<PAGE> 1
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 sec.240.14a-11(c) or sec.240.14a-12
CREATIVE BIOMOLECULES, INC.
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement; if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CREATIVE BIOMOLECULES, INC.
45 SOUTH STREET
HOPKINTON, MA 01748
DEAR STOCKHOLDER:
We cordially invite you to attend our 1998 Annual Meeting of Stockholders
commencing at 10:00 a.m. on Tuesday, June 16, 1998 at the Harvard Club of
Boston, Main Clubhouse, 374 Commonwealth Avenue, Boston, Massachusetts. Please
join us for a pre-meeting continental breakfast at 9:30 a.m.
All holders of the Company's outstanding stock as of April 24, 1998 are
entitled to vote at the Annual Meeting. At the Annual Meeting, three persons
will be elected to the Board of Directors. The Company will also seek
Stockholder approval of a proposal to amend the Company's Restated Certificate
of Incorporation to increase the number of authorized shares of the Company's
Common Stock. The Company will also seek Stockholder approval of the Company's
1998 Stock Plan and an amendment to the Employee Stock Purchase Plan to increase
the aggregate number of shares available for issuance under that Plan. The Board
recommends the approval of these proposals. Such other business will be
transacted as may properly come before the Annual Meeting.
We hope you will be able to attend the Annual Meeting. Whether or not you
expect to attend, you are urged to complete, sign, date and return the Proxy
card promptly in the enclosed envelope in order to make certain that your shares
will be represented at the Annual Meeting.
Sincerely,
/s/ Michael M. Tarnow
Michael M. Tarnow
President and Chief Executive Officer
May 14, 1998
<PAGE> 3
CREATIVE BIOMOLECULES, INC.
45 SOUTH STREET
HOPKINTON, MA 01748
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 1998
TO STOCKHOLDERS OF CREATIVE BIOMOLECULES, INC:
Notice is hereby given that the Annual Meeting of Stockholders of Creative
BioMolecules, Inc. will be held at the Harvard Club of Boston, Main Clubhouse,
374 Commonwealth Avenue, Boston, Massachusetts on Tuesday, June 16, 1998 at
10:00 a.m. local time for the following purposes:
1. To elect three nominees to the Board of Directors to serve until
the 2001 Annual Meeting of Stockholders or until their successors are duly
elected and qualified.
2. To consider and act upon an amendment to the Company's Restated
Certificate of Incorporation to increase the aggregate number of shares of
the Company's Common Stock by 50,000,000 shares to 100,000,000 shares.
3. To consider and act upon a proposal to approve the Company's 1998
Stock Plan.
4. To consider and act upon a proposal to amend the Company's Employee
Stock Purchase Plan to increase the aggregate number of shares of Common
Stock which the employees may purchase thereunder.
5. To transact such other business as may be properly brought before
the Annual Meeting and any adjournments thereof.
Only stockholders of record at the close of business on April 24, 1998 will
receive notice of the Meeting and be entitled to vote at the Meeting or any
adjournment(s) thereof. The transfer books will not be closed.
You are cordially invited to attend the Meeting in person if possible.
Whether you plan to attend the Meeting or not, please fill out, sign and date
the enclosed Proxy and return it in the envelope enclosed for this purpose. The
Proxy is revocable by the person giving it at any time prior to the exercise
thereof by written notice received by the Company, by delivery of a duly
executed Proxy bearing a later date, or by attending the Meeting, revoking the
Proxy in writing, and voting in person.
By Order of the Board of Directors
/s/ Wayne E. Mayhew III
Wayne E. Mayhew III
Secretary
May 14, 1998
<PAGE> 4
CREATIVE BIOMOLECULES, INC.
45 SOUTH STREET
HOPKINTON, MA 01748
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 1998
GENERAL INFORMATION
Introduction. This Proxy Statement is furnished in connection with the
solicitation by and on behalf of the Board of Directors of Creative
BioMolecules, Inc., a Delaware corporation (the "Company"), of Proxies for use
at the Annual Meeting of Stockholders of the Company to be held at the Harvard
Club of Boston, Main Clubhouse, 374 Commonwealth Avenue, Boston, Massachusetts
on Tuesday, June 16, 1998, at 10:00 a.m. and any adjournment(s) thereof (the
"Meeting"). The enclosed form of Proxy and Annual Report to Stockholders for the
fiscal year ended December 31, 1997 are being mailed on or about May 7, 1998 to
the Stockholders entitled to notice of and to vote at the Meeting. The Annual
Report does not constitute any part of this Proxy Statement.
Voting and Revocability of Proxies. Where the Stockholder specifies a
choice on the Proxy as to how his or her shares are to be voted on a particular
matter, the shares will be voted accordingly. If no choice is specified, the
shares will be voted FOR the election of the three nominees for director named
herein, FOR the proposal to amend the Company's Restated Certificate of
Incorporation to increase the number of authorized Common Stock, $.01 par value
per share (the "Common Stock"), FOR the proposal to approve the 1998 Stock Plan
and FOR the proposal to amend the Employee Stock Purchase Plan as described
herein. Any Proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or a duly executed Proxy bearing a later date, or
by attending the Meeting, revoking the Proxy in writing, and voting in person.
Solicitation. The entire cost of this solicitation will be paid by the
Company. The solicitation will be primarily by mail, but may also include
telephone, facsimile or oral communication by directors, officers and employees
of the Company who will receive no additional compensation for any such
solicitation. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners.
Quorum and Voting. Only stockholders of record of the Company's 33,498,394
shares of Common Stock outstanding as of the close of business on April 24,
1998, the record date, will be entitled to vote. Each share of Common Stock is
entitled to one vote on all matters to be voted on at the Meeting or any
adjournment(s) thereof. The presence of the holders of a majority of the voting
power of the outstanding shares of capital stock entitled to vote at the Meeting
present, in person or by Proxy, is necessary to constitute a quorum at the
Meeting. The vote required to approve each Proposal is set out at the end of
that Proposal.
Tabulation of Proxies. The shares represented by the proxies received will
be voted as specified therein, or, if no specification is made, will be voted
for each of the proposals. With respect to the tabulation of votes on any
matter, abstentions are counted as votes against a proposal and broker non-votes
have no effect on the vote.
A PROXY CARD IS ENCLOSED FOR YOUR USE. YOU ARE URGED TO SIGN, DATE AND
RETURN THE PROXY CARD IN THE ENCLOSED PRE-ADDRESSED, POSTAGE PAID ENVELOPE.
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 27, 1998, by (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each executive officer of the Company named in the Summary Compensation Table
herein, and (iv) all directors and executive officers as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER PERCENT
OF SHARES OF CLASS
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER** OWNED(1) OWNED(1)
-------------------------------------- ------------ ------------
<S> <C> <C>
Entities associated with Apax Partners(2)................... 4,361,631 12.9%
15 Portland Place
London, United Kingdom
Biotechnology Investments Limited(3)........................ 2,266,122 6.7
St. Julian's Court
St. Peter's Port
Guernsey, Channel Islands
Amerindo Investment Advisors, Inc.(4)....................... 2,120,000 6.3
388 Market Street
San Francisco, CA 94111
Entities associated with Domain Associates(5)............... 1,811,316 5.4
One Palmer Square
Princeton, NJ 08542
Charles Cohen, Ph.D.(6)..................................... 869,331 2.6
Jeremy L. Curnock Cook(7)................................... 2,278,622 6.8
5 Arrows House
St. Swithin's Lane
London, United Kingdom
Brian H. Dovey(8)........................................... 1,830,004 5.4
One Palmer Square
Princeton, NJ 08542
Martyn D. Greenacre(13)..................................... 12,500 *
Arthur J. Hale, M.D.(9)..................................... 3,964,811 11.7
15 Portland Place
London, United Kingdom
Suzanne Denbo Jaffe(13)..................................... -- *
Michael Rosenblatt, M.D.(13)................................ 25,000 *
Michael M. Tarnow(10)....................................... 639,990 1.9
James R. Tobin(11).......................................... 7,500 *
Thomas J. Facklam(13)....................................... 30,750 *
Cheryl K. Lawton(13)........................................ 17,500 *
Wayne E. Mayhew III(12)..................................... 142,706 *
All directors and executive officers as a group
(15 Persons)............................................... 9,894,497 27.1
</TABLE>
- ---------------
* Less than 1%
** Addresses are given for beneficial owners of more than 5% of the
outstanding Common Stock only.
(1) Applicable percentage of ownership is based on 33,475,582 shares of Common
Stock outstanding as of February 27, 1998 together with applicable options
or warrants for such stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of Common Stock subject to options or warrants which are currently
exercisable or convertible or which will become exercisable or convertible
within sixty (60) days after February 27, 1998 are deemed outstanding for
2
<PAGE> 6
computing the beneficial ownership of the person holding such option or
warrant but are not outstanding for computing the beneficial ownership of
any other person. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Includes 331,134 shares held by Banque Wormser Freres, Custodian for Apax
CR IIA; 131,591 shares held by Banque Wormser Freres, Custodian for Apax CR
IIC; 764,994 shares of Common Stock held by Coutts & Co (Jersey) Limited,
Custodian for Apax Ventures II, Ltd.; 778,498 shares (710,674 shares of
Common Stock and 67,824 shares of Common Stock subject to a warrant) held
by Apax Funds Nominees Ltd. "A" Account, Custodian for Apax Ventures III
Trust; 954,060 shares (870,941 shares of Common Stock and 83,119 shares of
Common Stock subject to a warrant) held by Apax Funds Nominees Ltd. "A"
Account, Custodian for Apax Ventures III International Partners, L.P.;
487,206 shares (406,005 shares of Common Stock and 81,201 shares of Common
Stock subject to a warrant) held by Apax Funds Nominees Ltd. "B" Account,
Custodian for Apax Ventures IV Trust; 841,092 shares (700,910 shares of
Common Stock and 140,182 shares of Common Stock subject to a warrant) held
by Apax Funds Nominees Ltd. "B" Account, Custodian for Apax Ventures IV
International Partners, L.P., and 73,056 shares held by MMG Conseil
(collectively "Entities associated with Apax Partners"). Dr. Hale, a
director of the Company, is a partner and director of Apax Partners & Co.
Ventures Ltd., the manager of or an advisor to the Entities associated with
Apax Partners. Dr. Hale may be deemed to be the beneficial owner of
3,825,850 shares of Common Stock as described in Note 9 below. Dr. Hale
disclaims beneficial ownership of shares held by Entities associated with
Apax Partners. Ronald Cohen is a director of Apax Partners & Co. Ventures
Ltd., and he may be deemed to be the beneficial owner of 3,126,284 shares
of Common Stock (after giving effect to the exercise of warrants). The
address for Banque Wormser Freres, Custodian for Apax CR IIA, Apax CR IIC
and MMG Conseil, is No. 45 Avenue Kleber, Paris, 75116 France; the address
for Coutts & Co (Jersey) Limited, Custodian for Apax Ventures II, Ltd., is
23/25 Broad Street, St. Helier, Jersey, Channel Islands, and the address
for Apax Funds Nominees Ltd. "A" Account, Custodian for Apax Ventures III
Trust and Apax Ventures III International Partners, L.P., and for Apax
Funds Nominees Ltd. "B" Account, Custodian for Apax Ventures IV Trust and
Apax Ventures IV International Partners, L.P., is 62 Green Street, London,
United Kingdom. The address for Mr. Cohen and Apax Partners & Co. Ventures
Ltd. is 15 Portland Place, London, United Kingdom. The information in the
chart and in this footnote, other than the percentage of class beneficially
owned, is based solely on Amendment No. 8 to Schedule 13D dated February
15, 1997 and Schedule 13D dated March 26, 1998 and filed with the
Securities and Exchange Commission and on information provided by counsel
for the entities and persons listed in this footnote. See Note 9.
(3) Includes 2,266,122 shares (2,165,538 shares of Common Stock and 100,584
shares of Common Stock subject to a warrant) beneficially owned by
Biotechnology Investments Limited ("BIL"). Mr. Curnock Cook is a director
of Rothschild Asset Management Limited, which is an advisor to BIL and to
Rothschild Asset Management (C.I.) Limited, which is the manager of BIL.
Mr. Curnock Cook is also a shareholder, but is not an officer or director,
of BIL. Rothschild Asset Management (C.I.) Limited is a wholly-owned
subsidiary of Rothschild Asset Management Limited. Mr. Curnock Cook
disclaims beneficial ownership of the shares owned by BIL. The information
in the chart and in this footnote, other than the percentage of class
beneficially owned, is based solely on a Schedule 13D dated January 19,
1995 and filed with the Securities and Exchange Commission and on
information provided to the Company by representatives of BIL. See Note 7.
(4) Amerindo Investment Advisors, Inc. ("Amerindo") is considered the
beneficial owner of an aggregate of 2,120,000 shares of Common Stock, which
shares were purchased for certain advisory clients of Amerindo. The
information in the chart and in this footnote, other than the percentage of
class beneficially owned, is based solely on Amendment No. 2 to Schedule
13G as of December 31, 1997 and filed with the Securities and Exchange
Commission and on information provided to the Company by representatives of
Amerindo.
3
<PAGE> 7
(5) Includes 1,750,062 shares (1,458,385 shares of Common Stock and 291,677
shares of Common Stock subject to a warrant) held by Domain Partners III,
L.P. and 61,254 shares (51,045 shares of Common Stock and 10,209 shares of
Common Stock subject to a warrant) held by DP III Associates, L.P.
(collectively "Entities associated with Domain Associates"). Mr. Dovey is a
General Partner of Domain Associates and a General Partner of the general
partner of the Entities associated with Domain Associates and may be deemed
to be the beneficial owner of shares owned by the Entities associated with
Domain Associates. The information in the chart and in this footnote, other
than the percentage of class beneficially owned, is based solely on a
Schedule 13D dated January 19, 1995 and filed with the Securities and
Exchange Commission and on information provided to the Company by
representatives of Domain Associates. See Note 8.
(6) Includes 198,163 shares of Common Stock owned directly by Dr. Cohen, 50,000
shares of Common Stock owned by Dr. Cohen's wife, 12,000 shares of Common
Stock owned by Dr. Cohen's children, and 609,168 shares of Common Stock
subject to options exercisable on February 27, 1998 or within 60 days
thereafter.
(7) Includes 12,500 shares of Common Stock subject to options exercisable on
February 27, 1998 or within 60 days thereafter and 2,266,122 shares of
Common Stock (after giving effect to the exercise of warrants) beneficially
owned by BIL. Mr. Curnock Cook is also a shareholder, but is not an officer
or director, of BIL. Rothschild Asset Management (C.I.) Limited is a
wholly-owned subsidiary of Rothschild Asset Management Limited. Mr. Curnock
Cook disclaims beneficial ownership of the shares owned by BIL. See Note 3.
(8) Includes 1,188 shares of Common Stock owned directly by Mr. Dovey, 17,500
shares of Common Stock subject to options exercisable on February 27, 1998
or within 60 days thereafter and 1,811,316 shares of Common Stock (after
giving effect to the exercise of warrants) held by Entities associated with
Domain Associates. Mr. Dovey is a General Partner of Domain Associates and
a General Partner of the general partner of the Entities associated with
Domain Associates and may be deemed to be the beneficial owner of shares
owned by the Entities associated with Domain Associates. Does not include
2,266,122 shares of Common Stock (after giving effect to the exercise of
warrants) beneficially owned by BIL. Domain Associates is the U.S. venture
capital advisor to BIL. Domain Associates has neither voting nor investment
power over the shares owned by BIL and Mr. Dovey disclaims beneficial
ownership of the shares owned by BIL. See Notes 3 and 5.
(9) Includes 112,061 shares of Common Stock owned directly by Dr. Hale, 11,900
shares of Common Stock owned by Dr. Hale's wife, 15,000 shares of Common
Stock subject to options exercisable on February 27, 1998 or within 60 days
thereafter, and 3,825,850 shares of Common Stock (after giving effect to
the exercise of warrants) held by Coutts & Co (Jersey) Limited, Custodian
for Apax Ventures II, Ltd., Apax Funds Nominees Ltd. "A" Account, Custodian
for Apax Ventures III Trust, Apax Funds Nominees Ltd. "A" Account,
Custodian for Apax Ventures III International Partners, L.P., Apax Funds
Nominees Ltd. "B" Account, Custodian for Apax Ventures IV Trust and Apax
Funds Nominees Ltd. "B" Account, Custodian for Apax Ventures IV
International Partners, L.P. Dr. Hale is a partner and director of Apax
Partners & Co. Ventures Ltd., the manager of or an advisor to the Entities
associated with Apax Partners. Dr. Hale disclaims beneficial ownership of
the shares held by the Entities associated with Apax Partners. See Note 2.
(10) Includes 27,000 shares of Common Stock and 612,990 shares of Common Stock
subject to options exercisable on February 27, 1998 or within 60 days
thereafter.
(11) Includes shares of Common Stock subject to options exercisable on
February 27, 1998 or within 60 days thereafter. Does not include 1,542,680
shares owned by Biogen, Inc. ("Biogen"). Mr. Tobin is a Director, President
and Chief Executive Officer of Biogen. Mr. Tobin disclaims beneficial
ownership of the shares owned by Biogen.
(12) Includes 53,117 shares of Common Stock and 89,589 shares of Common Stock
subject to options exercisable on February 27, 1998 or within 60 days
thereafter.
(13) Includes shares of Common Stock subject to options exercisable on
February 27, 1998 or within 60 days thereafter.
4
<PAGE> 8
INFORMATION CONCERNING CURRENT DIRECTORS,
NOMINEES AND EXECUTIVE OFFICERS
Information regarding the executive officers and directors of the Company
on April 16, 1998 is set forth below as of that date:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael M. Tarnow(1)...................... 53 Chief Executive Officer, President and
Director
Brian H. Dovey(1)......................... 56 Chairman of the Board and Director
Charles Cohen, Ph.D....................... 47 Chief Scientific Officer and Director
Steven L. Basta........................... 32 Vice President, Corporate Development and
Investor Relations
Carl M. Cohen, Ph.D....................... 52 Vice President, Research
Thomas J. Facklam, Ph.D................... 47 Vice President, Product Development and
Operations
Cheryl K. Lawton.......................... 36 Vice President and General Counsel
Gregory F. Liposky........................ 43 Vice President, Contract Manufacturing
Wayne E. Mayhew III....................... 46 Vice President and Chief Financial
Officer, Treasurer and Secretary
Jeremy L. Curnock Cook.................... 48 Director
Martyn D. Greenacre....................... 56 Director
Arthur J. Hale, M.D.(1)................... 71 Director
Suzanne Denbo Jaffe....................... 54 Director
Michael Rosenblatt, M.D................... 50 Director
James R. Tobin............................ 53 Director
</TABLE>
- ---------------
(1) Nominee for re-election to the Board of Directors.
Michael M. Tarnow joined the Company as President, Chief Executive Officer
and Director in July 1995. Prior to joining the Company, Mr. Tarnow was a career
pharmaceutical executive at Merck & Co., Inc., beginning in 1973. From 1988 to
1990, Mr. Tarnow headed Merck's worldwide business development activities as
Executive Director of Corporate Development. In 1990, he was appointed President
and CEO of Merck Frosst Canada, Merck's Canadian subsidiary. In 1994, Mr. Tarnow
returned to the United States as Executive Vice President of Medco Containment
Services and Merck Managed Care, where he was responsible for initiating managed
care programs in several international markets. Mr. Tarnow received his J.D.
from the University of Illinois and bachelor's degree from Wayne State
University.
Brian H. Dovey has served as Chairman of the Board since January 1995 and
as a member of the Company's Board of Directors since September 1992. Since
1988, Mr. Dovey has been General Partner of Domain Associates, a venture capital
firm, affiliates of which are stockholders of the Company. From 1983 to 1988,
Mr. Dovey was employed at Rorer Group Inc., now Rhone-Poulenc Rorer Inc., where
he held various management positions, most recently as President. He also serves
as a director of Connetics Corporation, Geron Corporation, NABI, Inc., Trimeris,
Inc. and Vivus, Inc.
Charles Cohen, Ph.D., a founder of the Company, has served as Chief
Scientific Officer since June 1990, and as a member of the Company's Board of
Directors since April 1982. Dr. Cohen previously served as Chief Executive
Officer from January 1985 to December 1991 and from November 1993 to July 1995,
President from January 1985 to December 1991 and from January to July of 1995,
Chairman of the Board from June 1990 to January 1995 and Vice President and
Scientific Director from April 1982 to January 1985. Prior to co-founding the
Company, he was Manager of Biochemical Development for Waters Associates, a
manufacturer of chromatography and filtration equipment, then a subsidiary of
Millipore Corporation. He also serves as a director of Cortech, Inc. and
Exelixis Pharmaceuticals, Inc. Dr. Cohen received his Ph.D. in Basic Medical
5
<PAGE> 9
Science from New York University School of Medicine. Dr. Cohen served as a
Research Fellow in the University of Virginia's Department of Biophysics and
Biochemistry.
Steven L. Basta joined the Company in February 1997 as Vice President,
Corporate Development and Investor Relations. Prior to joining the Company, he
was associated with Jundt Associates, an investment management firm, from July
1996 to December 1996. From September 1990 to June 1996, Mr. Basta held several
positions with The Immune Response Corporation including Executive Director of
Product Development from 1994 to 1996, Program Director for an HIV research
joint venture from 1992 to 1993, and Director of Investor Relations and Market
Development from 1991 to 1992. From 1988 to 1990, he served as an Associate with
Dillon, Read & Co, Inc. He received an M.B.A. from the Kellogg Graduate School
of Management of Northwestern University.
Carl M. Cohen, Ph.D. joined the Company in November 1997 as Vice President,
Research. Prior to joining the Company, he served as Acting Chairman, Department
of Biomedical Research since 1996, Chief, Division of Cellular and Molecular
Biology, Department of Biomedical Research since 1985 and Associate Chairman,
Department of Biomedical Research from 1983 to 1985 at St. Elizabeth's Medical
Center of Boston. In addition, he was a Professor, Department of Medicine and
Department of Anatomy and Cellular Biology since 1991 at Tufts University School
of Medicine. Dr. Cohen received his Ph.D. in Biophysics Research from Harvard
University.
Thomas J. Facklam, Ph.D. has served as Vice President, Product Development
and Operations since May 1997. From May 1996 to May 1997 he served as Vice
President, Product Development and Quality. Prior to joining the Company, he
served as Senior Director International Project Management and Clinical Research
since 1994 at R.W. Johnson Pharmaceutical Research Institute. From 1992 to 1994,
he served as Vice President Biotechnology of Ares-Sorono, N.V., a pharmaceutical
company, where he held drug development management positions from 1987 to 1992.
Previously, he held research and development positions at Serono Laboratories,
Inc., a pharmaceutical company, and the Batelle Memorial Institute, a contract
research organization. He received his Ph.D. in Biochemistry/Molecular Biology
from Ohio State University.
Cheryl K. Lawton joined the Company in January 1997 as Vice President and
General Counsel. Prior to joining the Company, she served as Vice President
beginning in January 1996, General Counsel beginning in April 1995 and Associate
General Counsel from May 1994 to April 1995 at MediSense, Inc., an international
medical device manufacturing company. From November 1989 to April 1994, she held
various legal positions and last served as Assistant General Counsel at Damon
Corporation, a clinical laboratory service provider. Ms. Lawton received her
J.D. from Suffolk University School of Law.
Gregory F. Liposky has served as Vice President, Contract Manufacturing
since February 1997. From March 1993 to February 1997, he served as Vice
President, Manufacturing. Prior to joining the Company, he served as Vice
President, Bioprocessing since October 1991 at Verax Corporation ("Verax"), a
toll manufacturer of biotechnology products, where he served as Operations
Manager from November 1989 to October 1991 and Production Manager from January
1985 to November 1989. He received his M.B.A. from Monmouth College.
Wayne E. Mayhew III has served as Chief Financial Officer since May 1983,
Vice President since August 1984, Treasurer since December 1986, and Secretary
since 1990. Prior to joining the Company, he was a Small Business Services and
Audit Manager for Deloitte, Haskins & Sells. Mr. Mayhew is a certified public
accountant. He received his Masters in Accounting from Brigham Young University.
Jeremy L. Curnock Cook has been a member of the Company's Board of
Directors since January 1995. He is currently a director of Rothschild Asset
Management Limited which acts as an advisor to Biotechnology Investments
Limited, which is a stockholder of the Company. In 1975, Mr. Curnock Cook
founded and became Managing Director of The International Biochemical Group
Ltd., a company engaged in applied biotechnology, which was subsequently
acquired by Royal Dutch/Shell Group of Companies in 1985. He also serves as a
director of Cell Therapeutics, Ribozyme Pharmaceuticals, Inc., Sugen, Inc. and
Targeted Genetics Corp.
6
<PAGE> 10
Martyn D. Greenacre has been a member of the Company's Board of Directors
since June 1993. He is currently Chief Executive Officer and President of Delsys
Pharmaceutical Corporation. From 1993 to 1997, Mr. Greenacre was President and
Chief Executive Officer of Zynaxis, Inc., a drug delivery company. Prior to
Zynaxis, from 1973 through 1992, he was with SmithKline Beecham where he held
several senior management positions, most recently as chairman of European
operations. He also serves as a director of Cephalon Inc., Delsys Pharmaceutical
Corp., GENSET S.A. and IBAH, Inc.
Arthur J. Hale, M.D., has been a member of the Company's Board of Directors
since June 1987. Since 1985, Dr. Hale has been a partner and director of Apax
Partners & Co. Ventures Ltd., a venture capital firm, affiliates of which are
stockholders of the Company. Previously, he was Vice President of Research and
Development at G.D. Searle in the United Kingdom.
Suzanne Denbo Jaffe has been a member of the Company's Board of Directors
since January 1997. Since 1994, Ms. Jaffe has been the Managing Director of
Hamilton & Co., an investment management consulting firm. From 1985 to 1993, Ms.
Jaffe was a Managing Director of Angelo, Gordon & Co., L.P., a money management
firm. From 1983 to 1985, she was Deputy Comptroller of New York State. She
served under President Reagan on the Board of Trustees of the Social Security
and Medicare Trust Funds and also was a member of the ERISA Advisory Council of
the Department of Labor. She is currently a trustee of Fordham University and a
director of Olin Corporation and Research Corporation.
Michael Rosenblatt, M.D. has been a member of the Company's Board of
Directors since June 1993. Since 1996, Dr. Rosenblatt has been the Faculty Dean
for Academic Programs at Care Group at Harvard Medical School and Senior Vice
President for Academic Affairs at Beth Israel Deaconess Medical Center in
Boston. Since 1992, Dr. Rosenblatt has been the Ebert Professor of Molecular
Medicine at Harvard Medical School, Chief of the Division of Bone and Mineral
Metabolism at Beth Israel Deaconess Medical Center, and Director of the
Harvard-Massachusetts Institute of Technology Division of Health Sciences and
Technology. From 1983 through 1992, he was with Merck Sharp & Dohme Research
Laboratories, most recently serving as Senior Vice President for Research. He
also serves as a director of ProScript, Inc.
James R. Tobin has been a member of the Company's Board of Directors since
January 1995. He has served as Chief Executive Officer since February 1997 and
President since February 1994 of Biogen, a biotechnology company. He also served
as Chief Operating Officer of Biogen from February 1994 to February 1997. Prior
to joining Biogen, Mr. Tobin was with Baxter International Inc., a health care
products company, where he served as President and Chief Operating Officer from
1992 to 1994, as Executive Vice President from 1988 to 1992 and in various
management positions prior to 1988. He also serves as a director of Biogen, Inc.
and Genovo, Inc.
The Company has agreed to nominate James R. Tobin to serve as a member of
the Board of Directors of the Company through his current term and through one
additional three-year term. Commencing with the date on which the additional
three-year term of Mr. Tobin ends, the Company has agreed to nominate either the
Chairman or the President of Biogen to serve as a member of the Board of
Directors of the Company for two additional three-year terms thereafter.
Officers are elected and serve at the discretion of the Board of Directors.
There are no family relationships among any of the directors and executive
officers of the Company.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee of the Board of Directors, which
provides the opportunity for direct contact between the Company's independent
accountants and the Board. The Audit Committee met two times during 1997 to
review the services provided by the auditors during the annual audit, to review
the adequacy of financial statement disclosures, to discuss the Company's
internal control policies and procedures and to consider and recommend the
selection of the Company's independent accountants. The members of the Audit
Committee are Mr. Greenacre, Mr. Curnock Cook and Ms. Jaffe.
7
<PAGE> 11
The Company also has a standing Compensation Committee of the Board of
Directors, which provides recommendations to the Board regarding compensation
programs of the Company and administers the Company's 1987 Stock Plan, Employee
Stock Purchase Plan, 1992 Non-Employee Director Non-Qualified Stock Option Plan
and 1998 Stock Plan including the grant of stock options and the issuance of
restricted shares to employees. The Compensation Committee also is responsible
for establishing and modifying the compensation of all corporate officers of the
Company (including compensation pursuant to stock options and other employee
benefit plans and arrangements) and the engagement of, terms of any employment
agreements and arrangements with, and termination of, all corporate officers of
the Company. The Compensation Committee met six times during 1997. The members
of the Compensation Committee are Mr. Dovey, Dr. Hale and Mr. Tobin. See "Report
of the Compensation Committee on Executive Compensation."
The Company does not have a Nominating Committee.
The Board of Directors met six times during 1997. Each director nominated
for re-election attended at least 75% of the aggregate number of Board meetings
and meetings held by all Committees on which he or she then served.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
Standard Arrangements. For their services to the Company, non-employee
directors of the Company receive cash payments in the amount of an annual
retainer of $10,000 and $1,000 for each Board meeting attended in person.
Non-employee directors who are members of a committee of the Board receive
$1,000 for each committee meeting attended on a day other than a day on which a
Board meeting is held. There are no cash payments for participation in Board or
committee meetings held by telephone conference call. Directors who are employed
by the Company do not receive compensation for attendance at Board or committee
meetings. Directors are reimbursed for any expenses incurred attendant to Board
membership.
Pursuant to the Company's 1992 Non-Employee Director Non-Qualified Stock
Option Plan (the "Director Plan"), during the year ended September 30, 1993,
Brian H. Dovey, Martyn D. Greenacre, Arthur J. Hale and Michael Rosenblatt, and,
during the year ended September 30, 1995, Jeremy L. Curnock Cook and James R.
Tobin were each granted an option for the purchase of 10,000 shares of Common
Stock. Pursuant to the amendment to the Director Plan approved by the
Stockholders in May 1996, each of the above listed directors was granted an
additional option for the purchase of 10,000 shares of Common Stock and Suzanne
Denbo Jaffe was granted an option for the purchase of 20,000 shares of Common
Stock. The Director Plan provides that each future non-employee director will be
granted an option to purchase 20,000 shares of Common Stock upon election to the
Board of Directors. In addition, the Director Plan provides the grant of an
annual option to purchase 5,000 shares of Common Stock to each non-employee
member of the Board serving as of the Annual Meeting. All of the options under
the Director Plan are granted at the fair market value of the Common Stock on
the date the option is granted. All of the options granted under the Director
Plan vest at the rate of 25% on each of the first four anniversaries after the
date of grant.
In connection with his services as a medical advisor to the Company, on
March 20, 1996, Michael Rosenblatt, M.D. was granted an additional option to
purchase 10,000 shares of Common Stock at an exercise price of $9.34375 per
share, 5,000 shares of which vested immediately and 5,000 shares of which vested
on January 1, 1997. For his continuing services as Chairman of the Board of
Directors, on January 14, 1997, Brian H. Dovey was granted an option to purchase
20,000 shares of Common Stock at an exercise price of $10.0625 per share vesting
annually over four years from the date of grant.
EXECUTIVE COMPENSATION
Compensation which was earned for services in all capacities for the years
ended December 31, 1997 and 1996 and the year ended September 30, 1995 and which
the Company paid to or accrued for the Chief
8
<PAGE> 12
Executive Officer during 1997 and each of the four other most highly compensated
executive officers of the Company for service rendered during such periods, is
set forth in the following table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
----------------------------------- -------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR(1) ($)(2) ($) ($)(3) OPTIONS(#)(4) ($)
--------------------------- ------- ------ ----- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael M. Tarnow(5).............. 1997 $315,000 $133,000 $75,500(5) -- $ 4,500(8)
President and 1996 286,362 241,500 12,423(5) 200,000 193,781(9)
Chief Executive Officer 1995 57,292 -- 47,826(5) 1,000,000 --
Charles Cohen, Ph.D............... 1997 262,500 102,000 -- -- 4,500(8)
Chief Scientific Officer 1996 239,090 165,000 -- 200,000 35,249(10)
1995 217,350 65,000 -- 470,000 50,878(11)
Thomas J. Facklam, Ph.D.(6)....... 1997 171,030 38,800 -- 23,000 2,816(8)
Vice President, Product 1996 93,334 15,000 45,263(6) 100,000 --
Development & Quality
Cheryl K. Lawton(7)............... 1997 145,481 30,000 -- 70,000 --
Vice President and General
Counsel
Wayne E. Mayhew III............... 1997 154,000 17,000 -- 20,000 4,020(8)
Vice President and 1996 134,000 56,250 -- 20,000 4,500(8)
Chief Financial Officer, 1995 130,727 41,000 -- 60,000 3,684(8)
Treasurer and Secretary
</TABLE>
- ---------------
(1) In January 1996, the Board of Directors voted to change the Company's
fiscal year end from September 30 to December 31, effective with the three
month period ended December 31, 1995 (the "Transition Period"). During the
Transition Period, Mr. Tarnow, Dr. Cohen and Mr. Mayhew received salary
payments of $68,750, $59,500 and $33,017, respectively and Mr. Tarnow
received $85,854 in other annual compensation (see Note 5 below). The
bonuses related to the Transition Period are included in the bonuses paid
or accrued to the named executive officers in 1996. No stock options were
granted and no other compensation was paid to the named executive officers
during this Transition Period.
(2) The amounts shown include the individual's before-tax contributions to the
Company's 401(k) retirement plan.
(3) Unless included in the table, non-cash benefits were less than the lesser
of 10% of each such person's respective cash compensation or $50,000.
(4) Options to purchase the number of shares shown were granted pursuant to the
Company's 1987 Stock Plan.
(5) Mr. Tarnow joined the Company in July 1995. The amounts reported as Other
Annual Compensation in fiscal 1997 and 1996, the Transition Period (see
Note 1 above) and fiscal 1995, respectively, consist of reimbursed
relocation and related expenses, including reimbursement of related income
taxes.
(6) Mr. Facklam joined the Company in June 1996. The $45,263 reported as Other
Annual Compensation in fiscal 1996 consists of reimbursed relocation and
related expenses, including reimbursement of related income taxes.
(7) Ms. Lawton joined the Company in January 1997.
(8) Consists of matching 401(k) contributions.
(9) Consists of payments made by the Company to third parties in connection
with the relocation of Mr. Tarnow ($190,000) and matching 401(k)
contributions ($3,781).
(10) Consists of payment of deferred compensation ($12,500), forgiveness of
principal and interest under amounts payable to the Company ($18,249) and
matching 401(k) contributions ($4,500).
(11) Consists of forgiveness of principal and interest under Dr. Cohen's notes
payable to the Company, as provided in his employment contract ($46,378)
and matching 401(k) contributions ($4,500).
9
<PAGE> 13
OPTION GRANTS
The following table shows, as to each person named, the options to purchase
Common Stock granted by the Company under the 1987 Stock Plan in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------- ANNUAL RATES
% OF TOTAL OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#) YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Facklam,
Ph.D.................. 23,000(1) 2.6% $ 8.0000 5/21/2007 $115,717 $ 293,249
Cheryl K. Lawton........ 70,000(1) 7.8% 10.0625 1/14/2007 442,978 1,122,592
Wayne E. Mayhew III..... 20,000(1) 2.2% 8.1250 5/20/2007 102,195 258,983
</TABLE>
- ---------------
(1) These options are stock options granted under the Company's 1987 Stock Plan
at fair market value for a term of ten years. Dr. Facklam's options will
become exercisable as to 25% on May 21, 1998 and thereafter vest in equal
annual portions through May 21, 2001. Ms. Lawton's options became
exercisable as to 25% on January 14, 1998 and thereafter vest in equal
annual portions through January 14, 2001. Mr. Mayhew's options became
exercisable as to 25% on January 1, 1998 and thereafter vest in equal annual
portions through January 1, 2001. In addition, the options fully vest in the
event of a change in control of the Company. See "Employment Agreements."
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table shows, as to each person named, the aggregated stock
options exercised under the Company's stock option plans in fiscal year 1997 and
year-end values.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(2)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael M. Tarnow....... 7,010 $38,574 612,990 560,000 $2,555,829 $2,002,640
Charles Cohen, Ph.D..... -- -- 608,126 353,542 2,187,383 1,137,109
Thomas J. Facklam,
Ph.D.................. -- -- 25,000 98,000 -- --
Cheryl K. Lawton........ -- -- -- 70,000 -- --
Wayne E. Mayhew III..... 4,000 30,225 79,589 50,000 417,618 77,816
</TABLE>
- ---------------
(1) Based upon the closing price of the Company's Common Stock on various dates
of exercise as reported by The Wall Street Journal. The options each had an
exercise price equal to the fair market value of the Company's Common Stock
on the date the options were granted. The value realized upon exercise of
the options resulted directly from appreciation in the Company's stock price
during the optionee's tenure with the Company.
(2) Based upon the $7.375 closing price of the Company's Common Stock on
December 31, 1997 as reported by The Wall Street Journal. The options each
had an exercise price equal to the fair market value of the Company's Common
Stock on the dates the options were granted. The valuation of the
unexercised in-
10
<PAGE> 14
the-money options results directly from appreciation in the Company's stock
price during the optionee's tenure with the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Michael M. Tarnow
pursuant to which Mr. Tarnow has agreed to serve as President and Chief
Executive Officer of the Company at a current annual base salary of $330,000
(subject to increase), plus an annual performance bonus at the discretion of the
Board of Directors of up to 60% of his annual salary. The Company's original
agreement with Mr. Tarnow was for an initial two-year term ended on July 16,
1997, and thereafter for successive one-year periods, unless terminated by
either party by prior written notice of at least 90 days. Notwithstanding the
foregoing, the employment agreement may be terminated for cause. In the event
that the Company terminates Mr. Tarnow's employment other than for cause or Mr.
Tarnow is constructively terminated by having his authority and role materially
reduced or by no longer serving as the Company's President and Chief Executive
Officer or as a Director, the Company has agreed to pay his salary for a period
of twelve months after the date of termination and has agreed to pay a pro rata
portion of his annual bonus through the date of his termination. Pursuant to
this agreement, Mr. Tarnow was granted options to purchase 1,000,000 shares of
the Company's Common Stock. The options became exercisable as to 20% immediately
and thereafter vest in equal annual portions through July 16, 1999.
The Company has entered into an employment agreement with Dr. Charles Cohen
pursuant to which the Company retained Dr. Cohen's services at a current annual
salary of $275,000 (subject to increase) and a target annual bonus of 60% of his
annual salary based on performance. The Company's original agreement with
Dr. Cohen was for an initial term ended on December 31, 1993 and, thereafter,
continues for additional periods of one year, unless at anytime during the term
such agreement is terminated by either party by written notice of not less than
90 days. Notwithstanding the foregoing, the employment agreement may be
terminated for cause. In the event the Company terminates Dr. Cohen's employment
other than for cause, or Dr. Cohen terminates his employment as a result of
breach by the Company or in certain other limited circumstances constituting a
constructive termination, the Company has agreed to pay his salary at the annual
rate in effect on the date of termination for twelve months after the date of
termination or, if sooner, the date of his employment by a third party.
The Company has entered into an employment agreement with Dr. Carl Cohen,
which agreement provides for a current annual salary of $176,000 (subject to
increase), plus a bonus to be determined annually based upon mutually agreed
objectives and the payment of salary for six months following an involuntary
termination. Pursuant to this agreement, Dr. Carl Cohen was granted stock
options to purchase 100,000 shares of Common Stock vesting annually over four
years.
The Company has entered into an employment agreement with Steven L. Basta,
which agreement provides for a current annual salary of $131,000 (subject to
increase), plus a bonus to be determined annually based upon mutually agreed
objectives and the payment of salary for six months following an involuntary
termination. Pursuant to this agreement, Mr. Basta was granted stock options to
purchase 50,000 shares of Common Stock vesting annually over four years.
The Company has entered into an employment agreement with Dr. Thomas J.
Facklam, which agreement provides for a current annual salary of $181,000
(subject to increase), plus a bonus to be determined annually based upon
mutually agreed objectives and the payment of salary for six months following an
involuntary termination. Pursuant to this agreement, Dr. Facklam was granted
stock options to purchase 100,000 shares of Common Stock vesting annually over
four years.
The Company has entered into an employment agreement with Cheryl K. Lawton,
which agreement provides for a current annual salary of $157,000 (subject to
increase), plus a bonus to be determined annually based upon mutually agreed
objectives and the payment of salary for six months following an involuntary
termination. Pursuant to this agreement, Ms. Lawton was granted stock options to
purchase 70,000 shares of Common Stock vesting annually over four years.
11
<PAGE> 15
As part of its acquisition of the manufacturing facility from Verax
Corporation, the Company assumed an employment agreement with Gregory F.
Liposky, which agreement provides for a current annual salary of $131,000
(subject to increase) and for the payment of salary for twelve months following
an involuntary termination.
The Company has entered into an employment agreement with Wayne E. Mayhew
III, which agreement provides for a current annual salary of $161,000 (subject
to increase) and the payment of salary for six months following an involuntary
termination.
The Company has agreed with Mr. Tarnow, Dr. Charles Cohen, Mr. Basta, Dr.
Carl Cohen, Dr. Facklam, Ms. Lawton and Mr. Mayhew that the options held by them
will fully vest in the event of a sale of all or substantially all of the assets
of the Company or a sale of the Company by merger or another transaction whereby
the stockholders of the Company prior to such transaction do not own a majority
of the outstanding shares of the Company after such transaction or if a majority
of the Board of Directors is changed as a result of a proxy contest (a "Change
of Control"). In addition, the Company agreed with Dr. Charles Cohen that his
options would also fully vest in the event of his constructive termination,
including failure to be elected to the Board of Directors, and that his options
would be exercisable for up to one year after a termination following a Change
of Control or a constructive termination.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of independent outside directors. The Committee, which
consists of Arthur J. Hale, Brian H. Dovey, and James R. Tobin, approves stock
option grants for key employees and salaries and bonuses for officers of the
Company. See "Information about the Board of Directors and its Committees."
The goals of the Committee are to provide an executive compensation program
that enables the Company to attract and retain key executive personnel and to
motivate those executives to achieve the Company's objectives. The Company is
presently in its research and development phase and has not yet achieved
profitability; therefore, traditional methods of evaluating executive
performance, such as profit levels and return on equity, would be inappropriate.
Accordingly, assessment of each executive's performance, as described more fully
below, is based on goals which reflect the Company's stage of development.
Compensation Policies Applicable to Executive Officers
There are three basic components of executive compensation: a base salary,
an annual cash bonus and periodic stock option grants. The annual cash bonus and
stock option grants are performance-based incentive compensation. In addition to
these components, executive officers of the Company are eligible to participate
in all employee benefit programs generally available to all other Company
employees.
In considering compensation of the Company's executives, one of the factors
the Committee takes into account is the anticipated tax treatment to the Company
of various components of compensation. Section 162(m) of the Internal Revenue
Code generally disallows a tax deduction by a public company for annual
compensation over $1 million paid to its chief executive officer or any of the
four other most highly compensated executives. Certain performance-based
compensation, of the type provided in the Company's stock option plans, can be
exempt from the deduction limit if the plan satisfies the Internal Revenue
Service ("IRS") regulatory requirements.
It is the policy of the Committee and the Board of Directors to seek to
preserve tax deductibility of compensation paid to executives unless regulatory
requirements to do so are contrary to the best interest of the Company and its
shareholders.
Base Salary. In setting the annual base salary levels for each executive
officer, the Committee reviews surveys and other available information on the
base salaries of executive officers in other biotechnology companies. In
determining which biotechnology companies to include in its comparison, the
Committee considers the size and complexity of the company, the stage of
development of its products and geographical
12
<PAGE> 16
location. Within this survey group, the Committee seeks to make comparisons to
executive officers with comparable levels of experience, and with similar
responsibilities and expected levels of contribution to the Company's
performance. The Company seeks to set base salaries and annual cash bonuses at
the midpoint of the range of compensation paid by comparable companies. In
addition, the initial level of compensation paid to those executives hired more
recently has been determined by market forces and is consistent with industry
practice.
Annual Bonus. The annual cash bonuses are based on the Committee's
subjective evaluation of each executive officer's progress toward performance
objectives. The Company established these objectives in conjunction with
developing the business plan for fiscal 1997. Each executive's objectives are
comprised of two components: one based on progress toward the Company's overall
goals and the other based on progress toward goals derived from the Company's
goals but related specifically to that officer's areas of responsibility. In
this way, the Company seeks to reward its executives for teamwork as well as
individual effort. The Company's basic categories of goals and objectives are:
progress toward commercialization of the Company's products, progress in the
Company's discovery research programs and progress in funding the Company's
operations. The Committee determined the amount of each executive's bonus based
on a subjective assessment of progress toward the individual and the Company
components of that executive's performance objectives during fiscal 1997.
Accordingly, the Committee awarded incentive cash bonus compensation to
executive officers in fiscal 1997 as shown in the "Summary Compensation Table."
Long Term Incentive Compensation. The Company's 1987 Stock Plan authorizes
a committee of not less than two non-employee directors to grant stock-based
awards to executive officers. This plan is designed to align a significant
portion of the executive compensation program with stockholder interests. The
amounts of the awards are designed to reward past performance and create
incentives to meet long-term objectives. Awards are made at a level calculated
to be competitive within the biotechnology industry as well as a broader group
of companies of comparable size and complexity. In determining the amount of
each grant, the Committee takes into account the number of shares held by the
executive prior to the grant. Accordingly, the Committee granted options to
executive officers in fiscal 1997 as shown in the table "Option Grants in Last
Fiscal Year." The exercise prices of such options reflect the fair market value
on the date of grant.
Compensation of Chief Executive Officer
Mr. Tarnow joined the Company in July 1995 as President, Chief Executive
Officer and Director. At the time he was hired by the Company, Mr. Tarnow
entered into an employment agreement with the Company which was negotiated as a
condition to his joining the Company. Under the agreement, Mr. Tarnow receives a
current annual base salary of $330,000 (subject to increase), plus an annual
performance bonus at the discretion of the Board of Directors of up to 60% of
his annual salary.
The compensation plan for Mr. Tarnow is determined by the Committee in a
manner that is similar to that of other executive officers. However, Mr.
Tarnow's total compensation is more weighted toward performance-based incentive
compensation, with such incentive compensation focused on progress toward
overall Company objectives, as compared to the other executive officers. The
rationale supporting this approach is that the CEO has greater responsibility
for the overall direction and performance of the Company in comparison to other
executive officers and therefore should be compensated accordingly.
In recognition of his achievement of his performance objectives during the
year ended December 31, 1997, the Committee increased Mr. Tarnow's annual salary
from $315,000 to $330,000 and awarded Mr. Tarnow a $133,000 bonus. The Committee
believes Mr. Tarnow has made a significant contribution during this period and
has continued to move the Company towards its long term strategic objectives.
As part of the compensation package negotiated with Mr. Tarnow at the time
of his hiring in July 1995, the Company granted qualified incentive stock
options to Mr. Tarnow to purchase 173,910 shares of Common Stock at an exercise
price of $2.875 per share, which represents the fair value on the date of grant.
The options became exercisable as to 20% immediately and thereafter vest in
equal annual portions through July 16, 1999. The Company also granted
non-qualified incentive stock options to Mr. Tarnow to purchase 826,900 shares
of Common Stock at an exercise price of $2.875, which represents the fair value
on the date of grant. The options
13
<PAGE> 17
became exercisable as to 20% immediately and thereafter vest in equal annual
portions through July 16, 1999. On July 16, 1996, the Company granted Mr. Tarnow
non-qualified incentive stock options to purchase 200,000 shares of Common Stock
at an exercise price of $5.5625 per share, which represents fair market value on
the date of grant. The options vest in equal annual portions through July 16,
2001. On April 16, 1998, the Company granted Mr. Tarnow additional non-qualified
incentive stock options to purchase 81,000 shares of Common Stock at an exercise
price of $7.47 per share, which represents fair market value on the date of
grant. The options vest in equal portions through April 16, 2002. These option
packages are designed to align the interests of Mr. Tarnow with those of the
Company's stockholders with respect to short-term operating results and
long-term increases in the price of the Company's stock. The grant of these
options is consistent with the goals of the Company's stock option program as a
whole.
COMPENSATION COMMITTEE
Arthur J. Hale, Chairman
Brian H. Dovey
James R. Tobin
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Dr. Hale, Mr. Dovey and
Mr. Tobin. No executive officer of the Company is a member of the Compensation
Committee. There are no interlocks between the members of the Compensation
Committee and the executive officers of the Company.
14
<PAGE> 18
STOCK PERFORMANCE GRAPH
The graph and table below compare the cumulative total stockholder return
on a quarterly basis on the Company's Common Stock for the period from December
17, 1992 (the date of the Company's initial public offering) through December
31, 1997, against the cumulative total returns on the Nasdaq Stock Market Index
(U.S.) ("Nasdaq Stock") and the Nasdaq Pharmaceutical Stock Index ("Nasdaq
Pharmaceutical") for the same period.
<TABLE>
<CAPTION>
Measurement Period NASDAQ NASDAQ
(Fiscal Year Covered) CBMI Stock Pharmaceutical
<S> <C> <C> <C>
12/17/92 100 100 100
3//93 88 102 72
6/93 116 104 76
9/93 130 113 82
12/93 148 115 89
3/94 121 110 73
6/94 45 105 63
9/94 48 114 71
12/94 24 112 67
3/95 39 122 72
6/95 43 140 84
9/95 81 157 105
12/95 100 159 123
3/96 134 166 128
6/96 121 180 124
9/96 102 186 127
12/96 148 195 123
3/97 107 185 117
6/97 101 219 126
9/97 154 256 142
12/97 105 240 127
</TABLE>
The above graph and table assume $100 invested on December 17, 1992, with
all dividends reinvested, in each of the Company's Common Stock, the Nasdaq
Stock Market Index (U.S.), and the Nasdaq Pharmaceutical Index.
CERTAIN TRANSACTIONS
In September 1994, the Company signed a three year manufacturing contract
with Biogen to produce in the Company's manufacturing facility in West Lebanon,
New Hampshire several of Biogen's protein-based therapeutic candidates for use
in Biogen's clinical trials. The contract covered the period from January 1995
through December 1997. As part of a research collaboration signed in December
1996, the companies agreed to extend the manufacturing contract for two years
through December 31, 1999, with Biogen having the option, but not the
obligation, to use the manufacturing facility for a mutually agreeable number of
months in one of the two years. To enable the Company to meet its obligations
under the manufacturing contract, Biogen financed the construction of a 7,000
square foot addition to the present facility for cGMP production using bacterial
fermentation at an estimated total cost of $2,900,000. The Company agreed to
reimburse Biogen for the construction costs and leasehold improvements at the
end of the contract term at an amount equal to Biogen's construction costs less
$300,000 and less all accumulated depreciation. The reimbursement to Biogen is
expected to be no more than $2,100,000. Biogen also agreed to lease equipment to
the Company for the operation of such portion of the facility and for cGMP
production using bacterial fermentation by the Company at an estimated total
cost of $2,400,000, as provided in an equipment lease agreement. The Company has
the option to purchase the equipment at the end of the extended lease term for
an amount equal to its then fair market value or for such other amount as
negotiated by the parties. James R. Tobin, a director of the Company since
January 1995, is President and Chief Executive Officer of Biogen.
In December 1994, the Board of Directors designated a series of preferred
stock of the Company consisting of 1,500,000 shares of the authorized, unissued
preferred stock, as Series 1994/A Convertible
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<PAGE> 19
Preferred Stock (the "Series Preferred Stock"). In December 1994 and January
1995, the Company sold in a private placement, an aggregate of 1,130,000 units
(the "Units"), each Unit consisting of one share of Series Preferred Stock and
one warrant to purchase one share of the Company's Common Stock at a purchase
price of $9.9375 per Unit. Each share of the Series Preferred Stock was
converted in August 1995 into five shares of Common Stock. Each warrant is
exercisable for a period of five years from the date of issuance at an exercise
price of $2.385 per share. At December 31, 1997, warrants to purchase 866,753
shares of Common Stock were outstanding. The investors who purchased the Units
included, among others, the following beneficial owners of more than 5% of the
Common Stock:
<TABLE>
<CAPTION>
UNITS TOTAL
5% STOCKHOLDERS PURCHASED CONSIDERATION
--------------- --------- -------------
<S> <C> <C>
Entities associated with Apax Partners...................... 409,159 $4,066,018
Biotechnology Investments Limited........................... 100,584 999,554
Entities associated with Domain Associates.................. 301,886 2,999,992
</TABLE>
Pursuant to stock purchase agreements executed in connection with the sale
of Units, described above, the Company filed a registration statement
registering for resale by the holders the Common Stock issued upon the
conversion of the shares of Series Preferred Stock.
In September 1996, the Company loaned $350,000 to Michael M. Tarnow,
President and Chief Executive Officer of the Company. The loan is evidenced by a
fully secured promissory note bearing interest at the annual rate of 6.02% and
payable in three equal annual installments, plus accrued interest. As of
December 31, 1997, $238,016, including accrued interest of $4,682, of such
indebtedness remained outstanding.
In December 1996, the Company entered into a Research Collaboration and
License Agreement with Biogen to collaborate on the development of novel
therapeutics based on OP-1 for the treatment of renal disorders. The initial
focus of the collaboration is on advancing the development of the Company's
morphogenic protein, OP-1, for the treatment of acute and chronic renal failure.
Under the agreement, the Company granted to Biogen exclusive worldwide rights to
manufacture, market and sell OP-1 and OP-1 products developed through the
collaboration for the treatment of renal disease. Biogen paid the Company a
$10,000,000 license fee in 1996 and made an $18,000,000 equity investment which
were recorded in the quarter ended December 31, 1996. In addition, the agreement
provides for $10,500,000 in research funding over a three year period ending
December 31, 1999, of which $4,000,000 has been recognized through December 31,
1997. Biogen also will pay up to an additional $69,000,000 upon the attainment
of certain milestones and will make available a $15,000,000 line of credit. The
agreement further provides for the payment of royalties to the Company based on
product sales.
The Company may draw upon the $15,000,000 line of credit over a three year
period ending December 31, 1999 to fund the research and development of small
molecule products based on OP-1. Advances are limited to up to $10,000,000 in
1998 and the balance in 1999. As of December 31, 1997 the Company has not drawn
any amounts under the line of credit. In exchange for the line of credit, Biogen
received an exclusive option to obtain an exclusive, worldwide license to OP-1
based small molecule products for the treatment of renal disorders. In the event
Biogen exercises its option, Biogen will forgive the lesser of $10,000,000 or
the principal amount outstanding under the line of credit. The remaining
principal, together with all accrued and unpaid interest, is due and payable
five years from the date of the first advance and may be repaid, at the
Company's option, in either cash, common stock or reduction of royalties due the
Company from Biogen.
As of February 27, 1998 the holders of approximately 4,706,895 shares of
outstanding or issuable Common Stock (the "Registrable Securities") are entitled
to certain rights to register such shares under the Securities Act for sale to
the public. The holders of Registrable Securities include, among others,
Entities associated with Apax Partners, BIL, Entities associated with Domain
Associates, and Biogen. Under the terms of the Second Amended and Restated
Registration Rights Agreement dated as of January 31, 1992, as amended, in the
event the Company proposes at any time to register any of its securities under
the Securities Act for sale for its own account, such holders shall be entitled
to include shares of Common Stock in such registration. Such holders have the
additional right to require the Company, on not more than three occasions,
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<PAGE> 20
whether or not the Company proposes to register any of its Common Stock for
sale, to register all or part of their shares for sale to the public under the
Securities Act, subject to certain conditions and limitations. In addition,
holders of Registrable Securities may require the Company to register all or
part of their shares on Form S-3 (or a successor short form of registration) if
the Company then qualifies for use of such form, subject to certain conditions
and limitations.
The Company has had equity transactions with BIL, Entities associated with
Apax Partners, Dr. Hale individually, Entities associated with Domain Associates
and Biogen, as described above. Mr. Curnock Cook, a director of the Company, is
a director of Rothschild Asset Management Limited, which is an advisor to BIL
and to Rothschild Asset Management (C.I.) Limited, which is the manager of BIL.
Dr. Hale, a director of the Company, is a partner and director of Apax Partners
& Co. Ventures, Ltd., the manager of or an advisor to the Entities associated
with Apax Partners. Mr. Dovey, a director of the Company, is a General Partner
of Domain Associates and a General Partner of the general partner of the
Entities associated with Domain Associates. Mr. Tobin, a director of the
Company, is President and Chief Executive Officer of Biogen.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Compliance with Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of beneficial ownership and reports of changes in
beneficial ownership of Common Stock of the Company. Officers, directors and
greater than ten-percent beneficial owners are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with except (i) Mr.
Curnock Cook, Mr. Greenacre, Dr. Hale and Mr. Tobin each filed one late report
covering the grant of an option to purchase 10,000 shares of Common Stock
pursuant to the Director Plan, (ii) Mr. Dovey filed one late report covering the
grant of an option to purchase 20,000 shares of Common Stock pursuant to the
Company's 1987 Stock Plan, (iii) Dr. Rosenblatt filed two late reports covering
the grant of an option to purchase 10,000 shares of Common Stock pursuant to the
Director Plan and the grant of an option to purchase 10,000 shares of Common
Stock pursuant to the 1987 Stock Plan, and (iv) Mr. Mayhew filed one late report
covering the purchase of 759 shares of Common Stock pursuant to the Employee
Stock Purchase Plan.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, independent accountants, audited the Company's
financial statements for the fiscal year ended December 31, 1997 and has been
selected by the Audit Committee of the Board of Directors as independent
auditors for the current year. The Company expects that representatives of
Deloitte & Touche LLP will be present at the Meeting, with the opportunity to
make a statement if they so desire, and will be available to respond to
questions.
PROPOSAL 1:
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company provides for a
classified Board of Directors. The Board of Directors currently consists of nine
members, classified into three classes as follows: Mr. Dovey, Dr. Hale and Mr.
Tarnow constitute a class with a term which expires at the Meeting (the "Class I
Directors"); Mr. Greenacre, Dr. Rosenblatt and Mr. Tobin constitute a class with
a term ending at the 1999 Annual Meeting (the "Class II Directors"); and Dr.
Cohen, Mr. Curnock Cook and Ms. Jaffe constitute a class with a term ending at
the 2000 Annual Meeting (the "Class III Directors"). At each Annual Meeting of
17
<PAGE> 21
Stockholders, directors are elected for a full term of three years to succeed
those directors whose terms are expiring.
Pursuant to the Company's By-Laws, the Board of Directors on April 16, 1998
voted to nominate and to recommend to the Stockholders the election of Mr.
Dovey, Dr. Hale and Mr. Tarnow to the Board of Directors of the Company to serve
until 2001 in the class of directors whose term shall expire at the 2001 Annual
Meeting of Stockholders or until their respective successors are duly elected
and qualified. The Class II directors (Mr. Greenacre, Dr. Rosenblatt and Mr.
Tobin) and the Class III directors (Dr. Cohen, Mr. Curnock Cook and Ms. Jaffe)
will serve until the Annual Meeting of Stockholders to be held in 1999 and 2000,
respectively, or until their respective successors have been elected and
qualified.
It is the intention of the persons named in the Proxy, unless otherwise
directed, to vote all proxies in favor of the election to the Board of Directors
of the nominees identified below. If any nominee should become unavailable to
serve for any reason, which management does not anticipate, the Proxy will be
voted for any substitute nominee selected by the Board of Directors prior to or
at the Meeting, or the Board of Directors may reduce the membership of the Board
of Directors to the number of nominees available. The Board of Directors has no
reason to believe that any nominee will be unable or unwilling to serve.
A plurality of the votes cast at the Meeting is required to elect each
nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF MR. DOVEY, DR. HALE AND MR.
TARNOW AS DIRECTORS AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR
HEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
PROPOSAL 2:
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
On April 16, 1998, the Board unanimously adopted a resolution proposing
that the Company amend its Restated Certificate of Incorporation to increase the
number of authorized shares of Common Stock by 50,000,000 shares from 50,000,000
to 100,000,000. That proposed amendment to the Company's Restated Certificate of
Incorporation is now being submitted for Stockholder approval.
As of April 24, 1998, the Company had 33,498,394 shares of Common Stock
outstanding. At the present time, there are an insufficient number of shares of
Common Stock authorized to raise capital through equity financings, after
subtracting from the number of authorized shares of Common Stock the number of
shares outstanding and the number of shares issuable under existing
arrangements.
The Board has proposed a substantial increase in authorized Common Stock.
Such an increase is designed to provide flexibility to the Company's management
by making shares available for issuance in connection with capital raising
transactions. However, these additional shares, if issued, will have a
substantial dilutive effect on present Stockholders. In addition, the
authorization of such a substantial increase in the authorized Common Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company.
Management believes that the proposed amendment to the Company's Restated
Certificate of Incorporation will provide several long-term advantages to the
Company and its Stockholders. The passage of the proposal would enable the
Company to pursue acquisitions or enter into transactions which management
believes provide the potential for growth and profit. Additional authorized
shares of Common Stock could be used to raise cash assets through sales of
Common or Preferred Stock to investors. If additional shares are available,
transactions dependent upon the issuance of additional shares would be less
likely to be undermined by delays and uncertainties occasioned by the need to
obtain Stockholder authorization prior to the consummation of such transactions.
The ability to issue shares, as deemed in the Company's best interests by the
Board, will also permit the Company to avoid the expenses which are incurred in
holding special stockholders' meetings in many circumstances.
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<PAGE> 22
Except as described herein, the Company has no specific plans or proposals
for the use of the additional shares of Common Stock, the authorization of which
is sought hereby. In the event the proposal is passed, Stockholder approval of
the issuance of the 50,000,000 additional shares of Common Stock will not be
sought prior to the issuance of additional securities unless such issuances
relate to a merger, consolidation or other transaction which requires
Stockholder approval.
Accordingly, the following resolution will be offered at the Meeting:
RESOLVED, that Article FOURTH of the Restated Certificate of Incorporation
be amended by deleting the first paragraph thereof in its entirety and inserting
in its place the following:
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 110,000,000,
consisting of 100,000,000 shares of Common Stock with a par value of One
Cent ($.01) per share (the "Common Stock") and 10,000,000 shares of
Preferred Stock with a par value of One Cent ($.01) per share (the
"Preferred Stock").
An affirmative vote of a majority of the outstanding Common Stock entitled
to vote at the Meeting is required to approve the increase in the authorized
number of shares of Common Stock of the Company.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF AN AMENDMENT
OF THE FOURTH ARTICLE OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY FROM 50,000,000
SHARES TO 100,000,000 SHARES.
PROPOSAL 3:
APPROVAL OF THE COMPANY'S 1998 STOCK PLAN
GENERAL
In April 1998, the Board of Directors adopted the Company's 1998 Stock Plan
(the "1998 Plan"). The number of shares of Common Stock subject to the 1998 Plan
is 3,000,000 plus the number of shares of Common Stock previously reserved for
the granting of options under the Company's 1987 Stock Plan which are not
granted under that plan or which are not exercised and cease to be outstanding
by reason of cancellation or otherwise. As of February 27, 1998, 973,378 shares
of Common Stock remained available for the granting of options under the 1987
Stock Plan and 4,750,179 were reserved for issuance under outstanding,
unexercised options under that plan. No stock options or grants have been made
to date from the 1998 Plan. The number of shares subject to the 1998 Plan is
subject to adjustment in the case of a stock split, stock dividend, combination,
recapitalization or similar transaction.
By the terms of the 1998 Plan, as approved by the Board of Directors,
Stockholder approval must be obtained within 12 months. All employees, directors
and consultants of the Company (as of February 27, 1998 approximately 220
people) are eligible to participate in the 1998 Plan.
The Board believes that the approval of the 1998 Plan is advisable to give
the Company the flexibility needed to attract, retain and motivate employees,
directors and consultants.
MATERIAL FEATURES OF THE 1998 PLAN
The purpose of the 1998 Plan is to attract, retain and motivate employees,
directors and consultants through the issuance of stock options and to encourage
ownership of shares of Common Stock by employees, directors and consultants of
the Company.
The Board has delegated administration of the 1998 Plan to the Compensation
Committee. Subject to the limitations set forth in the 1998 Plan, the
Compensation Committee has the authority to determine the persons to whom
options and awards will be granted and who may make purchases, the number of
shares to be covered by each option, award or purchase, whether the options
granted are intended to be incentive stock options, the duration and rate of
exercise of each option, the option exercise price per share and the manner of
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<PAGE> 23
exercise, the time, manner and form of payment upon exercise of an option, and
whether restrictions such as repurchase rights of the Company are to be imposed
on shares subject to options, awards and purchases. At the Compensation
Committee's discretion, the exercise price for an option may be paid in cash,
stock or a full recourse interest bearing note.
Options granted under the 1998 Plan may be either (i) options intended to
qualify as "incentive stock options" under Section 422 of the Code, as amended,
or (ii) non-qualified stock options. Incentive stock options may be granted
under the 1998 Plan to employees and officers of the Company and its
subsidiaries. Non-qualified stock options may be granted to consultants
(including directors), employees or officers of the Company and its
subsidiaries. Awards of stock under the 1998 Plan may be made to consultants
(including directors), employees or officers of the Company and its
subsidiaries, and direct purchases of stock may be made by such individuals.
The aggregate fair market value (determined at the time of grant) of shares
of Common Stock for which incentive stock options become exercisable for the
first time in any calendar year (under all stock plans of the Company) may not
exceed $100,000. Incentive stock options granted under the 1998 Plan may not be
granted at a price less than the fair market value of the Common Stock on the
date of grant (or 110% of fair market value in the case of employees or officers
holding more than 10% of the voting stock of the Company). Non-qualified stock
options granted under the 1998 Plan may not be granted at an exercise price less
than the par value per share of the Common Stock. Unless a shorter period is
required by the Compensation Committee, incentive stock options granted under
the 1998 Plan expire not more than ten years from the date of grant (or five
years from the date of grant in the case of employees or officers holding more
than ten percent of the voting stock of the Company), and not more than ten
years and one day in the case of non-qualified options.
An option granted under the 1998 Plan is exercisable, during the
optionholder's lifetime, only by the optionholder and is not transferable by him
except (i) by will or by the laws of descent and distribution or (ii) as
otherwise determined by the Compensation Committee, to the extent permitted
under Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("Rule
16b-3").
An incentive stock option granted under the 1998 Plan may be exercised
after the termination of the optionholder's employment with the Company (other
than by reason of death, disability or termination for cause as defined in the
1998 Plan) to the extent exercisable on the date of such termination, for a
period of 90 days following such termination or for a period of one year in the
case of disability, provided that such incentive stock option has not expired on
the date of such exercise. In the event of the optionholder's death or
disability, incentive stock options may be exercised, to the extent exercisable
on the date of death or disability, by the optionholder's legal representative
at any time prior to the earlier of the option's specified expiration date or
one year from the date of the optionholder's death or disability. In the event
of the optionholder's termination for cause, all outstanding and unexercised
incentive stock options are forfeited. Non-qualified stock options shall be
subject to such termination or cancellation provisions as the Compensation
Committee may specify.
If the Company is to be consolidated with or acquired by another entity in
a merger, sale of all or substantially all of the Company's assets or otherwise
(an "Acquisition"), an optionee's rights with respect to options granted under
the 1998 Plan will be appropriately adjusted. The committee of the Company or
the Board of Directors of any entity assuming the obligations of the Company
(the "Successor Board") shall, as to the outstanding options, either (i) make
appropriate provision for the continuation of such options by substituting on an
equitable basis for the shares then subject to such options the consideration
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition; or (ii) upon written notice to the optionees, provide that
all options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the options shall terminate; or (iii) terminate all options in exchange for a
cash payment equal to the excess of the fair market value of the shares subject
to such options (to the extent then exercisable) over the exercise price
thereof. In the event of a proposed dissolution or liquidation of the Company,
each option will terminate immediately prior to the consummation of such
proposed action or at such other time and subject to such other conditions as
shall be determined by the Committee.
20
<PAGE> 24
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of certain U.S. federal income tax
consequences of the issuance and exercise of options under the 1998 Plan:
Incentive Stock Options. An incentive stock option does not result in
taxable income to the option holder or deduction to the Company at the time it
is granted or exercised, provided that no disposition is made by the optionee of
the shares acquired pursuant to the option within two years after the date of
granting of the option nor within one year after the date of issuance of shares
to him (the "ISO holding period"). However, the difference between the fair
market value of the stock on the date of exercise and the option price therefor
will be an item of tax preference included in "alternative minimum taxable
income". Upon disposition of the stock after the expiration of the ISO holding
period, the optionee will generally recognize long term capital gain or loss
based on the difference between the disposition proceeds and the option price
paid for the stock. If the stock is disposed of prior to the expiration of the
ISO holding period, the optionee generally will recognize taxable compensation,
and the Company will have a corresponding deduction, in the year of the
disposition, equal to the excess of the fair market value of the stock on the
date of exercise of the option over the option price. Any additional gain
realized on the disposition will normally constitute capital gain. If the amount
realized upon such a disqualifying disposition is less than fair market value of
the stock on the date of exercise, the amount of compensation income will be
limited to the excess of the amount realized over the optionee's adjusted basis
in the stock.
Non-Qualified Stock Options. The grant of a non-qualified option will not
result in taxable income to the optionee or deduction to the Company at the time
of grant. The optionee will recognize taxable compensation, and the Company will
have a corresponding deduction, at the time of exercise in the amount of the
excess of the then fair market value of the shares acquired over the option
price. Upon disposition of the shares, the optionee will generally realize
capital gain or loss, and his basis for determining gain or loss will be the sum
of the option price paid for the stock plus the amount of compensation income
recognized on exercise of the option.
The affirmative vote of a majority of the votes present or represented and
entitled to vote at the Annual Meeting is required to approve the 1998 Plan.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE 1998 STOCK PLAN.
PROPOSAL 4:
AMENDMENT OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted and approved by the Board of Directors and the Stockholders of the
Company in November 1992. Prior to April 16, 1998, a total of 500,000 shares of
Common Stock had been authorized for issuance under the Purchase Plan. On April
16, 1998, the Board of Directors voted to approve an amendment to the Purchase
Plan to increase by 250,000 to 750,000 the aggregate number of shares of Common
Stock which may be purchased by eligible employees.
By the terms of the Purchase Plan, the Purchase Plan may be amended by the
Board of Directors or the Compensation Committee, except that Stockholder
approval must be obtained within 12 months before or after the Board adopts a
resolution authorizing an increase in the total number of shares that may be
issued under the Purchase Plan and other amendments including any amendment
which requires Stockholder approval to comply with Rule 16b-3.
This amendment is being submitted for Stockholder approval at the Annual
Meeting to ensure continued qualification of the Purchase Plan under Rule 16b-3.
The Board believes that the increase in the number of shares reserved for
issuance under the Purchase Plan is advisable to give the Company the
flexibility needed to attract, retain and motivate employees.
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<PAGE> 25
MATERIAL FEATURES OF THE EMPLOYEE STOCK PURCHASE PLAN
All employees of the Company who have been employed for at least three
months by the Company and work at least 20 hours per week or at least 5 months
per calendar year are eligible to participate in the Purchase Plan, except for
persons who are deemed under Section 423(b)(3) of the Code to own 5% or more of
the voting stock of the Company (as of February 27, 1998, 208 people). The
Purchase Plan is administered by the Compensation Committee.
The Purchase Plan provides for two "purchase periods" within each year, the
first commencing on January 1 of each year and continuing through June 30 of
such year, and the second commencing on July 1 of each year and continuing
through December 31 of such year (each, an "Exercise Period"). Eligible
employees may elect to become participants in the Purchase Plan by enrolling
prior to each semi-annual date for the granting of an option to purchase shares
under the Purchase Plan. The first day of each Exercise Period is defined as a
Grant Date, and the last day of each Exercise Period is defined as an Exercise
Date. Shares are purchased through the accumulation of payroll deductions of not
less than 1% nor more than 15% of each participant's compensation (up to a
maximum of $21,250 per calendar year). The number of shares to be purchased is
determined by dividing the participant's balance in the plan account on the last
day of the purchase period by the purchase price per share for the stock. The
purchase price per share will be the lower of 85% of the fair market value per
share of the Common Stock as of the applicable Grant Date or 85% of the fair
market value per share of the Common Stock as of the applicable Exercise Date.
An option granted under the Purchase Plan is not transferable by the participant
except by will or by the laws of descent and distribution. Employees may cease
their participation in the offering at any time during the offering period, but
will thereby be ineligible to participate in the next following offering period.
Participation automatically ceases on termination of employment with the
Company.
The affirmative vote of a majority of the votes present or represented and
entitled to vote at the Meeting is required to approve the amendment to the
Purchase Plan which increases the aggregate number of shares of Common Stock
available under the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF THE AMENDMENT
TO THE EMPLOYEE STOCK PURCHASE PLAN TO INCREASE BY 250,000 SHARES THE AGGREGATE
NUMBER OF SHARES WHICH MAY BE PURCHASED BY ELIGIBLE EMPLOYEES UNDER THE EMPLOYEE
STOCK PURCHASE PLAN, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR
OF SUCH AMENDMENT UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
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<PAGE> 26
STOCKHOLDER PROPOSALS AND OTHER MATTERS
In order to be considered for inclusion in the Proxy Statement and Form of
Proxy distributed to Stockholders prior to the Annual Meeting of Stockholders in
1999, a stockholder proposal must be received by the Company no later than
January 14, 1999. Requests should be delivered in writing to Wayne E. Mayhew
III, Vice President and Chief Financial Officer, Treasurer and Secretary,
Creative BioMolecules, Inc., 45 South Street, Hopkinton, Massachusetts 01748.
The Board of Directors does not know of any other business to be acted upon
at the Annual Meeting other than that which is explained in this Proxy
Statement. If any other business calling for a vote of the Stockholders is
properly presented at the Annual Meeting, the persons holding the proxies will
vote your shares in accordance with their best judgment on such matters.
In order that your shares may be represented if you do not plan to attend
the Annual Meeting, and in order to assure the required quorum, please fill out,
sign, date and return your Proxy promptly.
By Order of the Board of Directors
/s/ Wayne E. Mayhew III
Wayne E. Mayhew III
Secretary
May 14, 1998
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 1997 (OTHER THAN THE EXHIBITS THERETO) FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, WHICH PROVIDES ADDITIONAL INFORMATION ABOUT THE COMPANY, IS
AVAILABLE TO BENEFICIAL HOLDERS OF THE COMPANY'S COMMON STOCK WITHOUT CHARGE
UPON WRITTEN OR ORAL REQUEST TO WAYNE E. MAYHEW III, VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, TREASURER AND SECRETARY, CREATIVE BIOMOLECULES, INC., 45
SOUTH STREET, HOPKINTON, MASSACHUSETTS 01748, PHONE (508) 782-1100.
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<PAGE> 27
Exhibit A
CREATIVE BIOMOLECULES, INC.
1998 STOCK PLAN
1. DEFINITIONS.
Unless otherwise specified or unless the context otherwise requires,
the following terms, as used in this Creative BioMolecules, Inc. 1998
Stock Plan, have the following meanings:
ADMINISTRATOR means the Board of Directors, unless it has
delegated power to act on its behalf to the Committee, in
which case the Administrator means the Committee.
AFFILIATE means a corporation which, for purposes of Section
424 of the Code, is a parent or subsidiary of the Company,
direct or indirect.
BOARD OF DIRECTORS means the Board of Directors of the
Company.
CODE means the United States Internal Revenue Code of 1986, as
amended.
COMMITTEE means the committee of the Board of Directors to
which the Board of Directors has delegated power to act under
or pursuant to the provisions of the Plan.
COMMON STOCK means shares of the Company's common stock, $.01
par value per share.
COMPANY means Creative BioMolecules, Inc., a Delaware
corporation.
DISABILITY or DISABLED means permanent and total disability as
defined in Section 22(e)(3) of the Code.
FAIR MARKET VALUE of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities
exchange or traded in the over-the-counter market and sales
prices are regularly reported for the Common Stock, the
average of the high and low prices of the Common Stock on the
composite tape or other comparable reporting system for the
trading day immediately preceding the applicable date;
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if
sales prices are not regularly reported for the Common Stock
for the trading day referred to in clause (1), and if bid and
asked prices for the Common
<PAGE> 28
Stock are regularly reported, the mean between the bid and the
asked price for the Common Stock at the close of trading in
the over-the-counter market for the trading day on which
Common Stock was traded immediately preceding the applicable
date; and
(3) If the Common Stock is neither listed on a national
securities exchange nor traded in the over-the-counter market,
such value as the Administrator, in good faith, shall
determine.
ISO means an option meant to qualify as an incentive stock
option under Section 422 of the Code.
KEY EMPLOYEE means an employee of the Company or of an
Affiliate (including, without limitation, an employee who is
also serving as an officer or director of the Company or of an
Affiliate), designated by the Administrator to be eligible to
be granted one or more Stock Rights under the Plan.
NON-QUALIFIED OPTION means an option which is not intended to
qualify as an ISO.
OPTION means an ISO or Non-Qualified Option granted under the
Plan.
OPTION AGREEMENT means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as
the Administrator shall approve.
PARTICIPANT means a Key Employee, director or consultant to
whom one or more Stock Rights are granted under the Plan. As
used herein, "Participant" shall include "Participant's
Survivors" where the context requires.
PLAN means this Creative BioMolecules, Inc. 1998 Stock Plan.
SHARES means shares of the Common Stock as to which Stock
Rights have been or may be granted under the Plan or any
shares of capital stock into which the Shares are changed or
for which they are exchanged within the provisions of
Paragraph 3 of the Plan. The Shares issued under the Plan may
be authorized and unissued shares or shares held by the
Company in its treasury, or both.
STOCK GRANT means a grant by the Company of Shares under the
Plan.
STOCK GRANT AGREEMENT means an agreement between the Company
and a Participant delivered pursuant to the Plan, in such form
as the Administrator shall approve.
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STOCK RIGHT means a right to Shares of the Company granted
pursuant to the Plan -- an ISO, a Non-Qualified Option or a
Stock Grant.
SURVIVORS means a deceased Participant's legal representatives
and/or any person or persons who acquired the Participant's
rights to a Stock Right by will or by the laws of descent and
distribution.
2. PURPOSES OF THE PLAN.
The Plan is intended to encourage ownership of Shares by Key Employees
and directors of and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the granting of ISOs,
Non-Qualified Options and Stock Grants.
3. SHARES SUBJECT TO THE PLAN.
The number of Shares which may be issued from time to time pursuant to
this Plan shall be three million (3,000,000) plus such additional number of
Shares as shall be available for issuance under the Company's 1987 Stock Plan
(in accordance with Section 4 thereof) as of the date of termination of such
Plan (in accordance with Section 15 thereof), or the equivalent of such number
of Shares after the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination, recapitalization or
similar transaction in accordance with Paragraph 23 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, or if the
Company shall reacquire any Shares issued pursuant to a Stock Grant, the Shares
which were subject to such Option and any Shares so reacquired by the Company
shall be available for the granting of other Stock Rights under the Plan. Any
Option shall be treated as "outstanding" until such Option is exercised in full,
or terminates or expires under the provisions of the Plan, or by agreement of
the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
The Administrator of the Plan will be the Board of Directors, except to
the extent the Board of Directors delegates its authority to the Committee, in
which case the Committee shall be the Administrator. Subject to the provisions
of the Plan, the Administrator is authorized to:
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a. Interpret the provisions of the Plan or of any Option or
Stock Grant and to make all rules and determinations
which it deems necessary or advisable for the
administration of the Plan;
b. Determine which employees of the Company or of an
Affiliate shall be designated as Key Employees and which
of the Key Employees, directors and consultants shall be
granted Stock Rights;
c. Determine the number of Shares for which a Stock Right or
Stock Rights shall be granted, provided, however, that in no
event shall Stock Rights with respect to more than 1,000,000
shares be granted to any Participant in any fiscal year; and
d. Specify the terms and conditions upon which a Stock Right
or Stock Rights may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
The Administrator will, in its sole discretion, name the Participants
in the Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time a Stock
Right is granted. Notwithstanding the foregoing, the Administrator may authorize
the grant of a Stock Right to a person not then an employee, director or
consultant of the Company or of an Affiliate; provided, however, that the actual
grant of such Stock Right shall be conditioned upon such person becoming
eligible to become a Participant at or prior to the time of the delivery of the
Agreement evidencing such Stock Right. ISOs may be granted only to Key
Employees. Non-Qualified Options and Stock Grants may be granted to any Key
Employee, director or consultant of the Company or an Affiliate. The granting of
any Stock Right to any individual shall neither entitle that individual to, nor
disqualify him or her from, participation in any other grant of Stock Rights.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required
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by law or requested by the Company, by the Participant. The Administrator may
provide that Options be granted subject to such terms and conditions, consistent
with the terms and conditions specifically required under this Plan, as the
Administrator may deem appropriate including, without limitation, subsequent
approval by the shareholders of the Company of this Plan or any amendments
thereto.
A. NON-QUALIFIED OPTIONS: Each Option intended to be a
Non-Qualified Option shall be subject to the terms and
conditions which the Administrator determines to be
appropriate and in the best interest of the Company,
subject to the following minimum standards for any such
Non-Qualified Option:
a. Option Price: Each Option Agreement shall state the
option price (per share) of the Shares covered by
each Option, which option price shall be determined
by the Administrator but shall not be less than the
par value per share of Common Stock.
b. Each Option Agreement shall state the number of
Shares to which it pertains;
c. Each Option Agreement shall state the date or dates
on which it first is exercisable and the date after
which it may no longer be exercised, and may
provide that the Option rights accrue or become
exercisable in installments over a period of months
or years, or upon the occurrence of certain
conditions or the attainment of stated goals or
events; and
d. Exercise of any Option may be conditioned upon the
Participant's execution of a Share purchase agreement
in form satisfactory to the Administrator providing
for certain protections for the Company and its other
shareholders, including requirements that:
i. The Participant's or the Participant's
Survivors' right to sell or transfer the
Shares may be restricted; and
ii. The Participant or the Participant's
Survivors may be required to execute letters
of investment intent and must also
acknowledge that the Shares will bear
legends noting any applicable restrictions.
B. ISOs: Each Option intended to be an ISO shall be issued
only to a Key Employee and be subject to the following
terms and conditions, with such additional restrictions
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or changes as the Administrator determines are appropriate but
not in conflict with Section 422 of the Code and relevant
regulations and rulings of the Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum
standards required of Non-Qualified Options, as
described in Paragraph 6(A) above, except clauses
(a) thereunder.
b. Option Price: Immediately before the Option is
granted, if the Participant owns, directly or by
reason of the applicable attribution rules in
Section 424(d) of the Code:
i. Ten percent (10%) OR LESS of the total
combined voting power of all classes of
stock of the Company or an Affiliate, the
Option price per share of the Shares covered
by each Option shall not be less than one
hundred percent (100%) of the Fair Market
Value per share of the Shares on the date of
the grant of the Option.
ii. More than ten percent (10%) of the total
combined voting power of all classes of
stock of the Company or an Affiliate, the
Option price per share of the Shares covered
by each Option shall not be less than one
hundred ten percent (110%) of the said Fair
Market Value on the date of grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) OR LESS of the total
combined voting power of all classes of
stock of the Company or an Affiliate, each
Option shall terminate not more than ten
(10) years from the date of the grant or at
such earlier time as the Option Agreement
may provide.
ii. More than ten percent (10%) of the total
combined voting power of all classes of
stock of the Company or an Affiliate, each
Option shall terminate not more than five
(5) years from the date of the grant or at
such earlier time as the Option Agreement
may provide.
d. Limitation on Yearly Exercise: The Option
Agreements shall restrict the amount of Options
which may be exercisable in any calendar year
(under this or any other ISO plan of the Company or
an Affiliate) so that the aggregate Fair Market
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<PAGE> 33
Value (determined at the time each ISO is granted) of
the stock with respect to which ISOs are exercisable
for the first time by the Participant in any calendar
year does not exceed one hundred thousand dollars
($100,000), provided that this subparagraph (d) shall
have no force or effect if its inclusion in the Plan
is not necessary for Options issued as ISOs to
qualify as ISOs pursuant to Section 422(d) of the
Code.
7. TERMS AND CONDITIONS OF STOCK GRANTS.
Each offer of a Stock Grant to a Participant shall state the date prior
to which the Stock Grant must be accepted by the Participant, and the principal
terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Grant Agreement shall be in a form
approved by the Administrator and shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
(a) Each Stock Grant Agreement shall state the purchase price (per
share), if any, of the Shares covered by each Stock Grant,
which purchase price shall be determined by the Administrator
but shall not be less than the minimum consideration required
by the Massachusetts General Corporation Law on the date of
the grant of the Stock Grant;
(b) Each Stock Grant Agreement shall state the number of Shares to
which the Stock Grant pertains; and
(c) Each Stock Grant Agreement shall include the terms of any
right of the Company to reacquire the Shares subject to the
Stock Grant, including the time and events upon which such
rights shall accrue and the purchase price therefor, if any.
8. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
An Option (or any part or installment thereof) shall be exercised by
giving written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain
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<PAGE> 34
any representation required by the Plan or the Option Agreement. Payment of the
purchase price for the Shares as to which such Option is being exercised shall
be made (a) in United States dollars in cash or by check, or (b) at the
discretion of the Administrator, through delivery of shares of Common Stock
having a Fair Market Value equal as of the date of the exercise to the cash
exercise price of the Option, or (c) at the discretion of the Administrator, by
having the Company retain from the shares otherwise issuable upon exercise of
the Option, a number of shares having a Fair Market Value equal as of the date
of exercise to the exercise price of the Option, or (d) at the discretion of the
Administrator, by delivery of the grantee's personal recourse note bearing
interest payable not less than annually at no less than 100% of the applicable
Federal rate, as defined in Section 1274(d) of the Code, or (e) at the
discretion of the Administrator, in accordance with a cashless exercise program
established with a securities brokerage firm, and approved by the Administrator,
or (f) at the discretion of the Administrator, by any combination of (a), (b),
(c), (d) and (e) above. Notwithstanding the foregoing, the Administrator shall
accept only such payment on exercise of an ISO as is permitted by Section 422 of
the Code.
The Company shall then reasonably promptly deliver the Shares as to
which such Option was exercised to the Participant (or to the Participant's
Survivors, as the case may be). In determining what constitutes "reasonably
promptly," it is expressly understood that the issuance and delivery of the
Shares may be delayed by the Company in order to comply with any law or
regulation (including, without limitation, state securities or "blue sky" laws)
which requires the Company to take any action with respect to the Shares prior
to their issuance. The Shares shall, upon delivery, be evidenced by an
appropriate certificate or certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of
exercise of any installment of any Option; provided that the Administrator shall
not accelerate the exercise date of any installment of any Option granted to any
Key Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 26) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in Paragraph
6.B.d.
The Administrator may, in its discretion, amend any term or condition
of an outstanding Option provided (i) such term or condition as amended is
permitted by the Plan, (ii) any such amendment shall be made only with the
consent of the Participant to whom the Option was granted, or in the event of
the death of the Participant, the Participant's Survivors, if the amendment is
adverse to the Participant, and (iii) any such amendment of any ISO shall be
made only after the Administrator, after consulting the counsel for the Company,
determines whether such amendment would constitute a "modification" of any
Option which is an ISO (as that
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<PAGE> 35
term is defined in Section 424(h) of the Code) or would cause any adverse tax
consequences for the holder of such ISO.
9. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES.
A Stock Grant (or any part or installment thereof) shall be accepted by
executing the Stock Grant Agreement and delivering it to the Company at its
principal office address, together with provision for payment of the full
purchase price, if any, in accordance with this Paragraph for the Shares as to
which such Stock Grant is being accepted, and upon compliance with any other
conditions set forth in the Stock Grant Agreement. Payment of the purchase price
for the Shares as to which such Stock Grant is being accepted shall be made (a)
in United States dollars in cash or by check, or (b) at the discretion of the
Administrator, through delivery of shares of Common Stock having a fair market
value equal as of the date of acceptance of the Stock Grant to the purchase
price of the Stock Grant determined in good faith by the Administrator, or (c)
at the discretion of the Administrator, by delivery of the grantee's personal
recourse note bearing interest payable not less than annually at no less than
100% of the applicable Federal rate, as defined in Section 1274(d) of the Code,
or (d) at the discretion of the Administrator, by any combination of (a), (b)
and (c) above.
The Company shall then reasonably promptly deliver the Shares as to
which such Stock Grant was accepted to the Participant (or to the Participant's
Survivors, as the case may be), subject to any escrow provision set forth in the
Stock Grant Agreement. In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Administrator may, in its discretion, amend any term or condition
of an outstanding Stock Grant or Stock Grant Agreement provided (i) such term or
condition as amended is permitted by the Plan, and (ii) any such amendment shall
be made only with the consent of the Participant to whom the Stock Grant was
made, if the amendment is adverse to the Participant.
10. RIGHTS AS A SHAREHOLDER.
No Participant to whom a Stock Right has been granted shall have rights
as a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise of the Option or acceptance of the Stock Grant and tender of
the full purchase price, if any, for the Shares being purchased pursuant to such
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<PAGE> 36
exercise or acceptance and registration of the Shares in the Company's share
register in the name of the Participant.
11. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
By its terms, a Stock Right granted to a Participant shall not be
transferable by the Participant other than (i) by will or by the laws of descent
and distribution, or (ii) as otherwise determined by the Administrator and set
forth in the applicable Option Agreement or Stock Grant Agreement. The
designation of a beneficiary of a Stock Right by a Participant shall not be
deemed a transfer prohibited by this Paragraph. Except as provided above, a
Stock Right shall only be exercisable or may only be accepted, during the
Participant's lifetime, by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon a Stock Right, shall be null and void.
12. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR
DEATH OR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement in the
event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised an Option, the following rules apply:
a. A Participant who ceases to be an employee, director or
consultant of the Company or of an Affiliate (for any
reason other than termination "for cause", Disability, or
death for which events there are special rules in
Paragraphs 13, 14, and 15, respectively), may exercise
any Option granted to him or her to the extent that the
Option is exercisable on the date of such termination of
service, but only within such term as the Administrator
has designated in the pertinent Option Agreement.
b. Except as provided in Subparagraph (c) below, or Paragraph 14
or 15, in no event may an Option Agreement provide, if an
Option is intended to be an ISO, that the time for exercise be
later than three (3) months after the Participant's
termination of employment.
c. The provisions of this Paragraph, and not the provisions
of Paragraph 14 or 15, shall apply to a Participant who
subsequently becomes Disabled or dies after the
termination of employment, director status or
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<PAGE> 37
consultancy, provided, however, in the case of a Participant's
Disability or death within three (3) months after the
termination of employment, director status or consultancy, the
Participant or the Participant's Survivors may exercise the
Option within one (1) year after the date of the Participant's
termination of employment, but in no event after the date of
expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent
to a Participant's termination of employment, termination of
director status or termination of consultancy, but prior to
the exercise of an Option, the Board of Directors determines
that, either prior or subsequent to the Participant's
termination, the Participant engaged in conduct which would
constitute "cause", then such Participant shall forthwith
cease to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under the
Plan who is absent from work with the Company or with an
Affiliate because of temporary disability (any disability
other than a permanent and total Disability as defined in
Paragraph 1 hereof), or who is on leave of absence for any
purpose, shall not, during the period of any such absence, be
deemed, by virtue of such absence alone, to have terminated
such Participant's employment, director status or consultancy
with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide.
f. Except as required by law or as set forth in the pertinent
Option Agreement, Options granted under the Plan shall not be
affected by any change of a Participant's status within or
among the Company and any Affiliates, so long as the
Participant continues to be an employee, director or
consultant of the Company or any Affiliate.
13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE "FOR CAUSE".
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the time the
Participant is notified his or her service is terminated "for
cause" will immediately be forfeited.
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b. For purposes of this Plan, "cause" shall include (and is not
limited to) dishonesty with respect to the Company or any
Affiliate, insubordination, substantial malfeasance or
non-feasance of duty, unauthorized disclosure of confidential
information, and conduct substantially prejudicial to the
business of the Company or any Affiliate. The determination of
the Administrator as to the existence of "cause" will be
conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to
a Participant's termination of service, nor is it necessary
that the Administrator's finding of "cause" occur prior to
termination. If the Administrator determines, subsequent to a
Participant's termination of service but prior to the exercise
of an Option, that either prior or subsequent to the
Participant's termination the Participant engaged in conduct
which would constitute "cause", then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting
definition of "cause" for termination and which is in effect
at the time of such termination, shall supersede the
definition in this Plan with respect to such Participant.
14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability may exercise any Option granted to
such Participant:
a. To the extent exercisable but not exercised on the date of
Disability; and
b. In the event rights to exercise the Option accrue
periodically, to the extent of a pro rata portion of any
additional rights as would have accrued had the Participant
not become Disabled prior to the end of the accrual period
which next ends following the date of Disability. The
proration shall be based upon the number of days of such
accrual period prior to the date of Disability.
A Disabled Participant may exercise such rights only within the period
ending one (1) year after the date of the Participant's termination of
employment, directorship or consultancy, as the case may be, notwithstanding
that the Participant might have been able to exercise the Option as to some or
all of the Shares on a later
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<PAGE> 39
date if the Participant had not become disabled and had continued to be an
employee, director or consultant or, if earlier, within the originally
prescribed term of the Option.
The Administrator shall make the determination both of whether
Disability has occurred and the date of its occurrence (unless a procedure for
such determination is set forth in another agreement between the Company and
such Participant, in which case such procedure shall be used for such
determination). If requested, the Participant shall be examined by a physician
selected or approved by the Administrator, the cost of which examination shall
be paid for by the Company.
15. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant while the Participant is an employee,
director or consultant of the Company or of an Affiliate, such Option may be
exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of
death; and
b. In the event rights to exercise the Option accrue
periodically, to the extent of a pro rata portion of any
additional rights which would have accrued had the Participant
not died prior to the end of the accrual period which next
ends following the date of death. The proration shall be based
upon the number of days of such accrual period prior to the
Participant's death.
If the Participant's Survivors wish to exercise the Option, they must
take all necessary steps to exercise the Option within one (1) year after the
date of death of such Participant, notwithstanding that the decedent might have
been able to exercise the Option as to some or all of the Shares on a later date
if he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
16. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS.
In the event of a termination of service (whether as an employee,
director or consultant) with the Company or an Affiliate for any reason before
the Participant has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 16 and Paragraph 17 below, a Participant
to whom a Stock Grant has been offered under the Plan
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<PAGE> 40
who is absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total Disability
as defined in Paragraph 1 hereof), or who is on leave of absence for any
purpose, shall not, during the period of any such absence, be deemed, by virtue
of such absence alone, to have terminated such Participant's employment,
director status or consultancy with the Company or with an Affiliate, except as
the Administrator may otherwise expressly provide.
In addition, for purposes of this Paragraph 16 and Paragraph 17 below,
any change of employment or other service within or among the Company and any
Affiliates shall not be treated as a termination of employment, director status
or consultancy so long as the Participant continues to be an employee, director
or consultant of the Company or any Affiliate.
17. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE"
OR DEATH OR DISABILITY.
Except as otherwise provided in the pertinent Stock Grant Agreement, in
the event of a termination of service (whether as an employee, director or
consultant), other than termination "for cause," Disability, or death for which
events there are special rules in Paragraphs 18, 19, and 20, respectively,
before all Company rights of repurchase shall have lapsed, then the Company
shall have the right to repurchase that number of Shares subject to a Stock
Grant as to which the Company's repurchase rights have not lapsed.
18. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE "FOR CAUSE".
Except as otherwise provided in the pertinent Stock Grant Agreement,
the following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause":
a. All Shares subject to any Stock Grant shall be immediately
subject to repurchase by the Company at the purchase price, if
any, thereof.
b. For purposes of this Plan, "cause" shall include (and is not
limited to) dishonesty with respect to the employer,
insubordination, substantial malfeasance or non-feasance of
duty, unauthorized disclosure of confidential information, and
conduct substantially prejudicial to the business of the
Company or any Affiliate. The determination of the
Administrator as to the existence of "cause" will be
conclusive on the Participant and the Company.
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c. "Cause" is not limited to events which have occurred prior to
a Participant's termination of service, nor is it necessary
that the Administrator's finding of "cause" occur prior to
termination. If the Administrator determines, subsequent to a
Participant's termination of service, that either prior or
subsequent to the Participant's termination the Participant
engaged in conduct which would constitute "cause," then the
Company's right to repurchase all of such Participant's Shares
shall apply.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting
definition of "cause" for termination and which is in effect
at the time of such termination, shall supersede the
definition in this Plan with respect to such Participant.
19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Stock Grant Agreement,
the following rules apply if a Participant ceases to be an employee, director or
consultant of the Company or of an Affiliate by reason of Disability: to the
extent the Company's rights of repurchase have not lapsed on the date of
Disability, they shall be exercisable; provided, however, that in the event such
rights of repurchase lapse periodically, such rights shall lapse to the extent
of a pro rata portion of the Shares subject to such Stock Grant as would have
lapsed had the Participant not become Disabled prior to the end of the vesting
period which next ends following the date of Disability. The proration shall be
based upon the number of days of such vesting period prior to the date of
Disability.
The Administrator shall make the determination both of whether
Disability has occurred and the date of its occurrence (unless a procedure for
such determination is set forth in another agreement between the Company and
such Participant, in which case such procedure shall be used for such
determination). If requested, the Participant shall be examined by a physician
selected or approved by the Administrator, the cost of which examination shall
be paid for by the Company.
20. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR
CONSULTANT.
Except as otherwise provided in the pertinent Stock Grant Agreement,
the following rules apply in the event of the death of a Participant while the
Participant is an employee, director or consultant of the Company or of an
Affiliate: to the extent the
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<PAGE> 42
Company's rights of repurchase have not lapsed on the date of death, they shall
be exercisable; provided, however, that in the event such rights of repurchase
lapse periodically, such rights shall lapse to the extent of a pro rata portion
of the Shares subject to such Stock Grant as would have lapsed had the
Participant not died prior to the end of the vesting period which next ends
following the date of death. The proration shall be based upon the number of
days of such vesting period prior to the Participant's death.
21. PURCHASE FOR INVESTMENT.
Unless the offering and sale of the Shares to be issued upon the
particular exercise or acceptance of a Stock Right shall have been effectively
registered under the Securities Act of 1933, as now in force or hereafter
amended (the "1933 Act"), the Company shall be under no obligation to issue the
Shares covered by such exercise unless and until the following conditions have
been fulfilled:
a. The person(s) who exercise(s) or accept(s) such Stock Right
shall warrant to the Company, prior to the receipt of such
Shares, that such person(s) are acquiring such Shares for
their own respective accounts, for investment, and not with a
view to, or for sale in connection with, the distribution of
any such Shares, in which event the person(s) acquiring such
Shares shall be bound by the provisions of the following
legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or
such grant:
"The shares represented by this certificate have been
taken for investment and they may not be sold or
otherwise transferred by any person, including a
pledgee, unless (1) either (a) a Registration
Statement with respect to such shares shall be
effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an
opinion of counsel satisfactory to it that an
exemption from registration under such Act is then
available, and (2) there shall have been compliance
with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be
issued upon such particular exercise or acceptance in
compliance with the 1933 Act without registration thereunder.
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<PAGE> 43
22. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised and all
Stock Grants which have not been accepted will terminate and become null and
void; provided, however, that if the rights of a Participant or a Participant's
Survivors have not otherwise terminated and expired, the Participant or the
Participant's Survivors will have the right immediately prior to such
dissolution or liquidation to exercise or accept any Stock Right to the extent
that the Stock Right is exercisable or subject to acceptance as of the date
immediately prior to such dissolution or liquidation.
23. ADJUSTMENTS.
Upon the occurrence of any of the following events, a Participant's
rights with respect to any Stock Right granted to him or her hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
pertinent Option Agreement or Stock Grant Agreement:
A. STOCK DIVIDENDS AND STOCK SPLITS. If (i) the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise or acceptance of such Stock Right may be
appropriately increased or decreased proportionately, and appropriate
adjustments may be made in the purchase price per share to reflect such events.
The number of Shares subject to options to be granted to directors pursuant to
Paragraph 6(A)(e) and the number of Shares subject to the limitation in
Paragraph 4(c) shall also be proportionately adjusted upon the occurrence of
such events.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Administrator or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made
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<PAGE> 44
fully exercisable for purposes of this Subparagraph) at the end of which period
the Options shall terminate; or (iii) terminate all Options in exchange for a
cash payment equal to the excess of the Fair Market Value of the Shares subject
to such Options (either to the extent then exercisable or, at the discretion of
the Administrator, all Options being made fully exercisable for purposes of this
Subparagraph) over the exercise price thereof.
With respect to outstanding Stock Grants, the Administrator or the
Successor Board, shall either (i) make appropriate provisions for the
continuation of such Stock Grants by substituting on an equitable basis for the
Shares then subject to such Stock Grants either the consideration payable with
respect to the outstanding Shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Stock Grants must be
accepted (to the extent then subject to acceptance) within a specified number of
days of the date of such notice, at the end of which period the offer of the
Stock Grants shall terminate; or (iii) terminate all Stock Grants in exchange
for a cash payment equal to the excess of the Fair Market Value of the Shares
subject to such Stock Grants over the purchase price thereof, if any. In
addition, in the event of an Acquisition, the Administrator may waive any or all
Company repurchase rights with respect to outstanding Stock Grants.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in Subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant upon exercising or accepting a Stock Right shall be
entitled to receive for the purchase price, if any, paid upon such exercise or
acceptance the securities which would have been received if such Stock Right had
been exercised or accepted prior to such recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments
made pursuant to Subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Administrator
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments, unless
the holder of an ISO specifically requests in writing that such adjustment be
made and such writing indicates that the holder has full knowledge of the
consequences of such "modification" on his or her income tax treatment with
respect to the ISO.
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24. ISSUANCES OF SECURITIES.
Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Stock Rights. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company
prior to any issuance of Shares pursuant to a Stock Right.
25. FRACTIONAL SHARES.
No fractional shares shall be issued under the Plan and the person
exercising a Stock Right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.
26. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.
The Administrator, at the written request of any Participant, may in
its discretion take such actions as may be necessary to convert such
Participant's ISOs (or any portions thereof) that have not been exercised on the
date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the Participant is an employee of
the Company or an Affiliate at the time of such conversion. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Administrator (with the consent of the Participant) may
impose such conditions on the exercise of the resulting Non-Qualified Options as
the Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
27. WITHHOLDING.
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise
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<PAGE> 46
or acceptance of a Stock Right or in connection with a Disqualifying Disposition
(as defined in Paragraph 28) or upon the lapsing of any right of repurchase, the
Company may withhold from the Participant's compensation, if any, or may require
that the Participant advance in cash to the Company, or to any Affiliate of the
Company which employs or employed the Participant, the amount of such
withholdings unless a different withholding arrangement, including the use of
shares of the Company's Common Stock or a promissory note, is authorized by the
Administrator (and permitted by law). For purposes hereof, the fair market value
of the shares withheld for purposes of payroll withholding shall be determined
in the manner provided in Paragraph 1 above, as of the most recent practicable
date prior to the date of exercise. If the fair market value of the shares
withheld is less than the amount of payroll withholdings required, the
Participant may be required to advance the difference in cash to the Company or
the Affiliate employer. The Administrator in its discretion may condition the
exercise of an Option for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
28. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each Key Employee who receives an ISO must agree to notify the Company
in writing immediately after the Key Employee makes a Disqualifying Disposition
of any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
29. TERMINATION OF THE PLAN.
The Plan will terminate on April 16, 2008, the date which is ten (10)
years from the EARLIER of the date of its adoption and the date of its approval
by the shareholders of the Company. The Plan may be terminated at an earlier
date by vote of the shareholders of the Company; provided, however, that any
such earlier termination shall not affect any Option Agreements or Stock Grant
Agreements executed prior to the effective date of such termination.
30. AMENDMENT OF THE PLAN AND AGREEMENTS.
The Plan may be amended by the shareholders of the Company. The Plan
may also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Stock Rights granted under
the Plan or Stock Rights to be granted under the Plan for favorable federal
income tax
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<PAGE> 47
treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, and to the extent
necessary to qualify the shares issuable upon exercise or acceptance of any
outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan
for listing on any national securities exchange or quotation in any national
automated quotation system of securities dealers. Any amendment approved by the
Administrator which the Administrator determines is of a scope that requires
shareholder approval shall be subject to obtaining such shareholder approval.
Any modification or amendment of the Plan shall not, without the consent of a
Participant, adversely affect his or her rights under a Stock Right previously
granted to him or her. With the consent of the Participant affected, the
Administrator may amend outstanding Option Agreements and Stock Grant Agreements
in a manner which may be adverse to the Participant but which is not
inconsistent with the Plan. In the discretion of the Administrator, outstanding
Option Agreements and Stock Grant Agreements may be amended by the Administrator
in a manner which is not adverse to the Participant.
31. EMPLOYMENT OR OTHER RELATIONSHIP.
Nothing in this Plan or any Option Agreement or Stock Grant Agreement
shall be deemed to prevent the Company or an Affiliate from terminating the
employment, consultancy or director status of a Participant, nor to prevent a
Participant from terminating his or her own employment, consultancy or director
status or to give any Participant a right to be retained in employment or other
service by the Company or any Affiliate for any period of time.
32. GOVERNING LAW.
This Plan shall be construed and enforced in accordance with the law of
the Commonwealth of Massachusetts.
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PROXY CREATIVE BIOMOLECULES, INC. PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
OF CREATIVE BIOMOLECULES, INC. FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 1998
The undersigned hereby acknowledges the receipt of the Notice of Annual Meeting
of Stockholders and Proxy Statement dated May 14, 1998, and does hereby appoint
Michael M. Tarnow and Wayne E. Mayhew III, or either of them, the undersigned's
attorney-in-fact and proxies, with full power of substitution in each, for and
in the name of the undersigned, with all the powers the undersigned would
possess if personally present, hereby revoking any Proxy heretofore given, to
appear and represent and vote all shares of Common Stock of Creative
BioMolecules, Inc. which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders to be held at the Harvard Club of
Boston, Main Clubhouse, 374 Commonwealth Avenue, Boston, Massachusetts on
Tuesday, June 16, 1998, at 10:00 a.m. and at any adjournments thereof.
PLEASE FILL IN REVERSE SIDE AND MAIL IN THE ENCLOSED ENVELOPE
Please mark votes as in this example [X]
FOLD AND DETACH HERE
<PAGE> 49
<TABLE>
The shares represented hereby will be voted as directed herein. If no direction is indicated, such shares will be voted FOR the
election of directors and FOR the proposals listed below. The Board of Directors recommends a vote FOR the election of directors
and FOR the proposals.
1. Election of Brian H. Dovey, Arthur J. Hale, M.D. and Michael M. Tarnow to the Board of Directors (or if any nominee is not
available for election, FOR such substitute as the Board of Directors may designate).
<S> <C>
[ ] FOR ALL [ ] WITHHOLD (INSTRUCTION: To withhold authority to vote for any individual nominee, write that
NOMINEES EXCEPT AUTHORITY nominee's name on the space provided below.)
AS NOTED TO THE FOR ALL
RIGHT. NOMINEES. _____________________________________________________________________
2. Proposal to amend the Restated Certificate of Incorporation to increase by 50,000,000 shares the number of authorized shares of
Common Stock of the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the 1998 Stock Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to amend the Employee Stock Purchase Plan to increase by 250,000 shares the aggregate number of shares of Common
Stock which may be purchased by eligible employees.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE MARK HERE IF YOU PLAN TO
ATTEND THE MEETING [ ]
In their discretion, the proxies are also authorized to vote
upon such other matters as may properly come before the
Meeting.
Please date and sign exactly as name appears on this card.
Joint owners should each sign. Please give full title when
signing as executor, administrator, trustee, attorney,
guardian for a minor, etc. Signatures for corporations and
partnerships should be in the corporate or firm name by a
duly authorized person. Please return this Proxy promptly in
the enclosed envelope.
Signature:___________________________________Date __________
Signature:___________________________________Date __________
This Proxy may be revoked in writing at any time prior to the
voting thereof.
</TABLE>
FOLD AND DETACH HERE
