a substantial portion of Mr. Penner's
total compensation should be dependent on the long-term appreciation of the
Company's stock price, in December the Committee granted Mr. Penner an option to
purchase 80,000 shares of Neurogen Common Stock pursuant to the Incentive Plan.
Mr. Penner's salary increase and awards reflect the Compensation Committee's
assessment of his very favorable performance and his contribution to the
Company's achievement of significant milestones.
By the Compensation Committee: Robert M. Gardiner, Frank C. Carlucci,
and Jeffrey J. Collinson.
<PAGE>
For the three years ended December 31, 1997, 1996, and 1995, the
Company paid the amounts shown in the following table with respect to each of
the executive officers of the Company.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
Securities All Other
Other Annual Underlying Compen-
Name and Principal Year Salary Bonus Compensation Options(a) sation
Position ($) ($) ($) (#) ($)
- ----------------------- ---- -------- ---- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Harry H. Penner, Jr. 1997 340,000 136,000 45,206(b) 80,000 8,636(c)
President and Chief 1996 311,583 122,000 41,605(d) 80,000 9,586(c)
Executive Officer 1995 295,250 147,000 118,898(e) 100,000 7,704(c)
John F. Tallman 1997 215,000 80,000 33,904(f) 60,000 5,752(c)
Executive Vice-President, 1996 201,250 70,000 31,205(g) 60,000 5,772(c)
President, Scientific Director 1995 190,833 95,000 6,529(h) 75,000 3,811(c)
and Secretary
Alan J. Hutchison 1997 193,500 70,000 31,493(i) 50,000 3,877(c)
Vice President-Drug Discovery 1996 180,000 40,000 47,387(j) 40,000 3,029(c)
1995 170,000 60,000 55,710(k) 50,000 782(l)
Stephen R. Davis 1997 167,700 45,000 7,639(m) 25,000 3,705(c)
Vice President-Finance, 1996 156,000 39,000 6,222(n) 25,000 3,796(k)
Chief Financial Officer, Treasurer 1995 148,630 50,000 28,687(o) 31,250 414(k)
- ------------------
</TABLE>
(a) References to SARs in the Summary Compensation Table and all other tables
in this Proxy Statement have been omitted, since the Company has never
issued SARs, although under the Neurogen Corporation 1993 Omnibus
Incentive Plan it has the ability to do so.
(b) Includes $28,571 of forgiveness of loan, forgiveness of interest of
$9,058 on loan and income tax reimbursements of $7,577.
(c) Includes premiums for life insurance, and matching contribution received
from participation in the Company's 401(k) plan.
(d) Includes $28,571 of forgiveness of loan, forgiveness of interest of
$7,097 on loan and income tax reimbursements of $5,937.
(e) Includes forgiveness of interest of $4,740 on loan, relocation expenses
of $60,000 and income tax reimbursement of $54,158. While Mr. Penner
commenced employment with the Company in December 1993, his relocation
expenses and related income tax reimbursements were not paid until 1995.
(f) Includes $21,429 of forgiveness of loan, forgiveness of interest of
$6,793 and income tax reimbursements of $5,683.
(g) Includes $21,429 of forgiveness of loan, forgiveness of interest of
$5,323 on loan and income tax reimbursements of $4,453.
(h) Includes forgiveness of interest on loan and income tax reimbursements.
(i) Includes $21,429 of forgiveness of loan, forgiveness of interest of
$5,480 and income tax reimbursements of $4,584.
(j) Includes forgiveness of loan of $21,429, forgiveness of interest of
$4,373 of loan and income tax reimbursement of $21,585.
(k) Includes $21,429 of forgiveness of loan, forgiveness of interest of
$8,905 on loan and income tax reimbursements of $25,376.
(l) Includes premiums for life insurance.
(m) Includes $5,000 of forgiveness of loan, forgiveness of interest of $1,437
and income tax reimbursements of $1,202.
(n) Includes forgiveness of loan of $5,000, forgiveness of interest of $665
of loan and income tax reimbursements of $557.
(o) Includes $5,000 of forgiveness of loan, forgiveness of interest of $2,290
on loan, relocation expenses of $9,760 and income tax reimbursements of
$11,637. While Mr. Davis commenced employment with the Company in July
1994 his relocation expenses and related income tax reimbursements were
not paid until 1995.
<PAGE>
For the year ended December 31, 1997, the following tables summarize
incentive compensation paid to executive officers.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
% of Total Potential Realizable Value
Options Granted at Assumed Annual Rates of
Number of to Employees in Stock Price Appreciation
Securities Fiscal Year Exercise or for Option Term
Underlying Base Price Expiration
Name Options ($/Share) Date
Granted
5%($) 10%($)
----- ------
<S> <C> <C> <C> <C> <C> <C>
Harry H. Penner, Jr. 80,000* 11% 13.50* 12/31/07 $679,206 $1,721,242
John F. Tallman 60,000* 8% 13.50* 12/31/07 509,405 1,290,931
Alan J. Hutchison 40,000* 7% 13.50* 12/31/07 424,504 1,075,776
Stephen R. Davis 25,000* 3% 13.50* 12/31/07 212,252 537,888
</TABLE>
* With respect to twenty five percent (25%) of the year-end 1997 options granted
to these executive officers, the exercise price may drop to zero at the end of
the ten year term of the option, but only if the officer has remained employed
by the Company for a period of seven (7) years from the date of grant.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options at Fiscal
Acquired on Value Fiscal Year-End Year-End($)(a)
Exercise(#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
Name ($)(a)
<S> <C> <C> <C> <C>
Harry H. Penner, Jr. - - 294,000/296,000 $1,654,000/$636,000
John F. Tallman - - 106,000/189,000 $443,900/$246,950
Alan J. Hutchison - - 78,000/132,000 $350,000/$140,000
Stephen R. Davis - - 42,500/88,750 $162,500/$162,500
- ------------------
</TABLE>
(a) Difference between option price and fair market value of the shares at
year-end.
Terms and Conditions of Certain Employment and Severance Agreements
The compensation package for Harry H. Penner, Jr., as President and
Chief Executive Officer, includes a salary paid pursuant to an employment
agreement between Mr. Penner and the Company which was entered into in October
1993. The agreement expired on November 30, 1997, but was automatically extended
for an additional two-years pursuant to the terms of the agreement. Under such
agreement, Mr. Penner's base salary of $340,000 per annum in 1997 was increased
to $357,000 effective December 1, 1997. Such increase was, and any future
increases will be, at the discretion of the Board of Directors. The employment
agreement restricts Mr. Penner from competing with the Company for the term of
the agreement and for a period of one year after termination of his employment
with the Company.
The compensation package for John F. Tallman, as Executive Vice
President and Scientific Director of Neurogen, includes a salary paid pursuant
to an employment agreement between Dr. Tallman and the Company which was entered
into in June 1994. The agreement expired on November 30, 1997, but was
automatically extended for an additional two-years pursuant to the terms of the
agreement. Under such agreement, Dr. Tallman's base salary of $215,000 per annum
in 1997 was increased to $226,000 effective December 1, 1997. Such increase was,
and any future increases will be, at the discretion of the Board of Directors.
The employment agreement restricts Dr. Tallman from competing with the Company
for the term of the agreement and for a period of one year after termination of
his employment with the Company.
The compensation package for Alan J. Hutchison, as Senior Vice
President - Drug Discovery of Neurogen, includes a salary paid pursuant to a
two-year renewable employment agreement between Dr. Hutchison and the Company
effective December 1, 1998. Under such agreement, Dr. Hutchison's base salary of
$193,500 per annum in 1997 was increased to $215,000 effective December 1, 1997.
Such increase was, and any future increases will be, at the discretion of the
Board of Directors. The employment agreement restricts Dr. Hutchison from
competing with the Company for the term of the agreement and for a period of one
year after termination of his employment with the Company.
The compensation package for Stephen R. Davis, Vice President - Finance
and Chief Financial Officer of Neurogen, includes a salary paid pursuant to a
two-year renewable employment agreement between Mr. Davis and the Company
effective December 1, 1998. Under such agreement, Mr. Davis' base salary of
$167,700 per annum in 1997 was increased to $180,000 effective December 1, 1997.
Such increase was, and any future increases will be, at the discretion of the
Board of Directors. The employment agreement restricts Mr. Davis from competing
with the Company for the term of the agreement and for a period of one year
after termination of his employment with the Company.
<PAGE>
PERFORMANCE GRAPH1
The following graph compares the yearly percentage in the Company's
cumulative total stockholder return on its Common Stock during a period
commencing on December 31, 1992 and ending December 31, 1997 (as measured by
dividing (i) the sum of (A) the cumulative amount of dividends for the
measurement period, assuming dividend reinvestment, and (B) the difference
between the Company's share price at the end and the beginning of the period; by
(ii) the share at the beginning of the period) with the cumulative return of the
NASDAQ Stock Market Index (U.S. and Foreign) and the Amex Biotechnology Index.
It should be noted that Neurogen has not paid dividends on Common Stock, and no
dividends are included in the representation of the Company's performance. The
stock price performance on the graph below is not necessarily indicative of
future price performance.
<TABLE>
<CAPTION>
NASDAQ Amex
Neurogen Total Market Biotech
<S> <C> <C> <C>
12/31/92 100.0 100.0 100.0
12/31/93 80.3 115.8 67.9
12/31/94 78.8 112.3 48.1
12/31/95 325.8 157.7 78.4
12/31/96 233.3 193.1 84.6
12/31/97 163.6 236.3 95.2
</TABLE>
- ---------------------
1 This Section is not "soliciting material," is not deemed "filed" with
the SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, whether made before or after the date hereof and irrespective of
any general incorporation language in any such filing.
<PAGE>
37
PROPOSAL NO. 2:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
certified public accountants, as auditors to audit the financial statements of
the Company for the year ending December 31, 1998 and recommends that the
stockholders ratify such selection. Ernst & Young LLP audited the Company's
annual financial statements for fiscal year ended December 31, 1997.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditor is not required by the Company's by-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Board will reconsider whether
or not to retain the firm. Even if the selection is ratified, the Board, or the
Audit Committee acting on behalf of the Board, in its discretion may direct the
appointment of a different firm of independent auditors at any time if the
Board, or the Audit Committee, determines that such a change would be in the
best interests of the Company and its stockholders.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
The Board of Directors recommends a vote FOR approval of this proposal.
If not otherwise specified, proxies will be voted FOR approval.
<PAGE>
PROPOSAL NO. 3:
AMENDMENT OF 1993 OMNIBUS INCENTIVE PLAN TO
INCREASE SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE.
The maximum number of shares of Common Stock as to which awards may be
granted under the 1993 Omnibus Incentive Plan (the "Plan") as originally
adopted was limited to three million (3,000,000) shares. As of April 20,
1998 a total of 394,594 shares of Common Stock remained available for
future grants under the Plan. Since the adoption of the Plan, the number
of full time staff employed by the Company has approximately tripled.
Each full time employee typically receives a grant of stock options upon
the commencement of employment and a performance based grant at the end
of each fiscal year. In order to replenish the Plan and provide for
sufficient shares of Common Stock for future grants, the Board of Directors
has approved amending the Plan, subject to stockholder approval, to
provide that the number of shares of Common Stock reserved for issuance
under the Plan be increased by adding four million (4,000,000) new
shares to the original three million (3,000,000) shares approved upon
adoption of the Plan. The Plan as so amended is hereby submitted to the
stockholders of the Company for approval.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF
THE AMENDMENT TO THE 1993 OMNIBUS INCENTIVE PLAN ALLOWING FOR THE INCREASE
OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER.
A general description of the basic features of the Plan is set forth below,
Such description is qualified in its entirety by reference to the full text
of the Plan which is set forth, as it is proposed to be amended hereby, in
full as Appendix A to this Proxy Statement.
PURPOSE
The purpose of the Plan is to further and promote the interests of Neurogen
and its stockholders by enabling the Company to attract, retain and
motivate employees and consultants or those who will become employees or
consultants, and to align the interests of those individuals and the
Company's stockholders. To do this, the Plan offers performance-based
incentive awards and equity-based opportunities to provide such persons
with a proprietary interest in maximizing the growth, profitability and
overall success of the Company.
NUMBER OF SHARES
Under the Plan as initially adopted, the maximum number of shares of Common
Stock as to which awards could be granted was not to exceed three million
(3,000,000) shares. The Board of Directors has approved amending the Plan,
subject to stockholder approval, to provide that the number of shares of
Common Stock reserved for issuance under the Plan be increased by four
million (4,000,000) shares from three million (3,000,000) to seven million
(7,000,000) shares. During any calendar year, no individual may be granted
stock options under the Plan to acquire more than one hundred thousand
(100,000) shares of Common Stock. The limits on the numbers of shares
described in this paragraph are subject to proportional adjustment to
reflect certain stock changes, such as stock dividends and stock splits.
If, however, any awards expire or terminate unexercised, the shares of
Common Stock allocable to the unexercised or terminated portion of such
award shall again be available for awards under the Plan to the extent of
such expiration or termination, subject to certain limitations under the
Plan.
ADMINISTRATION
The administration, interpretation and operation of the Plan will be vested
in the Compensation Committee. Members of the Compensation Committee will
serve at the pleasure of the Company's Board of Directors, which may at any
time remove or add members to it. No member of the Compensation Committee,
nor any other director who is not a salaried employee or consultant of the
Company will be eligible to receive an award under the Plan. The day-to-day
administration of the Plan will be carried out by of officers and employees
of the Company designated by the Compensation Committee.
ELIGIBILITY
All salaried employees (including officers and directors who are salaried
employees) and consultants of the Company are eligible to receive awards
under the Plan. Salaried employees who would be eligible to receive awards
of stock options under the Plan would also be eligible to receive awards of
Restricted Shares. Awards under the Plan will be made by the Compensation
Committee or by an executive officer who has been delegated authority to
grant awards pursuant to the Plan by the Compensation Committee. Awards
will be made pursuant to individual award agreements between the Company
and each participant.
AWARDS UNDER THE PLAN
Introduction. Awards under the Plan may consist of stock options, stock
appreciation rights, restricted shares or performance unit awards, each of
which is described below. All awards will be evidenced by an agreement
approved by the Compensation Committee. In the discretion of the
Compensation Committee, an eligible employee may receive awards from one or
more of the categories described below, and more than one award may be
granted to an eligible employee. In the event of any change in the
outstanding shares of Common Stock of the Company by reason of certain
stock changes, including without limitation stock dividends and stock
splits, the terms of awards and number of shares of any outstanding award
may be equitably adjusted by the Board of Directors in its sole discretion.
No determination has been made as to future awards which may be granted
under the Plan, although it is anticipated that recipients of awards will
include the current executive officers of the Company.
Stock Options and Stock Appreciation Rights. A stock option is an award that
entitles a participant to purchase shares of Common Stock at a price fixed
at the time the option is granted. Stock options granted under the Plan may
be in the form of incentive stock options (which qualify for special tax
treatment), non-qualified stock options or reload stock options and may be
granted alone or in addition to other awards under the Plan. Non-qualified
stock options may be granted alone or in tandem with stock appreciation
rights (SARs).
SARs entitle a participant to receive, upon exercise, cash, restricted
shares or unrestricted shares of Common Stock as provided in the relevant
award agreement, with a value equal to (a) the difference between (i) the
fair market value on the exercise date of the shares with respect to which
an SAR is exercised and (ii) the fair market value on the date the SAR was
granted, multiplied by (b) the number of shares of Common Stock for which
the SAR has been exercised. No SAR may be exercised until six months after
its grant or prior to the exercisability of the stock option with which it
is granted in tandem, whichever is later.
The exercise price and other terms and conditions of such options will be
determined by the Compensation Committee at the time of grant, and in the
case of incentive stock options and reload stock options, such exercise
price will not be less than 100 percent of the fair market value of the
Common Stock on the date of the grant. No term of any incentive stock
options shall exceed ten years after grant. An option or SAR grant under the
Plan does not provide an optionee any rights as a shareholder and such
rights will accrue only as to shares actually purchased through the exercise
of an option or the settlement of an SAR.
Exercise of an option (or an SAR) will result in the cancellation of the
related SAR (or option) to the extent of the number of shares in respect of
which such option or SAR has been exercised. Unless otherwise determined by
the Compensation Committee or provided in the relevant award agreement,
stock options shall become exercisable over a five year period from the date
of grant with 20% vesting on each anniversary of the grant in that time
period.
Payment for shares issuable pursuant to the exercise of an option may be
made either in cash, by tendering either a fully-secured promissory note or
shares of Common Stock owned by a participant for at least six months with a
fair market value at the date of exercise equal to the portion of the
exercise price which is not paid in cash. The Compensation Committee may
also allow participants to simultaneously exercise stock options and sell
the shares of Common Stock acquired thereby, pursuant to a "cashless
exercise" arrangement.
Restricted Share Awards. Restricted share awards are grants of Common Stock
made to a participant subject to conditions established by the Compensation
Committee in the relevant award agreement. The restricted shares only become
unrestricted in accordance with the conditions and vesting schedule, if any,
provided in the relevant award agreement, but in no event shall restricted
shares vest prior to six months after the date of grant. A participant may
not sell or otherwise dispose of restricted stock until the conditions
imposed by the Compensation Committee have been satisfied. Restricted share
awards under the Plan may be granted alone or in addition to any other
awards under the Plan. Restricted shares which vest will be reissued as
unrestricted Common Stock.
Each participant who receives a grant of restricted shares will have the
right to receive all dividends and vote or execute proxies for such shares.
Any stock dividends will be treated as additional restricted shares.
Performance Units. Performance units (with each unit representing a monetary
amount designated in advance by the Compensation Committee) are awards
which may be grated to employees alone or in addition to any other awards
under the Plan. Participants receiving performance unit grants will only
earn such units if the Company and/or the participant achieve certain
performance goals during a designated performance period. The Compensation
Committee will establish such performance goals and may use such measures
as total shareholder return, return on equity, net earnings growth, sales
or revenue growth, comparison to peer companies, individual or aggregate
participant performance or such other measures the Compensation Committee
deems appropriate. The participant may forfeit such units in the event the
performance goals are not met. If all or a portion of a performance unit is
earned, payment of the designated value thereof will be made in cash, in
unrestricted Common Stock, in restricted shares or in discounted
non-qualified stock options, as provided in the relevant award agreement.
FORFEITURE UPON TERMINATION
Unless otherwise provided in the relevant award agreement or in a
participant's then-effective employment or consulting agreement, if a
participant's employment is terminated for any reason, any unexercisable
stock option or SAR shall be forfeited and canceled by the Company. Such
participant's right to exercise any then-exercisable stock option or SAR
will terminate according to a schedule which provides for an exercise period
which reflects the length of employment of the participant (but not beyond
the stated term of such stock option or SAR); provided, however, the
Committee may (to the extent options were exercisable on the date of
termination) extend such periods. If a participant dies, becomes totally
disabled or retires, such participant (or the estate or other legal
representative of the participant), to the extent the stock options of SARs
are exercisable immediately prior to the date of death, total disability or
retirement, will be entitled to exercise any stock options or SARs for at
least the two year period following such death, disability or retirement,
but not beyond the stated term of such stock option or SAR.
Unless otherwise provided in the relevant award agreement or in a
participant's then-effective employment or consulting agreement, if a
participant's employment is terminated for any reason (other than due to
death, total disability or retirement) (a) prior to the lapsing of any
applicable restriction period, or the satisfaction of any other
restrictions, applicable to any grant of restricted shares, or, (b) prior
to the completion of any performance period in respect of any grant of
performance units, such restricted shares or performance units, as the case
may be, will be forfeited by such participant; provided, however, that the
Compensation Committee may, in its sole discretion, determine within 90
days after such termination that all or a portion of such restricted shares
or performance units, as the case may be, shall not be so forfeited. In the
case of death, total disability or retirement, the participant (or the
estate or other legal representatives of the participant) shall become 100%
vested in any restricted shares as of the date of termination or shall be
entitled to earn into the participant's performance units.
CHANGE OF CONTROL
If a Change of Control, as defined in the Plan, occurs (i) all Stock Options
and/or SARs then unexercised and outstanding will become fully vested and
exercisable, (ii) all restrictions, terms and conditions applicable to
restricted shares then outstanding will be deemed lapsed and satisfied and
(iii) all performance units will be deemed to have been fully earned, each
as of the date of the Change of Control; provided, however, that such Change
of Control provisions will only apply to those participants who are employed
by or perform consulting services for the Company as of the date of the
Change of Control.
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Board of Directors may amend, suspend or terminate the Plan (or any
portion thereof) at any time; provided, however, that no amendment by the
Board of Directors may, without the approval of a majority of the
stockholders, (i) increase the number of shares of Common Stock which may be
issued under the Plan, except as provided therein, (ii) materially modify
the requirements as to eligibility for participation in the Plan, (iii)
materially increase the benefits accruing to participants under the Plan
except as permitted therein, provided Rule 16b-3 of the Exchange Act does
not require shareholder approval. No amendment, suspension or termination by
the Board of Directors shall (a) materially adversely affect the rights of
any participant under any outstanding share grants, without the consent of
such participant, or (b) make any change that would disqualify the Plan from
the exemption provided by Rule 165-3 of the Exchange Act or from the
benefits or entitlements to deductions provided under Sections 422 and
162(m) of the Internal Revenue Code of 1986 (the "Code"), respectively.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
Incentive Stock Options. Stock options granted under the Plan may be
incentive stock options (within the meaning of Section 422 of the Code) or
non-qualified stock options. Upon the grant of an incentive stock option,
the optionee will not recognize any income. No income is recognized by the
optionee upon the exercise of an incentive stock option if the holding
period requirements contained in the Plan and in the Code are met, including
the requirement that the optionee remain an employee of the Company (or a
subsidiary) during the period beginning with the date of the grant of the
option and ending on the day three months (one year if the optionee becomes
disabled) before the date the option is exercised. The optionee must
increase his or her alternative minimum taxable income for the taxable year
in which he or she exercised the incentive stock option by the amount that
would have been ordinary income had the option not been an incentive stock
option.
Upon the subsequent disposition of shares acquired upon the exercise of an
incentive stock option, the federal income tax consequences will depend upon
when the disposition occurs and the type of disposition. If the shares are
disposed of by the optionee after the end of the one-year period beginning
on the day after the day the shares are issued to the optionee, any gain or
loss realized upon such disposition will be long-term capital gain or loss,
and the Company (or a subsidiary) will not be entitled to any income tax
deduction in respect of the option or its exercise. For purposes of
determining the amount of such gain or loss, the optionee's tax basis in the
shares will be the option price.
Generally, if the shares are disposed of by the optionee in a taxable
disposition within the one-year period beginning on the day after the day
the shares are issued to the optionee, the excess, if any, of the amount
realized (up to the fair market value of the shares on the exercise date)
over the option price will be compensation taxable to the optionee as
ordinary income, and the Company will be entitled to a deduction (subject to
the provisions of Section 162(m) of the Code discussed below under the
caption "Limits on Deductions") equal to the amount of ordinary income
realized by the optionee.
If an optionee has not remained an employee of the Company during the period
beginning with the grant of an incentive stock option and ending on the day
three months (one year if the optionee becomes disabled) before the date the
option is exercised, the exercise of such option will be treated as the
exercise of a non-qualified stock option with the tax consequences described
below.
Non-Qualified Stock Options. Upon the grant of a non-qualified stock option,
an optionee will not recognize any income. At the time a non-qualified
option is exercised, the optionee will recognize compensation taxable as
ordinary income, and the Company will be entitled to a deduction (subject to
the provisions of Section 162(m) of the Code discussed below under the
caption "Limits on Deductions"), in an amount equal to the difference
between the fair market value on the exercise date of the shares acquired
pursuant to such exercise and the option price. Upon a subsequent
disposition of the shares, the optionee will recognize long- or short-term
capital gain or loss, depending upon the holding period of the shares. For
purposes of determining the amount of such gain or loss, the optionee's tax
basis in the shares will be the fair market value of such shares on the
exercise date.
Effect of Share-for-Share Exercise. If an optionee elects to tender shares
of Common Stock in partial or full payment of the option price for shares to
be acquired through the exercise of an option, generally the optionee will
not recognize any gain or loss on such tendered shares. However, if the
shares tendered in connection with any share-for-share exercise were
previously acquired upon the exercise of an incentive stock option, and such
share-for-share exercise occurs within one year after the tendered shares
were transferred to the optionee, the tender of such shares will be a
taxable disposition with the tax consequences described above for the
taxable disposition within one year of shares acquired upon the exercise of
an incentive stock option.
If the optionee tenders shares upon the exercise of an option which would
result in the receipt of compensation by the optionee, as described above
under the caption "Non-Qualified Stock Options", the optionee will recognize
compensation taxable as ordinary income and the Company will be entitled to
a deduction (subject to the provisions of Section 162(m) of the Code
discussed below under the caption "Limits on Deductions") in an amount equal
only to the fair market value of the number of shares received by the
optionee upon exercise which is in excess of the number of tendered shares,
less any cash paid by the optionee.
Limits on Deductions. Under Section 162(m) of the Code, the amount of
compensation paid to the chief executive officer and the four other most
highly paid executive officers of the Company in the year for which a
deduction is claimed by the Company (including its subsidiaries) is limited
to $1,000,000 per person in any year, except that compensation which is
performance-based will be excluded for purposes of calculating the amount of
compensation subject to this $1,000,000 limitation. The ability of the
Company to claim a deduction for compensation paid to any other executive
officer or employee of the Company (including its subsidiaries) is not
affected by this provision.
The Company has structured the Plan so that any compensation for which the
Company may claim a deduction in connection with the exercise of
non-qualified stock options and related SARs and the disposition by an
optionee of shares acquired upon the exercise of incentive stock options
will be performance-based within the meaning of Section 162(m) of Code.
Because the restricted share awards under the Plan are not deemed to be
performance-based under Section 162(m) of the Code, amounts for which the
Company may claim a deduction upon the lapse of any restrictions on such
restricted share awards will be subject to the limitations on deductibility
under Section 162(m).
Additional Information. Unless an appropriate election is made under Section
83(b) of the Code to include amounts in income currently, under Section
83(c)(3) of the Code an employee who is an officer of the Company subject to
Section 16(b) of the Exchange Act will not, in certain instances, recognize
any income upon the satisfaction of the terms and conditions applicable to a
restricted stock unit, if the sale of the shares received upon such
satisfaction could subject the employee to liability under Section 16(b) of
the Exchange Act Regulations issued by the Internal Revenue Service provide
that in such a situation income will be recognized not later than six months
after such satisfaction, even though a sale of such shares after that time
could still subject the employee to suit under Section 16(b). In connection
with any of such events, the Company is not entitled to a deduction until
the date the employee recognizes income with respect to such event.
The recognition by an employee of compensation income with respect to a
grant or an award under the Plan will be subject to withholding for federal
income and employment tax purposes. If an employee, to the extent permitted
by the terms of a grant or award under the Plan, uses shares of Common Stock
to satisfy the federal income and employment tax withholding obligation, or
any similar withholding obligation for state and local tax obligations, the
employee will recognize a capital gain or loss, short-term or long-term,
depending on the tax basis and holding period for such shares of Common
Stock.
If the provisions of the Plan relating to a change in control become
applicable, certain compensation payments or other benefits received by
"disqualified individuals" (as defined in Section 280G(c) of the Code) under
the Plan or otherwise may cause or result in "excess parachute payments" (as
defined in Section 280G(b)(I) of the code). Section 4999 of the code
generally imposes a 20% excise tax on the amount of any such excess
parachute payment received by such a disqualified individual, and any such
excess parachute payments will not be deductible by the Company (or a
subsidiary). In addition, certain disqualified individuals may receive
reimbursement payments from the Company to eliminate the adverse effect of
such 20% excise tax
Any such reimbursement payments will be compensation income to the recipient
subject to additional income and excise taxation, but will not be deductible
by the Company (or any subsidiary).
* * * * *
At April 20, 1998 the total number of outstanding shares of Common Stock was
14,405,409 shares. The closing price of the Common Stock on the NASDAQ
National Market on April 20, 1998 was 16.688 per share.
EFFECTIVE DATE
The Plan became effective on December 30, 1993, the date of its adoption by
the Board of Directors. The Plan will terminate on December 21, 2003, except
with respect to awards then outstanding. After such date no further awards
will be granted under the Plan unless the Plan is extended by the Board of
Directors.
APPROVAL OF THE PROPOSED AMENDMENT TO THE PLAN
To become effective, the Proposed Amendment to the Plan must be approved by
the affirmative vote of a majority of the votes cast at the Annual Meeting
on this proposal by the holders of the shares of Common Stock entitled to
vote thereat.
The Board of Directors recommends that the stockholders vote FOR approval of
this proposal. If not otherwise specified, proxies will be voted FOR
approval.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
The Board of Directors of the Company knows of no other matters to be
submitted to the Annual Meeting. If any other matters properly come before the
Annual Meeting, it is the intention of the persons named in the enclosed form of
proxy to vote the shares of Common Stock they represent as the Board of
Directors may recommend. Anyone desiring to address the stockholders at the
Annual Meeting, whether or not making a formal proposal, must so indicate this
intention to the Secretary of the Company prior to the Annual Meeting.
In order to be considered for inclusion in the Proxy Statement and form
of proxy relating to the 1999 Annual Meeting of Stockholders, any proposal by a
stockholder of record of the Company must be received by the Company at its
principal executive offices in Branford, Connecticut, on or before December 20,
1998.
THE COMPANY WILL MAIL WITHOUT CHARGE, TO EACH STOCKHOLDER ENTITLED TO
VOTE AT THE ANNUAL MEETING UPON WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF
EXHIBITS, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WRITTEN REQUESTS
SHOULD BE SENT TO: CORPORATE SECRETARY, NEUROGEN CORPORATION, 35 NORTHEAST
INDUSTRIAL ROAD, BRANFORD, CONNECTICUT 06405
JOHN F. TALLMAN
Secretary
April 27, 1998
<PAGE>
APPENDIX A
NEUROGEN CORPORATION
1993 OMNIBUS INCENTIVE PLAN, AS AMENDED
1. PURPOSE. The purpose of the 1993 Omnibus Incentive Plan is to
further and promote the interests of Neurogen Corporation, its Subsidiaries
and its shareholders by enabling the Company and its Subsidiaries to attract,
retain and motivate employees and consultants or those who will become
employees or consultants, and to align the interests of those individuals and
the Company's shareholders. To do this, the Plan offers performance-based
incentive awards and equity-based opportunities to provide such persons with a
proprietary interest in maximizing the growth, profitability and overall
success of the Company and its Subsidiaries.
2. DEFINITIONS. For purposes of the Plan, the following terms shall
have the meanings setforth below:
2.1 "Award" means an award or grant made to a Participant
under Sections 6, 7, 8 and/or 9 of the Plan.
2.2 "Award Agreement" means the agreement executed by
a Participant pursuant to Sections 3.2 and 17.7 of the Plan in connection with
the granting of an Award.
2.3 "Board" means the Board of Directors of the Company,
as constituted from time to time.
2.4 "Change of Control" means (i) any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
acquires, as a result of any purchase or exchange, or any merger,
consolidation or other reorganization, a majority of the outstanding voting
securities or assets of the Company or (ii) the Board or the Company's
shareholders, either or both, as may be required to authorize the same, shall
approve any liquidation or dissolution of the Company or sale of all or
substantially all of the assets of the Company.
2.5 "Code" means the Internal Revenue Code of 1986, as in
effect and as amended from time to time, or any successor statute thereto,
together with any rules, regulations and interpretations promulgated
thereunder or with respect thereto.
2.6 "Committee" means the committee of the Board described
in Section 3 the of the Plan.
2.7 "Common Stock" means the Common Stock, par value $.025
per share, of the Company or any security of the Company issued by the Company
in substitution or exchange therefor.
2.8 "Company" means Neurogen Corporation, a Delaware
corporation, or any successor corporation to Neurogen Corporation.
2.9 "Disability" means disability as defined in the
Participant's then effective employment or consulting agreement, or if the
participant is not then a party to an effective employment or consulting
agreement with the Company which defines disability, "Disability" means
disability as determined by the Committee in accordance with standards and
procedures similar to those under the Company's long-term disability plan, if
any. Subject to the first sentence of this Section 2.9, at any time that the
Company does not maintain a long-term disability plan, "Disability" shall
mean any physical or mental disability which is determined to be total and
permanent by a physician selected in good faith by the Company.
2.10 "Exchange Act" means the Securities Exchange Act of
1934, as in effect and as amended from time to time, or any successor statute
thereto, together with any rules, regulations and interpretations promulgated
thereunder or with respect thereto.
2.11 "Execution Date" has the meaning set forth in Section
14.3.1 of the Plan.
2.12 "Fair Market Value" means on, or with respect to, any
given date(s), the closing price for the Common Stock, as reported on the
NASDAQ National Market for such date(s) or, if the Common Stock was not
traded on such date(s), on the next preceding day or days on which the Common
Stock was traded. If at any time the Common Stock is not traded on the
NASDAQ National Market, the Fair Market Value of a share of the Common Stock
shall be determined in good faith by the Board.
2.13 "Incentive Stock Option" means any stock option granted
pursuant to the provisions of Section 6 of the Plan (and the relevant Award
Agreement) that is intended to be (and is specifically designated as) an
"incentive stock option" within the meaning of Section 422 of the Code.
2.14 "Merger Event" has the meaning set forth in Section
14.3.1 of the Plan.
2.15 "Non-Qualified Stock Option" means any stock option
granted pursuant to the provisions of Section 6 of the Plan (and the relevant
Award Agreement) that is not (and is specifically designated as not being) an
Incentive Stock Option.
2.16 "Participant" means any individual who is selected from
time to time under Section 5 to receive an Award under the Plan.
2.17 "Performance Goals" has the meaning set forth in
Section 9.4 of the Plan.
2.18 "Performance Period" has the meaning set forth in
Section 9.4 of the Plan.
2.19 "Performance Units" means the monetary units granted
under Section 9 of the Plan and the relevant Award Agreement.
2.20 "Plan" means the Neurogen Corporation 1993 Omnibus
Incentive Plan, as set forth herein and as in effect and as amended from time
to time (together with any rules and regulations promulgated by the Committee
with respect thereto).
2.21 "Reload Stock Option" means any Non-Qualified Stock
Option automatically granted pursuant to the provisions of Section 6.7 of the
Plan and the relevant Award Agreement.
2.22 "Restricted Shares" means the restricted shares of
Common Stock granted pursuant to the provisions of Section 8 of the Plan and
the relevant Award Agreement.
2.23 "Restriction Period" has the meaning set forth in
Section 8.3 of the Plan.
2.24 "Retirement" means the voluntary retirement by the
Participant from active employment with the Company and its Subsidiaries on
or after the attainment of sixty-five (65).
2.25 "SEC" means the Securities and Exchange Commission,
or any successor governmental agency.
2.26 "SEC Rule 16b-3" means Rule 16b-3, as promulgated by
the SEC under Section 16(b) of the Exchange Act, or any successor rule or
regulation thereto, as such Rule is amended or applied from time to time.
2.27 "Stock Appreciation Right" means an Award described in
Section 7.2 of the Plan and granted pursuant to the provisions of Section 7
of the Plan.
2.28 "Subsidiary(ies)" means any corporation (other than the
Company) in an unbroken chain of corporations, including and beginning with
the Company, if each of such corporations, other than the last corporation
in the unbroken chain, owns, directly or indirectly, more than fifty percent
(50%) of the voting stock in one of the other corporations in such chain.
3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the
Committee. The Committee shall be appointed from time to time by the Board and
shall be comprised of not less than three (3) of the then members of the Board
all of whom qualify to administer the Plan as "disinterested administrators"
within the meaning of SEC Rule 16b-3 and as "outside directors" within the
meaning of Code Section 162(m). No member of the Committee shall be eligible to
receive awards under the Plan. Consistent with the By-Laws of the Company,
members of the Committee shall serve at the pleasure of the Board and the
Board, subject to the immediately preceding sentence, may at any time and from
time to time remove members from, or add members to, the Committee.
3.2 Plan Administration and Plan Rules. The Committee is
authorized to construe and interpret the Plan and to promulgate, amend and
rescind rules and regulations relating to the implementation, administration
and maintenance of the Plan. Subject to the terms and conditions of the Plan,
the Committee shall make all determinations necessary or advisable for the
implementation, administration and maintenance of the Plan including, without
limitation, (a) selecting the Participants, (b) making Awards in such amounts
and form as the Committee shall determine, (c) imposing such restrictions,
terms and conditions upon such Awards as the Committee shall deem appropriate
and (d) correcting any technical defect(s) or technical omission(s), or
reconciling any technical inconsistency(ies), in the Plan and/or any Award
Agreement. The Committee may designate persons other than members of the
Committee to carry out the day-to-day ministerial administration of the Plan
under such conditions and limitations as it may prescribe. Except as provided
in the immediately following sentence, the Committee shall not delegate its
authority with regard to the selection for participation in the Plan and/or the
granting of any Awards to Participant. The Committee may (i) delegate to the
Company's President and Chief Executive Officer and a Vice President of the
Company, as designated by the Committee, the authority to grant Awards to those
eligible employees and consultants who are not subject to Section 16 of the
Exchange Act or (ii) adopt a resolution to automatically provide to an employee
or consultant upon the initial employment or performance of services of such
person a grant of an Award: provided however such delegation or adoption will
not be effective if it would disqualify the Plan, or any other plan of the
Company or any Subsidiary intended to be so qualified, from (i) the exemption
provided by SEC Rule 16b-3, (ii) the benefits provided under Section 422 of the
Code, or any successor provisions thereto or (iii) entitlement to deductions
under Code Section 162(m), or any successor provision thereto. The Committee's
determinations under the Plan need not be uniform and may be made selectively
among Participants, whether or not such Participants are similarly situated.
Any determination, decision or action of the Committee in connection with the
construction, interpretation, administration, implementation or maintenance of
the Plan shall be final, conclusive and binding upon all Participants and any
person(s) claiming under or through any Participants. The Company shall effect
the granting of Awards under the Plan, in accordance with the determinations
made by the Committee, by execution of written agreements and/or other
instruments in such form as is approved by the Committee.
3.3 Liability Limitation. Neither the Board, nor the
Committee attorneys, nor any member of either, shall be liable for any act,
omission, interpretation, construction or determination made in good faith in
connection with the Plan (or any Award Agreement), and the members of the Board
and the Committee shall be entitled to indemnification and reimbursement by the
Company in respect of any claim, loss, damage or expense (including, without
limitation, attorneys' fees) arising or resulting therefrom to the fullest
extent permitted by law, the Company's Certificate of Incorporation, as
amended, and/or under any directors and officers liability insurance coverage
which may be in effect from time to time.
4. TERM OF PLAN/COMMON STOCK SUBJECT TO PLAN
4.1 Term. The Plan shall terminate on December 21, 2003,
except with respect to Awards then outstanding. After such date no further
Awards shall be granted under the Plan unless the Plan is extended by the Board.
4.2 Common Stock. The maximum number of shares of Common
Stock in respect of which Awards may be granted or paid out under the Plan,
subject to adjustment as provided in Section 14.2 of the Plan, shall not
exceed seven million (7,000,000) shares. In the event of a change in the Common
Stock of the Company that is limited to a change in the designation thereof to
"Capital Stock" or other similar designation, or to a change in the par value
thereof, or from par value to no par value, without increase or decrease in
the number of issued shares, the shares resulting from any such change shall
be deemed to be the Common Stock for purposes of the Plan. Common Stock which
may be issued under the Plan may be either authorized and unissued shares or
issued shares which have been reacquired by the Company (in the
open-market or in private transactions) and which are being held as treasury
shares. No fractional shares of Common Stock shall be issued under the Plan.
4.3 Computation of Available Shares. For the purpose of
computing the total number of shares of Common Stock available for Awards under
the Plan, there shall be counted against the limitations set forth in Section
4.2 of the Plan the maximum number of shares of Common Stock potentially subject
to issuance upon exercise or settlement of Awards granted under Sections 6 and 7
of the Plan, the number of shares of Common Stock issued under grants of
Restricted Shares pursuant to Section 8 of the Plan and the maximum number of
shares of Common Stock potentially issuable under grants or payments of
Performance Units pursuant to Section 9 of the Plan, in each case determined as
of the date on which such Awards are granted. If any Awards expire unexercised
or are forfeited, surrendered, canceled, terminated or settled in cash in lieu
of Common Stock, the shares of Common Stock which were theretofore subject (or
potentially subject) to such Awards shall again be available for Awards under
the Plan to the extent of such expiration, forfeiture, surrender, cancellation,
termination or settlement of such Awards; provided however, that such forfeited
Awards shall not again be available for Awards under the Plan if the Participant
received, directly or indirectly, any of the benefits of ownership of the
securities of the Company underlying such Award, including, without limitation,
the right to receive dividend or dividend equivalent payments, as described in
Sections 8.5 and 11 of the Plan.
5. ELIGIBILITY. Individuals eligible for Awards under the Plan shall
consist of all salaried employees, or those who will become salaried employees,
of the Company and/or its Subsidiaries and consultants of the Company and/or its
Subsidiaries.
6. STOCK OPTIONS
6.1 Terms and Conditions. Stock Options granted under the
Plan shall be in respect of Common Stock and may be in the form of Incentive
Stock Options, Non-Qualified Stock Options or Reload Stock Options (sometimes
referred to collectively herein as the "Stock Option(s))". Such Stock Options
shall be subject to the terms and conditions set forth in this Section 6 and
any additional terms and conditions, not inconsistent with the express terms
and provisions of the Plan, as the Committee shall set forth in the relevant
Award Agreement.
6.2 Grant. Stock Options may be granted under the Plan in
such form as the Committee may from time to time approve. Stock Options may be
granted alone or in addition to other Awards under the Plan or in tandem with
Stock Appreciation Rights. Incentive Stock Options may only be granted to
employees of the Company and/or its Subsidiaries. Notwithstanding the above, no
Incentive Stock Options shall be granted to any employee who owns (within the
meaning of Section 422(b)(6) of the Code) more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or its
parent corporation or any subsidiary of the Company (within the meaning of
Sections 424(e) and (f) of the Code). During any calendar year, no individual
may be granted under the Plan Stock Options to acquire more than one hundred
thousand (100,000) shares of Common Stock.
6.3 Exercise Price. The exercise price per share of Common
Stock subject to a Stock Option shall be determined by the Committee,
including, without limitation a determination based on a formula determined by
the Committee; provided, however, that the exercise price of an Incentive Stock
Option or a Reload Stock Option shall not be less than one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date of the grant of
such Incentive Stock Option or Reload Stock Option.
6.4 Term. The term of each Stock Option shall be such period
of time as is fixed by the Committee; provided, however, that the term of any
Incentive Stock Option shall not exceed ten (10) years after the date
immediately preceding the date on which the Incentive Stock Option is granted.
6.5 Method of Exercise. A Stock Option may be exercised, in
whole or in part, by giving written notice of exercise to the Secretary of the
Company, or the Secretary's designee, specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the exercise
price in cash, by certified check, bank draft or money order payable to the
order of the Company or, if permitted by the Committee (in its sole discretion)
and applicable law, by delivery of, alone or in conjunction with a partial cash
or instrument payment, (a) a fully-secured promissory note or notes, (b) shares
of Common Stock already owned by the Participant for at least six (6) months or
(c) any other form of payment acceptable to the Committee. The Committee may
also permit Participants (either on a selective or group basis) to
simultaneously exercise Stock Options and sell the shares of Common Stock
thereby acquired, pursuant to a "cashless exercise" arrangement or program,
selected by and approved of in all respects in advance by the Committee.
Payment instruments shall be received by the Company subject to collection. The
proceeds received by the Company upon exercise of any Stock Option may be used
by the Company for general corporate purposes. Any portion of a Stock Option
that is exercised may not be exercised again.
6.6 Exercisability. In respect of any Stock Option granted
under the Plan, unless otherwise (a) determined by the Committee (in its sole
discretion) at any time and from time to time in respect of any such Stock
Option or (b) provided in the Award Agreement or in the Participant's
employment or consulting agreement in respect of any such Stock Option, such
Stock Option shall become exercisable as to the aggregate number of shares of
Common Stock underlying such Stock Option, as determined on the date of grant,
as follows:
20%, on the first anniversary of the date of grant of the
Stock Option, provided the Participant is then employed by
or providing consulting services for the Company and/or one
of its Subsidiaries;
40%, on the second anniversary of the date of grant of the
Stock Option, provided the Participant is then employed by
or providing consulting services for the Company and/or one
of its Subsidiaries;
60%, on the third anniversary of the date of grant of the
Stock Option, provided the Participant is then employed by
or providing consulting services for the Company and/or one
of its Subsidiaries;
80%, on the fourth anniversary of the date of grant of the
Stock Option, provided the Participant is then employed by
or providing consulting services for the Company and/or one
of its Subsidiaries; and
100%, on the fifth anniversary of the date of grant of the
Stock Option, provided the Participant is then employed by
or providing consulting services for the Company and/or one
of its Subsidiaries.
Notwithstanding anything to the contrary contained in this Section 6.6 such
Stock Option shall become one hundred percent (100%) exercisable as to the
aggregate number of shares of Common Stock underlying such Stock Option upon
the death, Disability or Retirement of the Participant.
6.7 Reload Stock Options. The Committee may, in its sole
discretion, provide in any Award Agreement in respect of any Non-Qualified
Stock Option that if the Participant delivers shares of the Company's Common
Stock already owned by such Participant for at least six (6) months in full or
partial payment of the exercise price of such Non-Qualified Stock Option, the
Participant shall automatically (subject to the limitations contained in
Section 4.2) and immediately thereupon be granted a Reload Stock Option to
purchase that number of shares of Common Stock delivered by the Participant to
the Company (on such terms as the Committee may prescribe under and in
accordance with the Plan).
6.8 Tandem Grants. If Non-Qualified Stock Options and Stock
Appreciation Rights are granted in tandem, as designated in the relevant Award
Agreements, the right of a Participant to exercise any such tandem Stock Option
shall terminate to the extent that the shares of Common Stock subject to such
Stock Option are used to calculate amounts or shares receivable upon the
exercise of the related tandem Stock Appreciation Right.
7. STOCK APPRECIATION RIGHTS
7.1 Terms and Conditions. The grant of Stock Appreciation
Rights under the Plan shall be subject to the terms and conditions set forth in
this Section 7 and any additional terms and conditions, not inconsistent with
the express terms and provisions of the Plan, as the Committee shall set forth
in the relevant Award Agreement.
7.2 Stock Appreciation Rights. A Stock Appreciation Right is
an Award granted with respect to a specified number of shares of Common Stock
entitling a Participant to receive an amount equal to the excess of the Fair
Market Value of a share of Common Stock on the date of exercise over the Fair
Market Value of a share of Common Stock on the date of grant of the Stock
Appreciation Right, multiplied by the number of shares of Common Stock with
respect to which the Stock Appreciation Right shall have been exercised.
7.3 Grant. A Stock Appreciation Right may be granted in
addition to any other Award under the Plan or in tandem with or independent of
a Non-Qualified Stock Option. During any calendar year, no individual may be
granted under the Plan Stock Appreciation Rights with respect to more than one
hundred thousand (100,000) shares of Common Stock.
7.4 Date of Exercisability. Unless otherwise provided in the
Participant's employment agreement, consulting agreement or Award Agreement in
respect of any Stock Appreciation Right, a Stock Appreciation Right may be
exercised by a Participant, in accordance with and subject to all of the
procedures established by the Committee, in whole or in part at any time and
from time to time during its specified term. Notwithstanding the preceding
sentence, in no event shall a Stock Appreciation Right be exercisable prior to
the date which is six (6) months after the date on which the Stock Appreciation
Right was granted or prior to the exercisabi1ity of any Non-Qualified Stock
Option with which it is granted in tandem. The Committee may also provide, as
set forth in the relevant Award Agreement and without limitation, that some
Stock Appreciation Rights shall be automatically exercised and settled on one
or more fixed dates specified therein by the Committee.
7.5 Form of Payment. Upon exercise of a Stock Appreciation
Right, payment may be made in cash, in Restricted Shares or in shares of
unrestricted Common Stock, or in any combination thereof, as the Committee, in
its sole discretion, shall determine and provide in the relevant Award
Agreement.
7.6 Tandem Grant. The right of a Participant to exercise a
tandem Stock Appreciation Right shall terminate to the extent such Participant
exercises the Non-Qualified Stock Option to which such Stock Appreciation
Right is related.
8. RESTRICTED SHARES
8.1 Terms and Conditions. Grants of Restricted Shares shall
be subject to the terms and conditions set forth in this Section 8 and any
additional terms and conditions, not inconsistent with the express terms and
provisions of the Plan, as the Committee shall set forth in the relevant Award
Agreement. Restricted Shares may be granted alone or in addition to any other
Awards under the Plan. Subject to the terms of the Plan, the Committee shall
determine the number of Restricted Shares to be granted to a Participant and
the Committee may provide or impose different terms and conditions on any
particular Restricted Share grant made to any Participant. With respect to
each Participant receiving an Award of Restricted Shares, there shall be
issued a stock certificate (or certificates) in respect of such Restricted
Shares. Such stock certificate(s) shall be registered in the name of such
Participant, shall be accompanied by a stock power duly executed by such
Participant, and shall bear, among other required legends, the following
legend:
"The transferability of this certificate and the
shares of stock represented hereby are subject to the terms
and conditions (including, without limitation, forfeiture
events) contained in the Neurogen Corporation 1993 Omnibus
Incentive Plan and an Award Agreement entered into between
the registered owner hereof and Neurogen Corporation. Copies
of such Plan and Award Agreement are on file in the office
of the Secretary of Neurogen Corporation, Branford,
Connecticut. Neurogen Corporation will furnish to the
recordholder of the certificate, without charge and upon
written request at its principal place of business, a copy
of such Plan and Award Agreement. Neurogen Corporation
reserves the right to refuse to record the transfer of this
certificate until all such restrictions are satisfied, all
such terms are complied with and all such conditions are
satisfied."
Such stock certificate evidencing such shares shall, in the sole discretion of
the Committee, be deposited with and held in custody by the Company until the
restrictions thereon shall have lapsed and all of the terms and conditions
applicable to such grant shall have been satisfied.
8.2 Restricted Share Grants. A grant of Restricted Shares is
an Award of shares of Common Stock granted to a Participant, subject to such
restrictions, terms and conditions as the Committee deems appropriate,
including, without limitation, (a) restrictions on the sale, assignment,
transfer, hypothecation or other disposition of such shares, (b) the
requirement that the Participant deposit such shares with the Company while
such shares are subject to such restrictions and (c) the requirement that such
shares be forfeited upon termination of employment or consulting services for
specified reasons within a specified period of time or for other reasons
(including, without limitation, the failure to achieve designated performance
goals).
8.3 Restriction Period In accordance with Sections 8.1 and
8.2 of the Plan and unless otherwise determined by the Committee (in its sole
discretion) at any time and from time to time, Restricted Shares shall only
become unrestricted and vested in the Participant in accordance with such
vesting schedule relating to such Restricted Shares, if any, as the Committee
may establish in the relevant Award Agreement (the "Restriction Period").
Notwithstanding the preceding sentence, in no event shall the Restriction
Period be less than six (6) months after the date of grant. During the
Restriction Period, such stock shall be and remain unvested and a Participant
may not sell, assign, transfer, pledge, encumber or otherwise dispose of or
hypothecate such Award. Upon satisfaction of the vesting schedule and any
other applicable restrictions, terms and conditions, the Participant shall be
entitled to receive payment of the Restricted Shares or a portion thereof, as
the case may be, as provided in Section 8.4 of the Plan.
8.4 Payment of Restricted Share Grants. After the
satisfaction and/or lapse of the restrictions, terms and conditions
established by the Committee in respect of a grant of Restricted Shares, a new
certificate, without the legend set forth in Section 8.1 of the Plan for the
number of shares of Common Stock which are no longer subject to such
restrictions, terms and conditions shall, as soon as practicable thereafter,
be delivered to the Participant.
8.5 Shareholder Rights. A Participant shall have, with
respect to the shares of Common Stock underlying a grant of Restricted Shares,
all of the rights of a shareholder of such stock (except as such rights are
limited or restricted under the Plan or in the relevant Award Agreement). Any
stock dividends paid in respect of unvested Restricted Shares shall be treated
as additional Restricted Shares and shall be subject to the same restrictions
and other terms and conditions that apply to the unvested Restricted Shares in
respect of which such stock dividends are issued.
9. PERFORMANCE UNITS
9.1 Terms and Conditions. Performance Units shall be subject
to the terms and conditions set forth in this Section 9 and any additional
terms and conditions, not inconsistent with the express provisions of the
Plan, as the Committee shall set forth in the relevant Award Agreement.
9.2 Performance Unit Grants. A Performance Unit is an Award
of units (with each unit representing such monetary amount as is designated by
the Committee in the Award Agreement) granted to a Participant, subject to
such terms and conditions as the Committee deems appropriate, including,
without limitation, the requirement that the Participant forfeit such units
(or a portion thereof) in the event certain performance criteria or other
conditions are not met within a designated period of time.
9.3 Grants. Performance Units may be granted alone or in
addition to any other Awards under the Plan. Subject to the terms of the Plan,
the Committee shall determine the number of Performance Units to be granted to a
Participant and the Committee may impose different terms and conditions on any
particular Performance Units granted to any Participant.
9.4 Performance Goals and Performance Periods. Participants
receiving a grant of Performance Units shall only earn into and be entitled to
payment in respect of such Awards if the Company and/or the Participant
achieves certain performance goals (the "Performance Goals") during and in
respect of a designated performance period (the "Performance Period"). The
Performance Goals and the Performance Period shall be established by the
Committee, in its sole discretion. The Committee shall establish Performance
Goals for each Performance Period prior to, or as soon as practicable after,
the commencement of such Performance Period. The Committee shall also
establish a schedule or schedules for Performance Units setting forth the
portion of the Award which will be earned or forfeited based on the degree of
achievement, or lack thereof, of the Performance Goals at the end of the
relevant Performance Period. In setting Performance Goals, the Committee may
use, but shall not be limited to, such measures as total shareholder return,
return on equity, net earnings growth, sales or revenue growth, cash flow,
comparisons to peer companies, individual or aggregate Participant performance
or such other measure or measures of performance as the Committee, in its sole
discretion, may deem appropriate. Such performance measures shall be defined
as to their respective components and meaning by the Committee (in its sole
discretion). During any Performance Period, the Committee shall have the
authority to adjust the Performance Goals and/or the Performance Period in
such manner as the Committee, in its sole discretion, deems appropriate at any
time and from time to time.
9.5 Payment of Units. With respect to each Performance Unit,
the Participant shall, if the applicable Performance Goals have been achieved,
or partially achieved, as determined by the Committee, in its sole discretion,
by the Company and/or the Participant during the relevant Performance Period, be
entitled to receive payment in an amount equal to the designated value of each
Performance Unit times the number of such units so earned. Payment in settlement
of earned Performance Unit shall be made as soon as practicable following the
conclusion of the respective Performance Period in cash, in unrestricted Common
Stock, or in Restricted Shares, or in any combination thereof, as the Committee
in its sole discretion, shall determine and provide in the relevant Award
Agreement.
10. DEFERRAL ELECTIONS/TAX REIMBURSEMENTS. The Committee may permit a
Participant to elect to defer receipt of any payment of cash or any delivery
of shares of Common Stock that would otherwise be due to such Participant by
virtue of the exercise, earn out or settlement of any Award made under the
Plan. If any such election is permitted, the Committee shall establish rules
and procedures for such deferrals, including, without limitation, the payment
or crediting of reasonable interest on such deferred amounts credited in cash,
and the payment or crediting of dividend equivalents in respect of deferrals
credited in units of Common Stock. The Committee may also provide in the
relevant Award Agreement for a tax reimbursement cash payment to be made by
the Company in favor of any Participant in connection with the tax
consequences resulting from the grant, exercise, settlement or earn out of any
Award made under the Plan.
11. DIVIDEND EQUIVALENTS. In addition to the provisions of Section 8.5
of the Plan, Awards of Stock Options and/or Stock Appreciation Rights, may, in
the sole discretion of the Committee and if provided for in the relevant Award
Agreement, earn dividend equivalents. In respect of any such Award which is
outstanding on a dividend record date for Common Stock, the Participant shall
be credited with an amount equal to the amount of cash or stock dividends that
would have been paid on the shares of Common Stock covered by such Award had
such covered shares been issued and outstanding on such dividend record date.
The Committee shall establish such rules and procedures governing the
crediting of such dividend equivalents, including, without limitation, the
amount, the timing, form of payment and payment contingencies and/or
restrictions of such dividend equivalents, as it deems appropriate or
necessary.
12. TERMINATION OF EMPLOYMENT OR SERVICES.
12.1 General. Except as is otherwise provided (a) in the
relevant Award Agreement as determined by the Committee (in its sole discretion)
or (b) in the Participant's then effective employment or consulting agreement,
if any, the following terms and conditions shall apply as appropriate and as not
inconsistent with the terms and conditions, if any, contained in such Award
Agreement and/or such employment or consulting agreement:
12.1.1 Options/SARs. Subject to any determination of the
Committee pursuant to Section 6.6 of the Plan, if a Participant's employment
with or performance of services for the Company and its Subsidiaries terminates
for any reason any then unexercisable Stock Options and/or Stock Appreciation
Rights shall be forfeited and canceled by the Company. If a Participant's
employment with or performance of services for the Company and its Subsidiaries
terminates for any reason, such Participant's rights, if any, to exercise any
then exercisable Stock Options and/or Stock Appreciation Rights, if any, shall
terminate
(a) one (1) year after the date of such termination or
the last day on which services were performed (but
not beyond the stated term of any such Stock Option
and/or Stock Appreciation Right as determined under
Sections 6.4 and 7.4 of the Plan), if the Participant
has been employed by or provided services to the
Company and/or any Subsidiary for at least one (1)
year but not more than three (3) years;
(b) two (2) years after the date of such termination or
the last day on which services were performed (but
not beyond the stated term of any such Stock Option
and/or Stock Appreciation Right as determined under
Sections 6.4 and 7.4 of the Plan), if the Participant
has been employed by or provided services to the
Company and/or any Subsidiary for at least three (3)
years but not more than five (5) years;
(c) three (3) years after the date of such determination
or the last day on which services were performed (but
not beyond the stated term of any such Stock Option
and/or Stock Appreciation Right as determined under
Sections 6.4 and 7.4 of the Plan), if the Participant
has been employed by or provided services to the
Company and/or any Subsidiary for at least five (5)
years but not more than seven (7) years;
(d) four (4) years after the date of such termination or
the last day on which services were performed (but
not beyond the stated term of any such Stock Option
and/or Stock Appreciation Right as determined under
Sections 6.4 and 7.4 of the Plan), if the Participant
has been employed by or provided services to the
Company and/or any Subsidiary for at least seven (7)
years but not more than nine (9) years;
(e) five (5) years after the date of such termination or
the last day on which services were performed (but
not beyond the stated term of any such Stock Option
and/or Stock Appreciation Right as determined under
Sections 6.4 and 7.4 of the Plan), if the Participant
has been employed by or provided services to the
Company and/or any Subsidiary for at least nine (9)
years;
provided, however, that if such termination or service cessation is due to
death, Disability or Retirement, the exercise period shall in no case be less
than two (2) years after the date of such termination or service cessation
(but not beyond the stated term of any such Stock Option and/or Stock
Appreciation Right as determined under Sections 6.4 and 7.4 of the Plan).
Notwithstanding the above, the Committee, in its sole discretion, may
determine that any such Participant's Stock Options and/or Stock Appreciation
Rights, if any, to the extent exercisable immediately prior to any termination
of employment or consulting services, may remain exercisable for an additional
period of time after any period set forth above expires (subject to any other
applicable terms and provisions of the Plan and the relevant Award Agreement),
but not beyond the stated term of any such Stock Option and/or Stock
Appreciation Right.
12.2 Restricted Shares. If a Participant's employment with
or performance of services for the Company and its Subsidiaries terminates for
any reason (other than due to Disability, Retirement or death) prior to the
satisfaction and/or lapse of the restrictions, terms and conditions applicable
to a grant of Restricted Shares, such Restricted Shares shall immediately be
canceled and the Participant (and such Participant's estate, designated
beneficiary or other legal representative, as the case may be and as
determined by the Committee) shall forfeit any rights or interests in and with
respect to any such Restricted Shares. Notwithstanding anything to the
contrary in this Section 12, the Committee, in its sole discretion, may
determine, prior to or within ninety (90) days after the date of such
termination, that all or a portion of any such Participant's Restricted Shares
shall not be so canceled and forfeited. If the Participant's employment or
performance of services terminates due to death, Disability or Retirement, the
Participant (and such Participant's estate, designated beneficiary or other
legal representative, as the case may be and as determined by the Committee)
shall become 100% vested in any such Participant's Restricted Shares as of the
date of any such termination.
12.2.1 Performance Units. If a Participant's employment with
or performance of services for the Company and its Subsidiaries terminates for
any reason (other than due to Disability, Retirement or death) prior to the
completion of any Performance Period, any Performance Units granted in respect
of such Performance Period shall immediately be canceled by the Company and
the Participant (and such Participant's estate, designated beneficiary or
other legal representative, as the case may be and as determined by the
Committee) shall forfeit any rights or interests in and with respect to any
such Performance Units. Notwithstanding anything to the contrary in this
Section 19, the Committee, in its sole discretion may determine, prior to or
within ninety (90) days after the date of any such termination, that all or a
portion of any such Participant's Performance Units shall not be so canceled
and forfeited upon termination of employment or consulting services for any
reason or for a particular reason. If the Participant's employment or
performance of services terminates due to death, Disability or Retirement, the
Participant (and such Participant's estate, designated beneficiary or other
legal representative, as the case may be and as determined by the Committee)
shall be entitled to earn into such Participant's Performance Units in
accordance with Section 9 of the Plan; provided, however, that any such earn
out (determined in good faith by the Committee) shall be proportionately
reduced based on the number of days transpired in the relevant Performance
Periods prior to such death, Disability or Retirement over the total number of
calendar days in any such relevant Performance Period.
13. NON-TRANSFERABILITY OF AWARDS. No Award under the Plan or any
Award Agreement, and no rights or interests herein or therein, shall or may be
assigned, transferred, sold, exchanged, encumbered, pledged or otherwise
hypothecated or disposed of by a Participant or any beneficiary(ies) of any
Participant, except by testamentary disposition by the Participant or the laws
of intestate succession. No such interest shall be subject to execution,
attachment or similar legal process, including, without limitation, seizure for
the payment of the Participant's debts, judgments, alimony or separate
maintenance. Any attempt to sell, exchange, transfer, assign, pledge, encumber
or otherwise dispose of or hypothecate in any way any such awards, rights or
interests or the levy of any execution, attachment or similar legal process
thereon, contrary to the terms of this Plan shall be null and void and without
legal force or effect. During the lifetime of a Participant, Stock Options and
Stock Appreciation Rights are exercisable only by the Participant.
14. CHANGES IN CAPITALIZATION AND OTHER MATTERS
14.1 No Corporate Action Restriction. The existence of the
Plan, any Award Agreement and/or the Awards granted hereunder shall not
limit, affect or restrict in any way the right or power of the Board or the
shareholders of the Company to make or authorize (a) any adjustment,
Recapitalization, reorganization or other change in the Company's or any
Subsidiary's capital structure or its business, (b) any merger, consolidation
or change in the ownership of the Company or any Subsidiary, (c) any issue
of secured or unsecured indebtedness, capital, preferred or prior preference
stocks ahead of or affecting the Company's or any Subsidiary's capital stock
or the rights thereof, (d) any dissolution or liquidation of the Company or any
Subsidiary, (e) any sale or transfer of all or any part of the Company's or any
Subsidiary's assets or business or (f) any other corporate act or proceeding by
the Company or any Subsidiary. No Participant, beneficiary or any other person
shall have any claim against any member of the Board or the Committee, the
Company or any Subsidiary or any employees, officers or agents of the
Company or any Subsidiary, as a result of any such action.
14.2 Recapitalization Adjustments. In the event of any change
in capitalization affecting the Common Stock, including, without limitation, a
stock dividend or other distribution, stock split, reverse stock split,
Recapitalization, consolidation, subdivision, split-up, spin-off, split-off,
combination or exchange of shares or other form of reorganization or
Recapitalization, or any other change affecting the Common Stock, the Board
shall authorize and make such proportionate adjustments, if any, as the Board
deems appropriate to reflect such change, including, without limitation, with
respect to the aggregate number of shares of the Common Stock for which Awards
in respect thereof may be granted under the Plan, the maximum number of shares
of the Common Stock which may be granted or awarded to any Participant, the
number of shares of the Common Stock covered by each outstanding Award, and the
exercise price or other price per share of Common Stock in respect of
outstanding Awards.
14.3 Certain Mergers.
14.3.1 If the Company enters into or is involved in any
merger, reorganization or other business combination with any person or entity
(such merger, reorganization or other business combination to be referred to
herein as a "Merger Event") and as a result of any such Merger Event the
Company will be or is the surviving corporation, a Participant shall be
entitled, as of the date of the execution of the agreement evidencing the
Merger Event (the "Execution Date") and with respect to both exercisable and
unexercisable Stock Options and/or Stock Appreciation Rights (but only to the
extent not previously exercised), to receive substitute stock options and/or
stock appreciation rights in respect of the shares of the surviving
corporation on such terms and conditions, as to the number of shares, pricing
and otherwise, which shall substantially preserve the value, rights and
benefits of any affected Stock Options or Stock Appreciation Rights granted
hereunder as of the date of the consummation of the Merger Event.
Notwithstanding anything to the contrary in this Section 14.3, if any Merger
Event occurs, the Company shall have the right, but not the obligation, to pay
to each affected Participant an amount in cash or certified check equal to the
excess of the Fair Market Value of the Common Stock underlying any affected
unexercised Stock Options or Stock Appreciation Rights as of the Execution
Date (whether then exercisable or not) over the aggregate exercise price of
such unexercised Stock Options and/or Stock Appreciation Rights, as the case
may be.
14.3.2 If, in the case of a Merger Event in which the
Company will not be, or is not, the surviving corporation, and the Company
determines not to make the cash or certified check payment described in
Section 14.3.1 of the Plan, the Company shall compel and obligate, as a
condition of the consummation of the Merger Event, the surviving or resulting
corporation and/or the other party to the Merger Event, as necessary, or any
parent, subsidiary or acquiring corporation thereof, to grant, with respect to
both exercisable and unexercisabie Stock Options and/or Stock Appreciation
Rights (but only to the extent not previously exercised), substitute stock
options or stock appreciation rights in respect of the shares of common or
other capital stock of such surviving or resulting corporation on such terms
and conditions, as to the number of shares, pricing and otherwise, which shall
substantially preserve the value, rights and benefits of any affected Stock
Options and/or Stock Appreciation Rights previously granted hereunder as of
the date of the consummation of the Merger Event.
14.3.3 Upon receipt by any affected Participant of any such
cash, certified check or substitute stock options or stock appreciation rights
as a result of any such Merger Event, such Participant's affected Stock
Options and/or Stock Appreciation Rights for which such cash, certified check
or substitute awards was received shall be thereupon canceled without the need
for obtaining the consent of any such affected Participant.
14.3.4 The foregoing adjustments and the manner of
application of the foregoing provisions, including, without limitation, the
issuance of any substitute stock options and/or stock appreciation rights,
shall be determined in good faith by the Committee, in its sole discretion.
Any such adjustment may provide for the elimination of fractional shares.
15. CHANGE OF CONTROL
15.1 Acceleration of Awards Vesting. Anything in the Plan, to
the contrary notwithstanding, if a Change of Control of the Company occurs (a)
all Stock Options and/or Stock Appreciation Rights then unexercised and
outstanding shall become fully vested and exercisable as of the date of the
Change of Control, (b) all restrictions, terms and conditions applicable to all
Restricted Shares then outstanding shall be deemed lapsed and satisfied as of
the date of the Change of Control and (c) the Performance Period shall be
deemed completed, all Performance Goals shall be deemed attained at the highest
levels and all Performance Units shall be deemed to have been fully earned as
of the date of the Change of Control. The immediately preceding sentence shall
apply to only those Participants (i) who are employed by or perform consulting
services for the Company and/or one of its Subsidiaries as of the date of the
Change of Control or (ii) to whom Section 15.3 below is applicable.
15.2 Payment After Change of Control. Notwithstanding
anything to the contrary in the Plan, within thirty (30) days after a Change of
Control occurs, (a) the holder of an Award of Restricted Shares vested under
Section 15.1(b) above shall receive a new certificate for such shares without
the legend set forth in Section 8 of the Plan and (b) the holder of Performance
Units shall receive payment of the value of such grants in cash at the highest
levels.
15.3 Termination as a Result of a Change of Control.
Anything in the Plan to the contrary notwithstanding, if a Change of Control
occurs and if the Participant's employment or consulting services is
terminated before such Change of Control and it is reasonably demonstrated by
the Participant that such termination (a) was at the request, directly or
indirectly, of a third party who has taken steps reasonably calculated to
effect the Change of Control or (b) otherwise arose in connection with or in
anticipation of the Change of Control, then for purposes of this Section 15,
the Change of Control shall be deemed to have occurred immediately prior to
such Participant's termination.
16. AMENDMENT, SUSPENSION AND TERMINATION
16.1 In General. The Board may suspend or terminate the Plan
(or any portion thereof) at any time and may amend the Plan at any time and
from time to time in such respects as the Board may deem advisable to insure
that any and all Awards conform to or otherwise reflect any change in
applicable laws or regulations, or to permit the Company or the Participants
to benefit from any change in applicable laws or regulations, or in any other
respect the Board may deem to be in the best interests of the Company or any
Subsidiary; provided, however, that no such amendment to the Plan shall,
without majority shareholder approval, (a) except as provided in Section 14 of
the Plan, materially increase the number of shares of Common Stock which may
be issued under the Plan, (b) materially modify the requirements as to
eligibility for participation in the Plan or (c) materially increase the
benefits accruing to Participants under the Plan (this Section 16.1(c) shall
not apply to any amendment or modification of any Award Agreement permitted
under Section 16.2 if such amendment or modification would not require
shareholder approval under SEC Rule 16b-3). No such amendment, suspension or
termination shall (x) materially adversely effect the rights of any
Participant under any outstanding Stock Options, Stock Appreciation Rights,
Performance Units or Restricted Share grants, without the consent of such
Participant or (y) make any change that would disqualify the Plan, or any
other plan of the Company or any Subsidiary intended to be so qualified, from
(i) the exemption provided by SEC Rule 16b-3, (ii) the benefits provided under
Section 429 of the Code, or any successor provisions thereto or (iii)
entitlement to deductions under Code Section 162(m), or any successor
provision thereto.
16.2 Award Agreement Modifications. The Committee may (in
its sole discretion) amend or modify at any time and from time to time the
terms and provisions of any outstanding Stock Options, Stock Appreciation
Rights, Performance Units or Restricted Share grants, in any manner to the
extent that the Committee under the Plan or any Award Agreement could have
initially determined the restrictions, terms and provisions of such Stock
Options, Stock Appreciation Rights, Performance Units and/or Restricted Share
grants, including, without limitation, changing or accelerating (a) the date
or dates as of which such Stock Options or Stock Appreciation Rights shall
become exercisable, (b) the date or dates as of which such Restricted Share
grants shall become vested or (c) the performance period or goals in respect
of any Performance Units. No such amendment or modification shall, however,
materially adversely affect the rights of any Participant under any such Award
without the consent of such Participant.
17. MISCELLANEOUS
17.1 Tax Withholding. The Company shall have the right to
deduct from any payment or settlement under the Plan, including, without
limitation, the exercise of any Stock Option or Stock Appreciation Right, or
the delivery, transfer or vesting of any Common Stock or Restricted Shares,
any federal, state, local or other taxes of any kind which the Committee, in
its sole discretion, deems necessary to be withheld to comply with the Code
and/or any other applicable law, rule or regulation. If the Committee, in its
sole discretion, permits shares of Common Stock to be used to satisfy any such
tax withholding, such Common Stock shall be valued based on the Fair Market
Value of such stock as of the date the tax withholding is required to be made,
such date to be determined by the Committee. The Committee may establish rules
limiting the use of Common Stock to meet withholding requirements by
Participants who are subject to Section 16 of the Exchange Act.
17.2 No Right to Perform Future Services. Neither the
adoption of the Plan, the granting of any Award nor the execution of any Award
Agreement shall confer upon any employee or consultant of the Company or any
Subsidiary any right to continued employment or performance of consulting
services with the Company or any Subsidiary, as the case may be, nor shall it
interfere in any way with the right, if any, of the Company or any Subsidiary
to terminate the employment of any employee or the consulting services of any
consultants at any time for any reason.
17.3 Unfunded Plan. The Plan shall be unfunded and the
Company shall not be required to segregate any assets in connection with any
Awards under the Plan. Any liability of the Company to any person with respect
to any Award under the Plan or any Award Agreement shall be based solely upon
the contractual obligations that may be created as a result of the Plan or any
such award or agreement. No such obligation of the Company shall be deemed to
be secured by any pledge of, encumbrance on or other interest in, any property
or asset of the Company or any Subsidiary. Nothing contained in the Plan or any
Award Agreement shall be construed as creating in respect of any Participant
(or beneficiary thereof or any other person) any equity or other interest of
any kind in any assets of the Company or any Subsidiary or creating a trust of
any kind or a fiduciary relationship of any kind between the Company, any
Subsidiary and/or any such Participant, any beneficiary thereof or any other
person.
17.4 Payments to a Trust. The Committee is authorized to
cause to be established a trust agreement or several trust agreements or
similar arrangements from which the Committee may make payments of amounts due
or to become due to any Participants under the Plan.
17.5 Other Company Benefit and Compensation Programs.
Payments and other benefits received by a Participant under an Award made
pursuant to the Plan shall not be deemed a part of a Participant's compensation
for purposes of the determination of benefits under any other employee welfare
or benefit plans or arrangements, if any, provided by the Company or any
Subsidiary unless expressly provided in such other plans or arrangements, or
except where the Board expressly determines in writing that inclusion of an
Award or portion of an Award should be included to accurately reflect
competitive compensation practices or to recognize that an Award has been made
in lieu of a portion of competitive annual base salary or other cash
compensation. Awards under the Plan may be made in addition to, in combination
with, or as alternatives to, grants, awards or payments under any other plans
or arrangements of the Company or its Subsidiaries. The existence of the Plan
notwithstanding, the Company or any Subsidiary may adopt such other
compensation plans or programs and additional compensation arrangements as it
deems necessary to attract, retain and motivate employees or consultants.
17.6 Listing, Registration and Other Legal Compliance. No
Awards or shares of the Common Stock shall be required to be issued or granted
under the Plan unless legal counsel for the Company shall be satisfied that
such issuance or grant will be in compliance with all applicable federal and
state securities laws and regulations and any other applicable laws or
regulations. The Committee may require, as a condition of any payment or share
issuance, that certain agreements, undertakings, representations, certificates
and/or information, as the Committee may deem necessary or advisable, in its
sole discretion, be executed or provided to the Company to assure compliance
with all such applicable laws or regulations. Certificates for shares of the
Restricted Shares and/or Common Stock delivered under the Plan may be subject
to such stock-transfer orders and such other restrictions as the Committee may
deem advisable under the rules, regulations or other requirements of the SEC,
any stock exchange upon or trading system in which the Common Stock is then
listed or traded and any applicable federal or state securities law. In
addition, if, at any time specified herein (or in any Award Agreement or
otherwise) for (a) the making of any Award, or the making of any determination,
(b) the issuance or other distribution of Restricted Shares and/or Common Stock
or (c) the payment of amounts to or through a Participant with respect to any
Award, any law, rule, regulation or other requirement of any governmental
authority or agency shall require either the Company, any Subsidiary or any
Participant (or any estate, designated beneficiary or other legal
representative thereof, as the case may be and as determined by the Committee)
to take any action in connection with any such determination, any such shares
to be issued or distributed, any such payment or the making of any such
determination, as the case may be, shall be deferred until such required action
is taken. With respect to persons subject to Section 16 of the Exchange Act
transactions under the Plan are intended to comply with all applicable
conditions of SEC Rule 16b-3. To the extent any provision of the Plan or any
action by the administrators of the Plan fails to so comply with such rule, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
17.7 Award Agreements. Each Participant receiving an Award
under the Plan shall enter into an Award Agreement with the Company in a form
specified by the Committee. Each such Participant shall agree to the
restrictions, terms and conditions of the Award set forth therein and in the
Plan.
17.8 Designation of Beneficiary. Each Participant to whom an
Award has been made under the Plan may designate a beneficiary or beneficiaries
to exercise any option or to receive any payment which under the terms of the
Plan and the relevant Award Agreement may become exercisable or payable on or
after the Participant's death. At any time, and from time to time, any such
designation may be changed or canceled by the Participant without the consent
of any such beneficiary. Any such designation, change or cancellation must be
on a form provided for that purpose by the Committee and shall not be effective
until received by the Committee. If no beneficiary has been designated by a
deceased Participant, or if the designated beneficiaries have predeceased the
Participant, the beneficiary shall be the Participant's estate. If the
Participant designates more than one beneficiary, any payments under the Plan
to such beneficiaries shall be made in equal shares unless the Participant has
expressly designated otherwise, in which case the payments shall be made in the
shares designated by the Participant.
17.9 Leaves of Absence/Transfers. The Committee shall have
the power to promulgate rules and regulations and to make determinations, as it
deems appropriate, under the Plan in respect of any leave of absence from the
Company or any Subsidiary granted to a Participant. Without limiting the
generality of the foregoing, the Committee may determine whether any such leave
of absence shall be treated as if the Participant has been terminated by the
Company or any such Subsidiary. If a Participant transfers within the Company,
or to or from any Subsidiary, such Participant shall not be deemed to have been
terminated as a result of such transfers.
17.10 Loans. Subject to applicable law, the Committee may
provide, pursuant to Plan rules, for the Company or any Subsidiary to make
loans to Participants to finance the exercise price of any Stock Options, as
well as the withholding obligation under Section 17.1 of the Plan and/or the
estimated or accrual taxes payable by the Participant as a result of the
exercise of such Stock Option and the Committee may prescribe the terms and
conditions of any such loan.
17.11 Governing Law. The Plan and all actions taken
thereunder shall be governed by and construed in accordance with the laws of
the State of Delaware, without reference to the principles of conflict of laws
thereof. Any titles and headings herein are for reference purposes only, and
shall in no way limit, define or otherwise affect the meaning, construction or
interpretation of any provisions of the Plan.
17.12 Effective Dare. The Plan shall be effective upon its
adoption by the Board, subject to the approval of the Plan by the Company's
shareholders in accordance with SEC Rule 16b-3 and Section 422 of the Code.
1 This Section is not "soliciting material," is not deemed "filed" with
the SEC and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, whether made before or after the date
hereof and irrespective of any general incorporation language in any
such filing.
