SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use
of the Commission Only
(as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Matrix Pharmaceutical, Inc.
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(Name of Registrant as Specified in Its Charter)
Matrix Pharmaceutical, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(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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MATRIX PHARMACEUTICAL, INC.
34700 CAMPUS DRIVE
FREMONT, CALIFORNIA 94555
MAY 23, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
("Annual Meeting") of Matrix Pharmaceutical, Inc. (the "Company"), which will be
held at 10:00 A.M. on June 25, 1997, at the Company's headquarters, 34700 Campus
Drive, Fremont, California 94555.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals:
(i) to elect a Board of five directors to serve for the ensuing year or
until their successors are duly elected and qualified;
(ii) to approve a series of amendments to the Company's 1988 Restricted
Stock Plan (the "Plan"), including (i) an increase in the maximum number of
shares of common stock authorized for issuance under the Plan by an
additional 2,000,000 shares and (ii) the extension of the term of the Plan
from September 2, 1998 to December 31, 2002;
(iii) to approve a series of amendments to the Company's 1991 Directors
Stock Option Plan (the "Directors Plan"), including an increase in the
maximum number of shares of common stock authorized for issuance under the
Directors Plan by an additional 250,000 shares; and
(iv) to ratify the appointment of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending December 31, 1997.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote IN FAVOR OF each
such proposal.
After reading the Proxy Statement, please mark, date, sign and return by no
later than June 16, 1997, the enclosed proxy card in the accompanying reply
envelope. If you decide to attend the Annual Meeting, please notify the
Secretary of the Company that you wish to vote in person and your proxy will not
be voted. YOUR SHARES CANNOT BE VOTED UNLESS YOU MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY, OR ATTEND THE ANNUAL MEETING IN PERSON.
Copies of the Matrix Pharmaceutical, Inc. 1996 Annual Report to
Stockholders as well as the Company's Annual Report on Form 10-K are also
enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
Craig R. McMullen,
President and Chief Executive
Officer
IMPORTANT
Please mark, date, sign and return the enclosed proxy promptly in the
accompanyng postage-paid return envelope so that if you are unable to attend the
Annual Meeting your shares may be voted.
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MATRIX PHARMACEUTICAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 25, 1997
TO THE STOCKHOLDERS OF MATRIX PHARMACEUTICAL, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of Matrix Pharmaceutical, Inc., a Delaware corporation (the
"Company"), will be held at 10:00 A.M. local time on Wednesday, June 25, 1997,
at the Company's headquarters, 34700 Campus Drive, Fremont, California 94555,
for the following purposes:
1. To elect a Board of five directors to serve for the ensuing year or
until their respective successors are elected and qualified.
2. To approve a series of amendments to the Company's 1988 Restricted
Stock Plan (the "Plan"), including (i) an increase in the maximum number of
shares of common stock authorized for issuance under the Plan by an
additional 2,000,000 shares and (ii) the extension of the term of the Plan
from September 2, 1998 to December 31, 2002.
3. To approve a series of amendments to the Company's 1991 Directors
Stock Option Plan (the "Directors Plan"), including an increase in the
maximum number of shares of common stock authorized for issuance under the
Directors Plan by an additional 250,000 shares.
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending December 31, 1997.
5. To transact such other business as may properly come before the
Annual Meeting and any adjournment or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Stockholders of record at the close of business on April 28, 1997 are
entitled to receive notice of and to vote at the Annual Meeting and any
adjournment thereof. A list of the stockholders entitled to vote at the Annual
Meeting will be available for inspection at the Company's offices for 10 days
prior to the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, please carefully read the
accompanying Proxy Statement, which describes the matters to be voted upon at
the Annual Meeting, and mark, date, sign and return the enclosed proxy card in
the reply envelope provided. Should you receive more than one proxy because your
shares are registered in different names and addresses, each proxy should be
returned to ensure that all your shares will be voted. If you attend the Annual
Meeting and vote by ballot, your proxy vote will be revoked automatically and
only your vote at the Annual Meeting will be counted. The prompt return of your
proxy card will assist us in preparing for the Annual Meeting.
Sincerely,
James R. Glynn,
Chief Operating Officer,
Chief Financial Officer and
Secretary
Fremont, California
May 23, 1997
YOUR VOTE IS VERY IMPORTANT. PLEASE READ THE ATTACHED PROXY STATEMENT
CAREFULLY. IF YOU DO NOT EXPECT TO ATTEND IN PERSON, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE AS PROMPTLY AS
POSSIBLE.
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MATRIX PHARMACEUTICAL, INC.
34700 Campus Drive
Fremont, California 94555
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PROXY STATEMENT
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For the Annual Meeting of Stockholders
To Be Held on June 25, 1997
GENERAL INFORMATION FOR STOCKHOLDERS
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors (the "Board") of Martix Pharmaceutical, Inc., a Delaware corporation
(the "Company"), for use at the 1997 Annual Meeting of Stockholders (the "Annual
Meeting") to be held at 10:00 a.m. on June 25, 1997, at the Comapny's
headquarters, 34700 Campus Drive, Fremont, California 94555, and at any
adjournment thereof.
This Proxy Statement and the accompanying form of Proxy was first mailed to
the stockholders entitled to vote at the Annual Meeting on or about May 23,
1997.
Record Date and Voting
Stockholders of record at the close of business on April 28, 1997, are
entitled to notice of and to vote at the Annual Meeting. As of the close of
business on such date, there were 21,269,530 shares of the Company's common
stock (the "Common Stock") outstanding and entitled to vote, held by 291
stockholders of record. No shares of the Company's preferred stock are
outstanding. Each stockholder is entitled to one vote for each share of Common
Stock held by such stockholder as of the record date. If a choice as to the
matters coming before the Annual Meeting has been specified by a stockholder on
the Proxy, the shares will be voted accordingly. If no choice is specified, the
shares will be voted IN FAVOR OF the approval of the proposals described in the
Notice of Annual Meeting of Stockholders and in this Proxy Statement.
Abstentions and broker non-votes (i.e., the submission of a Proxy by a broker or
nominee specifically indicating the lack of discretionary authority to vote on
the matter) are counted for purposes of determining the presence or absence of a
quorum for the transaction of business. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes, whereas broker non-votes will not be
counted for purposes of determining whether a proposal has been approved or not.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate at the Annual Meeting may request reasonable assistance or
accommodation from the Company by contacting Peter Dworkin in Investor Relations
in writing at 34700 Campus Drive, Fremont, California 94555 or by telephone at
(510) 742-9900. To provide the Company sufficient time to arrange for reasonable
assistance, please submit such requests by June 16, 1997.
Revocability of Proxies
Any stockholder giving a Proxy pursuant to this solicitation may revoke it
at any time prior to exercise by filing with the Secretary of the Company at its
principal executive offices at 34700 Campus Drive, Fremont, California 94555, a
written notice of such revocation or a duly executed Proxy bearing a later date,
or by attending the Annual Meeting and voting in person.
Solicitation
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of the Notice of Annual Meeting,
this Proxy Statement, the Proxy and any additional
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solicitation materials furnished to stockholders. Copies of solicitation
materials will be furnished to brokerage houses, fiduciaries and custodians
holding shares in their names that are beneficially owned by others so that they
may forward this solicitation material to such beneficial owners. To assure that
a quorum will be present in person or by proxy at the Annual Meeting, it may be
necessary for certain officers, directors, employees or other agents of the
Company to solicit proxies by telephone, facsimile or other means or in person.
The Company will not compensate such individuals for any such services. Other
than as described above, the Company does not presently intend to solicit
proxies other than by mail.
IMPORTANT
Please mark, date, sign and return the enclosed Proxy in the accompanying
postage-prepaid, return envelope by no later than June 16, 1997, so that if you
are unable to attend the Annual Meeting, your shares may be voted.
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1996 (the "Annual Report") and the Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, as filed with the Securities and
Exchange Commission (the Form 10-K ), have been mailed concurrently with the
mailing of the Notice of Annual Meeting and Proxy Statement to all stockholders
entitled to notice of and to vote at the Annual Meeting. Neither the Annual
Report nor the Form 10-K is considered proxy soliciting material and neither is
incorporated into this Proxy Statement.
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MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE--ELECTION OF DIRECTORS
At the Annual Meeting, a Board of five directors will be elected to serve
until the Company's next Annual Meeting, or until their successors shall have
been duly elected and qualified or until their death, resignation or removal.
The Board has selected five nominees, all of whom are current directors of the
Company. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unavailable to
serve. Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them IN FAVOR OF the nominees named below. The five candidates
receiving the highest number of affirmative votes of all the shares entitled to
vote at the Annual Meeting will be elected. If any nominee is unable to or
declines to serve as a director, the Proxies may be voted for a substitute
nominee designated by the current Board. As of the date of this Proxy Statement,
the Board is not aware of any nominee who is unable or will decline to serve as
a director.
Craig R. McMullen, the Company's President and Chief Executive Officer, has
announced his intention to resign and thus not to stand for re-election to the
Board of Directors. A committee of the Board has been formed to search for a
successor to Mr. McMullen. For the foreseeable future, Mr. McMullen will remain
as Chief Executive Officer.
The Board recommends that the stockholders vote IN FAVOR OF the election of
each of the following nominees to serve as directors of the Company until the
next Annual Meeting, until their successors have been duly elected and qualified
or until their death, resignation or removel.
Information with Respect to Nominees
Set forth below is information regarding the nominees.
Position(s) with the Director
Name Company Age Since
- --------------------- -------------------------- ----- ----------
J. Stephan Dolezalek ..... Director 40 1994
Edward E. Luck ........... Chairman of the Board 46 1985
John E. Lyons ............ Director 71 1993
Julius L. Pericola ...... Director 68 1993
Alan E. Salzman .......... Director 43 1988
Business Experience of Nominees
Mr. Dolezalek has served as a director of the Company since October 1994.
Mr. Dolezalek has been an attorney with the firm of Brobeck, Phleger & Harrison
LLP, principal outside counsel to the Company, since 1984, and has been a
partner in that firm since 1989.
Mr. Luck, a co-founder of the Company, has held the position of Chairman of
the Board since 1989. From 1985 to 1989, he held the positions of President and
Chief Executive Officer of the Company. Prior to founding the Company, he was
co-founder and President of Cytoscan, Inc., a cancer screening company. He was
co-founder, Vice President and Director of Technical Affairs of Collagen
Corporation from 1975 to 1979.
Mr. Lyons has been a director of the Company since February 1993. He spent
more than 40 years with Merck & Co., Inc., most recently as Vice Chairman from
1988 to his retirement as an officer in 1991. In addition, he served as
Executive Vice President of Merck & Co., Inc. from 1985 to 1988 and as Corporate
Senior Vice President and President of Merck, Sharp & Dohme Division from 1975
to 1985. Mr. Lyons currently serves as a director of Synaptic Pharmaceutical
Corporation and Immunex Corporation.
Mr. Pericola has been a director of the Company since January 1993. He
worked for 40 years with Bristol Myers Squibb Co. ("Bristol Myers"), most
recently as Executive Vice President of Bristol-Myers International Group from
1985 to his retirement as an officer in June 1990. Mr. Pericola also served as
Corporate Senior Vice President of Bristol Myers Company from 1981 to 1990, and
as President of the Bristol Laboratories division from 1975 to 1984. Mr.
Pericola is currently a director of Fujisawa U.S.A., Inc. and a trustee of
Syracuse Research Corporation and Syracuse University.
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Mr. Salzman has been a director of the Company since 1988. Mr. Salzman has
been a managing general partner of VantagePoint Venture Partners since March
1995. Mr. Salzman was a general partner of Canaan Venture Partners, L.P. from
June 1988 through February 1995. From 1984 to 1988, he was a partner of Brobeck,
Phleger & Harrison LLP, the Company's principal outside counsel. He is a
director of one privately held company.
Number of Directors; Relationships
The Company's Bylaws authorize the Board to fix the number of directors
serving on the Board, provided that such number shall not be less than five nor
more than nine. The number of directors is currently fixed at seven. Immediately
prior to the Annual Meeting, the number of directors will be reduced to five.
All directors hold office until the next annual meeting of stockholders, or
until their successors shall have been duly elected and qualified or until their
earlier death, resignation or removal. Officers are appointed to serve at the
discretion of the Board.
There are no family relationships among executive officers or directors of
the Company.
Board Meetings and Committees
The Board held five meetings and took action by unanimous written consent
on two occasions during the fiscal year ended December 31, 1996. The Board has
an Audit Committee and a Compensation Committee, but does not have a standing
Nominating Committee. Each director, except Mr. Murdock, attended or
participated in at least 75% of the aggregate number of meetings of the Board
and the Board Committees on which such director served which were held during
1996.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent accountants and reviewing reports of the
Company's internal and external auditors regarding the Company's accounting
practices and systems of internal accounting controls. During the fiscal year
ended December 31, 1996, the Audit Committee consisted of two directors, Mr.
Lyons and Mr. Salzman. The Audit Committee held one meeting during the fiscal
year ended December 31, 1996, at which both members were in attendance.
The Compensation Committee reviews and approves the Company's general
compensation policies, sets compensation levels for the Company's executive
officers and administers the Company's 1988 Restricted Stock Plan and other
employee (and officer) benefit programs. During the fiscal year ended December
31, 1996, the Compensation Committee consisted of two directors, Mr. Pericola
and Mr. Salzman. The Compensation Committee met seven times for the fiscal year
ended December 31, 1996, at which both members were in attendance. Furthermore,
the Compensation Committee took action by unanimous written consent on one
occasion during the fiscal year ended December 31, 1996.
Director Compensation
The non-employee Board members do not receive any cash compensation for
their service on the Board or any Committee of the Board. However, such
individuals are reimbursed for travel expenses incurred in attending Board or
Committee meetings.
Each non-employee Board member will receive an automatic option grant for
40,000 shares of Common Stock under the Company's 1991 Directors Stock Option
Plan (the "Directors Plan") on the date of his or her initial election or
appointment to the Board. Each such initial grant will become exercisable for
one-third of the shares upon the optionee's completion of each year of Board
service over the three-year period measured from the grant date. However, the
option will become immediately exercisable for all of the option shares if the
optionee dies or becomes disabled during his or her period of Board service or
if the Company is acquired by merger or asset sale or if there should occur a
change in control of the Company through a successful tender offer for more than
40% of the Company's outstanding Common Stock or a change in the majority of the
Board effected through one or more contested elections for Board membership. In
addition, on the date of each Annual Stockholders Meeting, each individual
re-elected as a non-employee Board member will receive an automatic option grant
for an additional 3,000 shares of Common Stock, provided such individual has
served as a Board member
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for at least six months. Each such annual option grant will become exercisable
for all the option shares upon the optionee's completion of one year of Board
service measured from the grant date, subject to acceleration upon an
acquisition of the Company by merger or asset sale or other change in control of
the Company. All options under the Directors Plan have a maximum term of 10
years, subject to earlier termination upon the optionee's cessation of Board
service. Upon the successful completion of a hostile tender offer for more than
40% of the Company's outstanding Common Stock, each automatic option grant will
be canceled, and the non-employee Board member will be entitled to a cash
distribution from the Company based upon the tender-offer price.
At the 1996 Annual Stockholders Meeting held on May 16, 1996, Messrs.
Dolezalek, Luck, Lyons, Murdock, Pericola and Salzman each received an automatic
stock option grant under the Directors Plan for 3,000 shares of Common Stock in
connection with their re-election as non-employee Board members. Each such
option has an exercise price of $26.00 per share, the fair market value per
share of Common Stock on the grant date.
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PROPOSAL TWO--APPROVAL OF AMENDMENTS TO 1988 RESTRICTED STOCK PLAN
Introduction
The stockholders are being asked to approve a series of amendments to the
Company's 1988 Restricted Stock Plan (the "Plan") that will effect the following
changes: (i) increase the number of shares of Common Stock issuable under the
Plan by an additional 2,000,000 shares, (ii) render the non-employee Board
members eligible to receive option grants and direct stock issuances under the
Discretionary Option Grant and Stock Issuance Programs in effect under the Plan,
(iii) remove certain restrictions on the eligibility of non-employee Board
members to serve as Plan Administrator, (iv) allow unvested shares issued under
the Plan and subsequently repurchased by the Company at the option exercise or
direct issue price paid per share to be re-issued under the Plan through
subsequent option grants or direct issuances, (v) extend the term of the Plan
from September 2, 1998 to December 31, 2002 and (vi) effect a series of
additional changes to the provisions of the Plan (including the stockholder
approval requirements, the transferability of non-statutory stock options and
the elimination of the six-month holding period requirement as a condition to
the exercise of stock appreciation rights) in order to take advantage of the
recent amendments to Rule 16b-3 of the Securities and Exchange Commission which
exempts certain officer and director transactions under the Plan from the
short-swing liability provisions of the federal securities laws.
The proposed share increase will assure that a sufficient reserve of Common
Stock is available under the Plan in order for the Company to provide a
comprehensive equity incentive program for the Company's officers, employees,
non-employee Board members and independent consultants which will encourage such
individuals to remain in the Company's service and more closely align their
interests with those of the stockholders. The remaining amendments which form
part of this Proposal will enhance the Company's opportunity to provide
additional equity incentives to attract and retain the services of qualified
non-employee Board members and will facilitate plan administration by
eliminating a number of limitations and restrictions previously incorporated
into the Plan to comply with the applicable requirements of SEC Rule 16b-3 prior
to its recent amendment.
The Plan was originally adopted by the Board of Directors on September 2,
1988, and the stockholders approved the Plan on February 28, 1989. The Plan has
been subsequently amended and restated on April 28, 1992, March 15, 1994 and
December 14, 1995 to increase the number of shares authorized for issuance under
the Plan, and those restatements were approved by the stockholders on May 11,
1993, May 24, 1994 and May 16, 1996, respectively. The new amendments were
adopted by the Board on March 19, 1997, subject to stockholder approval at the
Annual Meeting. The affirmative vote of a majority of the Common Stock present
or represented by Proxy at the Annual Meeting and entitled to vote on the
Proposal is required for approval of the amendments.
The terms and provisions of the Plan, as amended through March 19, 1997,
are described more fully below. The description, however, is not intended to be
a complete exposition of all the terms of the Plan. A copy of the Plan will be
furnished by the Company to any stockholder upon written request to the
Secretary of the Company at the Company's headquarters in Fremont, California.
Plan Structure
The Plan is divided into two separate components:
Option Grant Program. Officers, employees, non-employee Board members and
independent 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 option shares on the grant date. The
granted options may be either incentive stock options that are designed to meet
the requirements of Section 422 of the Internal Revenue Code or non-statutory
stock options not intended to satisfy such requirements. In addition, the
granted options may include stock appreciation rights which will allow the
holders to surrender those options for payments from the Company based on the
appreciation in the market value of the Common Stock over the period the options
are outstanding.
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Stock Issuance Program. Officers, employees, non-employee Board members and
independent consultants may be granted the right to purchase shares of Common
Stock at fair market value or at discounts of up to 15%. Shares may also be
issued as a bonus for past services, without any cash payment required of the
participant.
Administration
The Plan is currently administered by the Compensation Committee
("Committee"). The Committee has full authority to determine the eligible
individuals to whom option and stock appreciation right grants are to be made or
to whom shares are to be directly issued, the number of shares to be covered by
each such grant or issuance, the maximum term for which any granted option or
stock appreciation right is to remain outstanding, the time or times at which
the granted options or stock appreciation rights are to become exercisable or
the issued shares are to vest, and all the other terms and conditions of awards
under the Plan. In addition, the Committee has full authority to accelerate the
exercisability of outstanding options and to terminate the Company's outstanding
repurchase rights with respect to unvested shares, all upon such terms and
conditions as it deems appropriate. All expenses incurred in administering the
Plan will be paid by the Company.
Eligibility
The persons eligible to participate in the Plan are limited to (i)
employees (including officers), (ii) the non-employee Board members and (iii)
independent consultants in the service of the Company or its parent or
subsidiary corporations (whether now existing or subsequently established).
Non-employee Board members are also eligible to receive automatic option grants
under the 1991 Directors Stock Option Plan. As of March 31, 1997, approximately
181 individuals (including nine officers of the Company and five non-employee
Board members) were eligible to participate in the Plan.
Share Reserve
The maximum number of shares of the Common Stock issuable over the term of
the Plan may not exceed 4,630,953 shares (net of 238,095 shares previously
canceled and retired from the Plan), including the 2,000,000-share increase for
which stockholder approval is sought as part of this Proposal No. 2. Such shares
will be made available either from the Company's authorized but unissued Common
Stock or from Common Stock reacquired by the Company.
The maximum number of shares for which any one individual participating in
the Plan may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances may not exceed 750,000 shares in the aggregate
over the term of the Plan. However, for purposes of this limitation, any option
grants, stock appreciation rights or direct stock issuances made prior to
December 31, 1993 will not be taken into account.
Should an option be terminated or canceled for any reason prior to exercise
or surrender in full (including options canceled in accordance with the
cancellation-regrant provisions described below), the shares subject to the
portion of the option not so exercised or surrendered will be available for
subsequent grant. Unvested shares issued under the Plan and subsequently
repurchased by the Company, at the option exercise or direct issue price paid
per share, pursuant to the Company's repurchase rights under the Plan will be
added back to the share reserve and will accordingly be available for
reissuance. However, shares subject to any stock option surrendered or cancelled
in connection with the stock appreciation right provisions of the Plan will not
be available for subsequent issuance.
As of March 31, 1997, approximately 1,919,378 shares of Common Stock were
subject to outstanding options under the Plan, and 2,200,462 shares of Common
Stock (including the 2,000,000 shares which are subject to stockholder approval
as part of this Proposal) were available for issuance under future option grants
and stock issuances. Furthermore, as of March 31, 1997, 749,208 shares
(including 238,095 that have previously been canceled and retired from the Plan)
have been issued under the Plan. As of March 31, 1997, the weighted average
exercise price payable per share upon the exercise of outstanding options was
$7.40. The expiration dates for all such outstanding options range from October
12, 1998 to March 19, 2007.
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Changes in Capitalization
In the event any change is made to the Common Stock issuable under the Plan
(by reason of any stock dividend, stock split, combination of shares,
recapitalization, or other change affecting the outstanding Common Stock as a
class without the Company's receipt of consideration), appropriate adjustments
will be made to (i) the aggregate number and/or class of securities available
for issuance under the Plan, (ii) the maximum number and class of securities for
which any one participant may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances in the aggregate under the
Plan and (iii) the number and/or class of securities and the price per share in
effect under each outstanding option and stock appreciation right in order to
prevent the dilution or enlargement of benefits thereunder.
Valuation
For purposes of establishing the option exercise price or direct issue
price and for all other valuation purposes under the Plan, the fair market value
per share of Common Stock on any relevant date will be the closing selling price
per share as reported on the Nasdaq National Market. As of March 31, 1997, the
fair market value per share of the Common Stock was $6.375 per share, as
reported on the Nasdaq National Market.
Terms of Option Grant Program
Price and Exercisability. The exercise price per share may not be less than
85% of the fair market value per share of Common Stock on the grant date, and no
option may be outstanding for more than a 10-year term. If the granted option is
intended to be an incentive stock option under the Federal tax laws, the
exercise price must not be less than 100% of the fair market value per share of
the Common Stock on the grant date.
The exercise price is payable in cash or in shares of Common Stock.
Optionees are also permitted to exercise the option through a broker-dealer sale
and remittance procedure which will allow the optionee to exercise the option
and sell the purchased shares on the same day, with a portion of the sale
proceeds utilized to satisfy the exercise price payable for the purchased
shares. The Committee may also assist any optionee (including an officer) in the
exercise of the option by (i) authorizing a loan from the Company or (ii)
permitting the optionee to pay the exercise price in installments over a period
of years. The terms and conditions of any such deferred payment arrangement will
be established by the Committee in its sole discretion, but in no event may the
maximum credit extended to the optionee exceed the aggregate exercise price
payable for the purchased shares (less the par value of those shares), plus any
federal and state income or employment taxes incurred in connection with the
purchase. The Committee may determine that one or more loans may be forgiven in
whole or in part over the individual s period of service with the Company.
The vesting schedule for each granted option will be determined by the
Committee and will be set forth in the instrument evidencing such grant. The
granted option may be (i) immediately exercisable for vested shares, (ii)
immediately exercisable for unvested shares subject to the Company's repurchase
rights, or (iii) exercisable in installments for vested shares over the
optionee's period of service.
Options are generally not assignable or transferable other than by will or
the laws of inheritance, and, during the optionee's lifetime, the option may be
exercised only by such optionee. However, the Plan Administrator may allow
non-statutory options to be transferred or assigned during the optionee's
lifetime to one or more members of the optionee's immediate family or to a trust
established exclusively for one or more such family members, to the extent such
transfer or assignment is in furtherance of the optionee's estate plan.
Stock Appreciation Rights. At the discretion of the Committee, options may
be granted with stock appreciation rights. A stock appreciation right grants the
holder the right to surrender the underlying option for an appreciation
distribution from the Company equal in amount to the excess of (i) the fair
market value (on the of exercise date) of the shares of Common Stock in which
the optionee is at the time vested under the surrendered option over (ii) the
aggregate option exercise price payable for those shares.
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<PAGE>
The appreciation distribution may be made, at the discretion of the Committee,
either in shares of Common Stock valued at fair market value on the option
surrender date or in cash or in a combination of cash and Common Stock.
Limited stock appreciation rights may be granted to one or more officers of
the Company subject to the short-swing profit restrictions of the Federal
securities laws. In the event that more than 50% of the Company's outstanding
voting stock were to be acquired pursuant to a hostile tender offer, each
outstanding option with such a limited right would automatically be canceled, to
the extent such option was at the time exercisable for vested shares. In return
for the canceled option (or canceled portion), the officer would receive a cash
distribution from the Company based upon the tender offer price payable per
share of vested Common Stock subject to the canceled option.
Prior to September 1991, options were granted under the Plan to certain
executive officers which included a different form of limited stock appreciation
right. These particular options provide the option holder, if such individual is
an officer at the time that a hostile tender offer for 25% or more of the
Company's outstanding voting securities is successfully completed, with a 30-day
period in which to surrender the underlying option for a cash distribution from
the Company based on the tender offer price payable per vested share subject to
the surrendered option.
Cancellation and New Grant of Options. The Committee has the authority to
effect, at any time and from time to time, the cancellation of any or all
options outstanding under the Plan and to grant in substitution therefor new
options covering the same or different numbers of shares of Common Stock but
with an exercise price per share not less than 85% of the fair market value per
share of the Common Stock on the new grant date.
Termination of Service and Repurchase Rights. All options and stock
appreciation rights granted under the Plan will terminate upon the expiration of
the 12-month period (or such shorter period as the Committee may establish at
the time of grant) measured from the date of the optionee's cessation of service
with the Company. In the event of the optionee's death, the option will remain
exercisable until the first anniversary of the optionee's death and may be
exercised by the personal representative of the optionee's estate or by the
person inheriting the option. However, each option will only be exercisable
during the applicable post-service exercise period for the number of shares (if
any) for which such option is exercisable at the time of the optionee's
cessation of service, unless the Committee determines at such time to accelerate
the exercisability of the option in whole or in part.
Unvested shares of Common Stock acquired upon the exercise of one or more
options will be subject to repurchase by the Company, at the original option
exercise price paid per share, upon the optionee's cessation of service prior to
vesting in those shares. The Committee has complete discretion in establishing
the terms and conditions upon which such repurchase rights are to be
exercisable, including the establishment of appropriate vesting schedules and
other provisions for the expiration of such rights in one or more installments.
The Committee will have complete discretion to extend the period following
the optionee's termination of service during which his or her outstanding
options may be exercised and/or to accelerate the exercisability of such options
or vesting of his or her unvested shares in whole or in part. Such discretion
may be exercised at any time while the options remain outstanding, whether
before or after the optionee's actual cessation of service. In no event,
however, may an option be exercised after the expiration of the option term.
For purposes of the Plan, an individual will be deemed to continue in the
Company's service for so long as he or she renders services to the Company or
any parent or subsidiary corporation as an employee, a non-employee Board member
or an independent consultant.
Terms of Stock Issuance Program
Shares may be issued under the stock issuance program directly, without any
intervening stock option grant, in accordance with the following terms and
conditions.
Issue Price; Payment. The purchase price per share will not be less than
85% of the fair market value per share of Common Stock on the date the Committee
authorizes the issuance. The issue price for
9
<PAGE>
the purchased shares may be paid in cash, in shares of Common Stock valued at
fair market value on the date of issuance, or by promissory note payable to the
Company's order. The promissory note may, at the discretion of the Committee, be
subject to cancellation over the participant's period of service. Shares may
also be issued as a bonus for past services, without any cash or other payment
required of the participant.
Vesting Schedule; Restrictions. The interest of a participant in the Common
Stock issued under the Plan may be fully and immediately vested upon issuance or
may vest in one or more installments over the participant's service, as
determined by the Committee. The elements of the vesting schedule, including the
effect disability or death is to have upon vesting, are to be determined by the
Committee at the time of issuance.
The participant may not sell or transfer any unvested shares of Common
Stock, other than permitted transfers by gift to certain family members or
family trusts. Except for such transfer restrictions, the participant will have
all the rights of a stockholder with respect to the unvested shares.
Accordingly, the participant will have the right to vote such shares and to
receive any cash dividends or other distributions paid or made with respect to
such shares.
Surrender of Shares; Repurchase. In the event the participant should, while
his or her interest in the Common Stock remains unvested, (i) attempt to
transfer (other than by permissible gift) any unvested Common Stock or (ii)
cease service with the Company, then the Company will have the right to
repurchase from such individual, at the purchase price originally paid for such
shares, the shares in which he or she has not acquired a vested interest, and
such individual will cease to have any stockholder rights with respect to such
repurchased shares.
Provisions Applicable to Option Grants and Share Issuances
Acceleration of Vesting. All outstanding options and unvested share
issuances under the Plan will vest on an accelerated basis upon certain changes
in the ownership or control of the Company. Accordingly, in the event of any one
of the following transactions (a "Corporate Transaction"):
(a) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state of incorporation,
(b) the sale, transfer or other disposition of substantially all of the
Company's assets in liquidation or dissolution of the Company, or
(c) any reverse merger in which the Company is acquired but continues
in existence as a separate entity,
each outstanding option will automatically become exercisable, immediately
prior to the effective date of the Corporate Transaction, for all of the option
shares at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares. However, the exercisability of an
outstanding option will not so accelerate if and to the extent: (i) such option
is to be assumed by the successor corporation (or parent thereof) or (ii) the
acceleration of such option is subject to other limitations imposed by the
Committee at the time of grant. Immediately following the Corporate Transaction,
each option outstanding under the Plan will immediately terminate and cease to
be exercisable, except to the extent assumed by the successor corporation or
parent thereof.
The Company's outstanding repurchase rights under both the Option Grant and
Stock Issuance Programs will also terminate, and the shares subject to those
terminated rights will become fully vested, upon the Corporate Transaction,
except to the extent (i) one or more of such repurchase rights are to be
assigned to the successor corporation (or its parent company) or (ii) such
termination and accelerated vesting are precluded by other limitations imposed
by the Committee at the time the repurchase rights are issued.
The vesting of options and unvested shares upon a Corporate Transaction may
be seen as an anti-takeover provision and may have the effect of discouraging a
merger proposal, a takeover attempt or other efforts to gain control of the
Company.
Stockholder Rights. No individual is to have any stockholder rights with
respect to shares acquired on exercise of an option or under the share issuance
program until such individual has exercised the option and paid the exercise
price or purchase price for the purchased shares and has been issued a stock
certificate for the purchased shares.
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<PAGE>
Excess Grants. The Plan permits the grant of options to purchase shares and
the issuance of shares of Common Stock in excess of the number of shares then
available for issuance under the Plan. Any option so granted cannot be exercised
and any shares issued must be held in escrow prior to stockholder approval of an
amendment increasing the number of shares available for issuance under the Plan.
Shared Investment Program
In March 1997, the Committee authorized a special risk sharing arrangement
to be implemented under the Stock Issuance Program. The new arrangement is
designated the Shared Investment Program (the "Program") and will allow the
Company's officers and other senior managers the opportunity to acquire shares
of Common Stock as a long-term investment which would further align their
interests with those of the stockholders.
Stock Purchase. Under the Program, the Company's executive officers and
other key managerial personnel will be given the opportunity to purchase shares
of Common Stock in an individually designated amount per participant determined
by the Committee. All shares will be purchased at a per share price equal to the
fair market value of the Common Stock on the purchase date. The purchase price
will be paid through the participant's delivery of a full-recourse promissory
note payable to Company. Each note will bear interest at the minimum per annum
rate, compounded semi-annually, required under the federal tax laws to avoid the
imputation of compensation income and will have a maximum term of nine years.
The note will be secured by a pledge of the purchased shares with the Company.
Thirty-seven individuals are eligible to participate in the Program,
including eight executive officers. If the stockholders approve the share
increase which forms part of this Proposal, then the Program will be
implemented, and it is anticipated that approximately 1,000,000 shares will be
issued under the Program.
Restrictions on Transfer. None of the shares purchased under the Program
may be sold before the first anniversary of the purchase date, except in the
event of the participant's death or disability or the occurrence of certain
changes in control of the Company. The sale proceeds must be applied to the
payment of the principal portion of the note attributable to the shares which
are the subject of the sale plus the accrued and unpaid interest on that
principal portion.
Shares Investment. If the participant remains in the Company's service
until the first anniversary of the purchase date of his or her shares under the
Program, then the Company will share any loss which the participant may incur
upon the subsequent sale of those shares. The loss sharing arrangement will be
as follows:
o to the extent any shares are sold before the third anniversary of their
purchase date, the participant will be responsible for 100% of the
loss; and
o to the extent any shares are sold on or after the third anniversary of
their purchase date, the participant will be responsible for only 50%
of the loss, and the Company will remit to the participant a cash
payment equal to the remaining 50% of that loss.
The Company will also be entitled under certain circumstances to share in
the gain (if any) which the participant may realize upon the subsequent sale of
the purchased shares. The gain sharing arrangement will be as follows:
o to the extent any of the shares are sold before the second anniversary
of their purchase date, the participant will only be entitled to
receive 50% of the gain, and the remaining 50% of the gain will be paid
over to the Company at the time of the sale;
o to the extent any of the shares are sold on or after the second
anniversary but before the third anniversary of their purchase date,
the participant will only be entitled to receive 75% of the gain, and
the remaining 25% of the gain will be paid over to the Company at the
time of the sale; and
o to the extent any of the shares are sold on or after the third
anniversary of their purchase date, the participant will be entitled to
receive 100% of the gain.
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<PAGE>
The gain/loss sharing arrangement will be in effect only to the extent the
shares are sold while there is an outstanding unpaid balance under the
participant's note and the sale proceeds are applied to payment of that note.
Termination of Service. If a participant's service with the Company
terminates by reason of death or disability while his or her note is
outstanding, the participant (or the participant's estate in the case of death)
will be deemed to have held the purchased shares until the first anniversary of
the purchase date. The Company will assume 100% of any loss incurred upon the
sale of those shares, provided such sale occurs while there is an unpaid balance
under the participant's note. The participant (or his or her estate) will be
entitled to 100% of any gain realized upon the sale of the shares following his
or her death or disability.
In the event the participant's service terminates for any other reason
after the first anniversary of the purchase date, then the gain/loss sharing
arrangement will continue in effect while there remains an outstanding unpaid
balance under his or her note. However, if such termination occurs before the
first anniversary of the purchase date, then the participant will only be
entitled to 50% of the gain realized from any sale of the shares made while
there is an unpaid balance outstanding on his or her note and will be
responsible for 100% of the loss on any sale of the shares, whether made before
or after his or her note is paid.
Should a participant's service terminate by reason of his or her voluntary
resignation or his or her involuntary termination, then that participant will
have a 6-month period in which to repay his or her note.
Change of Control. Immediately prior to the consummation of a change in
control of the Company (whether by merger, sale of all or substantially all of
the Company's assets or sale of more than 50% of the outstanding voting
securities), all restrictions on the sale of the purchased shares will lapse,
and the Company will be responsible for 50% of any loss on the sale of the
shares, and the participant will be entitled to 100% of any gain.
Discretionary Authority. The Committee will have the discretionary
authority to waive any of the transfer restrictions, service requirements or
holding period requirements otherwise applicable to the Program under such
circumstances as the Committee may deem appropriate.
Amendment and Termination of the Plan
The Board may amend or modify the Plan in any or all respects whatsoever,
subject to any required stockholder approval under applicable law or regulation.
The Board may terminate the Plan at any time, but in all events the Plan will
terminate upon the earlier of December 31, 2002 or the date all shares available
for issuance under the Plan are issued as vested shares or canceled pursuant to
the exercise or surrender of options granted under the Plan. Any options
outstanding at the time of the termination of the Plan will remain in force in
accordance with the provisions of the instruments evidencing such grants.
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<PAGE>
<TABLE>
Stock Awards
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table elsewhere in this Proxy Statement and the
various indicated individuals and groups, the number of shares of Common Stock
subject to options granted under the Plan between January 1, 1996 and March 31,
1997, together with the weighted average exercise price payable per share. No
direct stock issuances have been made to date under the Plan.
OPTION TRANSACTIONS
<CAPTION>
Options Granted
(Number of Weighted Average
Name Shares) Exercise Price
- -------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Craig R. McMullen, President and Chief Executive Officer ..... -- $ --
James R. Glynn, Chief Operating Officer and Chief Financial
Officer ...................................................... 20,000 $6.375
Andrew G. Korey, Ph.D., Vice President, Medical Information
and Extramural Scientific Affairs ............................ 20,000 $6.375
Richard E. Jones, Ph.D., Vice President, Research and
Development .................................................. 20,000 $6.375
Dennis M. Brown, Vice President, Discovery Research .......... 65,000 $11.28
All current executive officers as a group (9 persons) ........ 380,000 $10.17
All current non-employee Board members as a group ............ -- $ --
All employees, including current officers who are not
executive officers, as a group (166 persons) ................. 910,000 $10.16
</TABLE>
Federal Tax Consequences of Options
Options granted under the Plan may be either incentive stock options which
satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to satisfy such requirements. The
Federal income tax treatment for the two types of options differ as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize regular
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of disposition. For Federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two years after the option grant date and more
than one year after the exercise date. If either of these two holding periods is
not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory OptonsS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price paid for those shares, and the optionee will be required to
satisfy the tax withholding requirements applicable to such income.
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<PAGE>
Special provisions of the Internal Revenue Code apply to the acquisition of
shares under a non- statutory option if the purchased shares are subject to
repurchase by the Company or other substantial risk of forfeiture. These special
provisions may be summarized as follows:
If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company, at the original exercise price paid
per share, in the event the optionee's service terminates prior to vesting
in the shares, then the optionee will not recognize any taxable income at
the time of exercise. The optionee will have to report as ordinary income,
as and when the Company's repurchase right lapses, an amount equal to the
difference between the fair market value of the shares on the date the
repurchase right lapses and the option exercise price paid for those
shares.
The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise an
amount equal to the difference between the fair market value of the
purchased shares on the date of exercise (determined as if the shares were
not subject to the Company's repurchase right) and the option exercise
price paid for the shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the Company's
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the optionee in connection with
the exercise of the non-statutory option. The deduction will in general be
allowed for the taxable year of the Company in which such ordinary income
is recognized by the optionee.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to an income tax
deduction equal to such distribution for the taxable year in which the ordinary
income is recognized by the optionee.
Direct Stock Issuance. The tax principles applicable to direct stock
issuances under the Plan will be substantially the same as those summarized
above for the exercise of non-statutory option grants.
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions of
incentive stock option shares or exercises of non-statutory options granted with
exercise prices equal to the fair market value of the shares on the grant date
will qualify as performance-based compensation for purposes of Code Section
162(m) and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company.
Accounting Treatment
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in a
direct compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over the
period that the option shares or issued shares are to vest. Option grants or
stock issuances with exercise or issue prices not less than the fair market
value of the shares on the grant or issue date will not result in any direct
charge to the Company's earnings. However, the fair value of those options is
required to be disclosed in the notes to the Company's financial statements, and
the Company must also disclose, in pro-forma statements to the Company's
financial statements, the impact those options would have upon the Company's
reported earnings were the value of those options at the time of grant treated
as compensation expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to be charged
against the Company's earnings. Accordingly, at the end of each fiscal quarter,
the amount (if any) by which the fair market value of the shares of common stock
subject to such outstanding stock appreciation rights has increased from prior
quarter-end will be accrued as compensation expense, to the extent such fair
market value is in excess of the aggregate exercise price in effect for such
rights.
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<PAGE>
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented by Proxy and entitled to vote at the Annual
Meeting is required for approval of the amendments to the Plan. Should such
stockholder approval not be obtained, then any stock options granted under the
Plan on the basis of the 2,000,000-share increase which forms part of this
Proposal will terminate without ever becoming exercisable for any of the shares
of Common Stock subject to those options, and no further options will be granted
on the basis of that increase. In addition, non-employee Board members will
remain ineligible to participate in the Discretionary Option Grant and Stock
Issuance Programs under the Plan, and unvested shares repurchased by the Company
will not be available for reissuance under the Plan. Finally, the extension of
the term of the Plan from September 2, 1998 to December 31, 2002 will not be
implemented. However, the Plan will continue to remain in effect, and option
grants and direct stock issuance may continue to be made pursuant to the
provisions of the Plan in effect prior to the amendments summarized in this
Proposal, until the available reserve of Common Stock as last approved by the
stockholders has been issued.
The Board of Directors recommends that the Stockholders vote IN FAVOR OF
all amendments to the Company's 1988 Restricted Stock Plan.
New Plan Benefits
No stock option grants or direct stock issuances have been made as of March
31, 1997 under the Plan on the basis of the 2,000,000-share increase for which
stockholder approval is sought under this Proposal No. 2.
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<PAGE>
PROPOSAL THREE--APPROVAL OF AMENDMENTS TO
1991 DIRECTORS STOCK OPTION PLAN
Introduction
The stockholders are being asked to approve a series of amendments to the
Company's 1991 Directors Stock Option Plan (the "Directors Plan") that will
effect the following changes: (i) increase the number of shares of Common Stock
issuable under the Directors Plan by an additional 250,000 shares, (ii) allow
each outstanding option held by an individual serving as a Board member on
January 1, 1997 and each subsequently granted option under the Directors Plan to
remain outstanding as to any vested option shares for the full 10-year option
term, whether or not the optionee continues to serve on the Board, and (iii)
effect a series of additional changes to the provisions of the Directors Plan
(including the stockholder approval requirements, the transferability of the
options for estate planning purposes and the elimination of the six-month
holding period requirement as a condition to the exercise of the special
cash-out rights provided under the Directors Plan) in order to take advantage of
the recent amendments to Rule 16b-3 of the Securities and Exchange Commission
which exempts certain transactions under the Directors Plan from the short-swing
liability provisions of the federal securities laws.
The amendments were adopted by the Board on March 19, 1997 (the "Effective
Date"), subject to stockholder approval at the 1997 Annual Meeting. The
affirmative vote of the holders of a majority of the Common Stock present or
represented by at the Annual Meeting and entitled to vote is required for
approval of the amendments to the Directors Plan.
The purpose of the Directors Plan is to promote the interests of the
Company and its parent or subsidiary corporations by offering non-employee
members of the Board of Directors the opportunity to participate in a special
stock option program designed to attract the best possible personnel for service
as directors of the Company and to provide them with significant incentives to
remain in the Company's service. Accordingly, the Board recommends the
stockholders vote IN FAVOR OF the amendments.
The principal terms and provisions of the Directors Plan as modified by the
recent amendments are summarized below. The summary is not, however, intended to
be a complete description of all the terms of the Directors Plan. A copy of the
Directors Plan as amended will be furnished without charge to any stockholder
upon written request to the Corporate Secretary at the Company's headquarters in
Fremont, California.
Description of the Directors Plan
Structure. Under the Directors Plan, automatic option grants will be made
at periodic intervals to the non-employee members of the Board. At the time an
individual first joins the Board as a non- employee director, whether through
election at an Annual Stockholders Meeting or through appointment by the Board,
that individual will immediately receive an automatic option grant for 40,000
shares of Common Stock, provided he or she has not previously been in the
Company's employ. At each Annual Stockholders Meeting, each individual who is
re-elected as a non-employee Board member (including individuals who may have
previously been in the Company's employ) will automatically be granted a
non-statutory option to purchase 3,000 shares of Common Stock, provided such
individual has been a member of the Board for at least six months.
A similar 40,000-share option grant will also be made to any non-employee
Board member who is, at the time he or she first joins the Board as a
non-employee director, affiliated with a venture capital fund or other
investment entity or corporate partner which requires that Board member to
transfer to such entity the economic benefit of any option grants which he or
she receives under the Directors Plan. This special 40,000-share grant will be
made immediately upon his or her cessation of such affiliate status, and any
individual who receives such a special grant will not be eligible to receive his
or her next 3,000-share annual option grant until the first Annual Stockholders
Meeting held more than six months after the grant date of his or her
40,000-share option.
Options granted under the Directors Plan are non-statutory options not
intended to satisfy the requirements of Section 422 of the Internal Revenue
Code.
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<PAGE>
Administration. All grants under the Directors Plan will be made in strict
compliance with the express provisions of the plan document, and no
administrative discretion with respect to such grants will be exercised by the
Board or any committee of the Board. Stockholder approval of this Proposal will
constitute pre-approval of each option granted on or after the date of the
Annual Meeting pursuant to the provisions of the Directors Plan summarized below
and the subsequent exercise of that option in accordance with those provisions.
Eligibility. As of March 31, 1997, five non-employee Board members were
eligible to participate in the Directors Plan.
Securities Subject to Directors Plan. The maximum number of shares of
Common Stock issuable over the term of the Directors Plan may not exceed 592,858
shares (including the additional 250,000 shares subject to approval by the
stockholders as part of this Proposal Three). Such share reserve will be subject
to further adjustment in the event of subsequent changes to the Company's
capital structure. The shares may be made available either from the Company's
authorized but unissued Common Stock or from Common Stock reacquired by the
Company, including shares purchased on the open market.
Should an option expire or terminate for any reason prior to exercise in
full, the shares subject to the portion of the option not so exercised will be
available for subsequent grant.
As of March 31, 1997, options for 228,634 shares were outstanding, 318,366
shares remained available for future grant (assuming stockholder approval of the
proposed 250,000-share increase), and 45,858 shares had been issued under the
Directors Plan.
Exercise Price. The option exercise price per share will be equal to the
fair market value of the Common Stock on the automatic grant date. For all
valuation purposes under the Directors Plan, the fair market value of the Common
Stock on any relevant date will be deemed equal to the closing selling price of
the Common Stock on that date, as quoted on the Nasdaq National Market. On March
31, 1997, the fair market value per share was $6.375.
The exercise price may be paid in cash or in shares of Common Stock.
Options may also be exercised through a same-day sale program, pursuant to which
a designated brokerage firm effects the immediate sale of the shares purchased
under the option and pays over to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the exercise price
for the purchased shares.
Option Term. Each outstanding option held by an individual serving as a
Board member on January 1, 1997 and each subsequently granted option under the
Director Plan will remain outstanding for a period of 10 years measured from the
automatic grant date, whether or not the optionee continues to serve on the
Board. Such options will, however, be subject to earlier termination in
connection with certain changes in control or ownership of the Company. Prior to
the amendments to the Directors Plan which form part of this Proposal,
outstanding options would not remain exercisable for more than a 12-month period
following the optionee's cessation of Board service.
Limitations. No optionee is to have any stockholder rights with respect to
the option shares until the optionee has exercised the option and paid the
exercise price for the purchased shares. Options are generally not assignable or
transferable other than by will or the laws of inheritance, and during the
optionee's lifetime the option may be exercised only by the optionee. However,
the optionee may, in connection with his or her estate plan, transfer the option
during his or her lifetime to members of his or her immediate family or to a
trust established for such family members.
Exercisability. Each initial option grant for 40,000 shares of Common Stock
will become exercisable for such shares in a series of three successive equal
annual installments over the optionee's period of continued Board service as
follows:
o The first installment will become exercisable on the first anniversary
of the grant date, provided optionee attends all of the
regularly-scheduled Board meetings held during the one-year period
measured from the grant date. The second installment will become
exercisable on the second anniversary of the grant date, provided
optionee attends all of the regularly-scheduled Board meetings held
during the one-year period measured from the first anniversary of the
grant date. The third installment will become exercisable on the third
anniversary of the grant date, provided optionee attends all of the
regularly-scheduled Board meetings held during the one-year period
measured from the second anniversary of the grant date.
17
<PAGE>
o Should the optionee not attend all of the scheduled Board meetings
during the applicable one- year period, then the option will lapse as
to the number of shares determined by multiplying one-third of the
total option shares by a fraction, the numerator of which is the number
of such meetings not attended by the optionee during that one-year
period and the denominator of which is the total number of such
meetings held during that period.
Each annual option grant for 3,000 shares of Common Stock will become
exercisable in its entirety one year after the grant date, provided the optionee
attends all of the regularly-scheduled Board meetings held during that one-year
period. Should the optionee not attend all of the scheduled meetings, then the
option will lapse as to the number of shares determined by multiplying the
number of total option shares by a fraction, the numerator of which is the
number of such meetings not attended by the optionee during that one-year period
and the denominator of which is the total number of such meetings held during
such period.
Each special option grant for 40,000 shares of Common Stock will become
exercisable for the option shares in three equal installments over the
optionee's period of continued Board service as follows:
o The first installment will become exercisable upon the later of (i) the
first anniversary of the grant date of the initial automatic option for
40,000 shares (the "Initial Grant Date") which was made to such
optionee but the economic benefit of which was assigned to the venture
capital fund or other investment entity or corporate partner with which
he or she was affiliated at that time or (ii) the grant date of the
special option, provided the optionee attended all of the
regularly-scheduled Board meetings held during the one-year period
measured from the Initial Grant Date. The second installment will
become exercisable upon the later of (ii) the second anniversary of the
Initial Grant Date or (ii) the grant date of the special option,
provided the optionee attended all of the regularly-scheduled Board
meetings held during the one-year period measured from the first
anniversary of the Initial Grant Date. The final installment will
become exercisable upon the later of (i) the third anniversary of the
Initial Grant Date or (ii) the grant date of the special option,
provided the optionee attended all of the regularly-scheduled Board
meetings held during the one-year period measured from the second
anniversary of the Initial Grant Date.
o Should the optionee not attend all of the scheduled Board meetings
during the applicable one- year period, the option will lapse as to the
number of shares determined by multiplying one-third of the total
option shares by a fraction, the numerator of which is the number of
such meetings not attended by the optionee during that one-year period
and the denominator of which is the total number of such meetings held
during that period.
Termination of Board Membership. Should the optionee cease to serve as a
Board member for any reason (other than death) while holding one or more
automatic option grants, then such optionee will have until the expiration of
the 10-year option term in which to exercise each such option for any or all of
the shares of Common Stock for which that option is exercisable at the time of
his or her cessation of service on the Board. Should the optionee die while
serving as a Board member, then any outstanding automatic grant held by such
optionee at the time of death may be subsequently exercised, for any or all of
the shares of Common Stock at the time subject to that option, 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 inheritance. The option will remain so exercisable until the expiration
of the 10-year term. All options under the Directors Plan will, however, be
subject to earlier termination in connection with certain changes in control or
ownership of the Company.
Corporate Transaction. Upon the occurrence of any of the following
transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state of the Company's incorporation;
(ii) the sale of all, or substantially all, of the Company's assets in
complete liquidation or dissolution of the Company; or
18
<PAGE>
(iii) any reverse merger in which the Company is the surviving entity,
but in which all of the Company's outstanding voting stock is transferred
to the acquiring entity or its wholly-owned subsidiary;
each automatic option grant not otherwise at the time fully exercisable
will accelerate so that each such option will, immediately prior to the
specified effective date for 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 all or any portion
of such shares. Immediately following the consummation of such Corporate
Transaction, all outstanding options under the Directors Plan will
terminate, except to the extent assumed by the successor corporation or its
parent company.
Change in Control. In connection with a change in control of the Company,
whether effected by a successful tender offer for securities possessing more
than 40% of the total combined voting power of the Company's outstanding
securities or through a change in the majority of the Board as a result of one
or more contested elections for Board membership, each outstanding automatic
option grant will accelerate so that each such option will 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 at any time prior to the expiration or sooner termination of the option
term.
Cash-Out of Options. Upon the successful completion of a hostile tender
offer for securities possessing more than 40% of the total combined voting power
of the Company's outstanding securities, each outstanding option grant under the
Directors Plan will automatically be cancelled, whether or not that option is
otherwise exercisable for any option shares, in return for a cash distribution
from the Company in an amount per cancelled option share equal to the excess of
(i) the highest price per share of Common Stock paid in such tender offer over
(ii) the option exercise price payable per share. Stockholder approval of this
Proposal will also constitute pre-approval of such automatic cancellation and
cash-out of all options granted under the Directors Plan on or after the date of
the Annual Meeting.
The acceleration of options in the event of a Corporate Transaction or
other take-over event may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt or other efforts to
gain control of the Company.
Changes in Capitalization. In the event any change is made to the Common
Stock issuable under the Directors Plan by reason of any stock split, stock
dividend, combination of shares, exchange of shares or other change affecting
the outstanding Common Stock as a class without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the Directors Plan, (ii) the number
and/or class of securities to be made the subject of each subsequent automatic
grant made to newly-elected or continuing non-employee Board members and (iii)
the number and/or class of securities purchasable under each outstanding option
and the exercise price payable per share in order to prevent the dilution or
enlargement of benefits thereunder.
Each outstanding option that is assumed in connection with a Corporate
Transaction will be appropriately adjusted to apply and pertain to the number
and class of securities which would have been issued to the option holder in the
consummation of such Corporate Transaction had that option been exercised
immediately prior to such Corporate Transaction. Appropriate adjustments will
also be made to the exercise price payable per share and to the class and number
of securities available for future issuance under the Directors Plan.
Plan Amendments. The Board may amend the provisions of the Directors Plan
at any time, subject to any required stockholder approval under applicable law
or regulation.
Plan Termination. Unless sooner terminated by the Board, the Directors Plan
will terminate on January 27, 2002. Any options outstanding at the time of such
termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
19
<PAGE>
Option Grant Summary
The table below provides, as to each current non-employee Board member and
all non-employee Board members as a group, the following information with
respect to the automatic stock option grants made under the Directors Plan
during the period beginning January 1, 1996 and continuing through March 31,
1997: (i) the number of shares for which such automatic option grants have been
and (ii) the weighted average exercise price payable per share.
Weighted
Average
Number Exercise
of Option Price
Name of Director Shares Per Share
- -------------------------------------------------- ----------- -----------
J. Stephan Dolezalek .............................. 3,000 $26.00
Edward E. Luck .................................... 3,000 $26.00
John E. Lyons ..................................... 3,000 $26.00
Richard D. Murdock ................................ 3,000 $26.00
Julius L. Pericola ................................ 3,000 $26.00
Alan E. Salzman ................................... 3,000 $26.00
All non-employee directors as a group (6 persons) 18,000 $26.00
New Plan Benefits
As of March 31, 1997, no options have been granted under the Directors Plan
on the basis of the 250,000-share increase which forms part of this Proposal No.
3. If the stockholders approve the Proposal, then the following outstanding
options held by the non-employee Board members will remain exercisable, for any
shares for which those options are exercisable at the time of the optionee's
cessation of Board service, for the entire 10-year option term, subject to
earlier termination in the event of certain changes in control or ownership of
the Company: Mr. Dolezalek, options for 46,000 shares with an average exercise
price of $14.03 per share; Mr. Luck, options for 11,716 shares with an average
exercise price of $14.34 per share; Mr. Lyons, options for 32,668 shares with an
average exercise price of $11.12 per share; Mr. Murdock, options for 46,000
shares with an average exercise price of $14.09 per share; Mr. Pericola, options
for 32,668 shares with an average exercise price of $11.05 per share; and Mr.
Salzman, options for 48,716 shares with an average exercise price of $12.94 per
share.
Federal Income Tax Consequences
Options granted under the Directors Plan are non-statutory options which
are not intended to satisfy the requirements of Section 422 of the Internal
Revenue Code. The Federal income tax treatment for the options is as follows:
Recognition of Income. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will, however, recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares.
Income Tax Deduction. The Company will be entitled to a business expense
deduction, for the taxable year of the Company in which the option is exercised,
equal to the amount of ordinary income recognized by the optionee in connection
with such exercise.
Recommendation of the Board of Directors
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented by Proxy and entitled to vote at the Annual
Meeting is required for approval of the amendments to the Directors Plan. Should
such stockholder approval not be obtained, then any stock options granted under
the Directors Plan on the basis of the 250,000-share increase which forms part
of this Proposal will terminate without ever becoming exercisable for any of the
shares of Common Stock subject to those options, and no further options will be
granted on the basis of that increase. In addition, all
20
<PAGE>
currently outstanding and subsequently granted options under the Directors Plan
would remain subject to a maximum 12-month exercise period following the
optionee's cessation of Board service, and certain other changes to the
Directors Plan (including the stockholder approval requirements) that were
intended to take advantage of the recent amendments to Rule 16b-3 of the
Exchange Act will not be implemented. The Directors Plan will, however, remain
in existence in accordance with the provisions of the plan document in effect
immediately prior to the new amendments, and stock options will continue to be
made under the Directors Plan until the share reserve as last approved by the
stockholders is issued.
The Board recommends that the stockholders vote IN FAVOR OF the approval of
all amendments to the Directors Plan.
PROPOSAL FOUR--RATIFICATION OF SELECTION OF
INDEPENDENT ACCOUNTANTS
The Board has appointed the firm of Ernst & Young LLP, independent
accountants, to audit the financial statements of the Company for the fiscal
year ending December 31, 1997, and is asking the stockholders to ratify this
appointment.
In the event the stockholders fail to ratify the appointment, the Board
will reconsider its selection. Even if the selection is ratified, the Board in
its discretion may direct the appointment of a different independent accounting
firm at any time during the year if the Board feels that such a change would be
in the best interest of the Company and its stockholders. The affirmative vote
of the holders of a majority of the Company's Common Stock present or
represented by Proxy at the Annual Meeting and entitled to vote is required to
ratify the selection of Ernst & Young LLP.
Ernst & Young LLP served as independent auditors to the Company for the
fiscal year ended December 31, 1996. A representative of Ernst & Young LLP is
expected to be present at the Annual Meeting to respond to appropriate
questions, and will be given the opportunity to make a statement if he or she so
desires.
The Board recommends that the Stockholders vote IN FAVOR OF the
ratification of the selection of Ernst & Young LLP to serve as the Company's
independent accountants for the fiscal year ending December 31, 1997.
21
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Compensation Committee Report on Executive Compensation
It is the duty of the Compensation Committee to review and determine the
salaries and bonuses of executive officers of the Company, including the Chief
Executive Officer, and to establish the general compensation policies for such
individuals. The Compensation Committee also has the sole and exclusive
authority to make discretionary option grants to the Company's executive
officers under the Company's Stock Option Plan.
The Compensation Committee believes that the compensation programs for the
Company's executive officers should reflect the Company's performance and the
value created for the Company's stockholders. In addition, the compensation
programs should support the short-term and long-term strategic goals and values
of the Company and should reward individual contribution to the Company's
success. The Company is engaged in a very competitive industry, and the
Company's success depends upon its ability to attract and retain qualified
executives through the competitive compensation packages it offers to such
individuals.
General Compensation Policy. The Compensation Committee's policy is to
provide the Company's executive officers with compensation opportunities which
are tied to their personal performance, the financial performance of the Company
and their contribution to that performance and which are competitive enough to
attract and retain highly skilled individuals. Each executive officer's
compensation package is comprised of three elements: (i) base salary that is
competitive with the market and reflects individual performance, (ii) annual
variable performance awards payable in cash and tied to the Company's
achievement of annual financial performance goals and (iii) long-term
stock-based incentive awards designed to strengthen the mutuality of interests
between the executive officers and the Com- pany's stockholders. As an officer's
level of responsibility increases, a greater proportion of his or her total
compensation will be dependent upon the Company's financial performance and
stock price appreciation rather than base salary.
The Compensation Committee has retained the services of an independent
compensation consulting firm to provide advice on executive compensation
matters, including the base salary levels for executive officers other than the
Chief Executive Officer and the incentive compensation payable to all executive
officers. Specifically, the consulting firm furnished the Committee with
compensation surveys and data for purposes of comparing the Company's executive
compensation levels with those at companies within and outside the industry with
which the Company competes for executive talent and provided the Committee with
specific recommendations for maintaining the Company's executive compensation at
a level competitive with the marketplace.
Factors. The principal factors that were taken into account in establishing
each executive officer's compensation package for the 1996 fiscal year are
described below. However, the Compensation Committee may in its discretion apply
entirely different factors, such as different measures of financial performance,
for future fiscal years.
Base Salary--Chief Executive Officer. In setting the base salary level
payable for the 1996 fiscal year to the Company's Chief Executive Officer, Craig
R. McMullen, the Committee reviewed a detailed performance evaluation compiled
for Mr. McMullen. The performance evaluation took into consideration Mr.
McMullen's qualifications, the level of experience brought to his position and
gained while in the position, the Company goals for which Mr. McMullen had
responsibility, specific accomplishments to date, and the importance of Mr.
McMullen's individual contributions to the achievement of the Company goals and
objectives set for the prior fiscal year. In addition, the Compensation
Committee sought to provide him with a level of base salary which it believed,
on the basis of its understanding of the salary levels in effect for other chief
executive officers at similar-sized companies in the industry, to be competitive
with those base salary levels.
Base Salary--Other Executive Officers. In setting base salaries for
executive officers other than the Chief Executive Officer, the Compensation
Committee reviewed the compensation data and surveys provided by the independent
consultant for comparative compensation purposes. A peer group of 25
22
<PAGE>
companies was identified for such comparative purposes. In selecting the peer
group companies, the Compensation Committee focused primarily on whether those
companies were actually competitive with the Company in seeking executive
talent, whether those companies had a management style and corporate culture
similar to the Company's and whether similar positions existed within their
corporate structure. A majority of the peer group companies surveyed for
comparative compensation purposes were also included in the Nasdaq
Pharmaceutical Index which the Company has chosen as the industry index for
purposes of the Company Stock Price Performance graph which follows this report.
The base salary for each executive officer other the Chief Executive
Officer reflects the salary levels for comparable positions at the peer group
companies as well as the individual's personal performance and internal
alignment considerations. The relative weight given to each factor varies with
each individual in the sole discretion of the Compensation Committee. Each
executive officer's base salary is adjusted each year on the basis of (i) the
Compensation Committee's evaluation of the officer's personal performance for
the year and (ii) the competitive marketplace for persons in comparable
positions. For the 1996 fiscal year, the base salary of the Company's executive
officers was targeted at the 50th percentile of the base salary levels in effect
for comparable positions at the peer group companies, subject to 20% variant
above or below that level for certain officers of the Company.
Annual Incentive Compensation. For the 1996 fiscal year, the Compensation
Committee established, with the assistance of the independent compensation
consultant, an incentive compensation program for the executive officers. Since
the Company is in the development stage, the use of traditional performance
milestones (such as profit levels and return on equity) as the basis for such
incentive compensation was not considered appropriate. Instead, the incentive
awards for the 1996 fiscal year were tied to the achievement of pre-defined
personal and corporate performance targets. The corporate performance targets
for such fiscal year were tied to appreciation in the market price of the
Company's common stock and approval of the Company's manufacturing facility by
the Food and Drug Administration (the "FDA"). On the basis of the Company's
success in achieving the FDA milestone and the Committee's evaluation of
personal performance for the year, the executive officers (other than the Chief
Executive Officer) received bonuses which ranged from 14.2% to 22.1% of their
base salary for the year.
Long Term Incentives. Generally, stock option grants are made periodically
by the Compensation Committee to each of the Company's executive officers. Each
grant is designed to align the interests of the 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
business. Each grant allows the officer to acquire shares of the Company's
Common Stock at a fixed price per share (not less than 85% of the market price
of the shares on the grant date) over a specified period of time (up to 10
years). Each option becomes exercisable in a series of installments over a
four-year period, contingent upon the officer's continued employment with the
Company. Accordingly, the option will provide a meaningful return to the
executive officer only if he or she remains employed by the Company during the
vesting period, and then only if the market price of the shares appreciates over
the option term.
The size of the option grant to each executive officer, including the Chief
Executive Officer, is set by the Compensation Committee at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, the individual's personal
performance in recent periods and his or her potential for future responsibility
and promotion over the option term. In determining the appropriate level of
equity incentive to be provided each individual, the Compensation Committee also
takes into account the number of unvested options held by the executive officer
and the comparable level of equity-based awards provided similar individuals in
the industry as reflected in comparative industry data. However, the relevant
weight given to each of these factors varied from individual to individual for
the grants made during the 1996 fiscal year.
CEO Compensation. As indicated above, the base salary for the Company's
Chief Executive Officer, Craig R. McMullen, for the 1996 fiscal year was
established by the Committee on the basis of a detailed review of his
performance and was increased to $300,000. On the basis of certain corporate and
individual milestones which the Committee had previously established for Mr.
McMullen for the 1996 fiscal year and which milestones had been met, the
Committee determined that Mr. McMullen was
23
<PAGE>
entitled to a bonus of $57,000 for the 1996 fiscal year. Because of the number
of stock options granted to Mr. McMullen through the 1995 fiscal year, the
Committee decided not to grant any additional stock options to him during the
1996 fiscal year.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code disallows a tax deduction to
publicly held companies for compensation paid to certain of their executive
officers, to the extent that compensation exceeds $1 million per covered officer
in any fiscal year. The limitation applies only to compensation which is not
considered to be performance-based. Non-performance based compensation paid to
the Company's executive officers for the 1996 fiscal year did not exceed the $1
million limit per officer, and the Compensation Committee does not anticipate
that the non-performance based compensation to be paid to the Company's
executive officers for fiscal 1997 will exceed that limit. The Company's
Restricted Stock Plan has been structured so that any compensation deemed paid
in connection with the exercise of option grants made under that plan with an
exercise price equal to the fair market value of the option shares on the grant
date will qualify as performance-based compensation which will not be subject to
the $1 million limitation. Because it is unlikely that the cash compensation
payable to any of the Company's executive officers in the foreseeable future
will approach the $1 millon limit, the Compensation Committee has decided at
this time not to take any action to limit or restructure the elements of cash
compensation payable to the Company's executive officers. The Compensation
Committee will reconsider this decision should the individual cash compensation
of any executive officer ever approach the $1 million level.
The Board of Directors did not modify any action or recommendation made by
the Compensation Committee with respect to executive compensation for the 1996
fiscal year. It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align the Company's performance and the interests of the Company's
stockholders through the use of competitive and equitable executive compensation
in a balanced and reasonable manner, for both the short and long-term.
Submitted by the Compensation Committee of the Company's Board of Directors:
Julius L. Pericola, Member
Alan E. Salzman, Member
Compensation Committee Interlocks and Insider Participation
As of December 31, 1996, the Compensation Committee of the Board was
comprised of Messrs. Pericola and Salzman. No current or past member of the
Compensation Committee is a former or current officer or employee of the Company
or any of its subsidiaries.
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 or Compensation Committee.
24
<PAGE>
Performance Graph
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on January 28, 1992 (the date of the Company's initial
public offering) at the then current market price of $15.00 per share, along
with the composite prices of companies listed in the Nasdaq Pharmaceutical Index
and Nasdaq Total U.S. Stock Market Index. This information has been provided to
the Company by the Nasdaq Stock Market.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
1/28/92 $100 $100 $100
3/31/92 73 85 97
6/30/92 40 71 91
9/30/92 41 67 94
12/31/92 58 81 110
3/31/93 45 59 112
6/30/93 60 62 114
9/30/93 63 67 124
12/31/93 70 73 126
3/31/94 74 59 121
6/30/94 68 52 115
9/30/94 95 58 125
12/31/94 92 55 123
3/31/95 92 59 132
6/30/95 90 69 154
9/30/95 93 86 172
12/31/95 125 100 174
3/31/96 154 105 182
6/30/96 120 101 197
9/30/96 53 103 204
12/31/96 41 100 214
The indexes above assume the reinvestment of all dividends.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report on
Executive Compensation and the Company Stock Performance Graph will not be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those statutes.
25
<PAGE>
<TABLE>
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation earned, for services
rendered in all capacities to the Company and its subsidiaries, for each of the
last three fiscal years by the Company's Chief Executive Officer and the four
other highest paid executive officers whose salary and bonus for fiscal 1996
were in excess of $100,000. No executive officer who would have otherwise been
included in such table on the basis of salary and bonus earned for fiscal 1996
resigned or terminated employment during that fiscal year. The individuals named
in the table will be hereinafter referred to as the Named Officers.
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- --------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($) OPTIONS (#) ($)
- --------------------------- ------ --------- --------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Craig R. McMullen 1996 300,000 57,000 6,000 (2) -- 1,188 (3)
President and Chief 1995 261,250 100,000 6,000 (2) 40,000 --
Executive Officer 1994 215,000 60,000 6,000 (2) 40,000 --
James R. Glynn 1996 190,000 42,050 -- 20,000 76,188 (4)
Chief Operating Officer, 1995 82,500 18,000 -- 90,000 15,000 (4)
Chief Financial Officer 1994 -- -- -- -- --
and Secretary
Andrew G. Korey, Ph.D. 1996 175,000 24,950 -- 20,000 --
Vice President, Medical 1995 164,625 31,800 -- -- --
Information and 1994 158,500 -- -- 30,000 --
Extramural Scientific
Affairs
Richard E. Jones, Ph.D. 1996 173,000 28,200 -- 20,000 1,188 (3)
Vice President, 1995 158,833 31,200 -- -- --
Research and 1994 144,000 -- -- 30,000 --
Development
Dennis M. Brown, Ph.D. 1996 164,583 29,750 -- 65,000 1,188 (3)
Vice President, 1995 144,167 20,155 -- -- --
Discovery Research 1994 135,526 -- -- -- --
- ----------
<FN>
(1) Bonuses are reported for the year earned, although generally paid in the
subsequent year.
(2) Represents yearly automobile allowance for Mr. McMullen.
(3) Represents compensation associated with a matching contribution in shares
of Common Stock which the Company made on the officer's behalf to the
Company's 401(k) Plan (194 shares of Common Stock at $6.125 per share).
(4) Represents relocation allowance for Mr. Glynn of $15,000 in 1995 and
$75,000 in 1996. In 1996 the Company also made a matching contribution in
shares of Common Stock on Mr. Glynn's behalf to the Company's 401(k) Plan
(194 shares of Common Stock at $6.125 per share).
</FN>
</TABLE>
26
<PAGE>
<TABLE>
Stock options, Exercises and Holdings
The following table provides information with respect to the stock option
grants made during fiscal 1996 to the Named Officers. No stock appreciation
rights were granted during such fiscal year to the Named Officers.
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR
INDIVIDUAL GRANTS OPTION TERM(3)
- --------------------------------------------------------------------------------- ------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE EXPIRATION
NAME (#)(1) FISCAL YEAR PRICE(2) DATE 5% ($) 10% ($)
- ------------------------ --------------- ---------------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
James R. Glynn .......... 20,000 1.65 $6.375 09/26/06 $ 207,684 $ 330,702
Andrew G. Korey, PH.D. .. 20,000 1.65 $6.375 09/26/06 $ 207,684 $ 330,702
Richard E. Jones, PH.D... 20,000 1.65 $6.375 09/26/06 $ 207,684 $ 330,702
Dennis M. Brown, PH.D. .. 15,000 1.24 $6.375 09/26/06 $ 155,763 $ 248,027
50,000 4.12 $12.75 07/18/06 $1,038,420 $1,653,515
- ----------
<FN>
(1) Each option will become exercisable for 25% of the option shares upon the
optionee's completion of one year of service with the Company, measured
from the grant date, and will become exercisable for the balance of the
option shares in a series of 36 equal and successive monthly installments
upon the optionee's completion of each additional month of service; over
the next 36 months thereafter. Each of the options (other than the second
option indicated for Mr. Brown) was granted on September 26, 1996. The
second option indicated for Mr. Brown was granted on July 18, 1996. None of
the granted options will become exercisable for any additional shares
following the optionee's cessation of service. Each of the granted options
will immediately become exercisable for all of the option shares in the
event the Company is acquired by a merger or asset sale, unless the options
are assumed by the acquiring entity. Each option has a maximum term of 10
years, subject to earlier termination in the event of the optionee's
cessation of service with the Company.
(2) The exercise price may be paid in cash or in shares of Common Stock. The
option may also be exercised through a cashless exercise procedure pursuant
to which the shares purchased under the option are immediately sold by a
designated brokerage firm, and a portion of the sale proceeds is paid
directly to the Company in payment of the option exercise price for the
purchased shares. The Company may also allow the optionee to finance the
option exercise by delivering a promissory note in payment of the exercise
price for the purchased shares and any taxes incurred by the optionee in
connection with such exercise.
(3) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-year option term will be at the assumed five percent and ten percent
levels or at any other defined level. Unless the market price of the Common
Stock appreciates over the option term, no value will be realized from the
option grants made to the executive officers.
</FN>
</TABLE>
27
<PAGE>
<TABLE>
Option Holdings
The table below sets forth information concerning the exercise of options
during fiscal 1996 by the Named Officers and unexercised options held as of the
end of such year by such individuals. No stock appreciation rights were
exercised by the Named Officers during such fiscal year, and no stock
appreciation rights were held by such individuals at the end of such fiscal
year.
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND 1996 FISCAL YEAR-END OPTION VALUES
NO. OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END(1)
ACQUIRED VALUE ----------------------------- -------------------------------
ON REALIZED UNEXERCISABLE
NAME EXERCISE (2) EXERCISABLE UNEXERCISABLE EXERCISABLE ($) ($)
- ------------------------ ---------- ------------ ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Craig R. McMullen ....... 100,000 $2,636,875 252,053 37,501 1,206,334 --
James R. Glynn .......... -- -- 31,874 78,126 -- --
Andrew G. Korey, Ph.D. . -- -- 49,494 35,001 198,605 --
Richard E. Jones, Ph.D. -- -- 73,323 35,001 335,800 --
Dennis M. Brown, Ph.D. . -- -- -- 65,000 -- --
- ----------
<FN>
(1) Determined by subtracting the exercise price from the market price of the
Common Stock on December 31, 1996 ($6.125).
(2) Excess of the fair market value of the purchased shares at the time of the
option exercise over the exercise price paid for those shares.
</FN>
</TABLE>
Officer Loans
In October 1995, the Company loaned James R. Glynn, the Company's Senior
Vice President, Chief Financial Officer and Secretary, the principal amount of
$100,000 in connection with Mr. Glynn's purchase of his principal residence (the
"Property"). Such loan must be repaid no later than October 13, 2000, does not
bear interest and is secured by a second deed of trust on the Property. The
highest principal amount outstanding during the fiscal year ended December 31,
1996 was, and the current amount outstanding is, $100,000.
Employment Contracrs and Termination of Employment Arrangements
None of the Company's executive officers have employment agreements with
the Company, and their employment may be terminated at any time at the
discretion of the Board of Directors. The Compensation Committee as
administrator of the Company's 1988 Restricted Stock Plan has the authority to
provide for the accelerated vesting of the shares of Common Stock subject to any
outstanding options held by the Chief Executive Officer and the Company's other
executive officers or any unvested shares actually held by those individuals
under the 1988 Restricted Stock Plan, in the event their employment were to be
terminated (whether involuntarily or through a forced resignation) following (i)
an acquisition of the Company by merger or asset sale or (ii) a change in
control of the Company effected through a successful tender offer for more than
50% of the Company's outstanding voting securities or through a change in the
majority of the Board as a result of one or more contested elections for Board
membership.
Certain Relationships and Related Transactions
The Company's Restated Certificate of Incorporation and Bylaws provide for
indemnification of directors, officers and other agents of the Company. Each of
the current directors, and certain officers and agents of the Company have
entered into separate indemnification agreements with the Company.
The Company retains Brobeck, Phleger & Harrison LLP as its principal
outside legal counsel. J. Stephan Dolezalek, a director of the Company, has been
a partner of Brobeck, Phleger & Harrison LLP since 1989.
28
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and beneficial owners of more than 10% of the
outstanding Common Stock to file initial reports of ownership and reports of
changes in ownership of such Common Stock with the United States Securities and
Exchange Commission ("SEC"). Such officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations that no other reports were required, the
Company believes that during the period from January 1, 1996 to December 31,
1996, all officers, directors and beneficial owners of more than 10% of the
outstanding Common Stock complied with all Section 16(a) requirements.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Common Stock as of December 31,
1996 by (i) all persons who are beneficial owners of five percent or more of the
Company's Common Stock, (ii) each director and nominee for election to the Board
at the Annual Meeting, (iii) the Named Officers in the Summary Compensation
Table above and (iv) all current directors and executive officers as a group.
The number of shares beneficially owned by each director or executive officer is
determined under rules of the SEC and the information is not necessarily
indicative of beneficial ownership for any other purpose. Shares of Common Stock
subject to options currently exercisable or exercisable within 60 days of
December 31, 1996 are deemed outstanding for computing the percentage of the
person holding such options but are not deemed outstanding for computing the
percentage of any other person. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based upon
such information furnished by such owners, have sole investment power with
respect to such shares, subject to community property laws where applicable.
29
<PAGE>
<TABLE>
PRINCIPAL STOCKHOLDERS
<CAPTION>
PERCENT OF
NUMBER TOTAL SHARES
NAME AND ADDRESS OF SHARES OUTSTANDING(1)(2)
- ----------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
State of Wisconsin Investment Board ....................................2,065,000 9.7%
Post Office Box 7842
Madison, WI 53707
Edward E. Luck(3) ...................................................... 846,975 4.0%
Dennis M. Brown(3) ..................................................... 610,526 2.9%
Craig R. McMullen(3) ................................................... 255,357 1.2%
Alan E. Salzman(4) ..................................................... 104,933 *
Julius L. Pericola(3) .................................................. 47,668 *
J. Stephan Dolezalek(5) ................................................ 32,466 *
John E. Lyons(3) ....................................................... 24,950 *
Andrew G. Korey, Ph.D.(3) .............................................. 71,773 *
Richard E. Jones(3) .................................................... 74,573 *
James R. Glynn(3) ...................................................... 35,624 *
All current directors and executive officers as a group (14 persons)(6) 2,133,595 9.8%
- ----------
<FN>
* Less than one percent.
(1) Percentage of beneficial ownership is calculated assuming 21,257,856 shares
of Common Stock were outstanding on December 31, 1996. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities. Shares of Common Stock subject to options or warrants
currently exercisable or convertible, or exercisable or convertible within
60 days of December 31, 1996, are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned.
(2) This table is based upon information supplied to the Company by executive
officers, directors and principal stockholders. The address of each officer
and director identified in this table is that of the Company's executive
offices, 34700 Campus Drive, Fremont, CA 94555. Unless otherwise indicated
in the footnotes to this table and subject to applicable community property
laws, each of the stockholders named in this table has sole voting and
investment power with respect to the shares shown as beneficially owned by
it or him.
(3) The amounts shown include shares which may be acquired currently or within
60 days after December 31, 1996, through the exercise of stock options, as
follows: Mr. Luck, 8,716 shares; Dr. Brown, no shares; Mr. McMullen,
255,357 shares; Mr. Pericola, 29,668 shares; Mr. Lyons, 24,950 shares; Dr.
Korey, 50,744 shares; Dr. Jones, 74,573 shares and Mr. Glynn, 35,624
shares.
(4) Represents 45,716 shares subject to options exercisable within 60 days of
December 31, 1996, 49,694 shares held directly by Mr. Salzman and 9,523
shares held by a trust for the benefit of Mr. Salzman.
(5) Represents 29,666 shares subject to options exercisable within 60 days of
December 31, 1996 and 2,800 shares held directly by Mr. Dolezalek. Mr.
Dolezalek, a director of the Company since October 6, 1994, is also a
Partner in the law firm of Brobeck, Phleger & Harrison LLP, the Company's
legal counsel.
(6) Includes 583,764 shares subject to options exercisable within 60 days of
December 31, 1996.
</FN>
</TABLE>
To the Company's knowledge, each beneficial owner of more than 10% of the
Company's capital stock filed all reports and reported all transactions on a
timely basis with the SEC, National Association of Securities Dealers, Inc. and
the Company.
30
<PAGE>
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting must be received by
the Company no later than December 31, 1997 so they may be included in the proxy
statement and form of proxy relating to that meeting.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1996 (the "Annual Report") and the Company's Annual Report on Form
10-K, as filed with the Securities and Exchange Commission (the "Form 10-K")
have been mailed concurrently with this Proxy Statement to all stockholders
entitled to notice of and to vote at the Annual Meeting. Neither the Annual
Report nor the Form 10-K is incorporated into this Proxy Statement and neither
is considered proxy soliciting material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission. A copy of this report is being mailed with the Notice of
Annual Meeting and Proxy Statement. Additional copies may be obtained, without
charge, by writing to Investor Relations, Matrix Pharmaceutical, Inc., 34700
Campus Drive, Fremont, California 94555.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
THE BOARD OF DIRECTORS
Dated: May 23, 1997
31
<PAGE>
APPENDIX A
MATRIX PHARMACEUTICAL, INC.
1988 RESTRICTED STOCK PLAN
AS AMENDED AND RESTATED EFFECTIVE MARCH 19, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I................................................................ 1
GENERAL......................................................... 1
1. PURPOSE OF THE PLAN........................... 1
2. STRUCTURE OF THE PLAN......................... 1
3. ADMINISTRATION OF THE PLAN.................... 2
4. OPTION GRANTS AND SHARE ISSUANCES............. 2
5. STOCK SUBJECT TO THE PLAN..................... 3
ARTICLE II............................................................... 5
OPTION GRANT PROGRAM............................................ 5
1. TERMS AND CONDITIONS OF OPTIONS............... 5
2. INCENTIVE OPTIONS............................. 9
3. STOCK APPRECIATION RIGHTS..................... 10
4. CORPORATE TRANSACTION......................... 11
5. CANCELLATION AND NEW GRANT OF OPTIONS......... 12
6. EXTENSION OF EXERCISE PERIOD.................. 12
ARTICLE III.............................................................. 14
STOCK ISSUANCE PROGRAM.......................................... 14
1. TERMS AND CONDITIONS OF STOCK ISSUANCES....... 14
2. CORPORATE TRANSACTION......................... 16
ARTICLE IV............................................................... 17
MISCELLANEOUS................................................... 17
1. LOANS OR INSTALLMENT PAYMENTS ................ 17
2. AMENDMENT OF THE PLAN AND AWARDS.............. 17
3. EFFECTIVE DATE AND TERM OF PLAN............... 18
4. USE OF PROCEEDS............................... 20
5. WITHHOLDING................................... 20
6. REGULATORY APPROVALS.......................... 20
7. NO EMPLOYMENT/SERVICE RIGHTS ................. 21
SPECIAL ADDENDUM.........................................................A-1
<PAGE>
MATRIX PHARMACEUTICAL, INC.
1988 RESTRICTED STOCK PLAN
(As Amended and Restated Through March 19, 1997)
ARTICLE I
GENERAL
1. PURPOSE OF THE PLAN
(a) This 1988 Restricted Stock Plan (the "Plan") is intended
to promote the interests of Matrix Pharmaceutical, Inc., a Delaware corporation
(the "Corporation"), by providing incentives to eligible individuals to acquire
a proprietary interest, or otherwise increase their proprietary interest, in the
Corporation and to remain in the employ or service of the Corporation (or its
parent or subsidiary corporations).
(b) For purposes of the Plan, the following provisions shall
be applicable in determining the parent and subsidiary corporations of the
Corporation:
(i) Any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation shall be
considered to be a parent corporation of the Corporation, provided each
such corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(ii) 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.
2. STRUCTURE OF THE PLAN
The Plan shall be divided into two separate components: the
Option Grant Program specified in Article II and the Stock Issuance Program
specified in Article III. Under the Option Grant Program, eligible individuals
may be granted options to purchase
<PAGE>
shares of the Corporation's Common Stock at a discount of up to 15% of the fair
market value of such shares on the grant date.
The Stock Issuance Program will allow eligible individuals to
purchase shares of the Corporation's Common Stock at discounts from the fair
market value of such shares of up to 15%. Such shares may be issued as
fully-vested shares or as shares to vest over time. Issuances may be effected
either through direct purchases or through the exercise of intervening option
grants.
Unless the context clearly indicates otherwise, the provisions
of Articles I and IV of the Plan shall apply to both the Option Grant Program
and the Stock Issuance Program and shall accordingly govern the interests of all
individuals in the Plan.
3. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by a committee
("Committee") of two (2) or more members of the Corporation's Board of Directors
appointed by the Board. 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.
(b) The Committee as Plan Administrator shall have full power
and authority (subject to the express provisions of the Plan) to establish such
rules and regulations as it may deem appropriate for the proper administration
of the Plan and to make such determinations under the Plan and any outstanding
option grants or share issuances as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on all parties
with an interest in the Plan.
(c) Service on the Committee shall constitute service as a
Board member, and members of the Committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on the
Committee. No member of the Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option granted under the
Plan.
4. OPTION GRANTS AND SHARE ISSUANCES
(a) The persons eligible to receive share issuances under the
Stock Issuance Program ("Participant") and/or option grants pursuant to the
Option Grant Program ("Optionee") are as follows:
(i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who render
services which contribute to the success and growth of the Corporation
(or its parent or subsidiary corporations) or which may reasonably be
anticipated to
2.
<PAGE>
contribute to the future success and growth of the Corporation (or its
parent or subsidiary corporations);
(ii) non-employee members of the Board or the board
of directors of any parent or subsidiary corporation); and
(iii) those consultants or independent contractors
who provide valuable services to the Corporation (or its parent or
subsidiary corporations).
(b) Non-employee members of the Board shall also be eligible
to receive automatic option grants pursuant to the provisions of the
Corporation's 1991 Director Stock Option Plan.
(c) The Plan Administrator shall have full authority to
determine, (I) with respect to the option grants made under the Plan, the number
of shares to be covered by each grant, the time or times at which each granted
option is to become exercisable, the option price, and the maximum term for
which the option may remain outstanding and (II) with respect to share 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 purchase price to be paid by the individual for such shares.
(d) The Plan Administrator shall have the absolute discretion
to grant options in accordance with Article II of the Plan and/or to effect
share issuances in accordance with Article III of the Plan.
5. STOCK SUBJECT TO THE PLAN
(a) The stock issuable under the Plan shall be shares of the
Corporation's authorized but unissued or reacquired common stock ("Common
Stock"). The maximum number of shares issuable over the term of the Plan shall
not exceed 4,869,048 shares*, subject to adjustment as provided in Section 5(c).
Should an outstanding option under the Plan expire or terminate for any reason
prior to exercise in full, the shares subject to the portion of the option not
so exercised will be available for subsequent option grants and share issuances
under the Plan. Any unvested shares issued under the Plan and
- --------
*/Adjusted to reflect (i) the 2.1-for-1 reverse stock split of the outstanding
Common Stock effected in January 1992, (ii) the 850,000-share increase
authorized for issuance under the Plan approved by the Board on December 14,
1995 and approved by the stockholders at the 1996 Annual Meeting and (iii) an
additional share increase of 2,000,000 shares authorized by the Board on March
19, 1997, subject to stockholder approval at the 1997 Annual Meeting. From and
after March 31, 1997, not more than 4,119,840 shares may be issued under the
Plan.
3.
<PAGE>
subsequently repurchased by the Corporation, at the option exercise or direct
issue price paid per share, pursuant to the Corporation's repurchase rights
under the Plan shall be added back to the number of shares of Common Stock
reserved for issuance under the Plan and shall accordingly be available for
reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. However, the shares subject to any option (or portion
of an option) surrendered or cancelled in accordance with Section 3 of Article
II of the Plan shall not be available for subsequent option grants or share
issuances under the Plan.
(b) In no event may any one individual participating in the
Plan be granted stock options, separately exercisable stock appreciation rights
and direct stock issuances for more than 750,000 shares of Common Stock in the
aggregate over the remaining term of the Plan, subject to adjustment from time
to time in accordance with paragraph 5(c) of this Article I. For purposes of
such limitation, no stock options, stock appreciation rights or direct stock
issuances granted prior to January 1, 1994 shall be taken into account.
(c) If any change is made to the Common Stock issuable under
the Plan by reason of any stock dividend, stock split, combination of shares,
recapitalization, or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, then appropriate
adjustments will be made to (i) the number and/or class of shares issuable under
the Plan, (ii) the maximum number and/or class of shares for which stock
options, separately exercisable stock appreciation rights and direct stock
issuances may be granted to any one participant in the aggregate after December
31, 1993, and (iii) the number and/or class of shares and the option price per
share in effect under each outstanding option in order to prevent the dilution
or enlargement of rights and benefits under such options. The adjustments
determined by the Plan Administrator will be final, binding and conclusive.
(d) Common Stock issuable under the Plan, whether under the
Option Grant Program or the Stock Issuance Program, may be subject to such
restrictions on transfer, repurchase rights or other restrictions as are
determined by the Plan Administrator.
4.
<PAGE>
ARTICLE II
OPTION GRANT PROGRAM
1. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either incentive stock options qualified under Internal Revenue
Code Section 422 ("Incentive Options") or non-statutory options ("Non-Statutory
Options") which do not so qualify. 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 2 of this Article II.
(a) Option Price.
(1) The option price per share shall be fixed by the
Plan Administrator, but in no event shall the option price per share be less
than eighty-five percent (85%) of the fair market value of a share of Common
Stock on the date of the option grant.
(2) The option price will become immediately due upon
exercise of the option and, subject to the provisions of Article IV, Section 1
and the instrument evidencing the grant, will be payable in one of the following
alternative forms:
(A) full payment in cash or check payable to
the Corporation; or
(B) full payment 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 (as such term is defined below); or
(C) full payment in a combination of 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 and cash or check payable to the
Corporation; or
5.
<PAGE>
(D) full payment through a broker-dealer
sale and remittance procedure pursuant to which the Optionee
(I) shall provide irrevocable instructions to a 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 option price payable for the purchased shares
plus all applicable Federal and State income and employment
taxes required to be withheld by the Corporation in connection
with such purchase and (II) shall provide directives to the
Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete
the sale transaction.
For purposes of this subsection (a)(2), the Exercise Date
shall be the date on which written notice of the option exercise is delivered to
the Corporation. Except to the extent the sale and remittance procedure is
utilized in connection with the exercise of the option, payment of the option
price for the purchased shares must accompany such notice.
(3) For purposes of subsection (1) above (and for all
other valuation purposes under the Plan), the fair market value of a share of
Common Stock on any relevant date under the Plan will be determined in
accordance with the following provisions:
(A) If the Common Stock is not at the time
listed or admitted to trading on any stock exchange but is
traded on the Nasdaq National Market System, the fair market
value will be the closing selling price of one share of Common
Stock on the date in question, as such price is reported by
the National Association of Securities Dealers through the
Nasdaq National Market System or any successor system. If
there is no reported closing selling price for the Common
Stock on the date in question, then the closing selling price
on the last preceding date for which such quotation exists
shall be determinative of fair market value.
(B) If the Common Stock is at the time
listed or admitted to trading on any stock exchange, then the
fair market value will be the closing selling price of one
share of Common Stock on the date in question on the stock
exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is
officially quoted 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 will be the closing selling price
on the exchange on the last preceding date for which such
quotation exists.
(b) Term and Exercise of Options. Each option granted under
the Plan will be exercisable at such time or times and during such period as is
determined by the Plan Administrator and set forth in the stock option agreement
evidencing such grant.
6.
<PAGE>
However, no option granted under this Plan will have a term in excess of ten
(10) years measured from the grant date.
(c) Limited Transferability of Options. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, Non-Statutory
Options may, in connection with the Optionee's estate plan, be assigned in whole
or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
(d) Effect of Termination of Service.
(1) Should an Optionee cease to remain in
Service for any reason (including death or permanent disability as
defined in Section 22(e)(3) of the Internal Revenue Code) while the
holder of one or more outstanding options under the Plan, then such
option or options shall in no event remain exercisable for more than a
twelve (12) month period (or such shorter period as is determined by
the Plan Administrator and set forth in the option agreement) following
the date of such cessation of Service (and under no circumstances shall
any such option be exercisable after the specified expiration date of
the option term). Each such option shall, during such twelve (12) month
or shorter period, be exercisable only to the extent of the number of
shares (if any) for which the option is exercisable on the date of such
cessation of Service. Upon the expiration of such twelve (12) month or
shorter period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be exercisable.
(2) Any option granted to an Optionee under
the Plan and exercisable in whole or in part on the date of the
Optionee's death may be subsequently exercised, but only to the extent
of the number of shares (if any) for which the option is exercisable on
the date of the Optionee's cessation of Service (less any shares
subsequently purchased by the Optionee thereunder 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,
provided and only if such exercise occurs prior to the earlier of (i)
the first anniversary of the date of the Optionee's death or (ii) the
specified expiration date of the option term. Upon the occurrence of
the earlier event, the option shall terminate and cease to be
exercisable.
7.
<PAGE>
(3) The Plan Administrator shall have
complete discretion, exercisable either at the time the option is
granted or at any time the option remains outstanding, to permit one or
more options granted under this Article II to be exercised, during the
applicable exercise period under subparagraph (1) or (2) above, not
only for the number of shares for which each such option is exercisable
at the time of the optionee's cessation of Service but also for one or
more subsequent installments of purchasable shares for which the option
would otherwise have become exercisable had such cessation of Service
not occurred.
(4) For purposes of the foregoing provisions
of this Section 1(c), an Optionee shall be deemed to remain in Service
for so long as such individual renders services to the Corporation or
any parent or subsidiary corporation on a periodic basis in the
capacity of an Employee, a non-employee Board member or an independent
consultant or advisor. The Optionee shall be deemed to be an Employee
of the Corporation for so long as the Optionee remains in the employ of
the Corporation or one or more of its 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.
(e) Stockholder Rights. An Optionee shall have none of the
rights of a stockholder with respect to any shares covered by the option until
such Optionee has exercised the option, paid the option price for the purchased
shares and been issued a stock certificate for the purchased shares.
(f) Repurchase Rights. The shares of Common Stock acquired
upon the exercise of options granted under the Plan may be subject to one or
more repurchase rights of the Corporation in accordance with the following
provisions:
(1) The Plan Administrator may in its
discretion subject one or more shares of Common Stock issued under this
Article II to repurchase by the Corporation. Any such repurchase right
shall be exercisable by the Corporation, at the option price paid per
share, for any or all unvested shares of Common Stock held by the
Optionee under this Article II at the time of his or her cessation of
Service. The specific terms and conditions upon which such repurchase
right shall be so exercisable by the Corporation, including the
establishment of the appropriate vesting schedule and other provision
for the expiration of such right in one or more installments over the
optionee's period of Service, shall be determined by the Plan
Administrator and set forth in the instrument evidencing such right.
(2) All of the Corporation's outstanding
repurchase rights shall automatically terminate, and all shares subject
to such terminated
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rights shall immediately vest in full, upon the occurrence of any
Corporate Transaction under Section 4 of this Article II, except to the
extent: (i) any such repurchase right is, in connection with such
Corporate Transaction, to be assigned to the successor corporation (or
parent thereof) or (ii) such termination is precluded by other
limitations imposed by the Plan Administrator at the time the
repurchase right is granted.
(3) The Plan Administrator shall have the
discretionary authority, exercisable either before or after the
optionee's cessation of Service, to cancel the Company's outstanding
repurchase rights with respect to one or more shares purchased or
purchasable by the optionee under this Article II and thereby
accelerate the vesting of such shares in connection with the optionee's
cessation of Service.
2. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable
to all Incentive Options granted under the Plan. Incentive Options may only be
granted to individuals who are Employees of the Corporation. Options which are
specifically designated as Non- Statutory Options when issued under the Plan
shall not be subject to such terms and conditions.
(a) Option Price. The option price per share of the Common
Stock subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the fair market value of a share of Common Stock on the date
of grant.
(b) 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 Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two 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 were
granted.
(c) 10% Stockholder. If any individual to whom an Incentive
Option is granted is at the time of such grant the owner of stock (as determined
under Section 424(d) of the Internal Revenue Code) possessing 10% or more of the
total combined voting power of all outstanding classes of stock of the
Corporation or any parent or subsidiary corporation, then the option price per
share shall not be less than one hundred and ten percent (110%) of the fair
market value per share of the Common Stock on the grant date, and the option
term shall not exceed five (5) years, measured from the grant date.
9.
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Except as modified by the preceding provisions of this Section
2, all the provisions of the Plan shall be applicable to the Incentive Options
granted hereunder.
3. STOCK APPRECIATION RIGHTS
(a) One or more Optionee may, upon such terms and conditions
as the Plan Administrator may establish at the time of the option grant or at
any time thereafter, be granted the right to surrender all or part of an
unexercised option in exchange for a distribution equal in amount to the excess
of (i) the fair market value (on the surrender date) of the number of shares in
which the Optionee is at the time vested under the surrendered option or portion
thereof over (ii) the aggregate option price payable for such vested shares. No
surrender of an option, however, shall be effective unless it is approved by the
Plan Administrator. If the surrender is so approved, then the distribution to
which the option holder shall accordingly become entitled under this subsection
3(a) may be made in shares of Common Stock valued at fair market value at date
of surrender, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
(b) If the surrender of an option is rejected by the Plan
Administrator, then the option holder shall retain whatever rights the option
holder had under the surrendered option (or surrendered portion thereof) on the
surrender date and may exercise such rights at any time prior to the later of
(i) the expiration of the 5 business-day period following receipt by the option
holder 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 at any time after ten
(10) years following the date of the option grant.
(c) Notwithstanding the foregoing provisions of this Section
3, 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 II. Each outstanding option with
such a limited stock appreciation right shall automatically be cancelled, to the
extent exercisable for vested shares of Common Stock, upon the occurrence of a
Hostile Take-Over, and the Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
fair market value (on the cancellation date) of the number of shares in which
the Optionee is at the time vested under the cancelled option or cancelled
portion over (ii) the aggregate option price payable for such vested shares.
Such cash distribution shall be made within five (5) days following the
consummation of the Hostile Take-Over. The Plan Administrator shall pre-approve,
at the time the limited stock appreciation right is granted, the subsequent
exercise of that right in accordance with the terms of the grant and the
provisions of this subsection 3(c). No additional approval of the Plan
Administrator or the Board shall be required at the time of the actual option
surrender and cash distribution. The balance (if any) of each such option
10.
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shall continue in full force and effect in accordance with the terms and
conditions of the instrument evidencing such grant.
(d) For purposes of Section 3(c) above, a Hostile Take-Over
shall be deemed to occur in the event 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) acquires
ownership 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 stockholders which
the Board does not recommend such stockholders to accept.
(e) The shares of Common Stock subject to any option
surrendered or cancelled for an appreciation distribution pursuant to this
Section V shall not be available for subsequent option grants or share issuances
under the Plan.
4. CORPORATE TRANSACTION
(a) In the event of one or more of the following
stockholder-approved transactions ("Corporate Transaction"):
(i) a merger or acquisition in which the
Corporation is not the surviving entity, except for a transaction the
principal purpose of which is to change the State of incorporation;
(ii) the sale, transfer or other disposition
of all or substantially all of the assets of the Corporation in
liquidation or dissolution of the Corporation; or
(iii) any reverse merger in which the
Corporation is acquired but continues in existence as a separate
entity,
each outstanding option under the Plan 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. However, an outstanding option shall not so accelerate if and to the
extent: (i) such option is, in connection with the 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 or (ii) the acceleration of such option
is subject to other applicable limitations imposed by the Plan Administrator in
the relevant option agreement. The determination of comparability under clause
(i) or clause (ii) above shall be made by the Plan Administrator, and its
determination shall be final and conclusive.
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(b) Upon the consummation of the Corporate Transaction, all
outstanding options under the Plan shall immediately terminate and cease to be
exercisable, except to the extent assumed by the successor corporation or parent
thereof.
(c) The exercisability as incentive stock options under the
Federal tax laws of any options accelerated in connection with the Corporate
Transaction shall remain subject to the applicable dollar limitation of Section
2(b).
(d) If the outstanding options under the Plan are assumed by
the successor corporation (or parent thereof) in the Corporate Transaction or
are otherwise to continue in effect following such Corporate Transaction, then
each such assumed or continuing option shall, immediately after such Corporate
Transaction, be appropriately adjusted to apply and pertain to the number and
class of securities or other property which would have been issued to the option
holder, in consummation of the Corporate Transaction, had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the option price payable per share, provided
the aggregate option price payable for such securities or other property shall
remain the same. In addition, the number and class of securities or other
property available for issuance under the Plan following the consummation of
such Corporate Transaction shall be appropriately adjusted.
(e) The grant of options under this Plan 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.
5. CANCELLATION AND NEW GRANT 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 the Plan and to grant in
substitution therefor new options under the Plan covering the same or different
numbers of shares of Common Stock but having an option price per share not less
than (i) eighty-five percent (85%) of the fair market value of the Common Stock
on such grant date or (ii) one hundred percent (100%) of such fair market value
in the case of an Incentive Option.
6. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority,
exercisable in its sole discretion, to extend, either at the time the option is
granted or at any time while the option remains outstanding, the period of time
for which the option is to remain exercisable following the Optionee's cessation
of Service from the twelve (12) month or shorter period set forth in the option
agreement to such greater period of time as the Plan Administrator shall deem
appropriate; provided, however, that in no event shall such option be
exercisable at any time after the specified expiration date of the option term.
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<PAGE>
ARTICLE III
STOCK ISSUANCE PROGRAM
1. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares may be issued under the Stock Issuance Program either
through direct and immediate purchases without any intervening option grant
under the Option Grant Program or upon the subsequent exercise of outstanding
options under the Option Grant Program. The issued shares will be evidenced by a
Restricted Stock Purchase Agreement ("Purchase Agreement") that complies with
each of the terms and conditions of this Article III.
(a) Share Price
(1) The purchase price per share will be fixed by the
Plan Administrator, but in no event will it be less than eighty-five percent
(85%) of the fair market value of the shares at the time of issuance. Such fair
market value shall be determined in accordance with Article II, Section
(1)(a)(3).
(2) Shares shall be issued under this Article III for
such consideration as the Plan Administrator shall from time to time determine,
provided that in no event shall shares be issued for consideration other than:
(A) cash or check payable to the Corporation; or
(B) promissory note payable to the Corporation's
order, which may be subject to cancellation
by the Corporation in whole or in part upon
such terms and conditions as the Plan
Administrator shall specify.
(b) Vesting Schedule
(1) The interest of a Participant in the shares of
Common Stock issued to him or her under this Article III may, in the absolute
discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments in accordance with the vesting
provisions of subsection (b)(4). Except as otherwise provided in subsection
(b)(2), the Participant may not transfer any of the Common Stock in which he or
she does not have a vested interest; accordingly, all unvested shares issued to
the Participant under this Article III Plan shall bear the restrictive legend
specified in subsection (c)(1), until such legend is removed in accordance with
subsection (c)(2). The Participant, however, shall have all the rights of a
stockholder with respect to the issued shares of Common Stock, whether or not
such shares are vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash
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<PAGE>
dividends or other distributions paid or made with respect to such shares. Any
new, substituted or additional securities or other property (including money
paid other than as a regular cash dividend) which the holder of unvested Common
Stock may have the right to receive by reason of a stock dividend, stock split,
stock combination, recapitalization or similar transaction affecting the
Corporation's outstanding securities without receipt of consideration, or in the
event of the conversion of the Corporation's outstanding Common Stock into cash
or other shares or securities of the Corporation or any other corporation as a
result of a merger, consolidation, liquidation or other reorganization involving
the Corporation shall be issued to such holder, subject to (i) the same vesting
requirements under subsection (b)(4) applicable to his or her unvested Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
(2) As used in this Article III, the term "transfer"
shall include (without limitation) any sale, pledge, encumbrance, gift or other
disposition of any unvested shares acquired under the Stock Issuance Program.
However, the Participant shall have the right to make a gift of one or more of
such unvested shares to his or her spouse, parents or children or to a trust
established for such spouse, parents or children, provided the donee of such
shares delivers to the Corporation a written agreement to be bound by all the
provisions of the Plan and other instruments executed by the Participant to
evidence his or her prior acquisition of such shares. Any gift made in
accordance with the foregoing limitations shall not trigger the exercise of the
Corporation's repurchase rights under subsection (b)(3).
(3) In the event a Participant should, while his or
her interest in the acquired shares remains unvested, (i) attempt to transfer
(other than by way of a permissible gift under subsection (b)(2)) any of the
unvested shares or any interest therein or (ii) cease to remain in Service (as
defined in Section 1(c)(4) of Article II) for any reason whatsoever, then the
Corporation shall have the right to repurchase the unvested shares at the
original purchase price paid by the Participant and the Participant shall
thereafter have no further stockholder rights with respect to the repurchased
shares.
(4) Any shares of Common Stock issued under the Stock
Issuance Program which are not vested at the time of such issuance shall vest in
one or more installments thereafter. The elements of the vesting schedule,
namely the number of installments in which the shares are to vest, the interval
or intervals (if any) which are to lapse between installments and the effect
which death, disability or other event designated by the Plan Administrator is
to have upon the vesting schedule, shall be determined by the Plan Administrator
and shall be specified in the Purchase Agreement executed by the Corporation and
the Participant at the time of issuance of the unvested shares.
(5) The Plan Administrator may in its discretion
elect not to exercise, in whole or in part, its repurchase rights with respect
to any unvested Common Stock or other assets which would otherwise at the time
be subject to repurchase pursuant to the provisions of subsection (b)(3). Such
an election may be made at any time the
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<PAGE>
repurchase right is outstanding and shall result in the immediate vesting of the
Participant's interest in the shares of Common Stock as to which the election
applies.
(c) Stock Legends
(1) Each certificate representing unvested shares of
Common Stock (or other securities) issued under the Plan shall bear a
restrictive legend substantially as follows:
"The securities represented by this certificate are
unvested and subject to repurchase by the Corporation
pursuant to the provisions of the Restricted Stock Purchase
Agreement between the Corporation and the registered holder
of the securities (or his predecessor in interest). Such
agreement grants certain repurchase rights to the Corporation
in the event the registered holder (or his predecessor in
interest) terminates his employment or service with the
Corporation prior to vesting in the securities. A copy of
such agreement is on file at the principal office of the
Corporation."
(2) As the interest of the Participant vests with
respect to any stock certificate representing shares acquired under the Stock
Issuance Program, the Corporation shall, upon the Participant's delivery of such
certificate during the period or periods designated each year by the Plan
Administrator, issue a new certificate for the vested shares without the
restrictive legend of subsection (c)(1) and a second certificate for the balance
of the shares with such legend. If the Participant's shares are held in escrow
at the time of vesting, then the stock certificates for the vested shares shall
be released from escrow (without the restrictive legend of subsection (c)(1))
and delivered to the Participant during the period or periods designated by the
Plan Administrator at least semi-annually for such purpose and promptly upon
Participant's cessation of Service. If the Corporation repurchases any unvested
shares of the Participant pursuant to the provisions of subsection (b)(3), the
Corporation shall at the time the repurchase is effected deliver a new
certificate, without the restrictive legend of subsection (c)(1), representing
the number of shares (if any) in which the Participant is vested and which are
accordingly no longer subject to repurchase by the Corporation pursuant to the
provisions of subsection (b)(3).
2. CORPORATE TRANSACTION
All of the Corporation's outstanding repurchase rights under
this Article III shall automatically terminate, and all shares of Common Stock
subject to such repurchase rights shall immediately vest in full, upon the
occurrence of a Corporate Transaction, except to the extent: (i) the
Corporation's outstanding repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction or
(ii) the termination of such repurchase rights and the acceleration of vesting
are precluded by other limitations imposed by the Plan Administrator under the
terms of the applicable Purchase Agreements.
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ARTICLE IV
MISCELLANEOUS
1. 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 Article II Option Grant Program or the purchase of one or
more shares issued to such Participant under the Article III Stock Issuance
Program 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 option price or purchase price for the purchased Common Stock in
installments over a period of years. The terms of any such loan or installment
method of payment (including the interest rate and terms of repayment) shall be
upon such terms as the Plan Administrator shall specify in the stock option
agreement or restricted stock purchase agreement. Such loans and installment
payments may be made or permitted with or without security or collateral.
However, the maximum credit available to the Optionee or Participant may not
exceed the sum of (i) the aggregate option price or purchase price payable for
the purchased shares (less the par value) plus (ii) any federal and state income
and employment tax liability incurred by the Optionee or Participant in
connection with such exercise or purchase.
(b) The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under subsection (a) above shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator in its discretion deems appropriate.
2. AMENDMENT OF THE PLAN AND AWARDS
(a) The Board has the power and authority to amend or modify
the Plan in any or all respects whatsoever; provided, however, that no such
amendment or modification may adversely affect the rights and obligations of the
option holders with respect to their outstanding options under the Plan, nor
adversely affect the rights of any Participant with respect to any unvested
shares of Common Stock issued under the Plan prior to such Board action, unless
the Optionee or Participant consents to such amendment. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.
(b) (i) Options to purchase shares of Common Stock may be
granted under the Option Grant Program and (ii) shares of Common Stock may be
issued under the Stock Issuance Program, which are in excess of the number of
shares then available for issuance under the Plan, provided (A) an amendment to
increase the maximum number of shares issuable under the Plan is adopted by the
Board prior to the initial grant of any such option
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or the issuance of any such shares and is thereafter submitted to the
Corporation's shareholders for approval and (B) any excess shares actually
issued under the Option Grant Program or the Stock Issuance Program are held in
escrow until such stockholder approval is obtained. If such stockholder approval
is not obtained within twelve (12) months from the date the share-increase
amendment is adopted by the Board, then (i) any unexercised options granted on
the basis of such increase shall terminate and cease to be exercisable and (ii)
the Corporation shall promptly refund to the Participants the purchase price
paid for any excess shares issued under the Plan and held in escrow, together
with interest (at the interest rate necessary to avoid the imputation of
interest income under the Federal tax laws) for the period the shares were held
in escrow.
3. EFFECTIVE DATE AND TERM OF PLAN
(a) The Plan was initially adopted by the Board on September
2, 1988 and approved by the Corporation's stockholders on February 28, 1989. On
May 30, 1991, the Board approved a 523,809-share increase ** in the number of
shares of Common Stock issuable under the Plan, and the Plan was restated in its
entirety on September 6, 1991. Both the 523,809-share increase and the September
1991 restatement of the Plan were approved by the stockholders in January 1992.
On April 8, 1992, the Board adopted a new restatement of the Plan to (i) conform
the Plan to the requirements of Rule 16b-3 under the Federal securities laws,
(ii) revise the events in which an acceleration of options would occur and (iii)
provide that the non-employee members of the Board would no longer be eligible
to participate in the Plan. The stockholders approved the amendment and
restatement on May 11, 1993. On March 15, 1994, the Board amended the Plan to
(i) increase the number of shares issuable thereunder by 450,000 shares and (ii)
limit the number of shares of Common Stock for which any one individual may be
granted stock options, stock appreciation rights and direct stock issuances in
the aggregate under the Plan after December 31, 1993 to a maximum of twenty five
percent (25%) of the number of shares from time to time authorized for issuance
under the Plan (the "25% Limit"). The stockholders approved the amendment on May
24, 1994. The Board amended the Plan on December 14, 1995 to (i) increase the
maximum number of shares of Common Stock issuable thereunder by an additional
850,000 shares and (ii) replace the 25% Limit on the maximum number of shares
for which any one individual may be granted stock options, stock appreciation
rights and direct stock issuances in the aggregate after December 31, 1993 with
a specific limit of 750,000 shares. The 850,000-share increase became effective
when adopted by the Board. The new 750,000 share limit on the maximum number of
shares for which any one individual may be granted stock options, stock
appreciation rights and direct stock issuances in the aggregate under the Plan
became effective when adopted by the Board on December 14, 1995. The
stockholders approved the amendment on May 16, 1996.
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**/Adjusted to reflect the 2.1-for-1 reverse stock split to the outstanding
Common Stock effected in January 1992.
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(b) The Plan was amended and restated by the Board on March
19, 1997 (the "1997 Restatement") to effect the following changes: (i) increase
the maximum number of shares of Common Stock authorized for issuance over the
term of the Plan from 2,869,048 shares to 4,869,048 shares, (ii) extend the term
of the Plan from September 2, 1998 to December 31, 2002, (iii) render the
non-employee Board members eligible to receive option grants and direct stock
issuances under the Discretionary Option Grant and Stock Issuance Programs in
effect under the Plan, (iii) allow unvested shares issued under the Plan and
subsequently repurchased by the Corporation at the option exercise price or
direct issue price paid per share to be reissued under the Plan, (iv) remove
certain restrictions on the eligibility of non-employee Board members to serve
as Plan Administrator, and (v) effect a series of additional changes to the
provisions of the Plan (including the stockholder approval requirements) in
order to take advantage of the recent amendments to Rule 16b-3 of the Securities
and Exchange Commission which exempts certain officer and director transactions
under the Plan from the short-swing liability provisions of the federal
securities laws. The 1997 Restatement is subject to stockholder approval at the
1997 Annual Meeting, and no option grants made on the basis of the
2,000,000-share increase shall become exercisable in whole or in part unless and
until the 1997 Restatement is approved by the stockholders. Should such
stockholder approval not be obtained, then any options granted on the basis of
the 2,000,000-share increase shall terminate without ever becoming exercisable
for those shares, and no further option grants or direct stock issuances shall
be made on the basis of such share increase. However, option grants and direct
stock issuances may continue to be made pursuant to the provisions of the Plan
as in effect immediately prior to the 1997 Restatement until the September 2,
1998 termination date of the Plan. Subject to the foregoing limitations, the
Plan Administrator may make option grants and direct stock issuances under the
Plan at any time before the date fixed herein for the termination of the Plan.
(c) The provisions of each restatement of the Plan shall apply
only to options granted under the Plan from and after the effective date of that
restatement. All options issued and outstanding under the Plan immediately prior
to each such restatement shall continue to be governed by the terms and
conditions of the Plan (and the instrument evidencing each such option) as in
effect on the date each such option was previously granted, and nothing in that
restatement shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such options with respect to the acquisition of
shares of Common Stock thereunder.
(d) The sale and remittance procedure authorized for the
exercise of outstanding options under the Plan shall be available for all
options granted under the Plan on or after the effective date of the September
1991 restatement and all non-statutory options outstanding under the Plan on
such effective date. The Plan Administrator may also allow such procedure to be
utilized in connection with one or more disqualifying dispositions of Incentive
Option shares effected after the effective date of the September 1991
restatement.
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(e) Unless sooner terminated in accordance with a Corporate
Transaction, the Plan shall terminate upon the earlier of (i) December 31,
2002*** or (ii) the date on which all shares available for issuance under the
Plan shall have been issued or cancelled pursuant to the exercise, surrender or
cash-out of the options granted under the Option Grant Program and the issuance
or repurchase of shares under the Stock Issuance Program. If the date of
termination is determined under clause (i) above, then no options outstanding on
such date under Article II and no unvested shares issued and outstanding on such
date under Article III shall be affected by the termination of the Plan, and
each such outstanding option and unvested share issuance will thereafter
continue to have force and effect in accordance with the provisions of the stock
option agreement evidencing each such Article II option and the purchase
agreement evidencing each such unvested share issuance under Article III.
4. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the
issuance of shares of Common Stock hereunder will be used for general corporate
purposes.
5. WITHHOLDING
The Corporation's obligation to deliver shares upon the
exercise or surrender of any options granted under Article II or upon the
purchase of any shares issued under Article III shall be subject to the
satisfaction of all applicable federal, state and local income and employment
tax withholding requirements.
6. REGULATORY APPROVALS
(a) The implementation of the Plan, the granting of any stock
option or stock appreciation right under the Option Grant Program, the issuance
of any shares under the Stock Issuance Program, and the issuance of Common Stock
upon the exercise or surrender of the stock options or stock appreciation rights
granted 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 and stock appreciation rights granted under it, and
the Common Stock issued pursuant to it.
(b) No shares of Common Stock or other assets shall be issued
or delivered under the Plan, unless and until, in the opinion of counsel for the
Corporation (or its successor in the event of any Corporate Transaction), there
shall have been compliance with all applicable requirements of the Federal and
state securities exchange on which stock of
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***/The extension of the term of the Plan from September 2, 1998 to December 31,
2002 is subject to stockholder approval at the 1997 Annual Meeting.
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the same class is then listed, and all other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery.
7. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing this
Plan, nor any action taken by the Board of the Plan Administrator hereunder, nor
any provision of this Plan shall be construed so as to grant any individual the
right to remain in the employ or service of the Corporation (or any parent or
subsidiary corporation) for any period of specific duration, and the Corporation
(or any parent or subsidiary corporation retaining the services of such
individual) may terminate such individual's employment or service at any time
and for any reason, with or without cause.
20.
<PAGE>
SPECIAL ADDENDUM
SHARED INVESTMENT PROGRAM
1. PURPOSE
The Shared Investment Program (the "Program") is
hereby implemented under the 1988 Restated Stock Plan, effective March 19, 1997.
The purpose of the Program is to provide the Corporation's officers and other
key employees with the opportunity to acquire shares of Common Stock as a
long-term investment and thereby more closely align the interests of those
individuals with those of the Corporation's stockholders. Specifically, the
Program is intended to achieve the following purposes:
a. more closely align the financial rewards of
participants in the Program with the
financial rewards realized by all other
holders of the Common Stock;
b. increase the motivation of such participants
to manage the Company as owners; and
c. increase the ownership of Common Stock among
the officers and other key employees of the
Company.
All capitalized terms used in this Special Addendum
shall, to the extent not specifically defined herein, have the meanings assigned
to those terms in the Plan.
2. PARTICIPATION
The individuals eligible to participate in the
Program shall be limited to the officers and other key employees of the
Corporation listed in attached Schedule I. Each such listed individual shall
become a participant in the Program to the extent he or she purchases all or any
portion of the number of shares of Common Stock alloted to such individual in
attached Schedule I. Any such purchase must be effected in accordance with the
provisions of Section 3 below.
3. PARTICIPATION
To become an actual participant in the Program
("Participant"), an individual listed in attached Schedule I must effect the
purchase of all or any portion of his or her Common Stock allotment under
Schedule I as follows:
a. submit a completed and executed Stock
Purchase Agreement, in the form approved by
the Plan Administrator, which
<PAGE>
incorporates the provisions of the Program
applicable to the purchased shares,
including (without limitation) the gain/loss
sharing provisions of Section 6;
b. execute and deliver a full-recourse
promissory note, in accordance with Section
4 below, in payment of the purchase price
for the purchased shares;
c. execute and deliver a stock pledge
agreement, in accordance with Section 4
below, as collateral for the promissory
note; and
d. satisfy all other conditions of
participation specified in the Plan.
All such agreements must be in such form and
submitted at such time as specified by the Plan Administrator. No officer or
other key employee listed in attached Schedule I is required to purchase any of
his or her Common Stock allotment or otherwise to participate in the Program.
The purchases shall be effected in accordance with
the provisions of the Stock Issuance Program under the Plan, and the purchased
shares shall reduce, on a one-for-one basis, the number of shares of Common
Stock reserved for issuance under the Plan. The purchased shares shall be
fully-vested upon issuance and shall not be subject to the Corporation's
repurchase rights under Article III of the Plan.
4. PAYMENT OF PURCHASE PRICE
The purchase price for all shares of Common Stock
issued under the Program shall be equal to one hundred percent (100%) of their
Fair Market Value at the time of purchase. The purchase price shall be paid
through the Participant's delivery of a full-recourse promissory note,
substantially in the form of attached Exhibit A (the "Promissory Note"), payable
to the order of the Corporation. The Promissory Note shall bear interest at the
minimum per annum rate, compounded semi-annually, required under the federal tax
laws to avoid the imputation of compensation income to the Participant. The
Promissory Note shall have a maximum term of five (5) years, subject to
acceleration in accordance with the provisions of this Program. The Promissory
Note shall be secured by the Participant's pledge of the purchased shares with
the Corporation. Accordingly, the Participant shall, at the time of the purchase
of those shares, execute and deliver to the Corporation a Stock Pledge Agreement
in the form of attached Exhibit B, together with the certificate for the
purchased shares accompanied by a duly-executed assignment of stock powers.
A-2.
<PAGE>
5. SALE OF PURCHASED SHARES
Each Participant shall be permitted to sell all or
any portion of the shares of Common Stock he or she purchases under the Program
(the "Purchased Shares"), subject, however, to the following restrictions:
a. except in the event of the Participant's
death or permanent disability (as defined in
Internal Revenue Code Section 22(e)(3)) or
the occurrence of a Change in Control of the
Corporation, the Participant may not sell
any portion of the Purchased Shares before
the first anniversary of the date on which
he or she purchased those shares (the
"Purchase Date");
b. the Participant may not sell any portion of
the Purchased Shares unless the entire
unpaid balance (principal and accrued
interest) of his or her Promissory Note has
been paid or the sale proceeds are
simultaneously applied first to the payment
of the principal portion of the Promissory
Note attributable to those shares plus the
accrued and unpaid interest on that
principal portion; and
c. the Participant must notify the Finance
Department of his or her intention to sell
the Purchased Shares before such sale is
effected.
The Plan Administrator shall have the right to impose
restrictions on the timing, amount and form of sale of the Purchased Shares with
respect to any Participant, to the extent the Plan Administrator determines that
such restrictions are in the best interests of the Corporation.
6. SHARING OF GAIN OR LOSS
If the Participant remains in Service until the first
anniversary of the Purchase Date, then the Corporation shall share the loss (if
any) which the Participant may incur upon the subsequent sale of the Purchased
Shares. The loss will be measured by the excess of (i) the purchase price paid
for the Purchased Shares over (ii) the price at which those shares are sold. The
risk of loss on the Purchased Shares shall be allocated as follows:
a. to the extent any portion of the Purchased
Shares is sold before the third anniversary
of the Purchase Date, the Participant shall
be responsible for one hundred percent
(100%) of the loss on that portion of the
Purchased Shares; and
A-3.
<PAGE>
b. to the extent any portion of the Purchased
Shares is sold on or after the third
anniversary of the Purchase Date, the
Participant shall be responsible for only
fifty percent (50%) of the loss on that
portion of the Purchased Shares.
The Corporation shall also be entitled under certain
circumstances to share in the gain (if any) which the Participant may incur upon
the subsequent sale of the Purchased Shares. The gain will be measured by the
excess of (i) the price at which the Purchased Shares are sold over (ii) the
purchase price paid for those shares. The sharing of such gain on the Purchased
Shares shall be allocated as follows:
a. to the extent any portion of the Purchased
Shares is sold before the second anniversary
of the Purchase Date, the Participant shall
only be entitled to receive fifty percent
(50%) of the gain on that portion of the
Purchased Shares, and the remaining fifty
percent (50%) of the gain shall be paid over
to the Corporation;
b. to the extent any portion of the Purchased
Shares is sold on or after the second
anniversary of the Purchase Date but before
the third anniversary of such Purchase Date,
the Participant shall only be entitled to
receive seventy-five percent (75%) of the
gain on that portion of the Purchased
Shares, and the remaining twenty-five
percent (25%) of the gain shall be paid over
to the Corporation; and
c. to the extent any portion of the Purchased
Shares is sold on or after the third
anniversary of the Purchase Date, the
Participant shall be entitled to receive one
hundred percent (100%) of the gain on that
portion of the Purchased Shares.
The gain/loss sharing provisions of this Section 6
shall apply only to the extent the Purchased Shares are sold by the Participant
and the sale proceeds are applied to payment of his or her Promissory Note.
7. DEATH OR PERMANENT DISABILITY
Should the Participant cease Service by reason of his
or her death or permanent disability at any time while there is an outstanding
unpaid balance under his or her Promissory Note, then the Participant (or the
representative of his or her estate) may sell all or any portion of the
Purchased Shares, subject only to the restrictions specified in subsections 5.b
and 5.c. Upon the death of a Participant, her or his Promissory Note shall
become immediately due and payable.
A-4.
<PAGE>
With respect to any Purchased Shares sold after the
Participant's death or permanent disability and while there is an unpaid balance
outstanding under his or her Promissory Note, the Participant shall be not
responsible for any loss incurred on the sale of those Purchased Shares and
shall be entitled to receive one hundred percent (100%) of any gain realized on
the sale of the Purchased Shares.
This Section 7 shall not be applicable to any sale of
the Purchased Shares effected (i) before the Participant's death or permanent
disability or (ii) after the payment of the entire balance owed under his or her
Promissory Note.
8. OTHER CESSATION OF SERVICE
Should the Participant's Service terminate for any
reason other than death or permanent disability, then the following provisions
shall apply:
- If the Participant's Service terminates after the
first anniversary of the Purchase Date, then he or she shall remain
subject to all of the terms and conditions of the Program, as if his or
her Service had not terminated, including specifically the gain/loss
sharing provisions of Section 6.
- If the Participant's Service terminates before the
first anniversary of the Purchase Date, then he or she shall be:
a. permitted to sell the Purchased Shares,
subject to the restrictions specified in the
Section 5;
b. responsible for one hundred (100%) of the
loss on the sale of the Purchased Shares,
whether the sale is effected before or after
his or her Promissory Note is paid; and
c. entitled to receive only fifty percent (50%)
of the gain on any sale of the Purchased
Shares effected while there is an unpaid
balance outstanding on his or her Promissory
Note, and the remaining fifty percent (50%)
of that gain shall be paid to the
Corporation simultaneously with the sale.
- If the Participant's Service is involuntarily
terminated by the Corporation for any reason or if the Participant
voluntarily resigns from Service, then he or she will have six (6)
months to repay the entire outstanding balance on his or her Promissory
Note.
A-5.
<PAGE>
9. CHANGE IN CONTROL
Immediately prior to the consummation of a Change in
Control, the restrictions on the sale of the Purchased Shares specified in
Section 5.a shall lapse. In addition, the following special provisions shall be
in effect for each Participant who continues in Service through the effective
date of such Change in Control:
- each such Participant shall be deemed to have
continued in Service until the first anniversary of the Purchase Date
(should the Change in Control occur before the first anniversary of the
Purchase Date), and
- each such Participant shall be deemed to have sold
the Purchased Shares after the third anniversary of the Purchase Date
for purposes of Section 6 (should the sale of the Purchased Shares
occur before the third anniversary of the Purchase Date).
For purposes of the Program, a Change in Control
shall be deemed to occur upon a change in ownership or control of the
Corporation effected through any of the following transactions:
a. the acquisition, directly or indirectly,
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 stockholders,
b. a change in the composition of the Board
over a period of thirty-six (36) consecutive 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, or
c. the consummation of a Corporate
Transaction.
A-6.
<PAGE>
10. LOSS SHARING IMPLEMENTATION
Should the Participant sell any portion of the
Purchased Shares at a loss (as determined by the provisions of Section 6) while
his or her Promissory Note is outstanding, then the Corporation shall assume the
portion (if any) of that loss for which the Participant is not responsible
pursuant to the loss sharing provisions of Section 6. The Corporation shall
satisfy such obligation by delivering a check payable to the Participant in an
amount equal to that portion ("Risk Sharing Payment") simultaneously with the
Participant's payment of the outstanding unpaid balance of his or her Promissory
Note.
The Corporation anticipates that the Risk Sharing
Payment will constitute compensation income to the Participant, subject to the
Corporation's collection of all applicable income and employment withholding
taxes. The Corporation also anticipates that the Risk Sharing Payment will be
deductible for federal income tax purposes as compensation in the taxable year
in which such payment is made. If the Corporation determines that it is not
entitled to a current income tax deduction for the Risk Sharing Payment by
reason of the limitations imposed under Internal Revenue Code Section 162(m) and
the related Treasury Regulations, the Corporation will not make the Risk Sharing
Payment to the Participant in connection with the repayment of his or her
Promissory Note. Instead the Participant shall be entitled to receive deferred
compensation equal to the Risk Sharing Payment at a time and in a form which
will allow the Corporation to obtain an income tax deduction for such payment.
The Plan Administrator shall have the sole discretion to implement a deferred
compensation arrangement to the extent necessary or desirable to achieve the
intent of the preceding sentence.
11. EFFECT OF PROGRAM
The Program shall be governed by the provisions of the Plan,
except as otherwise expressly stated in this Special Addendum.
A-7.
<PAGE>
APPENDIX B
MATRIX PHARMACEUTICAL, INC.
1991 DIRECTORS STOCK OPTION PLAN
AS AMENDED AND RESTATED MARCH 19, 1997
<PAGE>
ARTICLE I
GENERAL PROVISIONS
PURPOSES OF THE PLAN
This 1991 Directors Stock Option Plan (the "Plan") is intended
to promote the interests of Matrix Pharmaceutical, Inc., a Delaware corporation
(the "Corporation"), by offering non-employee members of the Board of Directors
the opportunity to participate in a special stock option program designed to
provide them with significant incentives to remain in the service of the
Corporation.
ELIGIBILITY
A. Each non-employee member of the Corporation's Board of
Directors (the "Board") shall be eligible to receive automatic option grants
pursuant to the provisions of Article II below.
B. In addition to the automatic option grants to be made
pursuant to the provisions of Article II below, non-employee Board members shall
also be eligible to receive option grants or stock issuances under the
Corporation's 1988 Restricted Stock Plan or any other stock plan of the
Corporation or its Parent or Subsidiary corporations.
STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of the
Corporation's common stock ("Common Stock"). Such shares may be made available
from authorized but unissued shares of Common Stock or shares of Common Stock
reacquired by the Corporation. The aggregate number of issuable shares of Common
Stock shall not exceed 592,858 1 shares, subject to adjustment from time to time
in accordance with subparagraph D below. Such share reserve reflects the
2.1-for-1 reverse stock split of the outstanding Common Stock effected in
January 1992.
B. Should an option expire or terminate for any reason prior
to exercise in full, the shares subject to the portion of the option not so
exercised shall be available for subsequent option grants under this Plan.
Shares subject to any option cancelled in accordance with the automatic
cancellation provisions of the Plan shall not be available for reissuance under
the Plan.
- --------
1/Includes (i) the 200,000-share increase authorized by the Board on May 24,
1994 and approved by the stockholders at the 1995 Annual Meeting and (ii) the
250,000-share increase authorized by the Board on March 19, 1997, subject to
stockholder approval at the 1997 Annual Meeting.
<PAGE>
C. Should the total number of shares at the time available for
grant under the Plan not be sufficient for the automatic grants to be made at
that particular time to the non-employee Board members, then the available
shares shall be allocated proportionately among all the automatic grants to be
made at that time.
D. In the event any change is made to the Common Stock
issuable under the Plan by reason of any stock split, stock dividend,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments will be made to (i) the aggregate number
and/or class of shares of securities available for issuance under the Plan, (ii)
the number and/or class of securities to be made the subject of each subsequent
automatic grant and (iii) the number and/or class of securities purchasable
under each outstanding option and the exercise price payable per share in order
to prevent the dilution or enlargement of benefits thereunder.
VALUATION
For purposes of establishing the option price and for all
other valuation purposes under the Plan, the Fair Market Value per share of
Common Stock on any relevant date shall be determined in accordance with the
following rules:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the Nasdaq National Market, then
the Fair Market Value shall be the closing selling price per share of Common
Stock on the date in question, as such price is reported by the National
Association of Securities Dealers, Inc. 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 closing selling price on the last
preceding date for which such quotation exists shall be determinative of Fair
Market Value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange serving as the primary market for the Common Stock, as such price is
officially quoted 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.
2.
<PAGE>
PARENT AND SUBSIDIARY CORPORATIONS
A. A corporation shall be deemed to be a Parent of the
Corporation if it is one of the corporations (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each such
corporation (other than the Corporation) owns, at the time of 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.
B. A corporation shall be deemed to be a Subsidiary of the
Corporation if it is one of the corporations (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
such corporation (other than the last corporation in the unbroken chain) owns,
at the time of 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. For purposes of the Corporate Transaction provisions
of the Plan, the term "Subsidiary" shall also include any partnership, joint
venture or other business entity of which the Corporation owns, directly or
indirectly through another subsidiary corporation, more than a fifty percent
(50%) interest in voting power, capital or profits.
3.
<PAGE>
ARTICLE II
AUTOMATIC GRANT PROGRAM
GRANT DATES
A. Initial Grant. Each individual who initially becomes a
non-employee Board member at any time on or after the May 24, 1994 effective
date of this plan restatement, whether through election at an Annual
Stockholders Meeting or through appointment by the Board, shall automatically be
granted, at the time of such initial election or appointment, a non-statutory
stock option to purchase 40,000 shares of Common Stock upon the terms and
conditions of this Article II, provided such individual has not previously
served as an employee of the Corporation or any Parent or Subsidiary of the
Corporation,.
B. Annual Grant. On the date of each Annual Stockholders
Meeting beginning with the first Annual Stockholders Meeting held after the May
24, 1994 effective date of this plan restatement, each individual who is
re-elected as a non-employee member of the Board at such Annual Stockholders
Meeting (including individuals who were initially elected as non-employee Board
members prior to May 24, 1994) shall receive an automatic option grant under the
Plan for 3,000 shares of Common Stock, provided such individual has been a
member of the Board for at least six (6) months.
C. Special Grants. The following special option grants shall
be made under the Plan:
1. Each individual who was not eligible to receive an
initial option grant under the Plan for 23,810 shares of Common Stock
when the Plan originally became effective on January 28, 1992 shall, in
connection with the subsequent cessation of his affiliation with the
venture capital fund or other investment entity or corporate partner
with which he was affiliated on such earlier effective date, receive a
special stock option grant for 40,000 shares of Common Stock on the
later of (i) the May 24, 1994 effective date of this plan restatement
or (ii) the date upon which such affiliation ceases. Such individual,
however, shall not be eligible to receive his or her next 3,000- share
annual option grant until the first Annual Stockholders Meeting held
more than six (6) months after the date of his or her special
40,000-share grant hereunder.
2. Each individual who receives his or her initial
automatic option grant under Paragraph A of this Grant Dates section at
a time when such individual is otherwise contractually committed to
transfer the economic benefit of that grant and each subsequent grant
to the venture capital fund or other investment entity or corporate
partner with which he or she is affiliated,
4.
<PAGE>
whether as partner, principal, stockholder or employee, and who
subsequently ceases to be affiliated with the venture capital fund or
other investment entity or corporate partner shall, immediately upon
such cessation of affiliated status, receive a second stock option
grant for 40,000 shares of Common Stock. Such individual, however,
shall not be eligible to receive his or her next 3,000-share annual
option grant until the first Annual Stockholders Meeting held more than
six (6) months after the date of his or her special 40,000-share grant
hereunder.
All non-employee Board members will be eligible for a special
option grant in accordance with the foregoing criteria, whether they first
joined the Board before or after the May 24, 1994 effective date of this plan
restatement.
D. The 40,000-share limitation on the initial and special
automatic option grants and the 3,000-share limitation on the automatic option
grants to be made annually to each non-employee Board member shall be subject to
periodic adjustment pursuant to the applicable provisions of Article I.
TERMS AND CONDITIONS OF GRANT
Each option granted in accordance with the automatic grant
provisions of this Plan shall be evidenced by an instrument in the form of the
prototype non-statutory stock option agreement attached to the Plan as Exhibit
A. Accordingly, each such automatic grant shall be subject to the following
terms and conditions:
1. Option Price.
The option price per share shall be one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the automatic grant date.
2. Term and Exercisability of Options.
a. Initial Grant. Provided the optionee continues as a Board member,
each initial automatic option grant under Paragraph A of the Grant Dates section
shall become exercisable for one or more of the option shares in three (3)
successive annual installments as follows:
(i) The first installment equal to one-third of the
total option shares shall become exercisable on the first anniversary
of the grant date, provided optionee attends all of the
regularly-scheduled Board meetings held during the one-year period
measured from the grant date. To the extent that optionee attends less
than all of such meetings, the option shall lapse as to the number of
shares determined by multiplying one-third of the total option shares
by a fraction, the numerator of which is the number of such
5.
<PAGE>
meetings not attended by the optionee during such one-year period and
the denominator of which is the total number of such meetings held
during that period. Any option shares as to which the option lapses
shall no longer be subject to such option or otherwise available for
purchase by the optionee.
(ii) The second installment equal to an additional
one- third of the total option shares shall become exercisable on the
second anniversary of the grant date, provided optionee attends all of
the regularly- scheduled Board meetings held during the one-year period
measured from the first anniversary of the grant date. To the extent
that optionee attends less than all of such meetings, the option shall
lapse as to the number of shares determined by multiplying one-third of
the total option shares by a fraction, the numerator of which is the
number of such meetings not attended by the optionee during the
applicable one-year period and the denominator of which is the total
number of such meetings held during such period. Any option shares as
to which the option lapses shall no longer be subject to such option or
otherwise available for purchase by the optionee.
(iii) The third installment equal to the final
one-third of the total option shares shall become exercisable on the
third anniversary of the grant date, provided optionee attends all of
the regularly-scheduled Board meetings held during the one-year period
measured from the second anniversary of the grant date. To the extent
that optionee attends less than all of such meetings, the option shall
lapse as to the number of shares determined by multiplying one-third of
the total option shares by a fraction, the numerator of which is the
number of such meetings not attended by the optionee during the
applicable one-year period and the denominator of which is the total
number of such meetings held during such period. Any option shares as
to which the option lapses shall no longer be subject to such option or
otherwise available for purchase by the optionee.
As the option becomes exercisable for one or more installments
of the option shares, the installments shall accumulate, and the option shall
remain exercisable for the accumulated installments until the expiration or
sooner termination of the option term.
b. Annual Grant. Each annual option grant under Paragraph B of the
Grant Dates section shall become exercisable in its entirety one (1) year after
the grant date, provided optionee attends all of the regularly-scheduled Board
meetings held during that one-year period. To the extent that optionee attends
less than all of such meetings, the option shall lapse as to the number of
shares determined by multiplying the number of total option shares by a
fraction, the numerator of which is the number of such meetings not attended by
the optionee during the applicable one-year period and the denominator of which
is the total number of such meetings held during such period. Any option shares
as to which the option lapses shall no longer be subject to such option or
otherwise available for purchase 6.
<PAGE>
by the optionee. To the extent the option becomes exercisable for one or more
option shares, such option shall remain exercisable for such shares until the
expiration or sooner termination of the option term.
c. Special Grant. Provided the optionee continues as a Board member,
any special automatic option grant made to that individual under Paragraph C of
the Grant Dates section (the "Special Option") shall become exercisable for the
option shares in accordance with the following provisions:
- One-third of the total option shares shall become
exercisable upon the later of (i) the first anniversary of the grant
date of his or her initial automatic option grant under Paragraph A of
the Grant Dates section ("the Initial Grant Date") or (ii) the grant
date of the Special Option, provided that in either event the optionee
attended all of the regularly- scheduled Board meetings held during the
one-year period measured from the Initial Grant Date. To the extent
that optionee attended less than all of such meetings, the option shall
immediately lapse as to the number of shares determined by multiplying
one-third of the total option shares by a fraction, the numerator of
which is the number of such meetings not attended by the optionee
during such one-year period and the denominator of which is the total
number of such meetings held during that period. Any option shares as
to which the option lapses shall no longer be subject to such option or
otherwise available for purchase by the optionee.
- An additional one-third of the total option shares
shall become exercisable upon the later of (ii) the second anniversary
of the Initial Grant Date or (ii) the grant date of the Special Option,
provided optionee attended all of the regularly-scheduled Board
meetings held during the one-year period measured from the first
anniversary of the Initial Grant Date. To the extent that optionee
attended less than all of such meetings, the option shall immediately
lapse as to the number of shares determined by multiplying one-third of
the total option shares by a fraction, the numerator of which is the
number of such meetings not attended by the optionee during the
applicable one-year period and the denominator of which is the total
number of such meetings held during such period. Any option shares as
to which the option lapses shall no longer be subject to such option or
otherwise available for purchase by the optionee.
- The final one-third of the total option shares
shall become exercisable upon the later of (i) the third anniversary of
the Initial Grant Date or (ii) the grant date of the Special Grant,
provided optionee attended all of the regularly-scheduled Board
meetings held during the one-year period measured from the second
anniversary of the Initial Grant Date. To the extent that optionee
attended less than all of such meetings, the option
7.
<PAGE>
shall immediately lapse as to the number of shares determined by
multiplying one-third of the total option shares by a fraction, the
numerator of which is the number of such meetings not attended by the
optionee during the applicable one-year period and the denominator of
which is the total number of such meetings held during such period. Any
option shares as to which the option lapses shall no longer be subject
to such option or otherwise available for purchase by the optionee.
For any special option grant made under Paragraph C.1 of the
Grant Dates section to an individual who did not in fact receive an initial
automatic option grant on the original effective date of the Plan, the foregoing
schedule shall be adjusted so that the term "Initial Grant Date" shall mean the
original January 28, 1992 effective date of the Plan, even though such
individual did not receive an initial automatic option grant at that time.
As the Special Option becomes exercisable for one or more
installments of the option shares, the installments shall accumulate, and the
Special Option shall remain exercisable for the accumulated installments until
the expiration or sooner termination of the option term.
d. Term. Each option outstanding under the Plan on March 19, 1997 and
each option subsequently granted under the Plan shall have a term of ten (10)
years measured from the automatic grant date, whether or not optionee continues
to serve as a Board Member, subject to earlier termination in connection with a
Corporate Transaction or Hostile Take-Over as hereinafter provided.
3. Exercise of Option.
Upon exercise of the option, the option price for the purchased shares
shall become immediately payable in one of the alternative forms specified
below:
(i) cash or check payable to the Corporation's order; or
(ii) shares of Common Stock held by the optionee for the
requisite period necessary to avoid a charge to the Corporation's
reported earnings and valued at Fair Market Value on the date of
exercise; or
(iii) any combination of the foregoing so long as the total
payment equals the aggregate option price for the purchased shares; or
(iv) payment effected through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (I) shall provide
irrevocable instructions to a Corporation-designated broker-dealer to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
an amount equal to the
8.
<PAGE>
aggregate option price payable for the purchased shares plus all
applicable Federal and State income and employment taxes required to be
withheld by the Corporation by reason of such purchase and (II) shall
provide directives to the Corporation to deliver the certificates for
the purchased shares directly to such broker-dealer.
4. Limited-Transferability.
The option may, in connection with the optionee's estate plan, be
assigned in whole or in part during the optionee's lifetime to one or more
members of the optionee's immediate family or to a trust established exclusively
for one or more such family members. The assigned portion may only be exercised
by the person or persons who acquire a proprietary interest in the option
pursuant to the assignment. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Corporation may deem appropriate. Should the optionee die while holding the
option, then that option shall be transferred in accordance with the optionee's
will or the laws of descent and distribution.
5. Effect of Termination of Board Membership.
a. Should the optionee cease to serve as a Board Member for any reason
(other than death) while holding an automatic option grant under this Article
II, then such optionee shall have until the expiration of the ten (10)-year
option term in which to exercise such option for any or all of the shares of
Common Stock for which the option is exercisable at the time of such optionee's
cessation of Board service. However, the option shall, immediately upon the
optionee's cessation of service as a Board Member, terminate and cease to be
outstanding for any and all shares of Common Stock for which the option is not
otherwise at that time exercisable.
b. Should an optionee die while serving as a Board Member, then any
outstanding automatic grant held by the optionee at the time of death may be
subsequently exercised, for any or all of the shares at the time subject to that
option, 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 option shall remain
so exercisable until the expiration of the ten (10)-year option term.
e. Each automatic option grant shall terminate and cease to remain
exercisable for any of the option shares upon the expiration of the ten
(10)-year option term, subject to earlier termination upon a Corporate
Transaction or Hostile Take-Over as hereinafter provided.
9.
<PAGE>
f. For purposes of the Plan, the optionee shall be deemed to serve as a
Board Member for so long as he or she continues to serve as a member of the
Board or Directors or as a member of the board of directors of any Parent or
Subsidiary of the Corporation.
6. Stockholder Rights.
An option holder shall have none of the rights of a stockholder with
respect to any shares covered by the automatic grant until such individual shall
have exercised the option, paid the option price and been issued a stock
certificate for the purchased shares.
7. Remaining Terms. The remaining terms and conditions of each automatic
option grant shall be as set forth in the prototype Non-Statutory Stock Option
Agreement attached as Exhibit A to the Plan.
CORPORATE TRANSACTION
A. In the event of any of the following transactions
("Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of
which is to change the State of the Corporation's incorporation; or
(ii) a sale of all or substantially all of the Corporation's
assets in complete liquidation or dissolution of the Corporation; or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which all of the Corporation's outstanding
voting stock is transferred to the acquiring entity or its wholly-owned
subsidiary;
then each automatic option grant at the time outstanding under
the Plan and not otherwise at the time fully exercisable shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for 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 all or any portion of such shares.
Immediately following the consummation of such Corporate Transaction, all
outstanding options under this Plan shall terminate and cease to be exercisable,
except to the extent assumed by the successor corporation or its parent company.
B. To the extent one or more options understanding under the
Plan at the time of the Corporate Transaction are assumed by the successor
corporation or its parent company, then each of those options shall, immediately
after such Corporate Transaction, be appropriately adjusted to apply and pertain
to the number and class of securities which would have been issued to the option
holder in the consummation of such Corporate
10.
<PAGE>
Transaction had that option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the option price
payable per share, provided the aggregate option price shall remain the same.
C. The automatic grants in effect under this Plan 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.
CHANGE IN CONTROL/HOSTILE TAKEOVER
A. Each automatic option grant outstanding under the Plan at
the time of a Change in Control of the Corporation shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Change in Control, 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 at any time prior to
the expiration or sooner termination of the option term.
B. Upon the occurrence of a Hostile Take-Over, each automatic
option grant at the time outstanding under the Plan shall automatically be
cancelled in return for 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 cancelled option (whether or not the option is otherwise
at the time exercisable for such shares) over (ii) the aggregate exercise price
payable for such shares. The cash distribution payable upon such cancellation
shall be made to the option holder within five (5) days following the
consummation of the Hostile Take-Over. Stockholder approval of this 1997
restatement of the Plan shall constitute pre-approval of each option
subsequently granted with such a automatic cancellation provision and the
subsequent cancellation of that option in accordance with the provisions of this
Paragraph B. No additional approval of the Board shall be required at the time
of the actual option cancellation and cash distribution.
C. For purposes of this Article II, the following definitions
shall be in effect:
A Change in Control shall be deemed to occur if:
(i) 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) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934) of securities possessing more than forty percent (40%) 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 stockholders; or
11.
<PAGE>
(ii) there is a change in the composition of
the Board over a period of twenty-four (24) consecutive months or less
such that a majority of the Board members ceases, by reason of one or
more proxy contests for the election of Board members, 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
two-thirds 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.
A Hostile Take-Over shall be deemed to occur
in the event 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)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of
securities possessing more than forty percent (40%) 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 stockholders which the Board does not recommend such
stockholders to accept.
The Take-Over Price per share shall be
deemed to be equal to the greater of (a) the Fair Market Value per
share on the date of the option cancellation or (b) the highest
reported price per share paid in effecting such Hostile Take-Over.
D. The shares of Common Stock subject to each option cancelled
in connection with the Hostile Take-Over shall not be available for subsequent
issuance under this Plan.
12.
<PAGE>
ARTICLE III
MISCELLANEOUS PROVISIONS
AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect any rights and obligations with
respect to any stock options at the time outstanding under the Plan unless the
optionee consents to such amendment or modification. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.
EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was adopted by the Board in December 1991 and
approved by the Corporation's stockholders in January 1992. The Plan became
effective on January 28, 1992, the date when the Common Stock first became
subject to the registration requirements of Section 12 of the Securities
Exchange Act of 1934. The Plan was subsequently amended on March 31, 1992. On
May 24, 1994, the Plan was restated, subject to stockholder approval at the 1995
Annual Meeting, to (i) increase the maximum number of shares of Common Stock
authorized for issuance under the Plan by an additional 200,000 shares, (ii)
increase the number of shares for which an initial automatic option grant is to
be made under Paragraph A of the Grant Dates section from 23,810 shares to
40,000 shares and the number of shares for which the annual automatic option
grants are to made under Paragraph B of the Grant Dates section from 2,858
shares to 3,000 shares each, (iii) provide for a special 40,000-share option
grant to each non-employee Board member upon his or her subsequent cessation of
affiliate status with any venture capital fund or other investment entity or
corporate partner with which he or she was affiliated at the time the Plan
originally became effective on January 28, 1992 or which required him or her to
transfer to such entity the economic benefit of any previous option grants to
such individual and (iv) effect certain additional changes to the Plan to
clarify the benefits available to participants. Nothing in the May 24, 1994
restatement shall have any effect or impact upon any prior option grants made
under the Plan, and those prior option grants shall continue to be governed by
the terms and provisions of the option agreements evidencing those grants.
B. The Plan was amended and restated by the Board on March 19,
1997 (the "1997 Restatement") to effect the following changes: (i) increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the Plan from 342 858 shares to 592,858 shares, (ii) allow each option
outstanding under the Plan on or after March 19, 1997 to remain outstanding as
to any otherwise exercisable option shares for the full ten (10)-year option
term, whether or not the optionee continues to serve as a Board Member, and
(iii) effect a series of changes to the provisions of the Plan (including the
stockholder approval requirements) in order to take advantage of the recent
amendments
13.
<PAGE>
to Rule 16b-3 of the Securities and Exchange Commission which exempts certain
officer and director transactions under the Plan from the short-swing liability
provisions of the federal securities laws. The 1997 Restatement is subject to
stockholder approval at the 1997 Annual Meeting, and no option grants made on
the basis of the 250,000-share increase shall become exercisable in whole or in
part unless and until the 1997 Restatement is approved by the stockholders.
Should such stockholder approval not be obtained, then any options granted on
the basis of the 250,000-share increase shall terminate without ever becoming
exercisable for those shares, and no further option grants shall be made on the
basis of such share increase. In addition, all options outstanding under the
Plan on or after March 19, 1997 will remain subject to a maximum twelve
(12)-month exercise period following the optionee's cessation of Board service.
In the absence of such stockholder approval, option grants shall, however,
continue to be made pursuant to the provisions of the Automatic Option Grant
Program in effect under the Plan immediately prior to the 1997 Restatement. All
option grants made prior to the 1997 Restatement shall remain outstanding in
accordance with the terms and conditions of the respective instruments
evidencing those options, and nothing in the 1997 Restatement (other than the
extension of the post-service exercise period) shall be deemed to modify or in
any way affect those outstanding options or issuances.
C. The Plan shall terminate upon the earliest to occur of (i)
December 2, 2001 unless sooner terminated by the Board, (ii) the date on which
all shares available for issuance under the Plan shall have been issued pursuant
to the exercise of the automatic grants made hereunder or (iii) the date on
which all outstanding options are cashed-out in connection with the Hostile
Takeover provisions of the Plan. If the date of termination is determined under
clause (i) above, then any option grants outstanding on such date shall not be
affected by the termination of the Plan and shall continue to have force and
effect in accordance with the provisions of the instruments evidencing such
grants.
CASH PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to the automatic grants made under the Plan shall be used for
general corporate purposes.
REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
hereunder, and the issuance of Common Stock upon the exercise of any such option
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.
14.
<PAGE>
NO IMPAIRMENT OF RIGHTS
Nothing in this Plan or any automatic grant made pursuant to
the Plan shall be construed or interpreted so as to affect adversely or
otherwise impair the right of the Corporation or its stockholders to remove any
optionee from service on the Board at any time in accordance with the provisions
of applicable law.
15.
<PAGE>
EXHIBIT A
<PAGE>
AUTOMATIC OPTION GRANT
MATRIX PHARMACEUTICAL, INC.
NON-STATUTORY STOCK OPTION AGREEMENT
AGREEMENT made this day of , 199 by and between Matrix
Pharmaceutical, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Company"), and 1~ (the "Optionee").
WITNESSETH:
RECITALS
A. The Company's Board of Directors (the "Board") has adopted
the Company's 1991 Director Stock Option Plan (the "Plan") for the purpose of
providing an equity incentive for individuals to serve as non-employee members
of the Board.
B. Optionee is a non-employee Board member who is entitled to
receive an option to acquire shares of the Company's common stock, par value
$0.01 per share (the "Common Stock"), pursuant to the automatic option grant
program implemented for non-employee Board members under the Plan. This
Agreement is executed pursuant to, and is intended to carry out the purposes of,
the Plan in connection with the automatic option grant made to such Optionee
thereunder.
C. The granted option is intended to be a non-statutory stock
option which does not satisfy the requirements of Section 422 of the Internal
Revenue Code.
D. For purposes of this Agreement, the following definitions
shall be in effect:
Board Member: The Optionee shall be deemed to be a Board
Member for so long as such individual continues to serve as a member of
the Company's Board of Directors (the "Board") or as a member of the
board of directors of any Parent or Subsidiary Corporation.
Fair Market Value: The Fair Market Value per share of Common
Stock on any date in question shall be determined in accordance with
the following provisions:
<PAGE>
(i) If the Common Stock is not at the time listed or admitted
to trading on any stock exchange but is traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers, Inc. 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 closing selling price on the last preceding date for which
such quotation exists shall be determinative of Fair Market Value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in question
on the stock exchange serving as the primary market for the Common
Stock, as such price is officially quoted 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.
Parent Corporation: A corporation shall be deemed to be a
Parent Corporation if it is one of the corporations (other than the
Company) in an unbroken chain of corporations ending with the Company,
provided each such corporation (other than the Company) owns, at the
time of 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.
Subsidiary Corporation: A corporation shall be deemed to be a
Subsidiary Corporation if it is one of the corporations (other than the
Company) in an unbroken chain of corporations beginning with the
Company, provided each such corporation (other than the last
corporation in the unbroken chain) owns, at the time of 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.
TERMS
1. Grant of Option. On , 199 (the "Grant Date"), there is
hereby automatically granted to Optionee, pursuant to the provisions of the
Plan, a stock option to purchase up to 3,000 shares of Common Stock (the "Option
Shares") upon the terms and conditions set forth in this Agreement and in the
Plan, and such terms and conditions of the Plan are hereby incorporated into
this Agreement by reference and made a part hereof as if expressly included in
this Agreement. The Option Shares shall be purchasable in accordance with such
terms and conditions at the option exercise price of $__________ per share (the
"Option Price").
2.
<PAGE>
2. Option Term. This option shall have a term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on _______________________, 200 (the "Expiration Date"), unless sooner
terminated in accordance with Paragraph 7A or 7C of this Agreement.
3. Limited Transferability. This option, together with the
special stock appreciation right under Paragraph 7C, may, in connection with
Optionee's estate plan, be assigned in whole or in part during Optionee's
lifetime to one or more members of Optionee's immediate family or to a trust
established exclusively for one or more such family members. The assigned
portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option immediately
prior to such assignment. Any other attempt to assign, pledge, transfer,
hypothecate or otherwise dispose of this option or the special stock
appreciation right during Optionee's lifetime, and any levy of execution,
attachment or similar process on this option or such stock appreciation right
shall be null and void. Should the Optionee die while holding this option, then
this option shall be transferred in accordance with Optionee's will or the laws
of inheritance and distribution.
4. Exercisability. This option shall become exercisable in
accordance with the terms of attached Exhibit I. Once this option becomes
exercisable for one or more Option Shares in accordance with Exhibit I, those
Option Shares shall accumulate, and this option shall remain exercisable for the
accumulated Option Shares until the Expiration Date or sooner termination of the
option term under Paragraph 7A or 7C.
5. Cessation of Board Membership. Should the Optionee cease to
serve as a Board Member while this option is outstanding, then the following
provisions shall become applicable:
(i) Should the Optionee's service as a Board Member
terminate for any reason other than death while this option is
outstanding, then Optionee shall have until the Expiration Date of the
option term to exercise this option for any Option Shares for which
this option is exercisable on the date of such cessation of Board
service. However, this option shall, immediately upon the Optionee's
cessation of service as a Board Member, terminate and cease to be
outstanding with respect to any Option Shares for which this option is
not otherwise at that time exercisable in accordance with the
provisions of this Agreement.
(ii) Should the Optionee die while serving as a Board
Member, then the personal representative of the Optionee's estate (or
the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of inheritance) shall
have the
3.
<PAGE>
right to exercise this option for any or all of the Option Shares at
the time subject to such option. Such right shall lapse, and this
option shall cease to be exercisable, upon the Expiration Date of the
option term.
(iii) In no event may this option be exercised for
any Option Shares after the specified Expiration Date of the option
term or the sooner termination of this option under Paragraph 7A or 7C.
6. Adjustment in Option Shares.
A. In the event any change is made to the Common Stock
issuable under the Plan by reason of any stock split, stock dividend,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without receipt of consideration,
appropriate adjustments shall automatically be made to the number and/or class
of securities subject to this option and the Option Price payable per share in
order to reflect such transaction and thereby preclude the dilution or
enlargement of benefits hereunder.
B. If this option is assumed in connection with a Corporate
Transaction under Paragraph 7, then this option shall, immediately after such
Corporate Transaction, be appropriately adjusted to apply and pertain to the
number and class of securities which would have been issued to Optionee in the
consummation of such Corporate Transaction had this option been exercised
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the Option Price payable per share, provided the aggregate
Option Price shall remain the same.
7. Corporate Transaction/Change in Control/Hostile
Take-Over.
A. In the event of any of the following transactions (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Company is
not the surviving entity, except for a transaction the principal
purpose of which is to change the State of the Company's incorporation,
or
(ii) a sale of all or substantially all of the
Corporation's assets in complete liquidation or dissolution of the
Corporation; or
(iii) any reverse merger in which the Company is the
surviving entity but in which all of the Company's outstanding voting
stock is transferred to the acquiring entity or its wholly-owned
subsidiary;
4.
<PAGE>
the exercisability of this option shall automatically
accelerate so that such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with
respect to all the Option Shares at the time subject to this option and may be
exercised for all or any portion of such shares. Immediately following the
consummation of the Corporate Transaction, this option shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation or
its parent company.
B. In connection with any Change in Control of the Company,
the exercisability of this option shall automatically accelerate so that such
option shall, immediately prior to the specified effective date for the Change
in Control, become fully exercisable with respect to all the Option Shares at
the time subject to this option and may be exercised for all or any portion of
such shares. The option as so accelerated shall remain exercisable until the
expiration or sooner termination of the option term. For purposes of this
Agreement, a Change in Control shall be deemed to occur in the event:
(i) any person or related group of persons (other
than the Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company) directly
or indirectly acquires beneficial ownership (within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934, as amended) of securities
possessing more than forty percent (40%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders; or
(ii) there is a change in the composition of the
Board over a period of twenty-four (24) consecutive months or less such
that a majority of the Board members ceases, by reason of one or more
proxy contests for the election of Board members, 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 two-thirds 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.
C. Should a Hostile Take-Over of the Company occur at any time
while this option is outstanding, then this option shall automatically be
cancelled upon the effective date of such Hostile Take-Over in exchange for a
cash distribution from the Company. Such distribution shall be in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to this option (whether or not the option is at the time
otherwise exercisable for such shares) over the aggregate Option Price payable
for such shares. The cash distribution shall be made within five (5) days
following the effective date of the Hostile Take-Over, and no approval of the
Board shall be required
5.
<PAGE>
in connection with such cancellation and distribution. For purposes of this
Paragraph 7C, the following definitional provisions shall be in effect:
A Hostile Take-Over shall be deemed to occur in the
event (i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Company) acquires ownership of
securities possessing more than forty percent (40%) of the total
combined voting power of the Company's outstanding securities pursuant
to a tender or exchange offer made directly to the Company's
stockholders which the Board does not recommend such stockholders to
accept.
The Take-Over Price per share shall be deemed to be
equal to the greater of (a) the Fair Market Value per share of Common
Stock on the date of the option cancellation or (b) the highest
reported price per share paid by the acquiring entity in effecting the
Hostile Take-Over.
D. This Agreement shall not in any way affect the right of the
Company to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
8. Privilege of Stock Ownership. Optionee shall not have any
stockholder rights with respect to the Option Shares until such individual shall
have exercised the option, paid the Option Price for the purchased shares and
been issued a stock certificate for such shares.
9. Manner of Exercising Option.
A. In order to exercise this option for one or more Option
Shares for which this option is at the time exercisable, Optionee (or in the
case of exercise after Optionee's death, the Optionee's executor, administrator,
heir or legatee, as the case may be) must take the following actions:
(i) Execute and deliver to the Secretary of the
Company a written notice of exercise (the "Exercise Notice") in
substantially the form of Exhibit II attached hereto.
(ii) Pay the aggregate Option Price for the purchased
shares in one or more of the following alternative forms:
- full payment in cash or check made payable
to the Company's order;
6.
<PAGE>
- full payment in shares of Common Stock
held by the Optionee for the requisite period necessary to
avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the
Exercise Date;
- full payment in a combination of shares of
Common Stock held for the requisite period necessary to avoid
a charge to the Company's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date
and cash or check; or
- full payment through a sale and remittance
procedure pursuant to which the Optionee (a) shall provide
irrevocable instructions to a Company-designated brokerage
firm to effect the immediate sale of the purchased shares and
remit to the Company, 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) shall
concurrently provide directives to the Company to deliver
certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
(iii) Furnish to the Company appropriate
documentation that the person or persons exercising the option (if
other than Optionee) have the right to exercise this option.
B. For purposes of this Agreement, the Exercise Date shall be
the date on which the Exercise Notice shall have been delivered to the Company.
Except to the extent the sale and remittance procedure specified above may be
utilized in connection with the exercise of this option, payment of the Option
Price for the purchased shares must accompany such notice.
C. As soon as practical after the exercise of this option in
accordance with the provisions of this Agreement, the Company shall mail or
deliver to or on behalf of the Optionee (or any other person or persons
exercising this option) a stock certificate representing the purchased shares.
D. In no event may this option be exercised for any fractional
shares.
10. Legality of Issuance. The Company shall not be obligated
to sell or issue any Option Shares pursuant to this Agreement if such sale or
issuance might, in the opinion of the Company and the Company's counsel,
constitute a violation by the Company of any applicable law or regulation.
7.
<PAGE>
11. Binding Effect. Subject to the limitations set forth in
Paragraph 3 of this Agreement, this Agreement shall be binding upon and inure to
the benefit of the executors, administrators, heirs, legal representatives, and
successors and assigns of the parties hereto; provided, however, that Optionee
may not assign any of Optionee's rights under this Agreement other than as
permitted under Paragraph 3.
12. No Impairment of Rights. Nothing in this Agreement or in
the Plan shall be deemed to impair or otherwise restrict the rights of the
Company or its stockholders to remove the Optionee from the Board at any time
pursuant to the provisions of applicable law.
13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts entered into and wholly to be performed within the State of California
by California residents.
14. Notices. All notices and other communications under this
Agreement shall be in writing. Unless and until the Optionee is notified in
writing to the contrary, all notices, communications and documents directed to
the Company shall, if not personally delivered, be mailed to the Company at the
following address:
Matrix Pharmaceutical, Inc.
34700 Campus Drive
Fremont, CA 94555
Unless and until the Company is notified in writing to the
contrary, all notices, communications and documents intended for the Optionee
shall, if not personally delivered, be mailed to Optionee's last known address
as shown on the Company's books. Notices and communications shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received only when actually
received, unless properly mailed by registered mail, return receipt requested,
in which event they shall be deemed received two days after the date of mailing.
15. Construction. This Agreement and the option evidenced
hereby are issued pursuant to the automatic grant program for non-employee Board
Members in effect under the Plan and shall be subject to the express terms and
provisions of the Plan applicable to such automatic grants.
8.
<PAGE>
IN WITNESS WHEREOF, Matrix Pharmaceutical, Inc. has caused
this Agreement to be executed on its behalf by its duly-authorized officer and
the Optionee has executed this Agreement, all on the day and year first above
written.
MATRIX PHARMACEUTICAL, INC.
By __________________________________
Title _______________________________
_____________________________________
OPTIONEE
Address ______________________________
______________________________
9.
<PAGE>
EXHIBIT I
EXERCISE SCHEDULE
The option shall become exercisable in accordance with the
following terms and conditions, provided the Optionee continues in service as a
Board Member.
The option shall become exercisable for all of the Option
Shares one (1) year after the Grant Date, provided the Optionee attends
all of the regularly-scheduled Board meetings held during that one-year
period. To the extent that the Optionee attends less than all of such
meetings, this option shall lapse as to the number of Option Shares
determined by multiplying the total number of Option Shares by a
fraction, the numerator of which is the number of such meetings
attended by the Optionee during the applicable one-year period and the
denominator of which is the total number of such meetings held during
that period. Any Option Shares as to which this option so lapses shall
no longer be subject to such option or otherwise available for purchase
by the Optionee.
In no event shall this option become exercisable for any
additional Option Shares following the date the Optionee ceases to serve as a
Board Member.
<PAGE>
EXHIBIT II
NOTICE OF EXERCISE OF STOCK OPTION
I hereby notify Matrix Pharmaceutical, Inc. (the "Company")
that I elect to purchase shares of the Company's Common Stock (the "Purchased
Shares") pursuant to that certain option (the "Option") granted to me on to
purchase up to 3,000 shares of such Common Stock at an option price of $ per
share (the "Option Price").
Concurrently with the delivery of this Exercise Notice to the
Secretary of the Company, I shall hereby pay to the Company the Option Price for
the Purchased Shares in accordance with the provisions of my agreement with the
Company evidencing the Option and shall deliver whatever additional documents
may be required by such agreement as a condition for exercise. Alternatively, I
may utilize the special broker-dealer sale and remittance procedure specified in
my agreement to effect the payment of the Option Price for the Purchased Shares.
_____________________________ _________________________________________
Date Optionee
Address: _________________________________________
_________________________________________
Print name in exact manner
it is to appear on the
stock certificate: _________________________________________
_________________________________________
Address to which certificate
is to be sent, if different
from address above: _________________________________________
_________________________________________
_________________________________________
Social Security Number: _________________________________________
<PAGE>
APPENDIX C
MATRIX PHARMACEUTICAL, INC.
PROXY
Annual Meeting of Stockholders, June 25, 1997
This Proxy is Solicited on Behalf of the Board of
Matrix Pharmaceutical, Inc.
The undersigned revokes all previous proxies, acknowledges receipt of
the Notice of the Annual Meeting of Stockholders to be held June 25, 1997 and
the Proxy Statement and appoints Edward E. Luck and Craig R. McMullen and each
of them, the Proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock of Matrix Pharmaceutical, Inc. (the "Company") which
the undersigned is entitled to vote, either on his or her own behalf or on
behalf of any entity or entities, at the Annual Meeting of Stockholders of the
Company to be held at the Company's headquarters, 34700 Campus Drive, Fremont,
California 94555 on Wednesday, June 25, 1997 at 10:00 A.M. (the "Annual
Meeting"), and at any adjournment or postponement thereof, with the same force
and effect as the undersigned might or could do if personally present thereat.
The shares represented by this Proxy shall be voted in the manner set forth on
the reverse side.
1. To elect the following directors to serve until the next annual
meeting of stockholders and until their successors are elected and qualified:
WITHHOLD
AUTHORITY
FOR TO VOTE
J. Stephan Dolezalek _____ _____
Edward E. Luck _____ _____
John E. Lyons _____ _____
Julius L. Pericola _____ _____
Alan E. Salzman _____ _____
2. FOR AGAINST ABSTAIN
To approve certain amendments to
the Company's 1988 Restricted
Stock Plan (the "Plan"),
including (i) an increase in the
maximum number of shares of
common stock authorized for
issuance under the Plan by an
additional 2,000,000 shares and
(ii) the extension of the term
of the Plan from September 2,
1998 to December 31, 2002.
3. FOR AGAINST ABSTAIN
To approve certain amendments to
the Company's 1991 Directors
Stock Option Plan (the
"Directors Plan"), including an
increase in the maximum number
of shares of common stock
authorized for issuance under
the Directors Plan by an
additional 250,000 shares.
4. FOR AGAINST ABSTAIN
To ratify the Board of
Director's selection of Ernst &
Young LLP to serve as the
Company's independent
accountants for the fiscal year
ending December 31, 1997.
In accordance with the discretion of the proxyholders, to act upon all
matters incident to the conduct of the meeting and upon other matters as may
properly come before the meeting.
The Board of Directors recommends a vote FOR each of the directors
listed above and a vote FOR the other proposals. This Proxy, when properly
executed, will be voted as specified above. If no specification is made, this
Proxy will be voted IN FAVOR OF the election of the directors listed above and
IN FAVOR OF the other proposals.
Please print the name(s) appearing on each share certificate(s) over
which you have voting authority:
-----------------------------------------------------------------------
(Print name(s) on certificate)
Please sign your name: Date:
---------------------------------------------------- -----------------
(Authorized Signature(s))
