<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
INTERNEURON PHARMACEUTICALS, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(1)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
INTERNEURON PHARMACEUTICALS, INC.
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02421
----------------
Notice of Annual Meeting of Stockholders
To be held March 8, 2000
----------------
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of the Stockholders of
Interneuron Pharmaceuticals, Inc. (the "Company") will be held on March 8,
2000, at 10:00 a.m. local time at The Doubletree Guest Suites, 550 Winter
Street, Waltham, Massachusetts 02451. The Annual Meeting is called for the
following purposes:
1. To elect a board of seven directors;
2. To amend the Company's 1995 Employee Stock Purchase Plan, as amended,
to increase the number of shares subject thereto from 100,000 to
250,000;
3. To approve the Company's 2000 Stock Option Plan;
4. To approve and ratify the appointment of PricewaterhouseCoopers LLP as
the independent auditors of the Company; and
5. To consider and take action upon such other matters as may properly
come before the meeting or any adjournment or adjournments thereof.
The close of business on January 21, 2000 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the Annual Meeting. The stock transfer books of the Company will not be
closed.
All stockholders are cordially invited to attend the Annual Meeting. Whether
or not you expect to attend, you are respectfully requested by the Board of
Directors to sign, date and return the enclosed proxy promptly. Stockholders
who execute proxies retain the right to revoke them at any time prior to the
voting thereof. A return envelope which requires no postage if mailed in the
United States is enclosed for your convenience.
By Order of the Board of Directors,
Glenn L. Cooper, M.D.
President and Chief Executive
Officer
Dated: January 28, 2000
<PAGE>
INTERNEURON PHARMACEUTICALS, INC.
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02421
(781) 861-8444
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Interneuron Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), for the Annual Meeting of Stockholders
to be held at The Doubletree Guest Suites, 550 Winter Street, Waltham,
Massachusetts 02451 on Wednesday, March 8, 2000, at 10:00 a.m. and for any
adjournment or adjournments thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. Any stockholder giving
such a proxy has the power to revoke it at any time before it is voted.
Written notice of such revocation should be forwarded directly to the Vice
President, Corporate Communications of the Company, at the Company's above
stated address. Attendance at the Annual Meeting will not have the effect of
revoking the proxy unless such written notice is given or the stockholder
votes by ballot at the Annual Meeting.
If the enclosed proxy is properly executed and returned, the shares
represented thereby will be voted in accordance with the directions thereon
and otherwise in accordance with the judgment of the persons designated as
proxies. Any proxy on which no direction is specified will be voted in favor
of the actions described in this Proxy Statement, including the election of
the nominees set forth under the caption "Election of Directors," the
amendment of the Company's 1995 Employee Stock Purchase Plan, as amended, the
approval of the Company's 2000 Stock Option Plan and the approval and
ratification of the appointment of PricewaterhouseCoopers LLP as the
independent auditors of the Company.
The approximate date on which this Proxy Statement and the accompanying form
of proxy will first be mailed or given to the Company's stockholders is
February 7, 2000.
Your vote is important. Accordingly, you are urged to sign and return the
accompanying proxy card whether or not you plan to attend the Annual Meeting.
If you do attend, you may vote by ballot at the Annual Meeting, thereby
canceling any proxy previously given.
<PAGE>
VOTING SECURITIES AND VOTING RIGHTS
Holders of shares of Common Stock, par value $.001 per share (the "Shares"),
and holders of shares of Series B and Series C Convertible Preferred Stock,
par value $.001 per share (the "Preferred Shares"), of record as of the close
of business on January 21, 2000, are entitled to notice of, and to vote at,
the Annual Meeting on all matters except that the holders of the Preferred
Shares are not entitled to vote for the election of directors. Except as set
forth in the preceding sentence, each outstanding Share is entitled to one
vote upon all matters to be acted upon at the Annual Meeting. For purposes of
voting at the Annual Meeting on all matters except the election of directors,
the Preferred Shares are treated as converted into Shares.
Accordingly, on the record date there were issued and outstanding an
aggregate of (i) 42,109,262 Shares entitled to vote for the election of
directors, and (ii) 42,731,484 Shares, giving effect to the right to vote
622,222 Shares held by the holder of the 244,425 Preferred Shares, voting as
one class, entitled to vote on all other matters. A majority of the
outstanding Shares entitled to vote on any matter and represented at the
Annual Meeting in person or by proxy shall constitute a quorum. Assuming a
quorum is present, (i) the affirmative vote of a plurality of the 42,109,262
Shares so represented and entitled to vote is necessary to elect the directors
and (ii) the affirmative vote of a majority of the 42,731,484 Shares so
represented and entitled to vote, excluding broker non-votes, is necessary to
approve the amendment of the Company's 1995 Employee Stock Purchase Plan, as
amended, to approve the Company's 2000 Stock Option Plan and to approve the
appointment of PricewaterhouseCoopers LLP as the independent auditors of the
Company.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. If a
stockholder, present in person or by proxy, abstains on any matter, the
stockholder's Shares will not be voted on such matter. Thus, an abstention
from voting on any matter has the same legal effect as a vote "against" the
matter, even though the stockholder may interpret such action differently.
Except for determining the presence or absence of a quorum for the transaction
of business, broker non-votes are not counted for any purpose in determining
whether a matter has been approved.
3
<PAGE>
PRINCIPAL STOCKHOLDERS
Set forth below is information concerning stock ownership of all persons
known by the Company to own beneficially 5% or more of the Shares or Preferred
Shares, each director, each executive officer named under "Executive
Compensation" and all directors and executive officers of the Company as a
group based upon the number of outstanding Shares and Preferred Shares as of
January 21, 2000.
<TABLE>
<CAPTION>
Amount and Nature Percent of
of Beneficial Outstanding
Name and Address of Beneficial Holder Ownership(1) Stock Owned(16)
- ------------------------------------- ----------------- ---------------
<S> <C> <C>
Lindsay A. Rosenwald, M.D............. 2,638,983 (2) 6.2%
Glenn L. Cooper, M.D.................. 1,337,207 (3) 3.1%
Mark S. Butler........................ 685,501 (4)(5) 1.6%
Bobby W. Sandage, Jr., Ph.D. ......... 672,229 (5)(6) 1.6%
Michael W. Rogers..................... 225,000 (7) *
Harry J. Gray......................... 21,153 (8) *
Alexander M. Haig, Jr................. 21,553 (9) *
Malcolm Morville, Ph.D................ 61,553 (10) *
Lee J. Schroeder...................... 71,553 (11) *
David B. Sharrock..................... 101,753 (12) *
J. Morton Davis....................... 10,466,958 (13) 24.9%
c/o D.H. Blair Investment Banking
Corp.
44 Wall Street
New York, New York 10005
American Home Products Corp........... 244,425 (14) 100%
Five Giralda Farms
Madison, New Jersey 07940
All directors and executive officers
as a group (10 persons).............. 5,836,485 (15) 12.9%
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is defined in accordance with the rules of the
Securities and Exchange Commission ("S.E.C.") and generally means the
power to vote and/or to dispose of the securities regardless of any
economic interest therein.
(2) Includes (i) 2,512,481 Shares, of which 300,000 have been pledged in
favor of a bank to secure certain lease obligations of an affiliate of
Dr. Rosenwald, and (ii) 126,502 Shares issuable upon exercise of options
exercisable within 60 days, but excludes (i) 63,498 Shares issuable upon
exercise of options which are not exercisable within 60 days, (ii)
658,481 Shares owned by Dr. Rosenwald's wife, as to which Shares Dr.
Rosenwald disclaims beneficial ownership, and (iii) 37,800 Shares owned
by two limited partnerships, the limited partners of which include Dr.
Rosenwald's wife and children, as to which Shares Dr. Rosenwald disclaims
beneficial ownership.
(3) Includes (i) 7,206 Shares, (ii) 1,180,001 Shares issuable upon exercise
of options exercisable within 60 days, and (iii) 150,000 Shares subject
to restricted stock awards which may vest within 60 days, but excludes
(i) 639,999 Shares issuable upon exercise of options which are not
exercisable within 60 days, and (ii) the following held by Dr. Cooper's
wife, an employee of the Company: (a) 70,000 Shares issuable upon
exercise of options and (b) 22,800 Shares subject to restricted stock
awards, as to all of which Shares Dr. Cooper disclaims beneficial
ownership.
4
<PAGE>
(4) Includes (i) 7,500 Shares, (ii) 3,000 Shares owned by Mr. Butler's
children, and (iii) 575,001 Shares issuable upon exercise of options
exercisable within 60 days, but excludes 394,999 Shares issuable upon
exercise of options which are not exercisable within 60 days.
(5) Includes 100,000 Shares subject to restricted stock awards which may vest
within 60 days.
(6) Includes (i) 2,228 Shares and (ii) 570,001 Shares issuable upon exercise
of options exercisable within 60 days, but excludes 374,999 Shares
issuable upon exercise of options which are not exercisable within 60
days.
(7) Includes (i) 150,000 Shares issuable upon exercise of options exercisable
within 60 days, and (ii) 75,000 Shares subject to restricted stock awards
which may vest within 60 days, but excludes (i) 300,000 Shares issuable
upon exercise of options which are not exercisable within 60 days, and
(ii) 25,000 Shares subject to restricted stock awards which do not vest
within 60 days.
(8) Includes 21,153 Shares issuable upon exercise of options exercisable
within 60 days, but excludes 20,347 Shares issuable upon exercise of
options which are not exercisable within 60 days.
(9) Includes 21,553 Shares issuable upon exercise of options exercisable
within 60 days, but excludes 20,447 Shares issuable upon exercise of
options which are not exercisable within 60 days.
(10) Includes 61,553 Shares issuable upon exercise of options exercisable
within 60 days, but excludes 30,447 Shares issuable upon exercise of
options which are not exercisable within 60 days.
(11) Includes 71,553 Shares issuable upon exercise of options exercisable
within 60 days, but excludes 20,447 Shares issuable upon exercise of
options which are not exercisable within 60 days.
(12) Includes (i) 5,000 Shares and (ii) 96,753 Shares issuable upon exercise
of options exercisable within 60 days, but excludes 39,247 Shares
issuable upon exercise of options which are not exercisable within 60
days
(13) Based on information contained in Form 4s and amendments to a Schedule
13-D filed with the S.E.C. Includes (i) 6,956 Shares owned by J. Morton
Davis; (ii) 8,711,337 Shares owned by D.H. Blair Investment Banking Corp.
("Blair Banking") which is owned by J. Morton Davis; (iii) 323,300 Shares
owned by Mr. Davis' wife; (iv) 677,865 Shares owned by Rivkalex Corp.,
the sole stockholder of which is Mr. Davis' wife; (v) 247,500 Shares
owned by Engex, Inc., a closed-end investment Company of which Mr. Davis
is the Chairman of the Board and Blair Banking is the largest
stockholder; and (vi) 500,000 Shares held by the J. Morton Davis
Retirement Annuity Trust of which Mr. Davis' wife is the trustee. Blair
Banking and Mr. Davis disclaim beneficial ownership of the Shares owned
by Mr. Davis' wife and Rivkalex.
Excludes (i) an aggregate of 2,665,424 Shares owned by the adult children
(including the wife of Dr. Rosenwald) of Mr. Davis; (ii) an aggregate of
286,599 Shares owned by sons-in-law of Mr. Davis; (iii) 91,250 Shares owned
jointly by two adult children of Mr. Davis and their respective spouses;
(iv) 37,800 Shares owned by two limited partnerships, the limited partners
of which are family members of Mr. Davis (including the wife and children
of Dr. Rosenwald); (v) 777,297 Shares owned by The Morton Foundation, a
charitable foundation of which Mr. Davis' wife and two of their adult
children are the trustees and for which a proxy to vote and dispose of such
Shares is held by a third party; and (vi) 600,000 Shares owned by four
charitable foundations, the trustees, officers and directors of which are
various family members of Mr. Davis, and for three of which a proxy to vote
and dispose of such Shares is held by a third party, as to all of which
Shares Blair Banking and Mr. Davis disclaim beneficial ownership.
(14) Represents Preferred Shares, which constitute all of the outstanding
Preferred Shares, and which are convertible into 622,222 Shares, each
entitled to one vote per Share, on a converted basis, on all matters
except the election of directors. American Home Products Corp. ("AHP")
also owns 9,935 Shares.
(15) Includes (i) 2,874,070 Shares issuable upon exercise of options
exercisable within 60 days, and (ii) 425,000 Shares subject to restricted
stock awards which may vest within 60 days, but excludes (i) 1,904,430
Shares issuable upon exercise of options which are not exercisable within
60 days and (ii) 25,000 Shares subject to restricted stock awards which
do not vest within 60 days.
5
<PAGE>
(16) All holders own Shares, with the exception of AHP which owns (i) 244,425
Preferred Shares (convertible into 622,222 Shares) and (ii) 9,935 Shares.
The percent of class in this column is calculated as follows:
(a) for holders of Shares, on the basis of 42,109,262 Shares outstanding,
excluding 622,222 Shares issuable upon conversion of the Preferred
Shares, representing the number of Shares outstanding and entitled to
vote for the election of directors of the Company, except that Shares
issuable or which may be issuable within 60 days are deemed to be
outstanding for purposes of calculating the percent owned by the holder
of such securities.
(b) for holders of Preferred Shares, the percent of class is calculated on
the basis of 244,425 Preferred Shares outstanding.
6
<PAGE>
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
At the Annual Meeting, seven directors will be elected by the stockholders
to serve until the next Annual Meeting of Stockholders or until their
successors are elected and shall qualify. Each of the nominees is currently a
director of the Company. Management recommends that the persons named below be
elected as directors of the Company and it is intended that the accompanying
proxy will be voted for the election as directors of the seven persons named
below, unless the proxy contains contrary instructions. The Company has no
reason to believe that any of the nominees will not be a candidate or will be
unable to serve. However, in the event that any of the nominees should become
unable or unwilling to serve as a director, the persons named in the proxy
have advised that they will vote for the election of such person or persons as
shall be designated by management.
The following sets forth certain information relating to the seven nominees
for election to the Board of Directors.
Glenn L. Cooper, M.D. (47) has been President, Chief Executive Officer and a
director of the Company since May 1993 and Chairman of the Board of Directors
of the Company since January 19, 2000. From September 1992 to June 1994, Dr.
Cooper served as President and Chief Executive Officer of Progenitor, Inc.
("Progenitor"), a minority-owned subsidiary of the Company, which announced
its decision to cease operations effective December 1998. Dr. Cooper is
Chairman of the Board of Directors of Progenitor, a director of CPEC LLC, a
subsidiary of the Company, and was formerly the Chairman of the Board and a
director of Intercardia, Inc., now called Incara Pharmaceuticals, Inc.
("Incara"), a former majority-owned subsidiary of the Company. Dr. Cooper is
also a director of Genta, Incorporated, a publicly-traded biotechnology
company and Procept Incorporated, a publicly-traded biotechnology and internet
company. Prior to joining Progenitor, Dr. Cooper was Executive Vice President
and Chief Operating Officer of Sphinx Pharmaceuticals Corporation from August
1990. Dr. Cooper had been associated with Eli Lilly since 1985, most recently,
from June 1987 to July 1990, as Director, Clinical Research, Europe, of Lilly
Research Center Limited; from October 1986 to May 1987 as International
Medical Advisor, International Research Coordination of Lilly Research
Laboratories; and from June 1985 to September 1986 as Medical Advisor,
Regulatory Affairs, Chemotherapy Division at Lilly Research Laboratories. Dr.
Cooper received his M.D. from Tufts University School of Medicine, performed
his postdoctoral training in Internal Medicine and Infectious Diseases at the
New England Deaconess Hospital and Massachusetts General Hospital and received
his A.B. from Harvard College.
Harry J. Gray (80) has been a director of the Company since May 1993. Mr.
Gray was associated with United Technologies Corp. for 17 years and was its
President from 1971 until 1972 when he became its Chairman and Chief Executive
Officer until his retirement in 1986. Mr. Gray is currently Chairman and Chief
Executive Officer of Harry Gray Associates of Florida, a private investment
firm, Chairman and Chief Executive Officer of Mott Corporation and Chairman
and Chief Executive Officer of Worldwide Fulfillment and Distribution, Inc.
Alexander M. Haig, Jr. (75) has been a director of the Company since January
1990. Since August 1982, General Haig has been Chairman and President of
Worldwide Associates, Inc., a business adviser to both U.S. and foreign
companies in connection with international marketing and venture capital
activities. From January 1981 until July 1982, General Haig served as
Secretary of State of the United States. From December 1979 until January
1981, General Haig was President and Chief Operating Officer of United
Technologies Corp. and is currently a senior consultant to such corporation.
From 1974 through 1979, General Haig was the Supreme Allied Commander of NATO.
Prior to that, he was White House Chief of Staff under the Nixon and Ford
Administrations. General Haig currently serves on the Board of Directors of
America Online, Inc., MGM Grand, Inc., Metro Goldwyn Mayer Inc., and Preferred
Employers Holdings Inc.
Malcolm Morville, Ph.D. (54) has been a director of the Company since
February 1993. Since February 1993, Dr. Morville has been President and Chief
Executive Officer and a director of Phytera, Inc., a plant and marine
microbial-based biotechnology company. Dr. Morville is also Chairman and a
member of the Board of
7
<PAGE>
Directors of Phytera A/S and a member of the Board of Directors of Phytera
Ltd. and Phytera Symbion ApS, all of which are wholly-owned subsidiaries of
Phytera, Inc. From June 1988 through January 1993, Dr. Morville held various
positions with ImmuLogic Pharmaceutical Corporation, including Division Vice
President, Allergic Diseases Strategic Business Unit and Senior Vice
President, Development and Preclinical Research. From 1970 to June 1988, Dr.
Morville held various positions with Pfizer Central Research, including
Director, Immunology and Infectious Diseases and Assistant Director, Metabolic
Diseases and General Pharmacology. Dr. Morville received his Ph.D. and his
B.Sc. in Biochemistry at the University of Manchester Institute of Science and
Technology (U.K.).
Lindsay A. Rosenwald, M.D. (44) was a co-founder and from February 1989 to
January 19, 2000 was Chairman of the Board of Directors of the Company. Dr.
Rosenwald is also the founder and Chairman of Paramount Capital Asset
Management, Inc., which serves as the General Partner of Aries Domestic Fund,
L.P. and the Aries Domestic Fund II, L.P. and as the investment manager of The
Aries Master Fund, a Cayman Islands exempted company. Dr. Rosenwald is also
the founder and Chairman of Paramount Capital Investments, LLC, a
biotechnology, biomedical and biopharmaceutical merchant banking firm, and
Paramount Capital, Inc., an investment bank specializing in the biotechnology,
biomedical and biopharmaceutical industries. Dr. Rosenwald is also a director
of Neose Technologies, Inc., a manufacturer of bioactive carbohydrates and has
founded numerous biopharmaceutical companies and currently serves as an
officer or director of several privately held biopharmaceutical companies. Dr.
Rosenwald is also the President of the Rosenwald Foundation, a charitable
foundation based in New York which will assist outstanding scientists in their
continued research and development in order to further the advancement of
biotechnology. Dr. Rosenwald received his M.D. from Temple University School
of Medicine and his B.S. in Finance from Pennsylvania State University.
Lee J. Schroeder (71) has been a director of the Company since August 1991.
Since 1985, Mr. Schroeder has been the President of Lee Schroeder &
Associates, Inc., a pharmaceutical consulting firm. Mr. Schroeder was
President and Chief Operating Officer of FoxMeyer Lincoln Drug Co., a
wholesale drug company, from February 1983 to March 1985 and was the Executive
Vice President, responsible for United States pharmaceutical operations, and a
member of the executive committee of Sandoz, Inc. from April 1981 to February
1983, and was Vice President and General Manager of Dorsey Laboratories, a
division of Sandoz, Inc., from November 1974 to April 1981. Mr. Schroeder is
also a member of the Board of Directors of Ascent Pediatrics, Inc., Celgene
Corporation, MDS Harris Laboratories, and MGI Pharma Inc.
David B. Sharrock (63) has been a director of the Company since February
1995. Mr. Sharrock was associated with Marion Merrell Dow Inc. and its
predecessor companies for over thirty-five years until his retirement in
December 1993. Most recently, since December 1989, he served as Executive Vice
President and Chief Operating Officer and a director, and in 1988, he was
named President and Chief Operating Officer of Merrell Dow Pharmaceuticals,
Inc. Mr. Sharrock has been a consultant to the Company since February 1994 and
is also a director of Incara and Broadwing, Inc.
Directors are elected by the Company's stockholders at each annual meeting
or, in the case of a vacancy, are appointed by the directors then in office,
to serve until the next annual meeting or until their successors are elected
and qualified. Officers are appointed by and serve at the discretion of the
Board of Directors.
MEETINGS OF THE BOARD OF DIRECTORS
Board of Directors
The Board of Directors of the Company held six meetings during the fiscal
year ended September 30, 1999 ("fiscal 1999"). Each of the directors, except
for Mr. Gray, attended at least 75% of the aggregate number of meetings of the
Board of Directors and the committees thereof held during fiscal 1999, during
the tenure of such directors' service.
8
<PAGE>
Audit Committee
The Audit Committee consists of General Haig and Mr. Schroeder. The Audit
Committee reviews, with the Company's independent auditors, the annual
financial statements of the Company and makes annual recommendations to the
Board of Directors for the appointment of independent public auditors for the
ensuing year. The Audit Committee also reviews the plans and results for the
audit engagement, the effectiveness and adequacy of the financial and
accounting functions, organization, internal controls and related party
transactions. The Audit Committee met twice during fiscal 1999.
Compensation Committee
The Compensation Committee, which consists of Mr. Gray, General Haig, Dr.
Morville and Mr. Sharrock, reviews and determines the compensation of all
executive officers of the Company, reviews general policy matters relating to
compensation and benefits of employees of the Company, administers the
Company's stock option and other employee compensation plans, including the
1989 Stock Option Plan (the "1989 Plan"), the 1994 Long-Term Incentive Plan,
as amended (the "1994 Plan"), the 1995 Employee Stock Purchase Plan, as
amended (the "1995 Plan"), the 1997 Equity Incentive Plan (the "1997 Plan"),
the 1998 Employee Stock Option Plan (the "1998 Plan") and the 2000 Stock
Option Plan (the "2000 Plan"), consults with management on matters concerning
compensation and makes recommendations to the Board of Directors on
compensation matters where approval of the Board of Directors is required.
During fiscal 1999, the Compensation Committee met three times.
The Company does not have a nominating committee.
DIRECTOR COMPENSATION
Cash Compensation
With the exception of General Haig who receives a $10,000 fee per meeting
attended, non-employee directors (except Dr. Rosenwald and Dr. Richard
Wurtman, who resigned from the Board of Directors effective July 29, 1999) of
the Company receive a fee of $2,000 per in-person meeting attended. For each
meeting held by telephone conference, such directors receive a percentage of
the regular meeting fee. Except for Dr. Rosenwald, each non-employee director
is reimbursed for expenses actually incurred in attending meetings.
Options
On the date following each annual meeting of the stockholders, each director
of the Company (except Drs. Rosenwald and Cooper) is entitled to receive
automatic grants of options to purchase 5,000 Shares under the 1994 Plan,
which options will be exercisable at a price equal to the fair market value of
Shares as determined on the date of grant. Accordingly, during fiscal 1999
each director (except Drs. Rosenwald and Cooper) received options to purchase
5,000 Shares, subject to annual vesting, as an automatic grant under the 1994
Plan.
On May 5, 1998 and August 17, 1998 the Board of Directors offered (the
"Repricing Offers") each eligible employee, officer, consultant and director
of the Company (the "Option Holders") the right to exchange certain of his or
her then outstanding options or warrants (the "Exchanged Options") for new
options or warrants to purchase the number of Shares represented by the
existing options or warrants at an exercise price equal to the fair market
value of the Shares on the date of each Repricing Offer (the "Repriced
Options"). All of the directors were eligible to participate in each of the
May and August 1998 Repricing Offers, and exchanged in the aggregate options
to purchase 839,500 Shares for Repriced Options (excluding Dr. Cooper, who
exchanged in the aggregate options to purchase 1,760,000 Shares for Repriced
Options).
9
<PAGE>
Consulting Agreements and Subsidiary Compensation
Until October 31, 1999, the Company had a Consulting and Non-Competition
Agreement with Dr. Wurtman, and currently has a Consulting and Non-Competition
Agreement with Mr. Sharrock and a Management Agreement with Dr. Rosenwald.
During fiscal 1999, the Company paid Drs. Wurtman and Rosenwald fees of
$172,000 and $30,000, respectively, pursuant to their agreements. Dr. Wurtman
resigned from the Board effective July 29, 1999, and the Company terminated
his Consulting and Non-Competition Agreement effective as of October 31, 1999.
In fiscal 1999, the Company and its subsidiaries paid or accrued to Mr.
Sharrock, who also serves as a director of Incara, and served as a consultant
to, and director of, Progenitor: (i) consulting fees for consulting services
rendered by Mr. Sharrock to the Company and to Progenitor of $28,000 and
$2,000, respectively; (ii) directors' fees from Incara and Progenitor of
$4,000 and $2,000 respectively; and (iii) granted options to purchase 3,000
shares of common stock of Incara to Mr. Sharrock. The options granted by
Incara to Mr. Sharrock were granted at an exercise price equal to the fair
market value of such company's common stock on the date of grant.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to the Chief Executive Officer and
the three other executive officers of the Company whose annual compensation
exceeded $100,000 for fiscal 1999 (collectively, the "named executive
officers") for services during the fiscal years ended September 30, 1999, 1998
and 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
--------------------------------- -------------------------------
Long-Term
Restricted Securities Incentive
Other Annual Stock Underlying Plan All Other
Name and Principal Salary Bonus Compensation Awards Options Payouts Compensation
Position Year ($) (1) ($) (2) ($) (2) (3) ($) (4) (#) (5) ($) ($) (6)
- ------------------ ---- ------- ------- ------------ ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Glenn L. Cooper, M.D.... 1999 350,000 70,000 -- -- -- -- 5,550
President and Chief 1998 351,673 73,500 -- 3,037,033 2,414,292 -- 5,544
Executive Officer 1997 337,115 126,000 105,896 -- 345,000 -- 4,571
Mark S. Butler.......... 1999 265,000 45,050 -- -- -- -- 5,096
Executive Vice
President, Chief 1998 258,069 46,375 -- 1,734,375 1,160,000 -- 3,801
Administrative Officer
and 1997 242,505 71,550 6,188 -- 150,000 -- 3,385
General Counsel
Michael W. Rogers (7)... 1999 156,962 45,050 15,752 412,500 450,000 -- 3,052
Executive Vice
President, 1998 -- -- -- -- -- -- --
Chief Financial Officer
and Treasurer 1997 -- -- -- -- -- -- --
Bobby W. Sandage, Jr.,
Ph.D. ................. 1999 265,000 45,050 -- -- -- -- 2,379
Executive Vice
President, 1998 253,911 46,375 -- 1,734,375 1,135,000 -- 2,502
Research and
Development, 1997 219,353 66,780 -- -- 250,000 -- 1,627
Chief Scientific
Officer
</TABLE>
- --------
(1) The salaries listed include contributions made by the named executive
officers to the Company's 401(k) Plan in the following amounts: (i) for
fiscal 1999, $7,706 for Dr. Cooper, $1,092 for Mr. Butler, $8,192 for Mr.
Rogers, and $10,000 for Dr. Sandage; (ii) for fiscal 1998, $9,967 for Dr.
Cooper, $8,908 for Mr. Butler and $10,000 for Dr. Sandage; and (iii) for
fiscal 1997, $11,600 for Dr. Cooper, $11,600 for Mr. Butler and $9,500 for
Dr. Sandage.
(2) Amounts shown in this column include compensation accrued in the specified
fiscal year, portions of which may have been paid in a subsequent fiscal
year.
(3) Amounts shown in this column consist of the following: (i) debt
forgiveness to Dr. Cooper for fiscal 1997 of $56,897 and reimbursement for
the payment of taxes incurred and a tax gross-up payment to cover such
10
<PAGE>
taxes, in connection with such compensation, of $48,999 for Dr. Cooper;
and (ii) moving and relocation or temporary living expenses for Mr. Butler
and Mr. Rogers in the following amounts: (a) for fiscal 1999, $15,752 for
Mr. Rogers; and (b) for fiscal 1997, $6,188 for Mr. Butler.
(4) Amounts shown in this column consist of the value of the Shares subject to
restricted stock awards granted to named executive officers under the 1997
Plan, including for Dr. Cooper, $435,470 representing the value of the
40,850 Shares subject to restricted stock awards granted to Dr. Cooper's
wife, the Company's Vice President of Human Resources, as to which Dr.
Cooper disclaims beneficial ownership. Amounts shown in this column were
calculated based on the fair market value of Shares, as quoted by the
Nasdaq Stock Market ("Nasdaq"), multiplied by the number of Shares subject
to the restricted stock award: (i) for fiscal 1999, the fair market value
of the Shares was $4.125, representing the closing price of the Shares on
February 23, 1999; and (ii) for fiscal 1998, the fair market value of the
Shares was $11.5625, representing the closing price of the Shares on
November 7, 1997, except for 6,650 Shares subject to an award made to Dr.
Cooper's wife on May 5, 1998, for which the fair market value was $6.02.
The number of Shares subject to restricted stock awards granted to the
named executive officers were as follows: (i) in fiscal 1999, 100,000
Shares to Mr. Rogers; and (ii) in fiscal 1998, 225,000 Shares to Dr.
Cooper and 150,000 Shares to each of Mr. Butler and Dr. Sandage. The
Shares subject to the restricted stock awards may be sold immediately upon
their vesting, which commenced in May 1998 for Drs. Cooper and Sandage and
Mr. Butler and is scheduled to extend through January 2000, and which is
subject to automatic extension during a Black-Out Period (as defined in
the 1997 Plan). With respect to Mr. Rogers, initial vesting of his Shares
subject to a restricted stock award was scheduled to commence in May 1999
and extend through May 2000. In December 1999, the Board of Directors
amended Mr. Rogers' restricted stock award by changing the vesting date
for certain Shares from May 2000 to December 1999. Prior to their issuance
upon vesting and satisfaction of any other required conditions, no
dividends are payable with respect to the Shares subject to the restricted
stock awards.
In May 1998, a portion of the Shares subject to the restricted stock
awards vested with respect to Drs. Cooper and Sandage and Mr. Butler and,
upon payment representing the par value of the Shares, Shares were issued
to the named executive officers as follows: 75,000 Shares to Dr. Cooper
and 50,000 Shares to each of Mr. Butler and Dr. Sandage. The Shares were
sold by such named executive officers immediately upon vesting. The value
of the Shares issued at the May 1998 vesting, determined by the weighted
average of the fair market value of the Shares sold in the aggregate by
such named executive officers each day of vesting, multiplied by the
number of Shares minus the amount of consideration paid, was as follows:
$442,613 for Dr. Cooper (excluding $103,613 for Dr. Cooper's wife),
$278,975 for Mr. Butler, and $283,300 for Dr. Sandage.
The number and value of restricted stock holdings of the named executive
officers at the end of fiscal 1999 were as follows:
<TABLE>
<CAPTION>
Number of Shares
Subject to Value of Restricted
Named Executive Officer Restricted Stock Awards Stock Awards (1)
----------------------- ----------------------- -------------------
<S> <C> <C>
Glenn L. Cooper, M.D. .......... 150,000 $187,500
Mark S. Butler.................. 100,000 $125,000
Michael W. Rogers............... 100,000 $125,000
Bobby W. Sandage, Jr., Ph.D..... 100,000 $125,000
</TABLE>
--------
(1) The value is calculated by multiplying the number of Shares subject to
restricted stock awards at year end by the fair market value of the
Shares on September 30, 1999 ($1.25), as quoted by Nasdaq.
(5) Consists of options granted by the Company to the named executive
officers, except (a) Dr. Cooper (i) for fiscal 1998, which also includes
25,792 and 33,500 options granted by Incara and Progenitor, respectively;
and (ii) for fiscal 1997, which also includes 20,000 and 25,000 options
granted by Transcell Technologies, Inc. (a former subsidiary of the
Company of which Dr. Cooper was a director), and Progenitor, respectively,
and (b) for fiscal 1998, options to purchase an aggregate of 95,000 Shares
granted to Dr. Cooper's wife, as to which Shares Dr. Cooper disclaims
beneficial ownership.
11
<PAGE>
For fiscal 1998, this column includes Exchanged Options granted to such
named executive officers, which were exchanged for Repriced Options,
including Exchanged Options in the following amounts: 500,000 to Dr.
Cooper; 250,000 to Mr. Butler; and 250,000 to Dr. Sandage.
(6) Amounts shown in this column include the following:
(a) disability insurance premiums on behalf of the named executive
officers, in the following amounts: (i) for fiscal 1999, $1,343 for Dr.
Cooper, $1,016 for Mr. Butler, $868 for Mr. Rogers and $1,015 for Dr.
Sandage; (ii) for fiscal 1998, $1,368 for Dr. Cooper, $1,009 for Mr.
Butler and $992 for Dr. Sandage; and (iii) for fiscal 1997, $1,235 for
Dr. Cooper, $893 for Mr. Butler, and $834 for Dr. Sandage; and
(b) group term life insurance premiums on behalf of the named executive
officers, in the following amounts: (i) for fiscal 1999, $1,559 for Dr.
Cooper, $2,210 for Mr. Butler, $474 for Mr. Rogers and $1,364 for Dr.
Sandage; (ii) for fiscal 1998, $1,771 for Dr. Cooper, $2,792 for Mr.
Butler and $1,510 for Dr. Sandage; and (iii) for fiscal 1997, $1,122
for Dr. Cooper, $2,492 for Mr. Butler, and $793 for Dr. Sandage. The
Company has also made term life insurance premium payments on behalf of
the named executive officers as follows: (i) for fiscal 1999, $2,684
for Dr. Cooper, $1,870 for Mr. Butler and $1,710 for Mr. Rogers; (ii)
for fiscal 1998, $2,405 for Dr. Cooper; and (iii) for fiscal 1997,
$2,214 for Dr. Cooper.
(7) Mr. Rogers became a named executive officer of the Company on February 23,
1999.
The following table sets forth certain information with respect to
individual grants of stock options made by the Company during fiscal 1999 to
the named executive officers:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Individual Grants Rates of Stock
---------------------------------------------------- Price
Number of % of Total Appreciation for
Securities Options/SARs Option Term ($)
Underlying Granted to Exercise or (3)
Options/SARs Employees in Base Price Expiration -----------------
Name Granted (#) Fiscal Year (2) ($/Sh) Date 5% 10%
- ---- ------------ --------------- ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Rogers....... 450,000 (1) 77% 4.0625 2/23/06 744,230 1,734,373
</TABLE>
- --------
(1) Represents 375,000 options granted to Mr. Rogers under the 1998 Plan and
75,000 options granted under the 1994 Plan. Mr. Rogers was the only named
executive officer to receive a grant of stock options in fiscal 1999.
(2) Options to purchase a total of 584,415 Shares were granted to officers,
employees and consultants in fiscal 1999.
(3) Calculated by multiplying the exercise price by the annual appreciation
rate shown (as prescribed by S.E.C. rules and compounded for the term of
the options), subtracting the exercise price per share and multiplying the
gain per share by the number of shares covered by the options. These
amounts are not intended to forecast possible future appreciation, if any,
of the price of the Shares.
12
<PAGE>
The following table sets forth certain information with respect to each
exercise of stock options during fiscal 1999 by named executive officers and
the number and value of unexercised options held by each of the named
executive officers as of September 30, 1999:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options at Fiscal Value of Unexercised in-the-Money
Shares Acquired Value Year-End Exercisable/ Options at Fiscal Year-End
Name on Exercise (#) Realized ($) Unexercisable (#) Exercisable/Unexercisable ($) (1)
- ---- --------------- ------------ ---------------------- ---------------------------------
<S> <C> <C> <C> <C>
Glenn L. Cooper, M.D. ......... -- -- 866,668/953,332 --/--
Mark S. Butler................. -- -- 423,335/546,665 --/--
Michael W. Rogers.............. -- -- --/450,000 --/--
Bobby W. Sandage, Jr., Ph.D. .. -- -- 421,668/523,332 --/--
</TABLE>
- --------
(1) At September 30, 1999, none of the named executive officers owned options
with an exercise price lower than $1.25, the fair market value of the
Shares at September 30, 1999.
Restricted Stock Awards
In fiscal 1998, the Company adopted the 1997 Plan, which covers an aggregate
of 1,750,000 Shares that have been and may be issued pursuant to restricted
stock awards upon satisfaction of specified vesting periods, in consideration
of services rendered to the Company, the par value of the Shares, or such
other consideration as the Board of Directors or the Compensation Committee of
the Board may determine. Pursuant to the 1997 Plan and his employment
agreement with the Company, the Company granted Mr. Rogers a restricted stock
award in February 1999 with respect to 100,000 Shares. Vesting of Mr. Rogers'
Shares under this award was scheduled to commence in May 1999 and extend
through May 2000. With respect to certain Shares originally scheduled to vest
in May 2000, the Board of Directors in December 1999 amended Mr. Rogers' award
to cause such Shares to vest in December 1999. Consideration to the Company
from Mr. Rogers consists of services to be rendered to the Company and payment
to the Company of the par value of the Shares. As a result of the 1997 Plan
provisions which defer vesting during Black-Out Periods (as defined in the
1997 Plan), no Shares of Mr. Rogers' award vested in fiscal 1999.
The Shares issued and subject to the awards may be sold immediately upon
their vesting. The Company has a registration statement on Form S-8 relating
to the issuance of Shares under the 1997 Plan and the resale of the Shares
subject to awards granted to certain of the named executive officers.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Glenn L. Cooper, M.D.
Effective May 1, 1999, the Company entered into an employment agreement (the
"Cooper Agreement") with Dr. Glenn L. Cooper, which supersedes the Company's
prior employment agreement with Dr. Cooper, for Dr. Cooper to continue to
serve as Chief Executive Officer and President of the Company for a term of
three years. The Cooper Agreement provides for an annual base salary of
$350,000, plus bonuses pursuant to the Company's Senior Executive Bonus Plan
and eligibility to receive grants of stock options pursuant to the Company's
stock option plans, as approved by the Board of Directors or the Compensation
Committee of the Board of Directors. The Company provides Dr. Cooper with a
$1,000,000 life insurance policy payable to the beneficiary of his choice.
The Cooper Agreement provides that Dr. Cooper may not, during the term of
the Cooper Agreement and for a year from the date of termination of
employment, engage in any business competitive with the Company or
13
<PAGE>
its research activities, unless such termination is by Dr. Cooper for "Just
Cause," as such term is defined in the Cooper Agreement. If Dr. Cooper is
terminated for reasons other than "Just Cause" or a "Change in Control," as
such terms are defined in the Cooper Agreement, he is entitled to receive his
base salary plus pro-rated average bonuses, for a period equal to the longer
of (a) the remainder of the term of the Cooper Agreement or (b) twelve (12)
months from the termination date of the Cooper Agreement, either in a lump sum
or installments, at the discretion of the Company.
Mark S. Butler
Effective March 15, 1999, the Company entered into an employment agreement
(the "Butler Agreement") with Mark S. Butler, which supersedes the Company's
prior employment agreement with Mr. Butler, for Mr. Butler to continue to
serve as the Company's Executive Vice President, Chief Administrative Officer
and General Counsel for a term of one year, subject to automatic one year
renewal periods unless notice of termination is given by either Mr. Butler or
the Company within sixty (60) days prior to each anniversary date of the
Butler Agreement. The Butler Agreement provides for an annual base salary of
$265,000 and eligibility to participate in the Company's Senior Executive
Bonus Plan. In the event Mr. Butler terminates his employment with the Company
for "Just Cause," including a "Change of Control," as such terms are defined
in the Butler Agreement, or if the Butler Agreement is not renewed by the
Company, Mr. Butler is entitled to receive his base salary plus pro-rated
average bonuses for a period of twelve (12) months following such termination.
This amount may be paid either in a lump sum or installments, at the
discretion of the Company, and is subject to set-off from other employment.
The Company will reimburse Mr. Butler for the premiums for $1,000,000
additional term life insurance during the term of Mr. Butler's employment.
Michael W. Rogers
Effective February 23, 1999, the Company entered into an employment
agreement (the "Rogers Agreement") with Michael W. Rogers for Mr. Rogers to
serve as the Company's Executive Vice President and Chief Financial Officer
for a term of one year, subject to automatic one year renewal periods unless
notice of termination is given either by Mr. Rogers or the Company within
sixty (60) days prior to each anniversary date of the Rogers Agreement. The
Rogers Agreement provides for an annual base salary of $265,000. Mr. Rogers is
also eligible to: (i) participate in the Company's 1999 Senior Executive Bonus
Plan subject to certain conditions set forth in the Rogers Agreement; (ii)
receive options to purchase 450,000 Shares under the Company's stock option
plans; and (iii) receive a restricted stock award under the Company's 1997
Plan with respect to 100,000 Shares. The Company will reimburse Mr. Rogers for
the premiums for $1,000,000 additional term life insurance during the term of
Mr. Rogers' employment.
In the event Mr. Rogers terminates his employment with the Company for "Just
Cause," including a "Change of Control," as such terms are defined in the
Rogers Agreement, or if the Rogers Agreement is not renewed by the Company,
Mr. Rogers is entitled to receive his base salary plus pro-rated average
bonuses for a period of twelve (12) months following such termination. This
amount may be paid either in a lump sum or installments, at the discretion of
the Company, and is subject to set-off from other employment.
Bobby W. Sandage, Jr., Ph.D.
Effective March 15, 1999, the Company entered into an employment agreement
(the "Sandage Agreement") with Bobby W. Sandage, Jr., Ph.D., which supercedes
the Company's prior employment agreement with Dr. Sandage, for Dr. Sandage to
continue to serve as the Company's Executive Vice President, Research and
Development and Chief Scientific Officer for a term of one year, subject to
automatic one year renewal periods, unless notice of termination is given by
either Dr. Sandage or the Company within sixty (60) days prior to each
anniversary date of the Sandage Agreement. The Sandage Agreement provides for
an annual base salary of $265,000 and eligibility to participate in the
Company's Senior Executive Bonus Plan. In the event Dr. Sandage terminates his
employment with the Company for "Just Cause," including a "Change of Control,"
as such terms are defined in the Sandage Agreement, or if the Sandage
Agreement is not renewed by the Company,
14
<PAGE>
Dr. Sandage is entitled to receive his base salary plus pro-rated average
bonuses for a period of twelve (12) months following such termination. This
amount may be paid either in a lump sum or installments, at the discretion of
the Company, and is subject to set-off from other employment. The Company will
reimburse Dr. Sandage for the premiums for $1,000,000 additional term life
insurance during the term of Dr. Sandage's employment.
In the event of certain transactions, including those which may result in a
Change in Control, as defined under each of the Company's 1989 Plan, 1994
Plan, 1997 Plan and 1998 Plan, unvested installments of options to purchase
Shares or awards of restricted stock held by executive officers of the Company
may be subject to accelerated vesting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's executive officers and
directors and other persons who beneficially own more than 10% of a registered
class of the Company's equity securities to file with the S.E.C. initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of the Company. Such executive officers, directors,
and greater than 10% beneficial owners are required by S.E.C. regulation to
furnish the Company with copies of all Section 16(a) forms filed by such
reporting persons.
Based solely on the Company's review of such forms furnished to the Company,
the Company believes that all filing requirements applicable to the Company's
executive officers, directors and greater than 10% beneficial owners were
complied with for fiscal 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, the members of the Compensation Committee were: Mr.
Gray, General Haig, Dr. Morville and Mr. Sharrock. In fiscal 1999, none of the
members of the Compensation Committee was an officer or employee of the
Company or any of its subsidiaries. In fiscal 1999, the Company and its
subsidiaries paid or accrued to Mr. Sharrock, who also serves as a director of
Incara and served as a consultant to, and a director of, Progenitor: (i)
consulting fees for consulting services rendered by Mr. Sharrock to the
Company and to Progenitor of $28,000 and $2,000, respectively; (ii) $4,000 and
$2,000 in directors' fees from Incara and Progenitor, respectively; and (iii)
granted options to purchase 3,000 shares of common stock of Incara.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION (1)
General
The goal of the Company's executive compensation policy is to ensure that an
appropriate relationship exists between executive compensation and the
creation of stockholder value, while at the same time attracting, motivating
and retaining qualified executive officers. Accordingly, compensation
structures for the named executive officers of the Company generally include a
combination of salary, bonuses and long-term compensation. The Compensation
Committee's informal executive compensation philosophy (which applies
- --------
(1) The material in this report is not soliciting material, is not deemed
filed with the S.E.C. and is not incorporated by reference in any filing
of the Company under the 1933 Act or the 1934 Act, whether made before or
after the date of this proxy statement and irrespective of any general
incorporation language in such filing.
15
<PAGE>
generally to all executive officers of the Company, including the President
and Chief Executive Officer, Glenn L. Cooper, M.D.) considers a number of
factors, which may include:
. providing compensation levels competitive with companies in comparable
industries which are at a similar stage of development, or undergoing
similar corporate events, and which are located in the Company's
geographic area;
. identifying appropriate performance goals for the Company and providing
flexibility in compensation levels with the achievement of such goals;
. rewarding above average corporate performance; and
. recognizing and providing incentive for individual initiative and
achievement.
Base Salary
Base salary for fiscal 1999 was determined based on a range of measures and
internal targets set before the start of the fiscal year and in part by
comparison to the compensation of executive officers of comparable
biotechnology and pharmaceutical companies.
Bonuses
Bonus compensation for fiscal 1999 was contingent upon the Company achieving
certain business and financial objectives during the fiscal year. In
formulating the Senior Executive Bonus Plan for fiscal 1999 for executive
officers of the Company, including Dr. Cooper, the Compensation Committee
adopted performance measures tied to a number of business and financial
objectives to be achieved during fiscal 1999 and assigned relative weight to
each objective. The Senior Executive Bonus Plan for fiscal 1999 entitled the
named executive officers of the Company to a bonus equal to varying
percentages of base salary depending upon achieving these objectives which
included:
. achievement of certain defined clinical or regulatory product
development milestones;
. out-licensing of certain compounds to a corporate development/marketing
partner on terms approved by the Board of Directors;
. in-licensing or acquisition of a significant new asset;
. the fair market value of Shares relative to fiscal 1998 and specified
indices;
. consummation of certain financial events; and
. consummation of an agreement that would substantially mitigate the
Company's exposure to Redux-related product liability litigation.
The Committee considered the Company's performance under these measures for
fiscal 1999 and used their subjective judgment and discretion, in accordance
with the parameters of the Senior Executive Bonus Plan for fiscal 1999, to
make a recommendation to the Board of Directors in approving individual
compensation. Under the terms of the Senior Executive Bonus Plan for fiscal
1999, the Board approved a bonus to Dr. Cooper of $70,000, and Messrs. Butler
and Rogers and Dr. Sandage each received bonuses of $45,050.
Glenn L. Cooper, M.D.
The compensation received during fiscal 1999 by Dr. Cooper was governed in
part by the Cooper Agreement and his prior employment agreement with the
Company, and substantially in accordance with the policies described above
relating to all executive officers. In addition, in adopting the Senior
Executive Bonus Plan for fiscal 1999 and establishing the percentage of salary
used in calculating the bonus payment to Dr. Cooper, and recommending approval
of such bonus, members of the Compensation Committee also considered a
subjective evaluation of Dr. Cooper's performance and ability to influence the
Company's near and long-term growth. The Compensation Committee considered Dr.
Cooper's efforts and performance necessary to achieve specified objective
criteria, as described above. See "Employment Agreements."
16
<PAGE>
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the ability of the Company to deduct for tax purposes
compensation over $1,000,000 to any of the named executive officers unless, in
general, the compensation is paid pursuant to a plan which is performance
related, non-discretionary and has been approved by the Company's
stockholders. In fiscal 1999, the Company granted restricted stock awards
which, depending upon the fair market value of Shares on the date of vesting
of such awards, may result in compensation expense that may not be deductible
pursuant to Section 162(m) when recognized; however, no such limitation on
deductibility is applicable for fiscal 1999.
David B. Sharrock, Chairman
General Alexander M. Haig, Jr.
Harry J. Gray
Malcolm Morville, Ph.D.
17
<PAGE>
STOCK PRICE PERFORMANCE PRESENTATION
The following chart compares the cumulative total stockholder return on
Shares with the cumulative total stockholder return of (i) the Nasdaq Market
Index and (ii) a peer group index consisting of companies reporting under the
Standard Industrial Classification Code 2834 (Pharmaceutical Preparations):
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN (1)
AMONG INTERNEURON PHARMACEUTICALS, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND A PEER GROUP INDEX
[CHART]
<TABLE>
<CAPTION>
Cumulative Total Return
---------------------------------------
9/94 9/95 9/96 9/97 9/98 9/99
<S> <C> <C> <C> <C> <C> <C>
INTERNEURON PHARMACEUTICALS, INC. 100 186 457 192 48 20
PEER GROUP 100 147 198 280 400 417
NASDAQ STOCK MARKET (U.S.) 100 138 164 225 229 372
</TABLE>
- --------
(1) Assumes $100 invested on September 30, 1994 and assumes dividends
reinvested. Measurement points are at the last trading day of the fiscal
years ended September 30, 1994, 1995, 1996, 1997, 1998 and 1999. The
material in this chart is not soliciting material, is not deemed filed
with the S.E.C. and is not incorporated by reference in any filing of the
Company under the 1933 Act or the 1934 Act, whether made before or after
the date of this proxy statement and irrespective of any general
incorporation language in such filing. A list of the companies included in
the Peer Group Index will be furnished by the Company to any stockholder
upon written request to the Vice President, Corporate Communications.
18
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Rosenwald receives a management fee, which includes his out-of-pocket
expenses incurred in providing services to the Company of $2,500 per month
under a management agreement with the Company. For fiscal 1999, the Company
paid $30,000 to Dr. Rosenwald pursuant to this agreement.
In fiscal 1999, the Company and its subsidiaries paid or accrued to Mr.
Sharrock, who also serves as a director of Incara and served as a consultant
to, and a director of, Progenitor: (i) consulting fees for consulting services
rendered by Mr. Sharrock to the Company and to Progenitor of $28,000 and
$2,000, respectively; (ii) $4,000 and $2,000 in directors' fees from Incara
and Progenitor, respectively; and (iii) granted options to purchase 3,000
shares of common stock of Incara.
In fiscal 1999, Mr. Rogers received a restricted stock award under the 1997
Plan. In fiscal 1999, the Company also granted options to certain of the
Company's directors pursuant to automatic grant provisions under the 1994
Plan. In accordance with the terms of the 1994 Plan, on the date following the
Annual Meeting date, each of the directors of the Company (except Drs.
Rosenwald and Cooper) will receive automatic grants of options to purchase
5,000 Shares, which will be exercisable at a price equal to the fair market
value of the Company's Shares as determined on the date of grant. See
"Director Compensation."
PROPOSAL NO. 2:
AMENDMENT OF THE COMPANY'S 1995 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
On February 3, 1995 the Board of Directors adopted the Company's 1995
Employee Stock Purchase Plan which was subsequently approved by Stockholders
on March 22, 1995 (the "1995 Plan"). A total of 100,000 Shares were reserved
for issuance under the 1995 Plan.
On December 2, 1999, the Board of Directors authorized, subject to
stockholder approval, the amendment of the 1995 Plan (the "Amended 1995 Plan")
for the sole purpose of increasing the number of Shares reserved for issuance
thereunder from 100,000 Shares to 250,000 Shares. No other provision of the
1995 Plan was amended and all other provisions remain in full force and
effect.
The Board of Directors believes that amending the 1995 Plan will benefit the
Company since providing employees of the Company with an opportunity to
purchase additional Shares of Common Stock should prove helpful in attracting,
retaining, and motivating valued employees.
Through January 21, 2000, 73,352 Shares have been purchased under the 1995
Plan. Shares to be purchased pursuant to the Amended 1995 Plan are not
determinable.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF THE
COMPANY AND THE STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" THE APPROVAL THEREOF.
19
<PAGE>
PROPOSAL NUMBER 3:
APPROVAL OF THE COMPANY'S 2000 STOCK OPTION PLAN
General
On January 19, 2000, the Board of Directors adopted the Company's 2000 Stock
Option Plan (the "2000 Plan"), pursuant to which employees, officers,
directors and consultants of the Company and any subsidiary corporations are
eligible to receive incentive stock options ("incentive options") within the
meaning of Section 422 of the Code, and options that do not qualify as
incentive options ("non-qualified options"). The 2000 Plan covers 2,500,000 of
the Company's Shares. The 2000 Plan, which expires in January 2010, is
administered by the Board of Directors or a committee of the Board of
Directors (the "Committee"). The purposes of the 2000 Plan are to attract,
motivate and insure the retention of key employees, and to provide additional
incentive by permitting such individuals to participate in the ownership of
the Company, and the criteria to be utilized by the Board of Directors or the
Committee in granting options pursuant to the 2000 Plan will be consistent
with these purposes.
Options
Options granted under the 2000 Plan may be either incentive options or non-
qualified options. Incentive options granted under the 2000 Plan are
exercisable for a period of up to ten (10) years from the date of grant at an
exercise price which is not less than the fair market value of the Shares on
the date of the grant, except that the term of an incentive option granted
under the 2000 Plan to a stockholder owning more than 10% of the outstanding
voting power may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the Shares on the date of the grant. To
the extent that the aggregate fair market value, as of the date of the grant,
of the Shares for which incentive options become exercisable for the first
time by an optionee during the calendar year exceeds $100,000, the portion of
such option which is in excess of the $100,000 limitation will be treated as a
non-qualified option. Additionally, the aggregate number of Shares that may be
subject to options granted to any person in a calendar year shall not exceed
50% of the maximum number of Shares which may be issued from time to time
under the 2000 Plan. Options granted under the 2000 Plan to employees of the
Company may be exercised only while the optionee is employed or retained by
the Company or within six months of the date of termination of the employment
relationship (three months in case of incentive options). However, options
which are exercisable at the time of termination by reason of death or
permanent disability of the optionee may be exercised within 12 months of the
date of termination of the employment relationship. Upon the exercise of an
option, payment may be made by cash or by any other means that the Board of
Directors or the Committee determines. No option may be granted under the 2000
Plan after January 2010.
Options may be granted to such employees, officers, directors or consultants
of the Company or any subsidiary of the Company as the Board of Directors or
the Committee shall select from time to time in its sole discretion, provided
that only employees of the Company or a subsidiary of the Company shall be
eligible to receive incentive options.
As of January 21, 2000, approximately 42 persons of the Company were
eligible to receive grants under the 2000 Plan. The number of future officers
and directors of the Company eligible to receive grants under the 2000 Plan is
not determinable. An optionee may be granted more than one option under the
2000 Plan. The Board of Directors or the Committee will, in its discretion,
determine (subject to the terms of the 2000 Plan) who will be granted options,
the time or times at which options shall be granted, and the number of Shares
subject to each option, whether the options are incentive options or non-
qualified options, and the manner in which options may be exercised. In making
such determination, consideration may be given to the value of the services
rendered by the respective individuals, their present and potential
contributions to the success of the Company and its subsidiaries and such
other factors deemed relevant in accomplishing the purpose of the 2000 Plan.
Under the 2000 Plan, the optionee has none of the rights of a stockholder
with respect to the Shares issuable upon the exercise of the option until such
Shares shall be issued upon such exercise. No adjustment shall be
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made for dividends or distributions or other rights for which the record date
is prior to the date of exercise, except as provided in the 2000 Plan. During
the lifetime of the optionee, an option shall be exercisable only by the
optionee. No option may be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or by the laws of decent and
distribution, except that non-qualified options may be transferred by the
optionee during his lifetime to certain permitted transferees, subject to
certain conditions.
The Board of Directors may amend or terminate the 2000 Plan except that
stockholder approval is required if required by Rule 16b-3 or Section 422 of
the Code. No action taken by the Board may materially and adversely affect any
outstanding option grant without the consent of the optionee.
Change in Control
The 2000 Plan provides for acceleration of vesting in the event of certain
changes in control. Such acceleration may cause the consideration involved to
be treated in whole or in part as parachute payments under the Code.
Acceleration of benefits under other Company plans and other contracts with
employees in the event of such change of control could be subject to being
combined with the 2000 Plan accelerations for "parachute payment" purposes.
Any such "parachute payments" may be non-deductible to the Company in whole or
in part and the optionee may be subject to a 20% excise tax on all or part of
such payments (in addition to other taxes ordinarily payable).
Federal Income Tax Consequences
Under current tax law, there are no Federal income tax consequences to
either the employee or the Company on the grant of non-qualified options if
granted under the terms set forth in the 2000 Plan. Upon exercise of a non-
qualified option, the excess of the fair market value of the Shares subject to
the option over the option price (the "Spread") at the date of exercise is
taxable as ordinary income to the optionee in the year it is exercised and is
generally deductible by the Company as compensation for Federal income tax
purposes. The optionee's basis in the Shares will be equal to the fair market
value on the date taxation is imposed and the holding period commences on such
date.
Incentive option holders incur no regular Federal income tax liability at
the time of grant or upon exercise of such option, assuming that the optionee
was an employee of the Company from the date the option was granted until
three months before such exercise. However, upon exercise, the Spread must be
added to regular Federal taxable income in computing the optionee's
"alternative minimum tax" liability. An optionee's basis in the Shares
received on exercise of an incentive stock option will be the option price of
such Shares for regular income tax purposes. No deduction is allowable to the
Company for Federal income tax purposes in connection with the grant or
exercise of such option.
If the holder of Shares acquired through exercise of an incentive option
sells such Shares within two years of the date of grant of such option or
within one year from the date of exercise of such option (a "Disqualifying
Disposition"), the optionee will realize income taxable at ordinary rates.
Ordinary income is reportable during the year of such sale equal to the
difference between the option price and the fair market value of the Shares at
the date the option is exercised, but the amount includable as ordinary income
shall not exceed the excess, if any, of the proceeds of such sale over the
option price. In addition to ordinary income, a Disqualifying Disposition may
result in taxable income subject to capital gains treatment if the sales
proceeds exceed the optionee's basis in the Shares (i.e., the option price
plus the amount includable as ordinary income). The amount of the optionee's
taxable ordinary income will generally be deductible by the Company in the
year of the Disqualifying Disposition.
At the time of sale of Shares received upon exercise of an option (other
than a Disqualifying Disposition of Shares received upon the exercise of an
incentive option), any gain or loss is long-term or short-term capital gain or
loss, depending upon the holding period. If the Optionee disposes of Shares
received upon exercise of an option within 12 months of the Exercise date, the
Optionee recognizes short-term capital gain in the year of
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disposition in an amount equal to the excess (if any) of the sales proceeds of
the Shares over the exercise price. If the Optionee disposes of Shares more
than 12 months after the Exercise Date, the Optionee will recognize capital
gains taxed at up to the maximum federal rate of 20%.
The foregoing is not intended to be an exhaustive analysis of the tax
consequences relating to stock options issued under the 2000 Plan. For
instance, the treatment of options under state and local tax laws, which are
not described above, may differ from their treatment for Federal income tax
purposes.
Section 162(m) Limits on Deductibility
Executive officers subject to Section 162(m) of the Code may receive options
under the 2000 Plan. Assuming stockholder approval of the 2000 Plan, the
Company believes the 2000 Plan should meet the requirements of Section 162(m).
Future grants under the 2000 Plan have not yet been determined. The Company
intends to file a Registration Statement on Form S-8 relating to the issuance
of Shares under the 2000 Plan and the resale of the Shares subject to awards
granted to certain of the named executive officers.
The Company also maintains the 1994 and 1998 Plans. As of December 31, 1999,
there were 1,525,220 Shares available for issuance under the 1994 Plan and
845,904 Shares available for issuance under the 1998 Plan.
The affirmative vote of the holders of the majority of the Shares present in
person or by proxy at the Annual Meeting and entitled to vote on the matter is
required to approve and ratify the 2000 Plan. In the event stockholder
approval of the 2000 Plan is not obtained by January 19, 2001, no incentive
options may be granted under the 2000 Plan.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE BEST INTERESTS OF THE
COMPANY AND THE STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" THE APPROVAL THEREOF.
PROPOSAL NUMBER 4:
APPROVAL AND RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT AUDITORS
The Management of the Company recommends a vote for the approval and
ratification of the appointment of PricewaterhouseCoopers LLP, Certified
Public Accountants, as the Company's independent auditors for the fiscal year
ending September 30, 2000. PricewaterhouseCoopers LLP has been the Company's
auditors for the past fiscal year and has no direct or indirect financial
interest in the Company. A representative of PricewaterhouseCoopers LLP is
expected to be present at the Annual Meeting of Stockholders with the
opportunity to make a statement if he or she desires to do so, and shall be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 4 TO BE IN THE BEST INTERESTS OF THE
COMPANY AND THE STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" THE APPROVAL AND
RATIFICATION THEREOF.
GENERAL
The Management of the Company does not know of any matters other than those
stated in this Proxy Statement which are to be presented for action at the
Meeting. If any other matters should properly come before the Meeting, it is
intended that proxies in the accompanying form will be voted on any such other
matters in accordance with the judgment of the persons voting such proxies.
Discretionary authority to vote on such matters is conferred by such proxies
upon the persons voting them.
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The Company will bear the cost of preparing, printing, assembling and
mailing the proxy, Proxy Statement and other material which may be sent to
stockholders in connection with this solicitation. It is contemplated that
brokerage houses will forward the proxy materials to beneficial owners at the
request of the Company. In addition to the solicitation of proxies by use of
the mails, officers and regular employees of the Company may solicit by
telephone proxies without additional compensation. The Company does not expect
to pay any compensation for the solicitation of proxies.
The Company will provide without charge to each person being solicited by
this Proxy Statement, on the written request of any such person, a copy of the
Annual Report of the Company on Form 10-K for the fiscal year ended September
30, 1999 (as filed with the S.E.C.) including the financial statements
thereto. All such requests should be directed to Vice President, Corporate
Communications, Interneuron Pharmaceuticals, Inc., One Ledgemont Center, 99
Hayden Avenue, Lexington, Massachusetts 02421.
STOCKHOLDER PROPOSALS
The Annual Meeting of Stockholders for the fiscal year ending September 30,
2000 is expected to be held in March 2001. Stockholders who seek to present
proposals at the Company's next Annual Meeting of Stockholders must submit
their proposals to the Company on or before September 30, 2000.
In the event the Company receives notice of a stockholder proposal to take
action at next year's Annual Meeting of Stockholders that is not submitted for
inclusion in the Company's proxy materials, or is submitted for inclusion but
is properly excluded from the proxy material, the persons named in the proxy
sent by the Company to its stockholders intend to exercise their discretion to
vote on the stockholder proposal in accordance with their best judgment if
notice of the proposal is not received at the Company's main office prior to
the date of the next Annual Meeting of Stockholders.
By Order of the Board of Directors,
Glenn L. Cooper, M.D.
President and Chief Executive
Officer
Dated: January 28, 2000
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EXHIBIT
INTERNEURON PHARMACEUTICALS, INC.
2000 STOCK OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for INTERNEURON
PHARMACEUTICALS, INC. (the "Company") and its stockholders the benefits
arising from capital stock ownership by employees, officers and directors of,
and consultants to, the Company who are expected to contribute to the
Company's future growth and success. Except where the context otherwise
requires, the term "Company" shall include all present and future subsidiaries
of the Company as defined in Sections 424(e) and 424(f) of the Internal
Revenue Code of 1986, as amended or replaced from time to time (the "Code").
Those provisions of the Plan which make express reference to Section 422 shall
apply only to Incentive Stock Options (as that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a committee
designated by the Board of Directors, the "Committee") and may be either
incentive stock options ("Incentive Stock Options") meeting the requirements
of Section 422 of the Code or non-statutory options which are not intended to
meet the requirements of Section 422 of the Code.
(b) Administration. The Plan will be administered by the Board of Directors
or the Committee, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The delegation of powers
to the Committee shall be consistent with applicable laws or regulations
(including, without limitation, applicable state law and Rule 16b-3 ("Rule
16b-3") promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), or any successor rule). The Board of Directors or the Committee may in
its sole discretion grant options to purchase shares of the Company's Common
Stock, $.001 par value per share ("Common Stock") and issue shares upon
exercise of such options as provided in the Plan. The Board of Directors or
the Committee shall have authority, subject to the express provisions of the
Plan, to construe the respective option agreements and the Plan, to prescribe,
amend and rescind rules and regulations relating to the Plan, to determine the
terms and provisions of the respective option agreements, which need not be
identical, and to make all other determinations in the judgment of the Board
of Directors or the Committee necessary or desirable for the administration of
the Plan. The Board of Directors or the Committee may correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any
option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by
the Board of Directors or the Committee shall be liable for any action or
determination under the Plan made in good faith. Subject to adjustment as
provided in Section 15 below, the aggregate number of shares of Common Stock
that may be subject to Options granted to any person in a calendar year shall
not exceed 50% of the maximum number of shares which may be issued and sold
under the Plan, as set forth in Section 4 hereof, as such section may be
amended from time to time.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply to the Company only at such time
as the Company's Common Stock is registered under the Exchange Act, subject to
the last sentence of Section 3(b), and then only to such persons as are
required to file reports under Section 16(a) of the Exchange Act (a "Reporting
Person").
3. Eligibility.
(a) Options may be granted to persons who are, at the time of grant,
employees, officers or directors of, and consultants to, the Company
("Participants") provided, that Incentive Stock Options may only be granted to
individuals who are employees of the Company (within the meaning of Section
3401(c) of the Code). A person
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who has been granted an option may, if he or she is otherwise eligible, be
granted additional options if the Board of Directors or the Committee shall so
determine.
(b) Grant of Options to Reporting Persons. The selection of a director or an
officer who is a Reporting Person (as the terms "director" and "officer" are
defined for purposes of Rule 16b-3) as a recipient of an option, the timing of
the option grant, the exercise price of the option and the number of shares
subject to the option shall be determined either by the Board of Directors by
the Committee.
4. Stock Subject to Plan.
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is two million five
hundred thousand (2,500,000) shares. If an option granted under the Plan shall
expire, terminate or is cancelled for any reason without having been exercised
in full, the unpurchased shares subject to such option shall again be
available for subsequent option grants under the Plan.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of
an option shall, if requested by the Company, execute an option agreement in
such form not inconsistent with the Plan as may be approved by the Board of
Directors or the Committee. Such option agreements may differ among
recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors or the
Committee at the time of grant of such option; provided, however, that in the
case of an Incentive Stock Option, the exercise price shall not be less than
100% of the Fair Market Value (as hereinafter defined) of such stock, at the
time of grant of such option, or less than 110% of such Fair Market Value in
the case of options described in Section 11(b). "Fair Market Value" of a share
of Common Stock of the Company as of a specified date for the purposes of the
Plan shall mean the closing price of a share of the Common Stock on the
principal securities exchange (including the Nasdaq National Market) on which
such shares are traded on the day immediately preceding the date as of which
Fair Market Value is being determined, or on the next preceding date on which
such shares are traded if no shares were traded on such immediately preceding
day, or if the shares are not traded on a securities exchange, Fair Market
Value shall be deemed to be the average of the high bid and low asked prices
of the shares in the over-the-counter market on the day immediately preceding
the date as of which Fair Market Value is being determined or on the next
preceding date on which such high bid and low asked prices were recorded. If
the shares are not publicly traded, Fair Market Value of a share of Common
Stock (including, in the case of any repurchase of shares, any distributions
with respect thereto which would be repurchased with the shares) shall be
determined in good faith by the Board of Directors or the Committee. In no
case shall Fair Market Value be determined with regard to restrictions other
than restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or by any other means which the Board of Directors or the Committee determines
are consistent with the purpose of the Plan and with applicable laws and
regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board).
7. Option Period.
Subject to earlier termination as provided in the Plan, each option and all
rights thereunder shall expire on such date as determined by the Board of
Directors or the Committee and set forth in the applicable option agreement,
provided, that such date shall not be later than ten (10) years after the date
on which the option is granted.
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8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or in
installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the
provisions of the Plan. Subject to the requirements in the immediately
preceding sentence, if an option is not at the time of grant immediately
exercisable, the Board of Directors or the Committee may (i) in the agreement
evidencing such option, provide for the acceleration of the exercise date or
dates of the subject option upon the occurrence of specified events, and/or
(ii) at any time prior to the complete termination of an option, accelerate
the exercise date or dates of such option.
9. Transferability of Options.
No incentive stock option granted under this Plan shall be assignable or
otherwise transferable by the optionee except by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code or Title I of the Employee Retirement Income Security
Act, or the rules thereunder. The Board of Directors or the Committee may, in
its discretion, authorize all or a portion of any non-statutory options to be
granted to an optionee to be on terms which permit transfer by such optionee
to (i) the spouse, children or grandchildren of the optionee ("Immediate
Family Members"), (ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners, provided that (w) the options must be
held by the optionee for a period of at least one month prior to transfer, (x)
there may be no consideration for any such transfer, (y) the stock option
agreement pursuant to which such options are granted must be approved by the
Board of Directors or the Committee, and must expressly provide for
transferability in a manner consistent with this Section, and (z) subsequent
transfers of transferred options shall be prohibited except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined in the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. Following transfer, any such options
shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for purposes of the
Plan the term "optionee" shall be deemed to refer to the transferee. The
events of termination of employment of Section 10 hereof shall continue to be
applied with respect to the original optionee. An option may be exercised
during the lifetime of the optionee only by the original optionee. In the
event an optionee dies during his employment by the Company or any of its
subsidiaries, or during the three-month period following the date of
termination of such employment, his option shall thereafter be exercisable,
during the period specified in the option agreement, by his executors or
administrators to the full extent to which such option was exercisable by the
optionee at the time of his death during the periods set forth in Section 10
or 11(d).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock Options
and except as otherwise determined by the Committee at the date of grant of an
Option, and subject to the provisions of the Plan, an optionee may exercise an
option at any time within six (6) months following the termination of the
optionee's employment or other relationship with the Company or within one (1)
year if such termination was due to the death or disability of the optionee
but, except in the case of the optionee's death, in no event later than the
expiration date of the Option. If the termination of the optionee's employment
is for cause or is otherwise attributable to a breach by the optionee of an
employment or confidentiality or non-disclosure agreement, the option shall
expire immediately upon such termination. The Board of Directors shall have
the power to determine what constitutes a termination for cause or a breach of
an employment or confidentiality or non-disclosure agreement, whether an
optionee has been terminated for cause or has breached such an agreement, and
the date upon which such termination for cause or breach occurs. Any such
determinations shall be final and conclusive and binding upon the optionee.
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11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Stockholder. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option,
the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then
the following special provisions shall be applicable to the Incentive Stock
Option granted to such individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market
Value of one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from the
date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive
Stock Options shall not constitute Incentive Stock Options to the extent
that such options, in the aggregate, become exercisable for the first time
in any one calendar year for shares of Common Stock with an aggregate Fair
Market Value, as of the respective date or dates of grant, of more than
$100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of
the Company (or within such lesser period as may be specified in the
applicable option agreement), provided, that the agreement with respect
to such option may designate a longer exercise period and that the
exercise after such three-month period shall be treated as the exercise
of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee,
the Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser
period as may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provisions thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised
within the period of one year after the date the optionee ceases to be
such an employee because of such disability (or within such lesser
period as may be specified in the applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of
the Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors or the Committee
may, in its sole discretion, include additional provisions in option
agreements covering options granted under the Plan, including without
limitation restrictions on transfer, repurchase rights, rights of first
refusal, commitments to pay cash bonuses, to make, arrange for or guaranty
loans or to transfer other property to optionees upon exercise of options, or
such other provisions as shall be determined by the Board of Directors or the
Committee; provided, that such
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additional provisions shall not be inconsistent with any other term or
condition of the Plan and such additional provisions shall not cause any
Incentive Stock Option granted under the Plan to fail to qualify as an
Incentive Stock Option within the meaning of Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors or the Committee
may, in its sole discretion, (i) accelerate the date or dates on which all or
any particular option or options granted under the Plan may be exercised or
(ii) extend the dates during which all, or any particular, option or options
granted under the Plan may be exercised; provided, however, that no such
extension shall be permitted if it would cause the Plan to fail to comply with
Section 422 of the Code or with Rule 16b-3 (if applicable).
13. General Restrictions.
(a) Investment Representations. The Company may require any optionee, as a
condition of exercising such option, to give written assurances in substance
and form satisfactory to the Company to the effect that such person is
acquiring the Common Stock subject to the option or award, for his or her own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company
deems necessary or appropriate in order to comply with federal and applicable
state securities laws, or with covenants or representations made by the
Company in connection with any public offering of its Common Stock, including
any "lock-up" or other restriction on transferability.
(b) Compliance With Securities Law. Each Option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such
option or award upon any securities exchange or automated quotation system or
under any state or federal law, or the consent or approval of any governmental
or regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition is necessary as a condition of, or in
connection with the issuance of shares thereunder, such option may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall
have been effected or obtained on conditions acceptable to the Board of
Directors. Nothing herein shall be deemed to require the Company to apply for
or to obtain such listing, registration or qualification, or to satisfy such
condition.
14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares.
No adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations, Reorganizations and Related
Transactions.
(a) Recapitalizations and Related Transactions. If, through or as a result
of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares
of Common Stock are increased, decreased or exchanged for a different number
or kind of shares or other securities of the Company, or (ii) additional
shares or new or different shares or other non-cash assets are distributed
with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment shall be made in (x) the maximum
number and kind of shares reserved for issuance under or otherwise referred to
in the Plan, (y) the number and kind of shares or other securities subject to
any then outstanding options under the Plan, and (z) the price for each share
subject to any then outstanding options under the Plan, without changing the
aggregate purchase price as to which such options remain exercisable.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 15 if such adjustment (i) would cause the Plan to fail to comply with
Section 422 of the Code or with Rule 16b-3 or (ii) would be considered as the
adoption of a new plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. All outstanding Options
under the Plan shall become fully exercisable for a period of sixty (60) days
following the occurrence of any Trigger Event, whether
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<PAGE>
or not such Options are then exercisable under the provisions of the
applicable agreements relating thereto. For purposes of the Plan, a "Trigger
Event" is any one of the following events:
(i) the date on which shares of Common Stock are first purchased pursuant
to a tender offer or exchange offer (other than such an offer by the
Company, any Subsidiary, any employee benefit plan of the Company or of any
Subsidiary or any entity holding shares or other securities of the Company
for or pursuant to the terms of such plan), whether or not such offer is
approved or opposed by the Company and regardless of the number of shares
purchased pursuant to such offer;
(ii) the date the Company acquires knowledge that any person or group
deemed a person under Section 13(d)-3 of the Exchange Act (other than the
Company, any Subsidiary, any employee benefit plan of the Company or of any
Subsidiary or any entity holding shares of Common Stock or other securities
of the Company for or pursuant to the terms of any such plan or any
individual or entity or group or affiliate thereof which acquired its
beneficial ownership interest prior to the date the Plan was adopted by the
Board), in a transaction or series of transactions, has become the
beneficial owner, directly or indirectly (with beneficial ownership
determined as provided in Rule 13d-3, or any successor rule, under the
Exchange Act), of securities of the Company entitling the person or group
to 30% or more of all votes (without consideration of the rights of any
class or stock to elect directors by a separate class vote) to which all
shareholders of the Company would be entitled in the election of the Board
of Directors were an election held on such date;
(iii) the date, during any period of two consecutive years, when
individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by
the stockholders of the Company, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period; and
(iv) the date of approval by the stockholders of the Company of an
agreement (a "reorganization agreement") providing for:
(A) The merger or consolidation of the Company with another
corporation where the stockholders of the Company, immediately prior to
the merger or consolidation, do not beneficially own, immediately after
the merger or consolidation, shares of the corporation issuing cash or
securities in the merger or consolidation entitling such stockholders
to 65% or more of all votes (without consideration of the rights of any
class of stock to elect directors by a separate class vote) to which
all shareholders of such corporation would be entitled in the election
of directors or where the members of the Board of Directors of the
Company, immediately prior to the merger or consolidation, do not,
immediately after the merger or consolidation, constitute a majority of
the Board of Directors of the corporation issuing cash or securities in
the merger or consolidation; or
(B) The sale or other disposition of all or substantially all the
assets of the Company.
(c) Board Authority to Make Adjustments. Any adjustments under this Section
15 will be made by the Board of Directors, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger or sale of all or
substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of directors of
any corporation assuming the obligations of the Company, may, in its
discretion, take any one or more of the following actions, as to outstanding
options: (i) in the event of a merger under the terms of which holders of the
Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the merger (the "Merger Price"), make or
provide for a cash
6
<PAGE>
payment to the optionees equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to such outstanding options
(to the extent then exercisable at prices not in excess of the Merger Price)
and (B) the aggregate exercise price of all such outstanding options in
exchange for the termination of such options, and (ii) in the event the
provisions of Section 15 are not applicable, provide that all or any
outstanding options shall become exercisable in full immediately prior to such
event; provided, however, nothing contained in this Section 16 shall permit
any change in the accelerated vesting pursuant to Section 15 upon the
occurrence of a Trigger Event.
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company,
or one of its subsidiaries, of property or stock of the employing corporation.
The Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the
circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment
by the Company or interfere in any way with the right of the Company at any
time to terminate such employment or to increase or decrease the compensation
of the optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares
received upon such exercise will not constitute compensation with respect to
which any other employee benefits of such employee are determined, including,
without limitation, benefits under any bonus, pension, profit-sharing, life
insurance or salary continuation plan, except as otherwise specifically
determined by the Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time, modify or
amend the Plan in any respect; provided, however, that if at any time the
approval of the stockholders of the Company is required under Section 422 of
the Code or any successor provision with respect to Incentive Stock Options,
or under Rule 16b-3, the Board of Directors may not effect such modification
or amendment without such approval; and provided, further, that the provisions
of Section 3(b) hereof shall not be amended more than once every six months,
other than to comport with changes in the Code, the Employer Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
(b) The modification or amendment of the Plan shall not, without the consent
of an optionee, adversely affect his or her rights under an option previously
granted to him or her. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to amend or modify
(i) the terms and provisions of the Plan and of any outstanding Incentive
Stock Options granted under the Plan to the extent necessary to qualify any or
all such options for such favorable federal income tax treatment (including
deferral of taxation upon exercise) as may be afforded incentive stock options
under Section 422 of the Code and (ii) the terms and provisions of the Plan
and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld
7
<PAGE>
by the Company in its sole discretion, the optionee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Company to withhold
shares of Common Stock otherwise issuable pursuant to the exercise of an
option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a Fair
Market Value equal to such withholding obligation as of the date that the
amount of tax to be withheld is to be determined. An optionee who has made an
election pursuant to this Section 20(a) may only satisfy his or her
withholding obligation with shares of Common Stock which are not subject to
any repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an Incentive
Stock Option shall constitute an agreement by the optionee (i) to notify the
Company if any or all of such shares are disposed of by the optionee within
two years from the date the option was granted or within one year from the
date the shares were issued to the optionee pursuant to the exercise of the
option, and (ii) if required by law, to remit to the Company, at the time of
and in the case of any such disposition, an amount sufficient to satisfy the
Company's federal, state and local withholding tax obligations with respect to
such disposition, whether or not, as to both (i) and (ii), the optionee is in
the employ of the Company at the time of such disposition.
(c) Notwithstanding the foregoing, in the case of a Reporting Person whose
options have been granted in accordance with the provisions of Section 3(b)
herein, no election to use shares for the payment of withholding taxes shall
be effective unless made in compliance with any applicable requirements of
Rule 16b-3.
21. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock
Options and no Incentive Stock Options shall be granted thereafter. Amendments
to the Plan not requiring stockholder approval shall become effective when
adopted by the Board of Directors; amendments requiring stockholder approval
(as provided in Section 19) shall become effective when adopted by the Board
of Directors, but no Incentive Stock Option granted after the date of such
amendment shall become exercisable (to the extent that such amendment to the
Plan was required to enable the Company to grant such Incentive Stock Option
to a particular optionee) unless and until such amendment shall have been
approved by the Company's stockholders. If such stockholder approval is not
obtained within twelve months of the Board's adoption of such amendment, any
Incentive Stock Options granted on or after the date of such amendment shall
terminate to the extent that such amendment to the Plan was required to enable
the Company to grant such option to a particular optionee. Subject to this
limitation, options may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 16, the
Plan shall terminate upon the earlier of (i) the close of business on the day
next preceding the tenth anniversary of the date of its adoption by the Board
of Directors, or (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise or cancellation
of options granted under the Plan. If the date of termination is determined
under (i) above, then options outstanding on such date shall continue to have
force and effect in accordance with the provisions of the instruments
evidencing such options.
22. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities,
currency, employee benefit or other matters.
8
<PAGE>
23. Governing Law.
The provisions of this Plan shall be governed and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws.
Adopted by the Board of Directors on January 19, 2000.
9
<PAGE>
- --------------------------------------------------------------------------------
PROXY
INTERNEURON PHARMACEUTICALS, INC. (the "Company")
ANNUAL MEETING OF STOCKHOLDERS
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Glenn L. Cooper, M.D. or Michael W. Rogers
as proxy to represent the undersigned at the Annual Meeting of Stockholders to
be held at The Doubletree Guest Suites, 550 Winter Street, Waltham,
Massachusetts 02451 on March 8, 2000 at 10:00 a.m. and at any adjournment
thereof, and to vote the shares of Common Stock (the "Shares") the undersigned
would be entitled to vote if personally present, as indicated on the reverse
side of this card.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
INTERNEURON PHARMACEUTICALS, INC. (the "Company")
March 8, 2000
<TABLE>
<CAPTION>
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Please mark your
A [X] votes as in this
example.
FOR all nominees WITHHOLDING
listed at right (except AUTHORITY
as marked to the to vote for all Nominees:
contrary below) nominees listed at right Glenn L. Cooper, M.D.
1. Election Harry J. Gray
of [_] [_] Alexander M. Haig, Jr.
Directors Malcolm Morville, Ph.D.
Lindsay A. Rosenwald, M.D.
(INSTRUCTION: To withhold authority to vote for any Lee J. Schroeder
individual nominee, print that nominee's name on the David B. Sharrock
line provided below.)
____________________________________________________
FOR AGAINST ABSTAIN
2. Amendment of the Company's 1995 Employee [_] [_] [_]
Stock Purchase Plan, as amended.
3. Approval of the Company's 2000 Stock Option [_] [_] [_]
Plan.
4. Approval and ratification of the appointment of [_] [_] [_]
PricewaterhouseCoopers LLP as independent
auditors of the Company.
5. In their discretion, proxies are authorized to vote upon such business
as may properly come before the meeting.
The Shares represented by this proxy will be voted as directed. If no
contrary instruction is given, the Shares will be voted FOR the election
of the nominees, FOR the amendment of the Company's 1995 Employee Stock
Purchase Plan, FOR the approval of the Company's 2000 Stock Option Plan
and FOR the approval and ratification of the appointment of
PricewaterhouseCoopers LLP as the independent auditors of the Company.
SIGNATURE_________________________________ ___________________________ DATED ____________, 2000
Signature if held jointly
</TABLE>
NOTE: (Please date, sign as name appears above and return promptly. If
Shares are registered in the names of two or more persons, each
should sign. When signing as Corporate Officer, Partner, Executor,
Administrator, Trustee or Guardian, please give full title. Please
note any changes in your address next to the address as it appears
in the proxy.)
