SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934, as amended.
Filed by the registrant _X_
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Neose Technologies, Inc.
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(Name of Registrant as Specified in Its Charter)
------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1),
or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials:
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/ / 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.
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(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
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Noese Technologies, Inc.
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[LOGO]
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Notice of Annual Meeting
Proxy Statement
1995 Annual Report
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<PAGE>
NEOSE TECHNOLOGIES, INC.
102 Witmer Road
Horsham, Pennsylvania 19044
Notice of Annual Meeting of Stockholders
June 14, 1996
The Annual Meeting of Stockholders of Neose Technologies, Inc.
(the "Company") will be held at Doubletree Guest Suites, Plymouth Meeting
Executive Campus, 640 West Germantown Pike, Plymouth Meeting, Pennsylvania
19462, on June 14, 1996 at 1:00 p.m. (eastern daylight time) for the following
purposes:
(1) To elect seven Directors to serve until the next
Annual Meeting of Stockholders or until their
respective successors shall have been duly elected
and qualified;
(2) To ratify the selection of Arthur Andersen LLP,
independent public accountants, as auditors of the
Company for the fiscal year ending December 31, 1996;
(3) To approve an amendment to the 1995 Stock
Option/Stock Issuance Plan to add a Director Fee
Option Grant Program; and
(4) To transact such other business as may properly come
before the Annual Meeting.
Only stockholders of record at the close of business on April
30, 1996 will be entitled to notice of, and to vote at, the Annual Meeting of
Stockholders. A list of stockholders eligible to vote at the meeting will be
available for inspection at the meeting and for a period of ten days prior to
the meeting during regular business hours at the corporate headquarters at the
address above.
Whether or not you expect to attend the Annual Meeting, your
proxy vote is important. To assure your representation at the meeting, please
sign and date the enclosed proxy card and return it promptly in the enclosed
envelope, which requires no additional postage if mailed in the United States or
Canada.
By Order of the Board of Directors
Stephen A. Roth
Chairman and Chief Executive Officer
May 17, 1996
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IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY
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<PAGE>
NEOSE TECHNOLOGIES, INC.
PROXY STATEMENT
May 17, 1996
This Proxy Statement is furnished to stockholders of record of
Neose Technologies, Inc. (the "Company") as of April 30, 1996 in connection with
the solicitation of proxies by the Board of Directors of the Company (the "Board
of Directors" or "Board") for use at the Annual Meeting of Stockholders to be
held on June 14, 1996 (the "Annual Meeting").
Shares cannot be voted at the meeting unless the owner is
present in person or by proxy. All properly executed and unrevoked proxies in
the accompanying form that are received in time for the meeting will be voted at
the meeting or any adjournment thereof in accordance with instructions thereon,
or if no instructions are given, will be voted "FOR" the election of the named
nominees as Directors of the Company, "FOR" the ratification of Arthur Andersen
LLP, independent public accountants, as auditors of the Company, "FOR" the
approval of an amendment to the 1995 Stock Option/Stock Issuance Plan to add a
Director Fee Option Grant Program, and will be voted in accordance with the best
judgment of the persons appointed as proxies with respect to other matters which
properly come before the Annual Meeting. Any person giving a proxy may revoke it
by written notice to the Company at any time prior to exercise of the proxy. In
addition, although mere attendance at the Annual Meeting will not revoke the
proxy, a stockholder who attends the meeting may withdraw his or her proxy and
vote in person. Abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business
at the Annual Meeting. Abstentions will be counted in tabulations of the votes
cast on each of the proposals presented at the Annual Meeting, whereas broker
non-votes will not be counted for purposes of determining whether a proposal has
been approved.
The mailing address of the principal executive offices of the
Company is 102 Witmer Road, Horsham, Pennsylvania 19044. This Proxy Statement
and the accompanying form of proxy are being mailed to the stockholders of the
Company on or about May 17, 1996.
VOTING SECURITIES
The Company has only one class of voting securities
outstanding, its common stock, par value $0.01 per share (the "Common Stock").
At the Annual Meeting, each stockholder of record at the close of business on
April 30, 1996 will be entitled to one vote for each share of Common Stock owned
on that date as to each matter presented at the Annual Meeting. On April 30,
1996, 8,174,292 shares of Common Stock were outstanding. A list of stockholders
eligible to vote at the Annual Meeting will be available for inspection at the
Annual Meeting and for a period of ten days prior to the Annual Meeting during
regular business hours at the principal executive offices of the Company at the
address specified above.
ELECTION OF DIRECTORS
Unless otherwise directed, the persons appointed in the
accompanying form of proxy intend to vote at the Annual Meeting for the election
of the seven nominees named below as Directors of the Company to serve until the
next Annual Meeting or until their successors are duly elected and qualified. If
any nominee is unable to be a candidate when the election takes place, the
shares represented by valid proxies will be voted in favor of the remaining
nominees. The Board of Directors does not currently anticipate that any nominee
will be unable to be a candidate for election.
The Board of Directors currently has seven members, all of
whom are nominees for re-election.
The affirmative vote of a plurality of the Company's
outstanding Common Stock represented and voting at the Annual Meeting is
required to elect the Directors.
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<PAGE>
Information Regarding Nominees for Election as Directors
The Board of Directors currently has seven members. The
following information with respect to the principal occupation or employment,
other affiliations and business experience of each nominee during the last five
years has been furnished to the Company by such nominee. Except as indicated,
each of the nominees has had the same principal occupation for the last five
years.
Stephen A. Roth, 53, has served as a director of the Company
since December 1989 and as its Chairman and Chief Executive Officer since August
1994. Dr. Roth co-founded the Company, and from April 1992 until August 1994, he
served as Senior Vice President, Research and Development and Chief Scientific
Officer of the Company. Prior to joining the Company, he was a consultant to the
Company. Dr. Roth was on the faculty of the University of Pennsylvania from 1980
to 1994 and was Chairman of Biology from 1982 to 1987. Dr. Roth serves on the
Editorial Board of Current Research in Developmental Biology, The Quarterly
Review of Biology, and The Journal of Molecular Recognition. Dr. Roth received
his A.B. in biology from The Johns Hopkins University, his Ph.D. in
developmental biology from the Case Western Reserve University and completed his
post-doctorate training in carbohydrate chemistry at The Johns Hopkins
University.
P. Sherrill Neff, 44, has served as President, Chief Financial
Officer, and a director of Neose since December 1994. From February 1993 to
December 1994, Mr. Neff was Senior Vice President, Corporate Development at U.S.
Healthcare, Inc., a managed healthcare company and an investor in the Company.
From March 1984 to February 1993, Mr. Neff worked at Alex. Brown & Sons
Incorporated, an investment banking firm, where he was Managing Director and
Co-Head of the Financial Services Group. Mr. Neff received his B.A. in religion
from Wesleyan University and his J.D. from the University of Michigan Law
School. Mr. Neff serves as a director of JeffBanks, Inc., a publicly traded bank
holding company, and of the Pennsylvania Biotechnology Association. Mr. Neff has
been a member of the Pennsylvania Bar since 1980.
William F. Hamilton, 57, has served as a director of the
Company since September 1991. Dr. Hamilton has served on the University of
Pennsylvania faculty since 1967 and is the Landau Professor of Management and
Technology and Director of the Jerome Fisher Program in Management and
Technology at The Wharton School and the School of Engineering and Applied
Science at the University of Pennsylvania. Dr. Hamilton serves as a director of
Centocor, Inc., a biopharmaceutical company, Hunt Manufacturing Co., a
manufacturer of art and office supplies, and Marlton Technologies, Inc., a trade
show supply company. Dr. Hamilton received his B.S. and his M.S. in chemical
engineering and his M.B.A. from the University of Pennsylvania and his Ph.D. in
applied economics from the London School of Economics.
Douglas J. MacMaster, Jr., 65, has served as a director of the
Company since May 1993. Mr. MacMaster served as Senior Vice President of Merck &
Co., Inc. ("Merck") from July 1988 to January 1992, where he was responsible for
worldwide chemical and pharmaceutical manufacturing, the Agvet Division, and the
Specialty Chemicals Group. From 1985 to 1988, Mr. MacMaster was President of the
Merck Sharp Dohme Division of Merck, with responsibility for the U.S. human
healthcare business. Mr. MacMaster was an employee of Merck for 30 years. Mr.
MacMaster serves as a director of American Precision Industries, Inc., a heat
transfer and precision equipment manufacturing company, Martek Biosciences
Corp., a biological products manufacturing company, Oravax, Inc., a
biopharmaceutical company, and United States Bioscience Inc., a biotechnology
company, and is also on the Board of Trustees of Thomas Jefferson University and
Gwynedd-Mercy College. Mr. MacMaster received his B.A. and L.LD. from St.
Francis Xavier University and his J.D. from Boston College Law School.
Lindsay A. Rosenwald, 41, has served as a director of the
Company since January 1989, and served as its Chairman until August 1994. Dr.
Rosenwald is a founder of several biopharmaceutical companies, including Neose
and Interneuron Pharmaceuticals, Inc. In August 1991, Dr. Rosenwald founded the
Castle Group, Ltd., a New York-based venture capital and merchant banking firm
and in March 1992 he founded Paramount Capital, Inc., an investment bank
specializing in the biopharmaceutical industry. In June 1994, Dr. Rosenwald
founded Aries Financial Services, Inc., a money management firm specializing in
the health sciences industry. Dr. Rosenwald served as a Managing Director of
Corporate Finance at the investment banking firm of D.H. Blair & Co., Inc. from
June 1987 to February 1992, and as a Senior Securities Analyst at the investment
banking firm of Ladenburg, Thalmann & Co., Inc., from September 1986 to June
1987. Dr. Rosenwald is also Chairman of the Board of Directors of Interneuron
Pharmaceuticals, Inc., and a director of BioCryst Pharmaceuticals, Inc., Sparta
Pharmaceuticals, Inc., and Atlantic Pharmaceuticals, Inc., which are
pharmaceutical companies, and Ansan, Inc.,
- 2 -
Xenometrix, Inc., and Titan Pharmaceuticals, Inc., which are biotechnology
companies. Dr. Rosenwald received his B.S. in finance from Pennsylvania State
University and his M.D. from Temple University School of Medicine.
Lowell E. Sears, 45, has served as a director of the Company
since September 1994. Mr. Sears has been a private investor involved in
portfolio management and life sciences venture capital since April 1994. From
October 1988 until April 1994, Mr. Sears was Chief Financial Officer of Amgen
Inc., a pharmaceutical company, and from September 1992 until January 1994, Mr.
Sears also served as General Manager responsible for the Asia-Pacific region.
From August 1986 until October 1988 Mr. Sears was Treasurer and Director of
Planning for Amgen Inc. From July 1976 to April 1986, Mr. Sears held senior
financial and planning positions at Atlantic Richfield Co. Mr. Sears is Chairman
of the Board of Directors of CoCensys, Inc., a neuropharmaceuticals company, and
is a director of Techne Corp., a biological products manufacturing company and
Activated Cell Therapy, Inc., a cell processing company. Mr. Sears received his
B.A. in economics from Claremont McKenna College and his M.B.A. from Stanford
University.
Jerry A. Weisbach, 62, has served as a director of the Company
since May 1993. From 1988 to July 1994, Dr. Weisbach served as Director of
Technology Transfer and Adjunct Professor at The Rockefeller University where he
was responsible for the licensing of technology. Dr. Weisbach served as Vice
President of Warner-Lambert Company from 1981 to 1987 and President,
Pharmaceutical Research Division from 1979 to 1987, where he was responsible for
all pharmaceutical research and development activities. Prior to joining Warner-
Lambert, Dr. Weisbach served at SmithKline and French Laboratories from 1960 to
1979, where he was Vice President, Research from 1977 to 1979. Dr. Weisbach
serves as a Director of Hybridon, Inc., and Xenometrix, Inc., which are
biotechnology companies, Synthon Corporation, a chemical intermediate company,
and CIMA Laboratories, Inc., a drug delivery company. Dr. Weisbach is also a
member of the Scientific Advisory Boards of Magainin Pharmaceutical, Inc., Myco
Pharmaceutical Inc., Avax Labs, Exponential Biotherapies, and Receptor
Laboratories, Inc., and a member of the Clinical Advisory Board of Hybridon,
Inc. Dr. Weisbach received his B.S. in chemistry from Brooklyn College and his
M.A. and his Ph.D. in chemistry from Harvard University.
Committees of the Board
The Audit Committee consists of Dr. Hamilton and Mr. Sears and
its functions include recommending to the Board of Directors the selection of
the Company's auditors and reviewing with such auditors the plan and results of
their audit and the adequacy of the Company's systems of internal accounting
controls and management information systems. In addition, the Audit Committee
reviews the independence of the auditors and their fees for services rendered to
the Company.
The Compensation Committee consists of Dr. Hamilton, Mr.
MacMaster, and Dr. Rosenwald and its functions include recommending, reviewing,
and overseeing salaries, benefits, and stock option plans relating to the
Company's employees, consultants, directors, and other individuals compensated
by the Company. The Committee administers all stock option plans relating to the
compensation of officers, including having complete discretion (subject to the
provisions of the Company's 1995 Stock Option/Stock Issuance Plan) to authorize
options and direct stock issuances under the Company's 1995 Stock Option/Stock
Issuance Plan (the "1995 Plan").
Attendance at Board and Committee Meetings
During 1995, the Board of Directors held four meetings. During
1995, each Director attended all meetings of the Board of Directors. The
Compensation Committee and the Audit Committee each held one meeting during
1995.
Compliance with Reporting Requirements
During 1995, the Company's Directors, executive officers, and
persons holding more than ten percent of the Company's Common Stock were not
required to report their ownership of the Company's Common Stock and any changes
in that ownership to the Securities and Exchange Commission and the Nasdaq
National Market Surveillance Department.
- 3 -
<PAGE>
Compensation of Directors
Cash Compensation. Non-management members of the Board of Directors,
other than Dr. Rosenwald, receive an annual retainer of $6,000 and cash
compensation of $2,000 per meeting as consideration for their services as
directors of the Company and are reimbursed for reasonable travel expenses
incurred in connection with their attendance at such meetings. Effective January
1, 1997, the annual retainer will be $14,000 but no additional compensation will
be paid for meetings. Non-management directors, other than Dr. Rosenwald, may
also receive consulting fees of $2,000 per day of additional service. Under the
Director Fee Option Grant Program of the 1995 Plan, which program is subject to
approval by the stockholders at the Annual Meeting, the non-employee directors
may elect to apply their annual retainer fees towards the acquisition of options
to purchase shares of Common Stock.
Stock Option Grant. Under the Automatic Option Grant Program of the
1995 Plan, each non-employee director first elected or appointed to the Board of
Directors after the Company's initial public offering will automatically be
granted an option for 16,666 shares of Common Stock on the date of his or her
election or appointment to the Board of Directors, provided such individual has
not been previously employed by the Company. In addition, at each annual
stockholders meeting held after the date of the Company's initial public
offering, each individual with at least six months of Board service who is to
continue to serve as a non-employee director following the meeting will
automatically be granted an option for 3,333 shares of Common Stock, even if
such individual has been previously employed by the Company or joined the Board
of Directors prior to the Company's initial public offering. Accordingly, on the
date of the Annual Meeting, each of Dr. Hamilton, Mr. MacMaster, Mr. Sears, and
Dr. Weisbach will, if reelected, receive an option grant for 3,333 shares. Dr.
Rosenwald has elected not to receive any option grant.
Each automatic grant will have a term of 10 years, subject to
earlier termination, following the optionee's cessation of service on the Board
of Directors. Each automatic option will be immediately exercisable; however,
any shares purchased upon exercise of the option will be subject to repurchase
should the optionee's service as a non-employee director cease prior to vesting
of the shares. The initial 16,666 share grant will vest in successive equal
annual installments over the optionee's initial four-year period of Board
service. Each annual 3,333 share grant will vest upon the optionee's completion
of one year of service on the Board of Directors, as measured from the grant
date. However, each outstanding option will immediately vest upon certain
changes in the ownership or control of the Company.
Dr. Rosenwald received no compensation for his services as a
director of the Company.
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<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
The executive officers of the Company on January 1, 1996 were the
following:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Stephen A. Roth, Ph.D................................53 Chairman, Chief Executive Officer, and Director
P. Sherrill Neff.....................................44 President, Chief Financial Officer, and Director
Edward J. McGuire, Ph.D..............................58 Vice President, Research and Development
David F. Pritchard...................................46 Vice President, Business Development
David A. Zopf, M.D...................................53 Vice President, Drug Development
</TABLE>
Information Concerning Executive Officers Who Are Not Directors
Dr. McGuire has served as Vice President, Research and
Development of the Company since April 1990. He is responsible for leading the
oligosaccharide synthesis team. Dr. McGuire was on the faculty of the University
of Pennsylvania from 1985 to April 1990. From 1984 to 1985, Dr. McGuire served
as a Senior Researcher at Genetic Engineering, Inc., a biotechnology company,
and from 1972 to 1984 he was a Research Biochemist at the National Jewish
Hospital. Dr. McGuire received his B.A. in biology from Blackburn College, his
Ph.D. in biochemistry/chemistry from the University of Illinois Medical School,
and held a National Institutes of Health ("NIH") postdoctoral fellowship at the
University of Michigan and The Johns Hopkins University.
Mr. Pritchard has served as Vice President, Business
Development of the Company since May 1993. From September 1986 to March 1993,
Mr. Pritchard held various positions at Molecular Biosystems, Inc. ("MBI"), an
imaging agent development and manufacturing company, including Director of
Corporate Development and General Manager of Syngene, a subsidiary of MBI, from
September 1989 to November 1992. Mr. Pritchard received his B.A. in biology from
Northeastern University.
Dr. Zopf has served as Vice President, Drug Development of
the Company since April 1992. From August 1991 to March 1992, Dr. Zopf was a
consultant to the Company on the biomedical applications of complex
carbohydrates. From April 1988 to July 1991, Dr. Zopf served as Vice President
and Chief Operating Officer of BioCarb, Inc., a biotechnology company and the
U.S. subsidiary of BioCarb AB, where he managed the research and development
programs of novel carbohydrate-based diagnostics and therapeutics. Dr. Zopf
worked at NIH from 1971 to 1988, most recently as Chief, Section on Biochemical
Pathology at the National Cancer Institute. Dr. Zopf currently serves on the
editorial board of Archives of Biochemistry and Biophysics. Dr. Zopf received
his A.B. in zoology from Washington University and his M.D. from Washington
University School of Medicine.
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Summary Compensation Table
The following table sets forth all compensation awarded to, earned by,
or paid for services rendered to the Company in all capacities during 1995 by
the Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers (together, the "Named Executive Officers"). No
other executive officer who would have otherwise been includable in such table
on the basis of salary and bonus earned during 1995 resigned or terminated
employment during 1995.
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Securities
------------------- Underlying All Other
Name and Principal Position Salary Bonus Options(#) Compensation
- --------------------------- ------ ----- ---------- ------------
<S> <C> <C> <C> <C>
Stephen A. Roth................................. $ 200,000 $ 50,000 90,000 $5,172(1)(2)
Chief Executive Officer
P. Sherrill Neff................................ 225,000 50,000 90,000 5,172(1)(2)
President and Chief Financial Officer
Edward J. McGuire............................... 120,000 35,000 10,000 3,745(1)(3)
Vice President, Research and Development
David F. Pritchard.............................. 115,200 10,000 7,000 3,504(1)(4)
Vice President, Business Development
David A. Zopf................................... 144,000 30,000 6,666 5,046(1)(5)
Vice President, Drug Development
- ------------------
</TABLE>
(1) Includes $552 in premiums paid for group term life insurance coverage for
each of the Named Executives Officers.
(2) Includes $4,620 in matching contributions to the Company's tax-qualified
employee savings and retirement plan (the "401(k) Plan").
(3) Includes $3,193 in matching contributions to the 401(k) Plan.
(4) Includes $2,952 in matching contributions to the 401(k) Plan.
(5) Includes $4,494 in matching contributions to the 401(k) Plan.
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<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table shows, with respect to the Named Executive
Officers, certain information concerning the grant of stock options in 1995. No
stock appreciation rights were granted during 1995.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------
Percent of
Total Potential Realizable
Options Value at Assumed
Number of Granted to Annual Rates of Stock
Securities Employees Price Appreciation for
Underlying in Exercise Option Term(4)
Options Fiscal Price Expiration --------------
Name Granted(1) Year(2) ($/Share)(3) Date 5% 10%
---- ---------- ------- ------------ ------ --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen A. Roth........... 90,000 26.8% $12.54 12/07/05 $190,805 $972,331
P. Sherrill Neff.......... 90,000 26.8 12.54 12/07/05 190,805 972,331
Edward J. McGuire......... 10,000 3.0 9.00 12/06/05 56,601 143,437
David F. Pritchard........ 5,000 1.5 5.70 03/23/05 17,924 45,422
2,000 0.6 9.00 12/06/05 11,320 28,687
David A. Zopf............. 6,666 2.0 9.00 12/06/05 37,734 95,625
</TABLE>
(1) Each option will become exercisable in four successive equal annual
installments over the optionee's continued service with the Company
measured from the date of grant. For Dr. Roth and Mr. Neff, the date of
grant was December 7, 1995; for the 10,000-share grant to Dr. McGuire, the
2,000-share grant to Mr. Pritchard, and the 6,666-share grant to Dr. Zopf,
the date of grant was December 6, 1995; and the date of grant for the
5,000-share grant to Mr. Pritchard was March 23, 1995.
(2) Based on an aggregate of 336,333 options granted to employees in 1995,
including options granted to the Named Executive Officers.
(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date, or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares and the federal and state income or employment tax liability
incurred by the optionee in connection with such exercise. The optionee may
be permitted, subject to the approval of the Plan Administrator, to apply a
portion of the shares purchased under the option (or to deliver existing
shares of Common Stock) in satisfaction of such tax liability.
(4) Potential realizable value is based on the assumption that the price per
share of Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. There is no assurance that the assumed 5%
and 10% annual rates of appreciation (compounded annually) will actually be
realized over the term of the option. The assumed 5% and 10% annual rates
are set forth in accordance with the rules and regulations adopted by the
Securities and Exchange Commission and do not represent the Company's
estimate of stock price appreciation.
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Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth certain information concerning
the number and value of unexercised options held by each of the Named Executive
Officers on December 31, 1995. No stock appreciation rights were outstanding on
December 31, 1995, and no stock appreciation rights were exercised during the
fiscal year ended December 31, 1995 by any of the Named Executive Officers.
<TABLE>
<CAPTION>
Number of
Shares Value Number of Securities Value of Unexercised
Name Acquired Realized Underlying Unexercised Options(#) In-The-Money Options ($)(2)
- ----- On Exercise(#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
-------------- ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Stephen A. Roth............ -- -- 5,318 96,250 $ 44,602 $ 47,344
P. Sherrill Neff........... -- -- 40,000 150,000 132,000 198,000
Edward J. McGuire.......... -- -- 40,000 10,000 282,000 --
David F. Pritchard......... -- -- 6,666 13,666 54,000 70,500
David A. Zopf.............. 2,967 $20,915 20,366 16,666 147,085 74,000
</TABLE>
(1) Based upon the estimated fair value of the Common Stock at the exercise date
(as determined by the Company's Board of Directors), less the exercise price
paid for such shares.
(2) Amounts disclosed in these columns do not reflect amounts actually received
by the Named Executive Officers but are calculated based on the difference
between the fair market value of the Company's Common Stock at the end of
1995, as determined by the Company's Board of Directors, less the exercise
price payable for such shares, in accordance with the rules and regulations
adopted by the Securities and Exchange Commission.
1995 Stock Option/Stock Issuance Plan and Employee Stock Purchase Plan
The Company's 1995 Plan and Employee Stock Purchase Plan (the
"Purchase Plan") were adopted by the Board of Directors and approved by the
stockholders in December 1995. The terms of the 1995 Plan are described herein
in connection with the proposal to approve an amendment to such plan to
implement the Director Fee Option Grant Program. A summary of the Purchase Plan
is set forth in Appendix A hereto. The information with respect to the 1995 Plan
and the Purchase Plan is being provided in accordance with applicable
requirements of the Federal securities laws in order to assure that such plans
will qualify under Rule 16b-3 of the Securities and Exchange Commission and
thereby provide the Company's executive officers and members of the Board of
Directors with certain exemptions from the short-swing liability provisions of
the Federal securities laws for their transactions under the 1995 Plan and the
Purchase Plan.
Employment Arrangements
In December 1994, the Company entered into an employment
agreement for an initial period of three years, which may be extended for
additional one-year periods, with P. Sherrill Neff (the "Neff Agreement")
whereby Mr. Neff is employed as President and Chief Financial Officer of the
Company. Pursuant to the Neff Agreement, Mr. Neff receives a minimum base salary
of $225,000 per year and a performance incentive bonus of up to 50% of base
salary at the discretion of the Board of Directors or the Compensation Committee
thereof. In connection with the Neff Agreement, the Company granted to Mr. Neff
options to purchase 100,000 shares of Common Stock at an exercise price of $5.70
per share, 20,000 of which vested immediately and the remainder are to vest
ratably over a four-year period of service with the Company measured from the
grant date. Pursuant to the terms of the Neff Agreement, Mr. Neff has entered
into a standard noncompetition and confidentiality agreement with the Company.
In April 1992, the Company entered into a one-year employment
agreement extendable in one-year increments, with David A. Zopf (the "Zopf
Agreement") whereby Dr. Zopf is employed as Vice President, Drug Development.
The Zopf Agreement provides for an annual base salary of $144,000 and a bonus of
up to 25% of base salary at the discretion of the Chief Executive Officer. In
connection with the Zopf Agreement, the Company granted to Dr. Zopf options
to purchase 26,666 shares of Common Stock at fair market value, which options
vest
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<PAGE>
in four successive equal annual installments over his period of service with the
Company measured from the date of the Zopf Agreement. The Zopf Agreement
contains certain restrictive covenants, including provisions relating to
noncompetition, nonsolicitation, and the nondisclosure of proprietary
information during his employment with the Company and for specified periods
thereafter.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee consists of Dr. Hamilton,
Mr. MacMaster, and Dr. Rosenwald. The Committee recommends, reviews, and
oversees salaries, benefits, and stock option plans for the Company's employees,
consultants, directors, and other individuals compensated by the Company. See
"Certain Transactions."
No member of the Compensation Committee was at any time during
the 1995 fiscal year or at any other time an officer or employee of the Company.
No executive officer of the Company served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors advises
the Chief Executive Officer and the Board of Directors on matters of the
Company's compensation philosophy and the compensation of executive officers and
other individuals compensated by the Company. The Compensation Committee also is
responsible for the administration of the Company's 1995 Plan under which option
grants and direct stock issuances may be made to executive officers. The
Compensation Committee has reviewed and is in accord with the compensation paid
to executive officers in 1995.
General Compensation Policy. The fundamental policy of the
Compensation Committee is to provide the Company's executive officers with
competitive compensation opportunities based upon their contribution to the
development and financial success of the Company and their personal performance.
It is the Compensation Committee's objective to have a portion of each executive
officer's compensation contingent upon the Company's performance as well as upon
such executive officer's own level of performance. Accordingly, the compensation
package for each executive officer is comprised of three elements: (i) base
salary which reflects individual performance and is designed primarily to be
competitive with salary levels in the industry, (ii) cash bonuses which reflect
the achievement of performance objectives and goals, and (iii) long-term
stock-based incentive awards which strengthen the mutuality of interests between
the executive officers and the Company's stockholders.
Factors. The principal factors which the Compensation
Committee considered with respect to each executive officer's compensation
package for 1995 are summarized below. The Compensation Committee may, however,
in its discretion apply entirely different factors in advising the Chief
Executive Officer and the Board of Directors with respect to executive
compensation for future years.
o Base Salary. The suggested base salary for each
executive officer is determined on the basis of the following factors:
experience, personal performance, the salary levels in effect for comparable
positions within and without the industry, and internal base salary
comparability considerations. The weight given to each of these factors differs
from individual to individual, as the Compensation Committee deems appropriate.
The Compensation Committee did not rely upon any specific compensation surveys
for comparative compensation purposes for fiscal 1995. Instead, the Compensation
Committee made its decisions as to the appropriate market level of base salary
for each executive officer on the basis of its understanding of the salary
levels in effect for similar positions at those companies with which the Company
competes for executive talent. Base salaries will reviewed on an annual basis,
and adjustments will be made in accordance with the factors indicated above.
o Bonus. The incentive compensation of executive
officers is closely related to Company performance. A large portion of the cash
compensation of executive officers consists of contingent compensation. Bonus
awards are based on, among other things, performance objectives and goals that
are tailored to the responsibilities and functions of key executives.
- 9 -
o Long-Term Incentive Compensation. Long-term
incentives are provided through grants of stock options. The grants are designed
to align the interests of each executive officer with those of the stockholders
and provide each individual with a significant incentive to manage the Company
from the perspective of an owner with an equity stake in the Company. Each
option grant allows the individual to acquire shares of the Company's Common
Stock at a fixed price per share (generally, the market price on the grant date)
over a specified period of time (up to ten years). Each option generally becomes
exercisable in installments over a four-year period, contingent upon the
executive officer's continued employment with the Company. Accordingly, the
option grant will provide a return to the executive officer only if the
executive officer remains employed by the Company during the vesting period, and
then only if the market price of the underlying shares appreciates.
The number of shares subject to each option grant is set at a
level intended to create a meaningful opportunity for stock ownership based on
the executive officer's current position with the Company, the base salary
associated with that position, the size of comparable awards made to individuals
in similar positions within the industry, the individual's potential for
increased responsibility and promotion over the option term and the individual's
personal performance in recent periods. The Compensation Committee also
considers the number of unvested options held by the executive officer in order
to maintain an appropriate level of equity incentive for that individual.
However, the Compensation Committee does not adhere to any specific guidelines
as to the relative option holdings of the Company's executive officers. There
were 203,666 stock options granted to executive officers in 1995.
Through the Company's Employee Stock Purchase Plan, the
Company offers additional opportunities for equity ownership to executive
officers.
CEO Compensation. In advising the Board of Directors with
respect to the compensation payable to the Company's Chief Executive Officer,
the Compensation Committee seeks to achieve two objectives: (i) establish a
level of base salary competitive with that paid by companies within the industry
which are of comparable size to the Company and by companies outside of the
industry with which the Company competes for executive talent and (ii) make a
significant percentage of the total compensation package contingent upon the
Company's performance and stock price appreciation.
The base salary established for Dr. Roth on the basis of the
foregoing criteria was intended to provide a level of stability and certainty
each year. Accordingly, this element of compensation was not affected to any
significant degree by Company performance factors. Dr. Roth's incentive cash
compensation for the 1995 fiscal year was based on an the Committee's assessment
of his individual performance and his contribution to the Company's performance.
The long-term incentive component of Dr. Roth's compensation
for the 1995 fiscal year consisted of a stock option grant for 90,000 shares.
This grant was designed to provide him with a continuing incentive to remain
with the Company and contribute to the Company's financial success. The option
will have value only to the extent Dr. Roth continues in the Company's employ,
and then only if the market price of the option shares appreciates over the
option term.
Compliance with Internal Revenue Code Section 162(m). As a
result of Section 162(m) of the Internal Revenue Code of 1986, as amended, which
was enacted into law in 1993, the Company will not be allowed a federal income
tax deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any one year. This
limitation will apply to all compensation paid to the covered executive officers
which is not considered to be performance based. Compensation which does qualify
as performance-based compensation will not have to be taken into account for
purposes of this limitation. The 1995 Plan contains certain provisions which are
intended to assure that any compensation deemed paid in connection with the
exercise of stock options granted under that plan with an exercise price equal
to the market price of the option shares on the grant date will qualify as
performance-based compensation.
- 10 -
Because it is very unlikely that the cash compensation payable
to any of the Company's executive officers in the foreseeable future will
approach the $1 million limit, the Committee has decided at this time not to
take any other action to limit or restructure the elements of cash compensation
payable to the Company's executive officers. The Committee will reconsider this
decision should the individual compensation of any executive officer ever
approach the $1 million level.
THE COMPENSATION COMMITTEE
DR. HAMILTON
MR. MacMASTER
DR. ROSENWALD
- 11 -
<PAGE>
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 April 30, 1996 by (i)
each Director and nominee for Director, (ii) each of the Named Executive
Officers, (iii) each person known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock, and (iv) all executive officers and
Directors as a group.
<TABLE>
<CAPTION>
Number of Shares of Percentages of
Common Stock Beneficially Shares
Name Owned(1) Outstanding(1)
- ----- ------------------------ -----------------
<S> <C> <C>
Lindsay A. Rosenwald, M.D.(2).................................. 618,125 7.6%
c/o The Castle Group Ltd.
375 Park Avenue, Suite 1501
New York, NY 10152
Stephen A. Roth, Ph.D.(3)...................................... 210,510 2.5
P. Sherrill Neff(4)............................................ 44,167 *
Edward J. McGuire, Ph.D.(5).................................... 121,375 1.0
David F. Pritchard(6).......................................... 11,250 *
David A. Zopf, M.D.(7)......................................... 30,000 *
William F. Hamilton, Ph.D.(8).................................. 29,168 *
Douglas J. MacMaster, Jr.(9)................................... 20,002 *
Lowell E. Sears(10)............................................ 20,925 *
Jerry A. Weisbach, Ph.D.(11)................................... 13,752 *
State of Wisconsin Investment Board............................ 500,000 6.1
Lake Terrace
121 E. Wilson Street
P.O. Box 7842
Madison, WI 53707
All current directors and executive officers as a group 1,119,274 11.3
(10 persons)(12)..........................................
</TABLE>
- ------------------
* Less than one percent.
(1) Gives effect to the shares of Common Stock issuable within 60 days of April
30, 1996 upon the exercise of all options and other rights beneficially
owned by the indicated stockholders on that date. Unless otherwise
indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. Shares of Common Stock subject to options and
warrants which are currently exercisable or convertible or which will
become exercisable or convertible within sixty (60) days after April 30,
1996 are deemed outstanding for purpose of computing the beneficial
ownership of the Common Stock by the person holding such option or warrant
but are not deemed to be outstanding for the purpose of computing the
beneficial ownership of the Common Stock by any other person.
(2) Includes (i) 75,624 shares of Common Stock owned by Dr. Rosenwald's wife
and (ii) 30,250 shares of Common Stock held by Dr. Rosenwald's wife as
custodian for Dr. Rosenwald's children, as to which Dr. Rosenwald disclaims
beneficial ownership.
(3) Includes (i) 15,758 shares of Common Stock owned by Dr. Roth's daughter and
(ii) 7,401 shares of Common Stock issuable upon exercise of stock options.
(4) Includes 40,000 shares of Common Stock issuable upon exercise of stock
options.
(5) Includes 40,000 shares of Common Stock issuable upon exercise of stock
options.
(6) Includes 7,917 shares of Common Stock issuable upon exercise of stock
options.
(7) Includes 27,033 shares of Common Stock issuable upon exercise of stock
options.
(8) Includes 27,084 shares of Common Stock issuable upon exercise of stock
options.
(9) Includes 11,668 shares of Common Stock issuable upon exercise of stock
options.
(10) Includes 5,001 shares of Common Stock issuable upon exercise of stock
options.
(11) Includes 11,668 shares of Common Stock issuable upon exercise of stock
options.
(12) See notes (2) through (11).
- 12 -
<PAGE>
CERTAIN TRANSACTIONS
In connection with the private placement of the Series F Stock
during 1995, the following directors and persons affiliated with directors made
the following purchases of Series F Stock at a price equivalent to $12.00 per
share of Common Stock on an as-converted basis.
<TABLE>
<CAPTION>
Common Stock
Number of Shares Issuable Upon
Directors and Persons Affiliated with Directors of Series F Stock Conversion
----------------------------------------------- ------------------ --------------
<S> <C> <C>
Stephen A. Roth..................................................... 2,500 834
P. Sherrill Neff(1)................................................. 37,500 12,501
William F. Hamilton................................................. 6,250 2,084
Douglas J. MacMaster, Jr............................................ 25,000 8,334
Lindsay A. Rosenwald................................................ 6,250 2,084
Lowell E. Sears..................................................... 10,000 3,334
Jerry A. Weisbach................................................... 6,250 2,084
</TABLE>
----------------
(1) Includes 25,000 shares of Series F Preferred Stock, which are
convertible into 8,334 shares of Common Stock, purchased by Mr.
Neff's father-in-law.
The Company paid $435,179 in commissions and expenses to
Paramount Capital, Inc. ("Paramount"), a placement agent for a portion of the
Series F Stock. Lindsay A. Rosenwald, the sole stockholder of Paramount, is a
director of the Company.
In December 1995, the Company granted to an employee of
Paramount options to purchase an aggregate of 49,999 shares of Common Stock at a
weighted average exercise price of $17.94, vesting in various amounts over five
years, for financial advisory services.
In 1995, the Company granted its current directors and
executive officers options to purchase a total of 216,998 shares of Common Stock
at exercise prices ranging from $5.70 to $12.54 per share.
- 13 -
<PAGE>
PROPOSAL TO APPROVE
AMENDMENT TO THE 1995 STOCK OPTION/STOCK ISSUANCE PLAN
- --------------------------------------------------------------------------------
The stockholders are being asked to approve an amendment to
the Company's 1995 Stock Option/Stock Issuance Plan (the "1995 Plan") to
implement a Director Fee Option Grant Program (the "Director Fee Program")
pursuant to which non-employee members of the Company's Board of Directors may
elect to receive their annual retainer fee in stock options rather than cash.
The Director Fee Program was adopted by the Board of Directors on March 16, 1996
and will become effective immediately upon approval of the Company's
stockholders at the Annual Meeting.
The 1995 Plan was adopted by the Board of Directors on March
23, 1995 and approved by the stockholders on April 12, 1995, as the successor
equity incentive program to the Company's 1991 and 1992 Stock Option Plans (the
"Predecessor Plans"). The 1995 Plan became effective on the date of its adoption
by the Board of Directors, except that the Automatic Option Grant Program
described below became effective on the effective date of the Company's initial
public offering, February 15, 1996, and the Director Fee Program, which is the
subject of this proposal, will become effective immediately upon its approval by
the Company's stockholders at the Annual Meeting.
The following is a summary of the principal features of the
(i) Director Fee Program and (ii) the other equity programs under the 1995 Plan
as last approved by the stockholders. The summary, however, does not purport to
be a complete description of all the provisions of the 1995 Plan. Any
stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon written request to the Corporate Secretary at the
Company's principal executive offices in Horsham, Pennsylvania. The information
is also provided in accordance with the applicable requirements of the Federal
securities laws in order to assure that the 1995 Plan will qualify under Rule
16b-3 of the Securities and Exchange Commission and thereby provide the
Company's executive officers and members of the Board of Directors with certain
exemptions from the short-swing liability provisions of the Federal securities
laws for their transactions under the 1995 Plan.
Director Fee Option Grant Program
Under the proposed Director Fee Program, each non-employee
Board member may elect to apply all or a portion of his or her annual retainer
fee otherwise payable in cash to the acquisition of a special option grant under
the Director Fee Program. Such election must be filed with the Company prior to
the start of the calendar year of participation. The option grant will
automatically be made on the first trading day in January following the filing
of the option-in-lieu of cash election and will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date. The number of option shares will be determined by dividing the amount of
the retainer fee applied to the program by two-thirds of the fair market value
per share of Common Stock on the grant date. As a result, the total spread on
the option (the fair market value of the option shares on the grant date less
the aggregate exercise price payable for those shares) will be equal to the
portion of the retainer fee subject to the director's election.
The option will become exercisable for the option shares in a
series of twelve (12) successive equal monthly installments upon the optionee's
completion of each month of Board service during the calendar year for which the
option grant is made. The option will remain exercisable for such shares until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
end of the three (3)-year period measured from the date of the optionee's
cessation of Board service. Should the optionee die or become disabled during
his or her period of Board service then the option shares will immediately vest
in full.
Any options outstanding under the Director Fee Program at the
time of an acquisition of the Company (whether by merger or asset sale) or
hostile change in control of the Company (whether by successful tender offer for
more than 50% of the outstanding voting stock or by proxy contest for the
election of Board members) will automatically accelerate in full and will remain
exercisable until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the end of the three (3)-year period measured from the date of the
optionee's cessation of Board service. All such options accelerated upon an
acquisition of the Company will be assumed by the acquiror corporation.
- 14 -
<PAGE>
The option grants under the Director Fee Program will be made
in strict compliance with the provisions of such program and no discretion will
be exercised by the Board or any committee with respect to grants made
thereunder. As of April 30, 1996, 5 non-employee Board members were eligible to
participate in the Director Fee Program.
Other Equity Programs and Provisions under the 1995 Plan
The following equity incentive programs contained in the 1995
Plan were adopted by the Board of Directors on March 23, 1995 and approved by
the stockholders on April 12, 1995. These programs are not being voted on at the
Annual Meeting and will not be affected by the outcome of the vote on the
proposal to amend the 1995 Plan to implement the Director Fee Program.
Equity Incentive Programs
The 1995 Plan, as presently in effect, also contains three
other equity incentive programs: (i) a Discretionary Option Grant Program, (ii)
an Automatic Option Grant Program, and (iii) a Stock Issuance Program. The
principal features of these programs are described below. The 1995 Plan (other
than the Automatic Option Grant Program) is administered by the Compensation
Committee of the Board of Directors. This committee (the "Plan Administrator")
has complete discretion (subject to the provisions of the 1995 Plan) to
authorize option grants and direct stock issuances under the 1995 Plan. However,
all grants under the Automatic Option Grant Program will be made in strict
compliance with the provisions of such program, and no administrative discretion
will be exercised by the Plan Administrator with respect to the grants made
thereunder.
Share Reserve
A total of 1,457,366 shares of Common Stock has been reserved
for issuance over the ten(10)-year term of the 1995 Plan. This reserve is
comprised of (i) the shares which remained available for issuance under the
Predecessor Plans on the effective date of the 1995 Plan, including the shares
subject to outstanding options thereunder, plus (ii) an increase of 333,333
shares authorized by the Board of Directors on March 23, 1995, and approved by
the stockholders on April 12, 1995 and (iii) an increase of 600,000 shares
authorized by the Board of Directors on December 6, 1995 and approved by the
stockholders on December 19, 1995. In no event may any one participant in the
1995 Plan receive option grants or direct stock issuances for more than 250,000
shares over the term of the 1995 Plan. The implementation of the new Director
Fee Program will not effect any increase in the number of shares of Common Stock
already reserved for issuance to officers, employees, and non-employee Board
members through the 1995 Plan and will not result in any additional dilution of
stockholder interests.
In the event any change is made to the outstanding share of
Common Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, or other change in corporate
structure effected without the Company's receipt of consideration, appropriate
adjustments will be made to the securities issuable (in the aggregate and to
each participant) under the 1995 Plan and to the securities and exercise price
under each outstanding option.
Eligibility
Officers and other employees of the Company and its parent or
subsidiaries (whether now existing or subsequently established), non-employee
members of the Board of Directors (other than those serving as members of the
Compensation Committee) and the board of directors of its parent or
subsidiaries, and consultants and independent advisors of the Company and its
parent and subsidiaries are eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs. Non-employee members of the Board of
Directors (including members of the Compensation Committee) are also eligible to
participate in the Automatic Option Grant Program.
As of April 30, 1996, approximately 5 executive officers, 39
other employees and 5 non-employee Board members were eligible to participate in
the Discretionary Option Grant and Stock Issuance Programs of the 1995 Plan and
five non-employee Board members were eligible to participate in the Automatic
Option Grant Program.
- 15 -
<PAGE>
Valuation
The fair market value per share of Common Stock on any
relevant date under the 1995 Plan will be the closing selling price per share on
that date on the Nasdaq National Market. On April 30, 1996, the last reported
sales price per share was $21.875.
Discretionary Option Grant Program
Options may be granted under the Discretionary Option Grant
Program at an exercise price per share not less than the fair market value per
share of Common Stock on the option grant date. No granted option will have a
term in excess of ten years.
Upon cessation of service, the optionee will have a limited
period of time in which to exercise any outstanding option to the extent such
option is exercisable for vested shares. The Plan Administrator will have
complete discretion to extend the period following the optionee's cessation of
service during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of
stock appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company equal
in amount to the excess of (a) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (b) the aggregate exercise
price payable for such shares. Such appreciation distribution may, at the
discretion of the Plan Administrator, be made in cash or in shares of Common
Stock.
Limited stock appreciation rights may be granted to officers of the
Company as part of their option grants. Any option with such a limited stock
appreciation right in effect for at least six (6) months may be surrendered to
the Company upon the successful completion of a hostile take-over of the
Company. In return for the surrendered option, the officer will be entitled to a
cash distribution from the Company in an amount per surrendered option share
equal to the excess of (a) the take-over price per share over (b) the exercise
price payable for such share.
The Plan Administrator has the authority to effect the
cancellation of outstanding options under the Discretionary Option Grant Program
which have exercise prices in excess of the then current market price of Common
Stock and to issue replacement options with an exercise price based on the
market price of Common Stock at the time of the new grant.
Automatic Option Grant Program
Under the Automatic Option Grant Program, each individual who
first becomes a non-employee Board member after the Effective Date will
automatically be granted at that time an option grant for 16,666 shares of
Common Stock, provided such individual has not previously been in the Company's
employ. In addition, on the date of each Annual Stockholders Meeting, beginning
with the Annual Meeting, each individual who is to continue to serve as a
non-employee Board member after such meeting will automatically be granted an
option to purchase 3,333 shares of Common Stock, provided such individual has
served as a non-employee Board member for at least six months. There will be no
limit on the number of such 3,333-share options which any one non-employee Board
member may receive over the period of Board service, and non-employee Board
members who have previously served in the Company's employ will be eligible for
one or more 3,333-share option grants.
Each option will have an exercise price per share equal to
100% of the fair market value per share of Common Stock on the option grant date
and a maximum term of ten years measured from the option grant date.
Each option will be immediately exercisable for all the option
shares, but any purchased shares will be subject to repurchase by the Company,
at the exercise price paid per share, upon the optionee's cessation of Board
service. Each initial option grant will vest (and the Company's repurchase
rights will lapse) in four equal annual installments over the optionee's period
of Board service, with the first such installment to vest upon the
- 16 -
<PAGE>
completion of one year of Board service measured from the option grant date.
Each annual option grant will vest (and the Company's repurchase rights will
lapse) upon the completion of one year of Board service measured from the option
grant date.
The shares subject to each automatic option grant will
immediately vest upon the optionee's death or permanent disability or an
acquisition of the Company by merger or asset sale or a hostile change in
control of the Company (whether by successful tender offer for more than 50% of
the outstanding voting stock or by proxy contest for the election of Board
members). In addition, upon the successful completion of a hostile take-over,
each automatic option grant which has been outstanding for at least six months
may be surrendered to the Company for a cash distribution per surrendered option
share in an amount equal to the excess of (a) the take-over price per share over
(b) the exercise price payable for such share.
Stock Issuance Program
Shares may be sold under the Stock Issuance Program at a price
per share not less than the fair market value per share of Common Stock on the
issuance date, payable in cash or through a promissory note payable to the
Company. Shares may also be issued solely as a bonus for past services.
The issued shares may either be immediately vested upon
issuance or subject to a vesting schedule tied to the performance of service or
the attainment of performance goals. The Plan Administrator will, however, have
the discretionary authority at any time to accelerate the vesting of any
unvested shares.
Acceleration
In the event that the Company is acquired by merger or asset
sale, each outstanding option under the Discretionary Option Grant Program which
is not to be assumed by the successor corporation or replaced with a comparable
option to purchase shares of the capital stock of the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Any options assumed or replaced in connection with such
acquisition will be subject to immediate acceleration, and any unvested shares
which do not vest at the time of such acquisition will be subject to full and
immediate vesting, in the event the individual's service is subsequently
terminated within 18 months following the acquisition. In addition, the Plan
Administrator has the authority to provide for the automatic acceleration of all
outstanding options under the Discretionary Grant Program and all unvested
shares under the Stock Issuance Program in connection with a hostile change in
control of the Company (whether by successful tender offer for more than 50% of
the outstanding voting stock or by proxy contest for the election of Board
members) or to condition such accelerated vesting upon the termination of such
individual's service within a specified period following such hostile change in
control.
Outstanding stock options under the Predecessor Plans which
were incorporated into the 1995 Plan will accelerate in connection with certain
acquisitions of the Company; those options currently do not contain acceleration
or vesting provisions tied to a termination of service following an acquisition
or to a hostile change in control of the Company. However, the Plan
Administrator has the authority to extend the acceleration provisions of the
1995 Plan to any or all stock options incorporated from the Predecessor Plans.
The acceleration of vesting in the event of a change in the
ownership or control of the Company may be seen as an anti-takeover provision
and may have the effect of discouraging a merger proposal, a takeover attempt,
or other efforts to gain control of the Company.
Financial Assistance
The Plan Administrator may permit one or more participants to
pay the exercise price of outstanding options or the purchase price of shares
under the 1995 Plan by delivering a promissory note payable in installments. The
Plan Administrator will determine the terms of any such promissory note.
However, the maximum amount of financing provided any participant may not exceed
the cash consideration payable for the issued shares plus all applicable taxes
incurred in connection with the acquisition of the shares. Any such promissory
note may be subject to forgiveness in whole or in part, at the discretion of the
Plan Administrator, over the participant's period of service.
- 18 -
<PAGE>
Special Tax Election
The Plan Administrator may provide one or more holders of
options or unvested shares with the right to have the Company withhold a portion
of the shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
Amendment and Termination
The Board may amend or modify the 1995 Plan in any or all
respects whatsoever subject to any required stockholder approval. The Board may
terminate the 1995 Plan at any time, and the 1995 Plan will in all events
terminate on the earlier of (i) February 28, 2005 or (ii) the date on which all
shares for issuance under the Plan have been issued.
Stock Awards
The table below shows, as to each of the Company's executive
officers named in the Summary Compensation Table and the various indicated
individuals and groups, the number of shares of Common Stock subject to options
granted between January 1, 1995 and April 30, 1996 under the Predecessor Plans
and the 1995 Plan together with the weighted average exercise price payable per
share.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Weighted
Number of Average
Name Option Shares Exercise Price
- -------- ------------- --------------
<S> <C> <C>
Stephen A. Roth 90,000 12.54
Chairman, Chief Executive Officer, and Director
P. Sherrill Neff 90,000 12.54
President, Chief Financial Officer and Director
Edward J. McGuire 10,000 9.00
Vice President, Research and Development
David F. Pritchard 7,000 6.64
Vice President, Business Development
David A. Zopf 6,666 9.00
Vice President, Drug Development
All current executive officers as a group 203,666 12.05
(5 persons)
William F. Hamilton 3,333 5.70
Director
Douglas J. MacMaster, Jr. 3,333 5.70
Director
Lindsay A. Rosenwald -0- -0-
Director
Lowell E. Sears 3,333 5.70
Director
Jerry A. Weisbach 3,333 5.70
Director
All non-employee directors as a group 13,332 5.70
(5 persons)
All employees, including current officers who are not 137,480 8.34
executive officers as a group
(43 persons)
</TABLE>
- 18 -
<PAGE>
New Plan Benefits
Each of Dr. Hamilton, Mr. MacMaster, Mr. Sears, and Dr.
Weisbach will, if re-elected to the Board at the Annual Meeting, receive an
option grant on the date of the meeting to purchase 3,333 shares of Common Stock
at an exercise price equal to the closing selling price per share of Common
Stock on the Nasdaq National Market on such date. Dr. Rosenwald has elected not
to receive the automatic option grant.
Federal Income Tax Consequences
Option Grants
Options granted under the 1995 Plan may be either incentive
stock options which satisfy the requirements of Section 422 of the Internal
Revenue Code or non-statutory options which are not intended to meet such
requirements. The Federal income tax treatment for the two types of options
differs as follows:
Incentive Options. No taxable income is recognized by the
optionee at the time of the option grant, and no taxable income is generally
recognized at the time the option is exercised. The optionee will, however,
recognize taxable income in the year in which the purchased shares are sold or
otherwise disposed of. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held the
shares for more than two years after the option grant date and more than one
year after the exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the
purchased shares, then the Company will be entitled to an income tax deduction,
for the taxable year in which such disposition occurs, equal to the excess of
(i) the fair market value of such shares on the option exercise date over (ii)
the exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
Non-Statutory Options. No taxable income is recognized by an
optionee upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised, equal
to the excess of the fair market value of the purchased shares on the exercise
date over the exercise price paid for the shares, and the optionee will be
required to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory
option are unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when the Company's repurchase right
lapses, an amount equal to the excess of (i) the fair market value of the shares
on the date the repurchase right lapses over (ii) the exercise price paid for
the shares. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the option
an amount equal to the excess of (i) the fair market value of the purchased
shares on the exercise date over (ii) the exercise price paid for such shares.
If the Section 83(b) election is made, the optionee will not recognize any
additional income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal
to the amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
- 19 -
<PAGE>
Stock Appreciation Rights
An optionee who is granted a stock appreciation right will
recognize ordinary income in the year of exercise equal to the amount of the
appreciation distribution. The Company will be entitled to an income tax
deduction equal to the appreciation distribution for the taxable year in which
the ordinary income is recognized by the optionee.
Direct Stock Issuances
The tax principles applicable to direct stock issuances under
the 1995 Plan will be substantially the same as those summarized above for the
exercise of non-statutory option grants.
Accounting Treatment
Option grants or stock issuances with exercise or issue prices
less than the fair market value of the shares on the grant or issue date will
result in a compensation expense to the Company's earnings equal to the
difference between the exercise or issue price and the fair market value of the
shares on the grant or issue date. Such expense will be recognized by the
Company over the period that the option shares or issued shares are to vest.
Option grants or stock issuances at 100% of fair market value will not result in
any charge to the Company's earnings. However, under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
disclosure will be required as to the impact the options would have upon the
Company's reported earnings using the fair value based method of accounting for
stock options. Whether or not granted at a discount, the number of outstanding
options may be a factor in determining the Company's earnings per share.
Should one or more optionees be granted stock appreciation
rights which have no conditions upon exercisability other than a service or
employment requirement, then such rights will result in a compensation expense
to the Company's earnings.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting
shares of the Company present or represented and entitled to vote at the 1996
Annual Meeting is required for approval of the amendment to the 1995 Plan to
implement the Director Fee Program. If such approval is obtained, the Director
Fee Program will become effective upon the date of the 1996 Annual Meeting.
Should such stockholder approval not be obtained, then the Director Fee Program
will not become effective. The 1995 Plan will, however, continue to remain in
effect, and option grants and stock issuances may continue to be made pursuant
to the provisions of the 1995 Plan until the available reserve of Common Stock
under the plan is issued.
The Board of Directors recommends that the stockholders vote
FOR the approval of the amendment to the 1995 Plan to implement the Director Fee
Program.
- 20 -
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of
Directors appointed Arthur Andersen LLP, independent public accountants and
auditors of the Company since October, 1994, as auditors of the Company to serve
for the fiscal year ending December 31, 1996, subject to the ratification of
such appointment by the stockholders at the Annual Meeting. A majority of the
votes of the outstanding shares of Common Stock is required to ratify the
appointment of the auditors. A representative of Arthur Andersen LLP will attend
the Annual Meeting of Stockholders with the opportunity to make a statement if
he or she so desires and will also be available to answer inquiries.
STOCKHOLDER PROPOSALS
In accordance with regulations issued by the Securities and
Exchange Commission, stockholder proposals intended for presentation at the 1997
Annual Meeting of Stockholders must be received by the Secretary of the Company
no later than January 16, 1997 if such proposals are to be considered for
inclusion in the Company's Proxy Statement.
OTHER MATTERS
Management knows of no matters that are to be presented for
action at the meeting other than those set forth above. If any other matters
properly come before the meeting, the persons named in the enclosed form of
proxy will vote the shares represented by proxies in accordance with their best
judgment on such matters.
Proxies will be solicited by mail and may also be solicited in
person or by telephone by some regular employees of the Company. The Company may
also consider the engagement of a proxy solicitation firm. Costs of the
solicitation will be borne by the Company.
By Order of the Board of Directors
Stephen A. Roth
Chairman and Chief Executive Officer
Horsham, Pennsylvania
May 17, 1996
- 21 -
<PAGE>
NEOSE TECHNOLOGIES, INC.
APPENDIX A
INFORMATION ON EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase
Plan"), pursuant to which 100,000 shares of Common Stock have been reserved for
issuance, is intended to provide eligible employees of the Company and its
participating affiliates with the opportunity to acquire a proprietary interest
in the Company through participation in a payroll-deduction based employee stock
purchase plan designed to operate in compliance with Section 423 of the Internal
Revenue Code. The Purchase Plan was adopted by the Board and approved by the
Company's stockholders in December, 1995. The Purchase Plan became effective on
February 16, 1995 (the "Effective Date") upon execution of the underwriting
agreement in connection with the initial public offering of the Common Stock.
The following is a summary of the principal features of the
Purchase Plan. The summary, however, does not purport to be a complete
description of all the provisions of the Purchase Plan. Any stockholder of the
Company who wishes to obtain a copy of the actual plan document may do so upon
written request to the Corporate Secretary at the Company's principal executive
offices in Horsham, Pennsylvania. The information is provided in accordance with
the applicable requirements of the Federal securities laws in order to assure
that the Purchase Plan will qualify under Rule 16b-3 of the Securities and
Exchange Commission and thereby provide the Company's executive officers and
members of the Board of Directors with certain exemptions from the short-swing
liability provisions of the Federal securities laws for their transactions under
the Purchase Plan.
Share Reserve
A total of 100,000 shares of Common Stock have been reserved
for issuance over the ten year term of the Purchase Plan. The shares may be made
available from authorized but unissued shares of the Company's Common Stock
repurchased by the Company, including shares purchased on the open market.
In the event any change is made to the outstanding shares of
Common Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the class and maximum number of securities issuable under
the Purchase Plan, including the number issuable per participant on any one
purchase date, and (ii) the class and maximum number of securities subject to
each outstanding purchase right and the purchase price payable per share
thereunder.
Administration
The Purchase Plan is administered by the Compensation
Committee of the Board. Such committee, as Plan Administrator, has full
authority to adopt such rules and procedures as it may deem necessary for proper
plan administration and to interpret the provisions of the Purchase Plan. All
costs and expenses incurred in plan administration will be paid by the Company
without charge to participants.
Offering Periods and Purchase Periods
The Purchase Plan will be implemented in a series of
successive offering periods, each with a maximum duration (not to exceed
twenty-four (24) months) designated by the Plan Administrator prior to the start
date. The initial offering period runs from the Effective Date to January 31,
1998, and the next offering period is scheduled to commence on February 1, 1998.
Shares will be purchased during each offering period at
designated semi-annual intervals. Each such interval will constitute a purchase
period. Purchase periods will begin on the first business day in February and
August each year and end on the last business day in July and January
respectively each year. However, the first purchase period under the initial
offering period commenced on the Effective Date and will end on the last
business day in July, 1996.
<PAGE>
Eligibility
Any individual who is employed on a basis under which he or
she is expected to work for more than twenty (20) hours per week for more than
five (5) months per calendar year in the employ of the Company or any
participating affiliate is eligible to participate in the Purchase Plan. Each
individual who was an eligible employee on the Effective Date was allowed to
join the Purchase Plan on that date or such individual may join the Purchase
Plan on the start date of any purchase period within any offering period. Each
individual who becomes eligible to participate in the Purchase Plan after the
Effective Date may enter the Purchase Plan on the start date of any purchase
period within any offering period after completion of one (1) month of service
with the Company or any affiliate. The date an individual enters an offering
period under the Purchase Plan will be designated his or her Entry Date for
purposes of that offering period.
Participating affiliates include any parent or subsidiary
corporations of the Company, whether now existing or hereafter organized, which
elect to extend the benefits of the Purchase Plan to their eligible employees.
As of April 30, 1996, approximately 44 employees, including 5
executive officers, were eligible to participate in the Purchase Plan.
Purchase Provisions
The participant will be granted a separate purchase right for
each offering period in which he or she participates. The purchase right will be
granted on his or Entry Date into that offering period and will be automatically
exercised on the last business day of each purchase period within that offering
period on which he or she remains an eligible employee.
Each participant may authorize period payroll deductions in
any multiple of 1% of his or her base salary up to a maximum of 10%. On the last
business day of each purchase period, the accumulated payroll deductions of each
participant will automatically be applied to the purchase of whole shares of
Common Stock at the purchase price in effect for the participant for that
purchase period. However, no participant may, on any one purchase date within
the offering period, purchase more than 1,000 shares.
Purchase Price
The purchase price per share at which Common Stock will be
purchased on the participant's behalf on each purchase date within the offering
period will be equal to eighty-five percent (85%) of the lower of (i) the fair
market value per share of Common Stock on the participant's Entry Date into that
offering period or (ii) the fair market value per share of Common Stock on that
purchase date. However, for each participant whose Entry Date is other than the
start date of the offering period, the clause (i) amount will not be less than
the fair market value per share of Common Stock on the start date of that
offering period.
Valuation
The fair market value per share of Common Stock on February
16, 1996, the effective date of the Purchase Plan, was deemed to be equal to the
$12.50 per share price at which the Common Stock was sold in the initial public
offering on that date. The fair market value per share of Common Stock on any
other relevant date will be deemed to be equal to the closing selling price per
share on such date on the Nasdaq National Market. On April 30, 1996, the fair
market value per share of Common Stock was $21.875 per share.
Special Limitations
The Purchase Plan imposes certain limitations upon a
participant's rights to acquire Common Stock, including the following
limitations:
(i) No purchase right may be granted to any
individual who owns stock (including stock purchasable under any
outstanding purchase rights) possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company
of any of its affiliates.
A-2
<PAGE>
(ii) No purchase right granted to a participant may
permit such individual to purchase Common Stock at a rate greater than
$25,000 worth of such Common Stock (valued at the time such purchase
right is granted) for each calendar year the purchase right remains
outstanding at any time.
Termination of Purchase Rights
The participant's purchase right will immediately terminate
upon his or her loss of eligible employee status or his or her affirmative
withdrawal from the offering period. A participant who ceases to be an eligible
employee (other than by reason of death or disability) will receive an immediate
refund of his or her payroll deductions for the purchase period in which such
loss of eligibility status occurs. A participant who ceases to be an eligible
employee by reason of death or disability or who elects to withdraw from the
offering period may have his or her payroll deductions for the current purchase
period either refunded or applied to the purchase of Common Stock at the end of
that period.
Stockholder Rights
No participant will have any stockholder rights with respect
to the shares of Common Stock covered by his or her purchase right until the
shares are actually purchased on the participant's behalf. No adjustment will be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
Assignability
No purchase right will be assignable or transferable and will
be exercisable only by the participant.
Acquisition
Should the Company be acquired by merger or asset sale during
an offering period, all outstanding purchase rights will automatically be
exercised immediately prior to the effective date of such acquisition. The
purchase price will be 85% of the lesser of (i) the fair market value per share
of Common Stock on the participant's Entry Date into that offering period or
(ii) the fair market value per share of Common Stock immediately prior to such
acquisition. However, the clause (i) amount will not, for any participant whose
Entry Date for the offering period is other than the start date of that offering
period, be less than the fair market value per share of Common Stock on such
start date.
Amendment and Termination
The Purchase Plan will terminate upon the earliest to occur of
(i) the last business day of January, 2006, (ii) the date on which all available
shares are issued or (iii) the date on which all outstanding purchase rights are
exercised in connection with an acquisition of the Company.
The Board may at any time alter, suspend or discontinue the
Purchase Plan. However, the Board may not, without stockholder approval, (i)
materially increase the number of shares issuable under the Purchase Plan,
except in connection with certain changes in the Company's capital structure,
(ii) alter the purchase price formula so as to reduce the purchase price, (iii)
materially increase the benefits accruing to participants or (iv) materially
modify the requirements for eligibility to participate in the Purchase Plan.
Share Pro-Ration
Should the total number of shares of Common Stock to be
purchased pursuant to outstanding purchase rights on any particular date exceed
the number of shares then available for issuance under the Purchase Plan, then
the Plan Administrator will make a pro-rata allocation of the available shares
on a uniform and nondiscriminatory basis, and the payroll deductions of each
participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock pro-rated to such individual, will be refunded.
A-3
<PAGE>
Federal Tax Consequences
The Purchase Plan is intended to be an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code.
Under a plan which so qualifies, no taxable income will be recognized by a
participant, and no deductions will be allowable to the Company, in connection
with the grant or the exercise of an outstanding purchase right. Taxable income
will not be recognized until there is a sale or other disposition of the shares
acquired under the Purchase Plan or in the event the participant should die
while still owning the purchased shares.
If the participant sells or otherwise disposes of the
purchased shares within two (2) years after his or her Entry Date into the
offering period in which such shares were acquired and another one (1) year from
the date the shares were acquired, then the participant will recognize ordinary
income in the year of sale or disposition equal to the amount by which the fair
market value of the shares on the purchase date exceeded the purchase price paid
for those shares, and the Company will be entitled to an income tax deduction,
for the taxable year in which such sale or disposition occurs, equal in amount
to such excess.
If the participant sells or disposes of the purchased shares
more than two (2) years after his or her Entry Date into the offering period in
which such shares were acquired and more than one (1) year after the shares were
acquired, then the participant will recognize ordinary income in the year of
sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or (ii) 15% of the fair market value of the shares
on his or her Entry Date into the offering period, and any additional gain upon
the disposition will be taxed as a long-term capital gain. The Company will not
be entitled to any income tax deduction with respect to such sale or
disposition.
If the participant still owns the purchased shares at the time
of death, then in general the lesser of (i) the amount by which the fair market
value of the shares on the date of death exceeds the purchase price or (ii) 15%
of the fair market value of the shares on his or her Entry Date into the
offering period in which those
shares were acquired will constitute ordinary income in the year of death.
Accounting Treatment
Under current accounting rules, the issuance of shares of
Common Stock under the Purchase Plan will not result in a compensation expense
chargeable against the Company's reported earnings. However, under Statement of
Financial Accounting Standards No. 123, "Accounting For Stock-Based
Compensation," disclosure will be required as to the impact the purchase rights
under the Purchase Plan would have upon the Company's reported earnings using
the fair value based method of accounting for purchase rights.
Stock Issuances
There have been no shares of Common Stock purchased under the
Purchase Plan. The first purchase will occur on the last business day in July,
1996.
A-4
<PAGE>
================================================================================
NEOSE TECHNOLOGIES, INC.
APPENDIX B
ANNUAL REPORT
================================================================================
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Neose Technologies, Inc.:
We have audited the accompanying balance sheets of Neose Technologies, Inc. (a
Delaware corporation in the development stage), formerly Neose Pharmaceuticals,
Inc., as of December 31, 1994 and 1995, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995 and for the period from inception (January
17, 1989) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Neose Technologies, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 and for the
period from inception (January 17, 1989) to December 31, 1995, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pa.,
January 26, 1996 (except
with respect to the
Recapitalization discussed
in Note 3, as to which the
date is February 22, 1996)
B-1
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
December 31, (Note 2)
------------------------------------ December 31,
1994 1995 1995
--------------- ------------------ ------------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 5,362,830 $ 11,189,001 $ 40,525,165
Restricted funds............................................ 353,920 148,300 148,300
Prepaid expenses and other.................................. 56,651 118,680 118,680
----------- ------------- ------------
Total current assets................................... 5,773,401 11,455,981 40,792,145
PROPERTY AND EQUIPMENT, net................................... 2,199,933 2,685,613 2,685,613
DEFERRED FINANCING COSTS...................................... -- 409,003 --
RESTRICTED FUNDS.............................................. 219,199 73,066 73,066
OTHER ASSETS.................................................. 3,400 15,049 15,049
----------- ------------- ------------
$ 8,195,933 $ 14,638,712 $ 43,565,873
=========== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 369,254 $ 764,552 $ 764,552
Accounts payable........................................... 218,156 301,023 301,023
Accrued compensation....................................... 369,294 191,318 191,318
Other accrued expenses..................................... 98,587 297,605 97,605
Deferred revenue........................................... -- 41,667 41,667
----------- ------------- ------------
Total current liabilities.............................. 1,055,291 1,596,165 1,396,165
OTHER LIABILITIES............................................. 53,060 74,986 74,986
LONG-TERM DEBT................................................ 736,035 1,234,527 1,234,527
COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY:
Convertible preferred stock (liquidation preference of
$25,629,004 at December 31, 1995)...................... 44,762 57,802 --
Common stock, $.01 par value, 30,000,000 shares
authorized; 2,523,250 and 3,145,256 shares issued and
outstanding, actual, 8,143,458 shares issued and
outstanding, pro forma................................ 25,232 31,453 81,435
Additional paid-in capital............................... 20,597,026 31,385,927 60,520,908
Deferred compensation.................................... -- (359,900) (359,900)
Deficit accumulated during the development stage......... (14,315,473) (19,382,248) (19,382,248)
----------- ------------- ------------
Total stockholders' equity............................. 6,351,547 11,733,034 40,860,195
----------- ------------- ------------
$ 8,195,933 $ 14,638,712 $ 43,565,873
=========== ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
B-2
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Inception
Year Ended December 31, (January 17, 1989)
---------------------------------------- to December 31,
1993 1994 1995 1995
------- ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES FROM COLLABORATIVE
AGREEMENTS............................... $ 2,600,000 $ 47,500 $ 1,198,863 $ 3,846,363
----------- ----------- ----------- ------------
OPERATING EXPENSES:
Research and development................. 3,399,444 5,003,780 4,732,788 16,476,557
General and administrative............... 1,576,864 1,318,884 1,665,320 6,688,728
----------- ----------- ----------- ------------
Total operating expenses.............. 4,976,308 6,322,664 6,398,108 23,165,285
----------- ----------- ----------- ------------
Operating loss........................ (2,376,308) (6,275,164) (5,199,245) (19,318,922)
INTEREST INCOME............................. 59,534 257,264 322,309 815,985
INTEREST EXPENSE............................ (106,143) (194,349) (189,839) (879,311)
----------- ----------- ----------- ------------
NET LOSS.................................... $(2,422,917) $(6,212,249) $(5,066,775) $(19,382,248)
=========== =========== =========== ============
PRO FORMA NET LOSS PER SHARE
(unaudited)............................ $ (1.05)
===========
SHARES USED IN COMPUTING PRO FORMA
NET LOSS PER SHARE (unaudited)......... 4,848,000
===========
</TABLE>
The accompanying notes are an integral part of these statements.
B-3
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
--------------- ------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 17, 1989 (inception)....................... -- $ -- -- $ --
Initial issuance of common stock.......................... -- -- 1,302,000 13,020
Shares issued for consulting and licensing................ -- -- 325,500 3,255
Sale of common stock...................................... -- -- 133,334 1,333
Shares issued pursuant to antidilutive
agreements.............................................. -- -- 2,864 29
Net loss.................................................. -- -- -- --
---------- ------- --------- ------
BALANCE, DECEMBER 31, 1990.................................. -- -- 1,763,698 17,637
Sale of Series A preferred stock.......................... 100,000 1,000 -- --
Sale of Series B preferred stock.......................... 1,416,695 14,167 -- --
Sale of common stock...................................... -- -- 420,284 4,203
Shares issued for consulting services..................... -- -- 7,584 76
Shares issued pursuant to antidilutive
agreements.............................................. -- -- 137,193 1,372
Capital contribution...................................... -- -- -- --
Dividends on Series A preferred stock..................... -- -- -- --
Net loss.................................................. -- -- -- --
---------- ------- --------- ------
BALANCE, DECEMBER 31, 1991.................................. 1,516,695 15,167 2,328,759 23,288
Shares issued pursuant to exercise of
stock options........................................... -- -- 8,334 83
Sale of Series C preferred stock.......................... 235,295 2,353 -- --
Sale of Series D preferred stock.......................... 25,000 250 -- --
Shares issued pursuant to redemption of
notes payable........................................... -- -- 24,120 241
Exercise of stock warrants pursuant to redemption of
notes payable........................................... -- -- 83,339 833
Shares issued pursuant to exercise of warrants............ -- -- 12,501 125
Dividends on Series A preferred stock..................... -- -- -- --
Sale of common stock...................................... -- -- 16,989 170
Amortization of deferred compensation..................... -- -- -- --
Net loss.................................................. -- -- -- --
---------- ------- --------- ------
BALANCE, DECEMBER 31, 1992.................................. 1,776,990 17,770 2,474,042 24,740
Sale of Series D preferred stock.......................... 250,000 2,500 -- --
Dividends on Series A preferred stock..................... -- -- -- --
Shares issued to the University of Pennsylvania........... -- -- 3,482 35
Shares issued to Series A preferred stockholder in lieu of
cash dividends.......................................... -- -- 924 9
Amortization of deferred compensation..................... -- -- -- --
Net loss.................................................. -- -- -- --
---------- ------- --------- ------
BALANCE, DECEMBER 31, 1993.................................. 2,026,990 20,270 2,478,448 24,784
Sales of Series D preferred stock......................... 250,000 2,500 -- --
Shares issued pursuant to exercise of stock options....... -- -- 35,328 353
Sale of Series E preferred stock.......................... 2,199,238 21,992 -- --
Dividends on Series A preferred stock..................... -- -- -- --
Shares issued to Series A preferred stockholder in lieu of
cash dividends.......................................... -- -- 9,474 95
Net loss.................................................. -- -- -- --
---------- ------- --------- ------
BALANCE, DECEMBER 31, 1994.................................. 4,476,228 44,762 2,523,250 25,232
Sale of Series F preferred stock.......................... 2,720,656 27,207 -- --
Dividends on Series A preferred stock..................... -- -- -- --
Shares issued to Series A preferred stockholder in lieu of
cash dividends.......................................... -- -- 3,158 32
Shares issued pursuant to exercise of stock options....... -- -- 15,638 156
Shares issued to employees in lieu of cash compensation... -- -- 7,810 78
Shares issued pursuant to exercise of warrants............ -- -- 99,751 998
Deferred compensation related to grant of stock options... -- -- -- --
Shares issued to stockholder in connection with the
offering................................................ -- -- 23,400 234
Conversion of Series B preferred stock into common
stock................................................... (1,416,695) (14,167) 472,249 4,723
Net loss.................................................. -- -- -- --
---------- ------- --------- ------
BALANCE, DECEMBER 31, 1995.................................. 5,780,189 57,802 3,145,256 $31,453
========== ======= ========= =======
PRO FORMA BALANCE, December 31, 1995
(Note 2) (Unaudited)...................................... -- $ -- 8,143,458 $81,435
========== ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Total
Paid-in Deferred Development Stockholders'
Capital Compensation Stage Equity
------- ------------ ----- ------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 17, 1989 (inception)....................... $ -- $ -- $ -- $ --
Initial issuance of common stock.......................... (3,020) -- -- 10,000
Shares issued for consulting and licensing................ (1,255) -- -- 2,000
Sale of common stock...................................... 1,267 -- -- 2,600
Shares issued pursuant to antidilutive
agreements.............................................. (29) -- -- --
Net loss.................................................. -- -- (460,307) (460,307)
----------- --------- ------------ -----------
BALANCE, DECEMBER 31, 1990.................................. (3,037) -- (460,307) (445,707)
Sale of Series A preferred stock.......................... 269,000 -- -- 270,000
Sale of Series B preferred stock.......................... 4,195,952 -- -- 4,210,119
Sale of common stock...................................... 33,619 (7,264) -- 30,558
Shares issued for consulting services..................... 606 -- -- 682
Shares issued pursuant to antidilutive (1,372) -- -- --
agreements.............................................. 9,971 -- -- 9,971
Capital contribution...................................... (18,000) -- -- (18,000)
Dividends on Series A preferred stock..................... --
Net loss.................................................. -- -- (1,865,026) (1,865,026)
----------- --------- ------------ -----------
BALANCE, DECEMBER 31, 1991.................................. 4,486,739 (7,264) (2,325,333) 2,192,597
Shares issued pursuant to exercise of
stock options........................................... 16,167 -- -- 16,250
Sale of Series C preferred stock.......................... 1,847,647 -- -- 1,850,000
Sale of Series D preferred stock.......................... 199,750 -- -- 200,000
Shares issued pursuant to redemption of
notes payable........................................... 462,165 -- -- 462,406
Exercise of stock warrants pursuant to redemption of
notes payable........................................... 220,609 -- -- 221,442
Shares issued pursuant to exercise of warrants............ 34,562 -- -- 34,687
Dividends on Series A preferred stock..................... (36,000) -- -- (36,000)
Sale of common stock...................................... 295,458 -- -- 295,628
Amortization of deferred compensation..................... -- 4,843 -- 4,843
Net loss.................................................. -- -- (3,354,974) (3,354,974)
----------- --------- ------------ -----------
BALANCE, DECEMBER 31, 1992.................................. 7,527,097 (2,421) (5,680,307) 1,886,879
Sale of Series D preferred stock.......................... 1,997,500 -- -- 2,000,000
Dividends on Series A preferred stock..................... (36,000) -- -- (36,000)
Shares issued to the University of Pennsylvania........... (35) -- -- --
Shares issued to Series A preferred stockholder in lieu of
cash dividends.......................................... 17,991 -- -- 18,000
Amortization of deferred compensation..................... -- 2,421 -- 2,421
Net loss.................................................. -- -- (2,422,917) (2,422,917)
----------- --------- ------------ -----------
BALANCE, DECEMBER 31, 1993.................................. 9,506,553 -- (8,103,224) 1,448,383
Sales of Series D preferred stock......................... 1,997,500 -- -- 2,000,000
Shares issued pursuant to exercise of stock options....... 13,713 -- -- 14,066
Sale of Series E preferred stock.......................... 9,043,355 -- -- 9,065,347
Dividends on Series A preferred stock..................... (18,000) -- -- (18,000)
Shares issued to Series A preferred stockholder in lieu of
cash dividends.......................................... 53,905 -- -- 54,000
Net loss.................................................. -- -- (6,212,249) (6,212,249)
----------- --------- ------------ -----------
BALANCE, DECEMBER 31, 1994.................................. 20,597,026 -- (14,315,473) 6,351,547
Sale of Series F preferred stock.......................... 10,064,668 -- -- 10,091,875
Dividends on Series A preferred stock..................... (36,000) -- -- (36,000)
Shares issued to Series A preferred stockholder in lieu of
cash dividends.......................................... 17,968 -- -- 18,000
Shares issued pursuant to exercise of stock options....... 30,525 -- -- 30,681
Shares issued to employees in lieu of cash compensation... 44,395 -- -- 44,473
Shares issued pursuant to exercise of warrants............ 298,235 -- -- 299,233
Deferred compensation related to grant of stock options... 359,900 (359,900) -- --
Shares issued to stockholder in connection with the
offering................................................ (234) -- -- --
Conversion of Series B preferred stock into common
stock................................................... 9,444 -- -- --
Net loss.................................................. -- -- (5,066,775) (5,066,775)
----------- --------- ------------ -----------
BALANCE, DECEMBER 31, 1995.................................. $31,385,927 $(359,900) $(19,382,248) $11,733,034
=========== ========= ============ ===========
PRO FORMA BALANCE, December 31, 1995
(Note 2) (Unaudited)...................................... $60,520,908 $(359,900) $(19,382,248) $40,860,195
=========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
B-4
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Inception
(January 17,
Year Ended December 31, 1989)
------------------------------------------------ to December 31,
1993 1994 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $ (2,422,917) $ (6,212,249) $ (5,066,775) $(19,382,248)
Adjustments to reconcile net loss to cash used in
operating activities--
Depreciation and amortization .......................... 194,454 309,303 389,331 1,175,595
Common stock issued for consulting, licensing and
other non-cash charges ................................ -- -- -- 25,762
Compensation expense exchanged for
common stock .......................................... 2,421 -- -- 12,107
Other, net ............................................. -- -- -- (2,907)
Changes in operating assets and liabilities--
Restricted funds .................................. 197,338 (112,466) 351,753 (221,366)
Prepaid expenses and other ........................ (14,169) (20,686) (62,030) (118,681)
Other assets ...................................... 1,500 416 (11,649) (15,049)
Accounts payable .................................. 145,926 (112,219) 82,868 301,024
Accrued compensation .............................. 219,418 149,876 (135,880) 13,996
Other accrued expenses ............................ (32,754) 84,794 201,394 519,399
Deferred revenue .................................. -- -- 41,667 41,667
Other liabilities ................................. 186,666 (133,606) 21,926 74,986
------------ ------------ ------------ ------------
Net cash used in operating activities ............. (1,522,117) (6,046,837) (4,187,395) (17,575,715)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ...................... (490,894) (975,175) (875,010) (3,103,307)
Purchase of short-term investments ....................... -- -- -- (3,177,000)
Proceeds from sale of short-term investments ............. -- -- -- 3,177,000
Proceeds from sale-leaseback of equipment ................ -- -- 1,382,027 1,382,027
------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities ............................................ (490,894) (975,175) 507,017 (1,721,280)
------------ ------------ ------------ ------------
</TABLE>
(Continued)
B-5
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Period from
Inception
(January 17,
Year Ended December 31, 1989)
------------------------------------------------ to December 31,
1993 1994 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of notes .......................... $ -- $ -- $ -- $ 1,225,000
Repayment of notes payable ................................... (150,000) -- -- (565,250)
Proceeds from issuance of short-term debt .................... -- -- -- 290,000
Repayment of short-term debt ................................. -- -- -- (290,000)
Proceeds from issuance of long-term debt ..................... 1,010,869 100,000 -- 1,110,869
Repayment of long-term debt .................................. (167,943) (294,324) (488,237) (998,267)
Proceeds from issuance of preferred stock,
net ........................................................ 2,000,000 11,065,347 10,091,875 29,687,341
Proceeds from issuance of common stock, net .................. -- -- -- 320,835
Proceeds from exercise of warrants, net ...................... -- -- 299,233 333,920
Proceeds from exercise of stock options ...................... -- 14,066 30,681 60,997
Dividends paid ............................................... -- -- (18,000) (54,000)
Issuance costs resulting from conversion of notes to
common stock ............................................... -- -- -- (36,402)
Deferred financing costs ..................................... -- -- (409,003) (599,047)
------------ ------------ ------------ ------------
Net cash provided by financing activities .................. 2,692,926 10,885,089 9,506,549 30,485,996
------------ ------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ...................... 679,915 3,863,077 5,826,171 11,189,001
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ...................................................... 819,838 1,499,753 5,362,830 --
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................... $ 1,499,753 $ 5,362,830 $ 11,189,001 $ 11,189,001
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ....................................... $ 128,643 $ 158,575 $ 200,008 $ 793,193
============ ============ ============ ============
Noncash financing activities--
Issuance of common stock for dividends ..................... $ 18,000 $ 54,000 $ 18,000 $ 90,000
============ ============ ============ ============
Issuance of common stock to employees in lieu of cash
compensation ............................................. $ -- $ -- $ 44,473 $ 44,473
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
B-6
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND:
Neose Technologies, Inc., a development-stage company, formerly Neose
Pharmaceuticals, Inc. (the Company), is focused on the enzymatic synthesis of
complex carbohydrates and discovers and develops complex carbohydrates for
nutritional and pharmaceutical uses. The Company's products in development
include breast milk oligosaccharide additives to infant formula, and
pharmaceuticals to treat gastrointestinal and respiratory infections, and to
prevent xenotransplant rejection. The Company has developed proprietary
technologies that it believes enables, for the first time, the rapid and
cost-efficient production of naturally occurring oligosaccharides.
The Company was incorporated in January 1989, and commenced operations in
August 1990. Since its inception, the Company has derived substantially all of
its revenues from its strategic alliance with Abbott Laboratories (Note 4); no
product revenues have been generated to date. The Company has incurred losses
since its inception. The Company anticipates incurring additional losses over at
least the next several years and such losses are expected to increase as the
Company expands its research and development activities. Substantial financing
will be needed by the Company to fund its operations and to commercially develop
its products. There is no assurance that such financing will be available when
needed. Operations of the Company are subject to certain risks and uncertainties
including, among others, uncertainty of product development, technological
uncertainty, dependence on Abbott Laboratories and other collaborative partners,
uncertainty regarding patents and proprietary rights, comprehensive government
regulations, no commercial manufacturing, marketing, or sales capability or
experience, limited clinical trial experience, and dependence on key personnel.
2. UNAUDITED PRO FORMA TRANSACTIONS:
In connection with the initial public offering of 2,587,500 shares of the
Company's common stock (the Offering), all outstanding shares of Series A, C, D,
E, and F Convertible Preferred Stock converted into 2,410,702 shares of common
stock.
The unaudited pro forma balance sheet reflects (i) net proceeds of
$29,127,161 received from the Offering and (ii) the conversion of all
outstanding shares of convertible preferred stock as if these transactions had
occurred as of December 31, 1995.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments consisting of purchases
with an original maturity of three months or less to be cash equivalents. Cash
equivalents at December 31, 1995 consist of $10,114,000 of overnight repurchase
agreements secured by United States Treasury Notes.
Property and Equipment
Property and equipment are stated at cost. Property and equipment
capitalized under capital leases are recorded at the present value of the
minimum lease payments due over the lease term. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the related assets or the lease term, whichever is shorter. The Company uses
lives of two to seven years for office, research, and manufacturing equipment.
B-7
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
Research and Development
Research and development costs are charged to expense as incurred.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
the objective of which is to recognize the amount of current and deferred income
taxes payable or refundable at the date of the financial statements as a result
of all events that have been recognized in the financial statements as measured
by enacted tax laws.
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $5,953,000. In addition, the
Company has federal research and development credit carryforwards of
approximately $561,000. The net operating loss and credit carryforwards begin to
expire in 2004 and are subject to review and possible adjustment by the Internal
Revenue Service. The Tax Reform Act of 1986 contains provisions that may limit
the net operating loss carryforwards available to be used in any given year in
the event of significant changes in ownership interest.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows:
<TABLE>
<CAPTION>
December 31,
------------
1994 1995
---- ----
<S> <C> <C>
Net operating loss carryforwards.............................................. $1,569,788 $2,024,094
Research and development credit carryforwards................................. 454,727 561,058
Start-up costs................................................................ 1,487,248 2,027,935
Capitalized research and development.......................................... 1,497,947 2,109,947
Deferred revenue.............................................................. -- 14,167
Nondeductible accruals........................................................ 38,284 --
Nondeductible depreciation and amortization................................... 265,395 397,768
Deferred rent................................................................. 18,040 25,495
Valuation allowance........................................................... (5,331,429) (7,160,464)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax
asset, the Company has provided a full valuation allowance against this amount.
Revenue Recognition
The Company records revenue from collaborative agreements when the specified
services are performed or ratably over the respective terms of the agreements.
Pro Forma Net Loss Per Share (unaudited)
Pro forma net loss per share was calculated by dividing the net loss by the
weighted average number of common shares outstanding for the respective periods
adjusted for the dilutive effect of common stock equivalents which consist of
stock options and warrants, using the treasury stock method. Pursuant to the
requirements of the Securities and Exchange Commission, common stock issued by
the Company during the twelve months immediately preceding the initial public
offering has been included in the calculation of the shares used in computing
net loss per share as
B-8
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
if it was outstanding for all periods presented (using the treasury stock method
and an initial public offering price of $12.50 per share). Pursuant to the
policy of the staff of the Securities and Exchange Commission, the calculation
of shares used in computing pro forma net loss per share also includes all
shares of convertible preferred stock which will convert into shares of common
stock immediately prior to the closing of the Offering as if they were converted
to common stock on their original dates of issuance. Historical earnings per
share information has not been disclosed because of the conversion of all
outstanding shares of preferred stock into shares of common stock (Note 2).
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The
Company is required to adopt this standard for the year ending December 31,
1996. The Company has elected to adopt the disclosure requirement of this
pronouncement. The adoption of this pronouncement will have no impact on the
Company's statements of operations.
Recapitalization
In December, 1995, the Company's stockholders approved the following actions
to become effective upon the closing of the Offering: (i) a one-for-three
reverse stock split of the Company's common shares, (ii) a change in the number
of authorized shares of common stock and preferred stock to 30,000,000 and
5,000,000, respectively, and (iii) a change in the par value of common stock to
$.01 per share. All references in the financial statements to the number of
common shares, per share amounts, and stock options and warrants exercisable
into common stock have been retroactively restated to reflect these changes.
4. AGREEMENTS WITH ABBOTT LABORATORIES:
The Company and Abbott Laboratories (Abbott) entered into collaborative
agreements (the Abbott Agreements) to develop breast milk oligosaccharides as
additives to infant formula and other nutritional products. Abbott has
manufacturing rights and further manufacturing development responsibilities for
the nutritional additives. Under this strategic alliance, the Company has
received approximately $3.7 million in contract payments, license fees, and
milestone payments through December 31, 1995. In addition, the Company is to
receive $1.5 million in three equal installments in January and July 1996, and
January 1997, and $5.0 million within 60 days of the first commercial sale, if
any, of infant formula containing the Company's nutritional additive. Abbott
will manufacture the nutritional additive for its own use and has agreed to pay
the Company ongoing fees based on the dry weight of the infant formula sold
containing the nutritional additive. The Company is required to credit $3.75
million of the license fees against the ongoing fees in equal amounts over four
years. In addition, Abbott has agreed to renegotiate the fees due the Company on
the sale of products containing the nutritional additive in any case where the
Company has made a contribution that both parties agree will result in a
substantial commercial advantage. Abbott may, at any time prior to the first
commercial sale, if any, of infant formula containing the Company's nutritional
additive, elect to make its license agreement non-exclusive, in which event the
license fees payable by Abbott after commercialization would be reduced by 50%
and Abbott's obligations to make contract and milestone payments, including the
July 1996 and January 1997 payments and the $5.0 million milestone payment would
be terminated. Abbott also has the right to cancel the underlying license
agreement upon 60 days' written notice and return the technology, in which event
it would have no further funding obligations to the Company. The Company
anticipates that its manufacturing arrangement with Abbott will assist the
Company in developing its own manufacturing capability. As part of the strategic
alliance, in January 1993 and April 1994 Abbott invested an aggregate of $4.0
million to acquire 500,000 shares of the Company's Series D Preferred Stock at
$8.00 per share.
During 1995, Abbott made contractual payments to the Company under the
Agreements totaling $1,000,000. In addition, Abbott purchased raw materials from
the Company for $105,000 which was included in revenue for the year ended
December 31, 1995.
B-9
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31,
------------
1994 1995
---- ----
<S> <C> <C>
Research equipment............................................................ $1,138,253 $1,413,646
Leasehold improvements........................................................ 731,504 1,447,100
Construction in progress...................................................... 220,709 --
Manufacturing equipment....................................................... 532,554 601,950
Computer and office equipment................................................. 173,134 208,469
---------- ----------
2,796,154 3,671,165
Less-- Accumulated depreciation and amortization.............................. (596,221) (985,552)
---------- ----------
$2,199,933 $2,685,613
========== ==========
</TABLE>
Depreciation and amortization expense was $194,454, $309,303, and $389,331
for the years ended December 31, 1993, 1994, and 1995, respectively.
During 1995, the Company financed certain property including leasehold
improvements, manufacturing equipment and construction in progress, in
accordance with the lease agreement described in Note 10. Total property and
equipment under this capital lease is $1,382,027 at December 31, 1995.
Amortization of assets recorded under the capital lease is included with
depreciation. Title to this property is owned by the leasing company. In
addition, other property and equipment totaling $1,116,869 are pledged as
collateral for equipment loans (Note 6).
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
December 31,
------------
1994 1995
---- ----
<S> <C> <C>
Tenant improvement loan due to landlord, interest at 10%, monthly
principal and interest payments of $10,858 through April 1997............... $ 270,169 $ 162,018
Equipment loan due to a finance company, interest at 15.5%, monthly
principal and interest payments for 48 months subsequent to each
drawdown of funds........................................................... 739,550 496,729
Equipment loan due to a municipal development corporation, interest at
5%, monthly principal and interest payments of $1,887 through
September 1999.............................................................. 95,570 77,288
Capital lease obligation (Note 10)............................................ -- 1,263,044
---------- ----------
1,105,289 1,999,079
Less-- Current portion........................................................ (369,254) (764,552)
---------- ----------
$ 736,035 $1,234,527
========== ==========
</TABLE>
The Company entered into a Master Equipment Loan (Equipment Loan) with a
finance company. As of December 31, 1995, $1,010,869 had been borrowed. In
connection with the Equipment Loan, the Company granted the finance company
warrants to purchase 16,668 and 7,072 shares of common stock at $19.50 and
$14.85 per share, respectively (Note 9).
In 1991, the Company issued $1,225,000 in subordinated notes, with warrants
to purchase 204,180 shares of common stock at $3.00 per share. In 1992 and 1993,
the Company redeemed the subordinated notes and accrued interest of $183,750
with the Company's common stock or with cash, at the election of the holder.
This redemption resulted in the issuance of 107,459 shares of common stock and
the payment of $688,500. During 1995, 99,751 warrants were exercised and 8,589
warrants expired.
B-10
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. LONG-TERM DEBT: -- (Continued)
Minimum principal repayments of long-term debt as of December 31, 1995,
excluding capitalized lease obligations, are as follows:
1996...................................... $421,971
1997 ..................................... 273,994
1998...................................... 23,436
1999...................................... 16,634
--------
$736,035
========
7. CONVERTIBLE PREFERRED STOCK:
As of December 31, 1995, the authorized and outstanding convertible
preferred stock series and their principal terms are as follows:
<TABLE>
<CAPTION>
Equivalent
Number of
Shares Shares Shares of Par Value Additional Paid-in
Series Authorized Outstanding Common Stock ($.01 per share) Capital
------ ---------- ----------- ------------ ---------------- --------
<S> <C> <C> <C> <C> <C>
A 100,000 100,000 33,334 $ 333 $ 269,667
B 1,900,000 -- -- -- --
C 400,000 235,295 78,432 784 1,849,216
D 600,000 525,000 175,002 1,749 4,198,251
E 2,500,000 2,199,238 1,216,959 7,331 9,058,016
F 3,750,000 2,720,656 906,975 9,070 10,082,805
--------- --------- --------- ---------- -----------
9,250,000 5,780,189 2,410,702 $ 19,267 $25,457,955
========= ========= ========= ========== ===========
</TABLE>
In June 1991, the Company issued 100,000 shares of its Series A 12%
Cumulative Convertible Preferred Stock (Series A) for $3.00 per share with net
proceeds to the Company of $270,000. In August 1991, the Company issued
1,416,695 shares of its Series B Convertible Preferred Stock (Series B) for
$3.00 per share with net proceeds to the Company of $4,210,119. On December 7,
1995, the Company's net worth exceeded $10,000,000 resulting in the automatic
conversion of all outstanding shares of Series B into 472,249 shares of common
stock.
In July 1992, the Company issued 235,295 shares of its Series C Convertible
Preferred Stock (Series C) for $8.50 per share with net proceeds to the Company
of $1,850,000. In August 1992, the Company issued 25,000 shares of its Series D
Convertible Preferred Stock (Series D) for $8.00 per share with net proceeds to
the Company of $200,000.
In January 1993, the Company issued 250,000 shares of the Series D for $8.00
per share with net proceeds to the Company of $2,000,000. In April 1994, the
Company issued an additional 250,000 shares of the Series D for $8.00 per share
with net proceeds to the Company of $2,000,000.
From April through July 1994, the Company issued 2,199,238 shares of its
Series E Convertible Preferred Stock (Series E) for $4.75 per share with net
proceeds to the Company of $9,065,347. In connection with the issuance of the
Series E, the Company issued warrants to the placement agent to purchase 216,780
shares of Series E at $5.23 per share (Notes 9 and 12).
From July through December 1995, the Company issued 2,720,656 shares of its
Series F Convertible Preferred Stock (Series F) for $4.00 per share with net
proceeds to the Company of $10,091,875.
B-11
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. CONVERTIBLE PREFERRED STOCK: -- (Continued)
The Series A, Series C, Series D, Series E, and Series F Preferred Stock
(together, the Preferred Stock) have voting rights equivalent to the number of
shares of common stock into which they are convertible. The Preferred Stock is
convertible at the option of the preferred stockholders at any time into common
stock of the Company at a conversion ratio of one-for-.33, except for the Series
E for which each share converts into .55 shares of common stock. In addition,
the Preferred Stock converts automatically into common stock upon the closing of
an initial public offering (IPO). The conversion ratio for the Series A is
subject to adjustment if the IPO price is less than $9.00 per share.
The Series A has a liquidation preference equal to $1.00 per share plus any
accrued and unpaid dividends. The Series C, Series D, Series E, and Series F
have liquidation preferences equal to their respective issuance prices.
The annual dividend rate for the Series A is $.36 per share, payable
semiannually, either in cash or in shares of the Company's common stock, at the
option of the Company, on a cumulative basis. The Series C, Series D, Series E,
and Series F stockholders are entitled to receive dividends at the discretion of
the Board of Directors; provided, however, that no dividends may be declared or
paid on common stock unless dividends have been previously declared and set
aside for payment on the Series C, Series D, Series E, and Series F.
8. COMMON STOCK:
In November 1992, the Company sold 16,989 shares of common stock, at $19.50
per share, less issuance costs of $35,625.
In November 1992, the Company issued 24,120 shares of common stock at $19.50
per share, less conversion costs of $7,837, pursuant to the redemption of
previously issued subordinated notes (Note 6). In addition, 83,339 shares of
common stock were issued at an exercise price of $3.00 per share, less
conversion costs of $31,371, pursuant to the exercise of warrants by the
noteholders.
During the year ended December 31, 1995, 99,751 shares of common stock were
issued at an exercise price of $3.00 per share, pursuant to the exercise of
warrants by the noteholders, 7,810 shares of common stock were issued at fair
market value of $5.70 per share as payment for bonuses and other compensation,
and 23,400 shares of common stock were issued to a stockholder in connection
with the Offering. The deemed value of the shares for accounting purposes will
be recorded as Offering costs. On December 7, 1995, the Company's net worth
exceeded $10,000,000 resulting in the automatic conversion of all outstanding
shares of Series B into 472,249 shares of common stock.
9. STOCK OPTIONS AND WARRANTS:
Stock Options
The Company has three Stock Option Plans, the 1991, 1992, and 1995 Plans,
under which maximums of 250,000, 333,333 and 933,333 options, respectively, may
be granted at prices not less than 100% of the fair market value of the
Company's common stock on the date of grant as determined by the Board of
Directors. The 1995 Stock Option Plan (the Plan) incorporates the two
predecessor plans and provides for the granting of both incentive stock options
and non-qualified stock options to employees, officers, directors, and
consultants of the Company as well as issuing shares of common stock directly
either through the immediate purchase of shares or as a bonus tied to the
individual's performance or the Company's attainment of prescribed milestones.
In addition, the Plan includes stock appreciation rights to be provided at the
Plan Administrator's discretion. The stock options
B-12
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. STOCK OPTIONS AND WARRANTS: -- (Continued)
are exercisable over a period determined by the Board of Directors, but no
longer than ten years after the date of grant. Information with respect to
options under the above plans is as follows:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------------------------
Available Price Aggregate
for Grant Shares Per Share Price
--------- ------ --------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1992.............. 191,307 383,692 $ .09 - 19.50 $1,481,128
Granted............................... (119,659) 119,659 .90 - 19.50 392,887
Canceled.............................. 43,832 (43,832) 1.95 - 19.50 (476,989)
------- -- ----------
Balance, December 31, 1993.............. 115,480 459,519 .09 - 9.00 1,397,026
Granted............................... (201,750) 201,750 .09 - 5.70 810,338
Exercised............................. -- (35,328) .09 - 5.70 (14,066)
Canceled.............................. 113,895 (113,895) .90 - 3.75 (321,467)
-------- -------- ----------
Balance, December 31, 1994.............. 27,625 512,046 .09 - 9.00 1,871,831
Authorized............................ 933,333 -- -- --
Granted............................... (349,644) 349,644 5.70 - 12.54 3,559,636
Granted outside the Plan.............. -- 69,998 13.80 - 24.84 1,255,756
Exercised............................. -- (15,638) .09 - 9.00 (30,681)
Canceled.............................. 5,389 (5,389) .09 - 9.00 (21,439)
-------- -------- ----------
Balance, December 31, 1995.............. 616,703 910,661 $ . 09 - 24.84 $6,635,103
======= ======== ==========
</TABLE>
As of December 31, 1995, 298,630 options were exercisable at prices ranging
from $.09 to $9.00 per share. At December 31, 1995, the aggregate exercise price
of these options was $1,150,815.
During 1995, options were granted outside of the Plan for 69,998 shares of
Common Stock at a weighted average exercise price of $17.94 per share. In
December 1995, the Company issued options to employees and recorded deferred
compensation of $359,900 for the difference between the deemed value for
accounting purposes per share and the exercise price per share and will amortize
the deferred compensation amount over the four-year vesting period.
B-13
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. STOCK OPTIONS AND WARRANTS: -- (Continued)
Stock Warrants
The following table summarizes outstanding warrants at December 31, 1995.
All warrants are currently exercisable and the exercise price is subject to
adjustment as set forth in the warrant agreement.
<TABLE>
<CAPTION>
Equivalent
Number of
Type of Outstanding Shares of Exercise
Warrants Warrants Common Stock Price Issuance Date Expiration Date
- -------------------- ---------------------- ------------------- ----------- ---------------------- -------------------
<S> <C> <C> <C> <C> <C>
Common stock........ 16,668 16,668 $19.50 June 30, 1993 June 30, 1998
Common stock........ 7,072 7,072 14.85 February 16, 1994 February 16, 1999
Series E............ 216,780 119,961 5.23 July 31, 1994 July 31, 1999
Common stock........ 10,527 10,527 14.25 June 30, 1995 June 30, 2002
-------
154,228
=======
</TABLE>
10. COMMITMENTS:
Agreements with the University of Pennsylvania:
License Agreement
In 1990, the Company entered into an agreement whereby the University of
Pennsylvania (Penn) granted to the Company an exclusive license to use Penn's
patent rights and technology to produce certain products. In consideration, the
Company issued common stock to Penn pursuant to a Stock Purchase Agreement (see
below). In addition, the Company is required to pay Penn royalties based on
sales of applicable products. The Company is also required to reimburse Penn for
all reasonable fees incident to the acquisition and maintenance of Penn's patent
rights. The Company paid $89,530, $70,979 and $21,469, in patent-related fees on
Penn's behalf for the years ended December 31, 1993, 1994, and 1995,
respectively. This agreement will terminate upon the expiration of the patent
rights.
Stock Purchase Agreement
Under the Stock Purchase Agreement, the Company in 1991 issued Penn 147,063
shares of the Company's common stock related to the license agreement and for
consulting services.
Sponsored Research Agreement
The Company had an agreement with Penn to support research and development
activities relating to oligosaccharides. This agreement expired in 1992. Under
the agreement, the Company paid Penn research grants of $206,000 in 1992.
Agreement with Bracco Research U.S.A., Inc.:
In September 1995, the Company entered into a collaborative research
agreement with Bracco Research U.S.A., Inc. (Bracco). Under the terms of the
agreement, the Company will supply Bracco with complex carbohydrates, which
Bracco will attach to diagnostically active agents. The resulting new molecules
will be tested and developed. In consideration, Bracco committed to six
semiannual payments to Neose in the amount of $125,000, for a total of $750,000.
The Company recognized $83,333 of revenue under this agreement for the year
ended December 31, 1995.
B-14
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. COMMITMENTS: -- (Continued)
Employment Agreements
In November 1994, the Company entered into a three-year employment
agreement with its President and Chief Financial Officer which provides for
certain annual base salaries and bonuses of up to 50% of base salary at the
discretion of the Compensation Committee of the Board of Directors. In
connection with this agreement, the Company granted options to purchase 100,000
shares of common stock at $5.70 per share, 20,000 of which vested immediately
with the remainder vesting ratably over four years (Note 9).
In April 1995, the Company entered into a one-year employment agreement
with its Vice President of Drug Development. The employment agreement provides
for an annual base salary and a bonus of up to 25% of base salary at the
discretion of the Chief Executive Officer.
Leases
In January 1992, the Company entered into a ten-year operating lease for
office and laboratory facilities effective May 1992. The lease includes
escalation clauses and is cancelable by the Company after five or seven years.
Pursuant to this lease, the Company is required to maintain an escrow balance
which is reduced ratably over the lease term.
In June 1995, the Company entered into a master equipment lease agreement
with a finance company which provides for up to $1,500,000 in financing, of
which $1,382,027 had been drawn as of December 31, 1995. In connection with the
lease, the Company granted the lessor warrants to purchase 10,527 shares of
common stock at $14.25 per share (Note 9).
Future minimum lease payments under the Company's leases as of December
31, 1995 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Lease
------ -----
<S> <C> <C>
1996............................................. $ 310,277 $ 527,382
1997............................................. 107,862 527,382
1998............................................. -- 563,695
---------- ----------
Total minimum lease payments..................... $ 418,139 1,618,459
==========
Less -- Amount representing interest............. (355,415)
----------
Present value of future minimum lease 1,263,044
payments.......................................
Less -- Current portion.......................... (342,581)
---------
$ 920,463
=========
</TABLE>
Rent expense was $220,644, $322,275, and $309,249 for the years ended
December 31, 1993, 1994 and 1995, respectively. In addition, the Company has
recorded a deferred rent liability for escalating rent payments in future years
of $74,986 at December 31, 1995.
11. 401(k) PLAN:
The Company has a 401(k) Savings Plan (Plan) for employees. Employee
contributions are voluntary and are determined on an individual basis with a
maximum annual amount equal to the lesser of the maximum amount allowable under
federal income tax regulations or 15% of the participant's compensation. The
Company matches employee contributions up to specified limits. The Company
contributed $28,300, $53,171, and $62,270 to the Plan for the years ended
December 31, 1993, 1994, and 1995, respectively.
B-15
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
12. RELATED PARTY TRANSACTIONS:
In 1994, the Company entered into an agreement with Paramount Capital, Inc.
(Paramount) for the private placement of the Series E. The sole shareholder of
Paramount is a member of the Company's Board of Directors. The Company paid
$1,246,505 in commissions and expenses pursuant to the agreement. Additionally,
Paramount received warrants to purchase 216,780 shares of the Company's Series E
at $5.23 per share.
In 1995, Paramount acted as a placement agent for a portion of the Series
F. The Company paid $425,247 in commissions to Paramount in the year ended
December 31, 1995. In addition, in December 1995 the Company granted to an
employee of Paramount options to purchase 49,999 shares of Common Stock at a
weighted average exercise price of $17.94 per share, vesting in various amounts
over five years, for financial advisory services.
In February 1994, a member of the Company's Board of Directors advanced the
Company $440,000 to fund the Company's restricted funds account held in escrow
pursuant to the Company's facility lease. In April 1994, the Company repaid this
balance.
B-16
<PAGE>
COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "NTEC." On April 30, 1996 the last reported sales price for the Company's
Common Stock on the Nasdaq National Market was $21.875 per share and there were
473 record holders of Common Stock.
The Company currently anticipates that it will retain all available funds
for use in the operation of its business, and therefore does not anticipate
paying any cash dividends on its Common Stock for the foreseeable future. The
Company paid to certain holders of its Preferred Stock cash dividends accrued
thereon in the amount of $18,000 for the year ended December 31, 1995. The
Company has not otherwise declared or paid cash dividends on its capital stock
since 1992.
DESCRIPTION OF THE COMPANY'S BUSINESS
Neose is focused on the enzymatic synthesis of complex carbohydrates
(oligosaccharides), and discovers and develops complex carbohydrates for
nutritional and pharmaceutical uses.
B-17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below as of and for the years ended
December 31, 1991, 1992, 1993, 1994, and 1995, and for the period from inception
(January 17, 1989) to December 31, 1995, have been derived from the Company's
audited financial statements. The financial statements of the Company for each
of the three years in the period ended December 31, 1995, and for the period
from inception (January 17, 1989) to December 31, 1995, and the related balance
sheets at December 31, 1994 and 1995 included elsewhere in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants. The data
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements of the Company and related notes thereto included elsewhere
in this Annual Report.
<TABLE>
<CAPTION>
Period from
Inception
Year Ended December 31, (January 17, 1989)
----------------------- to December 31,
1991 1992 1993 1994 1995 1995
---- ---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue from collaborative agreements............. $ -- $ -- $ 2,600 $ 48 $ 1,199 $ 3,846
------- ------- ------- ------- ------- -------------
Operating expense:................................
Research and development................... 1,055 1,941 3,399 5,004 4,733 16,476
General and administrative................. 703 1,324 1,577 1,319 1,665 6,689
------- ------- ------- ------- ------- -------------
Total expenses............................. 1,758 3,265 4,976 6,323 6,398 23,165
------- ------- ------- ------- ------- -------------
Interest income (expense), net.................... (107) (90) (47) 63 132 (63)
-------- ------- ------- ------- ------- -------------
Net loss........................................... $(1,865) $(3,355) $(2,423) $(6,212) $(5,067) $ (19,382)
======== ======= ======= ======= ======= ==============
Pro forma net loss per share (1)................... $ (1.05)
=======
Shares used in computing pro forma net loss per
share(1)................................... 4,848
=======
As of December 31,
--------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and cash equivalents......................................... $ 3,401 $ 820 $ 1,500 $ 5,363 $11,189
Total assets...................................................... 3,537 2,743 3,534 8,196 14,639
Long-term debt.................................................... -- 368 1,010 736 1,235
Convertible preferred stock....................................... 15 18 20 45 58
Deficit accumulated during the development stage.................. (2,325) (5,680) (8,103) (14,315) (19,382)
Total stockholders' equity........................................ 2,193 1,887 1,448 6,352 11,733
</TABLE>
(1) See Note 3 of Notes to Financial Statements.
B-18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Annual Report contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors Affecting
Operations and Market Price of Securities" in the Company's Quarterly Report on
Form 10-Q for the first fiscal quarter of 1996.
Overview
Neose commenced operations in 1990, and has devoted substantially all of
its resources to the development of its enzymatic synthesis technology, and to
the discovery and development of complex carbohydrates for a variety of
applications, including nutritional additives and pharmaceuticals. The Company
does not anticipate receiving revenues from product sales for at least the next
several years. The Company anticipates that its sources of revenue for the next
several years will be payments under its strategic alliance with Abbott and
other collaborative arrangements, license fees, payments from future strategic
alliances and collaborative arrangements, if any, and interest income. Payments
under strategic alliances and collaborative arrangements will be subject to
significant fluctuation in both timing and amount. Therefore, the Company's
results of operations for any period may not be comparable to the results of
operations for any other period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company has incurred operating losses since its inception and, as of
December 31, 1995, the Company had an accumulated deficit of approximately $19.4
million. The Company anticipates incurring additional operating losses over at
least the next several years, and such losses are expected to increase as the
Company expands its research and development programs, including preclinical
studies and clinical trials for its pharmaceutical product candidates under
development, and as the Company expands its manufacturing capabilities.
Results of Operations
Years Ended December, 31, 1995 and 1994
Revenues from collaborative agreements increased to $1.2 million in 1995
from $48,000 in 1994 due to the timing and size of milestone payments and
license fees received from Abbott.
The Company's research and development expenses decreased to $4.7 million
in 1995 from $5.0 million in 1994. The decrease was primarily attributable to a
decrease in expenses connected with the Company's strategic alliance with Abbott
resulting from the licensing in 1995 of certain manufacturing rights to Abbott,
which was partially offset by increases in other research and development
activities.
General and administrative expenses increased to $1.7 million in 1995
from $1.3 million in 1994. The increase reflected additional management expenses
associated with a general increase in the level of the Company's activities.
Interest income increased to $322,000 in 1995 from $257,000 in 1994 due
to higher average cash balances during 1995. Interest expense decreased to
$190,000 in 1995 from $194,000 in 1994 due to slightly lower average loan
balances during 1995.
Years Ended December 31, 1994 and 1993
Revenues from collaborative agreements decreased to $48,000 in 1994 from
$2.6 million in 1993 due to the timing of milestone payments received from
Abbott.
B-19
<PAGE>
Research and development expenses increased to $5.0 million in 1994 from
$3.4 million in 1993. The increase was primarily attributable to the hiring of
additional research and development personnel, related increased purchases of
laboratory supplies and services, and increased equipment depreciation and
facilities expenses.
General and administrative expenses decreased to $1.3 million in 1994
from $1.6 million in 1993, primarily due to the payment of a one-time bonus to
the Company's former President and Chief Executive Officer in 1993, and the
higher level of professional fees related to financing activities and the
negotiation of the Company's strategic alliance with Abbott incurred in 1993.
Interest income increased to $257,000 in 1994 from $60,000 in 1993 due to
higher average cash balances during 1994. Interest expense increased to $194,000
in 1994 from $106,000 in 1993 due to expenses related to equipment financing
transactions.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations through
$30.0 million in aggregate net proceeds from the private placement of equity
securities, including $10.1 million raised in the second half of 1995, and $4.2
million in contract payments, license fees, and milestone payments from Abbott.
In addition, the Company completed its initial public offering in February and
March 1996, resulting in net proceeds of $29.1 million to the Company. Abbott is
obligated to make two additional payments of $500,000 to Neose in each of July
1996 and January 1997. Abbott may (a) at any time prior to the first commercial
sale, if any, of infant formula containing the Company's nutritional additive,
elect to make its license agreement non-exclusive, in which event the license
fees payable by Abbott after commercialization would be reduced by 50% and
Abbott's obligations to make contract and milestone payments, including the July
1996 and January 1997 payments and the $5.0 million milestone payment, would be
terminated, or (b) elect to terminate the license agreement and return the
licensed technology to Neose upon 60 days' notice, in which event it would have
no further funding obligation to the Company, including no obligation to make
the July 1996 and January 1997 payments and the $5.0 million milestone payment.
The Company has entered into a capital lease agreement with an equipment
finance company that provides for up to $1.5 million of financing, of which
approximately $1.4 million had been drawn on as of December 31, 1995.
As of December 31, 1995, the Company had cash and cash equivalents of
$11.2 million compared to $5.4 million at December 31, 1994. This increase
primarily consisted of $10.1 million raised through the private placement of
Series F Stock partially offset by $4.2 million of cash used in operations
(consisting primarily of research and development expenses, personnel-related
costs, and facility expenses). During 1995, the Company purchased $875,000 of
capital equipment and leasehold improvements, substantially all of which were
subsequently funded through capital leases.
The Company leases its facility. The Company's minimum lease obligation
for the year ended December 31, 1996 is approximately $310,000.
The Company also has obligations to certain of its employees under
employment agreements.
The Company has incurred negative cash flows from operations since its
inception and has expended, and expects to continue to expend in the future,
substantial funds to continue its research and development programs. The Company
expects that its existing capital resources, together with the net proceeds of
this offering and the interest earned thereon, will be adequate to fund its
capital requirements through 1998. No assurance can be given that there will be
no change that would consume available resources significantly before such time.
The Company's future capital requirements and the adequacy of available funds
will depend on many factors, including progress in its research and development
activities, including its pharmaceutical discovery and development programs, the
magnitude and scope of these activities, progress with preclinical studies and
clinical trials, the costs involved in preparing, filing, prosecuting,
maintaining, and enforcing patent claims and other intellectual property rights,
competing technological and market developments, changes in existing
collaborative research relationships and strategic alliances, the ability of the
Company to establish additional collaborative arrangements for product
development, and the cost of manufacturing scale-up and developing effective
marketing activities and arrangements. To the extent that funds generated from
the Company's operations, together with its existing capital resources and the
interest earned thereon, are insufficient to meet current or planned operating
requirements, it is likely that the
B-20
<PAGE>
Company will seek to obtain additional funds through equity or debt financings,
collaborative or other arrangements with corporate partners and others, and from
other sources. The terms and prices of any such financings may be significantly
more favorable to investors than those of the Common Stock sold previously,
which could have the effect of diluting or adversely affecting the holdings or
the rights of existing stockholders of the Company. The Company does not
currently have any committed sources of additional financing. No assurance can
be given that additional financing will be available when needed or on terms
acceptable to the Company. If adequate additional funds are not available, the
Company may be required to delay, scale back, or eliminate certain of its
research and product development activities or certain other aspects of its
business or attempt to obtain funds through collaborative arrangements that may
require the Company to relinquish some or all of its rights to certain of its
intellectual property, product candidates, or products. If adequate funds are
not available, the Company's business, financial condition, and results of
operations will be materially and adversely affected.
ADDITIONAL INFORMATION
On October 31, 1994, the Board of Directors of the Company retained
Arthur Andersen LLP as its independent public accountants and dismissed the
Company's former auditors. The financial statements of the Company as of
December 31, 1994 and 1995, for the years ended December 31, 1993, 1994, and
1995, and for the period from inception (January 17, 1989) to December 31, 1995,
have been audited by Arthur Andersen LLP. The former auditors were retained by
the Company since its inception. The former auditor's reports did not contain
adverse opinions or disclaimer opinions and were not qualified as to
uncertainty, audit scope, or accounting principles. There were no disagreements
with the former auditors on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures at the time of
the change which, if not resolved to the former auditor's satisfaction, would
have caused them to make reference to the subject matter of the disagreement in
connection with their report. Prior to retaining Arthur Andersen LLP, the
Company did not consult with Arthur Andersen LLP regarding accounting
principles.
B-21
<PAGE>
Executive Officers and Directors
Stephen A. Roth, Ph.D.
Chairman, Chief Executive Officer, and Director
P. Sherrill Neff
President, Chief Financial Officer, and Director
Edward J. McGuire, Ph.D.
Vice President, Research and Development
David F. Pritchard
Vice President, Business Development
David A. Zopf, M.D.
Vice President, Drug Development
Wiliam F. Hamilton, Ph.D.
Director
Douglas J. MacMaster, Jr.
Director
Lindsay A. Rosenwald, M.D.
Director
Lowell E. Sears
Director
Jerry A. Weisbach, Ph.D.
Director
Stock Listing
The Common Stock of Neose Technologies, Inc. is quoted on the Nasdaq National
Market under the symbol "NTEC."
Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Independent Public Accountants
Arthur Andersen LLP
1601 Market Street
Philadelphia, Pennsylvania 19103
B-22
<PAGE>
[ LOGO ]
- --------------------------------------------------------------------------------
Neose Technologies, Inc.
102 Witmer Road
Horsham, Pennsylvania 19044
Telephone: (215) 441-5896
Fax: (215) 441-5896
EMail: [email protected]
<PAGE>
<PAGE>
APPENDIX C
NEOSE TECHNOLOGIES, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
(Amended and Restated as of March 16, 1996)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1995 Stock Option/Stock Issuance Plan (the "Plan") is
intended to promote the interests of Neose Technologies, Inc., a Delaware
corporation (the "Corporation"), by providing eligible individuals with the
opportunity to obtain an equity interest, or otherwise increase their equity
interest, in the Corporation. This Plan shall serve as the successor equity
incentive program to the Corporation's 1992 Stock Option Plan and 1991 Stock
Option Plan.
B. The Discretionary Option Grant and Stock Issuance Programs
of the Plan became effective immediately upon the adoption of the Plan by the
Corporation's Board of Directors. Such date is hereby designated the "Plan
Effective Date." The Automatic Option Grant Program became effective upon the
execution and final pricing of the Underwriting Agreement for the initial public
offering of the Corporation's Common Stock. The execution date of such
Underwriting Agreement is hereby designated as the Automatic Option Grant
Program Effective Date. The Director Fee Option Grant Program became effective
on March 16, 1996, subject to stockholder approval at the 1996 Annual
Stockholders Meeting.
II. DEFINITIONS
A. For the purposes of this Plan, the following definitions
shall be in effect:
Board: the Corporation's Board of Directors.
Change in Control: a change in ownership or control of the
Corporation effected through either of the following
transactions:
-- the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of
Rule l3d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's shareholders which the Board does not
recommend such shareholders to accept, or
-- a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of
<PAGE>
individuals who either (a) have been Board members continuously since
the beginning of such period or (b) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (a) who were still in office at
the time such election or nomination was approved by the Board.
Code: the Internal Revenue Code of 1986, as amended.
Committee: the committee of two (2) or more non-employee
Board members appointed by the Board to administer the Plan.
Common Stock: shares of the Corporation's common stock.
Corporate Transaction: either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
Employee: an individual who performs services while in the
employ of the Corporation or one or more parent or subsidiary corporations,
subject to the control and direction of the employer entity not only as to the
work to be performed but also as to the manner and method of performance.
Exercise Date: the date on which the Corporation shall have
received written notice of the option exercise.
Fair Market Value: the Fair Market Value per share of Common
Stock determined in accordance with the following provisions:
-- If the Common Stock is at the time traded on the Nasdaq
National Market, the Fair Market Value shall be the closing selling
price per share on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no reported closing selling
price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.
-- If the Common Stock is at the time listed or admitted to
trading on any national securities exchange, then the Fair Market Value
shall be the closing selling price per share on the date in question on
the exchange determined by the
2
<PAGE>
Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions
on such exchange. If there is no reported sale of Common Stock on such
exchange on the date in question, then the Fair Market Value shall be
the closing selling price on the exchange on the last preceding date
for which such quotation exists.
-- If the Common Stock is on the date in question neither
listed nor admitted to trading on any national securities exchange nor
traded on the Nasdaq National Market, then the Fair Market Value of the
Common Stock on such date shall be determined by the Plan Administrator
after taking into account such factors as the Plan Administrator shall
deem appropriate.
Hostile Take-Over: a change in ownership of the Corporation
effected through the following transaction:
-- the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's shareholders which the Board does not
recommend such shareholders to accept, and
-- the acceptance of more than fifty percent (50%) of the
securities so acquired in such tender or exchange offer from holders
other than the officers and directors of the Corporation subject to the
short-swing profit restrictions of Section 16 of the 1934 Act
Incentive Option: a stock option which satisfies the
requirements of Code Section 422.
Involuntary Termination: the termination of the Service of any
Optionee or Participant which occurs by reason of:
-- such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
-- such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
any non-discretionary and objective-standard incentive payment or bonus
award) by more than ten percent (10%) in the aggregate or (C) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
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Misconduct: the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such individual of confidential information or trade secrets of the
Corporation or its parent or subsidiary corporations, any failure to perform
specific lawful direction of the Corporation's Board or officers of the
Corporation, any refusal or neglect to perform such individual's duties, any
conviction of, or entering of a plea of nolo contendere to, a crime which
constitutes a felony or any other Misconduct by such individual adversely
affecting the business or affairs of the Corporation. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation or any parent or subsidiary may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other individual in the
Service of the Corporation.
1934 Act: the Securities Exchange Act of 1934, as amended.
Non-Statutory Option: a stock option not intended to meet the
requirements of Code Section 422.
Optionee: a person to whom an option is granted under the
Discretionary Option Grant Program.
Participant: a person who is issued Common Stock under the
Stock Issuance Program.
Permanent Disability: the inability of an individual to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months.
Plan Administrator: either the Board or the Committee, to the
extent the Committee is at the time responsible for the administration of the
Plan in accordance with Section IV of Article One.
Predecessor Plans: the Corporation's 1992 Stock Option Plan
and 1991 Stock Option Plan.
Service: the performance of services on a periodic basis for
the Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant, except to the extent otherwise specifically provided in the
applicable stock option or stock issuance agreement.
Section 12(g) Registration Date: the date on which the initial
registration of the Common Stock under Section 12(g) of the 1934 Act became
effective.
10% Shareholder: the owner of stock (as determined under Code
Section 424(d)) possessing ten percent (10%) or more of the total combined
voting power of all classes of stock of the Corporation or any parent or
subsidiary corporation.
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Take-Over Price: the greater of (a) the Fair Market Value per
share of Common Stock on the date the particular option to purchase such stock
is surrendered to the Corporation in connection with a Hostile Take-Over or (b)
the highest reported price per share of Common Stock paid by the tender offeror
in effecting such Hostile Take-Over. However, if the cancelled option is an
Incentive Option, then the Take-Over Price shall not exceed the clause (a) price
per share.
B. The following provisions shall be applicable in determining
the parent and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation shall be considered
to be a parent of the Corporation, provided each such corporation in
the unbroken chain (other than the Corporation) owns, at the time of
the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a subsidiary of the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
III. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate components:
the Discretionary Option Grant Program specified in Article Two, the Stock
Issuance Program specified in Article Three, the Automatic Option Grant Program
specified in Article Four and the Director Fee Option Grant Program specified in
Article Five. Under the Discretionary Option Grant Program, eligible individuals
may, at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock in accordance with the provisions of Article Two at a
price not less than eighty-five percent (85%) of the Fair Market Value of such
shares on the grant date. Under the Stock Issuance Program, eligible individuals
may be issued shares of Common Stock directly, either through the immediate
purchase of the shares (at Fair Market Value or at discounts of up to 15%) or as
a bonus tied to the individual's performance of services or the Corporation's
attainment of prescribed milestones. Under the Automatic Option Grant Program,
each individual serving as a non-employee Board member on the Automatic Option
Grant Program Effective Date and each individual who first joins the Board as a
non-employee director at any time after such Effective Date shall at periodic
intervals receive option grants to purchase shares of Common Stock in accordance
with the provisions of Article Four, with the first such grants to be made on
the such Effective Date. Under the Director Fee Option Grant Program, each
non-employee Board member may elect to apply all or a portion of his or her
annual retainer fee otherwise payable in cash to a special below-market option
grant.
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B. Unless the context clearly indicates otherwise, the
provisions of Articles One and Six shall apply to all equity programs under the
Plan and shall accordingly govern the interests of all individuals under the
Plan.
IV. ADMINISTRATION OF THE PLAN
A. The Discretionary Option Grant and Stock Issuance Programs
shall be administered solely and exclusively by the Committee, subject to such
conditions and limitations as the Board may decide, to the extent permissible
under applicable securities and tax laws requirements. No non-employee Board
member shall be eligible to serve on the Committee if such individual has,
within the relevant period designated below, received an option grant or direct
stock issuance under this Plan or any other stock plan of the Corporation (or
any parent or subsidiary corporation), other than pursuant to the Automatic
Option Grant or Director Fee Option Grant Program:
-- for each of the initial members of the Committee, the
period commencing with the Section 12(g) Registration Date and ending
with the date of his or her appointment to the Committee, or
-- for any successor or substitute member, the twelve (12)
month period immediately preceding the date of his or her appointment
to the Committee or (if shorter) the period commencing with the Section
12(g) Registration Date and ending with the date of his or her
appointment to the Committee.
B. Members of the Committee shall serve for such period of
time as the Board may determine and shall be subject to removal by the
Board at any time.
C. The Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish rules and
regulations for the proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding option
grants or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on all parties
who have an interest in the Discretionary Option Grant or Stock Issuance Program
or any outstanding option grant or share issuance thereunder.
D. Administration of the Automatic Option Grant and Director
Fee Option Grant Programs shall be self-executing in accordance with the express
terms and conditions of those programs, and the Plan Administrator shall
exercise no discretionary functions with respect to option grants made pursuant
to those programs.
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V. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary
Option Grant Program under Article Two and the Stock Issuance Program under
Article Three shall be limited to the following:
(i) officers and other employees of the Corporation (or
any parent or subsidiary corporation);
(ii) non-employee members of the Board or the
non-employee members of the board of directors of any parent or
subsidiary corporation; and
(iii) consultants who provide valuable services to the
Corporation (or any parent or subsidiary corporation).
B. The non-employee Board members serving as Plan
Administrator shall not, during their period of service from and after the
Section 12(g) Registration Date, be eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs or in any other stock option, stock
purchase, stock bonus or other stock plan of the Corporation (or its parent or
subsidiary corporations). Such individuals shall, however, be eligible to
receive automatic option grants pursuant to Article Four and to participate in
the Director Fee Option Grant Program pursuant to Article Five.
C. The Plan Administrator shall have full authority to
determine, (i) with respect to the option grants made under the Discretionary
Option Grant Program, which eligible individuals are to receive option grants,
the time or times when such grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option is to become exercisable and the maximum term for which the
option may remain outstanding, and (ii) with respect to stock issuances under
the Stock Issuance Program, the number of shares to be issued to each
Participant, the vesting schedule (if any) to be applicable to the issued
shares, and the consideration to be paid by the Participant for such shares.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance
under the Plan and shall be drawn from either the Corporation's authorized but
unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Corporation on the open market. The maximum
number of shares of Common Stock which may be issued over the term of the Plan
shall not exceed 1,457,366* shares, subject to adjustment from time to time in
accordance with the provisions of this Section VI. Such authorized share reserve
is comprised of (i) the number of shares which remained for issuance, as of the
Plan Effective
- --------
* Reflects the 1-for-3 reverse stock split that was effected immediately prior
to the consummation of the initial public offering of the Common Stock.
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Date, under the Predecessor Plans as last approved by the Corporation's
shareholders, including the shares subject to the outstanding options
incorporated into this Plan and any other shares which would have been available
for future option grant under the Predecessor Plans as last approved by the
shareholders, plus (ii) an additional increase of 333,333* shares authorized by
the Board on the Plan Effective Date and (iii) an additional increase of
600,000* shares authorized by the Board on December 6, 1995. As one or more
outstanding options under the Predecessor Plans which have been incorporated
into this Plan are exercised, the number of shares issued with respect to each
such option shall reduce, on a share-for-share basis, the number of shares
available for issuance under this Plan.
B. In no event shall the aggregate number of shares of Common
Stock for which any one individual participating in the Plan may be granted
stock options, separately exercisable stock appreciation rights and direct stock
issuances exceed 250,000* shares over the term of the Plan.
C. Should one or more outstanding options under this Plan
(including options incorporated from the Predecessor Plans) expire or terminate
for any reason prior to exercise in full (including any option cancelled in
accordance with the cancellation-regrant provisions of Section IV of Article Two
of the Plan), then the shares subject to the portion of each option not so
exercised shall be available for subsequent issuance under the Plan. Shares
subject to any stock appreciation rights exercised under the Plan and all share
issuances under the Plan, whether or not the shares are subsequently repurchased
by the Corporation pursuant to its repurchase rights under the Plan, shall
reduce on a share-for-share basis the number of shares of Common Stock available
for subsequent issuance under the Plan. In addition, should the exercise price
of an outstanding option under the Plan be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an outstanding option under the Plan or the vesting of a
direct share issuance made under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross number
of shares for which the option is exercised or which vest under the share
issuance, and not by the net number of shares of Common Stock actually issued to
the holder of such option or share issuance.
D. Should any change be made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum
number and/or class of securities for which any one individual participating in
the Plan may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances in the aggregate over the term of the Plan,
(iii) the number and/or class of securities for which automatic option grants
are to be subsequently made per eligible non-employee Board member
- --------
* Reflects the 1-for-3 reverse stock split that was effected immediately prior
to the consummation of the initial public offering of the Common Stock.
8
<PAGE>
under the Automatic Option Grant Program, (iv) the number and/or class of
securities and price per share in effect under each option outstanding under the
Discretionary Option Grant, Automatic Option Grant or Director Fee Option Grant
Program and (v) the number and/or class of securities and price per share in
effect under each outstanding option incorporated into this Plan from the
Predecessor Plans. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
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<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant
Program shall be authorized by action of the Plan Administrator and may, at the
Plan Administrator's discretion, be either Incentive Options or Non-Statutory
Options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted Non-Statutory Options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. Exercise Price.
1. The exercise price per share shall be fixed by the
Plan Administrator in accordance with the following provisions:
(i) The exercise price per share of Common
Stock subject to an Incentive Option shall in no event be less than one
hundred percent (100%) of the Fair Market Value of such Common Stock on
the grant date.
(ii) The exercise price per share of Common
Stock subject to a Non-Statutory Option shall in no event be less than
eighty-five percent (85%) of the Fair Market Value of such Common Stock
on the grant date.
(iii) If any individual to whom an Incentive
Option is granted is a 10% Shareholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair
Market Value per share of Common Stock on the grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Six, be payable in one or more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) in shares of Common Stock held by the
Optionee for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date, or
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<PAGE>
(iii) to the extent the option is exercised for
vested shares, through a special sale and remittance procedure pursuant
to which the Optionee shall concurrently provide irrevocable written
instructions (a) to a Corporation designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Corporation by
reason of such purchase and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale transaction.
3. Except to the extent such sale and
remittance procedure is utilized, payment of the exercise price for the
purchased shares must be made on the Exercise Date.
B. Term and Exercise of Options. Each option granted
under this Plan shall be exercisable at such time or times and during such
period as is determined by the Plan Administrator and set forth in the
instrument evidencing the grant. No such option, however, shall have a maximum
term in excess of ten (10) years measured from the grant date. During the
lifetime of the Optionee, the option, together with any related stock
appreciation right, shall be exercisable only by the Optionee and shall not be
assignable or transferable by the Optionee, except for a transfer of the option
by will or by the laws of descent and distribution following the Optionee's
death.
C. Termination of Service.
1. Except to the extent otherwise provided
pursuant to subsection C.2 below, the following provisions shall govern the
exercise period applicable to any options held by the Optionee at the time of
cessation of Service or death:
(i) Should the Optionee cease to remain in
Service for any reason other than death, Permanent Disability or
Misconduct, then the period during which each outstanding option held
by such Optionee is to remain exercisable shall be limited to the three
(3)-month period following the date of such cessation of Service.
(ii) Should the Optionee's Service terminate by
reason of Permanent Disability, then the period during which each
outstanding option held by the Optionee is to remain exercisable shall
be limited to the twelve (12)-month period following the date of such
cessation of Service.
(iii) Should the Optionee die while holding one
or more outstanding options, then the period during which each such
option is to remain exercisable shall be limited to the twelve
(12)-month period following the date of the Optionee's death. During
such limited period, the option may be exercised by the personal
representative of the Optionee's estate or by the person or persons
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<PAGE>
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution.
(iv) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
(v) Under no circumstances, however, shall any
such option be exercisable after the specified expiration date of the
option term.
(vi) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and cease
to be exercisable for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
with respect to any option shares for which the option is not at that
time exercisable or in which the Optionee is not otherwise at that time
vested.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time the option is granted or at any time
while the option remains outstanding,
-- to extend the period of time for which the option
is to remain exercisable following the Optionee's cessation of Service
or death from the limited period in effect under subsection C.1 of this
Article Two to such greater period of time as the Plan Administrator
shall deem appropriate; provided, that in no event shall such option be
exercisable after the specified expiration date of the option term;
and/or
-- to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited post-Service
exercise period applicable under this paragraph C., not only with
respect to the number of vested shares of Common Stock for which each
such option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more subsequent installments
for which the option would otherwise have become exercisable had such
cessation of Service not occurred.
D. Shareholder Rights. An Optionee shall have no
shareholder rights with respect to any shares covered by the option until such
individual shall have exercised the option and paid the exercise price for the
purchased shares.
E. Unvested Shares. The Plan Administrator shall have
the discretion to authorize the issuance of unvested shares of Common Stock
under the Plan. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right
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<PAGE>
to repurchase, at the exercise price paid per share, any or all of those
unvested shares. The terms and conditions upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the agreement evidencing such repurchase
right. All outstanding repurchase rights under the Plan shall terminate
automatically upon the occurrence of any Corporate Transaction, except to the
extent the repurchase rights are expressly assigned to the successor corporation
(or parent thereof) in connection with the Corporate Transaction.
F. First Refusal Rights. Until such time, as the Corporation's
outstanding shares of Common Stock are first registered under Section 12(g) of
the 1934 Act, the Corporation shall have the right of first refusal with respect
to any proposed sale or other disposition by the Optionee (or any successor in
interest by reason of purchase, gift or other transfer) of any shares of Common
Stock issued under the Plan. Such right of first refusal shall be exercisable in
accordance with the terms and conditions established by the Plan Administrator
and set forth in the agreement evidencing such right.
II. INCENTIVE OPTIONS
Incentive Options may only be granted to individuals who are
Employees, and the terms and conditions specified below shall be applicable to
all Incentive Options granted under the Plan. Except as modified by the
provisions of this Section II, all the provisions of Articles One, Two and Five
of the Plan shall be applicable to all Incentive Options granted hereunder. Any
Options specifically designated as Non-Statutory shall not be subject to such
terms and conditions.
A. Dollar Limitation. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or its parent or subsidiary corporations) may for
the first time become exercisable as incentive stock options under the Federal
tax laws during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more
such options which become exercisable for the first time in the same calendar
year, the foregoing limitation on the exercisability of such options as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted. Should the number of shares of
Common Stock for which any Incentive Option first becomes exercisable in any
calendar year exceed the applicable One Hundred Thousand Dollar ($100,000)
limitation, then that option may nevertheless be exercised in that calendar year
for the excess number of shares as a Non-Statutory Option under the Federal tax
laws.
B. 10% Shareholder. If any individual to whom an Incentive
Option is granted is a 10% Shareholder, then the option term shall not exceed
five (5) years measured from the grant date.
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III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each option
which is at the time outstanding under this Article Two shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for such Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares as
fully-vested shares. However, an outstanding option under this Article Two shall
not so accelerate if and to the extent: (i) such option is, in connection with
such Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation or parent thereof, (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the option spread existing at the time of such
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such option, (iii) such option is to be
replaced by another incentive program which the Plan Administrator determines is
reasonably equivalent in value to the program contemplated by either clause (i)
or (ii) above, or (iv) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
However, upon an Optionee's cessation of Service by reason of an Involuntary
Termination (other than for Misconduct) within eighteen (18) months after a
Corporate Transaction in which his or her outstanding options are assumed or
replaced pursuant to clause (i), (ii) or (iii) above, each such option under
clause (i) shall automatically accelerate and become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares as
fully-vested shares, the cash incentive program under clause (ii) shall become
fully vested and the benefits under a clause (iii) replacement program shall
become fully vested. The option as so accelerated shall remain exercisable until
the earlier of (i) the expiration of the option term or (ii) the expiration of a
ninety (90) day period measured from the date of such Involuntary Termination.
The determination of option comparability under clause (i) or program
comparability under clause (iii) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.
B. Immediately following the consummation of a Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to remain outstanding, except to the extent assumed by the successor
corporation or its parent company.
C. Each outstanding option under this Article Two that is
assumed in connection with a Corporate Transaction shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply and pertain to
the number and class of securities which would have been issued to the option
holder, in consummation of such Corporate Transaction, had such person exercised
the option immediately prior to such, Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share, provided
the aggregate exercise price payable for such securities shall remain the same.
In addition, the class and number of securities available for issuance under the
Plan on both an aggregate and participant basis following the consummation of
such Corporate Transaction shall be appropriately adjusted.
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<PAGE>
D. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to provide for the automatic acceleration
of one or more outstanding options under this Article Two (and the termination
of one or more of the Corporation's outstanding repurchase rights under this
Article Two) upon the occurrence of a Change in Control. The Plan Administrator
shall also have full power and authority to condition any such option
acceleration (and the termination of any outstanding repurchase rights) upon the
Optionee's cessation of Service by reason of an Involuntary Termination (other
than for Misconduct) within a specified period following such Change in Control.
E. Any options accelerated in connection with a Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term or the surrender of such option in accordance
with Section V of this Article Two.
F. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
G. The portion of any Incentive Option accelerated under this
Section III in connection with a Corporate Transaction or Change in Control
shall remain exercisable as an incentive stock option under the Federal tax laws
only to the extent the dollar limitation of Section II of this Article Two is
not exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a non-statutory option under the
Federal tax laws.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected Optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the Predecessor Plans incorporated into this Plan) and
to grant in substitution new options under the Plan covering the same or
different numbers of shares of Common Stock but with an exercise price per share
not less than (i) one hundred percent (100%) of the Fair Market Value on the new
grant date in the case of a grant of an Incentive Option, (ii) one hundred ten
percent (110%) of such Fair Market Value in the case of an Incentive Option
grant to a 10% Shareholder or (iii) eighty-five percent (85%) of such Fair
Market Value in the case of all other grants.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in
its discretion to implement the stock appreciation right provisions of this
Section V, one or more Optionees may be granted the right, exercisable upon such
terms and conditions as the Plan Administrator may establish, to surrender all
or part of an unexercised option under this Article Two in exchange for a
distribution from the Corporation in an amount equal to the excess of (i) the
Fair Market Value (on the option surrender date) of the number of shares in
which the Optionee is
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<PAGE>
at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate exercise price payable for such vested shares.
B. No surrender of an option shall be effective hereunder
unless it is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the Optionee shall accordingly become
entitled under this Section V may be made in shares of Common Stock valued at
Fair Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over at a time when the Corporation's outstanding
Common Stock is registered under Section 12(g) of the 1934 Act, each such
officer holding one or more options with such a limited stock appreciation right
in effect for at least six (6) months shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the option is at
the time exercisable for fully vested shares of Common Stock. The officer shall
in return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject to each surrendered option (or surrendered portion of
such option) over (ii) the aggregate exercise price payable for such vested
shares. Such cash distribution shall be made within five (5) days following the
option surrender date. Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option surrender
and cash distribution. Any unsurrendered portion of the option shall continue to
remain outstanding and become exercisable in accordance with the terms of the
instrument evidencing such grant.
E. The shares of Common Stock subject to any option
surrendered for an appreciation distribution pursuant to this Section V shall
not be available for subsequent issuance under the Plan.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate purchases without any intervening stock
option grants. The issued shares shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") that complies with the terms and conditions of
this Article Three.
A. Consideration.
1. Shares of Common Stock may be issued under
the Stock Issuance Program for one or more of the following items of
consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) full payment in cash or check made payable
to the Corporation's order;
(ii) a promissory note payable to the
Corporation's order in one or more installments; or
(iii) past services rendered to the Corporation
or any parent or subsidiary corporation.
2. The shares may, in the absolute discretion
of the Plan Administrator, be issued for consideration with a value less than
one hundred percent (100%) of the Fair Market Value of such shares at the time
of issuance, but in no event less than eighty-five percent (85%) of such Fair
Market Value.
B. Vesting Provisions.
1. Shares of Common Stock issued under the
Stock Issuance Program may, in the absolute discretion of the Plan
Administrator, be fully and immediately vested upon issuance (as a bonus for
past services) or may vest in one or more installments over the Participant's
period of Service or the Corporation's attainment of performance milestones. The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be achieved by the
Corporation,
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(ii) the number of installments in which
the shares are to vest,
(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan Administrator is to
have upon the vesting schedule, shall be determined by the Plan
Administrator and incorporated into the Stock Issuance Agreement
executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full shareholder
rights with respect to any shares of Common Stock issued to him or her under the
Plan, whether or not his or her interest in those shares is vested. Accordingly,
the Participant shall have the right to vote such shares and to receive any
regular cash dividends paid on such shares. Any new, additional or different
shares of stock or other property (including money paid other than as a regular
cash dividend) which the Participant may have the right to receive with respect
to his or her unvested shares by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration or by reason of any Corporate Transaction shall be
issued, subject to (i) the same vesting requirements applicable to his or her
unvested shares and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.
3. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock under the
Stock Issuance Program, then the Corporation shall have the right to require the
Participant to surrender those shares immediately to the Corporation for
cancellation, and the Participant shall cease to have any further shareholder
rights with respect to the surrendered shares. To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant's purchase-money promissory note),
the Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares.
4. The Plan Administrator may in its discretion
elect to waive the surrender and cancellation of one or more unvested shares of
Common Stock (or other assets attributable thereto) which would otherwise occur
upon the non-completion of the vesting schedule applicable to such shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
C. First Refusal Rights. Until such time as the
Corporation's outstanding shares of Common Stock are first registered under
Section 12(g) of the 1934 Act, the Corporation shall have a right of first
refusal with respect to any proposed disposition by the
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Participant (or any successor in interest by reason of purchase, gift or other
transfer) of any shares of Common Stock issued under this Article Three. Such
right of first refusal shall be exercisable in accordance with the terms and
conditions established by the Plan Administrator and set forth in the agreement
evidencing such right.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights
under this Article Three shall automatically terminate upon the occurrence of a
Corporate Transaction, except to the extent the Corporation's outstanding
repurchase rights are expressly assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction. However, any assigned
repurchase rights covering the unvested shares held by a Participant under this
Article Three shall immediately terminate should there occur an Involuntary
Termination of that Participant's Service (other than for Misconduct) within
eighteen (18) months after such Corporate Transaction.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the shares are issued under this
Article Three or at any time while those shares remain outstanding, to provide
for the automatic termination of the Corporation's repurchase rights with
respect to those shares should there occur a Change in Control. The Plan
Administrator shall also have full power and authority to condition the
termination of those repurchase rights upon the Participant's cessation of
Service by reason of an Involuntary Termination (other than for Misconduct)
within a specified period following such Change in Control.
III. SHARE ESCROW/TRANSFER RESTRICTIONS
A. Unvested shares may, in the Plan Administrator's
discretion, be held in escrow by the Corporation until the Participant's
interest in such shares vests or may be issued directly to the Participant with
restrictive legends on the certificates evidencing such unvested shares. To the
extent an escrow arrangement is utilized, the unvested shares and any securities
or other assets distributed with respect to such shares (other than regular cash
dividends) shall be delivered in escrow to the Corporation to be held until the
Participant's interest in such shares (or the distributed securities or assets)
vests.
B. The Participant shall have no right to transfer any
unvested shares of Common Stock issued to him or her under the Stock Issuance
Program. For purposes of this restriction, the term "transfer" shall include
(without limitation) any sale, pledge, assignment, encumbrance, gift or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be cancelled in
accordance with substantially the same procedure in effect under Section I.B.3
of this Article Three, and neither the Participant nor the proposed transferee
shall have any rights with respect to such cancelled shares. However, the
Participant shall have the right to make a gift of unvested shares acquired
under the Stock Issuance Program to his or her spouse or issue, including
adopted children, or to a trust established for such spouse or issue, provided
the transferee of such shares
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delivers to the Corporation a written agreement to be bound by all the
provisions of the Stock Issuance Program and the Stock Issuance Agreement
applicable to the gifted shares.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
The individuals eligible to receive automatic option grants
pursuant to the provisions of this Article Four program shall be limited to (i)
those individuals who are serving as non-employee Board members on the Automatic
Option Grant Program Effective Date, (ii) those individuals who are first
elected or appointed as non-employee Board members on or after such Effective
Date, whether through appointment by the Board or election by the Corporation's
shareholders, and (iii) those individuals who are re-elected to serve as
non-employee Board members at one or more Annual Shareholders Meetings held
after the Section 12(g) Registration Date. In no event, however, shall a
non-employee Board member be eligible to receive an automatic option grant
pursuant to clause (i) or (ii) above if such individual has at any time been in
the prior employ of the Corporation (or any parent or subsidiary corporation),
but such individual shall be eligible to receive one or more automatic option
grants pursuant to clause (iii). Each non-employee Board member eligible to
receive one or more automatic option grants pursuant to the foregoing criteria
shall be designated an Eligible Director for purposes of the Plan.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants shall be made under this
Article Three on the dates specified below:
1. Initial Grant. Each Eligible Director who
is first elected or appointed as a non-employee Board member after the Automatic
Option Grant Program Effective Date shall automatically be granted, on the date
of such initial election or appointment (as the case may be), a Non-Statutory
Option to purchase 16,666 shares of Common Stock upon the terms and conditions
of this Article Four.
2. Annual Grant. On the date of each Annual
Shareholders Meeting, beginning with the first Annual Meeting held after the
Section 12(g) Registration Date, each individual who will continue to serve as
an Eligible Director shall automatically be granted, whether or not such
individual is standing for re-election as a Board member at that Annual Meeting,
a Non-Statutory Option to purchase an additional 3,333 shares of Common Stock
upon the terms and conditions of this Article Four, provided he or she has
served as a non-employee Board member for at least six (6) months prior to the
date of such Annual Meeting.
3. No Limitation. There shall be no limit on
the number of shares for which any one Eligible Director may be granted stock
options under this Article Four over his or her period of Board service.
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B. Exercise Price. The exercise price per share of
Common Stock subject to each automatic option grant made under this Article Four
shall be equal to one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the automatic grant date.
C. Payment. The exercise price shall be payable in one
of the alternative forms specified below. To the extent the option is exercised
for any unvested shares, the Optionee must execute and deliver to the
Corporation a stock purchase agreement. for those unvested shares which provides
the Corporation with the right to repurchase, at the exercise price paid per
share, any unvested shares held by the Optionee at the time of cessation of
Board service and which precludes the sale, transfer or other disposition of the
purchased shares at any time while those shares remain subject to the
Corporation's repurchase right.
(i) full payment in cash or check drawn to the
Corporation's order;
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such term is defined below);
(iii) full payment in a combination of shares of Common
Stock held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date and cash or check drawn to the
Corporation's order; or
(iv) to the extent the option in exercised for vested
shares, full payment through a sale and remittance procedure pursuant
to which the Optionee shall provide irrevocable written instructions to
(a) a Corporation designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares and
(b) the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction.
Except to the extent the sale and remittance procedure
specified above is used for the exercise of the option for vested shares,
payment of the exercise price for the purchased shares must accompany the
exercise notice.
D. Option Term. Each automatic grant under this Article
Four shall have a maximum term of ten (10) years measured from the automatic
grant date.
E. Exercisability/Vesting. Each automatic grant shall
be immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the
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Optionee's cessation of Board service prior to vesting in those shares in
accordance with the applicable schedule below:
Initial Grant. Each initial 16,666-share automatic grant shall
vest, and the Corporation's repurchase right shall lapse, in a series
of four successive and equal annual installments over the Optionee's
period of continued service as a Board member, with the first such
installment to vest upon Optionee's completion of one (1) year of Board
service measured from the automatic grant date.
Annual Grant. Each additional 3,333-share automatic grant
shall vest, and the Corporation's repurchase right shall lapse, upon
the Optionee's completion of one (1) year of Board service measured
from the automatic grant date.
Vesting of the option shares shall be subject to acceleration,
as provided in Section II.G.3 and Section III of this Article Four. In no event
shall any additional option shares vest after the Optionee's cessation of Board
service, except as otherwise provided in Section II.G.3 of this Article Four.
F. Non-Transferability. During the lifetime of the
Optionee, each automatic option grant, together with the limited stock
appreciation right pertaining to that option, shall be exercisable only by the
Optionee and shall not be assignable or transferable by the Optionee, except for
a transfer of the option by will or by the laws of descent and distribution
following Optionee's death.
G. Effect of Termination of Board Service.
1. Should the Optionee cease to serve as a
Board member for any reason (other than death or Permanent Disability) while
holding one or more automatic option grants under this Article Four, then such
individual shall have a six (6)-month period following the date of such
cessation of Board service in which to exercise each such option for any or all
of the shares of Common Stock in which the Optionee is vested at the time of
such cessation of Board service. However, each such option shall immediately
terminate and cease to be outstanding, at the time of such cessation of Board
service, with respect to any shares in which the Optionee is not otherwise at
that time vested under that option.
2. Should the Optionee die within six (6)
months after cessation of Board service, then any automatic option grant held by
the Optionee at the time of death may subsequently be exercised, for any or all
of the shares of Common Stock in which the Optionee is vested at the time of his
or her cessation of Board service (less any option shares subsequently purchased
by the Optionee prior to death), by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. The right to exercise such option shall lapse upon the expiration
of a twelve (12)-month period measured from the date of the Optionee's death.
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3. Should the Optionee die or become
Permanently Disabled while serving as a Board member, then the shares of Common
Stock at the time subject to each automatic option grant held by such Optionee
under this Article Four which are vested may be purchased by the Optionee
pursuant to the option for (or the representative of the Optionee's estate or
the person or persons to whom the option is transferred upon the Optionee's
death) pursuant to the option for a twelve (12)-month period following the date
of the Optionee's cessation of Board service.
4. In no event shall any automatic grant under
this Article Four remain exercisable after the expiration date of the ten
(10)-year option term. Upon the expiration of the applicable post-service
exercise period under subparagraphs 1. through 3. above or (if earlier) upon the
expiration of the ten (10)-year option term, the automatic grant shall terminate
and cease to be outstanding for any option shares in which the Optionee was
vested at the time of his or her cessation of Board service but for which such
option was not subsequently exercised.
H. Shareholder Rights. The holder of an automatic
option grant under this Article Three shall have none of the rights of a
shareholder with respect to any shares subject to such option until such
individual shall have exercised the option and paid the exercise price for the
purchased shares.
I. Remaining Terms. The remaining terms and conditions
of each automatic option grant shall be as set forth in the form Automatic Stock
Option Agreement attached as Exhibit A to the plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/
HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option under this Article
Four but not otherwise vested shall automatically vest in full so that each such
option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable for all of the shares of Common
Stock at the time subject to that option and may be exercised for all or any
portion of those shares as fully vested shares. Immediately following the
consummation of the Corporate Transaction, all automatic option grants under
this Article Four shall terminate and cease to be outstanding, except to the
extent one or more of those grants are assumed by the acquiring entity or its
parent corporation.
B. In connection with any Change in Control of the
Corporation, the shares of Common Stock at the time subject to each outstanding
option under this Article Four but not otherwise vested shall automatically vest
in full so that each such option shall, immediately prior to the specified
effective date for the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to that option and may be
exercised for all or any portion of those shares as fully vested shares. Each
such option shall remain so exercisable for all the option shares following the
Change in Control, until the expiration or sooner termination of the option
term.
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C. Should a Hostile Take-Over occur at any time following the
Section 12(g) Registration Date, then the optionee shall have a thirty (30)-day
period in which to surrender to the Corporation each option held by him or her
under this Article Four for a period of at least six (6) months. The optionee
shall in return be entitled to a cash distribution from the Corporation in an
amount equal to the excess of (i) the Take-Over Price of the shares of Common
Stock at the time subject to the surrendered option (whether or not those shares
are otherwise at the time fully vested) over (ii) the aggregate exercise price
payable for such shares. The cash distribution shall be paid within five (5)
days following the surrender of the option to the Corporation. Neither the
approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such option surrender and cash distribution. The
shares of Common Stock subject to each option surrendered in connection with the
Hostile Take-Over shall not be available for subsequent issuance under the Plan.
D. The automatic option grants outstanding under this Article
Four shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program,
together with the automatic option grants outstanding under this Article Four,
may not be amended at intervals more frequently than once every six (6) months,
other than to the extent necessary to comply with applicable Federal income tax
laws and regulations.
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ARTICLE FIVE
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of July in the calendar
year immediately preceding the calendar year for which the annual retainer fee
which is the subject of that election is otherwise payable. Each non-employee
Board member who files such a timely election shall automatically be granted an
option under this Director Fee Option Grant Program on the first trading day in
January in the calendar year for which the annual retainer fee which is the
subject of that election would otherwise be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.
A. Exercise Price.
1. The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Number of Option Shares. The number of shares of
Common Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject
to the non-employee Board member's election, and
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B is the Fair Market Value per share of Common Stock
on the option grant date.
C. Exercise and Term of Options. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Board service in the
calendar year for which the annual retainer fee which is the subject of his or
her election under this Article Five would otherwise be payable. Each option
shall have a maximum term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
Board service for any reason (other than death or Permanent Disability) while
holding one or more options under this Article Five, then each such option shall
remain exercisable, for any or all of the shares for which the option is
exercisable at the time of such cessation of Board service, until the earlier of
(i) the expiration of the ten (10)-year option term or (ii) the expiration of
the three (3)-year period measured from the date of such cessation of Board
service. However, each option held by the Optionee under this Article Five at
the time of his or her cessation of Board service shall immediately terminate
and cease to remain outstanding with respect to any and all shares of Common
Stock for which the option is not otherwise at that time exercisable.
E. Death or Permanent Disability. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability, then
each option held by such Optionee under this Article Five shall immediately
become exercisable for all the shares of Common Stock at the time subject to
that option, and the option may, during the three (3)-year period following such
cessation of Board service, be exercised for any or all of those shares as
fully-vested shares.
Should the Optionee die while holding one or more options
under this Article Five, then each such option may be exercised, for any or all
of the shares for which the option is exercisable at the time of the Optionee's
cessation of Board service (less any shares subsequently purchased by Optionee
prior to death), by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution. Such
right of exercise shall lapse, and the option shall terminate, upon the earlier
of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the
Optionee remains a Board member, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable with respect to the total number
of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
Each such outstanding option shall be assumed by the successor corporation (or
parent thereof) in the Corporate Transaction and shall remain exercisable for
the fully-vested shares until the earlier of (i) the
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expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
B. In the event of a Change in Control while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
The option shall remain so exercisable until the earlier of (i) the expiration
of the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
C. The grant of options under the Director Fee Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
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ARTICLE SIX
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Discretionary Option Grant and Automatic Option Grant
Programs or the purchase of one or more shares issued to such Participant under
the Stock Issuance Program, including the satisfaction of any Federal, state and
local income and employment tax obligations arising therefrom, by:
(i) authorizing the extension of a loan from the
Corporation to such Optionee or Participant, or
(ii) permitting the Optionee or Participant to pay the
exercise price or purchase price for the purchased Common Stock in
installments over a period of years.
B. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be upon such terms as
the Plan Administrator specifies in the applicable option or issuance agreement
or otherwise deems appropriate at the time such exercise price or purchase price
becomes due and payable. Loans or installment payments may be authorized with or
without security or collateral. In all events, the maximum credit available to
the Optionee or Participant may not exceed the option or purchase price of the
acquired shares (less the par value of such shares) plus any Federal, state and
local income and employment tax liability incurred by the Optionee or
Participant in connection with the acquisition of such shares.
C. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this Section I shall be subject
to forgiveness by the Corporation in whole or in part upon such terms and
conditions as the Plan Administrator may in its discretion deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to
amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. However, (i) no such amendment or modification shall adversely
affect rights and obligations with respect to options at the time outstanding
under the Plan, nor adversely affect the rights of any Participant with respect
to Common Stock issued under the Stock Issuance Program prior to such action,
unless the Optionee or Participant consents to such amendment. In addition, the
Board may not, without the approval of the Corporation's shareholders, amend the
Plan to (i) increase the
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maximum number of shares issuable under the Plan or the maximum number of shares
for which any one individual participating in the Plan may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances in the aggregate over the term of the Plan, except for permissible
adjustments under Article One, (ii) materially modify the eligibility
requirements for Plan participation, or (iii) otherwise materially increase the
benefits accruing to Plan participants.
B. (i) Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program and (ii) shares of Common
Stock may be issued under the Stock Issuance Program, which are in both
instances in excess of the number of shares then available for issuance under
the Plan, provided any excess shares actually issued under the Discretionary
Option Grant or the Stock Issuance Programs are held in escrow until shareholder
approval is obtained for a sufficient increase in the number of shares available
for issuance under the Plan. If such shareholder approval is not obtained within
twelve (12) months after the date the first such excess option grants or excess
share issuances are made, then (i) any unexercised excess options shall
terminate and cease to be exercisable and (ii) the Corporation shall promptly
refund the purchase price paid for any excess shares actually issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of any stock options granted under Article Two or upon
the issuance of any shares under Article Three shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
B. The Plan Administrator may, in its discretion and in
accordance with the provisions of this Section III of Article Five and such
supplemental rules as the Plan Administrator may from time to time adopt
(including the applicable safe-harbor provisions of Rule 16b-3 of the Securities
and Exchange Commission), provide any or all holders of Non-Statutory Options
or unvested shares under the Plan with the right to use shares of Common Stock
in satisfaction of all or part of the Federal, state and local income and
employment tax liabilities incurred by such holders in connection with the
exercise of their options or the vesting of their shares (the "Taxes"). Such
right may be provided to any such holder in either or both of the following
formats:
-- The holder of the Non-Statutory Option or unvested shares
may be provided with the election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of
such Non-Statutory Option or the vesting of such shares, a portion of
those shares with an aggregate Fair Market Value equal to the
percentage of the applicable Taxes (not to exceed one hundred percent
(100%)) designated by the holder.
-- The Plan Administrator may, in its discretion, provide the
holder of the Non-Statutory Option or the unvested shares with the
election to deliver to
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the Corporation, at the time the Non-Statutory Option is exercised or
the shares vest, one or more shares of Common Stock previously acquired
by such individual (other than in connection with the option exercise
or share vesting triggering the Taxes) with an aggregate Fair Market
Value equal to the percentage of the Taxes incurred in connection with
such option exercise or share vesting (not to exceed one hundred
percent (100%)) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Discretionary Option Grant and Stock Issuance Programs
of this Plan became effective immediately upon adoption of the Plan by the Board
on March 23, 1995 (the "Plan Effective Date"). The Plan was approved by the
Corporation's shareholders on April 12, 1995. On December 9, 1995, the Board
approved an increase of 600,000 shares (which number reflects the 1-for-3
reverse stock split that was effected immediately prior to the consummation of
the initial public offering of the Common Stock) in the aggregate number of
shares issuable under the Plan; such increase was approved by the Corporation's
shareholders on December 19, 1995. The Automatic Option Grant Program of this
Plan became effective on the Automatic Option Grant Program Effective Date.
B. The Plan was amended by the Board on March 16, 1996 to
implement the Director Fee Option Grant Program, subject to approval of the
amendment at the 1996 Annual Stockholders Meeting. If such stockholder approval
is not obtained, then the Director Fee Option Grant Program will terminate.
C. Each stock option grant outstanding under the Predecessor
Plans immediately prior to the Plan Effective Date shall be incorporated into
this Plan and treated as an outstanding option under this Plan, but each such
option shall continue to be governed solely by the terms and conditions of the
instrument evidencing such grant, and nothing in this Plan shall be deemed to
affect or otherwise modify the rights or obligations of the holders of such
options with respect to their acquisition of shares of Common Stock thereunder.
However, the Plan Administrator shall have complete discretion to extend, under
such circumstances as it may deem appropriate, one or more provisions of this
Plan to any or all of the stock options which are incorporated into this Plan
from the Predecessor Plans but which do not otherwise-contain such provisions.
D. No further option grants or stock issuances shall be made
under the Predecessor Plans from and after the Plan Effective Date.
E. The Plan shall terminate upon the earlier of (i) February
28, 2005 or (ii) the date on which all shares available for issuance under the
Plan shall have been issued pursuant to the exercise of the options or stock
appreciation rights granted under the Plan or the issuance of shares (whether
vested or unvested) under the Stock Issuance Program. If the date of termination
is determined under clause (i) above, then all option grants and unvested share
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
option grants or share issuances.
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V. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the Plan shall be construed so as to grant any individual the right
to remain in the employ or service of the Corporation (or any parent or
subsidiary corporation) for any period of specific duration, and the Corporation
(or any parent or subsidiary corporation retaining the services of such
individual) may terminate such individual's employment or service at any time
and for any reason, with or without cause.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants or share issuances under the Plan shall be used
for general corporate purposes.
VII. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
under the Plan, the issuance of any shares under the Stock Issuance Program, and
the issuance of Common Stock upon the exercise or surrender of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
VIII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets
under the Plan may not be assigned, encumbered or otherwise transferred by any
Optionee or Participant.
B. The provisions of the Plan relating to the exercise
of options and the vesting of shares shall be governed by the laws of the State
of Pennsylvania as such laws are applied to contracts entered into and performed
in such State.
C. The provisions of the Plan shall inure to the benefit of,
and be binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
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(Form of Proxy)
NEOSE TECHNOLOGIES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - JUNE 14, 1996
(This Proxy is solicited by the Board of Directors of the Company)
The undersigned stockholder of Neose Technologies, Inc. hereby appoints Stephen
A. Roth, Chairman and Chief Executive Officer and P. Sherrill Neff, President
and Chief Financial Officer and each of them, with full power of substitution,
proxies to vote the shares of stock which the undersigned could vote if
personally present at the Annual Meeting of Stockholders of Neose Technologies,
Inc. to be held at Doubletree Guest Suites, Plymouth Meeting Executive Campus,
640 West Germantown Pike, Plymouth Meeting, Pennsylvania 19462, on June 14,
1996, at 1:00 P.M. (eastern daylight time), or any adjournment thereof.
1. ELECTION OF DIRECTORS (for terms as described in the Proxy Statement)
/ / FOR all nominees below / / WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees below
Stephen A. Roth, P. Sherrill Neff, William F. Hamilton, Douglas J.
MacMaster, Jr., Lindsay A. Rosenwald, Lowell E. Sears, and Jerry A.
Weisbach.
INSTRUCTION: To withhold authority to vote for an individual nominee,
write the nominee's name in the space provided below.
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2. RATIFICATION OF ACCOUNTANTS
/ / FOR / / AGAINST / / ABSTAIN WITH RESPECT TO
proposal to ratify the selection of Arthur Andersen LLP, independent public
accounts, as auditors of the Company as described in the Proxy Statement.
3. APPROVAL OF THE AMENDMENT TO THE 1995 STOCK OPTION/STOCK ISSUANCE PLAN TO
ADD THE DIRECTOR FEE OPTION GRANT PROGRAM
/ / FOR / / AGAINST / / ABSTAIN WITH RESPECT TO
proposal to approve the Director Fee Option Grant Plan.
4. IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
PERSONS NOMINATED BY MANAGEMENT AS DIRECTORS AND FOR PROPOSALS 2 AND 3.
Please date and sign exactly as your name appears on the envelope in which
this material was mailed. If shares are held jointly, each stockholder
should sign. Executors, administrators, trustees, etc. should use full title
and, if more than one, all should sign. If the stockholder is a corporation,
please sign full corporate name by an authorized officer. If the stockholder
is a partnership, please sign full partnership name by an authorized person.
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Signature(s) of Stockholder
Dated:_______________________
<PAGE>
