<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
LIGAND PHARMACEUTICALS, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
LIGAND PHARMACEUTICALS INCORPORATED
APRIL 21, 1997
To the Stockholders of
LIGAND PHARMACEUTICALS INCORPORATED
You are cordially invited to attend the Annual Meeting of the Stockholders
of Ligand Pharmaceuticals Incorporated, to be held on Wednesday, May 21, 1997 at
9:00 a.m. at the La Jolla Marriott located at 4240 La Jolla Village Drive, La
Jolla, California.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting and Proxy Statement.
If you do not plan to attend the Annual Meeting, please sign, date and
return the enclosed proxy promptly in the accompanying reply envelope. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you may
do so automatically by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
San Diego, California David E. Robinson
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are
requested to complete, sign and date the enclosed proxy as promptly as possible
and return it in the enclosed envelope (to which no postage need be affixed if
mailed in the United States).
<PAGE> 3
LIGAND PHARMACEUTICALS INCORPORATED
9393 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
-----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
-----------------------
To the Stockholders of
LIGAND PHARMACEUTICALS INCORPORATED
The Annual Meeting of Stockholders of Ligand Pharmaceuticals Inc. (the
"Company") will be held at the La Jolla Marriott located at 4240 La Jolla
Village Drive, La Jolla, California on Wednesday, May 21, 1997 at 9:00 a.m. (the
"Annual Meeting") for the following purposes:
1. To elect the Board of Directors to serve until the next Annual
Meeting and until their successors are elected and qualified. Management
has nominated the following persons for election at the Annual Meeting:
David E. Robinson, Henry F. Blissenbach, Alexander D. Cross, John Groom,
Irving S. Johnson, Carl C. Peck and William C. Shepherd.
2. To approve an amendment to the Company's 1992 Stock Option/Stock
Issuance Plan to increase the number of shares of Common Stock authorized
for issuance under such Plan by 875,000 shares to a total of 7,303,457
shares.
3. To approve an amendment to the Company's 1992 Employee Stock
Purchase Plan to increase the number of shares of Common Stock available
for purchase under such Plan by 40,000 shares to a total of 206,500 shares.
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Any stockholders of record at the close of
business on April 11, 1997 will be entitled to vote at the Annual Meeting and at
any adjournment thereof. The transfer books will not be closed. A list of
stockholders entitled to vote at the Annual Meeting will be available for
inspection at the offices of the Company. If you do not plan to attend the
Annual Meeting in person, please sign, date and return the enclosed proxy in the
envelope provided. If you attend the Annual Meeting and vote by ballot, your
proxy will be revoked automatically and only your vote at the Annual Meeting
will be counted. The prompt return of your proxy will assist us in preparing for
the Annual Meeting.
By Order of the Board of Directors
WILLIAM L. RESPESS
Secretary
San Diego, California
April 21, 1997
<PAGE> 4
LIGAND PHARMACEUTICALS INCORPORATED
9393 Towne Centre Drive
San Diego, California 92121
------------------------------------
PROXY STATEMENT
------------------------------------
For the Annual Meeting of Stockholders
To Be Held
May 21, 1997
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Ligand Pharmaceuticals Incorporated, a Delaware corporation (the "Company" or
"Ligand"), for use at the annual meeting of stockholders to be held on May 21,
1997 (the "Annual Meeting"). The Annual Meeting will be held at 9:00 a.m. at the
La Jolla Marriott located at 4240 La Jolla Village Drive, La Jolla, California.
Stockholders of record on April 11, 1997 will be entitled to notice of and to
vote at the Annual Meeting.
This Proxy Statement and accompanying proxy (the "Proxy") were first mailed
to stockholders on or about April 21, 1997.
On April 11, 1997, the record date for determination of stockholders
entitled to vote at the Annual Meeting, there were approximately 32,500,233
shares of common stock, par value $.001 (the "Common Stock"), outstanding. Each
stockholder is entitled to one vote for each share of Common Stock held by such
stockholder.
Abstentions and broker nonvotes will be counted for purposes of determining
whether a quorum is present at the Annual Meeting and abstentions will have the
effect of negative votes.
REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time before its
exercise. It may be revoked by filing with the Secretary of the Company at the
Company's principal executive office, 9393 Towne Centre Drive, San Diego,
California 92121, a notice of revocation or another signed proxy with a later
date. You may also revoke your proxy 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 this Proxy Statement, the Proxy
and any additional soliciting material furnished to stockholders. Copies of
solicitation material 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.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram or other means by directors, officers, employees or agents
of the Company. No additional compensation will be paid to these individuals for
any such services. Except as described above, the Company does not presently
intend to solicit proxies other than by mail.
At the record date, directors and executive officers may be deemed to be
beneficial owners of an aggregate of 4,905,084 shares of the Common Stock,
constituting approximately 14.6% of the shares of Common Stock outstanding and
entitled to vote at the Annual Meeting. Such directors and officers have
indicated to the Company that each such person intends to vote or direct the
vote of all shares of Common Stock held or owned by such persons, or over which
such person has voting control, in favor of all of the proposals. The approval
of the proposals is not assured. See "Principal Stockholders" and "Security
Ownership of Directors and Management."
<PAGE> 5
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The persons named below are nominees for director to serve until the next
annual meeting of stockholders and until their successors have been elected and
qualified. The Company's Bylaws provide that the authorized number of directors
shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of stockholders within the range of seven to
11. The authorized number of directors is currently eight. The Board of
Directors has selected seven nominees, all of whom are currently 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 proxyholders will vote the proxies
received by them for the nominees named below. The proxies received by the
proxyholders cannot be voted for more than seven directors and, unless otherwise
instructed, the proxyholders will vote such proxies for the nominees named
below. The seven candidates receiving the highest number of affirmative votes of
the shares entitled to vote at the Annual Meeting will be elected directors of
the Company.
NOMINEES
The following table sets forth information regarding the nominees.
<TABLE>
<CAPTION>
Year First
Name Positions and Offices Held Elected Director Age
---- -------------------------- ---------------- ---
<S> <C> <C> <C>
David E. Robinson Chairman, President, Chief 1991 48
Executive Officer and Director
Henry F. Blissenbach (A) Director 1995 54
Alexander D. Cross, Ph.D. (B) Director 1991 65
John Groom (A)(B) Director 1995 57
Irving S. Johnson, Ph.D. Director 1989 71
Carl C. Peck, M.D. Nominee N/A 55
William C. Shepherd Director 1992 58
</TABLE>
__________________________________
(A) Member of Compensation Committee.
(B) Member of Audit Committee.
BUSINESS EXPERIENCE OF DIRECTORS
DAVID E. ROBINSON has served as President and Chief Executive Officer and a
Director of Ligand since 1991. Since May 1996, Mr. Robinson has also served as
Chairman of the Company. Prior to joining Ligand, he was Chief Operating Officer
at Erbamont, a pharmaceutical company. Prior to that, Mr. Robinson was President
of Adria Laboratories, Erbamont's North American Subsidiary. He also was
employed in various executive positions for more than 10 years by Abbott
Laboratories, most recently as Regional Director of Abbott Europe. Mr. Robinson
received his B.A. in political science and history from MacQuaire University and
his M.B.A. from the University of South Wales, Australia. Mr. Robinson is a
Director of the Cancer Center Foundation of the University of California at San
Diego and the California Healthcare Institute (CHI), as well as Neurocrine
Biosciences Inc. and several private health care companies.
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<PAGE> 6
HENRY F. BLISSENBACH has served as a Director since May 1995 and currently
serves as a member of Ligand's Compensation Committee. Dr. Blissenbach joined
Diversified Pharmaceutical Services, a subsidiary company of SmithKline Beecham,
in August 1986 and served as President until March 1997. Dr. Blissenbach was
recently named Chief Pharmacy Officer for SmithKline Beecham's Health Care
Services. He earned his Doctor of Pharmacy (Pharm.D.) degree at the University
of Minnesota, College of Pharmacy. He has held an academic appointment in the
College of Pharmacy, University of Minnesota, since 1981. He has vast experience
in managed health care, and has served in numerous advisory capacities with
pharmaceutical manufacturers and managed care entities over the past many years.
Dr. Blissenbach currently serves on the Board of Directors for Chronimed, Inc.,
and is a member of Ligand's Compensation Committee.
ALEXANDER D. CROSS, PH.D. has served as a Director of Ligand since March
1991 and currently serves as a member of Ligand's Audit Committee. Dr. Cross has
been an independent consultant in the fields of pharmaceuticals and
biotechnology since January 1986. Dr. Cross was President and Chief Executive
Officer of Zoecon Corporation, a biotechnology company, from April 1983 to
December 1985, and Executive Vice President and Chief Operating Officer from
1979 to 1983. Dr. Cross currently serves as Chairman of the Board of Directors
and Chief Executive Officer for Cytopharm, Inc. He is a member of the Boards of
Directors of Myelos Neurosciences and Failure Group, Inc.
JOHN GROOM has served as a Director since May 1995 and currently serves as
a member of Ligand's Audit Committee and Compensation Committee. Mr. Groom has
served as President and Chief Operating Officer of Elan Corporation, plc
("Elan") since January 1997, having previously served from July 1996 to January
1997 as Chief Operating Officer and a director on the Board of Directors of
Elan. Previously, he was President, Chief Executive Officer, and a director on
the Board of Directors of Athena Neurosciences, Inc. from 1987 until its
acquisition by Elan in July 1996. From 1960 until 1985, Mr. Groom was employed
by Smith Kline & French Laboratories (SK&F), the pharmaceutical division of the
then SmithKline Beechman Corporation. He held a number of positions at SK&F
including President of SK&F International, Vice President, Europe, and Managing
Director, United Kingdom. Mr. Groom has also served as Chairman of the
International Section of the Pharmaceutical Manufacturers Association. Mr. Groom
also serves as a director on the Board of Directors of IDEC Pharmaceuticals
Corporation and the California Healthcare Institute and is a public trustee on
the Board of Trustees of the American Academy of Neurology Education and
Research Foundation. Mr. Groom is Fellow of the Association of Certified
Accountants (UK).
IRVING S. JOHNSON, PH.D. has served as a Director of Ligand since March
1989. Dr. Johnson is currently an independent consultant in biomedical research.
From 1953 until his retirement in November 1988, Dr. Johnson held various
positions with Eli Lilly & Company, a pharmaceutical company, including Vice
President of Research from 1973 until 1988. He has published almost 90
scientific articles, contributed to over 30 books and has served on numerous
editorial boards, society committees and advisory committees of the National
Academy of Sciences and the National Institutes of Health including the
Recombinant DNA Advisory Committee (RAC), and was the recipient of the First
Annual Congressional Award in Science and Technology. Dr. Johnson is a member of
the Board of Directors of Agouron Pharmaceuticals, Inc. and Allelix
Biopharmaceuticals. He served on the Board of Directors of Glycomed, Inc. (1990
to 1991) until its merger with Ligand and on the Board of Directors of Athena
Neurosciences (1989 to 1996) until its merger with Elan. He currently serves on
the Scientific Advisory Boards of both Ligand and Elan.
CARL C. PECK, M.D. has been nominated to serve on the Ligand Board of
Directors. Dr. Peck is currently Professor of Pharmacology and Medicine and
Director of the Center for Drug Development Science at Georgetown University
Medical Center. Dr. Peck was Boerhaave Professor of Clinical Drug Research at
Leiden University from November 1993 to July 1995. From October 1987 to November
1993, Dr. Peck was Director, Center for Drug Evaluation and Research of the Food
and Drug Administration. He has held many academic positions prior to October
1987, including Professor of Medicine and Pharmacology, Uniformed Services
University, from 1982 to October 1987. He is author of more than 100 original
research papers, chapters and books with regard to his area of expertise.
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<PAGE> 7
WILLIAM C. SHEPHERD has served as a Director of Ligand since July 1992. Mr.
Shepherd has been President and Chief Executive of specialty health care company
Allergan, Inc. ("Allergan") since January 1992, before assuming the additional
title of Chairman in January 1996. He has held many other executive positions at
Allergan during the past 30 years, including President of Allergan U.S., Senior
Vice President, U.S. Operations, and Chief Operating Officer. Mr. Shepherd has
been a Director of Allergan since 1984.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of eight meetings during
the fiscal year ended December 31, 1996. Each director attended at least 75% of
the meetings of the Board of Directors and of the committees on which such
director served (with the exception of Mr. Groom who attended 50 percent of the
meetings of the Board of Directors, but who actually participated in 60 percent
of the actions of the Board of Directors, including actions taken by way of
written consent of directors).
The Company has an Audit Committee and a Compensation Committee of the
Board of Directors. The Company does not have a Nominating Committee or a
committee that performs the functions of a Nominating Committee.
The Audit Committee was established in March 1992 and is primarily
responsible for reviewing the financial reporting process and the Company's
internal accounting controls, and approving the services performed by, and the
independence of, the Company's auditors. This Committee currently consists of
Dr. Cross and Mr. Groom. The Audit Committee held two meetings during the fiscal
year ended December 31, 1996.
The Compensation Committee was established in March 1992 and reviews and
approves the Company's compensation policy. This committee currently consists of
Messrs. Henry F. Blissenbach and John Groom. The Compensation Committee held
seven meetings during the fiscal year ended December 31, 1996.
DIRECTOR COMPENSATION
Certain non-employee outside Directors are paid fees for serving on the
Board of Directors, plus reimbursement of expenses incurred in connection with
such service. All Directors are elected annually and hold office until the next
annual meeting of the stockholders and until their successors are duly elected
and qualified. Officers serve at the discretion of the Board of Directors.
Certain directors have commitments from Ligand pursuant to which they are paid
consulting fees for each Board meeting as well as for certain other activities.
See "Certain Relationships and Related Transactions." Each individual who first
becomes a non-employee Board member at or after this Annual Meeting, whether
through election by the stockholders or appointment by the Board, will
automatically be granted, at the time of such initial election or appointment, a
non-statutory stock option to purchase 16,237 shares of Common Stock. In
addition, each non-employee Board member who is re-elected will automatically be
granted a non-statutory stock option to purchase 8,118 shares of Common Stock.
Each automatic grant will have an exercise price per share equal to fair market
value of the Common Stock on the grant date. The option will become exercisable
beginning one year after the grant date. The option will have a term of 10 years
measured from the grant date, subject to earlier termination upon the optionee's
cessation of Board service.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR the nominees
listed herein.
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<PAGE> 8
PROPOSAL NO. 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
1992 STOCK OPTION/STOCK ISSUANCE PLAN
Stockholders are being asked to consider and vote upon a proposal to ratify
and approve a certain amendment to Ligand's 1992 Stock Option/Stock Issuance
Plan (the "Plan"). The amendment proposed to the Plan was adopted by the
Compensation Committee on April 8, 1997. The amendment will increase the number
of shares authorized for issuance under the Plan by 875,000 shares to a total of
7,303,457 shares.
The Plan was originally adopted by the Board and was approved by the
stockholders in 1992. Certain amendments to the Plan were subsequently approved
by the Board and by the stockholders, the most recent occurring in 1996.
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock is required for approval of the amendment to the Plan.
The Plan, as amended, will become effective immediately upon approval by the
stockholders at the Annual Meeting. The following is a summary of all the
material terms and provisions of the Plan. The summary, however, does not
purport to be a complete description of all the provisions of the Plan. Copies
of the actual plan document may be obtained by any stockholder upon written
request to the Secretary of Ligand at the corporate offices in San Diego,
California.
PLAN STRUCTURE
The Plan is divided into three separate parts:
- The Discretionary Grant Program, under which employees and consultants
of Ligand and its wholly-owned subsidiaries (other than non-employee
Board members) may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Ligand Common Stock at an
exercise price not less than 85% of the fair market value of each such
share on the grant date. The granted options may be either incentive
stock options which are designed to meet the requirements of Section
422 of the Internal Revenue Code of 1986, as amended, or nonstatutory
options not intended to satisfy such requirements.
- The Automatic Grant Program, under which an option grant will be made
to each individual upon first joining the Board of Directors as a
nonemployee member and subsequent annual automatic option grants will
be made to each individual who is re-elected as a nonemployee director
of Ligand.
- The Stock Issuance Program, under which eligible individuals will be
allowed to effect immediate purchases of Ligand Common Stock at the
fair market value of each such share, or at discounts of up to 15% from
the fair market value of any such share, including shares which may be
issued in consideration for past or future services without any cash
payment required of the participant.
As of April 1, 1997, approximately 340 officers and employees of Ligand and
its wholly-owned subsidiaries were eligible to participate in the Discretionary
Grant Program and the Stock Issuance Program. There are currently five
nonemployee directors standing for re-election who will be eligible to receive
automatic grants under the Automatic Grant Program.
PLAN ADMINISTRATION
Option grants under the Discretionary Grant Program and stock issuances
under the Stock Issuance Program are to be made by a committee of two or more
nonemployee Board members (the "Plan Administrator") appointed by the Board.
Members of the committee will be ineligible to participate in the Plan or in any
stock option, stock issuance or other stock plan of Ligand, except to the extent
such individuals become entitled to a
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<PAGE> 9
special option grant under the Automatic Grant Program. The selected committee
members will serve for such period of time as the Board may determine and will
be subject to removal by the Board at any time.
The Committee will have the sole and exclusive authority, subject to the
provisions of the Plan, to determine the eligible individuals who are to receive
options under the Discretionary Grant Program or the Stock Issuance Program, the
number of shares to be covered by each granted option or issuance, the date or
dates on which the option is to become exercisable and the maximum term for
which the option is to remain outstanding. The Committee will also have the
authority to determine whether the granted option is to be an incentive stock
option ("Incentive Option") under the Federal tax laws and to establish rules
and regulations for proper plan administration. Options grants under the
Automatic Grant Program will be made in strict compliance with the express
provisions of that program, and the Committee will not have any discretionary
authority with respect to those option grants.
ISSUABLE SHARES
Shares of Ligand Common Stock will be available for issuance under the
Plan. The maximum number of shares of Common Stock reserved for issuance over
the 10-year term of the Plan, measured from the Effective Date of the Plan, will
not exceed 7,303,457 shares. Such authorized share reserve is comprised of (i)
the number of shares issued under the predecessor plans, (ii) the number of
shares that remained available for issuance under the Plan and its predecessor
plans, including the shares subject to the outstanding options incorporated into
the Plan and any other shares that would have been available for future option
grant or share issuance under the predecessor plans as last approved by the
stockholders, plus (iii) an additional 875,000 shares being added to the Plan
pursuant to this Proposal. The share reserve available for issuance under the
Plan will be subject to periodic adjustment for changes in Ligand's Common Stock
occasioned by stock splits, stock dividends, recapitalizations, conversions or
other changes affecting the outstanding Common Stock as a class without Ligand's
receipt of consideration. To the extent any of the incorporated options are
subsequently exercised, the number of shares issued under those options will
reduce, on a share-for-share basis, the number of shares available for issuance
under the Plan.
Should an option expire or terminate for any reason prior to exercise in
full (including options canceled in accordance with the cancellation-regrant
provisions described below), the shares subject to the portion of the option not
so exercised will be available for subsequent option grants or share issuances
under the Plan. Shares subject to any option surrendered or canceled in
accordance with the stock appreciation right provisions of the Plan and all
shares issued under the Plan, whether or not such shares are subsequently
reacquired by Ligand pursuant to its repurchase rights under the Plan, will
reduce on a share-for-share basis the number of shares of Ligand Common Stock
available for subsequent grants.
No more than 1,000,000 shares may be granted to any one optionee over the
lifetime of the Plan.
TERMS OF DISCRETIONARY GRANT PROGRAM
Option Price and Term. The option price per share for incentive stock
options will not be less than 100% of the fair market value of each share of
Ligand Common Stock issuable under the option on the grant date of such option.
The option price per share for nonstatutory stock options may not be less than
85% of the fair market value per share of each share of Ligand Common Stock
issuable under the option on the grant date of such option. No option will have
a term in excess of 10 years measured from the grant date.
Valuation. For purposes of establishing the option exercise price for
Ligand Common Stock, the "Fair Market Value" per share of the stock on any
relevant date will be the closing selling price per share on such date, as
quoted on the Nasdaq National Market. If there is no reported selling price for
such date, then the closing selling price for the last previous date for which
such quotation exists will be determinative of Fair Market Value.
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<PAGE> 10
Vesting of Options. The vesting schedule for each granted option will be
determined by the Plan Administrator 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
Ligand's repurchase rights or (iii) exercisable in installments for vested
shares over the optionee's period of service. At a minimum, options must vest at
a rate of at least 20% each year and must be fully vested at the end of five
years.
Payment. Upon exercise of the option, the option price for the purchased
shares will become immediately payable in cash or in shares of common stock
valued at fair market value on the date of exercise. The option may also be
exercised through a cashless exercise procedure pursuant to which the optionee
provides irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to Ligand, out of
the sale proceeds, an amount equal to the aggregate option price payable for the
purchased shares plus all applicable withholding taxes.
Financial Assistance. The Plan Administrator may assist any optionee
(including an officer) in the exercise of one or more outstanding options under
the Plan by (i) authorizing a loan from Ligand or (ii) permitting the optionee
to pay the option price in installments over a period of years. The terms and
conditions of any such loan or installment payment will be established by the
Plan Administrator in its sole discretion, but in no event will the maximum
credit extended to the optionee exceed the aggregate option price for the
purchased shares plus any Federal or State tax liability incurred in connection
with the option exercise.
Termination of Service. Should the optionee cease to remain in Ligand's
service while holding one or more options under the Plan, then those options
will not remain exercisable beyond the limited post-service period designated by
the Plan Administrator at the time of the option grant, subject to certain
minimum post-service periods. Under no circumstances, however, may any option be
exercised after the specified expiration date of the option term. Each such
option will, during such limited period, be exercisable only to the extent of
the number of shares for which the option is exercisable on the date of the
optionee's cessation of service.
Should the optionee die while holding one or more outstanding options, then
the personal representative of the optionee's estate or the person or persons to
whom each such option is transferred pursuant to the optionee's will or in
accordance with the laws of inheritance will have the right to exercise such
option for any or all of the shares for which the option is exercisable on the
date of the optionee's cessation of service, less any option shares subsequently
purchased by the optionee prior to death. Such right will lapse, and the option
will terminate, upon the earlier of (i) the end of the limited post-service
period designated by the Plan Administrator at the time of the option grant or
(ii) the specified expiration date of the option term.
The Plan Administrator 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 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.
Stockholder Rights and Option Assignability. No optionee is to have any
stockholder rights with respect to the option shares until such optionee has
exercised the option, paid the option price for the purchased shares and been
issued a stock certificate for such shares. Options are not assignable or
transferable other than by will or by the laws of inheritance following the
optionee's death, and the option may, during the optionee's lifetime, be
exercised only by the optionee.
Special Acceleration Agreements. In addition to the acceleration provisions
of the Plan, Ligand has entered into agreements with its employees, including
each of the Named Executive Officers (as defined below) apart from David E.
Robinson, holding outstanding options under the Plan, pursuant to which such
options will automatically accelerate in the event that such individual's
employment is terminated in connection with a change in control of Ligand. The
change in control events under these agreements include transactions in addition
to those in effect for Plan purposes. These agreements assure such individuals
that either their outstanding options
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<PAGE> 11
under the Plan will be assumed by the successor entity in connection with such a
change in control or that such options shall become fully exercisable
immediately prior to the effective date of the change in control so that such
individuals will have the opportunity to receive the appreciated value of their
outstanding options despite the change in control. Mr. Robinson has entered into
an employment agreement with Ligand that provides for the immediate
acceleration, except under certain limited circumstances, of Mr. Robinson's
outstanding options in the event that he elects to terminate this agreement in
connection with certain events, including, without limitation, a change in
control. The terms of this agreement are summarized below under "Executive
Compensation And Other Information--Employment Contracts and Change of Control
Arrangements."
The acceleration of options in the event of a Corporate Transaction or
Change in Control 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 Ligand.
Stock Appreciation Rights. At the discretion of the Plan Administrator,
options may be granted with stock appreciation rights. The stock appreciation
rights which are authorized for issuance under the Plan are tandem rights which
require the option holder to elect between the exercise of the underlying option
for shares of common stock and the surrender of such option for an appreciation
distribution.
These tandem stock appreciation rights provide the holders with the right
to receive an appreciation distribution from Ligand equal in amount to the
excess of (i) the fair market value (on the date of exercise) of the shares of
common stock for which the underlying option is at the time exercisable over
(ii) the aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in cash
or in common stock.
Cancellation/Regrant. The Plan Administrator will have the authority to
effect, on one or more separate occasions, the cancellation of outstanding
options under the Discretionary Grant Program which have exercise prices in
excess of the then current market price of the common stock and to issue
replacement options with an exercise price based on the lower market price of
the common stock at the time of grant.
TERMS OF AUTOMATIC GRANT PROGRAM
Each individual who first becomes a nonemployee Board member, whether
through election by the stockholders or appointment by the Ligand Board, and who
was not otherwise in the prior employ of Ligand will automatically be granted,
at the time of such initial election or appointment, a non-statutory stock
option to purchase 16,237 shares of Ligand Common Stock. Further, at each annual
Stockholders Meeting, each individual who is at that time reelected as a
nonemployee Board member will automatically be granted a nonstatutory stock
option under the new Automatic Grant Program to purchase an additional 8,118
shares of Ligand Common Stock. There is no limit on the number of such
8,118-share option grants the nonemployee Ligand Board member may receive over
his or her period of Board service.
Each such option grant will be subject to the following terms and
conditions:
(i) The option price per share will be equal to 100% of the Fair Market
Value per share of Common Stock on the grant date.
(ii) Each option is to have a term of 10 years measured from the grant
date.
(iii) Each automatic grant will become exercisable in full one year
from the automatic grant date.
(iv) The option will remain exercisable for a three-month period
following the optionee's cessation of Ligand Board membership for any
reason other than death. Should the optionee die while any option is still
exercisable, then such option will remain exercisable for a 36-month period
following such optionee's death and may be exercised by the personal
representative of the optionee's estate or the person to whom
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<PAGE> 12
the grant is transferred by the optionee's will or the laws of inheritance.
In no event, however, may the option be exercised after the expiration date
of the maximum option term. During the applicable exercise period, the
option may not be exercised for more than the number of shares (if any) for
which it was exercisable at the time of the optionee's cessation of
membership on the Ligand Board. To the extent the option was not
exercisable for one or more option shares at the time of the optionee's
cessation of membership on the Ligand Board, the option will immediately
terminate and cease to be outstanding with respect to those shares.
(v) The remaining terms and conditions of the option will in general
conform to the terms described above for option grants made under the
Discretionary Grant Program and will be incorporated into the option
agreement evidencing the automatic grant.
(vi) The terms and provisions of the Automatic Grant Program and the
outstanding options thereunder may not be amended or modified at intervals
more frequently than once every six months, except as otherwise required to
comply with applicable Federal tax laws and regulations.
TERMS OF STOCK ISSUANCE PROGRAM
Issue Price. The purchase price per share will not be less than 85% of the
fair market value of any share of Ligand Common Stock being issued on the date
the Plan Administrator authorizes the issuance.
Vesting of Shares. The vesting schedule for each share issued will be
determined by the Plan Administrator and set forth in the issuance agreement.
The shares may be fully and immediately vested upon issuance or may vest in one
or more installments, subject to Ligand's repurchase right, over the
participant's period of service. At a minimum, shares must vest at a rate of at
lest 20% per year and must be fully vested at the end of five years.
Stockholder Rights. The recipient of the share issuance will have full
stockholder rights, including voting and dividend rights, with respect to the
issued shares, whether or not the shares are vested. However, the recipient may
not sell, transfer or assign any unvested shares issued under the Plan, except
for certain limited family transfers.
Repurchase Rights. Should the recipient of unvested shares cease to remain
in Ligand's service before vesting in such shares, then those unvested shares
are to be immediately surrendered to Ligand for cancellation, and the recipient
will have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the recipient for
consideration paid in cash or promissory note, Ligand will refund the cash
consideration paid for the surrendered shares and cancel the principal balance
of the note to the extent attributable to such surrendered shares.
Payment. Upon issuance of the shares, the issue price for the purchased
shares will become immediately payable in cash, in shares of Ligand Common Stock
valued at fair market value on the date of issuance, or by promissory note
payable to Ligand's order. The promissory note may, at the discretion of the
Plan Administrator, be subject to cancellation over the participant's period of
service. Shares may also be issued for past or future services, without any cash
or other payment required of the participant.
CHANGES IN CAPITALIZATION
In the event any change is made to the Ligand Common Stock issuable under
the Plan by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, or other change in corporate
structure effected without Ligand's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities and price
per share in effect under each outstanding option (including all discretionary
and automatic option grants under the Plan and all option grants incorporated
from the 1988 Stock Option Plan), and (iii) the
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<PAGE> 13
number and/or class of securities per nonemployee member of the Ligand Board for
which the special option grants will subsequently be made under the Automatic
Grant Program.
Each outstanding option which is assumed or is otherwise to continue in
effect after a Corporate Transaction will be appropriately adjusted to apply and
pertain to the number and class of securities which would have been issuable, in
connection with such Corporate Transaction, to an actual holder of the same
number of shares of Ligand Common Stock as are subject to such option
immediately prior to such Corporate Transaction. Appropriate adjustments will
also be made to the option price payable per share and to number and class of
securities available for issuance under the Plan.
Option grants under the Plan will not affect the right of Ligand 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.
SPECIAL TAX WITHHOLDING ELECTION
The Plan Administrator may provide one or more participants in the Plan
with the election to have Ligand withhold, from the shares of Ligand Common
Stock otherwise issuable upon the exercise of nonqualified options or the
vesting of unvested shares, a portion of those shares in satisfaction of the tax
liability incurred in connection with their acquisition or vesting. Any election
so made will be subject to the approval of the Plan Administrator, and no shares
will be accepted in satisfaction of such tax liability except to the extent the
Plan Administrator approves the election. Alternatively, one or more
participants may be granted the right, subject to Plan Administrator approval,
to deliver existing shares of Ligand Common Stock in satisfaction of such tax
liability. The withheld or delivered shares will be valued at their then current
fair market value.
AMENDMENT AND TERMINATION
The Board of Directors may amend or modify the Plan in any or all respects
whatsoever, subject, however, to the limitation on plan amendments to the
Automatic Grant Program. However, no such amendment may adversely affect the
rights of existing optionees without their consent and unless otherwise
necessary to comply with applicable tax laws and regulations. In addition, the
Board may not (i) materially increase the maximum number of shares issuable
under the Plan or the number of shares for which automatic grants may be made to
nonemployee Board members, except in the event of certain changes to Ligand's
capital structure as indicated above, (ii) materially modify the eligibility
requirements for option grants or (iii) otherwise materially increase the
benefits accruing to participants under the Plan without the approval of
Ligand's stockholders.
The Board may terminate the Plan at any time, and the Plan will in all
events terminate on the tenth anniversary of the Effective Date. Each stock
option outstanding at the time of such termination will remain in force in
accordance with the provisions of the instruments evidencing such grant.
FEDERAL TAX CONSEQUENCES
Options granted under the Plan may be either incentive stock options which
satisfy the requirements of Section 422 of the Internal Revenue Code or
nonqualified options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as described
below:
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 (other than for alternative minimum tax purposes as
discussed below). The optionee will, however, recognize 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. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
-10-
<PAGE> 14
shares is made after the optionee has held the shares for more than two years
after the grant date of the option and more than one year after the exercise
date. If the optionee fails to satisfy either of these two holding periods prior
to the sale or other disposition of the purchased shares, then a disqualifying
disposition will result.
Upon a qualifying disposition of the shares, 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 such shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the date the option was exercised over (ii) the exercise price paid for the
shares will be taxable as ordinary income. Any additional gain recognized upon
the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then Ligand 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 date the option was exercised over (ii) the exercise price
paid for the shares. In no other instance will Ligand be allowed a deduction
with respect to the optionee's disposition of the purchased shares.
While taxable income is generally not recognized upon the exercise of an
incentive option, the excess of (i) the value of the shares purchased as of the
date of service over (ii) the exercise price paid for such shares is included as
"alternative minimum taxable income" for purposes of calculating alternative
minimum tax.
Nonqualified Options. No taxable income is recognized by an optionee upon
the grant of a nonqualified 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 date of exercise
over the exercise price paid for the 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
Ligand Common Stock under a nonqualified option, if the purchased shares are
subject to repurchase by Ligand. These special provisions may be summarized as
follows:
A. If the shares acquired upon exercise of the nonqualified option are
subject to repurchase by Ligand at the original exercise price in the event of
the optionee's termination of service prior to vesting in such shares, the
optionee will not recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when Ligand's repurchase right lapses,
an amount equal to the excess of (i) the fair market value of the shares on the
date Ligand's repurchase right lapses with respect to such shares over (ii) the
exercise price paid for the shares.
B. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
nonqualified option an amount equal to the excess of (i) the fair market value
of the purchased shares on the date of exercise (determined as if the shares
were not subject to Ligand's repurchase right) over (ii) the exercise price paid
for such shares. If the Section 83(b) election is made, the optionee will not
recognize any additional income as and when Ligand's repurchase right lapses.
Ligand will be entitled to a business expense deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
nonqualified option. The deduction will in general be allowed for the taxable
year of Ligand 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. Ligand will be entitled to a business expense
deduction equal to the appreciation distribution for the taxable year of Ligand
in which the ordinary income is recognized by the optionee.
-11-
<PAGE> 15
Direct Stock Issuances. The tax consequences of individuals who receive
direct stock issuances under the Plan will be substantially the same as the
treatment described above for the exercise of nonqualified stock options.
ACCOUNTING TREATMENT
Option grants with exercise prices less than the fair market value of the
option shares on the grant date and direct stock issuances at purchase prices
less than the fair market value of the issued shares will result in a
compensation expense to Ligand's earnings equal to the difference between such
exercise or purchase prices and the fair market value of the shares on the
option grant date or (for direct stock issuances) the fair market value on the
issue date. Such expense will be accrued by Ligand over the period the optionee
or share recipient vests in the option shares or directly-issued shares. Option
grants and direct stock issuances at 100% of fair market value will not result
in any charge to Ligand's earnings. In October 1994, the Financial Accounting
Standards Board issued SFAS 123, "Accounting for Stock-Based Compensation",
effective for fiscal years beginning after December 15, 1995. SFAS 123
establishes the use of the fair value based method of accounting for stock-based
compensation arrangements, under which compensation cost is determined using the
fair value of stock-based compensation determined as of the grant date, and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current implicit
value accounting method specified in APBO No. 25 to account for stock-based
compensation. The Company has decided to retain the current implicit value based
method, and disclosed the pro forma effect of using the fair value based method
to account for its stock-based compensation.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against Ligand's earnings. Accordingly, at the end of each fiscal
quarter, the amount (if any) by which the fair market value of the shares of
Ligand Common Stock subject to such outstanding stock appreciation rights has
increased from the prior quarter-end will be accrued as compensation expense, to
the extent such amount is in excess of the aggregate exercise price in effect
for such rights.
OUTSTANDING OPTION GRANTS UNDER THE PLAN
The table below shows, as to Ligand's President and Chief Executive Officer
and each of the other four most highly compensated executive officers of Ligand
(collectively, the "Named Executive Officers") and as to the various indicated
groups, the following information with respect to stock options granted during
fiscal 1997 and fiscal 1996 and during all other Plan years which are
outstanding as of December 31, 1996, as well as options which Ligand has
determined to grant under the Plan to the extent currently known or
determinable: (i) the number of shares of Ligand Common Stock subject to options
granted under the Plan during that period, and (ii) the weighted average
exercise price per share for such options.
-12-
<PAGE> 16
1992 STOCK OPTION/STOCK ISSUANCE PLAN
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 All Other Plan Years
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Name and Principal Average Average Average
- ------------------ Options Exercise Options Exercise Options Exercise
Position (#) Price (#) Price (#) Price
- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
DAVID E. ROBINSON 100,000 $ 10.38 100,000 $ 13.31 177,415 $ 7.96
Chairman of the Board,
President, Chief Executive
Officer and Director
WILLIAM L. RESPESS 50,000 13.00 6,750 13.31 164,001 8.54
Senior Vice President,
General Counsel,
Government Affairs and
Secretary
LLOYD E. FLANDERS 0 0 48,750 12.13 178,093 8.77
Senior Vice President,
Pre-Clinical Development
and R&D Project
Management
STEVEN D. REICH 0 0 0 0 90,000 8.50
Senior Vice President,
Clinical Research
PAUL V. MAIER 0 0 58,563 12.20 130,460 8.84
Senior Vice President,
Chief Financial Officer and
Treasurer
All current directors who
are not executive officers (5
persons) 0 0 40,590 16.38 81,185 6.95
All current executive
officers as a group (11
persons) 225,000 11.84 441,563 12.42 1,076,469 8.57
All employees who are not
executive officers 168,725 13.00 491,862 12.99 980,409 8.53
</TABLE>
NEW PLAN BENEFITS
Effective as of the 1997 Annual Meeting, the effect of the amendment will
be to increase the number of shares authorized for issuance under the Plan by
875,000 shares to a total of 7,303,457 shares. None of the 875,000 share
increase has been granted prior to the date of this meeting.
-13-
<PAGE> 17
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the Plan, as amended, is necessary in
order to continue to provide equity incentives to attract and retain the
services of key employees, consultants and non-employee Board members. For this
reason, the Board of Directors unanimously recommends a vote FOR this proposal.
If this proposal is not approved, the number of shares available for issuance
will remain at 6,428,457.
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<PAGE> 18
PROPOSAL NO. 3
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
1992 EMPLOYEE STOCK PURCHASE PLAN
The stockholders are also being asked to vote on a proposal to approve an
amendment to Ligand's 1992 Employee Stock Purchase Plan (the "Purchase Plan"),
which amendment was approved by the Compensation Committee on April 8, 1997,
subject to stockholder approval. The effect of the amendment will be to increase
the number of shares available for purchase under the Purchase Plan by 40,000
shares to a total of 206,500 shares.
The Purchase Plan was initially adopted by the Board and was approved by
the stockholders in 1992. Certain amendments to the Plan were subsequently
approved by the Board and by the stockholders, the most recent occurring in
1996.
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock is required for approval of the amendment to the Plan.
The Plan, as amended, will become effective immediately upon approval by the
stockholders at the Annual Meeting. The following is a summary of all the
material terms and provisions of the Purchase Plan. This summary, however, does
not purport to be a complete description of the Purchase Plan. Copies of the
actual plan document may be obtained by any stockholder upon written request to
the Secretary of Ligand at the corporate offices in San Diego, California.
SHARE RESERVE AND PLAN ADMINISTRATION
The maximum number of shares that may be sold to participants over the term
of the Purchase Plan may not exceed 206,500 shares of Common Stock, assuming
stockholder approval of this proposal. As of April 1, 1997, 163,053 shares of
Common Stock had been issued under the Purchase Plan and 43,447 shares will be
available for future issuance (assuming stockholder approval of the 40,000 share
increase). Without the proposed 40,000 share increase, only 3,447 shares would
be available for future issuance. Appropriate adjustments will be made to (i)
the class and maximum number of securities purchasable under the Purchase Plan,
(ii) the class and maximum number of securities purchasable per participant
during any one purchase period and (iii) the class and number of securities and
the price per share in effect under each outstanding purchase right in order to
preserve participant rights should any change be made to the outstanding Common
Stock by reason of any stock dividend, stock split, combination of shares or
other similar change affecting the outstanding Common Stock as a class without
Ligand's receipt of consideration.
The Purchase Plan is administered by the Compensation Committee of the
Board of Directors. The committee as Plan Administrator has full authority to
adopt administrative rules and procedures and to interpret the provisions of the
Purchase Plan and any outstanding purchase rights.
ELIGIBILITY
Each individual customarily employed by Ligand or a participating
subsidiary for more than 20 hours per week and more than five months per
calendar year is eligible to participate in the Purchase Plan upon completion of
five months of continuous service. As of April 1, 1997, approximately 305
employees (including nine officers of Ligand) were eligible to participate under
the Purchase Plan.
PLAN OPERATION
Shares of Ligand Common Stock will be made available to participants
through a series of offering periods coincidental with the calendar year, and
accordingly commencing on the first business day in January. The participant
will be granted a separate purchase right for each offering period in which he
or she participates. The purchase right will be granted on the first day of the
offering period and will be automatically exercised in
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<PAGE> 19
successive quarterly installments on the last business day of March, June,
September and December during the offering period.
Each participant may, through authorized payroll deductions, contribute up
to 10% of base pay (in one percent multiples) during each offering period.
However, no participant may purchase more than 1,330 shares of Common Stock
during any one offering period nor more than $25,000 worth of Common Stock
(based upon the value of the Common Stock at the time the offering period
begins) for each calendar year the purchase right remains outstanding.
The purchase price will be equal to the lesser of (i) 85% of the fair
market value per share of Common Stock on the last business day immediately
preceding the start date of the offering period or (ii) 85% of the fair market
value per share of Common Stock on each quarterly date the purchase right is
exercised during that offering period.
The fair market value of the Common Stock on any relevant date will be the
closing selling price per share on such date as reported on the Nasdaq National
Market. As of April 11, 1997 the fair market value per share of Common Stock was
$10.00, based on the closing selling price per share on such date on the Nasdaq
National Market.
No participant will have any stockholder rights with respect to the shares
covered by his or her outstanding purchase right until the shares are actually
purchased on his or her behalf. No purchase right will be assignable or
transferable except by will or by the laws of descent and distribution following
the participant's death. Accordingly, during the participant's lifetime, the
purchase right will be exercisable only by the participant.
In the event all or substantially all of the assets or outstanding capital
stock of Ligand is sold by means of a sale, merger or other reorganization in
which Ligand will not be the surviving corporation, all outstanding purchase
rights will automatically be exercised immediately prior to the effective date
of such transaction.
The purchase right of a participant will cease to accrue automatically in
the event the participant ceases to be an employee of Ligand, and any payroll
deductions collected from such individual during the fiscal quarter in which
such termination occurs will, at such participant's election, either (i) be
refunded to the participant or (ii) held for the purchase of shares on the
quarterly purchase date immediately following the cessation of employment. A
participant may also terminate his or her outstanding purchase right at any time
prior to the last five (5) business days of a quarterly period and receive a
refund of all payroll deductions not yet applied to the purchase of Common Stock
on his or her behalf.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earlier of (i) December 31, 2002
or (ii) the date on which all shares available for issuance thereunder are sold
pursuant to exercised purchase rights. However, Ligand has specifically reserved
the right, exercisable in the sole discretion of the Plan Administrator, to
terminate all outstanding purchase rights under the Purchase Plan immediately
following any quarterly purchase date. If such right is exercised by Ligand,
then the Purchase Plan will terminate in its entirety, and no further purchase
rights will be granted or exercised thereunder.
The Board may amend or modify the provisions of the Purchase Plan at any
time. However, the Board may not, without stockholder approval, (i) materially
increase the number of shares issuable under the Purchase Plan or the maximum
number of shares which any one participant may purchase during a single offering
period, (ii) alter the purchase price formula so as to reduce the purchase
price, (iii) materially increase the benefits accruing to participants or (iv)
materially modify the requirements for eligibility to participate in the
Purchase Plan.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be a qualified employee stock purchase
plan under Section 423 of the Internal Revenue Code. Accordingly, the
Participant will not recognize any taxable income at the time one or
-16-
<PAGE> 20
more shares of Ligand Common Stock are purchased on his/her behalf on any
quarterly purchase date under the Purchase Plan.
ACCOUNTING TREATMENT
Under present accounting principles, the issuance of Common Stock under the
Purchase Plan results in a charge to Ligand's earnings equal to the difference
between fair market value and the actual purchase price at the date of issuance.
PURCHASES UNDER THE PLAN
The table below shows, as to the Named Executive Officers and as to the
various indicated groups, the following information with respect to stock
issuances during fiscal 1997 and fiscal 1996 and during all other Purchase Plan
years which are outstanding as of December 31, 1996, as well as stock issuances
under the Purchase Plan to the extent currently known or determinable: (i) the
number of shares of Ligand Common Stock and (ii) the weighted average purchase
price per share. Non-employee directors are not eligible to participate in the
Purchase Plan.
1992 EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 All Other Plan Years
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Shares Purchase Shares Purchase Shares Purchase
(#) Price (#) Price (#) Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
DAVID E. ROBINSON 0 $ 0 0 $ 0 0 $ 0
Chairman of the Board, President and
Chief Executive Officer
WILLIAM L. RESPESS 0 0 0 0 0 0
Senior Vice President, General Counsel,
Government Affairs and Secretary
LLOYD E. FLANDERS 0 0 0 0 0 0
Senior Vice President, Pre-Clinical
Development and R&D Project
Management
STEVEN D. REICH 0 0 0 0 0 0
Senior Vice President, Clinical Research
PAUL V. MAIER 401 9.46 1,326 8.82 3,617 6.87
Senior Vice President,
Chief Financial Officer and Treasurer
All current directors who are not
executive officers (5 persons) 0 0 0 0 0 0
All current executive officers as a group
(11 persons) 966 9.46 4,649 8.82 9,760 6.97
All employees who are not executive
officers 11,858 9.46 42,115 8.93 90,335 6.81
</TABLE>
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<PAGE> 21
NEW PURCHASE PLAN BENEFITS
Effective as of the Annual Meeting, the effect of the amendment will be to
increase the number of shares authorized for issuance under the Purchase Plan by
40,000 shares to a total of 206,500 shares. None of the 40,000 share increase
has been issued prior to the date of this meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the amendment to the Purchase Plan is
necessary in order to continue to provide meaningful equity incentives to
attract and retain the services of valued employees. For this reason, the Board
of Directors unanimously recommends that the stockholders vote FOR this
proposal.
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<PAGE> 22
PROPOSAL NO. 4
RATIFICATION OF INDEPENDENT AUDITORS
The Company is asking the stockholders to ratify the selection of Ernst &
Young LLP ("Ernst & Young") as the Company's independent auditors for the year
ending December 31, 1997. The affirmative vote of the holders of a majority of
the shares represented and voting at the Annual Meeting will be required to
ratify the selection of Ernst & Young.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors, in its discretion, may direct the appointment of a different
independent auditing firm at any time during the year if the Board of Directors
feels that such a change would be in the Company's and its stockholders' best
interests.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that the stockholders vote
FOR the ratification of the selection of Ernst & Young to serve as the Company's
independent auditors for the year ending December 31, 1997.
-19-
<PAGE> 23
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of April 1, 1997 for each person known to the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock. Unless otherwise indicated, each of the stockholders listed below
has sole voting and investment power with respect to the shares beneficially
owned.
<TABLE>
<CAPTION>
Number of
Shares Percent
Name and Address Beneficially of Class
Title of Class of Beneficial Owner Owned Owned(1)
- -------------- ------------------- ------------ --------
<S> <C> <C> <C>
Common Stock Allergan Pharmaceuticals (Ireland) Ltd., Inc.(2).............. 3,411,873 10.5%
Castlebar Road
Westport Count Mayo, Ireland
Common Stock FMR Corp. (3) 1,791,967 5.5%
82 Devonshire Street
Boston, Massachusetts 02109-3614
</TABLE>
- ---------------
(1) Percentage of ownership is based on 32,485,818 shares of Ligand Common
Stock outstanding on April 1, 1997.
(2) Includes 3,411,873 shares owned beneficially by Allergan
Pharmaceuticals (Ireland) Ltd., Inc. ("Allergan (Ireland)"). Mr.
Shepherd is President and Chief Executive Officer of Allergan. Mr.
Shepherd, a director of Ligand, may be deemed to be the beneficial
owner of such shares as that term is defined under federal securities
regulations. Mr. Shepherd disclaims beneficial ownership of these
shares.
(3) Based on correspondence received by the Company from FMR Corp.
-20-
<PAGE> 24
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of April 1, 1997 for (i) each
director and nominee named under "Proposal No. 1 Election of Directors," (ii)
each Named Executive Officer and (iii) directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Title of Class Name of Beneficial Owner Beneficial Ownership (1) Percent of Class (2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Henry F. Blissenbach (3) 24,355 *
Common Stock Alexander D. Cross (4) 42,029 *
Common Stock John Groom (5) 24,355 *
Common Stock Irving S. Johnson (6) 47,255 *
Common Stock William C. Shepherd (7) 3,436,228 10.6%
Common Stock David E. Robinson (8) 414,387 1.3%
Common Stock Steven D. Reich (9) 31,875 *
Common Stock William L. Respess (10) 272,908 *
Common Stock Lloyd E. Flanders (11) 156,596 *
Common Stock Paul V. Maier (12) 126,061 *
Common Stock Directors and executive 4,905,084 14.6%
officers as a group
(3)-(13)
</TABLE>
- ----------------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them. Share
ownership in each case includes shares issuable on exercise of certain
outstanding options and warrants as described in the footnotes below.
(2) Percentage of ownership is based on 32,485,818 shares of Common Stock
outstanding at April 1, 1997. In addition, for entities and individuals
that hold options or warrants exercisable within 60 days of April 1,
1997, the shares of Common Stock issuable upon the exercise of such
options or warrants have been included in the calculations of
percentages of ownership for such entities and individuals.
(3) Includes 24,355 shares of Ligand Common Stock issuable upon the
exercise of options that are exercisable within 60 days.
(4) Includes 24,355 shares of Ligand Common Stock issuable upon the
exercise of options that are exercisable within 60 days. Also includes
warrants to purchase 149 shares owned beneficially by Alexander D.
Cross, or his successor, Trustee, U.A., dated July 8, 1991.
(5) Includes 24,355 shares of Ligand Common Stock issuable upon the
exercise of options that are exercisable within 60 days.
(6) Includes 29,214 shares of Ligand Common Stock issuable upon the
exercise of options that are exercisable within 60 days.
(7) Includes 3,411,873 shares owned beneficially by Allergan (Ireland). Mr.
Shepherd is President and Chief Executive Officer of Allergan. Mr.
Shepherd, a director of Ligand, may be deemed to be the beneficial
owner of such shares as that term is defined under federal securities
regulations. Mr. Shepherd disclaims beneficial ownership of these
shares.
-21-
<PAGE> 25
(8) Includes 173,687 shares of Ligand Common Stock issuable upon the
exercise of options that are exercisable within 60 days.
(9) Includes 31,875 shares of Ligand Common Stock issuable upon the
exercise of options that are exercisable within 60 days.
(10) Includes 143,769 shares of Ligand Common Stock issuable upon the
exercise of options that are exercisable within 60 days.
(11) Includes 156,596 shares of Ligand Common Stock issuable upon the
exercise of options that are exercisable within 60 days.
(12) Includes 120,717 shares of Ligand Common Stock issuable upon the
exercise of options that are exercisable within 60 days.
(13) Includes 1,067,572 shares of Ligand Common Stock issuable upon the
exercise of options and warrants held by executive officers and
directors of the Company that are exercisable within 60 days, and
3,411,873 shares beneficially owned by Allergan (Ireland), with respect
to which Mr. Shepherd may be deemed to be the beneficial owner.
EXECUTIVE OFFICERS
The executive officers of the Company as of April 1, 1997 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David E. Robinson 48 Chairman of the Board, President, Chief Executive
Officer and Director
Lloyd E. Flanders, Ph.D. 56 Senior Vice President, Pre-Clinical Development and
R&D Project Management
Paul V. Maier 49 Senior Vice President, Chief Financial Officer and
Treasurer
Andres Negro-Vilar, M.D., Ph.D. 57 Senior Vice President, Research and Chief Scientific
Officer
William A. Pettit 47 Senior Vice President, Human Resources and
Administration
Steven D. Reich, M.D. 51 Senior Vice President, Clinical Research
William L. Respess, J.D., Ph.D. 57 Senior Vice President, General Counsel,
Government Affairs and Secretary
Russell L. Allen 50 Vice President, Corporate Development and
Strategic Planning
Susan E. Atkins 50 Vice President, Investor Relations and Corporate
Communications
George M. Gill, M.D. 63 Vice President, Medical Affairs
Howard T. Holden, Ph.D. 52 Vice President, Regulatory Affairs and Compliance
</TABLE>
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
DAVID E. ROBINSON is being considered for the position of director of the
Company. See "Election of Directors" for a discussion of Mr. Robinson's business
experience.
LLOYD E. FLANDERS, PH.D. joined Ligand in September 1992 as Vice President,
R&D Planning, Administration, Project Management, became Vice President,
Pre-Clinical Development and R&D Administration in August 1993 and became Senior
Vice President, Pre-Clinical Development and R&D Project Management in March
1995. Prior to joining Ligand, Dr. Flanders was Vice President, New Product
Development--Cardiovascular Projects at Parke-Davis Research Division of the
Warner-Lambert Company where he also previously served as Director, Research
Planning and Administrative Services. From 1971 to 1985, he served in various
positions with G.D. Searle and Company, including Director, Department of
Project
-22-
<PAGE> 26
Management. Dr. Flanders received a Ph.D. in comparative biochemistry and
biophysics from University of California, Davis, an M.B.A. from Lake Forest
College and a B.S. in biology from DePauw University.
PAUL V. MAIER joined Ligand in October 1992 as Vice President and Chief
Financial Officer and became Senior Vice President and Chief Financial Officer
in November 1996. Prior to joining Ligand, Mr. Maier served as Vice President,
Finance at DFS West, a division of DFS Group, L.P., a private multinational
retailer. From February 1990 to October 1990, Mr. Maier served as Vice President
and Treasurer of ICN Pharmaceuticals, Inc. Mr. Maier held various positions in
finance and administration at SPI Pharmaceuticals, Inc., a publicly held
subsidiary of ICN Pharmaceuticals Group, from 1984 to 1988, including Vice
President, Finance from February 1984 to February 1987. Mr. Maier received an
M.B.A. from Harvard Graduate School of Business and a B.S. from Pennsylvania
State University.
ANDRES NEGRO-VILAR, M.D., PH.D. joined Ligand in September 1996 as Senior
Vice President, Research, and Chief Scientific Officer. Prior to joining Ligand,
Dr. Negro-Vilar was Vice President of Research and Head of the Women's Health
Research Institute for Wyeth-Ayerst Laboratories, a division of American Home
Products, from 1993 to 1996. From 1983 to 1993, Dr. Negro-Vilar served at the
National Institute of Environmental Health Sciences of the National Institutes
of Health as the Director of Clinical Programs and Chief of the Laboratory of
Molecular and Integrative Neurosciences. Dr. Negro-Vilar received a Ph.D. in
physiology from the University of Sao Paulo, Brazil, an M.D. from the University
of Buenos Aires, Argentina, and a B.S. in science from Belgrano College.
WILLIAM A. PETTIT joined Ligand in November 1996 as Senior Vice President,
Human Resources and Administration. Prior to joining Ligand, Mr. Pettit was
Senior Vice President, Human Resources at Pharmacia and Upjohn, Inc. where he
was employed from 1986 to 1996. From 1984 to 1986, Mr. Pettit served as
Corporate Director, Human Resources at Browning Ferris Industries. From 1975 to
1984, Mr. Pettit served in various positions at Bristol-Myers Company (now
Bristol-Myers Squibb Company) including Director, Human Resources. Mr. Pettit
received a B.A. in English from Amherst College.
STEVEN D. REICH, M.D. joined Ligand in December 1995 as the Senior Vice
President, Clinical Research. Prior to joining Ligand, Dr. Reich was at the
clinical contract research organization PAREXEL International Corporation, from
1987 to 1995, where he served as Senior Vice President, Medical Affairs
responsible for worldwide medical and clinical affairs services including
clinical trials management, medical consulting and medical writing. From 1986 to
1987, Dr. Reich served as worldwide Medical Research Director of Biogen, Inc.
("Biogen"), and held various positions at Biogen from 1983 to 1986. Earlier in
his career Dr. Reich served as Associate Director of Clinical Cancer Research
for Bristol Laboratories (1978-1979). He is a Board certified Medical Oncologist
and has held academic positions as a clinical pharmacologist at Northwestern
University, SUNY-Upstate Medical School, and University of Massachusetts Medical
Center. Dr. Reich received an M.D. from the New Jersey College of Medicine and
an A.B. from Princeton University.
WILLIAM L. RESPESS, J.D., PH.D. joined Ligand in December 1988 as Vice
President and General Counsel, became Senior Vice President and General Counsel
in August 1993 and assumed responsibility for Government Affairs in March 1995.
Prior to joining Ligand, Dr. Respess was Vice President and General Counsel at
Gen-Probe, Inc., a biotechnology company, from 1987 to 1988. From 1983 to 1986,
he served as Vice President and General Counsel at Hybritech, Inc., a
biotechnology company. From 1974 to 1983, he was an attorney with the patent law
firm of Lyon & Lyon of Los Angeles, serving as Partner from 1980 to 1983. Dr.
Respess received a J.D. from George Washington University, a Ph.D. in organic
chemistry from the Massachusetts Institute of Technology and a B.S. in chemistry
from the Virginia Military Institute.
RUSSELL L. ALLEN joined Ligand in February 1997 as Vice President,
Corporate Development and Strategic Planning. Prior to joining Ligand, Mr. Allen
was General Manager, Central America, Sanofi Winthrop Inc. and previously served
as Vice President, Business Development Strategic Analysis at Sterling Winthrop
Inc. where he was employed from 1985 to 1996. From 1980 to 1985, Mr. Allen
served in various positions at Bristol-Myers Company (now Bristol-Myers Squibb
Company) and from 1973 to 1980, held various positions at Procter &
-23-
<PAGE> 27
Gamble. Mr. Allen received an M.B.A. from Harvard Graduate School of Business
and a B.A. from Amherst College.
SUSAN E. ATKINS joined Ligand in June 1993 as Vice President, Investor
Relations and Corporate Communications. Prior to joining Ligand, Ms. Atkins
served as Vice President of Public Affairs at Rorer Group Inc. (now
Rhone-Poulenc Rorer), an international pharmaceutical firm from 1986 to 1988.
From 1985 to 1986, Ms. Atkins served as Director of Corporate Communications at
Genentech, Inc. ("Genentech"). Ms. Atkins received an M.B.A. from Pepperdine
University and received both an M.A. in mass communications and B.A. in
journalism from the University of Oklahoma.
GEORGE M. GILL, M.D. joined Ligand in September 1992 as Vice President,
Clinical Research and became Vice President, Medical Affairs in January 1996.
Prior to joining Ligand, Dr. Gill was Senior Director, Clinical Research at ICI
Pharmaceutical Research and Development where he also served as Director of
Clinical Research, Clinical and Medical Affairs from 1990 to 1992. From 1984 to
1990, Dr. Gill served in various positions at Bristol-Myers Company (now
Bristol-Myers Squibb Company), including Vice President, Worldwide Regulatory
Affairs. Dr. Gill received an M.D. from the University of Pennsylvania and a
B.S. in chemistry from Dickinson College and is board certified in pediatrics.
HOWARD T. HOLDEN, PH.D. joined Ligand in September 1992 as Vice President,
Regulatory Affairs and Compliance. Prior to joining Ligand, Dr. Holden was
Senior Director, Worldwide Regulatory Affairs at Parke-Davis Pharmaceutical
Research Division of the Warner-Lambert Company. From 1986 to 1988, Dr. Holden
served as Director, Regulatory Affairs and Compliance at Centocor Inc., a
pharmaceutical company. Dr. Holden received a Ph.D. in microbiology from the
University of Miami and a B.A. in zoology from Drew University.
-24-
<PAGE> 28
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned by the Company's Named Executive Officers for services
rendered in all capacities to the Company for the fiscal years ended December
31, 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards(3)
------------------------------------------------- ----------------
Securities
Other Annual Underlying
Name and Principal Position Year Salary($)(1) Bonus($) Compensation ($)(2) Options/ SARs(#)
- --------------------------- ---- ------------ -------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
David E. Robinson 1996 486,295 80,000 68,292 100,000
Chairman of the Board 1995 457,393 75,000 62,576 68,082
President and CEO 1994 439,167 70,000 95,946 55,208
William L. Respess 1996 268,625 124,000(4) 3,465 6,750
Senior Vice President, 1995 254,625 -- 3,465 36,400
General Counsel, Government Affairs 1994 223,646 -- 433 105,951
and Secretary
Lloyd E. Flanders 1996 231,693 24,000 20,664 48,750
Senior Vice President, Pre-Clinical 1995 213,963 27,000 29,348 21,400
Development and R&D Project 1994 192,340 -- 32,627 64,680
Management
Steven D. Reich (5) 1996 227,500 22,500 38,510 --
Senior Vice President, 1995 18,958 -- 40,939 90,000
Clinical Research 1994 -- -- -- --
Paul V. Maier 1996 212,627 22,500 17,379 58,563
Senior Vice President, 1995 201,449 14,250 18,090 5,700
Chief Financial Officer and Treasurer 1994 190,398 14,250 34,230 43,572
</TABLE>
- --------------------------
(1) Compensation deferred at the election of the executive, pursuant to the
Ligand Pharmaceuticals 401(k) Plan, is included in the year earned.
(2) For 1996: Mr. Robinson, includes $10,876 relocation reimbursements and
$55,230 loan forgiveness; for Dr. Flanders, includes $17,394 loan
forgiveness; for Mr. Maier, includes $16,596 loan forgiveness; and for Dr.
Reich, includes $25,358 relocation reimbursements and $12,000 housing
allowance. For 1995: Mr. Robinson, includes $57,980 loan forgiveness; for
Dr. Flanders, includes $8,250 housing allowance and $18,172 loan
forgiveness; for Mr. Maier, includes $17,394 loan forgiveness; and for Dr.
Reich, includes $35,000 sign-on bonus and $4,843 for relocation
reimbursements. For 1994: Mr. Robinson, includes $11,000 housing allowance,
$19,800 relocation reimbursements and $60,640 loan forgiveness; for Dr.
Flanders, includes $12,000 housing allowance and $20,163 loan forgiveness;
and for Mr. Maier, includes $15,082 relocation reimbursement and $18,460
loan forgiveness. See "-Employment Contracts and Change of Control
Arrangements."
-25-
<PAGE> 29
(3) As of the last day of the 1996 fiscal year, the Named Executive Officers
held the following aggregate restricted stock shares, including shares
granted prior to fiscal 1994 (valued at market at December 31, 1996):
<TABLE>
<CAPTION>
Total # of Shares Grant Date Value($)
----------------- ---------- --------
<S> <C> <C> <C>
David E. Robinson............. 240,700 11/01/91 3,580,413
William L. Respess............ 121,326 * 1,804,724
Lloyd E. Flanders............. 0 -- 0
Steven D. Reich............... 0 -- 0
Paul V. Maier................. 0 -- 0
</TABLE>
- ---------------------
* Various grant dates ranging from 5-01-88 through 5-17-91.
The shares of restricted stock are fully vested for the Named Executive
Officers. See "--Employment Contracts and Change of Control Arrangements."
(4) Includes $100,000 extraordinary one-time bonus based on achievement of a
specified goal.
(5) Dr. Reich joined Ligand in December 1995.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options and tandem limited stock appreciation rights ("SARs") under the
Company's 1992 Stock Option/Stock Issuance Plan to the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Securities Options/SARs Stock Price
Underlying Granted to Appreciation for
Options/SARs Employees in Exercise or Option Team
Granted Fiscal Base Price Expiration --------------------
Name (#)(1)(2) Year ($/Sh)(3) Date 5%($)(4) 10%($)(4)
---- ------------ ------------ ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
David E. Robinson 100,000 10.27 13.31 04/25/06 837,216 2,121,670
William L. Respess 6,750 0.69 13.31 04/25/06 56,512 143,213
Lloyd E. Flanders 48,750 5.01 12.13 12/05/06 371,736 942,051
Steven D. Reich 0 N/A N/A N/A N/A N/A
Paul V. Maier 3,563 0.37 13.31 04/25/06 29,830 75,595
55,000 5.65 12.13 12/05/06 19,394 1,062,827
</TABLE>
-26-
<PAGE> 30
(1) Options listed under Column (A) below are exercisable as to 25 percent of
the aggregate shares granted on each of the first, second, third and fourth
anniversaries of the grant date, so long as employment with the Company
continues. Options listed under Column (B) below were granted in 1996 and
are 100 percent exercisable on January 1, 1997. The grant dates of the
options listed in the above table are as follows:
<TABLE>
<CAPTION>
(A) (B)
-------------------------- -------------------------
Options Options
Name Granted (#) Grant Date Granted (#) Grant Date
- ---- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
David E. Robinson 100,000 04/25/96 0 - -
William L. Respess 0 - - 6,750 04/25/96
Lloyd E. Flanders 48,750 12/5/96 0 - -
Steven D. Reich 0 - - 0 - -
Paul V. Maier 55,000 12/5/96 3,563 04/25/96
</TABLE>
The options granted to each of the individuals listed above apart from Mr.
Robinson are subject to acceleration upon a change of control as described
under "Proposal No. 2 Approval of an Amendment to the Company's 1992 Stock
Option/Stock Issuance Plan--Terms of Discretionary Grant Program--Special
Acceleration Agreements." The options granted to Mr. Robinson are subject
to acceleration upon a change of control in the circumstances described
below under "--Employment Contracts and Change of Control Arrangements."
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 Plan Administrator may grant tandem stock appreciation rights in
connection with option grants which require the holder to elect between the
exercise of the underlying option for shares of Common Stock and the
surrender of such option for a distribution from the Company, payable in
cash or shares of Common Stock, based upon the appreciated value of the
option shares. To date the Plan Administrator has not granted any tandem
stock appreciation rights to the Company's executive officers.
(3) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares and the federal
and state tax liability incurred in connection with such exercise. The
optionee may be permitted, subject to the approval of the Plan
Administrator, to apply a portion of the shares purchased under the option
(or to deliver existing shares of Common Stock) in satisfaction of such tax
liability. The Plan Administrator also has the authority to reprice
outstanding options through the cancellation of those options and the grant
of replacement options with a exercise price equal to the lower fair market
value of the option shares on the regrant date.
(4) 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 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the executive officers.
-27-
<PAGE> 31
OPTION/SAR EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options and/or SARs during the
last fiscal year and unexercised options and SARs held as of the end of the
fiscal year:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- ------------------ -------------- -------------- ------------------------------------ ----------------------------------------------
Number of Securities Underlying
Unexercised Options/SARs Value of Unexercised In-the-Money
at December 31, 1996 Options/SARs at December 31, 1996
Shares ------------------------------------ ----------------------------------------------
acquired on Value
Name exercise (#) Realized ($) Exercisable (#) Unexercisable (#) Exercisable ($)(1) Unexercisable ($)(1)
- ------------------ -------------- -------------- ---------------- ------------------- -------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
David E. Robinson -- -- 152,088 125,327 960,345 423,220
William L. Respess -- -- 129,819 40,932 815,226 233,563
Lloyd E. Flanders -- -- 149,579 77,264 912,092 308,806
Steven D. Reich -- -- 22,500 67,500 143,438 430,313
Paul V. Maier -- -- 116,433 72,590 691,330 253,324
================== ============== ============== ================ =================== ==================== =========================
</TABLE>
(1) Value of unexercised, in the money, options at December 31, 1996 was
determined by taking (a) the fair market value at December 31, 1996 less
(b) the option exercise price times the number of shares.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
In May 1996, Ligand entered into an employment agreement with David E.
Robinson pursuant to which Mr. Robinson is employed as President and Chief
Executive Officer and which is the successor employment agreement to an
agreement entered into in October 1991. The current employment term ends on May
1, 1999 and is automatically renewed for successive, additional three year
terms, unless terminated by Ligand or Mr. Robinson. During the employment term,
Mr. Robinson will receive a base salary of $490,000 subject to increase by
Ligand's Board of Directors. Mr. Robinson's base salary, as of December 31,
1996, was $490,000 per annum. In addition, the Board may award Mr. Robinson a
bonus payment of up to $100,000 annually. In 1991, Ligand loaned Mr. Robinson
$200,000 which, with the accrued interest, will be forgiven in equal annual
installments over four years so long as Mr. Robinson is employed by Ligand. The
outstanding balance of the note will be due in the event Mr. Robinson resigns or
is terminated by Ligand except that if Mr. Robinson is terminated without cause
or if he resigns for specified reasons, the loan will be forgiven. At December
31, 1996, $51,108 principal and interest remained outstanding. In the event of
termination of employment by Ligand without cause, or in the event of
resignation of employment by Mr. Robinson for specified reasons, Ligand is
obligated to pay Mr. Robinson 24 months base salary. Mr. Robinson may terminate
this employment agreement in connection with, among other things, a change in
control of the Company, at which time all of his outstanding stock options shall
immediately vest so as to be immediately exercisable by him at his election;
provided, however, that in the event that the Company has agreed to a merger
that is intended to be treated as a pooling of interests for accounting purposes
and Mr. Robinson terminates this agreement prior to May 1, 1997, then such
outstanding stock options shall not become exercisable on an accelerated basis
if the Company's independent auditors determine that accelerated vesting of such
options would preclude the treatment of such merger as a pooling of interests.
In September 1992, Ligand entered into an employment agreement with Lloyd
E. Flanders pursuant to which Dr. Flanders is employed as Senior Vice President,
Pre-Clinical Development and R&D Project Management. Dr. Flanders' base salary,
as of December 31, 1996, was $231,693 per annum. In connection with the
agreement, Ligand loaned Dr. Flanders $75,000 which, with the accrued interest,
will be forgiven in equal
-28-
<PAGE> 32
annual installments over five years, so long as Dr. Flanders is employed by
Ligand. The note will be due in the event Dr. Flanders resigns or is terminated
by Ligand, except that if Dr. Flanders is terminated without cause, the loan
will be forgiven. At December 31, 1996, $30,931 principal and interest remained
outstanding. Dr. Flanders was granted options to purchase 92,013 shares of
Ligand Common Stock at an average price of $8.87 per share which shares vest
over four years. Vesting of the shares will be accelerated if he is terminated
without cause. If Dr. Flanders is terminated without cause, Ligand has agreed to
pay him 12 months base salary.
In December 1995, Ligand entered into an employment agreement with Steven
D. Reich, M.D. pursuant to which Dr. Reich is employed as Senior Vice President,
Clinical Research. Dr. Reich's base salary as of December 31, 1996 was $227,500
per annum. In connection with the agreement, Ligand loaned Dr. Reich $100,000
which, with the accrued interest, will be forgiven in equal annual installments
over five years, so long as Dr. Reich is employed by Ligand. At December 31,
1996, $104,240 principal and interest remained outstanding. In connection with
the agreement, Dr. Reich was granted an option to purchase 90,000 shares of
Ligand Common Stock at an average price of $8.50 per share. If Dr. Reich is
terminated without cause, Ligand has agreed to pay him six months base salary.
In September 1992, Ligand entered into an employment agreement with Paul V.
Maier pursuant to which Mr. Maier is employed as Senior Vice President and Chief
Financial Officer. Mr. Maier's base salary, as of December 31, 1996, was
$216,794 per annum. In connection with the agreement, Ligand loaned Mr. Maier
$75,000 which, with the accrued interest, will be forgiven in equal annual
installments over five years, so long as Mr. Maier is employed by Ligand. At
December 31, 1996, $15,133 principal and interest remained outstanding. In
connection with the agreement, Mr. Maier was granted an option to purchase
81,188 shares of Ligand Common Stock, which shares vest over four years, at an
average price of $8.87 per share. If Mr. Maier is terminated without cause,
Ligand has agreed to pay him six months base salary.
Ligand has entered into agreements with its employees, including each of
the Named Executive Officers apart from Mr. Robinson, holding outstanding
options under the Plan, pursuant to which such options will automatically
accelerate in the event that such individual's employment is terminated in
connection with a change in control of Ligand. The change in control events
under these agreements include transactions in addition to those in effect for
Plan purposes. These agreements assure such individuals that either their
outstanding options under the Plan will be assumed by the successor entity in
connection with such a change in control or that such options shall become fully
exercisable immediately prior to the effective date of the change in control so
that such individuals will have the opportunity to receive the appreciated value
of their outstanding options despite the change in control. See "Proposal No. 2
Approval of an Amendment to the Company's 1992 Stock Option/Stock Issuance
Plan--Terms of Discretionary Grant Program--Special Acceleration Agreements."
Mr. Robinson's outstanding options are subject to acceleration upon a change of
control in the circumstances set forth in his employment agreement with Ligand
effective May 1996, as described above.
The Company intends to enter into severance agreements with the Named
Executive Officers apart from Mr. Robinson and certain other executive officers
pursuant to which each officer would receive severance payments from the Company
for a period of twelve (12) months following involuntary termination of
employment in connection with a change in control in an aggregate amount equal
to the sum of (A) one (1) times the annual rate of base salary in effect for
such officer at the time of involuntary termination plus (B) one (1) times the
average of bonuses paid to such officer for services rendered in the two (2)
fiscal years immediately preceding the fiscal year of involuntary termination.
It is anticipated that such severance agreements, upon execution, would be
effective as of April 1, 1997.
The following Board Compensation Committee Report on Executive Compensation
and Performance Graph should be not be considered to be part of this proxy
statement and any current or future cross references to this proxy statement in
filings with the Securities and Exchange Commission under either the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
shall not include the Board Compensation Committee Report on Executive
Compensation or the Performance Graph reproduced below.
-29-
<PAGE> 33
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the report delivered by the Compensation Committee of the
Ligand Board with respect to the principal factors considered by such Committee
in determining the compensation of Ligand's executive officers.
As members of the Compensation Committee of the Board of Directors, it is
our duty to set the base salary of Ligand's executive officers and to
administer Ligand's 1992 Stock Option/Stock Issuance Plan under which
grants may be made to them and other key employees. In addition, we approve
the individual bonus programs to be effective for the executive officers
each fiscal year.
GENERAL COMPENSATION POLICY. Our fundamental policy is to offer Ligand's
executive officers competitive compensation opportunities based upon their
contribution to the financial success of Ligand and their personal
performance. It is our objective to have a substantial portion of each
officer's compensation contingent upon Ligand's performance as well as upon
his or her own level of performance. Accordingly, each executive officer's
compensation package is comprised of three elements: (i) base salary which
reflects individual performance and is designed primarily to be competitive
with salary levels in the industry, (ii) annual variable performance awards
payable in cash and tied to the achievement of financial performance goals
established by us, and (iii) long-term stockbased incentive awards which
strengthen the mutuality of interests between the executive officers and
Ligand's stockholders. As an officer's level of responsibility increases,
it is our intent to have a greater portion of his or her total compensation
be dependent upon Ligand performance and stock price appreciation rather
than base salary.
FACTORS. Several of the more important factors which we considered in
establishing the components of each executive officer's compensation
package for the 1996 fiscal year are summarized below. Additional factors
were also taken into account, and we may in our discretion apply entirely
different factors, particularly different measures of financial
performance, in setting executive compensation for future fiscal years, but
all compensation decisions will be designed to further the general
compensation policy indicated above.
BASE SALARY. The base salary for each officer is set on the basis of: (i)
industry experience, knowledge and qualifications, (ii) the salary levels
in effect for comparable positions within Ligand's principal industry
marketplace competitors and (iii) internal comparability considerations.
ANNUAL INCENTIVE COMPENSATION. Annual bonuses are earned by each executive
officer solely on the basis of Ligand's achievement of the corporate
performance targets we establish at the start of the fiscal year. For
fiscal year 1996, each executive was measured against individual goals
consistent with overall corporate goals. Accordingly, this element of
executive compensation is earned solely on the basis of Ligand's success in
achieving the corporate goals.
LONG-TERM INCENTIVE COMPENSATION. On April 25, September 3, and December 5,
1996 we approved the grants of stock options to certain of Ligand's
executive officers under Ligand's 1992 Stock Option/Stock Issuance Plan.
The grants are designed to align the interests of each executive officer
with those of the shareholders and provide each individual with a
significant incentive to manage Ligand from the perspective of an owner
with an equity stake in the business. The number of shares subject to each
option grant was based on the officer's level of responsibilities and
relative position in Ligand.
Each grant allows the officer to acquire shares of Ligand's common stock at
a fixed price per share (the market price on the grant date) over a
specified period of time (up to 10 years). Accordingly, the option will
provide a return to the executive officer only if the market price of the
shares appreciates over the option term.
CEO COMPENSATION. In setting the compensation payable to Ligand's Chief
Executive Officer, Mr. Robinson, we have sought to be competitive with
other companies in the industry, while at the same time tying a significant
percentage of such compensation to Ligand performance and stock price
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<PAGE> 34
appreciation. An employment agreement effective May 1996 between Ligand and
Mr. Robinson sets forth the terms and conditions, including compensation,
governing Mr. Robinson's employment. The term of such agreement was
extended during 1996 through May 1999.
We established Mr. Robinson's base salary upon our evaluation of his
personal performance and our objective to have his base salary keep pace
with salaries being paid to similarly situated chief executive officers.
The remaining components of Mr. Robinson's 1996 fiscal year compensation,
however, were entirely dependent upon financial performance and provided no
dollar guarantees. The cash bonus to be paid to him for the 1996 fiscal
year will be based entirely on Ligand's attainment of certain objectives as
specified in Mr. Robinson's employment agreement. It is our objective to
have an increasing percentage of Mr. Robinson's total compensation each
year tied to the attainment of performance targets and stock price
appreciation on his option shares.
We conclude our report with the acknowledgement that no member of the
Compensation Committee is a current officer or employee of Ligand or any of its
subsidiaries.
COMPENSATION COMMITTEE
HENRY F. BLISSENBACH
JOHN GROOM
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<PAGE> 35
PERFORMANCE GRAPH
The following graph compares total stockholder returns of Ligand's Common
Stock since Ligand's initial public offering of its Class A Common Stock (on
November 18, 1992) to the weighted average return of stocks of companies
included in the Nasdaq Composite Index and in CBOE Biotech Index. The total
return for each of Ligand's Common Stock, the Nasdaq Composite Index and the
CBOE Biotech Index assumes the reinvestment of dividends, although dividends
have not been declared on Ligand's Common Stock and is based on the returns of
the component companies weighted according to their market capitalizations as of
the end of each monthly period for which returns are indicated. The Nasdaq
Composite Index tracks the aggregate price performance of equity securities of
companies traded on the Nasdaq. Ligand's Common Stock is traded on the Nasdaq
National Market. The CBOE Biotech Index tracks 20 domestic stocks representative
of small and medium cap stocks in the biotechnology sector.
On November 24, 1994, each outstanding share of Ligand's Class A Common
Stock was automatically converted into 1.33 shares of Ligand Common Stock, which
is currently traded in the over-the-counter market. The stockholder return of
Ligand's Common Stock shown below for the period prior to November 24, 1994, has
been adjusted for such automatic conversion by dividing the share price in those
periods by 1.33.
The stockholder return shown on the graph below is not necessarily
indicative of future performance and Ligand will not make or endorse any
predictions as to future stockholder returns.
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN*
<TABLE>
<CAPTION>
11/18/92 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
LIGAND 100.0 95.5 106.8 99.8 130.0 179.9
CBOE 100.0 100.0 74.2 64.6 106.3 100.2
NASDAQ INDEX 100.0 106.6 122.4 118.5 165.7 203.4
</TABLE>
* Assumes $100 investment on Company's IPO, November 18, 1992, adjusted for
conversion from Class A to Class B on November 24, 1994.
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<PAGE> 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP AMONG ALLERGAN LIGAND RETINOID THERAPEUTICS, INC., LIGAND AND
ALLERGAN
William C. Shepherd is a Director of Allergan Ligand Retinoid Therapeutics,
Inc. ("ALRT") and Ligand and is also the President, Chief Executive Officer and
a Director of Allergan. David E. Robinson is a Director of ALRT and is also the
President, Chief Executive Officer and a Director of Ligand. In December 1994,
Ligand and Allergan formed ALRT to continue the research and development
activities previously conducted by the Allergan-Ligand Joint Venture (the "Joint
Venture"). In June 1995, Ligand and ALRT completed a public offering of
3,250,000 units with aggregate proceeds of $32.5 million (the "Offering"). Each
Unit consisted of one share of ALRT's Callable Common Stock and two warrants,
each warrant entitling the holder to purchase one share of the Common Stock of
Ligand. Immediately prior to the consummation of the Offering, Allergan
(Ireland) made a $6.0 million investment in Ligand's Common Stock, Ligand then
contributed $17.5 million in cash and Allergan contributed $50.0 million in cash
to ALRT. Ligand's contribution resulted in a one-time charge to operations.
Ligand also recorded a warrant subscription receivable and corresponding
increase in paid-in capital of $5.85 million (6,500,000 warrants valued at $.90
per warrant) pursuant to the Offering. In conjunction with the consummation of
the Offering, the existing Joint Venture was dissolved and all rights held by
the Joint Venture were licensed to ALRT.
In connection with the Offering, ALRT, Ligand and Allergan entered into the
following agreements:
Technology License Agreement. ALRT, Ligand and Allergan entered into a
technology license agreement (the "Technology License Agreement") under which
Allergan and Ligand granted ALRT a worldwide, exclusive (even as to Allergan and
Ligand) right and license, terminable only as set forth therein, to use the
retinoid technologies developed by Allergan and Ligand (both separately and
through the Allergan Ligand Joint Venture formed in June 1992 to develop drugs
based on retinoids) in research, development and commercialization of ALRT
products (the "Products"). The licenses granted by Allergan and Ligand are
subject in each case to certain exceptions that allow Allergan and Ligand to
pursue limited research activities, to pursue development and commercialization
of the 1057 products (following exercise of the 1057 Purchase Option, as defined
below), to pursue development and commercialization of, with respect to Ligand,
LGD 1069 and, with respect to Allergan, tazarotene (AGN 190168), to pursue
development and commercialization of Acquired Products (as defined below) and to
pursue development and commercialization of Independent Products (as defined
below) (collectively, the "Permitted Activities"). See "--Development Agreement"
and "--1057 Purchase Option". In consideration of the license grants and in
recognition of Allergan's and Ligand's expertise which they developed over a
period of years through the Joint Venture and otherwise, ALRT agreed to pay to
Allergan and Ligand a royalty, to be divided equally between them, of 3% of net
sales of Products during the life of applicable patents or, in certain
circumstances, for 10 years.
Development Agreement. ALRT, Ligand and Allergan also entered into a
research and development agreement (the "Development Agreement") under which
Ligand and Allergan perform research and development for ALRT on retinoid
compounds and products in accordance with annual budgets and development plans
jointly proposed by Ligand and Allergan. The budgets and research and
development plans are subject to approval and acceptance by ALRT's Board of
Directors, including members of the Board of Directors affiliated with Ligand
and Allergan. Although ALRT believes that, in general, the terms of the
Development Agreement are consistent with customary practices in the
pharmaceutical industry, the Development Agreement was not negotiated on an
arm's-length basis.
Payments to Ligand and Allergan under the Development Agreement for
research and development of potential products are made out of Available Funds
(as defined below) for the full amount of all Development Costs (as defined in
the Development Agreement) incurred by Ligand and Allergan in performing these
activities plus 10%, up to the maximum amount of funds available to ALRT, which
includes substantially all of the net proceeds raised in the Offering, plus the
Contributions, the Additional Contributions (as defined below), if any, and, if
designated by ALRT, any licensing or marketing income earned by ALRT, plus
interest earned on such funds, less amounts paid pursuant to the Services
Agreement (as defined below) and the Technology License Agreement, Development
Agreement and Commercialization Agreement (the "Major Agreements") and less $1
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<PAGE> 37
million to be retained by ALRT as working capital (the "Available Funds"). Any
funds received by ALRT from Allergan and Ligand upon exercise of the 1057
Purchase Option will be excluded from Available Funds. Development Costs will be
charged in a manner consistent with industry practices. Development Costs paid
by ALRT to Ligand under the Development Agreement totaled $18.6 million during
1996. Each of Ligand and Allergan has agreed, subject to customary business
constraints and limitations, to provide appropriate scientific and technical
personnel, necessary laboratories and equipment and administration of research
and development operations. Under the Development Agreement, however, neither
Ligand nor Allergan is required to allocate any specified amount of time or
resources to perform its obligations thereunder.
Prior to June 3, 1998, if Ligand and Allergan receive quarterly financial
statements of ALRT which show Available Funds of less than $10 million (the
"Statement Date"), Ligand and Allergan, at their option, may jointly provide, on
a quarterly basis, cash advances (the "Quarterly Contributions") to ALRT, in an
amount which the Board of Directors of ALRT determines will be sufficient to
permit ALRT to continue its research and development of Products for the quarter
following the date of such financial statements. Additionally, prior to June 3,
1999, Ligand and Allergan, at their option, may jointly provide, on a one-time
basis, a cash advance of $10 million or more (such amount, together with the
Quarterly Contributions, the "Additional Contributions") to ALRT for use in
research, development and commercialization of Products. Any advances provided
by Allergan and Ligand may be made pursuant to loans on terms reasonably
acceptable to a majority of the independent directors of ALRT.
If ALRT determines not to proceed with or to discontinue development of a
program compound after such compound has entered clinical trials, or after
sufficient data to file an Investigational New Drug Application ("IND") on such
compound has been gathered (an "Independent Product"), then Allergan and Ligand,
either jointly or alone, are entitled to develop and commercialize such compound
using their own funds, so long as (i) the Board of Directors of ALRT has first
made a reasonable determination that continued work on such compound would not
materially conflict or interfere with the interests of the ALRT retinoid program
or impair a party's ability to perform its obligations under the Major
Agreements and (ii) at least $1 million per year is committed to development of
such compound during each of the first two years of development of such
compound. ALRT will receive a royalty equal to 6% of net sales of any
Independent Product. ALRT has retained the right to reacquire any Independent
Product prior to the earlier of the commencement of Phase III clinical trials
for such product or the exercise or expiration of the option granted to Allergan
and Ligand to repurchase all of the Callable Common Stock of ALRT ("Stock
Purchase Option"), exercisable by reimbursing Ligand and/or Allergan, as the
case may be, for all research, development and commercialization costs expended
on such product, together with an amount representing interest (in an amount
which will provide an internal rate of return of 25% to the developing party on
such reimbursed costs). Additionally, with respect to any Independent Product
which ALRT reacquires, ALRT will pay a royalty equal to 4% of net sales to the
developing party. In addition, any retinoid product licensed or acquired by
Ligand or Allergan (an "Acquired Product") may be commercialized by Ligand or
Allergan separate from ALRT, as the case may be, so long as such product was
being commercially sold or is a product for which an application to market has
been filed in the United States or other major market country at the time of its
licensing or acquisition.
Commercialization Agreement. ALRT, Ligand and Allergan also entered into a
commercialization agreement (the "Commercialization Agreement") which provides
for the marketing, manufacture and sale by Ligand and/or Allergan of the
Products developed under the Development Agreement which have received
regulatory approval for commercial sale. The developed compounds will be
marketed in a manner determined by Ligand and Allergan, except that generally in
marketing such compounds (i) Allergan will have the worldwide exclusive right to
market drugs for eye and skin indications (other than cancer indications), (ii)
Ligand will have the exclusive right to market drugs to oncologists in North
America for use in eye and skin cancer, (iii) Allergan will have the exclusive
right to market drugs to dermatologists and eye specialists in North America for
use in eye and skin cancer, (iv) Ligand will have the exclusive right to market
drugs for cancer indications in North America (other than eye and skin cancer),
and (v) Allergan will have the exclusive right to market drugs for cancer
indications outside of North America. Additional marketing responsibilities for
compounds for indications other than those set forth above will be allocated
between Ligand and Allergan in accordance with a determination by ALRT,
following a recommendation by Ligand and Allergan, as to which company is best
suited to carry out the work. Ligand, Allergan or other third parties will
manufacture Products based on a
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<PAGE> 38
determination by ALRT, following a recommendation by Ligand and Allergan, of
relative quality and cost effectiveness, except with respect to drugs for eye
and skin indications which will be manufactured by Allergan. Products
manufactured and marketed by Ligand and/or Allergan will be done so at cost plus
a margin to be negotiated, with all remaining profit being retained by ALRT. If
the Stock Purchase Option expires unexercised, the obligations of Ligand and
Allergan to manufacture and market products for ALRT will continue until
terminated on 12-months' advance written notice from ALRT, Ligand or Allergan,
as the case may be.
Stock Purchase Option. Ligand and, in the event not exercised by Ligand,
Allergan, has an irrevocable option to purchase all, but not less than all, of
the Callable Common Stock outstanding at the time such option is exercised (the
"Stock Purchase Option"). Subject to acceleration of the exercise of the Stock
Purchase Option as described below, the Stock Purchase Option is exercisable at
any time beginning on the earlier of (i) June 3, 1997, and (ii) the Statement
Date, and ending on the date (the "Stock Purchase Option Expiration Date") which
is the earliest to occur of (a) June 3, 2000, (b) the 90th day after the
Statement Date, and (c) subject to the inability of the non-breaching party to
perform the breaching party's obligations under the Major Agreements, the date
ALRT terminates a Major Agreement due to an event of default by either Allergan
or Ligand. The Stock Purchase Option is not exercisable prior to June 3, 1998
unless the Available Funds are less than $60 million at the date of exercise. If
Ligand exercises the Stock Purchase Option, Ligand must provide notice (the
"Stock Purchase Option Exercise Notice") to ALRT, each holder of record of
Callable Common Stock and any other holder of shares of Special Common Stock on
or before 20 days prior to the Stock Purchase Option Expiration Date (the
"Ligand Expiration Date"). See "--Special Stock." If no such notice is given by
Ligand, and Allergan exercises the Stock Purchase Option, Allergan will provide
notice to ALRT after the Ligand Expiration Date and on or before the Stock
Purchase Option Expiration Date.
If the Stock Purchase Option is exercised, the purchase price per share
(the "Stock Purchase Option Exercise Price") for the period before June 3, 1998
and the last quarter of each of the fourth and fifth years from June 3, 1995
will be as follows:
<TABLE>
<CAPTION>
STOCK PURCHASE OPTION
IF THE STOCK PURCHASE OPTION IS EXERCISED EXERCISE PRICE PER SHARE
- ----------------------------------------- ------------------------
<S> <C>
Before June 3, 1998 $21.97
During the last quarter of the fourth year $28.56
During the last quarter of the fifth year $37.13
</TABLE>
The Stock Purchase Option Exercise Price is adjusted on a straight-line
basis at quarterly intervals beginning on June 3, 1998, through the Stock
Purchase Option Expiration Date. The Stock Purchase Option Exercise Price was
determined based on a number of factors and was not determined on an
arms'-length basis. Subject to certain limitations, the Stock Purchase Option
Exercise Price may be paid (i) by Ligand, in its sole discretion, in cash, in
shares of Ligand Common Stock, in shares of Allergan Common Stock or in any
combination thereof, or (ii) by Allergan, in its sole discretion, in cash, in
shares of Ligand Common Stock, in shares of Allergan Common Stock, or in any
combination thereof.
Under its Certificate of Incorporation, ALRT is prohibited, until the
expiration of the Stock Purchase Option, from taking or permitting certain
actions inconsistent with Ligand's and Allergan's rights under the Stock
Purchase Option. For example, until the expiration of the Stock Purchase Option,
ALRT is not able, among other things, without the consent of each of Ligand and
Allergan to pay any dividends, issue additional shares of capital stock, borrow
money in excess of $1 million in the aggregate outstanding at any one time,
merge, liquidate or sell all or substantially all of its assets or amend its
Certificate of Incorporation to change the Stock Purchase Option. See "--Special
Stock."
Asset Purchase Agreement. ALRT, Ligand and Allergan also entered into an
agreement (the "Asset Purchase Agreement") whereby, if Ligand exercises the
Stock Purchase Option, Allergan has the right to acquire certain assets from
ALRT (the "Asset Purchase Option"). Upon exercise of the Asset Purchase Option,
Allergan will acquire (i) a co-exclusive (with ALRT) right to ALRT technology as
of the date of the acquisition, (ii) 50%
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<PAGE> 39
of all tangible assets related to ALRT's activities in the retinoid program,
(iii) 50% of any remaining Available Funds, and (iv) the consideration, cash,
Allergan Common Stock and/or Ligand Common Stock, paid by Allergan to ALRT in
connection with the exercise, if any, by Ligand and Allergan of the 1057
Purchase Option, subject to Allergan's assumption of 50% of the liabilities of
ALRT. The Asset Purchase Option is exercisable upon notice given prior to the
record date for the exercise of the Stock Purchase Option and will close
concurrently with the Stock Purchase Option.
If the Asset Purchase Option is exercised, the exercise price for the Asset
Purchase Option (the "Asset Purchase Exercise Price"), which will be paid to
ALRT concurrently with the payment to holders of ALRT Callable Common Stock of
the Stock Purchase Option Exercise Price and may be used to pay a portion of
such Stock Purchase Option Exercise Price, for the period before June 3, 1998
and the last quarter of each of the fourth and fifth years from June 3, 1995,
will be as follows:
<TABLE>
<CAPTION>
AGGREGATE
ASSET PURCHASE
IF THE ASSET PURCHASE OPTION IS EXERCISED EXERCISE PRICE
- ----------------------------------------- --------------
(IN MILLIONS)
<S> <C>
Before June 3, 1998 $ 8.9
During the last quarter of the fourth year 11.5
During the last quarter of the fifth year 15.0
</TABLE>
The Asset Purchase Exercise Price is adjusted on a straight-line basis at
quarterly intervals beginning on June 3, 1998, through the Stock Purchase Option
Expiration Date. The Asset Purchase Exercise Price was determined based on a
number of factors and was not determined on an arms'- length basis. The Asset
Purchase Exercise Price may be paid by Allergan, in its sole discretion, in
cash, in shares of Allergan Common Stock, in shares of Ligand Common Stock, or
in any combination of the foregoing. Ligand may cause any such cash or stock to
be distributed as a credit against the Stock Purchase Option Exercise Price.
1057 Purchase Option. ALRT, Ligand and Allergan also entered into an
agreement (the "1057 Purchase Option Agreement") pursuant to which ALRT has
granted to Ligand and Allergan an option (the "1057 Purchase Option") to acquire
the Compound 1057 Program Assets (as defined below). Ligand and Allergan,
jointly, may exercise the 1057 Purchase Option beginning on the earlier of (i)
June 3, 1997 and (ii) the receipt of regulatory approval for commercial sale of
any Compound 1057 Product in the United States or in certain other major
countries and ending on the earlier of (a) 90 days after receipt of such
regulatory approval and (b) June 3, 2000. Additionally, the 1057 Purchase Option
will terminate on the date the Stock Purchase Option terminates as to both
Allergan and Ligand, whether by exercise or otherwise.
If the 1057 Purchase Option is exercised, the purchase price (the "1057
Purchase Option Exercise Price") for the period before June 3, 1998 and the last
quarter of each of the fourth and fifth years from June 3, 1995 will be as
follows:
<TABLE>
<CAPTION>
AGGREGATE 1057
PURCHASE OPTION
IF THE 1057 PURCHASE OPTION IS EXERCISED EXERCISE PRICE
- ---------------------------------------- ---------------
(IN MILLIONS)
<S> <C>
Before June 3, 1998 $21.4
During the last quarter of the fourth year $27.8
During the last quarter of the fifth year $36.2
</TABLE>
The 1057 Purchase Option Exercise Price is adjusted on a straight-line
basis at quarterly intervals beginning on June 3, 1998, through the termination
of the 1057 Purchase Option. The 1057 Purchase Option Exercise Price was
determined based on a number of factors and was not determined on an
arms'-length basis. Subject to certain limitations, the 1057 Purchase Option
Exercise Price may be paid in cash, in shares of Ligand
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<PAGE> 40
Common Stock, in shares of Allergan Common Stock or in any combination thereof.
ALRT may not distribute or otherwise expend any proceeds received upon the
exercise of the 1057 Purchase Option until the earlier of the closing of the
Stock Purchase Option or the date the Stock Purchase Option terminates or
expires unexercised.
Services Agreement. ALRT also entered into a services agreement with Ligand
and Allergan (the "Services Agreement") under which Ligand and Allergan provide
management and administrative services to ALRT at 110% of direct and indirect
costs for services performed internally by Ligand and Allergan and on a cost
reimbursement basis for services performed by third parties for Ligand and
Allergan on ALRT's behalf. The Services Agreement terminates on the earlier of
(i) the closing of the exercise of the Stock Purchase Option or (ii) 12 months
after expiration or termination of the Stock Purchase Option (other than by
exercise).
Special Stock. As part of the Offering, ALRT issued 200 shares of Special
Common Stock, 50% of which are held by Ligand and 50% of which are held by
Allergan. The holders of shares of Special Common Stock are not entitled to
vote, except: (i) as required by law and (ii) the holders of Special Common
Stock, voting as a separate class, are entitled to elect two directors of ALRT.
When entitled to vote, each holder of Special Common Stock has one vote for each
share standing in his or her name.
The holders of shares of Special Common Stock do not have the right to any
profits of ALRT as a result of the ownership of such shares. In the event of the
liquidation, dissolution or winding up of ALRT, holders of the Callable Common
Stock have a priority over the holders of the Special Common Stock with respect
to return of capital, and the holders of the shares of Special Common Stock will
not otherwise be entitled to participate in any way in the profits or assets of
ALRT. ALRT does not presently intend to issue any additional shares of Special
Common Stock.
Until the Stock Purchase Option is exercised or terminates unexercised,
ALRT cannot without the affirmative vote of the holders of a majority of the
issued and outstanding shares of Special Common Stock, voting separately and as
a class: (i) issue any additional shares of capital stock through a stock split,
sale, reorganization or otherwise, (ii) alter, change or amend the rights,
powers, preferences and restrictions of the Special Common Stock, (iii) alter or
change the provisions of ALRT's Certificate of Incorporation relating to ALRT's
capital stock and the Stock Purchase Option, (iv) merge, consolidate or
reorganize ALRT with or into any other corporation, (v) sell, liquidate or
otherwise dispose of all or substantially all of the assets of ALRT, (vi) borrow
an aggregate of in excess of $1 million outstanding at any one time; (vii)
declare or pay dividends or make any other distributions to stockholders; or
(viii) adopt, amend or repeal the Bylaws of ALRT. Thus, each of Ligand and
Allergan, as a result of their ownership of 50% of the outstanding shares of
Special Common Stock, could preclude the holders of a majority of the
outstanding Callable Common Stock and the Board of Directors of ALRT from taking
any of the foregoing actions during such period.
ALRT may, from time to time on and after the termination of the Stock
Purchase Option, redeem all of the outstanding shares of Special Common Stock by
paying in cash $1.00 per share on each redeemed share. No other preemptive
rights, conversion rights, redemption rights or sinking fund provisions are
applicable to the Special Common Stock.
Recent Developments. ALRT's Board of Directors recently approved a research
and development plan for the year ending December 31, 1997 which represents an
acceleration in spending on ALRT's retinoid programs. The accelerated spending
is the result of more rapid discovery and development of a significantly larger
library of viable retinoid compounds than anticipated at the time of formation
of ALRT. ALRT anticipates the acceleration in spending could result in the use
of substantially all of the funds available for research and development
remaining in ALRT in late 1997 or early 1998. Ligand and Allergan have certain
purchase options over the Callable Common Stock and the assets of ALRT which
could be triggered by the use of substantially all of ALRT's funds. There can be
no assurance that Ligand or Allergan will exercise these options. See "--Stock
Purchase Option," "--Asset Purchase Agreement" and "--1057 Purchase Option."
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<PAGE> 41
OTHER RELATIONSHIPS AND TRANSACTIONS
Certain holders of Ligand Common Stock (and Ligand Common Stock issuable
upon exercise of warrants) are entitled to certain registration rights with
respect to such stock.
Russell L. Allen, Vice President Corporate Development and Strategic
Planning entered into an Employment Agreement with Ligand in February 1997. In
connection therewith, Ligand will loan Mr. Allen $75,000 and granted an option
to purchase 75,000 shares of Ligand Common Stock at an average price of $13.00
per share.
Susan E. Atkins, Vice President, Investor Relations and Corporate
Communications, entered into an Employment Agreement with Ligand in June 1993.
In connection therewith, Ligand loaned Ms. Atkins $62,000 and granted an option
to purchase 43,300 shares of Ligand Common Stock at an average price of $7.89
per share.
George M. Gill, Vice President, Medical Affairs, entered into an Employment
Agreement with Ligand in August 1992. In connection therewith, Ligand loaned Dr.
Gill $85,000 and was granted options to purchase 108,250 shares of Ligand Common
Stock at an average price of $8.87 per share. At December 31, 1996, $17,151
principal and interest remained outstanding.
Howard T. Holden, Vice President, Regulatory Affairs, Compliance, entered
into an Employment Agreement with Ligand in August 1992. In connection
therewith, Ligand loaned Dr. Holden $75,000 and granted options to purchase
81,188 shares of Ligand Common Stock at an average price of $8.87 per share. At
December 31, 1996, $30,995 principal and interest remained outstanding.
Andres Negro-Vilar, M.D., Ph.D., Senior Vice President, Research and Chief
Scientific Officer entered into an Employment Agreement with Ligand in September
1996. In connection therewith, Ligand loaned Dr. Negro-Vilar $150,000 and was
granted an option to purchase 100,000 shares of Ligand Common Stock at an
average price of $12.13 per share. At December 31, 1996, $151,650 principal and
interest remained outstanding.
William A. Pettit, Senior Vice President, Human Resources and
Administration entered into an Employment Agreement with Ligand in November
1996. In connection therewith, Ligand will loan Mr. Pettit $75,000 and granted
an option to purchase 75,000 shares of Ligand Common Stock at an average price
of $12.13 per share.
Pursuant to a commitment with Dr. Alexander D. Cross, Ligand will pay
consulting fees to Dr. Cross at a rate of $2,000 for each Board meeting attended
and $500 for each Board meeting in which Dr. Cross participates by telephone.
Ligand will also reimburse Dr. Cross for all reasonable and necessary travel and
other incidental expenses. Pursuant to a prior consulting agreement, Dr. Cross
purchased 6,766 shares of Ligand Common Stock for $625 subject to the terms and
conditions of Ligand's Restricted Stock Purchase Agreement.
Pursuant to a commitment with Dr. Irving Johnson, Ligand will pay
consulting fees to Dr. Johnson at a rate of $2,000 for each Board meeting
attended, $500 for each board meeting in which Dr. Johnson participates by
telephone and $1,000 for each day of service beyond four days as a member of the
SAB. Ligand will also reimburse Dr. Johnson for all reasonable and necessary
travel and other incidental expenses. Pursuant to a prior agreement for
consulting services and for services on Ligand's SAB, Dr. Johnson purchased
18,042 shares of Ligand Common Stock for $334 subject to the terms and
conditions of Ligand's Restricted Stock Purchase Agreement.
Ligand believes that the foregoing transactions were in its best interests,
and on terms no less favorable to Ligand then could be obtained from
unaffiliated third parties.
Ligand will not currently extend or guarantee loans to officers, directors
or affiliates of Ligand unless such loans are approved by a majority of the
disinterested, outside directors of Ligand and may reasonably be expected to
benefit Ligand. As of December 31, 1996, there were outstanding loans with an
aggregate balance (principal and interest) of $416,984 to certain of Ligand's
officers and directors. In addition, all future
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transactions between Ligand and its officers, directors or principal
shareholders will be on terms no less favorable to Ligand than could be obtained
from unaffiliated parties, as determined by a majority of Ligand's disinterested
directors.
Ligand's Bylaws provide that Ligand will indemnify its directors and
executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by the Delaware General Corporation Law
(the "Delaware Law"). Ligand is also empowered under its Bylaws to enter into
indemnification contracts with its directors and officers and to purchase
insurance on behalf of any person whom it is required or permitted to indemnify.
Pursuant to this provision, Ligand has entered into indemnity agreements with
each of its directors and officers.
In addition, Ligand's Certificate of Incorporation provides that to the
fullest extent permitted by Delaware Law, Ligand's directors will not be liable
for monetary damages for breach of the directors' fiduciary duty of care to
Ligand and its stockholders. This provision in the Certificate of Incorporation
does not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as an injunction or other forms of nonmonetary relief would remain
available under Delaware Law. Each director will continue to be subject to
liability for breach of the director's duty of loyalty to Ligand, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, for acts or omissions that the director believes to be
contrary to the best interests of Ligand or its stockholders, for any
transaction from which the director derived an improper personal benefit, for
acts or omissions involving a reckless disregard for the director's duty to
Ligand or its stockholders when the director was aware or should have been aware
of a risk of serious injury to Ligand or its stockholders, for acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to Ligand or its stockholders, for improper
transactions between the director and Ligand, and for improper distributions to
stockholders and loans to directors and officers. This provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
There is no pending material litigation or proceeding involving a director,
officer, employee, or other agent of Ligand as to which indemnification is being
sought, nor is Ligand aware of any pending or threatened material litigation
that may result in claims for indemnification by any director, officer,
employee, or other agent.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the Nasdaq. Officers, directors and greater than 10%
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that, during the period from January 1996 through December 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were in compliance with the exception of a
Form 4 for William L. Respess with respect to shares exercisable under a stock
option grant which was filed late.
STOCKHOLDER PROPOSALS FOR 1997 PROXY STATEMENT
Stockholder proposals that are intended to be presented at the Company's
annual meeting of stockholders to be held in 1998 must be received by the
Company no later than January 20, 1998 in order to be included in the proxy
statement and related proxy materials.
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FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO INVESTOR RELATIONS.
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented
for consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
Dated: April 21, 1997 By Order of the Board of Directors
William L. Respess
Secretary
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PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
LIGAND PHARMACEUTICALS INCORPORATED
The undersigned hereby appoints David E. Robinson and William L.
Respess, as proxies, jointly and severally, with full power of substitution to
vote all shares of stock which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of Ligand Pharmaceuticals Incorporated to be
held Wednesday, May 21, 1997, or at any postponements of adjournments thereof,
as specified below, and to vote in their discretion on such other business as
may properly come before the Meeting and any adjournments thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
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PLEASE MARK
YOUR VOTES AS
INDICATED IN /X/
THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, AND 4.
WITHHELD
FOR FOR ALL
/ / / /
ITEM 1 - ELECTION OF DIRECTORS
Nominees:
Henry F. Blissenbach Carl C. Peck
Alexander O. Cross David E. Robinson
John Groom William C. Shepherd
Irving S. Johnson
WITHHELD FOR: (Write that nominee's name in the space provided below):
FOR AGAINST ABSTAIN
ITEM 2 - APPROVAL OF AN AMENDMENT TO STOCK / / / / / /
OPTION/STOCK ISSUANCE PLAN
ITEM 3 - APPROVAL OF AN AMENDMENT TO EMPLOYEE / / / / / /
STOCK PURCHASE PLAN
ITEM 4 - APPOINTMENT OF INDEPENDENT AUDITORS / / / / / /
CHECK HERE IF YOU PLAN TO
ATTEND THE ANNUAL MEETING / /
Signature(s)__________________________________________ Date________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. Please give full title as such, and, if signing for a
corporation, give your title. When shares are in the names of more than one
person, each should sign.
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