<PAGE>
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
- --------------------------------------------------------------------------------
(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
May 18, 2000
To the Stockholders of Neurogen Corporation:
On behalf of the Board of Directors, I cordially invite you to attend the
2000 Annual Meeting of Stockholders of Neurogen Corporation. The Annual Meeting
will be held on Monday, June 19, 2000, at 10:00 a.m., local time, at the
Peninsula Hotel at 700 Fifth Avenue (at 55th Street), New York, New York.
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 1999 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.
Sincerely,
/s/ Harry H. Penner, Jr.
_____________________________________
Harry H. Penner, Jr.
President and Chief Executive Officer
<PAGE>
NEUROGEN CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on June 19, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Neurogen
Corporation will be held on Monday, June 19, 2000, at 10:00 a.m., local time, at
the Peninsula Hotel at 700 Fifth Avenue (at 55th Street), New York, New York,
for the following purposes:
1. To elect twelve 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 adopt the Neurogen Corporation 2000 Non-Employee Directors Stock
Option Program.
3. To ratify the appointment by the Board of Directors of
PricewaterhouseCoopers LLP as the independent auditors for the Company for the
fiscal year ending December 31, 2000.
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 1999 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
26, 2000 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.
By order of the Board of Directors,
/s/ John F. Tallman
___________________________________________
John F. Tallman
Secretary
Branford, Connecticut
May 18, 2000
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 June 19, 2000, at 10:00 a.m., local time, or at
any adjournment thereof (the "Annual Meeting"). The Annual Meeting will be held
at the Peninsula Hotel at 700 Fifth Avenue (at 55th Street), New York, New York.
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 23, 2000.
Record Date and Share Ownership
Stockholders of record on the Company's books at the close of business on
April 26, 2000 (the "Record Date") are entitled to vote at the Annual Meeting.
At the Record Date, 15,542,038 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
Twelve 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 twelve 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 twelve
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
Felix J. Baker, Ph.D 31 Portfolio Manager, Tisch Family Interests; May 1999
Managing member of Baker-Tisch Investments LLC;
Managing member of Baker Bros. Investments LLC
Julian C. Baker 33 Portfolio Manager, Tisch Family Interests; May 1999
Managing member of Baker-Tisch Investments LLC;
Managing member of Baker Bros. Investments LLC
Barry M. Bloom, Ph.D. 71 Former Executive Vice President, Pfizer Inc December 1993
Robert N. Butler, M.D. 73 CEO and President, International Longevity July 1989
Center. Professor of Geriatrics, Mount Sinai
School of Medicine
Frank C. Carlucci 69 Chairman of the Board, Neurogen Corporation; February 1989
Chairman, The Carlyle Group
Jeffrey J. Collinson 58 President, Collinson Howe Venture Partners, Inc. May 1989
Mark Novitch, M.D. 67 Former Vice Chairman of the Board, The Upjohn December 1993
Company; Adjunct Professor of Health Care
Sciences, George Washington University
Medical Center
Harry H. Penner, Jr. 54 President, Chief Executive Officer and Vice
Chairman of the Board, Neurogen Corporation December 1993
Robert H. Roth, Ph.D. 60 Professor of Psychiatry and Pharmacology, Yale December 1988
University
John Simon 57 Managing Director, Allen & Company Incorporated May 1989
John F. Tallman, Ph.D. 53 Executive Vice President, Secretary and Scientific July 1988
Director, Neurogen Corporation
Suzanne H. Woolsey, Ph.D. 58 Chief Operating Officer, National Academy of January 1998
Sciences/National Research Council
</TABLE>
<PAGE>
Mr. Carlucci receives an annual fee of $50,000 for his services as Chairman
of the Board. Dr. Roth receives a fee of $1,500 per month for his services as a
director. 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. Under the
Neurogen Corporation 1993 Non-Employee Directors Stock Option Program (the
"Program"), each non-employee director receives 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, Felix Baker and Julian Baker were
granted such options on December 30, 1993. Dr. Woolsey's Initial Grant was made
on January 2, 1998, the effective date of her election to the Board. Felix and
Julian Baker's initial grants were made on May 26, 1999, the effective date of
their elections to the board. Under the Program, each non-employee director
receives annually an option to acquire 5,000 shares of Common Stock on the
anniversary of such director's Initial Grant. The exercise price on these annual
grants is 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,
December 31, 1997, December 31, 1998, and December 31, 1999. Dr. Woolsey, was
granted such options on January 4, 1999 and January 3, 2000. 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
other than Julian and Felix Baker, who are brothers.
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
1999 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, and was appointed Vice Chairman of the
Board of Directors in May 1999. 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 Avant
Immunotherapeutics, Inc. (Needham, MA), a publicly traded biotechnology company,
and PRA International, Inc. (a privately held clinical research organization),
and Genaissance Pharmaceuticals, a privately held genomics company. Mr. Penner
is currently Co-Chairman of CURE, Connecticut's Bioscience Cluster, and chaired
the Board of Directors of the Connecticut Technology Council (CTC) from 1996 -
1998. 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).
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, Nortel
Networks (Chairman), The Quaker Oats Company, Sun Resorts, Pharmacia
Corporation, Texas Biotech Inc. and IRI International.
Julian C. Baker has served as a director of Neurogen since May 1999.
Together with his brother Felix J. Baker, Ph.D., he has managed healthcare
investments for the Tisch Family since 1994. The Baker brothers also manage
other investment funds focused on the life science industry. Prior to his
partnership with the Tisch family, Mr. Baker was employed by the merchant
banking affiliates of Credit Suisse First Boston. Mr. Baker is also a director
of Advanced Medicine, a pharmaceutical company, and various private companies.
He holds an A.B. magna cum laude from Harvard University.
Felix J. Baker, Ph.D. has served as a director of Neurogen since May 1999.
Together with his brother Julian C. Baker, he has managed healthcare investments
for the Tisch Family since 1994. The Baker brothers also manage other investment
funds focused on the life science industry. Dr. Baker is also a director of
various private companies. He hold a B.S. with honors and Ph.D. in Immunology
from Stanford University.
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 Vertex Pharmaceuticals, Inc., Incyte Pharmaceuticals,
Inc., Cubist Pharmaceuticals, Inc. and Catalytica Pharmaceuticals.
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.
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. 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 Women First Healthcare, Inc., Advanced
Technical Products, Inc., and Costar Group, Inc. (formerly known as Realty
Information Group).
John F. Tallman, Ph.D., has been Executive Vice President, Scientific
Director, 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.
<PAGE>
Board Meetings and Committees
The Board of Directors of the Company held four meetings during the fiscal
year ended December 31, 1999. The Board of Directors has an Audit Committee, a
Compensation Committee and a Finance Committee. During the fiscal year ended
December 31, 1999, the Company did not have a nominating committee or a
committee performing the functions of a nominating committee.
The Audit Committee, which consists of Messrs. Carlucci, Novitch and Simon,
held two meetings 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,
Collinson and Julian Baker, 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, Simon and Felix Baker, 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 $9.4 million in research funding, $0.3 million in milestone
payments, $3.0 million in an up-front payment, and made certain reimbursements
to the Company in the last fiscal year pursuant to the terms of various
collaborative agreements and technology transfers between Pfizer and the
Company. 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 2000. 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, in the amounts of $200,000
and $150,000, respectively. In 1994, the Company made an unsecured, non-interest
bearing loan to Alan J. Hutchison, its Senior Vice President-Drug Discovery, of
$150,000. In 1997, the Company made unsecured, non-interest bearing loans to
Stephen R. Davis, its Senior Vice President and Chief Business Officer, to
Kenneth R. Shaw, Senior Vice President - Chemistry and Pre-Clinical Development,
and to James V. Cassella, Vice President - Clinical Development of $75,000 each.
The largest aggregate amount of indebtedness outstanding at any time during 1999
with respect to each of Mr. Penner, Dr. Tallman, Dr. Hutchison, Mr. Davis, Dr.
Shaw and Dr. Cassella was approximately $102,000, $77,000, $64,000, $62,000,
$62,000 and $62,000, 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, 2000, 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>
Four Partners .................................... 3,211,392 20.8%
867 Madison Ave.
New York, NY 10021
Pfizer Inc........................................ 2,846,000 18.4%
235 East 42nd Street
New York, NY 10017
Oppenheimer Funds................................. 1,475,000 9.5%
Two World Trade Center, 34th Floor
New York, NY 10048
Biotechnology Value Fund.......................... 1,206,206 7.8%
One Sansone Street
San Francisco, CA 94104
Harry H. Penner, Jr. (3).......................... 484,910 3.0%
John F. Tallman, Ph.D. (4)........................ 314,636 2.0%
Alan J. Hutchison, Ph.D. (5)...................... 124,766 *
Stephen R. Davis (6).............................. 70,596 *
Kenneth R. Shaw, Ph.D. (7)........................ 53,750 *
James V. Cassella, Ph.D. (8)...................... 93,439 *
Frank C. Carlucci (9)(10)......................... 192,669 1.2%
Felix J. Baker, Ph.D. (11)(12).................... 204,564 1.3%
Julian C. Baker (11)(13).......................... 216,072 1.4%
Barry M. Bloom, Ph.D. (14)........................ 23,089 *
Robert N. Butler, M.D. (15)....................... 14,297 *
Jeffrey J. Collinson (16)......................... 43,601 *
Robert M. Gardiner (14)........................... 77,089 *
Mark Novitch, M.D. (10)........................... 46,089 *
Robert H. Roth, Ph.D. (17)........................ 62,089 *
John Simon (10)(18)............................... 75,593 *
Suzanne H. Woolsey, Ph.D. (19).................... 18,348 *
All directors and officers
as a group (17 persons) (20)................... 1,942,397 11.1%
</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,
2000.
(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, 2000.
(3) Includes 438,250 shares of Common Stock that Harry H. Penner, Jr. has the
right to acquire under stock options exercisable within 60 days of March 1,
2000.
(4) Includes 206,333 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, 2000. 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 123,687 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, 2000.
(6) Includes 67,937 shares of Common Stock that Stephen R. Davis has the right
to acquire under stock options exercisable within 60 days of March 1, 2000.
(7) Includes 53,750 shares of Common Stock that Kenneth R. Shaw, Ph.D. has the
right to acquire under stock options exercisable within 60 days of March 1,
2000.
(8) Includes 92,343 shares of Common Stock that James V. Cassella, Ph.D. has
the right to acquire under stock options exercisable within 60 days of
March 1, 2000.
(9) Includes 40,000 shares of Common Stock owned by Mr. Carlucci's wife.
(10) Includes 42,089 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2000.
(11) Includes 6,672 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2000. All shares represented here with the
exception of these options, are also counted among the shares beneficially
owned by Four Partners (table above) for whom Felix and Julian Baker serve
as investment portfolio managers.
(12) Includes 173,200 shares of Common Stock in which investment and voting
power is shared with Julian C. Baker.
(13) Includes 173,200 shares of Common Stock in which investment and voting
power is shared with Felix J. Baker, Ph.D.
(14) Includes 22,089 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2000.
(15) Includes 14,297 shares of Common Stock subject to stock options exercisable
by Robert N. Butler, M.D. within 60 days of March 1, 2000.
(16) Includes 3,880 shares of Common Stock held by a corporation which Mr.
Collinson controls. Does not include 13,500 shares of Common Stock held by
Schroder's Incorporated, for which Mr. Collinson shares investment and
voting power, but has disclaimed beneficial ownership. Also includes 17,089
shares of Common Stock exercisable within 60 days of March 1, 2000.
(17) Includes 27,089 shares of Common Stock subject to stock options exercisable
by Robert H. Roth, Ph.D. within 60 days of March 1, 2000.
(18) 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.
(19) Includes 18,348 shares of Common Stock subject to stock options exercisable
by Suzanne H. Woolsey, Ph.D. within 60 days of March 1, 2000.
(20) Includes 1,242,912 shares of Common Stock subject to stock options
exercisable within 60 days of March 1, 1999.
<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, Ph.D. ...................46 Senior Vice President-Drug Discovery June 1994
Stephen R. Davis ...........................39 Senior Vice President and July 1994
Chief Business Officer
Kenneth R. Shaw, Ph.D. .....................43 Senior Vice President - Chemistry April 1999
and Pre-Clinical Development
James V. Cassella, Ph.D. ...................45 Vice President - Clinical Development April 1999
</TABLE>
Alan J. Hutchison, Ph.D., has been Senior Vice President-Drug Discovery
since 1997. Dr. Hutchison joined Neurogen in 1989 as Director of Chemistry and
became a Vice President of the Company in 1992. 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 Senior Vice President and Chief Business Officer
of Neurogen since January 2000. Mr. Davis joined Neurogen in 1994 as Vice
President of Finance and Chief Financial Officer. 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.
Kenneth R. Shaw, Ph.D. joined Neurogen in 1989 and has been Senior Vice
President of Chemistry and Pre-Clinical Development since April 1999. Dr. Shaw
began his industrial career in 1983 at Ciba-Geigy as a Senior Scientist and also
spent 2 years as Scientific Director at Franklin Diagnostics. Dr. Shaw received
a B.S. in Chemistry from the University of Rochester in 1979, and a Ph.D. in
Organic Chemistry from Columbia University in 1983.
James V. Cassella, Ph.D. joined Neurogen in 1989 and has been Vice
President of Clinical Development since April 1999. Prior to joining Neurogen,
Dr. Cassella was an Assistant Professor of Neuroscience at Oberlin College. Dr.
Cassella received his Ph.D. in Psychology from Dartmouth College in 1983 and
subsequently held a Postdoctoral Fellowship in the Department of Psychiatry at
Yale University's School of Medicine.
Compensation of Executive Officers (1)
Compensation Committee Report:
The Compensation Committee of the Board of Directors consists entirely of
outside directors. The Compensation Committee is responsible for establishing
and administering the policies which govern both the annual compensation and
stock ownership programs of the Company. On an annual basis, the Compensation
Committee evaluates the performance of management and determines the
compensation of Mr. Penner and the other executive officers of the Company. The
Compensation Committee's policies and programs are designed to further the
Company's goal of increasing shareholder value by motivating and retaining
executive officers. These policies include the following objectives:
o Providing base salaries that take into consideration executive
compensation paid by other similar biotechnology companies. Peer companies
generally are at a comparable stage of development, are pursuing R&D programs of
comparable nature and complexity and have similar potential risks and rewards,
market capitalization, size 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 the accomplishment of significant
Company and individual goals and objectives.
o Providing equity participation in the form of stock option grants or
restricted stock for the purpose of aligning executive officers' longer term
interests with those of the shareholders. The size and nature of equity based
compensation grants are based upon the Company's performance in meeting its
goals and objectives.
Traditional measures of corporate performance, such as current earnings per
share or sales growth, do not readily apply to most biotechnologies companies
which are heavily focused on research and development activities designed to
produce future earnings. At the Company's current stage of development, in
determining the compensation of the Company's executives the Compensation
Committee looks to other criteria to measure the Company's progress in making
valuable discoveries and bringing discoveries to their full commercial
potential. These criteria include the progress of the Company's efforts in
discovering and developing multiple clinical candidates in its portfolio of drug
programs, the advancement of the Company's drug candidates through clinical
trials, the Company's progress in developing new drug targets and discovering
potential drug leads for these targets, the Company's success in developing
valuable drug discovery technologies, the Company's ability to strategically
establish and execute corporate collaborations and technology alliances with
other parties and the Company's success in securing capital sufficient to
advance and expand its drug development and technology programs. 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 Compensation Committee specifically considers the achievement of
milestones related to expansion of the Company's portfolio of drug development
programs, the development of multiple drug candidates within individual programs
and the progress of individual candidates within each such program. In addition,
the Compensation 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 iterative trial
and error 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 longer term
objectives which are essential in creating maximum shareholder value.
In many instances the qualitative factors by which the Compensation
Committee judges corporate performance necessarily involve a subjective
assessment by the Compensation Committee of management's performance. Moreover,
the Compensation 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 comparable
companies in the biotechnology industry. Toward that end, the Compensation
Committee reviews both independent survey data as well as data gathered
internally and from time to time obtains the counsel of expert compensation
consultants. 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 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, or grants of restricted stock, which may have certain performance
criteria. 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 grants of stock options and restricted
stock as an element of their total annual compensation package. This component
is intended to motivate and retain executive officers to improve long-term stock
performance. Stock option and restricted stock awards are granted at the
discretion of the Compensation Committee. Generally, stock options vest in equal
amounts over four or five years, have a five or ten year term and are
exercisable during the term of the option at the fair market value of the
underlying Common Stock on the date of grant. 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 individual 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.
The Company made significant progress in meeting many of its goals during
the fiscal year ended December 31, 1999. The Company did not, however, fully
achieve some important goals. The Compensation Committee believes incentive
compensation of the Company's executive officers should closely track the
Company's performance. For this reason, the Compensation Committee substantially
reduced the amount of cash bonuses and stock option grants awarded to the
Company's executive officers for fiscal 1999 relative to levels awarded in
previous years. Annually, the Compensation Committee sets base salaries of the
executive officers in an effort to be competitive with peer companies. The
Compensation Committee considered the following developments in 1999 in awarding
incentive compensation based on the Company's performance in 1999: the
commencement of human clinical trials for the Company's lead anti-anxiety drug
candidate, NGD 91-3, the Company's lead Alzheimer's disease drug candidate, NGD
97-1, and the Company's lead insomnia drug candidate, NGD 96-1,each of which is
partnered with Pfizer; the establishment of a $27 million three-year technology
transfer agreement with Pfizer to license to Pfizer certain AIDD technologies;
the discovery of new chemical series and the advancement of potential candidates
in many of the Company's programs; and the further advancement of the Company's
proprietary AIDD drug discovery program.
In December 1999 and January 2000, the Compensation Committee met to review
the Company's performance and the performance of the Company's executive
officers during fiscal 1999, to determine cash incentive bonuses and stock
option grants to such executive officers and to set base salary levels for
fiscal 2000. The Committee used compensation guidelines provided by a
compensation consulting firm to assist it in relating Company performance to
compensation levels. Mr. Penner was not present during the Compensation
Committee's discussion and determination of his compensation. In recognition of
the achievement of most Company and individual performance goals, the Committee
approved the award of incentive cash bonuses and stock option grants to the
Company's executive officers. Because the Company failed to fully achieve some
important goals, these awards were set at reduced levels as described above. The
Committee also reviewed the compensation levels of officers at comparable
companies and raised the 2000 base salaries of the Company's executive officers
to remain competitive with its peers.
In evaluating the compensation of Harry H. Penner, Jr., the Compensation
Committee considered the significant role Mr. Penner played in each of the above
noted accomplishments together with his substantial industry experience and
competitive salary information. The Compensation Committee and Mr. Penner agree
that, as CEO, Mr. Penner should lead by example. In recognition that the Company
did not fully achieve some of its important goals, Mr. Penner received no cash
bonus or stock option grant for fiscal 1999 and other executive officers
received significantly reduced awards.
By the Compensation Committee: Jeffrey J. Collinson, Julian C. Baker, Frank
C. Carlucci, Robert M. Gardiner and John Simon.
- ---------------------
(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>
For the three years ended December 31, 1999, 1998, and 1997, 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. 1999 397,083 0 37,748(b) 0 13,735(c)
President, Chief Executive Officer 1998 358,417 116,000 41,939(d) 75,000(p) 15,072(c)
and Vice Chairman of the Board 1997 340,000 136,000 45,206(e) 80,000 8,636(c)
John F. Tallman 1999 259,583 0 28,312(f) 0 11,559(c)
Executive Vice-President, 1998 226,917 60,000 31,455(g) 45,000(p) 12,192(c)
Scientific Director 1997 215,000 80,000 33,904(h) 60,000 5,752(c)
and Secretary
Alan J. Hutchison 1999 246,417 32,025 26,063(i) 22,500 10,543(c)
Senior Vice President-Drug 1998 216,792 54,000 28,926(j) 37,500(p) 10,818(c)
Discovery 1997 193,500 70,000 31,493(k) 50,000 3,877(c)
Stephen R. Davis 1999 217,917 24,188 16,327(l) 17,000 10,100(c)
Senior Vice President and 1998 181,025 40,000 18,148(m) 31,500(p) 10,141(c)
Chief Business Officer 1997 167,700 45,000 7,639(n) 25,000 3,705(c)
Kenneth R. Shaw 1999 205,000 23,063 16,327(l) 16,000 567(c)
Senior Vice President - Chemistry 1998 158,250 40,000 18,148(m) 30,000(p) 714(c)
and Pre-Clinical Development 1997 150,625 40,000 1,528(o) 25,000 714(c)
James V. Cassella 1999 170,000 19,125 16,327(l) 13,500 10,524(c)
Vice President - Clinical Development 1998 158,250 35,000 18,148(m) 18,750(p) 10,314(c)
1997 150,625 40,000 1,528(o) 25,000 3,877(c)
- ------------------
</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 $4,997
on loan and income tax reimbursements of $4,180.
(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 $7,279
on loan and income tax reimbursements of $6,089.
(e) Includes $28,571 of forgiveness of loan, forgiveness of interest of $9,058
on loan and income tax reimbursements of $7,577.
(f) Includes $21,429 of forgiveness of loan, forgiveness of interest of $3,748
on loan and income tax reimbursements of $3,135.
(g) Includes $21,429 of forgiveness of loan, forgiveness of interest of $5,459
on loan and income tax reimbursements of $4,567.
(h) Includes $21,429 of forgiveness of loan, forgiveness of interest of $6,793
and income tax reimbursements of $5,682.
(i) Includes $21,429 of forgiveness of loan, forgiveness of interest of $2,523
and income tax reimbursements of $2,111.
(j) Includes $21,429 of forgiveness of loan, forgiveness of interest of $4,082
on loan and income tax reimbursements of $3,415.
(k) Includes $21,429 of forgiveness of loan, forgiveness of interest of $5,480
and income tax reimbursements of $4,584.
(l) Includes $10,714 of forgiveness of loan, forgiveness of interest of $3,056
and income tax reimbursements of $2,557.
(m) Includes $10,714 of forgiveness of loan, forgiveness of interest of $4,048
on loan and income tax reimbursements of $3,386.
(n) Includes $5,000 of forgiveness of loan, forgiveness of interest of $1,437
and income tax reimbursement of $1,202.
(o) Includes forgiveness of interest of $832 on loan and income tax
reimbursement of $696.
(p) Includes, in addition to options, restricted stock awards whose ultimate
issuance as non-restricted common stock is dependent upon future
performance of the common stock price.
<PAGE>
For the year ended December 31, 1999, the following tables summarize
incentive compensation paid to executive officers.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Number of
Securities % of Total Potential Realizable Value
Underlying Options Granted Exercise or at Assumed Annual Rates of
Options to Employees in Base Price Expiration Stock Price Appreciation
Name Granted Fiscal Year ($/Share) Date for Option Term
- ----------------- ----------- --------------- ----------- ------------ --------------------------
5%($) 10%($)
----- ------
<S> <C> <C> <C> <C> <C> <C>
Harry H. Penner, Jr. 0 0% - - $ - $ -
John F. Tallman 0 0% - - - -
Alan J. Hutchison 22,500 6% 16.50 12/31/04 102,570 226,652
Stephen R. Davis 17,000 4% 16.50 12/31/04 77,497 171,248
Kenneth R. Shaw 16,000 4% 16.50 12/31/04 72,938 161,175
James V. Cassella 13,500 3% 16.50 12/31/04 61,542 135,991
</TABLE>
<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($)(a)
Exercise(#) Realized($)(a) Exercisable/Unexercisable Exercisable/Unexercisable
Name
<S> <C> <C> <C> <C>
Harry H. Penner, Jr. - - 501,250/133,750 $3,376,000/$144,000
John F. Tallman 19,292 167,088 206,333/91,875 $868,000/$108,000
Alan J. Hutchison 10,000 90,000 148,687/92,563 $660,000/$ 90,000
Stephen R. Davis - - 103,937/60,063 $505,000/$ 45,000
Kenneth R. Shaw - - 81,850/58,500 $311,000/$ 45,000
James V. Cassella 2,000 19,000 100,943/51,782 $516,000/$ 45,000
- ------------------
</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 a two year renewable
employment agreement between Mr. Penner and the Company which was entered into
in October 1993. The agreement was most recently extended for an additional
two-year term as of December 1,1999. Under such agreement, Mr. Penner's base
salary of $394,000 per annum in 1999 was increased to $415,670 effective
December 1, 1999. 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 effective
from June 1994 to December 1999. In December 1999, Neurogen announced that Dr.
Tallman will be moving to the consulting position of Senior Scientific Advisor
and the Company has initiated a search to fill the position of Chief Scientific
Officer. 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, 1997. The agreement was most recently extended for an additional
two-year term as of December 1, 1999. Under such agreement, Dr. Hutchison's base
salary of $244,000 per annum in 1999 was increased to $257,420 effective
December 1, 1999. 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 and Chief
Business Officer of Neurogen, includes a salary paid pursuant to a two-year
renewable employment agreement between Mr. Davis and the Company effective
December 1, 1997. The agreement was most recently extended for an additional
two-year term as of December 1, 1999. Under such agreement, Mr. Davis' base
salary of $215,000 per annum in 1999 was increased to $241,275 effective
December 1, 1999. 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.
The compensation package for Kenneth R. Shaw, Senior Vice President -
Chemistry and Pre-Clinical Development, includes a salary paid pursuant to a
two-year renewable employment agreement between Dr. Shaw and the Company
effective December 1, 1999. Under such agreement, Dr. Shaw's base salary of
$205,000 per annum in 1999 was increased to $216,275 effective December 1, 1999.
Such increase was, and any future increases will be, at the discretion of the
Board of Directors. The employment agreement restricts Mr. Shaw 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 GRAPH(1)
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, 1994 and ending December 31, 1999 (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>
12/31/94 100.0 100.0 100.0
12/31/95 413.5 140.4 163.0
12/31/96 296.2 172.0 175.8
12/31/97 207.7 210.5 197.9
12/31/98 269.2 290.5 225.6
12/31/99 253.8 545.8 477.0
</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>
PROPOSAL NO. 2
APPROVAL AND ADOPTION OF THE
NEUROGEN CORPORATION 2000 NON-EMPLOYEE DIRECTORS STOCK OPTION PROGRAM
The Board of Directors has voted to approve the adoption of the Neurogen
Corporation 2000 Non-Employee Directors Stock Option Program (the "Program")
subject to shareholder approval and recommends to the Company's stockholders the
approval of the Program, to replace the 1993 Non-Employee Directors Stock Option
Program. The Board of Directors has also voted to terminate the 1993
Non-Employee Directors Stock Option Program, effective upon the adoption of the
Program as approved by the Company's stockholders. The affirmative vote of a
majority of the shares of Common Stock represented at the Annual Meeting is
required to approve the Program. While certain of the provisions of the Program
are summarized below, such summary is qualified in its entirety by reference to
the copy of the Program which is set forth in full as Appendix A to this Proxy
Statement. Capitalized terms used in this summary and not otherwise defined in
this Proxy Statement shall have the respective meanings set forth in the
Program.
Purpose
The purpose of the Program is to promote the interests of Neurogen and its
stockholders by strengthening the Company's ability to attract and retain the
services of experienced and knowledgeable non-employee directors through formula
grants of non-qualified stock options to acquire Common Stock. In addition, such
grants will encourage the closer alignment of the interests of such directors
with those of the Company's stockholders.
Number of Shares
The total number of shares of Common Stock to be reserved for issuance
under the Program is two hundred thousand (200,000) shares, subject to certain
adjustments to reflect certain stock changes, including without limitation stock
dividends and stock splits.
Administration
Determinations under the Program, regarding the pricing, granting, timing,
amount of and eligibility for grants of stock options are made automatically
pursuant to the terms and provisions of the Program. Other determinations, if
any, will be made by a committee selected by the Board of Directors (the
"Committee").
Eligibility
Each non-employee director of the Company will automatically participate in
the Program if such director has not been an employee of the Company during the
one-year period immediately preceding the commencement of his or her membership
on the Board of Directors.
Stock Option Grants
Under the Program, future non-employee directors shall receive an initial
grant of an option to acquire 20,000 shares of Common Stock at its then-current
fair market value immediately following the Annual Meeting at which such
director is first elected by the Company's shareholders or when such director is
otherwise first elected or appointed by the Board to be a director. At May 15,
2000, the total number of outstanding shares of Common Stock was 15,581,524
shares. The closing price of the Common Stock on the Nasdaq National Market on
May 15, 2000 was $27.50 per share.
In addition, each director will automatically be granted an annual option
to acquire 5,000 shares of Common Stock on each anniversary of the grant of the
initial option, each time with an exercise price equal to the fair market value
of the Common Stock on such anniversary.
One-twelfth of each option granted (in respect of the aggregate underlying
shares) will become exercisable on the last day of every month, beginning with
the last day of the month in which such options were granted.
Amendment, Suspension or Termination of the Program
The Board of Directors may amend, suspend or terminate the Program (or any
portion thereof) at any time; provided, however, that the terms and provisions
of the Program which determine the eligibility of the directors and the amount,
price, timing of the formula grants thereunder shall not be amended more than
once every six months, other than to comport with the Code or Employee
Retirement Income Security Act of 1974 and their respective rules. Without
majority shareholder approval, no amendment by the Board shall (i) materially
increase the number of shares of Common Stock which may be issued under the
Program, except as provided therein, (ii) modify in any way the requirements as
to eligibility for grants under the Program or (iii) increase the benefits
accruing to Eligible Directors under the Program. No amendment, suspension or
termination shall be effective if it would materially adversely affect the
rights of any Eligible Director in respect of any outstanding option, without
their consent.
Transferability
Generally, options granted under the Program cannot be transferred except
by will or through the laws of descent and distribution; except that the Program
will permit, with consent of the Committee, a transfer without consideration of
all or a portion of an option to a non-employee director's immediate family
members, or to entities in which such immediate family members have ownership
interests.
Certain Federal Income Tax Consequences of the Program
Upon the grant of a stock option, a non-employee director will not
recognize any income. At the time an option is exercised, the non-employee
director will recognize compensation taxable as ordinary income, and the Company
will generally be entitled to a deduction 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 non-employee director 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 non-employee director'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 a non-employee director elects to tender shares of Common Stock in a
partial or full payment of the option price for shares to be acquired through
the exercise of an option, generally the non-employee director will not
recognize any gain or loss on such tendered shares. If the non-employee director
tenders shares upon the exercise of an option which would result in the receipt
of compensation by the non-employee director, as described above, the
non-employee director will recognize compensation taxable as ordinary income and
the Company will be entitled to a deduction in an amount equal to the fair
market value of the number of shares received by the non-employee director upon
exercise which is in excess of the number of tendered shares, less any cash paid
by the non-employee director.
Effective Date
Subject to the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting, the
Program will become effective as of June 19, 2000, the date of its adoption by
the Board of Directors. Grants under the Program may be made until the Program
is terminated by action of the Board of Directors or the stockholders.
Approval of the Program
To become effective, the Program 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.
<PAGE>
PROPOSAL NO. 3:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
certified public accountants, as auditors to audit the financial statements of
the Company for the year ending December 31, 2000 and recommends that the
stockholders ratify such selection. PricewaterhouseCoopers LLP audited the
Company's annual financial statements for the fiscal years ended December 31,
1998 and December 31, 1999.
Stockholder ratification of the selection of PricewaterhouseCoopers 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
PricewaterhouseCoopers 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 PricewaterhouseCoopers 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.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters to be
submitted to the Annual Meeting. If, however, any other business should properly
come before the Annual Meeting, the persons named in the accompanying proxy will
vote proxies as in their discretion they may deem appropriate, unless they are
directed by proxy to do otherwise.
STOCKHOLDERS' PROPOSALS TO BE PRESENTED AT THE COMPANY'S
NEXT ANNUAL MEETING OF STOCKHOLDERS
Stockholder proposals intended to be presented at the 2001 Annual Meeting
of Stockholders of the Company must be received by the Company, at its principal
executive offices not later than December 20, 2000, for inclusion in the Proxy
Statement and Proxy relating to the 2001 Annual Meeting of Stockholders.
In addition, the proxy solicited by the Board of Directors for the 2001
Annual Meeting of Stockholders will confer discretionary authority to vote on
any stockholder proposal presented at that meeting, unless we are provided with
notice of such proposal no later than March 31, 2001.
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
May 18, 2000
-9-
<PAGE>
APPENDIX A
NEUROGEN CORPORATION
2000 NON-EMPLOYEE DIRECTORS STOCK OPTION PROGRAM
1. Purpose. The purpose of the Neurogen Corporation 2000 Non-Employee
Directors Stock Option Program (the "Program") is to promote the interests
of Neurogen Corporation (the "Company") and its shareholders by
strengthening the Company's ability to attract and retain the services of
experienced and knowledgeable non-employee directors through formula grants
of non-qualified stock options to acquire the Company's Common Stock, par
value $.025 per share. In addition, such grants will encourage the closer
alignment of the interests of such directors with those of the Company's
shareholders.
2. Definitions. For purposes of the Program, the following terms shall have
the meanings set forth below:
2.1 "Annual Grant" shall have the meaning set forth in Section
4.3 of the Program. 2.2 "Annual Meeting" means the annual
meeting of the Company's shareholders for any fiscal year as
determined by the Company's By-Laws.
2.3 "Award Agreement" means the stock option agreement executed
by each of the Eligible Directors pursuant to Sections 4 and
10.3 of the Program in connection with the granting of the
options hereunder.
2.4 "Board" means the Board of Directors of the Company, as
constituted from time to time.
2.5 "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.
2.6 "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.
2.7 "Committee" shall have the meaning set forth in Section 3.3
of the Program.
2.8 "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.
2.9 "Company" means Neurogen Corporation, a Delaware
corporation, or any successor corporation to Neurogen
Corporation.
2.10 "Eligible Director" means any Non-Employee Director of the
Company who becomes a member of the Board.
2.11 "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.
2.12 "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 System 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 System, the Fair Market Value of a share of
the Common Stock shall be determined in good faith by the
Board.
2.13 "Grant Date" means the date on which an Initial Grant or an
Annual Grant is made to an Eligible Director.
2.14 "Initial Grant" shall have the meaning set forth in Section
4.2 of the Program.
2.15 "Non-Employee Director" means any director of the Company
who is not, and who has not been for at least one year
preceding the commencement of his or her membership on the
Board, an employee of the Company, or any parent or
subsidiary companies of the Company.
2.16 "Option Period" shall have the meaning set forth in Section
4.7 of the Program.
2.17 "Option Shares" shall have meaning set forth in Section 3.2
of the Program.
2.18 "Option(s)" means the stock option(s) to acquire shares of
Common Stock granted pursuant to the provisions of Section 4
of the Program and the relevant Award Agreement.
2.19 "Program" means the Neurogen Corporation 2000 Non-Employee
Directors Stock Option Program, 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 in
accordance with Section 3.4 of the Program).
2.20 "Reelected Director" means an Eligible Director who
previously received an Initial Grant, terminated service as
a director of the Company and is subsequently elected or
appointed to the Board.
2.21 "SEC" means the Securities and Exchange Commission, or any
successor governmental agency.
2.22 "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.
2.23 "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.
2.24 "Termination" means a termination of an Eligible Director's
membership on the Board.
3. Term of the Program; Common Stock Subject to the Program; Administration.
3.1 Term. The Program shall continue in effect until it is
terminated by action of the Board or of the Company's
shareholders, but any such termination shall not affect the
terms of any then outstanding Options.
3.2 Common Stock. The maximum number of shares of Common Stock
in respect of which Options may be granted under the
Program, subject to adjustment as provided in Section 8.2 of
the Program, shall not exceed two hundred thousand (200,000)
shares (the "Option 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 Program. Common Stock which
may be issued under the Program 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 Program. If any Option granted under the Program expires
or terminates for any reason without having been exercised
in full, the Option Shares subject to, but not delivered
under, any such Option may become available for the grant of
other Options under the Program.
3.3 The Committee. Subject to the terms and provisions of the
Program, the Program shall be administered by a committee
selected by the Board (the "Committee").
3.4 Program Administration and Program Rules. The Committee
shall have the power to interpret and construe the terms and
provisions of the Program, to determine questions that arise
thereunder, to designate persons to carry out the day-to-day
ministerial administration of the Program under such
conditions and limitations as it may prescribe, and to
promulgate, adopt, amend and rescind such rules and
regulations for implementing and administering the Program
as the Committee deems necessary or desirable. Any
determination, decision or action of the Committee in
connection with the construction, interpretation,
administration or implementation of the Program shall be
final, binding and conclusive upon all Eligible Directors
and any person(s) claiming under or through any Eligible
Directors.
4. Non-Qualified Stock Option Grants.
4.1 Term. All Options granted under the Program shall be
nonstatutory options that are not "incentive stock options"
within the meaning of Section 422 of the Code.
4.2 Initial Grant. An initial Option to acquire five thousand
(5,000) Option Shares (as adjusted pursuant to Section 8.2
of the Program) shall be granted (an "Initial Grant") to
each Eligible Director immediately following any Annual
Meeting at which such Eligible Director is first elected by
the Company's shareholders or when such Eligible Director is
otherwise first elected or appointed by the Board to be a
director, whichever is applicable; provided, however, that a
Reelected Director shall not receive a second Initial Grant.
4.3 Annual Grant. An annual Option to acquire five thousand
(5,000) Option Shares (as adjusted pursuant to Section 8.2
of the Program) shall be granted (an "Annual Grant")
automatically each year on the anniversary of each Eligible
Director's election, reelection, appointment or
reappointment to the Board.
4.4 Exercise Price. The option exercise price per Option Share
for an Initial Grant and an Annual Grant shall be the Fair
Market Value on the Grant Date.
4.5 Method of Exercise. Upon becoming exercisable in accordance
with Section 5 of the Program, an Option may be exercised in
whole or in part at any time and from time to time during
the Option Period by giving written notice of exercise to
the Secretary of the Company or the Secretary's designee
specifying the number of Option Shares in respect of which
the Option is being exercised. Such notice shall be
accompanied by payment in full of the aggregate option
exercise price for the Option Shares to be acquired. The
date both such notice and payment are received by the office
of the Secretary of the Company shall be the date of
exercise of the Option as to such number of Option Shares.
No Option may be exercised at any time in respect of a
fractional share.
4.6 Form of Payment. Payment of the aggregate option exercise
price may be in cash or by certified, cashier's or personal
check. Payment may also be made in whole or in part by the
transfer to the Company of shares of Common Stock already
owned by an Eligible Director for at least six months and
having a Fair Market Value equal to all or a portion of the
option exercise price at the time of such exercise.
4.7 Option Period. Each Option shall expire ten years from its
Grant Date (the "Option Period"); provided, however in the
event of the Termination of an Eligible Director, any
outstanding unexercised Option of such Eligible Director
that has not vested pursuant to Section 5 of the Program
shall be deemed to be vested and shall be exercisable upon
the effectiveness of such Termination and all outstanding
and unexercised Options of such Eligible Director (whether
such Options vested prior to or at Termination) shall expire
one (1) year after the date of any such Termination or on
the stated grant expiration date, whichever is earlier.
4.8 Right to Exercise. The right of any Eligible Director (or
any person or entity receiving a transfer of an Option
directly from an Eligible Director as permitted in Section
10.5(b)) to exercise an Option granted under the Program
shall, during the lifetime of such Eligible Director (or
direct transferee) be exercisable only by such Eligible
Director (or transferee) and shall not be assignable by such
Eligible Director (or transferee) other than by will or the
laws of descent and distribution or by the Eligible director
pursuant to Section 10.5(b).
4.9 Limitation of Rights. Neither the recipient of an Option
under the Program nor an Eligible Director's transferee or
successor or successors in interest shall have any rights as
a shareholder of the Company with respect to any Option
Shares subject to an Option granted to such person until the
date of issuance of a stock certificate in respect of such
Option Shares.
4.10 Regulatory Approval. The Company shall not be required to
issue any certificate or certificates for Option Shares upon
the exercise of an Option granted under the Program or to
record as a holder of record of Option Shares the name of
the individual exercising an Option under the Program,
without obtaining to the complete satisfaction of the
Committee the approval of all regulatory bodies, if any,
deemed necessary by the Committee and without complying, to
the Committee's complete satisfaction, with all rules and
regulations under federal, state, or local law deemed
applicable by the Committee.
5. Vesting. Subject to Section 4.7 and Section 6 of the Program, one-twelfth
(1/12) of each Option (in respect of the aggregate underlying Option
Shares) shall become exercisable on the last day of each month, beginning
the last day of the month in which such Option Shares were granted.
6. Acceleration of Vesting Upon Change of Control. Anything in the Program to
the contrary notwithstanding, if a Change of Control of the Company occurs
all Options then unexercised and outstanding shall become fully vested and
exercisable as of the date of the Change of Control. The immediately
preceding sentence shall apply to only those Eligible Directors who are
members of the Board as of the date of the Change of Control.
7. Tax Reimbursement. All taxes, if any, in respect of any Option(s) granted
hereunder to the Eligible Director hereunder shall be the sole
responsibility of and shall be paid by the Eligible Director.
8. Changes in Capitalization and Other Matters.
8.1 No Corporate Action Restriction. The existence of the
Program, any Award Agreement and/or the formula grants made
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.
An Eligible Director, any transferee or beneficiary(ies) of
any such Eligible Director or any other person shall not
have any claim against any member of the Board or any
committee thereof, the Company or any Subsidiary or any
employees, officers or agents of the Company or any
Subsidiary, as a result of any such action.
8.2 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, merger, 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 (any of these being an
"Adjustment Event"), the Committee may make such adjustment
as it deems appropriate to reflect such change, including,
without limitation, with respect to the aggregate number and
class of shares of the Common Stock (or number and kind of
other securities or property) subject to and authorized by
the Program, the number and class of shares of Common Stock
(or number and kind of other securities or property) in
respect of which an Option may be granted to an Eligible
Director under the Program as provided in Section 4, the
number and class of Option Shares (or number and kind of
other securities or property) subject to each Option
outstanding and the per share (or other security or
property) exercise price specified for each Option
outstanding. In addition, upon an Adjustment Event, the
Committee may cancel any or all outstanding Options in
exchange for a payment in respect of each such Option equal
to the product of
(a) the excess of
(i) the fair market value of a share at the time of
the Adjustment Event over
(ii) the per share exercise price of such Option and
(b) the number of shares subject to such Option.
9. Amendment; Termination. The Board may suspend or terminate the Program (or
any portion thereof) at any time and may amend the Program at any time and
from time to time in such respects as the Board may deem advisable;
provided, however, that the terms and provisions of the Program which
determine the eligibility of directors and the amount, price and timing of
the formula grants hereunder shall not be amended more than once every six
months, other than to comport with changes in the Code or the Employee
Retirement Income Security Act of 1974, as amended, and the rules
thereunder; provided, further, that without majority shareholder approval,
no such amendment shall
(a) except as provided in Section 8.2 of the Program,
materially increase the number of shares of Common
Stock which may be issued under the Program,
(b) modify in any way the requirements as to eligibility
for grants under the Program, or
(c) increase the benefits accruing to Eligible Directors
under the Program. In addition, no such amendment,
suspension or termination shall be effective if it
would materially adversely affect the rights of any
Eligible Director in respect of any outstanding Option,
without the consent of such Eligible Director.
10. Miscellaneous.
10.1 No Right to Continue as Director. Neither the adoption of
the Program, the granting of an Option, nor any other action
taken pursuant to the Program shall constitute or be
evidence of any agreement or understanding, express or
implied, that an Eligible Director has a right to continue
as a director of the Company for any period of time or at
any particular rate of remuneration.
10.2 Listing, Registration and Other Legal Compliance. No Options
or Common Stock shall be issued under the Program unless
legal counsel for the Company shall be satisfied that such
issuance will be in compliance with all applicable federal
and state securities laws and regulations and any other
applicable laws or regulations. The Company may require, as
a condition of any payment or share issuance, that certain
agreements, undertakings, representations, certificates
and/or information, as the Company 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 any Options and/or
Common Stock delivered under the Program may be subject to
such stock-transfer orders and such other restrictions as
the Company 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 issuance or other distribution of any Options
and/or Common Stock or
(b) the payment of amounts to any Eligible Director,
any law, rule, regulation or other requirement of any
governmental authority or agency shall require either the
Company, any Subsidiary or any Eligible Director (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 Options 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. The Program and all transactions under the Program
are intended to comply with all applicable conditions of SEC
Rule 16b-3. To the extent any provision of the Program 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 Company.
10.3 Award Agreements. Each Eligible Director shall, at the
request of the Company, enter into an Award Agreement with
the Company in a form specified by the Company. Each such
Eligible Director shall agree to the restrictions, terms and
conditions set forth in such Award Agreement and/or the
Program.
10.4 Designation of Beneficiary. Each Eligible Director may
designate a beneficiary or beneficiaries to exercise an
Option or to receive any payment which under the terms of
the Program and the relevant Award Agreement may become
exercisable or payable on or after the Eligible Director's
death. At any time, and from time to time, any such
designation may be changed or cancelled by the Eligible
Director without the consent of any such beneficiary. Any
such designation, change or cancellation must be on a form
provided for that purpose by the Company and shall not be
effective until received by the Company. If no beneficiary
has been designated by a deceased Eligible Director, or if
the designated beneficiaries have predeceased the Eligible
Director, the beneficiary shall be the Eligible Director's
estate. If the Eligible Director designates more than one
beneficiary, any payments under the Program to such
beneficiaries shall be made in equal shares unless the
Eligible Director has expressly designated otherwise, in
which case the payments shall be made in the shares
designated by the Eligible Director.
10.5 Non-transferability of Awards.
(a) Except as otherwise provided in clause (b) below, no
Option under the Program 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 any
Eligible Director or any beneficiary(ies) of any
Eligible Director, except by testamentary disposition
by the Eligible Director 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 an Eligible Director's debts, judgements, 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 Program shall be null and void and without legal
force or effect.
(b) During the Eligible Director's lifetime, the Eligible
Director may, with the consent of the Committee,
transfer without consideration all or any portion of an
Option to one or more members of his or her Immediate
Family (as defined below), to a trust established for
the exclusive benefit of one or more members of his or
her Immediate Family, to a partnership in which all the
partners are members of his or her Immediate Family, or
to a limited liability company in which all the members
are members of his or her Immediate Family; provided,
however, that any such Immediate Family, trust,
partnership or limited liability company shall agree to
be and shall be bound by the terms and provisions of
the Program, and by the terms and provisions of any
applicable outstanding Award Agreements or other
agreements covering the Options or the shares subject
to the options. For purposes of this Agreement,
"Immediate Family" means the Eligible Director's
children, stepchildren, grandchildren, parents,
stepparents, grandparents, spouse, siblings (including
half-brothers and half-sisters), in-laws, and all such
relationships arising because of legal adoption.
10.6 Governing Law. The Program 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
Program.
10.7 Effective Date. The Program shall be effective upon its
adoption by the Board, subject to the approval of the
Program by the Company's shareholders.
