SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Neose Technologies, Inc.
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(Name of Registrant as Specified in its Charter)
Neose Technologies, Inc.
----------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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 transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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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.
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>
NEOSE TECHNOLOGIES, INC.
[Neose Technologies, Inc. Logo]
102 Witmer Road
Horsham, Pennsylvania 19044
Notice of Annual Meeting of Stockholders
June 19, 1997
The Annual Meeting of Stockholders of Neose Technologies, Inc. (the
"Company") will be held at the Company's headquarters at 102 Witmer Road,
Horsham, Pennsylvania on June 19, 1997 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 approve and adopt the Company's Amended and Restated 1995 Stock
Option/Stock Issuance Plan (the "Amended Plan") to, among other things, comply
with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as
amended, increase the number of shares authorized for issuance under the Amended
Plan, and change the amount of shares issuable to any individual under the
Amended Plan; and
3. To ratify the selection of Arthur Andersen LLP, independent public
accountants, as auditors of the Company for the fiscal year ending December 31,
1997;
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 21, 1997
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 specified 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
/s/Stephen A. Roth
Stephen A. Roth
Chairman and Chief Executive Officer
April 30, 1997
- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY
- --------------------------------------------------------------------------------
<PAGE>
NEOSE TECHNOLOGIES, INC.
PROXY STATEMENT
April 30, 1997
This Proxy Statement is furnished to stockholders of record of Neose
Technologies, Inc. (the "Company") as of April 21, 1997 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
at 1:00 p.m. (Eastern Daylight Time) on June 19, 1997 at the Company's
headquarters at 102 Witmer Road, Horsham, Pennsylvania (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 proposal to approve and adopt
the Amended and Restated 1995 Stock Option/Stock Issuance Plan, "FOR" the
ratification of the selection of Arthur Andersen LLP, independent public
accountants, as auditors of the Company, 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 nonvotes 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 nonvotes 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 April 30, 1997.
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 21, 1997
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 21, 1997, 9,495,290
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.
1
<PAGE>
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.
The Board of Directors recommends a vote FOR the election of each of
the nominees for director.
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, 54, 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, 45, has served as President, Chief Financial Officer,
and a director of the Company 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, where Mr. Neff had
responsibility for managing the growth of several subsidiary companies, and
sustaining growth through strategic acquisitions, investments, and partnerships.
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 is a director of JeffBanks, Inc., a publicly traded bank
holding company. Mr. Neff has been a member of the Pennsylvania Bar since 1980.
William F. Hamilton, 58, 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, Marlton Technologies, Inc., a trade show supply company, and
Digital Lightwave, Inc., a manufacturer of telecommunications test equipment.
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., 66, 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, Flamel Technologies,
S.A., a polymer chemistry and drug delivery 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 Martha's Vineyard
Hospital Foundation. Mr. MacMaster received his B.A. from St. Francis Xavier
University and his J.D. from Boston College Law School.
2
<PAGE>
Lindsay A. Rosenwald, 42, 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.,
Atlantic Pharmaceuticals, Inc., Ansan, Inc., Xenometrix, Inc., Titan
Pharmaceuticals, Inc., Avigen, Inc., VIMRx Pharmaceuticals, Inc., Avax
Technologies, Inc., and Enzymed, Inc. Dr. Rosenwald received his B.A. in finance
from Pennsylvania State University and his M.D. from Temple University School of
Medicine.
Lowell E. Sears, 46, 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 Senior Vice President 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, 63, 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., Xytronyx, Inc., and Exponential
Biotherapies, Inc., which are biotechnology companies, Synthon Corporation, a
chemical intermediation company, and CIMA Laboratories, Inc., a drug delivery
company. Dr. Weisbach is also a member of the Scientific Advisory Boards of
Magainin Pharmaceuticals, Inc., Myco Pharmaceuticals Inc., and Receptor
Laboratories, 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 Board of Directors has an Audit Committee and a Compensation
Committee. 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 Compensation Committee administers all stock option plans relating
to the compensation of officers, including having 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.
3
<PAGE>
Attendance at Board and Committee Meetings
During 1996, the Board of Directors held five meetings (including one
by conference telephone) and the Audit Committee and the Compensation Committee
each held two meetings. Each director attended at least 75% of the aggregate of
the meetings of the Board of Directors held during 1996 and of the committee or
committees on which he served during the year.
Compensation of Directors
Cash Compensation. Effective January 1, 1997, non-employee members of
the Board of Directors receive an annual retainer of $14,000 and are reimbursed
for reasonable travel expenses incurred in connection with their attendance at
meetings of the Board of Directors. Non-employee directors may also receive
consulting fees of $2,000 per day of additional service. Under the Director Fee
Option Grant Program of the 1995 Stock Option/Stock Issuance Plan, the
non-employee directors may elect to apply all, or part, of their annual retainer
fees towards the acquisition of options to purchase shares of Common Stock.
During 1996, Dr. Rosenwald elected to receive no compensation for his services
as a director of the Company.
Stock Option Grant. Under the Automatic Option Grant Program of the
1995 Stock Option/Stock Issuance Plan, each non-employee director first elected
or appointed to the Board of Directors 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, 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. On the date
of the Annual Meeting of Stockholders held on June 14, 1996, Dr. Rosenwald
elected not to receive such option grant in 1996. On the date of the Annual
Meeting, each non-employee Director will, if re-elected, receive an option grant
for 3,333 shares.
Each automatic grant will have a term of ten 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Officers, directors,
and greater-than-ten percent stockholders are required by the Commission to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such reports received by the Company, the
Company believes that during the year ended December 31, 1996, all filing
requirements applicable to its officers and directors were satisfied, except as
described below.
Due to the timing of the initial employee purchase under the Company's
Employee Stock Purchase Plan, the following officers of the Company
inadvertently failed to file a Form 4 in a timely fashion for their initial
purchase of shares under the plan: Edward J. McGuire, P. Sherrill Neff, David F.
Pritchard, Stephen A. Roth, and David A. Zopf. Each officer reported the
purchase of shares in a subsequent Section 16(a) filing. In addition, a director
of the Company, Lindsay A. Rosenwald, failed to report in a timely fashion the
sale of 8,000 shares of Common Stock in November 1996.
4
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Stephen A. Roth, Ph.D.......................................54 Chairman, Chief Executive Officer, and Director
P. Sherrill Neff............................................45 President, Chief Financial Officer, and Director
Edward J. McGuire, Ph.D.....................................59 Vice President, Research and Development
David A. Zopf, M.D..........................................54 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
National Institutes of Health ("NIH") post-doctoral fellowships at the
University of Michigan and The Johns Hopkins 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.
5
<PAGE>
Summary Compensation Table
The following table sets forth all compensation earned in 1996 and 1995
by the Company's Chief Executive Officer and the Company's four other most
highly compensated officers in 1996 (together, the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-term
Compensation
-------------
Annual Compensation Securities
------------------------ Underlying All Other
Name and Principal Position Year Salary Bonus Options(#) Compensation
- --------------------------------------- ---- -------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Stephen A. Roth........................ 1996 $230,000 $52,500 90,000 $5,172(1)(2)
Chief Executive Officer 1995 200,000 50,000 90,000 5,172(1)(2)
P. Sherrill Neff....................... 1996 225,000 52,500 90,000 5,235(1)(3)
President, Chief Financial Officer 1995 225,000 50,000 90,000 5,172(1)(3)
Edward J. McGuire...................... 1996 129,600 40,000 15,000 3,855(1)(4)
Vice President, Research and Development 1995 120,000 35,000 10,000 3,745(1)(4)
David A. Zopf.......................... 1996 151,200 40,000 15,000 4,372(1)(5)
Vice President, Drug Development 1995 144,000 30,000 6,666 5,046(1)(5)
David F. Pritchard(6).................. 1996 118,656 -- -- 3,518(1)(7)
Vice President, Business Development 1995 115,200 10,000 7,000 3,504(1)(7)
</TABLE>
- ------------------
(1) Includes $552 in premiums paid for group term life insurance policy.
(2) Includes $4,620 in matching contributions in each of 1996 and 1995 to
the Company's tax-qualified employee savings and retirement plan (the
"401(k) Plan").
(3) Includes $4,683 and $4,620 in 1996 and 1995, respectively, in matching
contributions to the 401(k) Plan.
(4) Includes $3,303 and $3,193 in 1996 and 1995, respectively, in matching
contributions to the 401(k) Plan.
(5) Includes $3,820 and $4,494 in 1996 and 1995, respectively, in matching
contributions to the 401(k) Plan.
(6) Mr. Pritchard ceased being an executive officer of the Company
effective as of November 22, 1996, and ceased being an employee
effective as of January 2, 1997. Effective as of January 2, 1997, Mr.
Pritchard and the Company entered into a separation and consulting
agreement and general release. See "-- Employment Arrangements."
(7) Includes $2,966 and $2,952 in 1996 and 1995, respectively, in matching
contributions to the 401(k) Plan.
6
<PAGE>
Option Grants in 1996
The following table sets forth certain information concerning grants of
stock options made during 1996 to each of the Named Executive Officers. No stock
appreciation rights were granted to any Named Executive Officer during fiscal
year 1996.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Number of Stock Price Appreciation for
Securities Percentage of Option Term(4)
Underlying Total Options Exercise Expiration ----------------------------
Name Options Granted(1) Granted(2) Price(3 Date 5% 10%
---- ------------------ ------------- -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Roth.......... 90,000 26.6% $15.125 12/02/06 $856,083 $2,169,482
P. Sherrill Neff......... 90,000 26.6 15.125 12/02/06 856,083 2,169,482
Edward J. McGuire........ 15,000 4.4 15.125 12/02/06 142,680 361,580
David A. Zopf............ 15,000 4.4 15.125 12/02/06 142,680 361,580
David F. Pritchard....... -- -- -- -- -- --
</TABLE>
- ----------
(1) These options are exercisable in four annual installments commencing on
the first anniversary of the date of grant.
(2) Based on an aggregate of 338,850 options granted to employees in 1996,
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. The assumed 5% and 10% annual
rates of appreciation (compounded annually) over the term of the option
are set forth in accordance with the rules and regulations adopted by
the Commission and do not represent the Company's estimate of stock
price appreciation.
7
<PAGE>
Aggregated 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, 1996. No stock appreciation rights were outstanding on
December 31, 1996 and no stock appreciation rights were exercised during the
fiscal year ended December 31, 1996 by any of the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Value Options(#) In-The-Money Options ($)
On Realized ----------------------------- ------------------------------
Name Exercise(#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Roth.......... -- -- 29,901 161,666 $249,839 $ 696,351
P. Sherrill Neff......... -- -- 82,500 197,500 860,850 1,119,300
Edward J. McGuire........ 2,000 $25,350(1) 40,500 22,500 632,400 110,625
David A. Zopf............ -- -- 30,366 21,665 480,872 116,605
David F. Pritchard....... 3,333 54,495(2) 8,417 8,583 133,881 116,619
</TABLE>
- ----------
(1) Based on the sales price of the Common Stock on the exercise date, less
the exercise price payable for such shares.
(2) Based on the fair value of the Common Stock at the exercise date, less
the exercise price payable for such shares. Pursuant to the terms of a
separation and consulting agreement and general release effective
January 2, 1997 between Mr. Pritchard and the Company, effective
January 2, 1997, the vesting of options to purchase 7,083 shares of
Common Stock held by Mr. Pritchard accelerated and such options became
immediately exercisable and unvested options to purchase 1,500 shares
of Common Stock were canceled. Mr. Pritchard exercised his remaining
vested options to purchase 15,500 shares of Common Stock in February
and March 1997.
1995 Stock Option/Stock Issuance Plan
The Company's 1995 Stock Option/Stock Issuance Plan is described under
"Approval and Adoption of Amended and Restated 1995 Stock Option/Stock Issuance
Plan" in connection with the proposal to approve and adopt the Company's Amended
and Restated 1995 Stock Option/Stock Issuance Plan to, among other things,
comply with the requirements of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), increase the number of shares authorized for
issuance thereunder, and change the amount of shares issuable to any individual
thereunder.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") is
designed to allow eligible employees of the Company and participating
subsidiaries to purchase shares of Common Stock, at semi-annual intervals,
through periodic payroll deductions under the Purchase Plan, and a reserve of
100,000 shares of Common Stock has been established for this purpose.
The Purchase Plan is being implemented in a series of successive
offering periods, each with a maximum duration of 24 months, with the exception
of the initial offering period which began on February 15, 1996 and will end on
the last business day in January 1998. Each offering period is comprised of
successive purchase intervals, each of six months' duration. Shares of Common
Stock are purchased for each participant at the end of each purchase interval
during
8
<PAGE>
the offering period. On July 31, 1996, participants acquired 5,631 shares of
Common Stock under the Purchase Plan and on January 31, 1997, participants
acquired 8,182 shares of Common Stock under the Purchase Plan.
Payroll deductions may not exceed 10% of the participant's total cash
earnings for each semi-annual period. The purchase price per share is 85% of the
lower of (i) the fair market value of the Common Stock on the participant's
entry date into the offering period or (ii) the fair market value on the
semi-annual purchase date.
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 with the remainder vesting ratably over four years.
Pursuant to the terms of the Neff Agreement, Mr. Neff has entered into a
standard noncompetition and confidentiality agreement with the Company. In
addition, if Mr. Neff is involuntarily terminated without "cause" (as defined in
the Neff Agreement) or terminated voluntarily or involuntarily following certain
changes of control of the Company or a sale of all or substantially all of the
Company's assets in a complete liquidation or dissolution, the Company is
required to continue to pay Mr. Neff for 12 months after termination or such
shorter amount of time remaining in his employment term.
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 $151,200 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
in four equal annual installments commencing on the first anniversary 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.
Effective January 2, 1997, a separation and consulting agreement and
general release was entered into between the Company and David F. Pritchard, the
Company's former Vice President, Business Development. The agreement provided
for a lump-sum severance payment to Mr. Pritchard of approximately $50,000 on
that date and total consulting fees of approximately $60,000 during a six-month
consulting period beginning at the end of Mr. Pritchard's severance period (May
31, 1997) and ending on November 30, 1997, subject to reduction or termination
upon Mr. Pritchard's employment by, or receipt of compensation for services
from, another person before or during the consulting period. In addition,
effective January 2, 1997, the vesting of options to purchase 7,083 shares of
Common Stock held by Mr. Pritchard accelerated, and such options became
immediately exercisable. Mr. Pritchard exercised his remaining vested options to
purchase 15,500 shares of Common Stock in February and March 1997.
401(k) Plan
The Company has a tax-qualified employee savings and retirement plan
(the "401(k) Plan") covering all of the Company's eligible employees. Pursuant
to the 401(k) Plan, eligible employees may elect to reduce their current
compensation by up to the lesser of 15% of eligible compensation or the annual
limit prescribed by statute and have the amount of such reduction contributed to
the 401(k) Plan. The trustee under the 401(k) Plan, at the direction of each
participant, invests the assets of the 401(k) Plan in any of six investment
options. The 401(k) Plan is intended to qualify under Section 401 of the Code so
that contributions by employees to the 401(k) Plan, and income earned on plan
contributions, are not taxable to employees until withdrawn, and so that the
contributions by employees will be deductible by the Company when made. The
401(k) Plan provides for matching cash contributions to the 401(k) Plan by the
Company equal to 50% of the amount deferred up to 5% of compensation. The
Company made matching contributions
9
<PAGE>
of approximately $61,000, $62,000, $53,000, and $28,000 to the 401(k) Plan in
1996, 1995, 1994, and 1993, respectively. Matching contributions vest over a
four-year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Dr. Hamilton, Mr.
MacMaster, and Dr. Rosenwald. No member of the Compensation Committee was at any
time during 1996 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 compensation matters generally,
determines the compensation of the Chief Executive Officer and the President,
reviews and takes action on the recommendation of the Chief Executive Officer as
to the appropriate compensation of other officers and key personnel, and
approves the grants of bonuses to officers and key personnel. The Compensation
Committee also is responsible for the administration of the Company's 1995 Stock
Option/Stock Issuance Plan under which option grants and direct stock issuances
may be made to executive officers.
General Compensation Policy For Executive Officers. 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 for 1996 are
summarized below. The Compensation Committee may, however, in its discretion
apply entirely different factors with respect to executive compensation for
future years.
o Base Salary. The 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 1996. 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 are generally reviewed on an annual basis, with adjustments made in
accordance with the factors indicated above. The base salaries for the executive
officers in 1996 increased an aggregate of 6.25% over 1995.
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.
10
<PAGE>
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 meaningful opportunity for appreciation 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, 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. Options to acquire
an aggregate of 210,000 shares were granted to executive officers in 1996.
Through the Company's Employee Stock Purchase Plan, the Company offers
additional opportunities for equity ownership to executive officers.
CEO Compensation. In determining the compensation payable to the
Company's Chief Executive Officer, the Compensation Committee focused on two
objectives: (i) establishing 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) making 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 1996 was based on 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 1996
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, 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 Amended and Restated 1995 Stock Option/Stock Issuance Plan, if
approved by the stockholders of the Company, is 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.
11
<PAGE>
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
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 15, 1997 by (i)
each Director (all of whom are nominees 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 Directors and
executive officers as a group.
<TABLE>
<CAPTION>
Number of Shares Percentage of
of Common Stock Shares
Name Beneficially Owned(1) Outstanding(1)
- ---- --------------------- --------------
<S> <C> <C>
Lindsay A. Rosenwald, M.D.(2)...................................... 606,791 6.4%
c/o Paramount Capital, Inc.
787 7th Avenue
New York, NY 10019
Invesco PLC (3).................................................... 500,000 5.3
11 Devonshire Square
London EC2M 4YR ENGLAND
Stephen A. Roth, Ph.D.(4).......................................... 235,718 2.5
P. Sherrill Neff(5)................................................ 88,637 *
Edward J. McGuire, Ph.D.(6)........................................ 118,734 1.2
David A. Zopf, M.D.(7)............................................. 34,702 *
David F. Pritchard(8).............................................. 17,343 *
William F. Hamilton, Ph.D.(9)...................................... 38,590 *
Douglas J. MacMaster, Jr.(10)...................................... 29,841 *
Lowell E. Sears(11)................................................ 31,595 *
Jerry A. Weisbach, Ph.D.(12)....................................... 23,591 *
All current directors and executive officers as a group
(9 persons)(13)............................................... 1,208,199 12.3
</TABLE>
- ----------
* Less than one percent.
(1) Gives effect to the shares of Common Stock issuable within 60 days of April
15, 1997 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
Commission and includes voting and investment power with respect to shares.
12
<PAGE>
(2) Includes (i) 75,624 shares of Common Stock owned by Dr. Rosenwald's wife,
(ii) 30,250 shares of Common Stock held by Dr. Rosenwald's wife as
custodian for Dr. Rosenwald's children, and (iii) 32,000 shares of Common
Stock held by Rosenwald Foundation, Inc., as to which Dr. Rosenwald
disclaims beneficial ownership. Dr. Rosenwald may be deemed to share voting
and investment power with respect to such shares.
(3) Information on Invesco PLC's stock ownership was obtained from Invesco
PLC's Schedule 13G filed with the Commission.
(4) Includes (i) 15,758 shares of Common Stock owned by Dr. Roth's daughter and
(ii) 31,984 shares of Common Stock issuable upon exercise of stock options.
(5) Includes 82,500 shares of Common Stock issuable upon exercise of stock
options.
(6) Includes 40,500 shares of Common Stock issuable upon exercise of stock
options.
(7) Includes 30,366 shares of Common Stock issuable upon exercise of stock
options.
(8) Mr. Pritchard ceased being an executive officer of the Company effective as
of November 22, 1996, and ceased being an employee effective as of January
2, 1997.
(9) Includes 36,506 shares of Common Stock issuable upon exercise of stock
options.
(10) Includes 21,507 shares of Common Stock issuable upon exercise of stock
options.
(11) Includes 13,671 shares of Common Stock issuable upon exercise of stock
options. Also includes 17,924 shares of Common Stock owned by the Sears
Family Living Trust, of which Mr. Sears is the trustee.
(12) Includes 21,507 shares of Common Stock issuable upon exercise of stock
options.
(13) See notes (2) through (11).
CERTAIN TRANSACTIONS
In connection with the purchase of its facility and planned GMP
manufacturing expansion, on March 20, 1997, the Company issued, through the
Montgomery County (Pennsylvania) Industrial Development Authority, the aggregate
amount of $9.4 million of taxable and tax-exempt bonds. The bonds are supported
by a AA-rated letter of credit, and a reimbursement agreement between the
Company's bank, Jefferson Bank, and the letter of credit issuer. To provide
credit support for this arrangement, the Company has agreed to certain financial
covenants and has given a first mortgage on the land, building, improvements,
and certain machinery and equipment to Jefferson Bank. In addition, the Company
has agreed to pay Jefferson Bank a quarterly fee equal to 0.625% of the
outstanding letter of credit amount. Mr. Neff, the President, Chief Financial
Officer and a director of the Company, is a director of JeffBanks, Inc., the
parent holding company of Jefferson Bank. The Company believes that the terms of
the credit support arrangement generally were no less favorable than those that
could have been obtained from other lending institutions.
In 1996, the Company granted its current directors and executive
officers options to purchase a total of 223,332 shares of Common Stock at
exercise prices ranging from $15.125 to $21.00 per share.
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<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total stockholder return of (i) the
Nasdaq Stock Market - US Index (the "Nasdaq Composite"), and (ii) the Nasdaq
Stock Market Biotech Index (the "Nasdaq Biotech Index"), assuming an investment
in each of $100 on February 16, 1996. The graph commences on the date the
Company's Common Stock became publicly traded.
- --------------------------------------------------------------------------------
Date NTEC NASDAQ NASDAQ
Composite Biotech Index
2/16/96 100.00 100.00 100.00
2/23/96 145.83 102.48 99.86
3/1/96 135.42 99.58 97.73
3/8/96 146.88 97.53 96.46
3/15/96 175.00 100.81 97.62
3/22/96 160.42 101.06 96.99
3/29/96 154.17 100.98 93.36
4/5/96 160.42 102.52 95.24
4/12/96 159.38 100.94 90.68
4/19/96 158.07 104.40 93.03
4/26/96 160.42 108.82 96.21
5/3/96 187.50 108.61 93.73
5/10/96 187.50 110.27 96.13
5/17/96 191.67 113.86 101.35
5/24/96 192.71 114.40 102.12
5/31/96 191.67 114.00 100.99
6/7/96 183.33 112.75 99.01
6/14/96 175.00 111.23 97.66
6/21/96 175.00 107.77 90.43
6/28/96 170.83 108.65 90.46
7/5/96 159.38 106.20 88.01
7/12/96 151.04 101.17 83.12
7/19/96 137.50 100.64 85.41
7/26/96 127.08 98.97 81.80
8/2/96 122.92 103.14 83.14
8/9/96 129.17 104.27 82.77
8/16/96 108.33 103.94 85.23
8/23/96 119.79 104.80 89.23
8/30/96 116.67 104.66 87.21
9/6/96 126.04 104.46 86.03
9/13/96 127.08 108.98 89.67
9/20/96 131.25 111.83 90.15
9/27/96 125.00 112.78 93.78
10/4/96 142.71 114.38 94.59
10/11/96 141.67 114.45 94.89
10/18/96 140.63 113.91 92.86
10/25/96 130.21 112.09 92.67
11/1/96 133.33 112.02 90.15
11/8/96 122.92 115.29 89.89
11/15/96 125.00 115.69 89.14
11/22/96 122.92 116.84 89.44
11/29/96 126.56 118.51 90.15
12/6/96 152.08 118.06 92.18
12/13/96 150.52 117.80 91.21
12/20/96 153.13 118.14 93.64
12/27/96 152.08 118.40 92.83
12/31/96 150.00 118.37 93.11
- --------------------------------------------------------------------------------
14
<PAGE>
APPROVAL AND ADOPTION OF AMENDED AND RESTATED 1995 STOCK
OPTION/STOCK ISSUANCE PLAN
Proposal
At the Annual Meeting, a proposal will be presented to the stockholders
to approve and adopt the Amended and Restated 1995 Stock Option/Stock Issuance
Plan (the "Amended Plan"), to, among other things, comply with the requirements
of Section 162(m) of the Code, increase the number of shares authorized for
issuance thereunder, and change the amount of shares issuable to any individual
thereunder. On March 19, 1997, the Company's Board of Directors adopted, subject
to approval by the Company's stockholders at the Annual Meeting, an amendment to
the 1995 Stock Option/Stock Issuance Plan (the "Existing Plan") to increase, by
500,000 shares, the number of authorized shares under the plan from 1,378,706 to
1,878,706. The Board approved the amendment upon its determination that the
Existing Plan lacked a sufficient number of shares available for future grants.
On April 23, 1997, the Board of Directors adopted, subject to approval by the
Company's stockholders at the Annual Meeting, an amendment to the Existing Plan
to change the aggregate number of shares of Common Stock for which any one
individual participating in the Amended Plan may be granted stock options,
separately exercisable stock appreciation rights, and direct stock issuances,
from a limitation of 250,000 shares over the term of the Existing Plan, to an
annual limitation not in excess of 50% of the total number of shares for which
stock options, separately exercisable stock appreciation rights, and direct
stock issuances may be granted over the term of the Amended Plan.
A description of the material features of the Amended Plan follows.
Vote Required for Approval
Approval of the proposal to approve and adopt the Amended Plan requires
the affirmative vote of the holders of a majority of shares present in person or
represented by proxy at the Annual Meeting and entitled to vote.
The Board of Directors recommends a vote FOR the proposal to approve
and adopt the Amended Plan.
The Amended Plan is set forth in Appendix A to this Proxy Statement.
The description of the Amended Plan is qualified in its entirety by reference to
Appendix A.
Description of the Amended Plan
The Company's Existing Plan was adopted by the Board of Directors on
March 23, 1995 and approved by the stockholders on April 12, 1995. On December
6, 1995, the Board of Directors approved an increase in the aggregate number of
shares of Common Stock available for issuance under the Existing Plan by 500,000
shares. Stockholder approval of the increase was obtained on December 19, 1995.
On April 16, 1996, the Board of Directors approved an amendment to the Existing
Plan to implement a Director Fee Option Grant Program. Stockholder approval of
the amendment was obtained on June 14, 1996 at the Company's 1996 Annual Meeting
of Stockholders. On March 19, 1997, the Board of Directors approved an increase
in the aggregate number of shares of Common Stock available for issuance under
the Existing Plan, and on April 23, 1997, the Board of Directors approved an
amendment to the Existing Plan to change the aggregate number of shares of
Common Stock for which any one individual participating in the Amended Plan may
be granted stock options, separately exercisable stock appreciation rights, and
direct stock issuances, from a limitation of 250,000 shares over the term of the
Existing Plan, to an annual limitation not in excess of 50% of the total number
of shares for which stock options, separately exercisable stock appreciation
rights, and direct stock issuances may be granted over the term of the Amended
Plan.
15
<PAGE>
General
The Amended Plan is divided into four separate components: (i) the
Discretionary Option Grant Program under which employees, non-employee directors
(other than the members of the Compensation Committee), and consultants may, at
the discretion of the plan administrator, be granted options to purchase shares
of Common Stock at an exercise price not less than 85% of the fair market value
of the Common Stock on the grant date, (ii) the Stock Issuance Program under
which such persons may, at the plan administrator's discretion, be issued shares
of Common Stock directly, through the purchase of such shares at a price not
less than 85% of the fair market value of the Common Stock at the time of
issuance or as a bonus tied to the performance of services, (iii) the Automatic
Option Grant Program under which option grants will automatically be made at
periodic intervals to eligible non-employee directors to purchase shares of
Common Stock at an exercise price equal to 100% of the fair market value of the
Common Stock on the grant date, and (iv) the Director Fee Option Grant Program
under which non-employee directors may elect to apply all, or part, of their
annual retainer fees otherwise payable in cash to the acquisition of a special
option grant.
Administration
The Discretionary Option Grant and the Stock Issuance Programs are
administered by a Compensation Committee appointed by the Board (the
"Compensation Committee"). The Compensation Committee, as plan administrator,
has complete discretion to determine which eligible individuals are to receive
option grants, stock appreciation rights ("SARs") or stock issuances, the time
or times when such option grants or stock issuances are to be made, the number
of shares subject to each such grant or issuance, the status of any granted
option as either an incentive stock option or a non-qualified stock option, the
vesting schedule to be in effect for the option grant or stock issuance, and the
maximum term for which any granted option is to remain outstanding. The plan
administrator has the authority to effect the cancellation of outstanding
options under the Discretionary Option Grant Program (including options
incorporated from the predecessor plans to the Existing Plan, the Company's 1991
and 1992 Stock Option Plans (the "Predecessor Plans")) in return for the grant
of new options for the same or different number of option shares, with an
exercise price per share based upon the fair market value of the Common Stock on
the new grant date.
All grants under the Automatic Option Grant Program and the Director
Fee Option Grant Program will be made in strict compliance with the express
provisions of such programs, and no administrative discretion is exercised by
the Compensation Committee with respect to those grants.
Eligibility
All employees, non-employee directors, and consultants who provide
valuable services to the Company are eligible to receive grants under the
Amended Plan. Non-employee directors are eligible to receive grants pursuant to
the Automatic Option Grant Program and the Director Fee Option Grant Program,
and non-employee directors who do not serve on the committee of the Board of
Directors responsible for administering the Amended Plan (presently the
Compensation Committee) are eligible to participate in the Discretionary Option
Grant Program and the Stock Issuance Program. As of April 15, 1997, there were
approximately 51 employees and 5 non-employee directors eligible to participate
in the Amended Plan. No person may be granted in any given year in excess of 50%
of the total number of shares for which stock options, separately exercisable
SARs, and direct stock issuances may be granted over the term of the Amended
Plan.
Discretionary Option Grant Program
Under the Discretionary Option Grant Program, the Compensation
Committee may determine which eligible individuals are to receive option grants
or SARs, the time or times when such option grants are to be made, the number of
shares subject to each such grant, the status of any granted option as either an
incentive stock option within the meaning of Section 422 of the Code or a so
called "non-qualified stock option" that is not intended to so qualify under the
Code, the vesting schedule to be in effect for the option grant, and the maximum
term for which any granted option is to remain
16
<PAGE>
outstanding (provided, however, the term of an incentive stock option may not
exceed ten years and the term of a stock option granted to a person who owns
more than 10% of the voting power of the Company may not exceed five years).
The option exercise price will be determined by the Compensation
Committee and may not be less than 85% of the fair market value of the stock on
the date of grant. However, an incentive stock option will have an exercise
price not less than 100% of the fair market value on the date of grant and an
incentive stock option granted to a person who owns more than 10% of the voting
power of the Company will have an exercise price of not less than 110% of the
fair market value per share on the date of grant. To the extent that the
aggregate fair market value of shares of Common Stock, determined on the date of
grant, with respect to which incentive stock options are exercisable for the
first time by a grantee during any calendar year exceeds $100,000, such
incentive stock options shall be treated as non-qualified stock options. The
fair market value of the Common Stock is the closing selling price per share on
the grant date as such price is reported on the Nasdaq National Market. If there
is no reported closing selling price on such date, the fair market value will be
the closing selling price on the last preceding date for which such quotation
exists. The closing price per share of Common Stock as reported on the Nasdaq
National Market on April 21, 1997 was $13.25.
SARs may be issued under the Discretionary Option Grant Program which
will allow the holders to surrender their outstanding options for an
appreciation distribution from the Company equal to (i) the fair market value of
the vested shares of Common Stock subject to the surrendered option minus (ii)
the aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of Common Stock.
Stock Issuance Program
Under the Stock Issuance Program, the Committee may determine which
eligible individuals are to receive stock issuances, the time or times when such
stock issuances are to be made, the number of shares subject to each such
issuance, and the vesting schedule to be in effect for the stock issuance.
Shares of Common Stock may be issued for consideration of one or more of the
following items, equal in value to at least 85% of the fair market value of the
Common Stock, as determined by the Compensation Committee: (i) cash or check,
(ii) a promissory note, or (iii) past services rendered. Shares issued may be
fully and immediately vested or may vest in one or more installments over a
period of service or upon the attainment of certain performance milestones, as
determined by the Compensation Committee.
Automatic Option Grant Program
Under the Automatic Option Grant Program, each non-employee director
first elected or appointed to the Board of Directors after the effective date of
that program (February 15, 1996) 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 February 15, 1996, 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 February 15, 1996.
Each automatic grant will have a term of ten 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 additional 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.
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Director Fee Option Grant Program
Under the Director Fee Option Grant Program, each non-employee director
may elect to apply all, or part, of his or her annual retainer fee otherwise
payable in cash to the acquisition of a special option grant under the Director
Fee Option Grant 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 (effective January 1, 1997, the
non-employee directors receive a $14,000 annual retainer) 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 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-year option term or (ii) the end of the three-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. In addition, upon
certain changes in the ownership or control of the Company, each outstanding
option will immediately vest in full.
Corporate Transactions
In the event that the Company is a party to certain corporate
transactions (as defined in the Amended Plan), including, under certain
circumstances, a merger or asset sale, each outstanding option and unvested
stock issuance will, under certain circumstances, automatically accelerate in
full. Options and stock issuances that do not accelerate at the time of the
acquisition will accelerate in the event the individual's service is terminated,
whether involuntarily or through a resignation for good reason, within 18 months
following the acquisition. The plan administrator may also accelerate options
and unvested stock issuances upon a change in control (as defined in the Amended
Plan) of the Company or the termination of the individual's service, whether
involuntarily or through a resignation for good reason, within a specified
period following the change in control. Options currently outstanding under the
Predecessor Plans maintained by the Company and incorporated into the Amended
Plan contain different acceleration provisions in connection with an acquisition
of the Company. Options outstanding under the 1992 Stock Option Plan may, under
certain circumstances, accelerate upon a change in control, but the options
outstanding under the 1991 Stock Option Plan do not contain any acceleration
provisions in connection with such a change in control. The plan administrator
has the discretion, however, to extend the acceleration provisions of the
Amended Plan to outstanding options under the Predecessor Plans which are
incorporated into the Amended Plan.
Amendment and Termination of the Plan
The Board has complete and exclusive power and authority to amend or
modify the Amended Plan in any, or all, respects. However, no amendment may
adversely affect the rights and obligations with respect to options at the time
outstanding under the Amended Plan, nor adversely affect the rights of any
grantee with respect to Common Stock issued under the Amended Plan prior to such
action, unless the grantee consents to such action. In addition, the Board may
not, without stockholder approval, amend the Amended Plan to (i) increase the
maximum number of shares issuable under the Amended Plan or the maximum amount
of shares for which any one individual participating in the Amended Plan may be
granted stock options, separately exercisable SARs, and direct stock issuances
for any given year under the Amended Plan; (ii) materially modify the
eligibility requirements for participation; or (iii) otherwise materially
increase the benefits accruing to participants.
The Amended Plan will terminate on the earlier of (i) February 28, 2005
or (ii) the date on which all shares available for issuance under the Amended
Plan have been issued.
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Federal Income Tax Consequences
Set forth below is a general description of the federal income tax
consequences relating to grants under the Amended Plan. Grantees are urged to
consult with their personal tax advisors concerning the application of the
principles discussed below to their own situations and the application of state
and local tax laws.
Non-Qualified Stock Options
There are no federal income tax consequences to grantees or to the
Company upon the grant of a non-qualified stock option under the Amended Plan.
Upon the exercise of non-qualified stock options, grantees will recognize
ordinary compensation income in an amount equal to the fair market value of the
shares at the time of exercise minus the exercise price of the non-qualified
stock option, and the Company generally will be entitled to a corresponding
federal income tax deduction. Upon the sale of shares of Common Stock acquired
by exercise of a non-qualified stock option, a grantee will have a capital gain
or loss (long-term or short-term depending upon the length of time the shares
were held) in an amount equal to the difference between the amount realized upon
the sale and the grantee's adjusted tax basis in the shares of Common Stock (the
exercise price plus the amount of ordinary income recognized by the grantee at
the time of exercise of the non-qualified stock option).
Incentive Stock Options
A grantee of an incentive stock option will not recognize taxable
income for purposes of the regular income tax, upon either the grant or exercise
of the incentive stock option. However, for purposes of the alternative minimum
tax imposed under the Code, in the year in which an incentive stock option is
exercised, the amount by which the fair market value of the shares of Common
Stock acquired upon exercise exceeds the stock option price will be treated as
an item of adjustment and included in the computation of the recipient's
alternative minimum taxable income. A grantee will recognize long-term capital
gain or loss on a disposition of the shares acquired upon exercise of an
incentive stock option provided that the grantee does not dispose of such shares
within two years from the date the incentive stock option was granted and within
one year after such shares were transferred to him or her. If the grantee
satisfies the foregoing holding periods, then the Company will not be allowed a
deduction by reason of the grant or exercise of the incentive stock option. As a
general rule, if a grantee disposes of the shares acquired upon exercise of an
incentive stock option before satisfying both holding period requirements (a
"disqualifying disposition"), the gain recognized on such a disposition will be
taxed as ordinary income for the amount of the difference between the fair
market value of such shares on the date of exercise and the option price, and
the Company will be entitled to a deduction in that amount. The gain, if any, in
excess of the amount recognized as ordinary income on such a disqualifying
disposition will be long-term or short-term capital gain, depending upon the
length of time the grantee held the shares prior to the disposition.
Stock Appreciation Rights
The grantee will not recognize any income upon the grant of an SAR.
Upon the exercise of an SAR, the grantee will recognize ordinary compensation
income in the amount of both the cash and the fair market value of the shares of
Common Stock received upon such exercise, and the Company is entitled to a
corresponding deduction, provided the Company complies with the applicable
withholding requirements for federal tax purposes.
Stock Issuances
A grantee will recognize taxable income equal to the fair market value
of the stock granted pursuant to a stock issuance (less any amount paid for such
stock) if the stock is not subject to "a substantial risk of forfeiture" for
federal tax purposes and there are no restrictions on transferability at the
time of grant.
A grantee normally will not recognize taxable income upon the grant of
restricted stock, and the Company will not be entitled to a deduction, until
such stock is transferable by the grantee or no longer subject to a substantial
risk of forfeiture, whichever occurs earlier. When the Common Stock is either
transferrable or is no longer subject to a
19
<PAGE>
substantial risk of forfeiture, the grantee will recognize ordinary compensation
income in an amount equal to the fair market value of the Common Stock at that
time, and the Company will be entitled to a deduction in the same amount. A
grantee may, however, elect to recognize ordinary compensation income in the
year the restricted stock grant is awarded in an amount equal to the fair market
value of the Common Stock at that time, determined without regard to the
restrictions. In such event, the Company will be entitled to a deduction in the
same year.
Tax Withholding
The Company's obligation to deliver shares of Common Stock upon the
exercise of any stock option or upon the issuance of any shares is subject to
the satisfaction of all applicable federal, state, and local income and
employment tax withholding requirements. The Company permits a grantee who
exercises non-qualified stock options, or who possesses shares of Common Stock
as to which the restrictions on transfer have lapsed, to elect to remit an
amount sufficient to cover the grantee's federal, state, and local withholding
tax obligations associated with the exercise of such grants or lapse of
restrictions on transfer.
Section 162(m)
The Amended Plan is intended to qualify grants of stock options and
SARs under the Amended Plan as "performance-based compensation."
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Plan Benefits
Option grants to purchase the following number of shares of Common
Stock have been made under the Existing Plan from inception of the Existing Plan
through April 15, 1997: Stephen A. Roth, 180,000 shares; P. Sherrill Neff,
180,000 shares; Edward J. McGuire, 25,000 shares; David A. Zopf, 21,666 shares;
David F. Pritchard, 7,000 shares; current executive officers as a group, 413,666
shares; current non-employee directors as a group; 30,703 shares; and all other
employees as a group, 280,996 shares.
The following table sets forth grants of stock options in 1996,
pursuant to the Existing Plan, to the Named Executive Officers, the current
executive officers as a group, the non-executive officer directors as a group
and the non-executive officer employees as a group.
<TABLE>
<CAPTION>
EXISTING PLAN BENEFITS FOR 1996
Number of Shares
Underlying Exercise
Options Granted Price
Name and Position # ($/Sh)
- ----------------- ---------------- --------
<S> <C> <C>
Stephen A. Roth.................................. 90,000 15.125
Chief Executive Officer
P. Sherrill Neff................................. 90,000 15.125
President, Chief Financial Officer
Edward J. McGuire................................ 15,000 15.125
Vice President, Research and Development
David A. Zopf.................................... 15,000 15.125
Vice President, Drug Development
David F. Pritchard (1)........................... -- --
Vice President, Business Development
Current Executive Officer Group.................. 210,000 15.125
Non-Executive Officer Director Group............. 13,332 21.000
Non-Executive Officer Employee
Group (2)...................................... 128,850 14.994
- -----------
</TABLE>
(1) Mr. Pritchard ceased being an executive officer of the Company
effective as of November 22, 1996, and ceased being an employee
effective as of January 2, 1997.
(2) Exercise price per share is weighted-average exercise price of stock
options granted in 1996.
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The following table sets forth information presently determinable with
respect to stock options that may be granted pursuant to the Amended Plan.
Additional benefits or amounts that may be received in the future by persons
eligible to participate in the Amended Plan are not presently determinable.
NEW PLAN BENEFITS
Amended and Restated 1995 Stock Option/Stock Issuance Plan
Number of Shares
Name and Position Subject to Stock Options (1)
----------------- ----------------------------
Non-Employee Director Group 16,665
- -----------
(1) Under the Amended Plan, at each annual meeting of stockholders, each
individual non-employee director 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. There are currently five non-employee
directors, including Dr. Hamilton, Mr. MacMaster, Dr. Rosenwald, Mr.
Sears, and Dr. Weisbach. The table does not include stock options
issuable upon the annual election by a non-employee director to receive
options in lieu of his annual retainer fee under the provisions of the
Director Fee Option Grant Program of the Amended Plan.
RATIFICATION OF SELECTION OF 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, 1997, subject to the ratification of such
appointment by the stockholders at the Annual Meeting. The submission of the
appointment of Arthur Andersen LLP for ratification by the stockholders is not
required by law or by the Bylaws of the Company. The Board of Directors is
nevertheless submitting it to the stockholders to ascertain their views. If the
stockholders do not ratify the appointment, the selection of other independent
public accountants will be considered by the Board of Directors. Approval of the
proposal to ratify the appointment of the auditors requires the affirmative vote
of the holders of a majority of shares present in person or represented by proxy
at the Annual Meeting and entitled to vote. A representative of Arthur Andersen
LLP will attend the Annual Meeting with the opportunity to make a statement if
he or she so desires and will also be available to answer appropriate inquiries.
The Board of Directors recommends a vote FOR the proposal to ratify the
selection of Arthur Andersen LLP as the Company's independent public accountants
for the year ending December 31, 1997.
STOCKHOLDER PROPOSALS
In accordance with regulations issued by the Commission, stockholder
proposals intended for presentation at the 1998 Annual Meeting of Stockholders
must be received by the Secretary of the Company by no later than December 31,
1997 if such proposals are to be considered for inclusion in the Company's Proxy
Statement.
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OTHER MATTERS
Management knows of no matters that are to be presented for action at
the Annual Meeting other than those set forth above. If any other matters
properly come before the Annual 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 has also
engaged a proxy solicitation firm. Costs of the solicitation will be borne by
the Company.
By Order of the Board of Directors
/s/ Stephen A. Roth
Stephen A. Roth
Chairman and Chief Executive Officer
Horsham, Pennsylvania
April 30, 1997
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<PAGE>
NEOSE TECHNOLOGIES, INC.
APPENDIX A
NEOSE TECHNOLOGIES, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
(Amended and Restated as of March 16, 1996
and as of April 23, 1997)
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 Program
Effective Date. The Director Fee Option Grant Program became effective on March
16, 1996.
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 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, 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 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.
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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
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 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
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tender or exchange offer made directly to the Corporation's shareholder's 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 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.
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 contendre 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, the Automatic Option Grant Program or the
Director Fee 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 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.
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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 canceled option is an
Incentive Option, then the Take-Over Price shall not exceed the clause (a) price
per share.
10% Shareholder: the owner of stock (as determined under Code
Section 424(d)) possessing ten (10%) percent or more of the total combined
voting power of all classes of stock of the Corporation or any parent or
subsidiary corporation.
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 or 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
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.
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
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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.
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.
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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 1,878,706* 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 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, (iii) an additional increase
of 600,000* shares authorized by the Board on December 6, 1995, and (iv) an
additional increase of 500,000 shares authorized by the Board on March 19, 1997.
As one or more outstanding options under the 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 for any given year exceed fifty percent (50%) of the total number of
shares for which stock options, separately exercisable stock appreciation rights
and direct stock issuances may be granted 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 canceled 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
amount 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 for any given year under 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 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
- --------
* Reflects the 1-for-3 stock split that was effected immediately prior to the
consummation of the initial public offering of the Common Stock.
A-6
<PAGE>
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.
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
(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.
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<PAGE>
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 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 Section I of Article Two to such
greater period of time as the Plan Administrator shall deem
A-8
<PAGE>
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 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 Six
of the Plan shall be applicable to all Incentive Options granted hereunder. Any
Options specifically designated as Non-Statutory shall not be subject to the
terms and conditions of this Section II.
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.
A-9
<PAGE>
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.
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.
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<PAGE>
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 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
A-11
<PAGE>
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.
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,
(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
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<PAGE>
(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 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 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.
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<PAGE>
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 (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 canceled 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 canceled 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 delivers to the Corporation a written agreement to
be bound by all the provisions of the Stock Issuance Program and the Issuance
Agreement applicable to the gifted shares.
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
A. Grant Dates. Option grants shall be made under this Article
Four 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 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
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<PAGE>
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.
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;
(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 is 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 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.
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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.
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 (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 Four 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 of Automatic Stock
Option Agreement attached as Exhibit A to the Plan.
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<PAGE>
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.
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.
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.
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<PAGE>
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 procedures 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 divided by (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
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
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<PAGE>
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 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 or (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.
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
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<PAGE>
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 maximum number of shares issuable under the Plan or the
maximum amount 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 for any given year under 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 Six 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.
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<PAGE>
---- 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 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. On
March 19, 1997, the Board approved an increase of 500,000 shares in the
aggregate number of shares issuable under the Plan, and on April 23, 1997, the
Board approved a change in 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,
from a limitation of 250,000 shares over the term of the Plan, to an annual
limitation not in excess of 50% of the total number of shares for which stock
options, separately exercisable stock appreciation rights and direct stock
issuances may be granted over the term of the Plan. Both of such amendments
became effective on April 23, 1997, and are subject to the approval of
stockholders at the 1997 Annual Stockholders Meeting.
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.
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,
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<PAGE>
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
Commonwealth of Pennsylvania as such laws are applied to contracts entered into
and performed in such Commonwealth.
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.
A-22
<PAGE>
Form of Proxy
Neose Technologies, Inc.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - JUNE 19, 1997
(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 the Company's headquarters at 102 Witmer Road, Horsham, PA
19044, on June 19, 1997, at 1:00 P.M. (Eastern Daylight Time), or any
adjournment thereof.
(Continued and to be signed on Reverse Side)
- --------------------------------------------------------------------------------
<PAGE>
Please Detach and Mail in the Envelope Provided
A |X| Please mark your
votes as in this example
1. ELECTION FOR all nominees at right WITHHOLD AUTHORITY
OF (except as marked to vote for all
DIRECTORS. to the contrary below) nominees at right
|_| |_|
Nominees:
Stephen A. Roth
P. Sherrill Neff
William F. Hamilton
Douglas J. MacMaster, Jr.
Lindsay A. Rosenwald
Lowell E. Sears
Jerry A. Weisbach
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through that nominee's name in the list at right.)
2. PROPOSAL TO APPROVE AND ADOPT THE FOR AGAINST ABSTAIN
NEOSE TECHNOLOGIES, INC. AMENDED AND
RESTATED 1995 STOCK OPTION/STOCK |_| |_| |_|
ISSUANCE PLAN (the "Amended Plan") to, among
other things, comply with the requirements of
Section 162(m) of the Internal Revenue Code of
1986, as amended, increase the number of shares
authorized for issuance under the Amended Plan,
and change the amount of shares issuable to any
individual under the Amended Plan.
|_| |_| |_|
3. PROPOSAL TO RATIFY THE SELECTION OF
ARTHUR ANDERSEN LLP, INDEPENDENT
PUBLIC ACCOUNTANTS, AS AUDITORS OF
THE COMPANY.
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
DIRECTORS NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS AND THE RELATED PROXY STATEMENT.
Dated:
- ------------------------------------------------- ------------
Signature of Stockholder
Dated:
- ------------------------------------------------- -------------
Signature if held jointly
NOTE: 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.
