<PAGE>
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.
- ------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- ------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- ------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
- ------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ------------------------------------------------------------------------------
(5) Total fee paid:
- ------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- ------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- ------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- ------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
MATRIX PHARMACEUTICAL, INC.
34700 CAMPUS DRIVE
FREMONT, CALIFORNIA 94555
APRIL 5, 1999
Dear Stockholders:
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 May 4, 1999, 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 seven directors to serve as the Company's Board of
Directors for the ensuing year or until their successors are duly
elected and qualified;
(ii) to approve an amendment to the Company's 1988 Restricted Stock
Plan (the "Plan") to increase the maximum number of shares of
Common Stock authorized for issuance under the Plan by an
additional 400,000 shares and increase the limitation on the
maximum number of shares for which any one individual may be
granted stock options, separately exercisable stock appreciation
rights and direct stock issuances over the term of the Plan from
750,000 shares to 2,000,000 shares;
(iii) to approve a new Employee Stock Purchase Plan (the "Purchase
Plan") under which 700,000 shares of Common Stock will be
reserved for issuance to eligible employees; and
(iv) to ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1999.
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 April 22, 1999, the enclosed proxy card in the accompanying reply
envelope. If you attend the Annual Meeting and vote by ballot, your proxy will
be automatically revoked and only your vote at the Annual Meeting will be
counted. YOUR SHARES CANNOT BE VOTED UNLESS YOU MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY, OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Matrix Pharmaceutical, Inc. 1998 Annual Report to
Stockholders is also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
Michael D. Casey
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
IMPORTANT
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
ACCOMPANYING POSTAGE-PAID RETURN ENVELOPE SO THAT IF YOU ARE UNABLE TO ATTEND
THE ANNUAL MEETING YOUR SHARES MAY BE VOTED.
<PAGE>
MATRIX PHARMACEUTICAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 4, 1999
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 Tuesday, May 4, 1999, at
the Company's headquarters, at 34700 Campus Drive, Fremont, California 94555,
for the following purposes:
1. To elect seven directors to serve as the Company's Board of Directors
for the ensuing year or until their respective successors are duly
elected and qualified.
2. To approve an amendment to the Company's 1988 Restricted Stock Plan
(the "Plan") to increase the maximum number of shares of Common Stock
authorized for issuance under the Plan by an additional 400,000 shares
and increase the limitation on the maximum number of shares for which
any one individual may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances over
the term of the Plan from 750,000 shares to 2,000,000 shares.
3. To approve a new Employee Stock Purchase Plan (the "Purchase Plan")
under which 700,000 shares of Common Stock will be reserved for
issuance to eligible employees.
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1999.
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 March 23, 1999 are
entitled to receive notice of and to vote at the Annual Meeting and any
adjournment thereof. The stock transfer books will not be closed between the
record date and the date of the Annual Meeting. A list of the stockholders
entitled to vote at the Annual Meeting will be available for inspection at the
Company's offices for a period of ten days prior to the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. Whether or not you plan to attend, 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 accompanying reply envelope. 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. You may revoke your
proxy at any time prior to the Annual Meeting. 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,
J. Stephan Dolezalek
SECRETARY
Fremont, California
April 5, 1999
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY AND PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE AS PROMPTLY AS
POSSIBLE.
<PAGE>
MATRIX PHARMACEUTICAL, INC.
34700 Campus Drive
Fremont, California 94555
_______________________________
PROXY STATEMENT
_______________________________
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 4, 1999
GENERAL INFORMATION FOR STOCKHOLDERS
THE ENCLOSED PROXY ("PROXY") IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS (THE "BOARD") OF MATRIX PHARMACEUTICAL, INC., A DELAWARE CORPORATION
(THE "COMPANY"), FOR USE AT THE 1999 ANNUAL MEETING OF STOCKHOLDERS (THE "ANNUAL
MEETING") TO BE HELD AT 10:00 A.M. ON MAY 4, 1999 AT THE COMPANY'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 April 5,
1999.
RECORD DATE AND VOTING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy Statement. Stockholders of record at the close of business
on March 23, 1999 are entitled to notice of and to vote at the Annual Meeting.
As of the close of business on such date, there were 22,278,942 shares of the
Company's common stock (the "Common Stock") outstanding and entitled to vote,
held by 275 stockholders of record. No shares of the Company's preferred stock
are outstanding.
Stockholders may not cumulate votes in the election of directors.
Directors are determined by a plurality vote. The other matters submitted for
stockholder approval at this Annual Meeting will be decided by the affirmative
vote of a majority of shares present in person or represented by proxy and
entitled to vote on such matters. 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 election of the seven
directors nominated by the Board unless the authority to vote for the election
of directors (or for any one or more nominees) is withheld and, if no contrary
instructions are given, the proxy will be voted IN FAVOR OF the approval of
Proposals Two, Three and Four described in the accompanying Notice of Annual
Meeting of Stockholders and in this Proxy Statement. All votes will be
tabulated by the inspector of election appointed for the meeting, who will
separately tabulate affirmative and negative votes, 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).
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum (at least 50% of the voting stock) 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.
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
<PAGE>
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 April 19, 1999.
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 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. Except 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 APRIL 22, 1999 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, 1998 (THE "ANNUAL REPORT") HAS 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. THE COMPANY WILL MAIL
WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1998, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "FORM 10-K") WITH SCHEDULES AND LIST OF EXHIBITS.
REQUESTS SHOULD BE SENT TO INVESTOR RELATIONS, MATRIX PHARMACEUTICAL, INC.,
34700 CAMPUS DRIVE, FREMONT, CALIFORNIA 94555. NEITHER THE ANNUAL REPORT NOR
THE FORM 10-K IS INCORPORATED INTO THIS PROXY STATEMENT AND NEITHER IS
CONSIDERED PROXY SOLICITING MATERIAL.
2.
<PAGE>
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE -- ELECTION OF DIRECTORS
The Company's Bylaws provide for a Board of Directors consisting of between
five and nine members. The number of directors is currently set at eight.
Effective immediately prior to the Annual Meeting, the authorized number of
directors will be seven. The term of office of all current directors expires at
the Annual Meeting. At the Annual Meeting, a Board of seven 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 seven 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 seven 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.
Mr. John E. Lyons, a current member of the Board, will not stand for
re-election at the Annual Meeting, and his service as a Board member will
accordingly cease at that time.
THE BOARD RECOMMENDS THAT 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 AND UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND
QUALIFIED OR UNTIL THEIR EARLIER DEATH, RESIGNATION OR REMOVAL.
INFORMATION WITH RESPECT TO NOMINEES
Set forth below is information regarding the nominees:
<TABLE>
<CAPTION>
Name Position(s) with the Company Age Director Since
- ----- ---------------------------- --- --------------
<S> <C> <C> <C>
Michael D. Casey . . . . . . . Chairman, President and Chief Executive Officer 53 1997
J. Stephan Dolezalek . . . . . Director and Secretary 42 1994
James R. Glynn . . . . . . . . Director 52 1997
Marvin E. Jaffe, M.D.. . . . . Director 62 1997
Bradley G. Lorimier. . . . . . Director 53 1997
Edward E. Luck . . . . . . . . Director 48 1989
Julius L. Pericola . . . . . . Director 70 1993
</TABLE>
BUSINESS EXPERIENCE OF NOMINEES
MR. CASEY was appointed to the position of Chairman of the Board in
February 1999, succeeding Mr. Luck, and has also served as President, Chief
Executive Officer and a director of the Company since September 1997. From
November 1995 to December 1996, Mr. Casey was Executive Vice President of Schein
Pharmaceutical, Inc. ("Schein"), a generic and ethical pharmaceutical company,
and in December 1996, he was appointed President of the retail and specialty
products division of Schein. From June 1993 to November 1995, he served as
President and Chief Operating Officer of Genetic Therapy, Inc., a
biopharmaceutical company. Mr. Casey was President of McNeil Pharmaceutical, a
unit of Johnson & Johnson, from 1989 to June 1993 and Vice President, Sales and
Marketing for the Ortho Pharmaceutical Corp. ("Ortho") subsidiary of Johnson &
Johnson from 1985 to 1989. Previously, he held a number of sales and marketing
positions with Ortho.
3.
<PAGE>
MR. DOLEZALEK has served as a director of the Company since October 1994
and as secretary since June 1997. 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.
Dolezalek serves as chairman of the Life Sciences Practice Group of Brobeck,
Phleger & Harrison LLP.
MR. GLYNN has served as a director of the Company since June 1997. Mr.
Glynn has been Senior Vice President, Chief Financial Officer and Director at
Invitrogen Corporation, a developer of research tools for molecular biology
activities, since July 1998. Prior to joining Invitrogen, Mr. Glynn served as
the Company's Chief Financial Officer from July 1995 until July 1998. He also
served as the Company's interim President and Chief Executive Officer from June
to September 1997 and as its Chief Operating Officer from September 1997 until
July 1998. Mr. Glynn joined the Company in July 1995 as Senior Vice President,
Chief Financial Officer and Secretary. Prior to joining the Company, from 1987
to February 1995, he served as Executive Vice President, Chief Financial Officer
and director of Mycogen Corporation, an agribusiness and biotechnology company.
From 1982 to 1987, Mr. Glynn was Vice President, Finance and Treasurer of
Lubrizol Enterprises, Inc., a venture development company.
DR. JAFFE has been a director of the Company since December 1997. He was
President of the R.W. Johnson Pharmaceutical Research Institute ("PRI") from its
founding in 1988 until his retirement in April 1994. From 1970 to 1988, Dr.
Jaffe held a number of medical management positions at Merck Sharp & Dohme
Research Laboratories, including Vice President, Clinical Research from 1978 to
1987, and Senior Vice President, Medical Affairs, from 1987 to 1988. He is a
board certified neurologist and a Clinical Associate Professor of Neurology at
Jefferson Medical College of Thomas Jefferson University. He is also a director
of Chiroscience Group plc, Immunomedics Inc., and Titan Pharmaceuticals, Inc.
MR. LORIMIER has been a director of the Company since December 1997. He
served as Senior Vice President, Business Development and a director of Human
Genome Sciences, Inc. from March 1994 to July 1997. Previously, he was Vice
President, Corporate Development, at Ortho Pharmaceutical Corp., a subsidiary of
Johnson & Johnson, from 1991 to March 1994, Vice President, Licensing on the
corporate staff of Johnson & Johnson from 1986 to 1991, and Vice President,
Licensing at Sterling Drug Inc. From 1984 to 1986, he held licensing, business
planning, and marketing positions at Armour Pharmaceutical Co. and Bristol
Laboratories.
MR. LUCK has been a director of the Company since 1989. He was a
co-founder of the Company and has held the position of Chairman of the Board
since 1989. In February 1999, he resigned as Chairman to accept a position as
Chief Executive Officer of a privately held company. Mr. Luck will remain a
member of the Company's Board of Directors. 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 from 1980 to 1982. He was co-founder, Vice President
and Director of Technical Affairs of Collagen Corporation from 1975 to 1979.
MR. PERICOLA has been a director of the Company since January 1993. He
worked for 40 years with Bristol- Myers Squibb Co., most recently as Executive
Vice President of Bristol-Myers International Group from 1985 to his retirement
as an officer in 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.
NUMBER OF DIRECTORS AND RELATIONSHIPS
The Company's Bylaws authorize the Board to appoint 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 set at eight. Effective
immediately prior to the Annual Meeting, the authorized number of directors will
be reduced to seven. 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.
4.
<PAGE>
BOARD MEETINGS AND COMMITTEES
The Board held five meetings during the fiscal year ended December 31,
1998. The Board has an Audit Committee and a Compensation Committee, but does
not have a standing Nominating Committee. Each director attended or participated
in at least 75% of (i) the aggregate number of meetings of the Board and (ii)
the total number of meetings held by all the Board committees on which such
director served during the 1998 fiscal year.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent public accountants and reviewing their
reports regarding the Company's accounting practices and systems of internal
accounting controls. During the fiscal year ended December 31, 1998, the Audit
Committee consisted of two directors, Messrs. Lyons and Pericola. The Audit
Committee held two meetings during the fiscal year ended December 31, 1998, 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, 1998, the Compensation Committee consisted of two directors,
Messrs. Pericola and Lyons. The Compensation Committee met five times during
the fiscal year ended December 31, 1998, at which both members were in
attendance. Furthermore, the Compensation Committee took action by unanimous
written consent on two occasions during the fiscal year ended December 31, 1998.
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, except for fees
related to consultation agreements between the Company and each of directors
Luck, Lorimier and Jaffe. Each consultation agreement provides for the payment
of $2,500 per full day, $1,250 per half day or $300 per hour for consulting
advice and the payment of $1,000 per day for travel time. Mr. Luck received
consulting fees of $121,500 for the 1998 fiscal year. Consulting fees and
related expenses for directors Lorimier and Jaffe were $16,150 and $22,250,
respectively. All other non-employee Board members are reimbursed for travel
expenses incurred in attending Board or Committee meetings.
Each non-employee Board member received 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 initial election or appointment
to the Board. Each such initial grant becomes 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 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 3,000
shares of Common Stock, provided such individual has served as a Board member
for at least six months prior to the date of the Annual Meeting. Each such
annual option grant becomes 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 Annual Stockholders Meeting held on May 18, 1998, Messrs. Dolezalek,
Luck, Lyons and Pericola 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 $4.75 per share, the fair market value per share of Common Stock on the
grant date. This option grant will become exercisable one year from the grant
date, provided the optionee attends all of the regularly scheduled Board
meetings held during
5.
<PAGE>
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.
In connection with Mr. Glynn's termination of employment as Chief Operating
Officer and Chief Financial Officer in July 1998 and as an inducement for his
continuation in service as a member of the Board, the Company decided to provide
him with the following benefits: (i) each of his outstanding stock options, to
the extent exercisable for one or more option shares at the time of his
termination of employment, is to remain exercisable for those shares for up to a
one-year following his July 1998 termination date and (ii) the due date for
payment of the outstanding balance on the promissory note he delivered in
payment of certain shares of Common Stock acquired under the Shared Investment
Program in effect under the Company's 1988 Restricted Stock Plan was extended
for a one year period following such termination date.
6.
<PAGE>
PROPOSAL TWO - APPROVAL OF
AMENDMENT TO 1988 RESTRICTED STOCK PLAN
INTRODUCTION
The stockholders are being asked to approve an amendment to the Company's
1988 Restricted Stock Plan (the "Plan") that will increase the number of shares
of Common Stock issuable under the Plan by an additional 400,000 shares and
increase the limitation on the maximum number of shares for which any one
individual may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances over the term of the Plan from
750,000 to 2,000,000 shares.
The proposed 400,000-share increase will assure that a sufficient reserve
of Common Stock remains 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 proposed change to
the limitation on the maximum number of shares for which any one individual may
be granted stock options, separately-exercisable stock appreciation rights and
direct stock issuances under the Plan will provide the Company with the
continuing opportunity to structure equity incentive awards for senior
management so that the compensation deemed paid to the Company's executive
officers in connection with their exercise of stock options or stock
appreciation rights granted under the Plan will qualify as tax-deductible
performance-based compensation under the federal tax laws which will not
otherwise be subject to the $1 million limitation per covered individual on the
tax deductibility of compensation paid to certain executive officers of the
Company. However, not all option grants made under the Plan will be so
structured because grants with exercise prices below the fair market value of
the option shares may continue to be necessary in order to provide sufficient
inducement and incentive to attract and retain the services of individuals
essential to the Company's future success.
The amendment was authorized by the Board on March 2, 1999, 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 Proposal Two is required for approval of such share
increase.
The terms and provisions of the Plan, as amended through March 2, 1999, 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.
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.
7.
<PAGE>
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 the award, subject to the express provisions of 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 December 31, 1998,
approximately 97 individuals (including eight officers of the Company and
seven non-employee Board members) were eligible to participate in the Plan.
SHARE RESERVE
If the 400,000-share increase which forms part of this Proposal Two is
approved by the stockholders, then the maximum number of shares of the Common
Stock issuable over the term of the Plan will be increased to 5,030,953
shares (excluding 238,095 shares previously issued under the Plan but
cancelled upon repurchase by the Company). 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 or direct stock issuances may not exceed 2,000,000 shares
in the aggregate over the term of the Plan, assuming stockholder approval of
the 1,250,000-share increase to such limit which forms part of this Proposal
Two. However, for purposes of such limitation, any option grants, stock
appreciation rights or direct stock issuances made prior to January 1, 1994
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 options 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
canceled in connection with the stock appreciation right provisions of the
Plan will not be available for subsequent issuance.
As of February 28, 1999, approximately 3,047,317 shares of Common Stock
were subject to outstanding options under the Plan, and 602,331 shares of
Common Stock (including the 400,000 shares which are subject to stockholder
approval as part of this Proposal Two) were available for issuance under
future option grants and stock issuances. Furthermore, as of February 28,
1999, 1,619,400 shares (including 238,095 shares previously issued but
retired from the Plan) have been issued under the Plan. As of February 28,
1999, the weighted average exercise price payable per share upon the exercise
of outstanding options was $3.016. The expiration dates for all such
outstanding options range from September 6, 2001 to January 28, 2008.
8.
<PAGE>
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
December 31, 1998, the fair market value per share of the Common Stock was
$2.625 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 withholding 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 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. 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.
9.
<PAGE>
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 therefore 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 may 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 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.
10.
<PAGE>
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
period of 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 those 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 original purchase price 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 the
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.
11.
<PAGE>
EXCESS GRANTS. The Plan permits the grants of options to purchase
shares and the issuances 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.
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.
12.
<PAGE>
STOCK AWARDS
The first 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, 1998 and February 28, 1999, together with the weighted average
exercise price payable per share. The second table 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 directly issued under the Stock
Issuance Program of the Plan between January 1, 1998 and February 28, 1999.
All of those latter issuances were made as fully-vested stock bonuses issued
for past services rendered the Company.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Options Granted Weighted Average
Name (Number of Shares) Exercise Price
---- ------------------ ----------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael D. Casey, President and Chief Executive 100,000 $3.50
Officer
- ------------------------------------------------------------------------------------------------
Richard D. Leavitt, M.D. 45,000 $2.81
Senior Vice President, Medical and Regulatory
Affairs
- ------------------------------------------------------------------------------------------------
Richard E. Jones, Ph.D. 45,000 $2.81
Vice President, Research and Development
- ------------------------------------------------------------------------------------------------
Ronald P. Lucas, 45,000 $2.81
Vice President, Operations
- ------------------------------------------------------------------------------------------------
Harry D. Pedersen 70,000 $2.81
Vice President, Corporate Development
- ------------------------------------------------------------------------------------------------
Andrew G. Korey, Ph.D. 20,000 $3.50
Vice President, Business Development and
Scientific Licensing
- ------------------------------------------------------------------------------------------------
All current executive officers as a group 570,000 $3.09
(8 persons)
- ------------------------------------------------------------------------------------------------
All current non-employee Board members as a group 12,000 $4.75
- ------------------------------------------------------------------------------------------------
All employees, including current officers who are 780,548 $2.95
not executive officers, as a group (117 persons)
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STOCK ISSUANCES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Name Number of Shares
---- ----------------
- ------------------------------------------------------------------------------------------------
<S> <C>
Michael D. Casey 33,100
President and Chief Executive Officer
- ------------------------------------------------------------------------------------------------
Richard D. Leavitt, M.D. 10,060
Senior Vice President, Medical and Regulatory Affairs
- ------------------------------------------------------------------------------------------------
Richard E. Jones, Ph.D. 9,132
Vice President, Research and Development
- ------------------------------------------------------------------------------------------------
Ronald P. Lucas, 8,520
Vice President, Operations
- ------------------------------------------------------------------------------------------------
Harry D. Pedersen --
Vice President, Corporate Development
- ------------------------------------------------------------------------------------------------
Andrew G. Korey, Ph.D. --
Vice President, Business Development and Scientific Licensing
- ------------------------------------------------------------------------------------------------
All current executive officers as a group 80,190
(8 persons)
- ------------------------------------------------------------------------------------------------
All current non-employee Board members as a group --
- ------------------------------------------------------------------------------------------------
All employees, including current officers who are not executive officers, 105,027
as a group (33 persons)
- ------------------------------------------------------------------------------------------------
</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
14.
<PAGE>
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 OPTIONS. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income in the year in which the option is exercised equal
to the excess of the fair market value of the purchased shares on the
exercise date over the exercise price paid for those shares, and the optionee
will be required to satisfy the tax withholding requirements applicable to
such income.
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. Because non-statutory options
are usually granted under the Plan with exercise prices equal to 85% of the
fair market value of the option shares at the time of such grant, the
compensation deemed paid by the Company in connection with the subsequent
exercise of those options will not qualify as performance-based compensation
for purposes of Code Section 162(m) and will 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. In addition, certain stock options granted to Mr. Casey will be
subject to such limitation if they are exercised during a calendar year for
which he is a named executive officer in the Company's proxy statement.
15.
<PAGE>
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 fair 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.
The Financial Accounting Standards Board recently announced its
intention to issue an Exposure Draft of a proposed interpretation of APB
Opinion 25, "Accounting for Stock Issued to Employees." Under the proposed
interpretation, option grants made to non-employee Board members after
December 15, 1998 may result in a direct charge to the Company's reported
earnings based upon the fair value of the option. Such charge is likely to
include the appreciation in the value of the option shares over the period
between the grant date of the option (or, if later, the effective date of the
final amendment) and the vesting date of each installment of the option
shares. In addition, if the proposed interpretation is adopted, any options
which are repriced after December 15, 1998 may also trigger a direct charge
to Company's reported earnings measured by the appreciation in the value of
the underlying shares over the period between the grant date of the option
(or, if later, the effective date of the final amendment) and the date the
option is exercised for those shares.
Should one or more optionees be granted stock appreciation rights under
the 1995 Plan that have no conditions upon exercisability other than a
service or employment requirement, then such rights would result in a
compensation expense to be charged against the Company's reported 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 the prior
quarter-end would be accrued as compensation expense, to the extent such fair
market value is in excess of the aggregate exercise price in effect for those
rights.
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 amendment to the Plan. Should
such stockholder approval not be obtained, then any stock options granted
under the Plan on the basis of the 400,000-share increase which forms part of
this Proposal Two 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, the maximum
number of shares for which any one participant may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan after December 31, 1993 will remain at the 750,000-share
limit. However, the Plan will continue to remain in effect, and option
grants, stock appreciation rights and direct stock issuance may continue to
be made pursuant to the provisions of the Plan in effect prior to the
amendment summarized in this Proposal Two, 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
THE AMENDMENTS TO THE COMPANY'S 1988 RESTRICTED STOCK PLAN.
NEW PLAN BENEFITS
As of February 28, 1999, no stock option grants or direct stock
issuances have been made under the Plan on the basis of the proposed
400,000-share increase to the reserve under the Plan or the proposed
1,250,000-share increase to the limit on per participant grants and
issuances.
16.
<PAGE>
PROPOSAL THREE -- APPROVAL OF
1999 EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being asked to approve the Company's 1999 Employee
Stock Purchase Plan under which 700,000 shares of the Company's Common Stock
initially will be reserved for issuance. The Purchase Plan was adopted by
the Board of Directors on March 2, 1999 and will become effective on July 1,
1999, provided this Proposal Three is approved at the Annual Meeting.
The Purchase Plan is designed to allow eligible employees of the Company
and participating affiliates (whether now existing or subsequently
established) to purchase shares of Common Stock at semi-annual intervals
through their accumulated periodic payroll deductions under the Purchase
Plan.
ADMINISTRATION
The Purchase Plan will be administered by the Compensation Committee of
the Board. Such committee, as Plan Administrator, will have full authority
to adopt administrative rules and procedures and to interpret the provisions
of the Purchase Plan.
SECURITIES SUBJECT TO THE PURCHASE PLAN
The number of shares of Common Stock initially reserved for issuance
under the Purchase Plan will be limited to 700,000 shares.
The shares issuable under the Purchase Plan may be made available from
authorized but unissued shares of the Company's Common Stock or from shares
of Common Stock repurchased by the Company, including shares repurchased on
the open market.
In the event that any change is made to the outstanding Common Stock
(whether by reason of any recapitalization, stock dividend, stock split,
exchange or combination of shares or other change in corporate structure
effected without the Company's receipt of consideration), appropriate
adjustments will be made to (i) the maximum number and class of securities
issuable under the Purchase Plan, (ii) the maximum number and class of
securities purchasable per participant on any one semi-annual purchase date,
(iii) the maximum number and class of securities purchasable by all
participants in the aggregate on any one purchase date and (iv) the number
and class of securities and the price per share in effect under each
outstanding purchase right. Such adjustments will be designed to preclude
any dilution or enlargement of benefits under the Purchase Plan or the
outstanding purchase rights thereunder.
OFFERING PERIODS AND PURCHASE RIGHTS
Shares of Common Stock will be offered under the Purchase Plan through a
series of successive offering periods, each with a maximum duration of 24
months. However, the initial offering period will be of 25-months
duration, beginning on July 1, 1999 and ending on the last business day in
July 2001. The next offering period will commence on the first business day
in August 2001, and subsequent offering periods will commence as designated
by the Plan Administrator.
At the time the participant joins the offering period, he or she will be
granted a purchase right to acquire shares of Common Stock at semi-annual
intervals over the remainder of that offering period. The purchase dates
will occur on the last business days of January and July each year, and all
payroll deductions collected from the participant for the period ending with
each such semi-annual purchase date will automatically be applied to the
purchase of Common Stock. The initial purchase date under the Purchase Plan
will be January 31, 2000.
Should the fair market value per share of Common Stock on any purchase
date be less than the fair market value per share on the start date of the
two-year offering period, then that offering period will automatically
17.
<PAGE>
terminate, and a new two-year offering period will begin on the next business
day, with all participants in the terminated offering to be automatically
transferred to the new offering period.
ELIGIBILITY AND PARTICIPATION
Any individual who is employed on a basis under which he or she is
regularly expected to work for more than 20 hours per week for more than five
months per calendar year in the employ of the Company or any participating
parent or subsidiary corporation (including any corporation which
subsequently becomes such at any time during the term of the Purchase Plan)
is eligible to participate in the Purchase Plan.
An individual who is an eligible employee on the start date of any
offering period may join that offering period at that time or on any
subsequent semi-annual entry date (the first business day in February or
August each year) within that offering period. An individual who first
becomes an eligible employee after such start date may join the offering
period on any semi-annual entry date within that offering period on which he
or she is an eligible employee.
As of February 28, 1999, approximately 96 employees, including eight
executive officers, were eligible to participate in the Purchase Plan.
PURCHASE PRICE
The purchase price of the Common Stock acquired on each semi-annual
purchase date will be equal to 85% of the lower of (i) the fair market value
per share of Common Stock on the participant's entry date into the offering
period or (ii) the fair market value on the semi-annual purchase date.
The fair market value per share of Common Stock on any particular date
under the Purchase Plan will be deemed to be equal to the closing selling
price per share on such date on the Nasdaq National Market. On February 26,
1999, the closing selling per share of Common Stock on the Nasdaq National
Market was $1.969.
PAYROLL DEDUCTIONS AND STOCK PURCHASES
Each participant may authorize periodic payroll deductions in any
multiple of one percent up to a maximum of 15% of his or her total cash
compensation (base salary plus bonus, overtime and commissions) to be applied
to the acquisition of Common Stock at semi-annual intervals. Accordingly, on
each semi-annual purchase date (the last business day in January and July
each year), the accumulated payroll deductions of each participant will
automatically be applied to the purchase of whole shares of Common Stock at
the purchase price in effect for the participant for that purchase date.
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following limitations:
- Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 worth of Common Stock
(valued at the time each purchase right is granted) for each
calendar year those purchase rights are outstanding at any time.
- Purchase rights may not be granted to any individual if such
individual would, immediately after the grant, own or hold
outstanding options or other rights to purchase, stock possessing
five percent or more of the total combined voting power or value
of all classes of stock of the Company or any of its affiliates.
- No participant may purchase more than 3,000 shares of Common
Stock on any one purchase date.
18
<PAGE>
- The maximum number of shares of Common Stock issuable to all
participants in the aggregate on any one purchase date will be
limited to 175,000 shares.
However, the Plan Administrator will have the discretionary authority,
exercisable prior to the start of any offering period, to increase or
decrease the 3,000-share and 175,000-share limitations to be in effect for
the number of shares purchasable per participant and in the aggregate by all
participants on each purchase date during that offering period.
TERMINATION OF PURCHASE RIGHTS
The participant may withdraw from the Purchase Plan at any time, and his
or her accumulated payroll deductions will, at the participant's election,
either be applied to the purchase of shares on the next semi-annual purchase
date or be refunded immediately.
The participant's purchase right will immediately terminate upon his or
her cessation of employment or loss of eligible employee status. Any payroll
deductions which the participant may have made for the semi-annual period in
which such cessation of employment or loss of eligibility occurs will be
refunded and will not be applied to the purchase of Common Stock.
STOCKHOLDER RIGHTS
No participant will have any stockholder rights with respect to the
shares covered by his or her purchase rights until the shares are actually
purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior
to the date of such purchase.
ASSIGNABILITY
No purchase rights will be assignable or transferable by the
participant, and the purchase rights will be exercisable only by the
participant.
CHANGE IN CONTROL OR OWNERSHIP
In the event the Company is acquired by merger, sale of substantially
all of the Company's assets or sale of securities possessing more than 50% of
the total combined voting power of the Company's outstanding securities, all
outstanding purchase rights will automatically be exercised immediately prior
to the effective date of such acquisition. The purchase price will be equal
to 85% of the LOWER of (i) the fair market value per share of Common Stock on
the participant's entry date into the offering period in which such
acquisition occurs or (ii) the fair market value per share of Common Stock
immediately prior to such acquisition. The limitation on the maximum number
of shares issuable in the aggregate on any one purchase date shall not be
applicable to any purchase date attributable to such an acquisition.
SHARE PRO-RATION
Should the total number of shares of Common Stock to be purchased
pursuant to outstanding purchase rights on any particular date exceed the
number of shares then available for issuance under the Purchase Plan, then
the Plan Administrator will make a pro-rata allocation of the available
shares on a uniform and nondiscriminatory basis, and the payroll deductions
of each participant, to the extent in excess of the aggregate purchase price
payable for the Common Stock pro-rated to such individual, will be refunded.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earliest of (i) the last
business day in July, 2009, (ii) the date on which all shares available for
issuance thereunder are sold pursuant to exercised purchase rights or (iii)
the date on which all purchase rights are exercised in connection with an
acquisition of the Company.
19
<PAGE>
The Board may at any time alter, suspend or discontinue the Purchase
Plan. However, the Board may not, without stockholder approval, (i) increase
the number of shares issuable under the Purchase Plan, (ii) alter the
purchase price formula so as to reduce the purchase price or (iii) modify the
requirements for eligibility to participate in the Purchase Plan.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant,
and no deductions will be allowable to the Company, upon either the grant or
the exercise of the purchase rights. Taxable income will not be recognized
until there is a sale or other disposition of the shares acquired under the
Purchase Plan or in the event the participant should die while still owning
the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two years after his or her entry date into the offering period in
which such shares were acquired or within one year after the semi-annual
purchase date on which those shares were actually acquired, then the
participant will recognize ordinary income in the year of sale or disposition
equal to the amount by which the fair market value of the shares on the
purchase date exceeded the purchase price paid for those shares, and the
Company will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than
two years after his or her entry date into the offering period in which the
shares were acquired and more than one year after the semi-annual purchase
date of those shares, then the participant will recognize ordinary income in
the year of sale or disposition equal to the lesser of (i) the amount by
which the fair market value of the shares on the sale or disposition date
exceeded the purchase price paid for those shares or (ii) 15% of the fair
market value of the shares on the participant's entry date into that offering
period; and any additional gain upon the disposition will be taxed as a
long-term capital gain. The Company will not be entitled to an income tax
deduction with respect to such disposition.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on
the date of death exceeds the purchase price or (ii) 15% of the fair market
value of the shares on his or her entry date into the offering period in
which those shares were acquired will constitute ordinary income in the year
of death.
ACCOUNTING TREATMENT
Under current accounting principles applicable to employee stock
purchase plans qualified under Section 423 of the Internal Revenue Code, the
issuance of Common Stock under the Purchase Plan will not result in a
compensation expense chargeable against the Company's reported earnings.
However, the Company must disclose, in pro-forma statements to the Company's
financial statements, the impact the purchase rights granted under the
Purchase Plan would have upon the Company's reported earnings were the fair
value of those purchase rights treated as compensation expense.
VOTE REQUIRED
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Annual Meeting
is required for approval of the Purchase Plan. Should such stockholder
approval not be obtained, then the Purchase Plan will not be implemented.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
PURCHASE PLAN. THE BOARD BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE
COMPANY TO PROVIDE A PROGRAM OF STOCK OWNERSHIP TO THE COMPANY'S EMPLOYEES IN
ORDER TO PROVIDE THEM WITH A MEANINGFUL OPPORTUNITY TO ACQUIRE A SUBSTANTIAL
PROPRIETARY INTEREST IN THE COMPANY AND THEREBY ENCOURAGE SUCH INDIVIDUALS TO
REMAIN IN THE COMPANY'S SERVICE AND MORE CLOSELY ALIGN THEIR INTERESTS. <PAGE>
20
<PAGE>
PROPOSAL FOUR -- RATIFICATION OF
APPOINTMENT OF INDEPENDENT AUDITORS
The Board has appointed the firm of Ernst & Young LLP, independent
auditors, to audit the consolidated financial statements of the Company for
the fiscal year ending December 31, 1999, and recommends that the
stockholders vote "FOR" ratification of such 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 has served as independent auditors to the Company for
the fiscal year ended December 31, 1998. 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.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
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 achievement of pre-defined performance targets and (iii) long-term
stock-based incentive awards designed to strengthen the mutuality of
interests between the executive officers and the Company'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.
FACTORS. The principal factors that were taken into account in
establishing each executive officer's compensation package for the 1998
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
for the Company's Chief Executive Officer, Michael D. Casey, for the 1998
fiscal year, the Committee sought to provide him with a level of base salary
which the Committee believed, on the basis of its understanding of the
industry, would be competitive with the base salary levels in effect for
other chief executive officers at similar-sized companies in the industry.
It is the Committee's objective to maintain Mr. Casey's base salary at a
stable and predictable level from year to year and not have this component of
his overall compensation package significantly affected by Company
performance.
BASE SALARY - OTHER EXECUTIVE OFFICERS. In setting the base salaries
of the executive officers other than the Chief Executive Officer, the
Compensation Committee did not rely on any specific compensation surveys
indicating the base salary levels in effect at comparable companies but did
review a survey prepared by management indicating the targeted merit
increases to the salary levels of executives at approximately 20 companies in
the industry. On the basis of this survey, the Committee determined the
salary increases to be in effect for the 1998 fiscal year for the Company's
other executive officers.
ANNUAL INCENTIVE COMPENSATION. For the 1998 fiscal year, the
Compensation Committee established 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 1998 fiscal year were
based primarily on personal performance and the attainment of specific
personal performance objectives. On the basis of the Committee's evaluation
of personal performance for the year as well as the highly competitive market
for senior-level personnel within the pharmaceutical industry, the executive
officers (other than the Chief Executive Officer) received bonuses which
ranged from 13.9% to 25.9% of their base salary for the year. A number of
executive officers, including the following Named Officers: Mr. Lucas and
Drs. Leavitt and Jones, elected to receive their bonus
22
<PAGE>
primarily in the form of fully-vested shares of the Company's Common Stock,
with the cash balance applied to the payment of the applicable withholding
taxes so that none of the shares would have to be immediately sold for such
purpose.
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, generally, 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 substantially 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 1998
fiscal year.
CEO COMPENSATION. The base salary for the Company's Chief Executive
Officer, Michael D. Casey, for the 1998 fiscal year was increased to
$420,000, five percent above the level in effect for him for the prior year,
in order to maintain his salary at a competitive level with the salaries of
chief executives of pharmaceutical companies of similar size. Pursuant to
his offer letter from the Company, Mr. Casey received a sign-on bonus of
$150,000 in 1997 and an additional $50,000 bonus in 1998 upon his completion
of six months of employment and the attainment of certain performance
milestones. Mr. Casey was also eligible to receive an additional
performance-based bonus for the 1998 fiscal year targeted at 35% of his base
salary, and he in fact earned an additional $100,000 bonus for the 1998
fiscal year on the basis of his individual performance for such year. Like
a number of the Company's other executive officers, Mr. Casey elected to
receive this bonus primarily in the form of shares of the Company's Common
Stock, with the cash balance applied to the payment of the applicable
withholding taxes.
During the 1998 fiscal year, Mr. Casey was also granted an option to
purchase an additional 50,000 shares of Common Stock. The option has an
exercise price equal to the fair market value of the underlying shares on the
grant date and will become exercisable for those shares in a series of
installments over a four-year period of continued employment with the
Company. Accordingly, the option is designed to serve an a meaningful
incentive for him to remain in the Company' employ and to further align his
interests with those of the stockholders.
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 1998 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 1999 will exceed that
limit. Options granted to the executive officers during the 1998 fiscal year
should qualify as performance based compensation, and any deductions
attributable to the exercise of these options should not be subject to the $1
million limitation. However, the Company has in prior fiscal years granted
options to the executive officers with an exercise price equal to 85% of the
fair market value of the option shares on the grant date as an additional
inducement to retain their services. As a result, the compensation deemed
paid by the Company in connection with the subsequent exercise of those
options will not qualify as performance-based compensation and will be
subject to the $1 million limitation. In addition, a portion
23
<PAGE>
of the options granted to Mr. Casey in 1997 as part of the
cancellation/regrant program implemented during that year will not qualify as
performance-based compensation and will also be subject to the $1 million
limitation should those options be exercised during a fiscal year in which he
is a named executive officer in the Company's proxy statement. 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 million 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
1998 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:
John E. Lyons, Member
Julius L. Pericola, Member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of December 31, 1998, the Compensation Committee of the Board was
comprised of Messrs. Lyons and Pericola. No current or past member of the
Compensation Committee was at any time during the 1998 fiscal year, or at any
time, an 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 U.S. Stock Market Index. This information has been provided
to the Company by the Nasdaq Stock Market. These indices, which reflect
formulas for dividend reinvestment and weighing of individual stocks, do not
necessarily reflect returns that could be achieved by individual investors.
<TABLE>
<CAPTION>
Matrix NASDAQ NASDAQ Stock
Pharmaceutical, Pharmaceutical Market Index
Inc. Index
<S> <C> <C> <C>
01/28/92 100 100 100
03/31/92 73 85 97
06/30/92 40 71 91
09/30/92 41 67 94
12/31/92 58 81 110
03/31/93 45 59 112
06/30/93 60 62 114
09/30/93 63 67 124
12/31/93 70 73 126
03/31/94 74 59 121
06/30/94 68 52 115
09/30/94 95 58 125
12/31/94 92 55 123
03/31/95 92 59 134
06/30/95 90 69 154
09/30/95 93 86 172
12/31/95 125 100 174
03/31/96 154 104 182
06/30/96 120 101 197
09/30/96 53 103 204
12/31/96 41 100 214
03/31/97 43 95 203
06/30/97 45 103 240
09/30/97 33 115 280
12/31/97 23 104 263
01/31/98 31 114 307
06/30/98 29 106 316
09/30/98 19 100 286
12/31/98 18 133 369
</TABLE>
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>
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 current Chief Executive Officer
and the four other highest paid executive officers whose salary and bonus for
fiscal 1998 were in excess of $100,000. The individuals named in the table
will be hereinafter referred to as the "Named Officers." No other executive
officer who would have otherwise been included in such table on the basis of
salary and bonus earned for the 1998 fiscal year resigned or terminated
employment during that year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
------------------------------------------------------------------------------------------
Other Annual Securities Restricted All Other
Salary Bonus Compensation Underlying Options Stock Awards Compensation
Name and Principal Position Year ($) ($)(1) ($) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael D. Casey (2) 1998 404,956 150,000 - 50,000 - 410,031 (4)
President and 1997 106,843 150,000 - 1,100,000 (3) - 70,636 (4)
Chief Executive Officer 1996 - - - - - -
Richard D. Leavitt, M.D. (5) 1998 233,991 33,000 - 20,000 - 5,000 (7)
Senior Vice President, 1997 220,000 33,000 - 125,000 (3) 175,000 (6) 82,972 (7)
Medical and Regulatory 1996 18,334 - - 85,000 - 20,000 (7)
Affairs
Richard E. Jones, Ph.D. 1998 193,333 30,000 - 20,000 - 5,000 (8)
Vice President, Research 1997 181,650 27,250 - 90,000 (3) - 2,661 (8)
and Development 1996 173,000 28,200 - 20,000 - 1,188 (8)
Ronald P. Lucas 1998 185,670 28,000 - 20,000 - 5,000 (9)
Vice President, 1997 173,250 23,400 - 125,000 (3) 26,250 (6) 2,613 (9)
Operations 1996 136,971 32,670 - 75,000 - -
Harry D. Pedersen (10) 1998 174,534 45,000 - 45,000 - 11,961 (11)
Vice President, 1997 78,163 11,725 - 130,000 (3) 175,000 (6) 67,000 (11)
Corporate Development 1996 - - - - - -
Andrew G. Korey, Ph.D. (12) 1998 182,199 20,995 - 20,000 - 106,000 (13)
Vice President, 1997 175,000 21,000 - 70,000 (3) - -
Business Development and 1996 175,000 24,950 - 20,000 - -
Scientific Licensing
</TABLE>
(1) Bonuses are reported for the year earned, although generally paid in
the subsequent year, except for Mr. Casey's sign-on bonus of $150,000
paid in 1997 and a guaranteed minimum $50,000 bonus for 1998 paid in
that year. The remaining $100,000 of the 1998 year bonus was paid in
1999. Except for the $50,000 guaranteed bonus paid to Mr. Casey in
1998 and the bonuses paid to Mr. Pedersen and Dr. Korey for the 1998
fiscal year, all bonuses for the Named Officers for the 1998 fiscal
year were paid primarily in shares of the Company's Common Stock,
valued at $1.9125 per share for such purpose, with the balance of the
bonus paid in cash and applied to the payment of the applicable
withholding taxes. The stock and cash component of each executive's
officer bonus for the 1998 fiscal year is as follows:
<TABLE>
<CAPTION>
Name Number of Shares Cash Payment
----------- ---------------- ------------
<S> <C> <C>
Mr. Casey 33,100 $36,696
Dr. Leavitt 10,060 $13,760
Dr. Jones 9,132 $12,535
Mr. Lucas 8,520 $11,705
</TABLE>
26
<PAGE>
(2) Mr. Casey joined the Company as President and Chief Executive Officer on
October 6, 1997, with an annualized salary of $400,000 for the 1997 fiscal
year.
(3) Includes the following options regranted on October 29, 1997 in exchange
for the cancellation of preexisting options for the same number of shares
with an exercise price per share in excess of $3.94: Michael D. Casey
(550,000 shares); Richard Leavitt (105,000 shares); Richard Jones (70,000
shares), Ronald Lucas (100,000 shares), Harry Pedersen (65,000 shares) and
Andrew Korey (60,000 shares).
(4) Represents relocation allowance for Mr. Casey of $70,636 in 1997 and the
sum of the following amounts for 1998: (i) $401,310 balance of relocation
allowance, (ii) automobile allowance of $3,721 and (iii) a matching
contribution on Mr. Casey's behalf to the Company's 401(k) Plan in the form
of 1,081 shares of Common Stock at $4.625 per share.
(5) Dr. Leavitt joined the Company as Senior Vice President, Medical and
Regulatory Affairs on December 2, 1996, with an annualized salary of
$220,000 for the 1997 fiscal year.
(6) Represents a share rights award made by the Compensation Committee on
December 2, 1997 which granted Dr. Leavitt and Mr. Pedersen each the right
to receive 50,000 shares of the Company's Common Stock and Mr. Lucas the
right to receive 7,500 shares of the Company's Common Stock. The shares
will be issued in a series of three successive equal annual installments
upon the individual's completion of each year of service over the
three-year period measured from the award date. The closing selling price
per share of the Company's Common Stock on the award date was $3.50.
(7) For 1996 represents relocation allowance for Dr. Leavitt of $20,000 in
1996. For 1997 represents (i) relocation allowance for Dr. Leavitt of
$80,424 and (ii) a matching contribution on Dr. Leavitt's behalf to the
Company's 401(k) Plan in the form of 741 shares of Common Stock at $3.438
per share. For 1998 represents a matching contribution on Dr. Leavitt's
behalf to the Company's 401(k) Plan in the form of 1,081 shares of Common
Stock at $4.625 per share.
(8) Represents a matching contribution in shares of Common Stock made by the
Company on Dr. Jones' behalf to the Company's 401(k) Plan for each of the
indicated fiscal years as follows: 194 shares of Common Stock at $6.125 per
share for 1996, 774 shares of Common Stock at $3.438 per share for 1997 and
1,269 shares of Common Stock at $3.940 per share for 1998.
(9) Represents a matching contribution in shares of Common Stock made by the
Company on Mr. Lucas' behalf to the Company's 401(k) Plan for each of the
indicated fiscal years as follows: 154 shares of Common Stock at $6.125 per
share for 1996, 760 shares of Common Stock at $3.438 for 1997 and 1,228
shares of Common Stock at $4.071 per share for 1998.
(10) Mr. Pedersen joined the Company as Vice President, Corporate Development on
June 25, 1997, with an annualized salary of $165,000 for the 1997 fiscal
year.
(11) For 1997 represents (i) relocation allowance for Mr. Pedersen of $65,326
and (ii) a matching contribution made by the Company on Mr. Pedersen's
behalf to the Company's 401(k) Plan in the form of 487 shares of Common
Stock at $3.438 per share. For 1998 represents (i) a relocation allowance
of $7,623 in 1998 and (ii) a matching contribution made by the Company on
Mr. Pedersen's behalf to the Company's 401(k) Plan in the form of 1,274
shares of Common Stock at $3.406 per share.
(12) Dr. Korey resigned his position as Vice President, Business Development and
Scientific Licensing on November 20, 1998.
(13) Represents severance amount for Dr. Korey payable on a monthly basis
through June 21, 1999.
27
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS
The following table provides information with respect to the stock
option grants made during fiscal 1998 to the Named Officers. No stock
appreciation rights were granted during such fiscal year to the Named
Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Individual Grants Appreciation for Option Term (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Percent of Total
Number of Securities Options Granted to
Underlying Options Employees in Fiscal Exercise Price Expiration
Name Granted (#) (1) Year (2) Date 5 % ($) 10 % ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Casey 50,000 5.99% $4.75 5/18/08 386,850 616,000
Richard D. 20,000 2.40% $3.50 1/28/08 114,020 181,560
Leavitt, M.D.
Richard E. Jones, 20,000 2.40% $3.50 1/28/08 114,020 181,560
Ph.D.
Ronald P. Lucas 20,000 2.40% $3.50 1/28/08 114,020 181,560
Harry D. Pedersen 25,000 2.99% $2.50 8/21/08 101,800 162,100
20,000 2.40% $3.50 1/28/08 114,020 181,560
Andrew G. Korey, 20,000 2.40% $3.50 6/21/99 114,020 181,560
Ph.D.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The dates on which the options were granted are as follows:
<TABLE>
<CAPTION>
NAME GRANT DATE
<S> <C>
Mr. Casey May 18, 1998
Dr. Leavitt January 28, 1998
Dr. Jones January 28, 1998
Mr. Lucas January 28, 1998
Mr. Pedersen January 28, 1998, August 21, 1998
Dr. Korey January 28, 1999
</TABLE>
Each option will become exercisable for 25% of the option shares upon the
optionee's completion of one year of service, measured from the applicable
grant date, and will become exercisable for the balance of the option
shares in a series of 36 successive equal monthly installments upon his
completion of each additional month of service over the next 36 months
thereafter.
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. In addition,
the option will vest in full on an accelerated basis should the optionee's
employment terminate under certain circumstances within a specified time
period following a change in control of the Company in which the option is
assumed. 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.
28.
<PAGE>
(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. The indicated
dollar amounts are based on the options granted during the 1998 fiscal
year, net of options granted and cancelled in such fiscal year.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of
options during fiscal 1998 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.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND 1998 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
No. of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Options at FY-End(#) FY-End
-------------------------------------------------------------
Shares Value Unexercis- Exercisable Unexercis-
Name Acquired on Realized (1) Exercisable able ($) (2) able ($)
Exercise
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Casey -- -- 247,499 352,501 -- --
Richard D. Leavitt, M.D. -- -- 56,766 68,234 -- --
Richard E. Jones, Ph.D. 58,324 $275,856 53,748 36,252 -- --
Ronald P. Lucas -- -- 64,851 55,149 -- --
Harry D. Pedersen -- -- 26,872 83,128 -- $3,125
Andrew G. Korey, Ph.D. 34,495 $418,739 47,498 32,502 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Equal to the 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.
(2) Determined by subtracting the exercise price from the market price of the
Common Stock on December 31, 1998 of $2.625 per share, the Nasdaq National
Market trading price at the close of business that same day.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
The Company entered into a special change in control and severance
agreement with Michael D. Casey on June 10, 1998 which replaces the severance
arrangement previously provided under his August 25, 1997 employment
agreement. Under the new agreement, Mr. Casey will be provided with the
following severance benefits in the event his employment is terminated
Without Cause: (i) 12 months of salary continuation payments, (ii) a cash sum
equal to the bonus paid to him for the fiscal year immediately preceding the
fiscal year of his termination, provided he makes himself available to render
up to 10 hours of consulting services per month during the 12-month period
following his termination date, and (iii) continued health coverage at the
Company's cost for up to a 12-month period.
Should Mr. Casey's employment be terminated Without Cause within 24
months following a Change in Control, then he will become entitled to the
following severance benefits instead of those summarized above: (i) all of
his outstanding options will vest and become immediately exercisable for all
the shares subject to those options, and the options will remain so
exercisable for up to a one-year period following his termination date, (ii)
he will
29.
<PAGE>
receive 24 months of salary continuation payments, (iii) an additional cash
amount equal to two times his bonus for the fiscal year immediately preceding
the fiscal year of his termination will be paid, provided he makes himself
available to render up to 10 hours of consulting services per month during
the 24 month period following his termination date, and (iii) the $500,000
loan which the Company has extended him for the purchase of his principal
residence will be forgiven
In 1998, the Company also entered into a special change in control and
severance agreement with each of the other executive officers, including the
other Named Officers. Under the new agreement, each executive officer will be
entitled to six months of salary continuation payments following an
Involuntary Termination (other than for Cause), provided the officer executes
a general release of any claims he or she may have against the Company.
However, if there is an Involuntary Termination of the officer's employment
(other than for Cause) within 18 months following a Change in Control, then
that officer will become entitled to the following severance benefits: (i)
all of his or her outstanding options will vest and become immediately
exercisable for all the shares subject to those options, and those options
will remain so exercisable for up to a one-year period following his or her
termination date and (ii) his or her salary continuation period will be
extended from six months to 18 months.
For purposes of these agreements, the following definitional provisions
will be in effect:
- "Change in Control":
(i) a merger or consolidation in which securities possessing
more than 50% of the total combined voting power of the Company's outstanding
voting securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction;
(ii) a sale, transfer or other disposition of all or
substantially all of the assets of the Company in liquidation or dissolution
of the Company;
(iii) the acquisition of beneficial ownership, by any person
or a group of related persons, of securities possessing 30% or more of the
total combined voting power of the Company's outstanding voting securities
pursuant to a third-party tender or exchange offer made to the Company's
stockholders; or
(iv) a change in the composition of the Board over a period
of 36 consecutive months or less such that a majority of the Board 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.
- "Involuntary Termination": a termination of employment with the
Company that is
(i) involuntarily upon the officer's dismissal; or
(ii) voluntarily following: (a) a change in his or her
position with the Company which materially reduces his or her duties and
responsibilities or the level of management to which he or she reports; (b) a
reduction of 10% or more in his or her level of compensation (including base
salary, fringe benefits and target bonus); or (c) a change in his or her
place of employment which is more than 50 miles from his place of employment
immediately prior to the Change in Control, provided and only if such change
or reduction is effected without his written concurrence.
- "Termination for Cause": an Involuntary Termination effected
by reason of the officer having engaged in fraud, acts of dishonesty or in
any other illegal or intentional misconduct adversely affecting the business
reputation of the Company in a material manner.
For purposes of Mr. Casey's agreement, the term "Cause" means (i)
misconduct, including embezzlement, theft, misuse of confidential information
or any other illegal or improper act, (ii) conduct that constitutes a
material
30.
<PAGE>
breach of Company policy, if he fails to correct such conduct within 30 days
after written notice from the Company; and (iii) any other unauthorized
conduct that causes, or could potentially cause, material harm to the
business or reputation of the Company, unless he correct such conduct within
30 days after written notice from the Company. In addition, Mr. Casey's
employment will be deemed to have been terminated "Without Cause" if such
termination occurs by reason of (i) the Company's termination of his
employment for any reason other than Cause (ii) his resignation following a
material reduction in his title, duties or responsibilities, a reduction in
his base salary by more than five percent or the relocation if his principal
place of employment by more than 40 miles.
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.
OFFICER/DIRECTOR LOANS
In August 1998, the Company agreed to lend to Mr. David G. Ludvigson,
Senior Vice President and Chief Financial Officer, up to the principal amount
of $100,000 in connection with his purchase of a new principal residence
(the "Property"). Any amount so loaned to Mr. Ludvigson would be interest
bearing and secured by a second deed of trust on the Property. The loan has
a four-year term and would be forgiven in a series of four successive annual
installments over his period of continued employment with the Company. The
loan balance is $-0- as of March 23, 1999.
In December 1997, the Company loaned to Mr. Michael D. Casey, President
and Chief Executive Officer and a Board member, the principal amount of
$500,000 in connection with the purchase of his principal residence (the
"Property"). The loan does not bear interest and is secured by a second deed
of trust on the Property. The loan has a seven-year term and will be
forgiven, at the rate of $100,000 per year, upon Mr. Casey's completion of
each year of employment with the Company, beginning at the end of his third
year of such employment.
In November 1997, the Company loaned to Mr. Harry D. Pedersen, Vice
President of Business Development, the principal amount of $100,000 in
connection with the purchase of his principal residence (the "Property"). The
loan has a maximum term of four years and will become due and payable in one
lump sum at the end of that term. The loan is secured by a second deed of
trust on the Property and is interest free so long as Mr. Pedersen continues
in the Company's employ. In December 1998, the Board restructured the loan to
provide for the forgiveness of that loan in a series of three successive
annual installments, as follows: $50,000 on April 1, 1999; $25,000 on April
3, 2000; and $25,000 on April 2, 2001. Such loan forgiveness will cease upon
cessation of Mr. Pedersen's employment by the Company, without any proration
of forgiveness should employment cease prior to any of the forgiveness dates.
In September 1997, the Company loaned to Mr. Edward E. Luck, a current
Board member and former Chairman of the Board, the amount of $750,000. The
loan was payable in 1998 and accrued interest at seven percent per annum
until paid. In 1998, Mr. Luck repaid $346,000 and accrued interest. The
remaining balance of the loan was extended to September 22, 1999. The loan is
secured both by a deed of trust on Mr. Luck's residence and by a pledge of
the shares of the Company's Common Stock that he owns.
In October 1995, the Company loaned to Mr. Glynn, the former Chief
Operating Officer and Chief Financial Officer and a current Board member, the
principal amount of $100,000 in connection with his purchase of his principal
residence (the "Property"). Of the principal amount, $66,667 was forgiven in
a series of two equal annual installments over Mr. Glynn's period of service
from July 1996 to July 1998, and the remaining $33,333 was repaid by Mr.
Glynn in October 1998.
The highest outstanding balances under the promissory notes delivered by
the Company's executive officers and directors during the 1998 fiscal year
were as follows: Mr. Casey, $500,000; Mr. Pedersen, $100,000; Mr. Luck,
$802,500
31.
<PAGE>
and Mr. Glynn, $66,667. The outstanding balance on each of these
promissory notes as of March 23, 1999 was as follows: Mr. Casey, $500,000;
Mr. Pedersen, $100,000; Mr. Luck, $404,987 and Mr. Glynn, $-0-.
SHARED INVESTMENT PROGRAM
In June 1997, certain officers of the Company purchased shares of the
Company's Common Stock pursuant to the Shared Investment Program under the
1988 Restricted Stock Option Plan by delivering full-recourse promissory
notes in payment of the purchase price for those shares. Under the Shared
Investment Program, Messrs. Glynn and Pedersen and Dr. Leavitt each purchased
100,000 shares at $6.25 per share. Other executive officers, Ronald P. Lucas
and Natalie L. McClure, each purchased 15,000 and 10,000 shares,
respectively, at $6.25 per share. Each note bears interest at 6.69% per
annum rate, compounded semi-annually, required under the federal tax laws to
avoid the imputation of compensation income and has a maximum term of 9
years. However, the note will become immediately due and payable if the
participant's employment is terminated by the Company for any reason or the
participant resigns from employment. Each note is secured by a pledge of the
purchased shares with the Company.
The shares of the Company's Common Stock purchased under the promissory
notes are subject to the following shared investment arrangement.
- 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:
- 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
- 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:
- to the extent any of the shares are sold on or 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;
- to the extent any of the shares are sold after the second
anniversary but on or 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
- 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.
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.
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.
The highest outstanding balance on each of these promissory notes during
the 1998 fiscal year was as follows: Mr. Glynn, $689,141; Mr. Pedersen,
$689,141; Dr. Leavitt, $689,141 and Mr. Lucas, $103,261. The outstanding
32.
<PAGE>
balance on each of the promissory notes as of March 23, 1999 was as follows:
Mr. Glynn, $698,745; Mr. Pedersen, $698,745; Dr. Leavitt, $698,745 and Mr.
Lucas, $104,701.
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, 1998 to December 31,
1998, all officers, directors and beneficial owners of more than 10% of the
outstanding Common Stock complied with all Section 16(a) requirements, except
that a Form 5 was filed by Dr. Natalie McClure with respect to a late Form 3
filing reporting shares of Common Stock held in her Individual Retirement
Account.
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 February
28, 1999 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.
33.
<PAGE>
PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER PERCENT OF TOTAL
NAME AND ADDRESS OF SHARES SHARES OUTSTANDING(1)(2)
<S> <C> <C>
Heartland Advisors, Inc. (3) . . . . . . . . . 2,620,000 11.76%
790 North Milwaukee Street
Milwaukee, WI 53202
State of Wisconsin Investment Board (4). . . . 2,065,000 9.27%
Post Office Box 7842
Madison, WI 53707
Quaker Capital Management Corporation (5). . . 2,063,800 9.26%
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Dimensional Fund Advisors, Inc. (6). . . . . . 1,300,500 5.84%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Edward E. Luck (7) . . . . . . . . . . . . . . 472,975 2.12%
Michael D. Casey (7) . . . . . . . . . . . . . 318,345 1.41%
Richard D. Leavitt, M.D. (7) . . . . . . . . . 235,703 1.05%
James R. Glynn (7) . . . . . . . . . . . . . . 213,225 *
Harry D. Pedersen (7). . . . . . . . . . . . . 190,299 *
Richard E. Jones, Ph.D. (7). . . . . . . . . . 105,748 *
Ronald P. Lucas. . . . . . . . . . . . . . . . 112,598 *
Andrew G. Korey, Ph.D. (7) . . . . . . . . . . 86,743 *
J. Stephan Dolezalek (8) . . . . . . . . . . . 66,800 *
Julius L. Pericola (7) . . . . . . . . . . . . 35,668 *
John E. Lyons (7). . . . . . . . . . . . . . . 30,200 *
Marvin E. Jaffe, M.D. (7). . . . . . . . . . . 13,334 *
Bradley G. Lorimier (7). . . . . . . . . . . . 13,334 *
All current directors and executive
officers as a group (16 persons) (9) . . . . 2,673,814 11.49%
</TABLE>
______________________
* Less than one percent.
(1) Percentage of beneficial ownership is calculated assuming 22,278,942 shares
of Common Stock were outstanding on February 28, 1999. 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 with 60 days after February 28, 1999, 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) Pursuant to a Schedule 13G dated January 29, 1999, and filed with the
Securities and Exchange Commission (the "SEC"), Heartland Advisors, Inc.
has reported that as of December 31, 1998, it had sole voting power over
520,000 shares and sole dispositive power over 2,620,000 shares. These
shares are held in investment advisory
34.
<PAGE>
accounts of Heartland Advisors, Inc. As a result, various persons have the
right to receive or the power to direct the receipt of dividends from, or
the proceeds from the sale of, the securities.
(4) Pursuant to a letter dated January 28, 1999 from State of Wisconsin
Investment Board ("SWIB"), SWIB has reported that as of December 31, 1998,
it had equity holdings of 2,065,000 shares of Common Stock of the Company.
(5) Pursuant to a Schedule 13G dated February 14, 1999, and filed with the SEC,
Quaker Capital Management Corporation has reported that as of December 31,
1998, it had sole voting and sole dispositive power over 892,500 shares and
shared voting and shared dispositive power over 1,435,300 shares.
(6) Pursuant to a Schedule 13G dated February 11, 1999 and filed with the SEC,
Dimensional Fund Advisors Inc. has reported that as of December 31, 1998,
it had sole voting power over 1,300,500 shares and sole dispositive power
over all of these shares.
(7) The amounts shown include shares which may be acquired currently or within
60 days after February 28, 1999, through the exercise of stock options, as
follows: Mr. Luck, 29,716 shares; Mr. Casey, 284,164 shares; Dr. Leavitt,
73,821 shares; Mr. Glynn, 62,286 shares; Dr. Jones, 65,217 shares; Mr.
Lucas, 79,435 shares; Dr. Korey, 56,248 shares; Mr. Pedersen, 38,538
shares; Mr. Pericola, 35,668 shares; Mr. Lyons, 30,200 shares; Mr. Jaffe,
13,334 shares and Mr. Lorimier, 13,334 shares.
(8) Includes 64,000 shares subject to options 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.
(9) Includes 985,025 shares subject to options.
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.
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 2000 Annual Meeting must be
received by the Company no later than December 31, 1999 so they may be
included in the proxy statement and form of proxy relating to that meeting.
In addition, the proxy solicited by the Board of Directors for the 2000
Annual Meeting will confer discretionary authority to vote on any shareholder
proposal presented at that meeting, unless the Company is provided with
notice of such proposal no later than February 14, 2000.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1998 (the "Annual Report") is being mailed concurrently with
this Proxy Statement to all stockholders entitled to notice of and to vote at
the Annual Meeting. The Annual Report is not incorporated into this Proxy
Statement and is not considered proxy soliciting material.
35.
<PAGE>
FORM 10-K
A copy of the Company's Form 10-K, as filed with the Securities and
Exchange Commission (the "Form 10-K") 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: April 5, 1999
36.
<PAGE>
MATRIX PHARMACEUTICAL, INC.
1988 RESTRICTED STOCK PLAN
AS AMENDED AND RESTATED EFFECTIVE MARCH 2, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I 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 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 STOCK ISSUANCE PROGRAM . . . . . . . . . . . . . . . . . . .13
1. Terms and Conditions of Stock Issuances . . . . . . . . .13
2. Corporate Transaction . . . . . . . . . . . . . . . . . .16
ARTICLE IV 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
</TABLE>
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MATRIX PHARMACEUTICAL, INC.
1988 RESTRICTED STOCK PLAN
(As Amended and Restated Through March 2, 1999)
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 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.
<PAGE>
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
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
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<PAGE>
(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,
(1) 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 5,030,953 shares (1), 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
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.
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(1) 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 (iii) an additional share increase of 2,000,000 shares authorized
by the Board on March 19, 1997 and approved by the stockholders at the 1997
Annual Meeting, (iv) and additional increase of 400,000 shares authorized
by the Board on March 2, 1999, subject to stockholder approval at the 1999
Annual Meeting and (v) 238,095 shares of Common Stock previously issued
under the Plan and subsequently cancelled upon repurchase by the
Corporation.
3
<PAGE>
(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 2,000,000 shares of Common Stock(2)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 1. 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.
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(2) The increase to this limitation from 750,000 shares to 2,000,000 shares was
authorized by the Board on March 2, 1999, subject to stockholder approval
at the 1999 Annual Meeting.
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 nonstatutory 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
(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
5
<PAGE>
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 (a)(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. However, no option granted under this Plan will have a
term in excess of ten (10) years measured from the grant date.
6
<PAGE>
(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 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.
(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
7
<PAGE>
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 l(d), 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 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
8
<PAGE>
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.
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.
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<PAGE>
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 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
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<PAGE>
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.
(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).
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<PAGE>
(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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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.
(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 of the 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 dividends or other
distributions paid or made with respect to such shares. Any new,
substituted or additional securities
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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 l(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.
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(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 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).
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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 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
17
<PAGE>
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(3) 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% Unit"). 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.
(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
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(3) Adjusted to reflect the 2.1-for-1 reverse stock split to the outstanding
Common Stock effected in January 1992.
18
<PAGE>
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 was approved by the stockholders at the
1997 Annual Meeting.
(c) The Plan was amended and restated by the Board on March 2,
1999 (the "1999 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 by an additional 400,000 shares to 5,030,095 shares
(excluding the 238,0958 shares previously issued under the Plan and cancelled
upon repurchase by the Corporation) and (ii) increase the limit on the
maximum number of shares for which any one participant may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances after December 31, 1993 from 750,000 shares to 2,000,000 shares in
the aggregate. The 1999 Restatement is subject to stockholder approval, and
no option grants made on the basis of the 400,000-share increase to the share
reserve under the Plan or the 1,250,000-share increase to the per participant
limit shall become exercisable in whole or in part unless and until the 1999
Restatement is approved by the stockholders. Should such stockholder
approval not be obtained, then any options granted on the basis of the
400,000-share increase to the reserve or the 1,250,000-share increase to the
per participant limit 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 those increases. 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 1999 Restatement until the
December 31, 2002 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.
(d) 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.
(e) 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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<PAGE>
(f) Unless sooner terminated in accordance with a Corporate
Transaction, the Plan shall terminate upon the earlier of (i) December 31,
2002(4) 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 the same class is
then listed, and all other requirements of law or of any regulatory bodies
having jurisdiction over such issuance and delivery.
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(4) The extension of the term of the Plan from September 2, 1998 to December
31, 2002 was approved by the stockholders at the 1997 Annual Meeting.
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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.
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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 allotted to such individual in attached
Schedule 1. 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
incorporates the provisions of the Program applicable to the
purchased shares, including (without limitation) the gain/loss
sharing provisions of Section 6;
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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. Each 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 nine (9) 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.
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, permanent
disability (as defined in Internal Revenue Code Section
22(e)(3)) or other cessation of Service 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");
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b. the Participant may not sell any portion of the Purchased Shares
while there is any outstanding unpaid balance (principal and
accrued interest) under his or her Promissory Note, unless 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
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
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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 in accordance
with subsection 5.b.
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.
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 transfer restrictions of subsections 5.b. and 5.c.
and 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:
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a. permitted to sell the Purchased Shares, subject to the
restrictions specified in subsections 5.b. and 5.c.;
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, 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.
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,
A-5
<PAGE>
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.
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.
12. DISCRETIONARY AUTHORITY
The Plan Administrator shall have the discretionary authority to
waive any and all transfer restrictions, Service requirements or holding
period requirements otherwise applicable to the Program under such
circumstances as the Plan Administrator may deem appropriate.
A-6
<PAGE>
MATRIX PHARMACEUTICAL, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Matrix Pharmaceutical, Inc., a Delaware Corporation, by
providing eligible employees with the opportunity to acquire a proprietary
interest in the Corporation through participation in a payroll-deduction
based employee stock purchase plan designed to qualify under Section 423 of
the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with
the requirements of Code Section 423. Decisions of the Plan Administrator
shall be final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of
Common Stock purchased on the open market. The number of shares of Common
Stock reserved for issuance over the term of the Plan shall be limited to
700,000 shares.
B. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as
a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date, (iii) the maximum
number and class of securities purchasable by all Participants in the
aggregate on any one Purchase Date and (iv) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as
(i) the maximum number of shares of Common Stock available for issuance under
the Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
<PAGE>
B. Each offering period shall be of such duration (not to
exceed twenty-four (24) months) as determined by the Plan Administrator prior
to the start date of such offering period. However, the initial offering
period shall have a duration of twenty-five (25) months and shall begin on
July 1, 1999 and terminate on the last business day in July 2001. The next
offering period shall commence on the first business day in August 2001, and
subsequent offering periods shall commence as designated by the Plan
Administrator.
C. Each offering period shall be comprised of a series of one
or more successive Purchase Intervals. Purchase Intervals shall run from the
first business day in February each year to the last business day in July of
the same year and from the first business day in August each year to the last
business day in January of the following year. However, the first Purchase
Interval in effect under the initial offering period shall commence on July
1, 1999 and end on the last business day in January 2000.
D. Should the Fair Market Value per share of Common Stock on
any Purchase Date within an offering period be less than the Fair Market
Value per share of Common Stock on the start date of that offering period,
then that offering period shall automatically terminate immediately after the
purchase of shares of Common Stock on such Purchase Date, and a new offering
period shall commence on the next business day following such Purchase Date.
The new offering period shall have a duration of twenty (24) months, unless a
shorter duration is established by the Plan Administrator within five (5)
business days following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start
date of any offering period under the Plan may enter that offering period on
such start date or on any subsequent Semi-Annual Entry Date within that
offering period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after
the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or
she is an Eligible Employee.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the
Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization) and file such forms with the Plan Administrator (or
its designate) on or before his or her scheduled Entry Date.
2.
<PAGE>
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Cash Earnings paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
fifteen percent (15%). The deduction rate so authorized shall continue in
effect throughout the offering period, except to the extent such rate is changed
in accordance with the following guidelines:
(i) The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction to become effective as
soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one (1)
such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his or
her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the fifteen percent
(15%) maximum) shall become effective on the start date of the first
Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the
Participant's book account under the Plan, but no interest shall be paid on the
balance from time to time outstanding in such account. The amounts collected
from the Participant shall not be required to be held in any segregated account
or trust fund and may be commingled with the general assets of the Corporation
and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
3.
<PAGE>
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the LOWER of
(i) the Fair Market Value per share of Common Stock on the Participant's Entry
Date into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed three thousand (3,000) shares, subject to periodic adjustments in the
event of certain changes in the Corporation's capitalization. In addition, the
maximum aggregate number of shares of Common Stock purchasable by all
Participants on any one Purchase Date shall not exceed one hundred seventy-five
thousand (175,000) shares, subject to periodic adjustments in the event of
certain changes in the Corporation's capitalization. However, the Plan
Administrator shall have the discretionary authority, exercisable prior to the
start of any offering period under the Plan, to increase or decrease the
limitations to be in effect for the number of shares purchasable per Participant
and in the aggregate by all Participants on each Purchase Date during that
offering period.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied
to the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in the
aggregate on the Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
4.
<PAGE>
(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions shall
be collected from the Participant with respect to the terminated purchase
right. Any payroll deductions collected during the Purchase Interval in
which such termination occurs shall, at the Participant's election, be
immediately refunded or held for the purchase of shares on the next
Purchase Date. If no such election is made at the time such purchase right
is terminated, then the payroll deductions collected with respect to the
terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent offering period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into that
offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status)
while his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the Participant
cease to remain in active service by reason of an approved unpaid leave of
absence, then the Participant shall have the right, exercisable up until
the last business day of the Purchase Interval in which such leave
commences, to (a) withdraw all the payroll deductions collected to date on
his or her behalf for that Purchase Interval or (b) have such funds held
for the purchase of shares on his or her behalf on the next scheduled
Purchase Date. In no event, however, shall any further payroll deductions
be collected on the Participant's behalf during such leave. Upon the
Participant's return to active service (x) within ninety (90) days
following the commencement of such leave or (y) prior to the expiration of
any longer period for which such Participant's right to reemployment with
the Corporation is guaranteed by either statute or contract, his or her
payroll deductions under the Plan shall automatically resume at the rate in
effect at the time the leave began, unless the Participant withdraws from
the Plan prior to his or her return. An individual who returns to active
employment following a leave of absence which exceeds in duration the
applicable (x) or (y) time period will be treated as a new Employee for
purposes of subsequent participation in the Plan and must accordingly
re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into the
offering period.
G. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the LOWER of (i) the Fair Market Value per share of Common
Stock
5.
<PAGE>
on the Participant's Entry Date into the offering period in which such Change in
Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in the
aggregate.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by
the Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000.00) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period on which such right remains
outstanding.
6.
<PAGE>
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one (1) or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000.00) worth of Common Stock (determined on the
basis of the Fair Market Value per share on the date or dates of grant) for
each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right
of a Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval with
respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on March 2, 1999 and shall
become effective on July 1, 1999, PROVIDED no purchase rights granted under the
Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation at the 1999 Annual Meeting and (ii) the Corporation shall have
complied with all applicable requirements of the 1933 Act (including the
registration of the shares of Common Stock issuable under the Plan on a Form S-8
registration statement filed with the Securities and Exchange Commission), all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which the Common Stock is listed for trading and all
other applicable requirements established by law or regulation. In the event
such stockholder approval is not obtained, or such compliance is not effected,
within twelve (12) months after the date on which the Plan is adopted by the
Board, the Plan shall terminate and have no further force or effect, and all
sums collected from Participants during the initial offering period hereunder
shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the EARLIEST of (i) the last business day in July 2009, (ii) the date on
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction.
No further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at
any time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any
7.
<PAGE>
compensation expense in connection with the shares of Common Stock offered for
purchase under the Plan, should the financial accounting rules applicable to the
Plan on July 1, 1999 be subsequently revised so as to require the recognition of
compensation expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following
amendments or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation; however, each Plan Participant shall bear
all costs and expenses incurred by such individual in the sale or other
disposition of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE>
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF JULY 1, 1999
Matrix Pharmaceutical, Inc.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, profit-sharing distributions and other
incentive-type payments received during such period. Such Cash Earnings shall
be calculated before deduction of (A) any income or employment tax withholdings
or (B) any and all contributions made by the Participant to any Code Section
401(k) salary deferral plan or Code Section 125 cafeteria benefit program now or
hereafter established by the Corporation or any Corporate Affiliate. However,
Cash Earnings shall NOT include any contributions made on the Participant's
behalf by the Corporation or any Corporate Affiliate to any employee benefit or
welfare plan now or hereafter established (other than Code Section 401(k) or
Code Section 125 contributions).
C. CHANGE IN CONTROL shall mean a change in ownership of the
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an 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.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
A-1.
<PAGE>
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. CORPORATION shall mean Matrix Pharmaceutical, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Matrix Pharmaceutical, Inc. which shall by appropriate
action adopt the Plan.
H. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
I. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be July 1, 1999.
J. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time 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 on the Nasdaq National Market. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed 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 determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
K. 1933 ACT shall mean the Securities Act of 1933, as amended.
L. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
M. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan for the offering period commencing July
1, 1999 are listed in attached Schedule A.
A-2.
<PAGE>
N. PLAN shall mean the Corporation's 1999 Employee Stock Purchase
Plan, as set forth in this document.
O. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
P. PURCHASE DATE shall mean the last business day of each Purchase
Interval.
Q. PURCHASE INTERVAL shall mean each successive six (6)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
R. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
February and August each year on which an Eligible Employee may first enter an
offering period.
S. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
A-3.
<PAGE>
MATRIX PHARMACEUTICAL, INC.
PROXY
Annual Meeting of Stockholders, May 4, 1999
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 May 4, 1999 and
the Proxy Statement and appoints Michael D. Casey and David G. Ludvigson 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 Tuesday, May 4, 1999 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
Michael D. Casey _____ _____
J. Stephan Dolezalek _____ _____
James R. Glynn _____ _____
Marvin E. Jaffe, M.D. _____ _____
Bradley G. Lorimier _____ _____
Edward E. Luck _____ _____
Julius L. Pericola _____ _____
2. FOR AGAINST ABSTAIN To approve an amendment to the Company's
1988 Restricted Stock Plan to increase
the maximum number of shares of Common
Stock authorized for issuance under the
Plan by an additional 400,000 shares and
increase the limitation on the maximum
number of shares for which any one
participant may be granted stock options,
stock appreciation rights and direct
stock issuances from 750,000 shares to
2,000,000 shares in the aggregate.
3. FOR AGAINST ABSTAIN To approve the Employee Stock Purchase
Plan under which 700,000 shares of Common
Stock will be reserved for issuance to
eligible employees.
4. FOR AGAINST ABSTAIN To ratify the Board of Director's
selection of Ernst & Young LLP to serve
as the Company's independent public
accountants for the fiscal year ending
December 31, 1999.
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 each of 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 EACH 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))
