<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
LIGAND PHARMACEUTICALS INCORPORATED
- --------------------------------------------------------------------------------
(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 17, 1998
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 Thursday, May
21, 1998 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
Chairman, 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
10275 SCIENCE CENTER DRIVE
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
To the Stockholders of
LIGAND PHARMACEUTICALS INCORPORATED
The Annual Meeting of Stockholders of Ligand Pharmaceuticals
Incorporated (the "Company") will be held at the La Jolla Marriott located at
4240 La Jolla Village Drive, La Jolla, California on Thursday, May 21, 1998 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, Victoria R. Fash, John
Groom, Irving S. Johnson and Carl C. Peck.
2. To approve a series of amendments to the Company's 1992 Stock
Option/Stock Issuance Plan (the "1992 Plan"), including a 785,000-share
increase to the number of shares of the Company's common stock ("Common
Stock") authorized for issuance under the 1992 Plan, an increase to the
number of shares of Common Stock for which options are to be granted to new
and continuing non-employee Board members under the Automatic Option Grant
Program in effect under the 1992 Plan and the implementation of a special
Director Fee Option Grant Program.
3. To approve an amendment to the Company's 1992 Employee Stock Purchase
Plan (the "Purchase Plan") to increase the number of shares of the Common
Stock available for purchase under such Purchase Plan by an additional
53,500 shares.
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998.
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 March 27, 1998 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 17, 1998
<PAGE> 4
LIGAND PHARMACEUTICALS INCORPORATED
10275 Science Center Drive
San Diego, California 92121
-----------------------------
PROXY STATEMENT
-----------------------------
For the Annual Meeting of Stockholders
To Be Held
May 21, 1998
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,
1998 (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 March 27, 1998 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 17, 1998.
PURPOSE OF THE MEETING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement.
VOTING
On March 27, 1998, the record date for determination of stockholders
entitled to vote at the Annual Meeting, there were approximately 38,630,085
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 on March 27, 1998. Stockholders may not cumulate votes in the
election of directors.
All votes will be tabulated by the inspector of election appointed for the
meeting who will separately tabulate affirmative and negative votes, abstentions
and broker non-votes. Abstentions and broker non-votes will be counted for
purposes of determining whether a quorum is present at the Annual Meeting. With
regard to the election of directors, votes may be cast in favor of, or withheld
from, each nominee. However, the directors will be elected by plurality vote,
and votes that are withheld will be excluded entirely from the vote and will
have no effect. All other matters to be acted upon by the stockholders at the
Annual Meeting will require the approval of the holders of a majority of the
outstanding Common Stock present in person or represented by proxy and entitled
to vote at the Annual Meeting. With respect to such matters, abstentions will
have the effect of negative votes, whereas broker non-votes will not be counted
for purposes of determining whether any of those proposals has been approved.
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, 10275 Science Center 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.
<PAGE> 5
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 solicitation 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. To assist in the solicitation process, the Company has retained
ChaseMellon Shareholder Services. The fee for such services will be
approximately $4,500 plus reasonable expenses incurred to distribute
solicitation materials. 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 1,307,812 shares of the Common Stock,
constituting approximately 3.3% 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."
-2-
<PAGE> 6
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 an annual meeting and shall be within the range of seven to 11
individuals. 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 49
Executive Officer and Director
Henry F. Blissenbach (A) Director 1995 55
Alexander D. Cross, Ph.D. (B) Director 1991 66
Victoria R. Fash (A) Director 1998 46
John Groom (A)(B) Director 1995 59
Irving S. Johnson, Ph.D. Director 1989 72
Carl C. Peck, M.D. Director 1997 56
</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., a public biotechnology company, and several private health
care companies.
HENRY F. BLISSENBACH has served as a Director since May 1995 and currently
serves as a member of Ligand's Compensation Committee. Dr. Blissenbach is
currently President and Chief Operating Officer of Chronimed, Inc., a public
medical product mail-order company ("Chronimed"). Previously, Dr. Blissenbach
served as President of
-3-
<PAGE> 7
Diversified Pharmaceutical Services, a subsidiary company of SmithKline Beecham
Corp. ("SmithKline Beecham") from August 1986 until March 1997. 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.
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 served as 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., a private company. He
is a member of the Board of Directors of Myelos Neurosciences, a private
company.
VICTORIA R. FASH has served as a Director of Ligand since February 1998. Ms.
Fash is currently Executive Vice President of Cognizant Corporation's Healthcare
Information Services business unit and Chairman and CEO of its IMS unit,
positions she has held since December 1997. She serves concurrently as Executive
Vice President and Chief Financial Officer of Cognizant Corporation, a position
she has held since 1996. From 1991 to 1995, she was Vice President, Business
Operations at Dun & Bradstreet Corporation and in 1995 was promoted to Senior
Vice President, Business Strategy. Previously, Ms. Fash was the Director of
International Mergers and Acquisitions at Management Science America from 1985
to 1991. She is a member of the Board of Directors of Orion Capital Corporation,
a public insurance holding company.
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. 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, a
public biotechnology company, 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, both public pharmaceutical companies.
He currently serves on the Scientific Advisory Boards of both Ligand and Elan.
CARL C. PECK, M.D. has served as a Director of Ligand since May 1997. 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 United States Food and
Drug Administration. He held many academic positions prior to October 1987,
including Professor of Medicine and Pharmacology, Uniformed Services University,
from 1982 to October
-4-
<PAGE> 8
1987. He is author of more than 100 original research papers, chapters and books
with regard to his area of expertise.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of seven meetings during
the fiscal year ended December 31, 1997. During such year, each director
attended at least 75% of the aggregate number of meetings of the Board of
Directors and of the Board committees on which such director served.
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, 1997.
The Compensation Committee was established in March 1992 and reviews and
approves the Company's compensation policy. This committee currently consists of
Messrs. Blissenbach and Groom and Ms. Fash. The Compensation Committee held four
meetings and acted by unanimous written consent one time during the fiscal year
ended December 31, 1997.
DIRECTOR COMPENSATION
Certain non-employee Board members are paid fees for their Board service and
are reimbursed for expenses incurred in connection with such service. Drs. Cross
and Peck, Mr. Blissenbach and Ms. Fash receive a fee of $2,000 for each Board
meeting attended and $500 for each Board meeting in which he or she participated
by telephone. The Company also reimburses Drs. Cross and Peck, Mr. Blissenbach
and Ms. Fash for all reasonable and necessary travel and other incidental
expenses in connection with the performance of his or her Board duties. Pursuant
to a commitment with Dr. Johnson, the Company pays him a fee of $2,000 for each
Board meeting attended, $500 for each Board meeting in which he participates by
telephone and $1,000 for each day of service in excess of four days which he
renders as a member of the Scientific Advisory Board. The Company also
reimburses Dr. Johnson for all reasonable and necessary travel and other
incidental expense incurred in connection with such duties.
In addition, non-employee Board members are also eligible to participate in
the Automatic Option Grant Program in effect under the 1992 Plan. Under the
Automatic Option Grant Program as in effect prior to April 1, 1998, each
individual who first became a non-employee Board member received an option grant
for 16,237 shares of Common Stock upon his or her initial election or
appointment to the Board, provided such individual had not otherwise been in the
prior employ of the Company. Accordingly, upon his initial election to the Board
at the 1997 Annual Stockholders Meeting held on May 21, 1997, Mr. Peck received
an option grant under the Automatic Option Grant Program to purchase 16,237
shares of Common Stock at an exercise price of $12.00. Upon her initial
appointment to the Board on February 5, 1998, Ms. Fash also received an option
grant under the Automatic Option Grant Program to purchase 16,237 shares of
Common Stock at an exercise price of $11.25 per share. In addition, each of the
following individuals re-elected as a non-employee Board member at the 1997
Annual Meeting, received an option to purchase 8,118 shares of Common Stock
under the Automatic Option Grant Program with an exercise price of $12.00 per
share: Messrs. Blissenbach and Groom and Drs. Gross and Johnson.
Each of the initial and annual automatic option grants will have an exercise
price per share equal to the fair market value of the option shares on the grant
date and will have a term of 10 years measured from the grant date, subject to
earlier termination upon the optionee's cessation of Board service. Each option
will become exercisable for all the option shares upon the optionee's completion
of one year of Board service measured from grant date.
For further information concerning such automatic option grants, please see
"Proposal 2--Amendment of the 1992 Stock Option/Stock Issuance Plan--Automatic
Option Grant Program" to follow.
-5-
<PAGE> 9
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR the nominees listed
herein.
-6-
<PAGE> 10
PROPOSAL NO. 2
AMENDMENT OF THE 1992 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve a series of
amendments to the 1992 Plan which will effect the following changes: (i)
increase the number of shares authorized for issuance under the 1992 Plan by an
additional 785,000 shares, (ii) increase the share amount of the initial
automatic option grant under the Automatic Option Grant Program from 16,237
shares to 20,000 shares of Common Stock and increase the annual automatic option
grants under the same program from 8,118 shares to 10,000 shares of Common
Stock, (iii) implement a Director Fee Option Grant Program for non-employee
Board members to apply all or part of their fees to a special option grant, (iv)
limit the maximum number of shares of Common Stock for which an individual may
be granted options, separately exercisable stock appreciation rights and direct
stock issuances over the term of the 1992 Plan to 1,000,000 shares, (v) render
the non-employee Board members eligible to receive option grants and direct
stock issuances under the Discretionary Option Grant and Stock Issuance Programs
in effect under the 1992 Plan, (vi) eliminate certain restrictions on the
eligibility of non-employee Board members to serve as Plan Administrator, (vii)
allow unvested shares issued under the 1992 Plan and subsequently repurchased by
the Company at the option exercise or direct issue price paid per share to be
reissued under the 1992 Plan, and (viii) effect a series of additional changes
to the provisions of the 1992 Plan (including the stockholder approval
requirements and the transferability of non-statutory options) in order to take
advantage of the most recent amendments to Rule 16b-3 of the Securities and
Exchange Commission which exempts certain officer and director transactions
under the 1992 Plan from the short-swing liability provisions of the Federal
securities laws.
The 1992 Plan was originally adopted by the Board and was approved by the
stockholders in 1992. The amendments to the 1992 Plan which are the subject of
this Proposal were approved by the Board in February and April 1998, subject to
stockholder approval at the Annual Meeting.
The proposed share increase will assure that a sufficient reserve of Common
Stock is available under the 1992 Plan to attract and retain the services of key
individuals essential to the Company's long-term growth and success. The
limitation on the maximum number of shares for which any individual may be
granted options, separately exercisable stock appreciation rights and direct
stock issuances over the term of the 1992 Plan will assure that any compensation
deemed paid to the Company's executive officers upon their exercise of such
options or stock appreciation rights with exercise prices equal to the fair
market value per share on the grant date will continue to qualify as
tax-deductible performance-based compensation under Internal Revenue Code
Section 162(m). The remaining amendments will provide the Company with more
opportunities to make equity incentives available to non-employee Board members
as an inducement for their continued service and to facilitate plan
administration by eliminating a number of restrictions previously incorporated
into the 1992 Plan to comply with the applicable requirements of SEC Rule 16b-3
in effect at its time of adoption.
The following is a summary of the principal features of the 1992 Plan, as
amended. The summary, however, does not purport to be a complete description of
all the provisions of the 1992 Plan. Copies of the actual plan document may be
obtained by any stockholder upon written request to the Corporate Secretary at
the Company's principal executive offices in San Diego, California.
PLAN STRUCTURE
The 1992 Plan contains four separate equity programs: (i) the Discretionary
Option Grant Program, (ii) the Automatic Option Grant Program, (iii) the Stock
Issuance Program, and (iv) the Director Fee Option Grant Program. The principal
features of these programs are described below. The 1992 Plan is administered by
the Compensation Committee of the Board. This committee (the "Plan
Administrator") has complete discretion (subject to the provisions of the 1992
Plan) to authorize option grants and direct stock issuances under the 1992 Plan.
However, the Plan Administrator will not exercise any administrative discretion
under the Automatic Option Grant or Director Fee Option Grant Program for the
non-employee Board members. All grants under those programs will be made in
strict compliance with the express provisions of each such program.
-7-
<PAGE> 11
ISSUABLE SHARES
A total of 8,088,457 shares of Common Stock has been reserved for issuance
over the ten-year term of the 1992 Plan, assuming stockholder approval of the
785,000-share increase which forms part of this Proposal. As of March 1, 1998,
options for 4,225,465 shares of Common Stock were outstanding under the 1992
Plan, 1,148,324 shares remained available for future option grant or direct
issuance (assuming stockholder approval of the 785,000-share increase which
forms part of this Proposal), and 2,711,318 shares have been issued under the
1992 Plan. Without such increase, only 363,324 shares would be available for
future grant.
In no event may any one participant in the 1992 Plan receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares in the aggregate over the term of the 1992 Plan.
Stockholder approval of this Proposal will also constitute re-approval of such
limitation for purposes of Internal Revenue Code Section 162(m).
Should an option expire or terminate for any reason prior to exercise in
full, the shares subject to the portion of the option not so exercised will be
available for subsequent option grants or stock issuances under the 1992 Plan.
In addition, unvested shares issued under the 1992 Plan and subsequently
repurchased by the Company, at the original exercise price or issue price paid
per share, pursuant to the Company's repurchase rights under the 1992 Plan will
be added back to the number of shares of Common Stock reserved for issuance
under the 1992 Plan. Accordingly, such repurchased shares will be available for
reissuance through one or more subsequent option grants or direct stock
issuances under the 1992 Plan. However, shares subject to any option surrendered
or canceled in accordance with the stock appreciation right provisions of the
1992 Plan will reduce on a share-for-share basis the number of shares of Common
Stock available for subsequent grants.
Should any change be made to the Common Stock issuable under the 1992
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Company's receipt of consideration, then
appropriate adjustments will be made to (i) the maximum number and/or class of
securities issuable under the 1992 Plan, (ii) the number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances over the
remaining term of the 1992 Plan, (iii) the number and/or class of securities for
which grants are to be made under the Automatic Option Grant Program to new or
continuing non-employee Board members and (iv) the number and/or class of
securities and price per share in effect under each outstanding option. Such
adjustments to the outstanding options will be effected in a manner which will
preclude the enlargement or dilution of rights and benefits under those options.
ELIGIBILITY
Officers and other key employees of the Company and its parent or
subsidiaries (whether now existing or subsequently established), non-employee
members of the Board, and consultants and independent contractors of the Company
and its parent and subsidiaries are eligible to participate in the 1992 Plan.
As of March 1, 1998, approximately 345 employees (including 12 executive
officers) and six non-employee Board members were eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. The six non-employee
Board members were also eligible to participate in the Automatic Option Grant
and Director Fee Option Grant Programs.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1992 Plan will be deemed to be equal to the closing selling price per share
on that date on the Nasdaq National Market. If there is no reported selling
price for such date, then fair market value per share will be the closing
selling price on the next preceding date for which such quotation exists. On
March 31, 1998, the closing selling price per share was $15.94.
-8-
<PAGE> 12
DISCRETIONARY GRANT PROGRAM
Option Price and Term. Options may be granted under the Discretionary Option
Grant program at an exercise price per share not less than 85% of the fair
market value per share of Common Stock on the option grant date. No option will
have a term in excess of 10 years measured from the grant date.
Vesting of Options. The vesting schedule for each granted option will be
determined by the Plan Administrator at the time of the grant. The granted
option may be (i) immediately exercisable for vested shares, (ii) immediately
exercisable for unvested shares subject to the Company's repurchase rights or
(iii) exercisable in installments for vested shares over the optionee's period
of service.
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 exercise date. The option may also be
exercised through a cashless exercise procedure pursuant to which the optionee
provides irrevocable instructions to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Company, out of the sale
proceeds, an amount equal to the aggregate option price payable for the
purchased shares plus all applicable withholding taxes.
Termination of Service. Upon cessation of service, the optionee will have a
limited period of time in which to exercise any outstanding option to the extent
the option is exercisable for vested shares. The Plan Administrator will have
complete discretion to extend the period following the optionee's cessation of
service during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding.
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 generally not assignable
or transferable other than by will or the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by such optionee. However,
the Plan Administrator may allow non-statutory options to be transferred or
assigned during the optionee's lifetime to one or more members of the optionee's
immediate family or to a trust established exclusively for one or more such
family members, to the extent such transfer or assignment is in furtherance of
the optionee's estate plan.
Stock Appreciation Rights. The Plan Administrator is authorized to issue two
types of stock appreciation rights in connection with option grants made under
the Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.
Limited stock appreciation rights may be granted to officers of the
Company as part of their option grants. Any option with such a limited stock
appreciation right will automatically be cancelled, to the extent such
option is at the time exercisable for fully-vested shares of Common Stock,
upon the occurrence of a hostile take-over of the Company. Upon
cancellation, the officer will be entitled to a cash distribution from the
Company in an amount per vested option share equal to the excess of (a) the
take-over price over (b) the exercise price payable for such share.
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.
-9-
<PAGE> 13
AUTOMATIC GRANT PROGRAM
Each individual who first becomes a non-employee Board member on or after
the date of the 1998 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 20,000 shares of Common Stock, provided such individual has not
otherwise been in the prior employ of the Company. In addition, at each annual
stockholders meeting, beginning with the 1998 Annual Meeting, each individual
who is at that time re-elected as a non-employee Board member will automatically
be granted a non-statutory stock option to purchase 10,000 shares of Common
Stock. There is no limit on the number of such 10,000 share option grants a
non-employee Board member may receive over his or her period of Board service,
and re-elected Board members who have previously been in the Company's employ
will be eligible to receive such grants. Stockholder approval of this Proposal
will also constitute pre-approval of each option grant made pursuant to the
provisions of the Automatic Option Grant Program on or after the date of the
Annual Meeting and the subsequent exercise of that option in accordance with
such provisions.
The provisions which will govern each such option grant may be summarized as
follows:
* The option will have an exercise price per share equal to the fair
market value per share of Common Stock on the grant date.
* Each option will have a maximum term of 10 years measured from such
the grant date.
* Each option will become exercisable for all the option shares upon the
optionee's completion of one year of Board service measured from the
automatic grant date, subject to immediate acceleration upon certain changes
in control of the Company if such option is not assumed not by the successor
entity.
* The option will remain exercisable for a three-month period following
the optionee's cessation of Board service 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 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 Board service.
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.
STOCK ISSUANCE PROGRAM
Issue Price. Shares may be issued under the Stock Issuance Program at a
price per share not less than 85% of their fair market value, payable in cash or
through a promissory note payable to the Company. Shares may also be issued as a
bonus for past services.
Vesting of Shares. The vesting schedule for each share issued will be
determined by the Plan Administrator at the time of issuance. The shares may be
fully and immediately vested upon issuance or may vest in one or more
installments, subject to the Company's repurchase right, over the participant's
period of service.
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.
-10-
<PAGE> 14
Repurchase Rights. Should the recipient of unvested shares cease to remain
in the Company's service before vesting in such shares, then those unvested
shares must be immediately surrendered to the Company 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, the Company will refund the cash
consideration paid for the surrendered shares and cancel the remaining principal
balance of the note to the extent attributable to such surrendered shares. The
Plan Administrator, however, will have the discretion to waive any such
cancellation of unvested shares in whole or in part, thereby vesting those
shares on an accelerated basis under such circumstances as the Plan
Administrator may deem appropriate.
Payment. Upon issuance of the shares, the issue price for the purchased
shares will become immediately payable in cash, in shares of Common Stock valued
at fair market value on the date of issuance, or by promissory note payable to
the Company. 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 services, without any cash or other
payment required of the participant.
DIRECTOR FEE OPTION GRANT PROGRAM
Each non-employee Board member will have the right, commencing with the 1999
calendar year, to apply all or a portion of the fee otherwise payable to him in
cash each year to the acquisition of a special option grant under the Director
Fee Option Grant Program. The Board member must make his election to participate
in the program for a particular calendar year by December 31 of the immediately
preceding calendar year. The grant for each year of participation will
automatically be made on the first trading day in January of that year and will
have an exercise price per share equal to one-third of the fair market value of
the option shares on the grant date. The number of option shares will be
determined by dividing the total dollar amount of the fees subject to the Board
member's election by two-thirds of the fair market value per share of Common
Stock on the option grant date. As a result, the total spread on the option (the
fair market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will be equal to the portion of the fee
subject to the Board member's election. Until the Company establishes an annual
retainer fee for the non-employee Board members, the dollar amount of the fee
subject to the Board member's election each year will be equal to the number of
regularly-scheduled Board meetings for that year multiplied by the per Board
meeting fee in effect for such year. Stockholder approval of this Proposal will
also constitute pre-approval of each option grant made pursuant to the
provisions of the Director Fee Option Grant Program on or after the date of the
1998 Annual Meeting and the subsequent exercise of that option in accordance
with such provisions.
The option will become exercisable for the option shares in a series of 12
successive equal monthly installments upon the optionee's completion of each
month of Board service during the calendar year of the option grant. In the
event the optionee ceases Board service for any reason (other than death or
permanent disability), the unvested shares subject to the option at the time of
such cessation will immediately terminate; however, the option will remain
exercisable for the vested shares subject to the option until the earlier of (i)
the expiration of the 10-year option term or (ii) the end of the three-year
period measured from the date of the optionee's cessation of Board service.
Should the optionee's service as a Board member cease by reason of death or
permanent disability, then the option will immediately become exercisable for
all the shares of common stock subject to the option and may be exercised for
such shares until the earlier of (i) the expiration of the 10-year option term
or (ii) the end of the three-year period measured from the date of the
optionee's cessation of Board service.
GENERAL PROVISIONS
Change in Control. In the event that the Company is acquired by merger or
asset sale, all outstanding options under the Discretionary Option Grant,
Automatic Option Grant and Director Fee Option Grant Programs will be assumed
by the successor corporation; otherwise, those options will vest on an
accelerated basis immediately prior to such acquisition and will, to the extent
not exercised for one or more option shares, terminate immediately after such
acquisition. All unvested shares under the Discretionary Option Grant and Stock
Issuance Programs will immediately vest upon the consummation of such
acquisition, except to the extent the Company's repurchase rights
-11-
<PAGE> 15
with respect to those shares are assigned to the successor corporation. All
options outstanding under the Automatic Option Grant and Director Fee Option
Grant Programs at the time of such acquisition will vest in full immediately
prior to the effective date of such acquisition whether or not assumed. Any
options which are assumed in connection with such acquisition will automatically
be adjusted immediately following such transaction, to apply and pertain to the
number and class of securities that would be issuable to an actual holder of the
same number of shares of Common Stock as are subject to such option immediately
prior to the transaction.
Special Acceleration Agreements. The Company has entered into an agreement
with each employee holding one or more outstanding options under the 1992 Plan
(including each executive officer other than Mr. Robinson), pursuant to which
those options will automatically vest on an accelerated basis in the event that
such individual's employment is terminated following (i) an acquisition of the
Company by merger or asset sale in which those options are assumed or (ii) a
change in control of the Company effected through a successful tender offer for
more than 50% of the Company's outstanding Common Stock or through a change in
the majority of the Board as a result of one or more contested elections for
Board membership. These agreements assure such individuals that the economic
benefit of their outstanding options under the 1992 Plan will be preserved in
the event of a change in control or the subsequent termination of their
employment by the successor entity. Mr. Robinson has entered into an employment
agreement with the Company that provides for the immediate vesting of his
options, except under certain limited circumstances, upon his termination of
employment in connection with certain events, including a change in control of
the Company. The terms of this agreement are summarized below under "Executive
Compensation And Other Information--Employment Contracts, Severance Agreements
and Change of Control Arrangements."
The acceleration of options in the event of a 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 the Company.
FINANCIAL ASSISTANCE
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options or the purchase of
shares under the Discretionary Option Grant or Stock Issuance Program. The Plan
Administrator will have complete discretion to determine the terms of any such
financial assistance. However, the maximum amount of financing provided any
individual may not exceed the cash consideration payable for the issued shares
plus all applicable taxes. Any such financing may be subject to forgiveness in
whole or in part, at the discretion of the Plan Administrator, over the
participant's period of service.
SPECIAL TAX WITHHOLDING ELECTION
The Plan Administrator may provide one or more participants in the Plan with
the election to have the Company withhold, from the shares of Common Stock
otherwise issuable upon the exercise of non-statutory 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 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. However, no such amendment may adversely affect the rights of
existing optionees or participants without their consent. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.
The Board may terminate the Plan at any time, and the Plan will in all
events terminate on November 16, 2002. Each stock option outstanding at the time
of such termination will remain in force in accordance with the provisions of
the documents evidencing such grant.
-12-
<PAGE> 16
STOCK AWARDS
The table below shows, as to the Company's Chief Executive Officer and each
of the other four most highly compensated executive officers of Ligand
(collectively, the "Named Executive Officers") and the various indicated
individuals and groups, the number of shares of Common Stock subject to options
granted under the 1992 Plan between January 1, 1997 and April 1, 1998, together
with the weighted average exercise price payable per share.
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise
Name and Principal Position (#) Price
- --------------------------- ------- ---------
<S> <C> <C>
DAVID E. ROBINSON................................. 100,000 $11.25
Chairman of the Board, President, Chief Executive
Officer and Director
WILLIAM L. RESPESS................................ 50,000 13.00
Senior Vice President, General Counsel, Government
Affairs and Secretary
ANDRES F. NEGRO-VILAR............................. 0 0
Senior Vice President, Research and Chief Scientific
Officer
LLOYD E. FLANDERS................................. 0 0
Senior Vice President,
Pre-Clinical Development and R&D Project Management
STEVEN D. REICH................................... 29,000 11.25
Senior Vice President, Clinical Research
HENRY F. BLISSENBACH.............................. 8,118 12.00
Director-Nominee
ALEXANDER D. CROSS, PH.D.......................... 8,118 12.00
Director-Nominee
VICTORIA R. FASH.................................. 16,237 11.25
Director-Nominee
JOHN GROOM........................................ 8,118 12.00
Director-Nominee
IRVING S. JOHNSON................................. 8,118 12.00
Director-Nominee
CARL C. PECK, M.D................................. 16,237 12.00
Director-Nominee
All current directors who are not executive officers (6
persons).......................................... 64,946 11.62
All current executive officers as a group (12 persons) 326,990 12.62
All employees who are not executive officers...... 791,410 12.29
</TABLE>
-13-
<PAGE> 17
NEW PLAN BENEFITS
As of March 1, 1998, no options have been granted, and no direct stock
issuances have been made, on the basis of the 785,000-share increase which forms
part of this Proposal. Provided stockholders approve this Proposal, each of the
following non-employee Board members will, upon his or her re-election to the
Board at the 1998 Annual Meeting, receive an option grant under the Automatic
Option Grant Program for 10,000 shares of Common Stock: Messrs. Blissenbach,
Cross, Groom and Johnson and Ms. Fash. Each option will have an exercise price
per share equal to the fair market value per share of Common Stock on the grant
date.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1992 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For Federal tax purposes, dispositions are
divided into two categories: qualifying and disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two (2) years after the option grant date and
more than one (1) year after the exercise date. If either of these two holding
periods is not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then the
excess of (i) the fair market value of those shares on the exercise date over
(ii) the exercise price paid for the shares will be taxable as ordinary income
to the optionee. Any additional gain or loss recognized upon the disposition
will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. If the optionee makes a qualifying disposition, the
Company will not be entitled to any income tax deduction.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
-14-
<PAGE> 18
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to an income tax
deduction equal to such distribution for the taxable year in which the ordinary
income is recognized by the optionee.
Direct Stock Issuance. The tax principles applicable to direct stock
issuances under the 1992 Plan will be substantially the same as those summarized
above for the exercise of non-statutory option grants.
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with the disqualifying disposition
of incentive stock option shares or the exercise of non-statutory options
granted with exercise prices equal to the fair market value of the shares on the
grant date will qualify as performance-based compensation for purposes of Code
Section 162(m) and will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than the
fair market value of the shares on the grant or issue date will result in a
direct compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over the
period that the option shares or issued shares are to vest. Option grants or
direct stock issuances with an exercise or issue price per share equal to the
fair market value of the shares at the time of grant or issuance will not result
in any direct charge to the Company's earnings. However, the fair value of those
options must be disclosed in the notes to the Company's financial statements, in
the form of pro-forma statements to those financial statements, the impact those
options would have upon the Company's reported earnings were the value of those
options at the time of grant treated as compensation expense. Whether or not
granted at a discount, the number of outstanding options may be a factor in
determining the Company's earnings per share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to the
Company's earnings.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendments to the 1992 Plan. Should such
stockholder approval not be obtained, then the 785,000-share increase to the
share reserve will not be implemented, any stock options granted on the basis of
the 785,000-share increase to the 1992 Plan will immediately terminate without
becoming exercisable for the shares of Common Stock subject to those options,
and no additional options will be granted on the basis of such share increase.
In addition, the increases to the number of shares of Common Stock for which the
initial and annual automatic option grants are to be made to non-employee Board
members under the Automatic Option Grant Program will not become effective, and
the Director Fee Option Grant Program will not be implemented. Furthermore, the
non-employee Board members will not become eligible to participate in the 1992
Plan, other than pursuant to the Automatic Option Grant Program, and any
unvested shares repurchased by the Company at the option exercise or direct
stock issuance price paid per share will not be added back to the share reserve
for reissuance. However, in the absence of such stockholder approval, the 1992
Plan will continue to remain in effect (including the provisions of the
Automatic Option Grant Program prior to the increases in the size of the grants
thereunder), and option grants and direct stock issuances may continue to be
made pursuant to the provisions of the 1992 Plan in effect prior to the
amendments summarized in this Proposal, until the available reserve of Common
Stock as last approved by the stockholders has been issued pursuant to the
exercise of options granted or direct stock issuances made under the 1992 Plan.
-15-
<PAGE> 19
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR the amendments to
the 1992 Plan.
-16-
<PAGE> 20
PROPOSAL NO. 3
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
1992 EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to approve an amendment to
the Purchase Plan which will increase the maximum number of shares of Common
Stock authorized for issuance over the term of the Purchase Plan by an
additional 53,500 shares.
The purpose of the share increase is to ensure that the Company will
continue to have a sufficient reserve of Common Stock available under the
Purchase Plan to provide eligible employees of the Company and its participating
affiliates with the opportunity to acquire a proprietary interest in the Company
through participation in a payroll-deduction based employee stock purchase plan
under Section 423 of the Internal Revenue Code.
The Purchase Plan was adopted by the Board of Directors and approved by the
stockholders in 1992. In February and April 1998, the Board approved the
increase in the share reserve of the Purchase Plan which is the subject of this
Proposal.
The following is a summary of the principal features of the Purchase Plan,
as amended. This summary does not, however, purport to be a complete description
of all the provisions of the Purchase Plan. Any stockholder who wishes to obtain
a copy of the actual plan document may do so by written request to the Corporate
Secretary at the Company's principal executive offices in San Diego, California.
SHARE RESERVE AND PLAN ADMINISTRATION
260,000 shares of Common Stock have been reserved for issuance over the
10-year term of the Purchase Plan, including the 53,500-share increase for which
stockholder approval is sought under this Proposal. As of April 1, 1998, 206,421
shares of Common Stock had been issued under the Purchase Plan, and 53,579
shares will be available for future issuance, assuming stockholder approval of
the 53,500-share increase which is the subject of this Proposal.
Without such increase, only 79 shares would be available for future issuance.
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 the Company's receipt
of consideration, appropriate adjustments will be made to (i) the class and
maximum number of securities issuable over the term of the Purchase Plan, (ii)
the class and maximum number of securities purchasable per participant during
any one offering period and (iii) the class and number of securities and the
price per share in effect under each outstanding purchase right. Such
adjustments are designed to preclude the dilution or enlargement of rights and
benefits under the Purchase Plan.
The Purchase Plan is administered by the Compensation Committee of the Board
of Directors. The committee as Plan Administrator has full authority to
administer the Purchase Plan, including the authority to interpret and construe
any provision of the Purchase Plan.
ELIGIBILITY
Any individual who is employed by either the Company or any participating
parent or subsidiary (including any corporation which subsequently becomes such
at any time during the term of the Purchase Plan) on a regularly-scheduled basis
of more than 20 hours per week and more than five months per calendar year is
eligible to participate in the Purchase Plan. An eligible employee may join an
offering period on the first day of the first calendar quarter within that
period following his or her completion of at least five months of employment
with the Company.
As of March 1, 1998, approximately 283 employees (including 12 officers of
the Company) were eligible to participate in the Purchase Plan.
-17-
<PAGE> 21
PLAN OPERATION
Shares of Common Stock will be made available to participants through a
series of one-year offering periods, each coincidental with the calendar year.
Each 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 (the first business day in January) and
will be automatically exercised in 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 his or her base salary (in 1% 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) per calendar year.
The purchase price on each quarterly purchase date will be equal to the
lower of (i) 85% of the fair market value per share of Common Stock on the
participant's entry date into the offering period or (ii) 85% of the fair market
value per share of Common Stock on the quarterly purchase date. However, in no
event will the clause (i) fair market value be less than the fair market value
per share of Common Stock on the start date of such offering period.
The fair market value of the Common Stock on any relevant date will be
deemed to be equal to the closing selling price per share on such date as
reported on the Nasdaq National Market. As of March 31, 1998, the fair market
value per share of Common Stock determined on such basis was $15.94.
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.
The purchase right of a participant will terminate upon his or her cessation
of employee status, and any payroll deductions collected from such individual
during the calendar 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 next quarterly purchase date.
CHANGE IN OWNERSHIP
In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the lower of (i) the fair market value per share of Common Stock on the
participant's entry date into the offering period in which such acquisition
occurs or (ii) the fair market value per share of Common Stock immediately prior
to the effective date of such acquisition, but in no event will the clause (i)
fair market value be less than the fair market value per share of Common Stock
on the start date of the offering period in which such acquisition occurs.
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, the Company 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 the Company, then the Purchase Plan will terminate in its entirety,
and no further purchase rights will be granted or exercised thereunder.
-18-
<PAGE> 22
The Board may amend or modify the provisions of the Purchase Plan at any
time. However, the Board may not, without stockholder approval, (i) 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, or
(iii) materially increase the benefits accruing to participants.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an employee stock purchase plan within
the meaning of Section 423 of the Internal Revenue Code. Under a plan which so
qualifies, no taxable income will be recognized by a participant, and no
deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan or in the event the participant should die while still owning the purchased
shares.
If the participant sells or otherwise disposes of the purchased shares
within two years after his or her entry date into the offering period in which
such shares were acquired or within one year after the quarterly purchase date
on which those shares were actually acquired, then the participant will
recognize ordinary income in the year of sale or disposition equal to the amount
by which the fair market value of the shares on the purchase date exceeded the
purchase price paid for those shares, and the Company will be entitled to an
income tax deduction, for the taxable year in which such disposition occurs,
equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than two
years after his or her entry date into the offering period in which the shares
were acquired and more than one year after the quarterly purchase date of those
shares, then the participant will recognize ordinary income in the year of sale
or disposition equal to the lower of (i) the amount by which the fair market
value of the shares on the sale or disposition date exceeded the purchase price
paid for those shares or (ii) 15% of the fair market value of the shares on the
participant's entry date into that offering period. Any additional gain upon the
disposition will be taxed as a long-term capital gain. The Company will not be
entitled to an income tax deduction with respect to such disposition.
If the participant still owns the purchased shares at the time of death, his
or her estate will recognize ordinary income in the year of death equal to the
lower of (i) the amount by which the fair market value of the shares on the date
of death exceeds the purchase price or (ii) 15% of the fair market value of the
shares on his or her entry date into the offering period in which those shares
were acquired.
ACCOUNTING TREATMENT
The issuance of Common Stock under the Purchase Plan will not result in a
direct compensation expense chargeable against the Company's reported earnings.
However, the Company must disclose, in pro-forma statements to the Company's
financial statements, the impact the purchase rights granted under the Purchase
Plan would have upon the Company's reported earnings were the value of those
purchase rights treated as compensation expense.
-19-
<PAGE> 23
STOCK ISSUANCES
The table below shows, as to the Named Executive Officers and as to the
various indicated groups, the following information with respect to transactions
under the Purchase Plan effected during the period from January 1, 1997 to April
1, 1998: (i) the number of shares of Common Stock and (ii) the weighted average
purchase price per share.
Non-employee directors are not eligible to participate in the Purchase Plan.
<TABLE>
<CAPTION>
Weighted
Average
Shares Purchase
(#) Price
------ --------
<S> <C> <C>
DAVID E. ROBINSON........................... 0 $ 0
Chairman of the Board, President and Chief
Executive Officer
WILLIAM L. RESPESS.......................... 0 0
Senior Vice President, General Counsel,
Government Affairs and Secretary
LLOYD E. FLANDERS........................... 0 0
Senior Vice President, Pre-Clinical Development
and R&D Project Management
STEVEN D. REICH............................. 0 0
Senior Vice President, Clinical Research
ANDRES F. NEGRO-VILAR....................... 1,073 11.56
Senior Vice President, Research and Chief
Scientific Officer
All current directors who are not executive
officers (6 persons)........................ 0 0
All current executive officers as a group (12
persons).................................... 5,932 11.06
All employees who are not executive officers 50,260 10.93
</TABLE>
NEW PURCHASE PLAN BENEFITS
No purchase rights have been granted, and no shares of Common Stock have
been issued, under the Purchase Plan on the basis of the 53,500-share increase
for which stockholder approval is sought under this Proposal.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the 53,500-share increase to the Purchase Plan. Should
such stockholder approval not be obtained, then the 53,500-share increase will
not be implemented, no purchase rights will be granted on the basis of such
share increase, and the Purchase Plan will terminate once the existing share
reserve as previously approved by the stockholders has been issued.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that the stockholders vote FOR
this proposal.
-20-
<PAGE> 24
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, 1998. 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 selection, 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, 1998.
-21-
<PAGE> 25
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
March 1, 1998, by (i) all persons who are beneficial owners of 5% or more of the
Company's Common Stock, (ii) each director and nominee for director, (iii) the
Named Executive Officers and (iv) all current directors and executive officers
as a group. Unless otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OF CLASS
- ---------------- OWNED OWNED(1)
------------ --------
<S> <C> <C>
Allergan Pharmaceuticals (Ireland) Ltd., Inc........... 3,411,873 8.8%
Castlebar Road
Westport Count Mayo, Ireland
Eli Lilly and Company (2).............................. 2,176,279 5.6%
Lilly Corporate Center
Indianapolis, IN 46285
</TABLE>
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIALLY OF CLASS
BENEFICIAL OWNER(1) OWNED OWNED(1)
- ------------------- ----------------- ----------
<S> <C> <C>
Henry F. Blissenbach (3) .............................. 24,355 *
Alexander D. Cross (4)................................. 49,886 *
Victoria R. Fash....................................... 0 *
John Groom (5)......................................... 24,355 *
Irving S. Johnson (6).................................. 65,305 *
Carl C. Peck........................................... 0 *
David E. Robinson (7).................................. 484,333 1.2%
William L. Respess (8)................................. 318,618 *
Andres F. Negro-Vilar (9).............................. 44,656 *
Lloyd E. Flanders (10)................................. 187,541 *
Steven D. Reich (11)................................... 52,500 *
Directors and executive officers
as a group (18) persons (12)........................... 1,251,549 3.2%
========= ===
</TABLE>
* Less than 1%
(1) Percentage of ownership is based on 38,594,979 shares of Common Stock
outstanding on March 1, 1998. Shares of Common Stock subject to stock
options which are currently exercisable or will become exercisable within 60
days after March 1, 1998, are deemed outstanding for computing the
percentage of the person or group holding such options, but are not deemed
outstanding for computing the percentage of any other person or group.
-22-
<PAGE> 26
The address for individuals for whom an address is not otherwise indicated
is 10275 Science Center Drive, San Diego, CA 92121.
(2) Information reported in the table is based on disclosures made in the
Schedule 13D filed initially on December 5, 1997 by Eli Lilly & Company.
(3) Includes 24,355 shares of Common Stock issuable upon the exercise of options
that are exercisable within 60 days.
(4) Includes 31,120 shares of Ligand Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(5) Includes 24,355 shares of Ligand Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(6) Includes 42,396 shares of Ligand Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(7) Includes 237,832 shares of Ligand Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(8) Includes 176,877 shares of Ligand Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(9) Includes 39,583 shares of Ligand Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(10)Includes 187,541 shares of Ligand Common Stock issuable upon the exercise
of options that are exercisable within 60 days.
(11)Includes 52,500 shares of Ligand Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(12)Includes 791,747 shares of Ligand Common Stock issuable upon the exercise
of options held by executive officers and directors of the Company that are
exercisable within 60 days.
-23-
<PAGE> 27
EXECUTIVE OFFICERS
The executive officers of the Company as of March 1, 1998 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David E. Robinson 49 Chairman of the Board, President, Chief Executive
Officer and Director
Lloyd E. Flanders, Ph.D. 57 Senior Vice President, Pre-Clinical Development and
R&D Project Management
Paul V. Maier 50 Senior Vice President, Chief Financial Officer and
Treasurer
Andres F. Negro-Vilar, M.D., Ph.D. 58 Senior Vice President, Research and Chief Scientific
Officer
William A. Pettit 48 Senior Vice President, Human Resources and
Administration
Steven D. Reich, M.D. 52 Senior Vice President, Clinical Research
William L. Respess, J.D., Ph.D. 58 Senior Vice President, General Counsel, Government
Affairs and Secretary
Russell L. Allen 51 Vice President, Corporate Development and Strategic
Planning
Susan E. Atkins 51 Vice President, Investor Relations and Corporate
Communications
George M. Gill, M.D. 64 Vice President, Medical Affairs
Howard T. Holden, Ph.D. 53 Vice President, Regulatory Affairs and Compliance
James R. Mirto 55 Vice President, Marketing and Business Development
</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 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 F. 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
-24-
<PAGE> 28
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 & 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. 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.
-25-
<PAGE> 29
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.
JAMES R. MIRTO joined Ligand in August 1993 as Vice President, New Product
Development and Licensing and became Vice President, Marketing and Business
Development in October 1996. Prior to joining Ligand, Mr. Mirto served as Vice
President of New Product Planning and Development at Immunex Corporation from
November 1992 to August 1993 where he oversaw tactical and strategic planning,
collaborative arrangements and world-wide licensing activities. From 1987 to
1992, he worked for Adria Laboratories, a division of Erbamont, where he last
served as Vice President of Sales and Marketing from April 1990 to November 1992
and was responsible for the company's oncology and general pharmaceuticals. Mr.
Mirto received an M.Ed. in education from the University of Pittsburgh and
received a B.S. in health and physical education from Slippery Rock State
College in Pennsylvania.
-26-
<PAGE> 30
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 Named Executive Officers, for services rendered in
all capacities to the Company and its subsidiaries for the fiscal years ended
December 31, 1997, 1996 and 1995, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------------------- --------------------
Securities
Other Annual Underlying Options/
Name and Principal Position Year Salary($)(1) Bonus($) Compensation ($)(2) SARs(#)
- --------------------------- ---- ------------ --------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
DAVID E. ROBINSON (3).............. 1997 511,832 - 58,448 100,000
Chairman of the Board 1996 486,295 80,000 68,292 100,000
President and CEO 1995 457,393 75,000 62,576 68,082
WILLIAM L. RESPESS................. 1997 282,125 21,000 3,994 50,000
Senior Vice President, 1996 268,625 124,000 3,465 6,750
General Counsel, Government Affairs 1995 254,625 - 3,465 36,400
and Secretary
ANDRES F. NEGRO-VILAR(4)........... 1997
Senior Vice President, 1996 274,410 24,000 92,236 -
Research and Chief Scientific Officer 90,000 - 103,912 100,000
LLOYD E. FLANDERS.................. 1997 241,193 19,500 22,067 -
Senior Vice President, Pre-Clinical 1996 231,693 24,000 20,664 48,750
Development and R&D Project 1995 213,963 27,000 29,348 21,400
Management
STEVEN D. REICH (5)................ 1997 240,013 18,000 47,600 -
Senior Vice President, 1996 227,500 22,500 38,510 90,000
Clinical Research 1995 18,958 - 40,939 -
</TABLE>
(1) Salary and bonus deferred at the election of the executive pursuant to the
Company's 401(k) Plan and Deferred Compensation Plan are included in the
year earned.
(2) The amounts for 1997 include the following: for Mr. Robinson, $52,660 loan
forgiveness; for Dr. Negro-Vilar, $15,000 housing allowance, $32,604
relocation reimbursements and $39,900 loan forgiveness; for Dr. Flanders,
$16,596 loan forgiveness; and for Dr. Reich, $11,000 housing allowance,
$9,088 relocation reimbursement and $26,360 loan forgiveness. The amounts
for 1996 include the following: for Mr. Robinson, $10,876 relocation
reimbursements and $55,230 loan forgiveness; for Dr. Negro-Vilar, $103,912
relocation reimbursements; for Dr. Flanders, $17,394 loan forgiveness; and
for Dr. Reich, $25,358 relocation reimbursements and $12,000 housing
allowance. The amounts for 1995 include the following: for Mr. Robinson,
$57,980 loan forgiveness; for Dr. Flanders, $8,250 housing allowance and
$18,172 loan forgiveness; and for Dr. Reich, $35,000 sign-on bonus and
$4,843 relocation reimbursements.
(3) 1997 bonus will be determined by the Compensation Committee subsequent to
the filing of this proxy statement.
(4) Dr. Negro-Vilar joined Ligand in August 1996.
(5) Dr. Reich joined Ligand in December 1995.
-27-
<PAGE> 31
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table provides information on the option grants made to
the Named Executive Officers during the fiscal year ended December 31, 1997. No
stock appreciation rights were granted to the Named Executive Officers during
that fiscal year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Securities Options/SARs Stock Price
Underlying Granted to Appreciation for
Options/SARs Employees in Exercise or Option Term(4)
--------------
Granted Fiscal Base Price Expiration
Name (#)(1)(2) Year ($/Sh)(3) Date 5%($) 10%($)
---- ---------- ------------ ----------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
David E. Robinson 50,000 6.00 10.38 04/08/07 326,239 826,754
50,000 6.00 12.13 07/24/07 381,267 966,206
William L. Respess 50,000 6.00 13.00 02/06/07 408,782 1,035,933
Andres Negro Vilar 0 N/A N/A N/A N/A N/A
Lloyd E. Flanders 0 N/A N/A N/A N/A N/A
Steven D. Reich 0 N/A N/A N/A N/A N/A
</TABLE>
(1) Mr. Robinson was granted an option to purchase 50,000 shares on April 8,
1997 and another option to purchase an additional 50,000 shares on July 24,
1997. Mr. Respess was granted an option to purchase 50,000 shares on
February 6, 1997. Each option has a maximum term of 10 years measured from
such grant date, subject to earlier termination upon the optionee's
cessation of service with the Company. The shares subject to each option
will vest in four successive equal annual installments upon the optionee's
completion of each year of service with the Company over the four-year
period measured from the option grant date. The shares subject to the
options granted to Mr. Robinson will accelerate in connection with his
termination of employment under certain circumstances, including a change in
control of the Company, as described below in the "--Employment Contracts,
Severance Agreements and Change of Control Arrangements." The shares subject
to the option granted to Mr. Respess will immediately vest in full in the
event his employment were to terminate following certain changes in control
of 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.
(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.
-28-
<PAGE> 32
(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.
-29-
<PAGE> 33
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth certain information concerning option
exercises and holdings for the fiscal year ended December 31, 1997 with respect
to each of the Named Executive Officers. No stock appreciation rights were
exercised by the Named Executive Officers during such fiscal year, and no stock
appreciation rights were held by them at the end of such fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS/SARS Value of Unexercised In-the-Money
SHARES AT DECEMBER 31, 1997 Options/SARs at December 31, 1997(2)
ACQUIRED ON VALUE REALIZED ------------------------------- -----------------------------------
NAME EXERCISE(#) ($)(1) Exercisable(#) Unexercisable(#) Exercisable($) Unexercisable($)
- ------------------ ----------- -------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
David E. Robinson -- -- 210,685 166,730 795,027 239,958
William L. Respess -- -- 165,404 55,347 649,432 60,808
Andres Negro-Vilar -- -- 31,250 68,750 23,438 51,563
Lloyd E. Flanders 200 5 178,409 48,234 687,167 79,290
Steven D. Reich -- -- 45,000 45,000 196,875 196,875
=== == ======= ====== ======= ======
</TABLE>
(1) Equal to the fair market value of the shares on the date the option was
exercised for those shares minus the exercise price paid for such shares.
(2) Equal to the fair market value of the securities underlying the option at
fiscal year-end ($12.88 per share), less the exercise price payable for
those securities.
EMPLOYMENT CONTRACTS, SEVERANCE AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
In May 1996, the Company entered into an employment agreement with Mr.
Robinson pursuant to which he is to be employed as President and Chief Executive
Officer until May 1, 1999. This agreement will automatically be renewed for
successive additional three year terms, unless earlier terminated by the Company
or Mr. Robinson. During the remainder of the employment term, Mr. Robinson will
receive a base salary of at least $514,500 per year and annual incentive bonuses
based upon his performance and the Company's attainment of designated
performance goals. If Mr. Robinson's employment is terminated without cause, or
if he resigns for specified reasons, such as (i) a change in positions, duties
and responsibilities without consent, (ii) a reduction in salary or benefits, or
(iii) certain events occurring upon a change in control of the Company, he will
be entitled to a severance payment equal to 24 months of base salary (at the
rate in effect for him at the time of such termination), and all of his
outstanding options will (except under certain limited circumstances) vest and
become exercisable for all the option shares on an accelerated basis in
connection with his termination of employment, including a termination following
a change in control of the Company.
In September 1996, the Company entered into an employment agreement with Dr.
Negro-Vilar pursuant to which he is employed as Senior Vice President, Research
and Chief Scientific Officer for an unspecified term. The agreement provides
that Dr. Negro-Vilar is an at-will employee. In connection with the agreement,
the Company loaned Dr. Negro-Vilar the principal sum of $150,000 with an
interest rate of 6.6% per annum. The principal balance, together with accrued
interest, will be forgiven in five successive equal annual installments upon his
completion of each year of employment with the Company over the five-year period
measured from November 1996. Upon his termination of employment, the entire
unpaid balance will become immediately due and payable. In addition, Dr.
Negro-Vilar was granted an option to purchase 100,000 shares of the Common Stock
-30-
<PAGE> 34
at an exercise price of $12.13 per share. The shares will vest in a series of
four successive equal annual installments upon his completion of each year of
employment with the Company over the four-year period measured from the grant
date. In the event his employment is terminated without cause, he will be
entitled to 12 months of salary continuation payments, and all of his
outstanding options will immediately vest and become exercisable for all of the
option shares.
In September 1992, the Company entered into an employment agreement with Dr.
Flanders pursuant to which he is employed as Senior Vice President, Pre-Clinical
Development and R&D Project Management for an unspecified term. The agreement
provides that Dr. Flanders is an at-will employee. In connection with the
agreement, the Company loaned Dr. Flanders the principal sum of $75,000 with an
interest rate of 5.32% per annum. The principal balance, together with accrued
interest, will be forgiven in five successive equal annual installments upon his
completion of each year of employment with the Company over the five-year period
measured from June 1993. Upon his termination of employment, the entire unpaid
balance will become immediately due and payable. However, if Dr. Flanders is
terminated without cause, the loan will be forgiven. Dr. Flanders was granted
options to purchase 92,013 shares of Common Stock in the aggregate at an average
exercise price of $8.87 per share. The shares will vest in a series of four
successive equal annual installments upon his completion of each year of
employment with the Company over the four-year period measured from the grant
date. In the event of his employment is terminated without cause, Dr. Flanders
will be entitled to 12 months of salary continuation payments, and all of his
outstanding options will immediately vest and become exercisable for all the
option shares.
In December 1996, the Company entered into an employment agreement with Dr.
Reich pursuant to which he is employed as Senior Vice President, Clinical
Research. In connection with the agreement, the Company loaned Dr. Reich the
principal sum of $100,000 with an interest rate of 6.36% per annum. The
principal balance, together with accrued interest, will be forgiven in five
successive equal annual installments upon his completion of each year of
employment with the Company over the five-year period measured from May 1996.
Upon his termination of employment, the entire unpaid balance will become
immediately due and payable. Dr. Reich was also granted an option to purchase
90,000 shares of Common Stock at an exercise price of $8.50 per share. If Dr.
Reich's employment is terminated by the Company without cause, he will be
entitled to six months of salary continuation payments.
The Company has entered into an agreement with each employee holding one or
more outstanding options under the Company's 1992 (including each of the Named
Executive Officers other than Mr. Robinson), pursuant to which such options will
automatically vest on an accelerated basis in the event that such individual's
employment is terminated following (i) an acquisition of the Company by merger
or asset sale or (ii) a change in control of the Company effected through a
successful tender offer for more than 50% of the Company's outstanding Common
Stock or through a change in the majority of the Board as a result of one or
more contested elections for Board membership. As indicated above, all of Mr.
Robinson's outstanding options will (except under certain limited circumstances)
vest and become exercisable for all the option shares on an accelerated basis in
connection with his termination of employment, including a termination following
a change in control of the Company.
Effective January 5, 1998, the Company entered into severance agreements with
each of the Named Executive Officers, other than Mr. Robinson, and certain other
executive officers pursuant to which such individuals will, in the event their
employment is involuntarily terminated in connection with a change in control of
the Company, receive a severance benefit equal to (A) one times the annual rate
of base salary in effect for such officer at the time of involuntary termination
plus (B) one times the average of bonuses paid to such officer for services
rendered in the two fiscal years immediately preceding the fiscal year of
involuntary termination. The severance amount will be payable in 12 monthly
installments following the officer's termination of employment.
-31-
<PAGE> 35
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.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the report delivered by the Compensation Committee of the
Company's Board of Directors with respect to the principal factors considered by
such Committee in determining the compensation of the Company's executive
officers.
As members of the Compensation Committee of the Board of Directors, it is our
duty to set the base salary of the Company's executive officers and to
administer the Company'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 the Company's
executive officers competitive compensation opportunities based upon their
contribution to the financial success of the Company and their personal
performance. It is our objective to have a substantial portion of each officer's
compensation contingent upon the Company'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 stock-based incentive awards which strengthen the mutuality
of interests between the executive officers and the Company'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 the Company's
performance and stock price appreciation rather than base salary.
FACTORS. The principal factors which we considered in establishing the
components of each executive officer's compensation package for the 1997 fiscal
year are summarized below. 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.
-32-
<PAGE> 36
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 the Company's principal industry
marketplace competitors and (iii) internal comparability considerations. We did
not rely upon any specific compensation surveys for comparative compensation
purposes. Instead, we made our decisions as to the appropriate market level of
base salary for each executive officer on the basis of our understanding of the
salary levels in effect for similar positions at those companies with which the
Company competes for executive talent. We estimate that the salary levels of the
Company's executive officers range from the 50th percentile to the 90th
percentile of the salary levels in effect for comparable positions at those
other companies.
ANNUAL INCENTIVE COMPENSATION. Annual bonuses are earned by each executive
officer solely on the basis of the Company's achievement of the corporate
performance targets we establish at the start of the fiscal year. For fiscal
year 1997, the performance targets were based upon individual goals supporting
key corporate objectives, and each executive was evaluated in relation to his or
her contribution to the attainment of those targets. Accordingly, this element
of executive compensation is earned solely on the basis of the Company's success
in achieving the corporate goals.
LONG-TERM INCENTIVE COMPENSATION. During 1997, we approved the grant of stock
options to certain of executive officers under the 1992 Stock Option/Stock
Issuance Plan. The grants are designed to align the interests of each executive
officer with those of the stockholders and provide each individual with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. The number of shares subject to each
option grant was based on the officer's level of responsibilities and relative
position in the Company. However, we do not adhere to any specific set of
guidelines and determine the size of each grant as circumstances warrant.
Each grant allows the officer to acquire shares of 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 the Company'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 the Company's performance and stock price appreciation.
As described above under "Employment Contracts and Change in Control
Agreements," an employment agreement effective May 1996 between the Company and
Mr. Robinson sets forth the terms and conditions, including compensation,
governing Mr. Robinson's employment.
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. We estimate that his
base salary is at the 75th to 90th percentile of the salary levels paid to such
other chief executive officers.
The remaining components of Mr. Robinson's 1997 fiscal year compensation,
however, were entirely dependent upon financial performance and provided no
dollar guarantees. The cash bonus paid to him for the 1997 fiscal year will be
based entirely on the Company's attainment of certain objectives based on key
corporate goals. 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 the Company or any of
its subsidiaries.
COMPENSATION COMMITTEE
HENRY F. BLISSENBACH
VICTORIA R. FASH
JOHN GROOM
-33-
<PAGE> 37
PERFORMANCE GRAPH
The following graph compares total stockholder returns of Common Stock since
the Company'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, in CBOE Biotech Index, and the Nasdaq Pharmaceutical
Index. The total return for each of the Common Stock, the Nasdaq Composite
Index, the CBOE Biotech Index, and the Nasdaq Pharmaceutical Index assumes the
reinvestment of dividends, although dividends have not been declared on the
Company'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. The Company'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; this Index was discontinued on July 8,
1997. The Nasdaq Pharmaceutical Index tracks approximately 25 domestic stocks in
the biotechnology sector.
On November 24, 1994, each outstanding share of the Company's Class A Common
Stock was automatically converted into 1.33 shares of Common Stock, which is
currently traded in the over-the-counter market. The stockholder return of
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 the Company will not make or endorse any predictions
as to future stockholder returns.
<TABLE>
<CAPTION>
NASDAQ NASDAQ
Ligand Composite Index Pharmaceutical Index CBOE Biotech
------- --------------- -------------------- ------------
<S> <C> <C> <C> <C>
12/31/92 100.000 100.000 100.000 100.000
12/31/93 111.905 114.753 89.132 74.248
12/31/94 104.500 111.081 67.084 64.629
12/31/95 136.167 155.424 122.722 106.353
12/31/96 188.418 190.713 123.079 100.246
12/31/97 163.084 231.974 127.185 NA
</TABLE>
-34-
<PAGE> 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1994, the Company and Allergan, Inc. ("Allergan") formed Allergan
Ligand Retinoid Therapeutics, Inc. ("ALRT") to continue the research and
development activities previously conducted by the Allergan-Ligand Joint Venture
(the "Joint Venture"). In June 1995, the Company 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
Company's Common Stock. Immediately prior to the consummation of the Offering,
Allergan Pharmaceuticals (Ireland), Ltd., Inc., an affiliate of Allergan, made a
$6.0 million investment in the Company's Common Stock. The Company then
contributed $17.5 million in cash and Allergan contributed $50.0 million in cash
to ALRT. Mr. Robinson, the Company's President, Chief Executive Officer and
Chairman of the Board of Directors, was a Director of ALRT.
In connection with the Offering, ALRT, the Company and Allergan entered into:
a technology license agreement, a research and development agreement, a
commercialization agreement, a services agreement and certain other agreements
which granted to Ligand and Allergan options to acquire certain assets and the
outstanding Callable Common Stock of ALRT in certain circumstances at
predetermined prices (collectively, the "ALRT Agreements"). ALRT paid $24
million to Ligand in fiscal 1997 pursuant to the ALRT Agreements research and
development and services agreement.
In September 1997, Ligand exercised its option to purchase all of the
3,250,000 outstanding shares of Callable Common Stock of ALRT at $21.97 per
share, the original price applicable for purchase from June 3, 1997 to June 3,
1998. Simultaneously, Allergan exercised its option to acquire an undivided
one-half interest in the assets and technologies of ALRT. Certain existing
agreements between Allergan and Ligand had provided for joint development and
joint commercialization of ALRT compounds following exercise of the buyout
option. Allergan and Ligand agreed to amend and restate those agreements so that
ALRT compounds and development programs were divided between Allergan and
Ligand, and each party received exclusive rights under the ALRT technology for
use with their respective compounds and programs. Products and compounds for
which Ligand received worldwide rights include PanretinTM Gel and PanretinTM
Capsules, LGD1268, LGD1324 and LGD1550. Allergan received ALRT4310, ALRT326 and
ALRT4204 and $4.5 million in cash and rights to future royalties on certain
Ligand products. Allergan and Ligand also completed a lottery to divide the
approximately 2,000 retinoid compounds remaining in the ALRT compound library as
of the ALRT closing date in November 1997. Each party will pay royalties to the
other on net sales, if any, of the successfully developed compounds it received
directly or in the lottery.
Certain holders of the Company's Common Stock (and the Company's Common Stock
issuable upon exercise of warrants) are entitled to certain registration rights
with respect to such stock.
The Company's Bylaws provide that the Company 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"). The Company 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, the Company has entered into indemnity agreements
with each of its directors and officers.
In addition, the Company's Certificate of Incorporation provides that to the
fullest extent permitted by Delaware Law, the Company's directors will not be
liable for monetary damages for breach of the directors' fiduciary duty of care
to the Company 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 the Company, 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 the Company 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 the
-35-
<PAGE> 39
Company or its stockholders when the director was aware or should have been
aware of a risk of serious injury to the Company 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 the Company or its stockholders, for
improper transactions between the director and the Company 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 the Company as to which indemnification is
being sought, nor is the Company 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 1997 through December 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were satisfied, with the exception of a Form 3 for Russell
Allen with respect to initial holdings of Common Stock of the Company, an
amended Form 3 for Susan Atkins to report additional holdings of warrants to
purchase Common Stock of the Company, and a Form 4 for George Gill with respect
to the disclosure of his spouse's acquisition of warrants to purchase shares of
Common Stock and acquisition of shares of Common Stock of the Company.
STOCKHOLDER PROPOSALS FOR 1999 PROXY STATEMENT
Under the present rules of the SEC, the deadline for stockholders to submit
proposals to be considered for inclusion in the Company's Proxy Statement for
next year's Annual Meeting of Stockholders is expected to be January 6, 1999
(120 days prior to April 16, 1999). Such proposals may be included in next
year's Proxy Statement if they comply with certain rules and regulations
promulgated by the SEC and the procedure set forth in the Bylaws of the Company,
which requires notice to be delivered or mailed and received at the Company's
executive offices not less than 120 days prior to the date specified above.
ANNUAL REPORT
A copy of the Annual Report of the Company for the 1997 Fiscal Year has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material.
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 17, 1998 William L. Respess
Secretary
-36-
<PAGE> 40
LIGAND PHARMACEUTICALS INCORPORATED
1992 STOCK OPTION/STOCK ISSUANCE PLAN
AS AMENDED THROUGH APRIL , 1998
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1992 Stock Option/Stock Issuance Plan ("Plan") is
intended to promote the interests of Ligand Pharmaceuticals Incorporated, a
Delaware corporation (the "Corporation"), by providing (i) key employees
(including officers) of the Corporation (or its parent or subsidiary
corporations) who are responsible for the management, growth and financial
success of the Corporation (or its parent or subsidiary corporations), (ii)
non-employee members of the Board of Directors and (iii) consultants and other
independent contractors who provide valuable services to the Corporation (or its
parent or subsidiary corporations) with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest in the Corporation as
an incentive for them to remain in the service of the Corporation (or its parent
or subsidiary corporations).
B. The Plan became effective on November 17, 1992, the date on
which the shares of the Corporation's common stock were first registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). Such date is hereby designated as the "Effective Date" of this Plan.
C. This Plan shall serve as the successor to the Corporation's
Restricted Stock Purchase Plan (the "Stock Plan") and 1988 Stock Option Plan
(the "Option Plan") (such Plans are hereinafter referred to as the "Predecessor
Plans"), and no further option grants or share issuances shall be made under the
Predecessor Plans from and after the Effective Date. Each outstanding option or
share issuance under the Predecessor Plans immediately prior to the Effective
Date were incorporated into this Plan and are to be treated as outstanding
options or stock issuances under this Plan. However, each such option or share
issuance shall continue to be governed solely by the terms and conditions of the
instrument evidencing such grant or issuance, and, except as otherwise expressly
provided herein, no provision of this Plan shall affect or otherwise modify the
rights or obligations of the holders of such incorporated options or shares with
respect to their acquisition of shares of the Corporation's common stock or
otherwise modify the rights or obligations of the holders of such options or
shares.
D. For purposes of this Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Corporation:
<PAGE> 41
Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered to be a PARENT of the Corporation, provided each such
corporation in the unbroken chain (other than the Corporation) owns, at
the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a SUBSIDIARY of the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate components: the
Discretionary Option Grant Program specified in Article Two, the Automatic
Option Grant Program specified in Article Three, the Stock Issuance Program
specified in Article Four, and the Director Fee Option Grant Program specified
in Article Five. Under the Discretionary Option Grant Program, eligible
individuals may be granted options to purchase shares of the Corporation's
common stock at not less than 85% of the Fair Market Value (as defined below) of
such shares on the grant date. Under the Automatic Option Grant Program,
eligible non-employee members of the Board of Directors will be granted options
to purchase shares of the Corporation's common stock at 100% of the Fair Market
Value of such shares on the grant date. Subject to the limitations contained in
this Plan, the Stock Issuance Program shall allow eligible individuals to
purchase shares of the Corporation's common stock at discounts from the Fair
Market Value of such shares of up to 15%. Such shares may be issued as
fully-vested shares or as shares to vest over time. Under the Director Fee
Option Grant Program, non-employee Board members may elect to apply all or a
portion of the fee otherwise payable in cash to him or her each year to the
acquisition of a special option grant.
B. The provisions of Articles One and Six of the Plan shall apply
to both the Discretionary Option Grant Program and the Stock Issuance Program
and shall accordingly govern the interests of all individuals in the Plan.
C. With respect to persons subject to Section 16 of the
Securities Exchange Act of 1934 ("1934 Act"), transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the 1934 Act. To the extent any provision of the Plan or action
by the Committee (as defined below) fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
-2-
<PAGE> 42
III. ADMINISTRATION OF THE PLAN
A. Plan Administrator. The Board shall appoint a committee of two
(2) or more non-employee Board members (the "Primary Committee") to have sole
and exclusive authority to administer the Discretionary Option Grant and Stock
Issuance Programs to administer the Plan with respect to officers and directors
subject to Section 16 of the 1934 Act ("Section 16 Insiders").
B. Committees. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, in the Board's discretion, be vested in the
Primary Committee or a committee of two (2) or more Board members appointed by
the Board (the "Secondary Committee"), or the Board may retain the power to
administer those programs with respect to all such persons.
C. Members of Committees. Members of the Primary Committee or any
Secondary Committee shall serve for such period of time as the Board may
determine and may be removed by the Board at any time. The Board may also at any
time terminate the functions of any Secondary Committee and assume all powers
and authority previously delegated to such committee.
D. Service as Committee Members. Service on the Primary Committee
or the Secondary Committee shall constitute service as a Board member, and
members of each such committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on such
committee. No member of the Primary Committee or the Secondary Committee shall
be liable for any act or omission made in good faith with respect to the Plan or
any option grants or stock issuances under the Plan.
E. Authority. Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and authority
(subject to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the
Discretionary Option Grant Program and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, such programs and any
outstanding option grants or stock issuances as it may deem necessary or
advisable. Decisions of each Plan Administrator shall be final and binding on
all parties who have an interest in the Discretionary Option Grant Program and
Stock Issuance Program or any outstanding option or stock issuance thereunder.
F. Restriction on Discretion. The administration of the Automatic
Option Grant Program under Article Three and the Director Fee Option Grant
Program under Article Five shall be self executing in accordance with the terms
and provisions of those programs, and no Plan Administrator shall exercise any
discretionary functions with respect to such programs.
-3-
<PAGE> 43
IV. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to receive stock issuances under the
Stock Issuance Program ("Participant") and/or option grants pursuant to the
Discretionary Option Grant Program ("Optionee") are as follows:
(i) officers and other key employees of the Corporation
(or its parent or subsidiary corporations) who render services which
contribute to the management, growth and financial success of the
Corporation (or its parent or subsidiary corporations);
(ii) non-employee members of the Board of Directors; and
(iii) those consultants or other independent contractors
who provide valuable services to the Corporation (or its parent or
subsidiary corporations).
B. Only non-employee members of the Board shall be eligible to
participate in the Automatic Option Grant Program and the Director Fee Option
Grant Program.
C. Each Plan Administrator shall have full authority to
determine, (i) with respect to the option grants made under the Discretionary
Option Grant Program, which eligible individuals are to receive option grants,
the time or times when such grants are to be made, the number of shares to be
covered by each such grant, whether the granted option is to be an incentive
stock option ("Incentive Option") which satisfies the requirements of Section
422 of the Internal Revenue Code or a non-statutory option not intended to meet
such requirements, the time or times at which each granted option is to become
exercisable and the maximum term for which the option may remain outstanding and
(ii) with respect to stock issuances under the Stock Issuance Program, the
number of shares to be issued to each Participant, the vesting schedule (if any)
to be applicable to the issued shares, and the consideration to be paid by the
individual for such shares.
D. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with Article Two of the Plan or to effect
stock issuances in accordance with Article Four of the Plan. The Plan
Administrator will have no discretion with respect to the grant of options under
the Automatic Option Grant Program and the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. Shares of the Corporation's Common Stock (hereinafter referred
to as the "Common Stock") shall be available for issuance under the Plan and
shall be drawn from either the Corporation's authorized but unissued shares of
Common Stock or from reacquired shares of Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of shares
issuable under the Plan is 8,088,457 shares of Common Stock. Such share reserve
includes an increase of 785,000 shares authorized by the Board on April __,
1998, subject to stockholder approval at the 1998 Annual Meeting.
-4-
<PAGE> 44
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate over the term of the
Plan.
C. Should one or more outstanding options under this Plan
(including outstanding options under the Predecessor Plans incorporated into
this Plan) expire or terminate for any reason prior to exercise in full
(including any option cancelled in accordance with the cancellation-regrant
provisions of Section IV of Article Two of the Plan), then the shares subject to
the portion of each option not so exercised shall be available for subsequent
option grant or share issuance under this Plan. Unvested shares issued under the
Plan and subsequently cancelled or repurchased by the Corporation, at the
original exercise or issue price paid per share, pursuant to the Corporation's
repurchase rights under the Plan shall be added back to the number of shares of
Common Stock reserved for issuance under the Plan and shall accordingly be
available for reissuance through one or more subsequent option grants or direct
stock issuances under the Plan. However, shares subject to any option or portion
thereof surrendered or cancelled in accordance with Section V of Article Two
shall reduce on a share-for-share basis the number of shares of the same class
of Common Stock available for subsequent option grant or stock issuance under
the Plan. In addition, should the exercise price of an outstanding option under
the Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an
outstanding option under the Plan, then the number of shares of Common Stock of
the same class available for issuance under the Plan shall be reduced by the
gross number of shares for which the option is exercised, and not by the net
number of shares of Common Stock actually issued to the option holder.
D. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares, conversion or other change affecting
the outstanding Common Stock, or any class of Common Stock as a class, without
the Corporation's receipt of consideration, then appropriate adjustments shall
be made to (i) the number and/or class of shares issuable under the Plan, (ii)
the number and/or class of securities for which any one person may be granted
stock options, separately exercisable stock appreciation rights and direct stock
issuances over the term of the Plan, and (iii) the number and/or class of shares
and price per share in effect under each outstanding option under this Plan
(including outstanding options incorporated into this Plan from the Predecessor
Plans). Such adjustments to the outstanding options are to be effected in a
manner which shall preclude the enlargement or dilution of rights and benefits
under such options. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.
E. Common Stock issuable under the Discretionary Option Grant
Program or the Stock Issuance Program may be subject to such restrictions on
transfer, repurchase rights or other restrictions as determined by the Plan
Administrator.
-5-
<PAGE> 45
VI. DETERMINATION OF FAIR MARKET VALUE
The "Fair Market Value" of a share of Common Stock shall be determined
in accordance with the following provisions:
- If shares of Common Stock to be valued are not at the
time listed or admitted to trading on any national stock exchange but is
traded on the Nasdaq National Market, the Fair Market Value shall be the
closing selling price per share of a share of that class on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is no
reported closing selling price for the series on the date in question,
then the closing selling price on the last preceding date for which such
quotation exists shall be determinative of Fair Market Value.
- If shares of the class of common stock to be valued are
at the time listed or admitted to trading on any national stock
exchange, then the Fair Market Value of a share of that class shall be
the closing selling price per share on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no reported
sale of a share of the class on such exchange on the date in question,
then the Fair Market Value shall be the closing selling price on the
exchange on the last preceding date for which such quotation exists.
-6-
<PAGE> 46
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Article Two shall be authorized
by action of the Plan Administrator and, at the Plan Administrator's discretion,
may be either Incentive Options or Non-Statutory Options. Individuals who are
not Employees of the Corporation or its parent or subsidiary corporations may
only be granted Non-Statutory Options. Each granted option shall be evidenced by
one or more instruments in the form approved by the Plan Administrator;
provided, however, that each such instrument shall comply with the terms and
conditions specified below. Each instrument evidencing an Incentive Option
shall, in addition, be subject to the applicable provisions of Section II of
this Article Two.
A. Option Price.
(1) The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the price for any share be less than
eighty-five percent (85%) of the Fair Market Value of that share on the date of
the option grant.
(2) The option price shall become immediately due upon
exercise of the option and, subject to the provisions of Article Six, Section II
and the instrument evidencing the grant, shall be payable in one of the
following alternative forms specified below:
- full payment in cash or check drawn to the
Corporation's order;
- full payment in shares of Common Stock held
for at least six (6) months and valued at Fair Market Value on the
Exercise Date;
- full payment in a combination of shares of
Common Stock held for at least six (6) months and valued at Fair Market
Value on the Exercise Date and cash or check; or
- full payment through a broker-dealer sale
and remittance procedure pursuant to which the Optionee (I) shall
provide irrevocable instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased shares plus all applicable Federal and State income and
employment taxes required to be withheld by the Corporation in
connection with such purchase and (II) shall provide written directives
to the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
-7-
<PAGE> 47
For purposes of this subparagraph (2), the Exercise Date
shall be the date on which written notice of the option exercise is delivered to
the Corporation. Except to the extent the sale and remittance procedure is
utilized in connection with the exercise of the option, payment of the option
price for the purchased shares must accompany such notice.
B. Term and Exercise of Options. Each option granted under this
Article Two shall be exercisable at such time or times and during such period as
is determined by the Plan Administrator and set forth in the stock option
agreement evidencing the grant. No such option, however, shall have a maximum
term in excess of ten (10) years from the grant date.
C. Termination of Service.
(1) Except to the extent otherwise provided pursuant to
Section VI of this Article Two, the following provisions shall govern the
exercise period applicable to any outstanding options under this Article Two
which are held by the Optionee at the time of his or her cessation of Service or
death.
- Should an Optionee's Service terminate for
any reason (including death or permanent disability as defined in
Section 22(e)(3) of the Internal Revenue Code) while the holder of one
or more outstanding options under the Plan, then none of those options
shall (except to the extent otherwise provided pursuant to Section VI of
this Article Two) remain exercisable beyond the limited post-Service
period designated by the Plan Administrator at the time of the option
grant and set forth in the option agreement.
- Any option granted to an Optionee under this
Article Two and exercisable in whole or in part on the date of the
Optionee's death may be subsequently exercised, by the personal
representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution, provided and only
if such exercise occurs prior to the earlier of (i) the third
anniversary of the date of the Optionee's death or (ii) the specified
expiration date of the option term. Upon the occurrence of the earlier
event, the option shall terminate and cease to be exercisable.
- Under no circumstances, however, shall any
such option be exercisable after the specified expiration date of the
option term.
- During the limited post-Service period of
exercisability, the option may not be exercised in the aggregate for
more than the number of shares for which the option is exercisable on
the date the Optionee's Service terminates. Upon the expiration of such
limited exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be exercisable.
-8-
<PAGE> 48
(2) The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding:
- to permit one or more options held by the
Optionee under this Article Two to be exercised, during the limited
period of post-Service exercisability provided under subparagraph (1)
above, not only with respect to the number of shares for which each such
option is exercisable at the time of the Optionee's cessation of Service
but also with respect to one or more subsequent installments of
purchasable shares for which the option would otherwise have become
exercisable had such cessation of Service not occurred, and
- to extend the period of time for which any option
granted under this Article Two is to remain exercisable following the
Optionee's cessation of Service or death from the limited period in
effect under subparagraph (1) above to such greater period of time as
the Plan Administrator shall deem appropriate; provided, however, that
in no event shall such option be exercisable after the specified
expiration date of the option term.
(3) For purposes of the foregoing provisions of this
Section I.C (and for all other purposes under the Plan):
- The Optionee shall (except to the extent
otherwise specifically provided in the applicable option or issuance
agreement) be deemed to remain in the SERVICE of the Corporation for so
long as such individual renders services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity of
an Employee, a non-employee member of the Board or an independent
consultant or advisor.
- The Optionee shall be considered to be an
EMPLOYEE for so long as he or she remains in the employ of the
Corporation or one or more parent or subsidiary corporations, subject to
the control and direction of the employer entity not only as to the work
to be performed but also as to the manner and method of performance.
D. Stockholder Rights. An Optionee shall have no stockholder
rights with respect to any shares covered by the option until such individual
shall have exercised the option, paid the option price for the purchased shares
and been issued a stock certificate for such shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
-9-
<PAGE> 49
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options may, to
the extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to
all Incentive Options granted under this Article Two. Incentive Options may only
be granted to individuals who are Employees of the Corporation. Options which
are specifically designated as "non-statutory" options when issued under the
Plan shall not be subject to such terms and conditions.
A. Option Price. The option price per share of any share of
Common Stock subject to an Incentive Option shall in no event be less than one
hundred percent (100%) of the Fair Market Value of such share of Common Stock on
the grant date.
B. Dollar Limitation. The aggregate Fair Market Value (determined
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee under this Plan (or any other option
plan of the Corporation or its parent or subsidiary corporations) may for the
first time become exercisable as incentive stock options under the Federal tax
laws during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability of such options as Incentive
Options under the Federal tax laws shall be applied on the basis of the order in
which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
the Common Stock on the option grant date, and the option term shall not exceed
five (5) years measured from the option grant date.
Except as modified by the preceding provisions of this Section
II, the provisions of Articles One, Two and Six of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS
A. For purposes of this Section III, a "Corporate Transaction"
shall mean any one of the following stockholder-approved transactions:
-10-
<PAGE> 50
(i) a merger or consolidation in which the
Corporation is not the surviving entity, except for a transaction the
principal purpose of which is to change the State of the Corporation's
incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in liquidation or
dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is
the surviving entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to holders different from those
who held such securities immediately prior to such merger.
B. Each outstanding option which is assumed in connection with a
Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would be issuable, in
consummation of such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to
the option price payable per share, provided the aggregate option price payable
for such securities shall remain the same. Appropriate adjustments shall also be
made to the class and number of securities available for issuance under the Plan
on both an aggregate and per participant basis following the consummation of
such Corporate Transaction.
C. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected Optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the Predecessor Plans incorporated into this Plan) and
to grant in substitution new options under this Article Two covering the same or
different numbers of shares of Common Stock but having an option price for each
share which is not less than (i) eighty-five percent (85%) of the Fair Market
Value of such share on the new grant date or (ii) one hundred percent (100%) of
such Fair Market Value in the case of an Incentive Option.
-11-
<PAGE> 51
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more Optionees under the Discretionary Option Grant Program may be
granted the right, exercisable upon such terms and conditions as the Plan
Administrator may establish, to surrender all or part of an unexercised option
under this Article Two in exchange for a distribution from the Corporation in an
amount equal to the excess of (i) the Fair Market Value (on the option surrender
date) of the number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (ii) the aggregate
option price payable for such vested shares.
B. No surrender of an option shall be effective hereunder unless
it is approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall accordingly become entitled under
this Section V may be made in shares of any class of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over effected at any time when the Corporation's
outstanding Common Stock is registered under Section 12(g) of the 1934 Act, each
outstanding option with such a limited stock appreciation right shall
automatically be cancelled, to the extent such option is at the time exercisable
for fully-vested shares of Common Stock. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the vested shares of Common Stock at the
time subject to the cancelled option (or cancelled portion of such option) over
(ii) the aggregate exercise price payable for such shares. The cash distribution
payable upon such cancellation shall be made within five (5) days following the
consummation of the Hostile Take-Over. The Plan Administrator shall pre-approve,
at the time the limited right is granted, the subsequent exercise of that right
in accordance with the terms of the grant and the provisions of this Section
V.D. No additional approval of the Plan Administrator or the Board shall be
required at the time of the actual option cancellation and cash distribution.
The balance of the option (if any) shall continue to remain outstanding and
exercisable in accordance with the terms of the instrument evidencing such
grant.
-12-
<PAGE> 52
E. For purposes of Section V.D, the following definitions shall
be in effect:
A HOSTILE TAKE-OVER shall be deemed to occur in the event
any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept.
The TAKE-OVER PRICE per share shall be deemed to be equal
to the greater of (a) the Fair Market Value per share on the date of
cancellation, as determined pursuant to the valuation provisions of
Section VI of Article One, or (b) the highest reported price per share
paid in effecting such Hostile Take-Over. However, if the cancelled
option is an Incentive Option, the Take-Over Price shall not exceed the
clause (a) price per share.
F. The shares of Common Stock subject to any option surrendered
or cancelled for an appreciation distribution pursuant to this Section V shall
NOT be available for subsequent option grant under the Plan.
-13-
<PAGE> 53
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants will be made under this
Article Three on the dates specified below:
(1) Each individual who first becomes a non-employee
Board member on or after the date of the 1998 Annual Meeting, whether
through election by the Corporation's stockholders or appointment by the
Board, shall automatically be granted, at the time of such initial
election or appointment, a Non-Statutory Option to purchase 20,000
shares of Common Stock upon the terms and conditions of this Article
Three, provided SUCH INDIVIDUAL HAS NOT OTHERWISE BEEN IN THE PRIOR
EMPLOY OF THE CORPORATION.
(2) On the date of each Annual Stockholders Meeting,
beginning with the 1998 Annual Meeting, each individual re-elected as a
non-employee Board member at such Annual Meeting shall automatically be
granted a Non-Statutory Option to purchase 10,000 shares of Common Stock
upon the terms and conditions of this Article Three. There shall be no
limit on the number of 10,000-share option grants any one non-employee
Board member may receive over the period of Board service, and
non-employee Board members previously in the Corporation's employ shall
be entitled to one or more such annual option grants over his or her
period of Board service.
B. Exercise Price. The exercise price per share of each automatic
option grant made under this Article Three shall be equal to one hundred percent
(100%) of the Fair Market Value per share of the Common Stock on the date of
grant under this Automatic Option Grant Program.
C. Payment.
The exercise price shall be payable in one of the
alternative forms specified below:
(i) full payment in cash or check drawn to the
Corporation's order;
(ii) full payment in shares of Common Stock held for
at least six (6) months and valued at Fair Market Value on the Exercise
Date (as such term is defined below);
-14-
<PAGE> 54
(iii) full payment in a combination of shares of Common
Stock held for at least six (6) months and valued at Fair Market Value
on the Exercise Date and cash or check; or
(iv) full payment through a broker-dealer sale and
remittance procedure pursuant to which the non-employee Board member (A)
shall provide irrevocable instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased shares plus all applicable Federal and state income taxes
required to be withheld by the Corporation in connection with such
purchase and (B) shall provide written directives to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
For purposes of this paragraph C, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.
D. Option Term. Each automatic grant under this Article Three
shall have a term of ten (10) years measured from the automatic grant date.
E. Exercisability. Each automatic grant shall become exercisable
in full one (1) year after the automatic grant date. The option shall not become
exercisable for any additional option shares after the optionee has ceased for
any reason to be a member of the Board.
F. Effect of Termination of Board Membership.
(1) Should the optionee cease to serve as a Board
member for any reason (other than death) while holding one or more automatic
option grants under this Article Three, then such optionee shall have a three
(3) month period following the date of such cessation of Board service in which
to exercise each such option for any or all of the shares of Common Stock for
which the option was exercisable at the time of such cessation of Board service.
Each such option shall immediately terminate and cease to be outstanding, at the
time of such cessation of Board service, with respect to any shares for which
the option is not otherwise at that time exercisable.
(2) Should the optionee die while serving as a Board
member or within three (3) months after cessation of Board service, then each
outstanding automatic option grant held by the optionee at the time of death may
subsequently be exercised, for any or all of the shares of Common Stock for
which the option was exercisable at the time of the optionee's cessation of
Board service (less any option shares subsequently purchased by the optionee
prior to death), by the personal representative of the optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of
-15-
<PAGE> 55
descent and distribution. Any such exercise must occur within thirty-six (36)
months after the date of the optionee's death. However, each such automatic
option grant shall immediately terminate and cease to be outstanding, at the
time of the optionee's cessation of Board service, with respect to any option
shares for which it is not otherwise at such time exercisable.
(3) In no event shall any automatic grant under this
Article Three remain exercisable after the specified expiration date of the ten
(10)-year option term. Upon the expiration of the applicable exercise period in
accordance with subparagraphs (1) and (2) above or (if earlier) upon the
expiration of the ten (10)-year option term, the automatic grant shall terminate
and cease to be outstanding for any unexercised shares for which the option was
exercisable at the time of the optionee's cessation of Board service.
G. Stockholder Rights. The holder of an automatic option grant
under this Article Three shall have none of the rights of a stockholder with
respect to any shares subject to such option until such individual shall have
exercised the option, paid the exercise price for the purchased shares and been
issued a stock certificate for such shares.
II. CORPORATE TRANSACTION
A. For purposes of this Section II, a "Corporate Transaction"
shall be one or more of the following stockholder-approved transactions:
(i) a merger or consolidation in which the
Corporation is not the surviving entity, except for a transaction the
principal purpose of which is to change the State of the Corporation's
incorporation,
(ii) the sale, transfer or disposition of all or
substantially all of the assets of the Corporation in liquidation or
dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to holders different from those
who held such securities immediately prior to such merger
B. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof).
C. Each outstanding option which is assumed in connection with a
Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would be issuable, in
consummation of such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to
the option price payable per share, provided the aggregate option price payable
for such securities shall remain the same.
D. The grant of options under this Article Three shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
-16-
<PAGE> 56
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for options made
under the Discretionary Option Grant Program.
-17-
<PAGE> 57
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate purchases without any intervening stock
option grants. The issued shares shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") that complies with the terms and conditions of
this Article Four.
A. CONSIDERATION
(1) Shares of Common Stock drawn from the Corporation's
authorized but unissued shares of Common Stock ("Newly Issued Shares") shall be
issued under the Plan for one or more of the following items of consideration
which the Plan Administrator may deem appropriate in each individual instance:
(i) cash or cash equivalents (such as a
personal check or bank draft) paid the Corporation;
(ii) a promissory note payable to the
Corporation's order in one or more installments, which may be subject to
cancellation in whole or in part upon terms and conditions established
by the Plan Administrator; or
(iii) past services rendered to the
Corporation or any parent or subsidiary corporation.
(2) Newly Issued Shares may, in the absolute discretion of
the Plan Administrator, be issued for consideration with a value less than
one-hundred percent (100%) of the Fair Market Value of such shares, but in no
event less than eighty-five percent (85%) of such Fair Market Value.
(3) Shares of Common Stock reacquired by the Corporation
and held as treasury shares ("Treasury Shares") may be issued under this Article
Four for such consideration (in whatever form) as the Plan Administrator may
deem appropriate. Accordingly, such Treasury Shares may, in lieu of any cash
consideration, be issued subject to such vesting requirements tied to the
Participant's period of future Service or the Corporation's attainment of
specified performance objectives as the Plan Administrator may establish at the
time of issuance.
-18-
<PAGE> 58
B. VESTING PROVISIONS
(1) Shares of Common Stock issued under this Article Four
may, in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service (as such term is defined in Section I.C.(3)
of Article Two). The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Plan, namely:
(i) the Service period to be completed
by the Participant or the performance objectives to be achieved by the
Corporation,
(ii) the number of installments in which
the shares are to vest,
(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, disability
or other event designated by the Plan Administrator is to have upon the
vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
(2) The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to him or her under this
Article Four, whether or not his or her interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares. Any new, additional or
different shares of stock or other property (including money paid other than as
a regular cash dividend) which the Participant may have the right to receive
with respect to his or her unvested shares by reason of any stock dividend,
stock split, reclassification of Common Stock or other similar change in the
Corporation's capital structure shall be issued, subject to (i) the same vesting
requirements applicable to his or her unvested shares and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.
(3) Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock under this Article
Four, then those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further stockholder rights with
respect to those shares. To the extent the surrendered shares were previously
issued to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money promissory note), the Corporation
shall repay to the Participant the cash consideration paid for the surrendered
shares and shall cancel the principal balance of any outstanding purchase-money
note of the Participant to the extent attributable to such surrendered shares.
The surrendered shares may, at the Plan Administrator's discretion, be retained
by the Corporation as Treasury Shares or may be retired to authorized but
unissued share status.
-19-
<PAGE> 59
(4) The Plan Administrator may in its discretion elect to
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the non-completion of the vesting schedule applicable to such shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares under this Article Four may, in the Plan
Administrator's discretion, be held in escrow by the Corporation until the
Participant's interest in such shares vests or may be issued directly to the
Participant with restrictive legends on the certificates evidencing such
unvested shares. To the extent an escrow arrangement is utilized, the unvested
shares and any securities or other assets issued with respect to such shares
(other than regular cash dividends) shall be delivered in escrow to the
Corporation to be held until the Participant's interest in such shares (or other
securities or assets) vests. Alternatively, if the unvested shares are issued
directly to the Participant, the restrictive legend on the certificates for such
shares shall read substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND TO
(II) CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED
HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN
THE CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE
TERMS AND CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET
FORTH IN A STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND
THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) DATED
____________, 19__ , A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under this Article Four. For
purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be cancelled, and
neither the Participant nor the proposed transferee shall have any rights with
respect to those shares. However, the Participant shall have the right to make a
gift of unvested shares acquired under the Plan to his or her spouse or issue,
including adopted children, or to a trust established for such spouse or issue,
provided the donee of such shares delivers to the Corporation a written
agreement to be bound by all the provisions of the Plan and the Issuance
Agreement applicable to the gifted shares.
-20-
<PAGE> 60
ARTICLE FIVE
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may, commencing with the 1999
calendar year, elect to apply all or any portion of the fee otherwise payable to
him or her in cash each year for his or her Board service to the acquisition of
a special option grant under this Director Fee Option Grant Program. Such
election must be filed with the Corporation's Chief Financial Officer prior to
last day of December in the calendar year immediately preceding the calendar
year for which the fee subject of that election is otherwise payable. Each
non-employee Board member who files such a timely election shall automatically
be granted an option under this Director Fee Option Grant Program on the first
trading day in January in the calendar year for which the fee subject of that
election would otherwise be payable. Until the Corporation establishes an annual
retainer fee for the non-employee Board members, the dollar amount of the fee
subject to the Board member's election each year shall be equal to the number of
regularly-scheduled Board meetings for that year multiplied by the per Board
meeting fee in effect for such year. Stockholder approval of this 1998
Restatement at the 1998 Annual Stockholders Meeting will constitute pre-approval
of each option subsequently granted pursuant to the express terms of this
Director Fee Option Grant Program and the subsequent exercise of that option in
accordance with its terms.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three
and one-third percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
-21-
<PAGE> 61
A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock on
the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Board service in the
calendar year for which the annual retainer fee which is the subject of his or
her election under this Article Five would otherwise be payable. Each option
shall have a maximum term of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the optionee cease
Board service for any reason (other than death or permanent disability as
defined in Section 22(e)(3) of the Internal Revenue Code) while holding one or
more options under this Article Five, then each such option shall remain
exercisable, for any or all of the shares for which the option is exercisable at
the time of such cessation of Board service, until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year period measured from the date of such cessation of Board service.
However, each option held by the optionee under this Article Five at the time of
his or her cessation of Board service shall immediately terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service
as a Board member cease by reason of death or permanent disability as defined in
Section 22(e)(3) of the Internal Revenue Code, then each option held by such
optionee under this Article Five shall immediately become exercisable for all
the shares of Common Stock at the time subject to that option, and the option
may, during the three (3)-year period following such cessation of Board service,
be exercised for any or all of those shares as fully-vested shares.
Should the optionee die while holding one or more options under
this Article Five, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the optionee's
cessation of Board service (less any shares subsequently purchased by optionee
prior to death), by the personal representative of the optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of descent and distribution. Such
right of exercise shall lapse, and the option shall terminate, upon the earlier
of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the optionee's cessation of Board
service.
III. CORPORATE TRANSACTION
A. For purposes of this Section III, a "Corporate Transaction"
shall be one or more of the following stockholder-approved transactions:
-22-
<PAGE> 62
(i) a merger or consolidation in which the
Corporation is not the surviving entity, except for a transaction the
principal purpose of which is to change the State of the Corporation's
incorporation,
(ii) the sale, transfer or disposition of all or
substantially all of the assets of the Corporation in liquidation or
dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to holders different from those
who held such securities immediately prior to such merger
B. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof).
C. Each outstanding option which is assumed in connection with a
Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would be issuable, in
consummation of such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to
the option price payable per share, provided the aggregate option price payable
for such securities shall remain the same.
D. The grant of options under this Article Five shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
-23-
<PAGE> 63
ARTICLE SIX
MISCELLANEOUS
I. EFFECT OF TRANSACTIONS ON OUTSTANDING OPTIONS
A. Prior to the Effective Date of the Plan, the Company's
outstanding common stock was reclassified as Series B Common Stock and subjected
to a 3 for 4 reverse stock split. As part of the same transaction, one-third of
a share of newly authorized Series A Common Stock was distributed with respect
to each outstanding share of Series B Common Stock. Under the Company's 1988
Stock Option Plan and each of the options outstanding as of the record date for
such dividend ("Affected Option"), which options are incorporated under this
Plan, appropriate adjustment must be made to the outstanding options to reflect
such reverse stock split and stock dividend. Such appropriate adjustments were
as follows:
1. The aggregate number of shares of Common Stock
available under any Affected Option shall be unchanged by the reverse stock
split and stock dividend, but 75% of such total number shares of Common Stock
available under such options shall be Class B Common Stock and 25% of such total
number shall be Class A Common Stock.
2. The option price per share for each share of stock
available under an Affected Option will remain unchanged, and the aggregate
option price for all shares available under the option will remain unchanged.
3. Any vesting schedule imposed under an Affected Option
will be applied separately to the total Class A and Class B Common Stock so that
on each vesting date the holder will vest in one Class A share for every three
shares of Class B Common Stock vesting on such date.
4. Option holders may separately exercise all or any
portion of the vested options of either Class of Common Stock.
B. As a result of a Conversion pursuant to the terms of the
Company's Certificate of Incorporation, all outstanding shares of Class A Common
Stock of the Corporation were converted into 1.33 shares of Class B Common Stock
(which became the only outstanding class of Common Stock of the Corporation).
Under this Plan, each outstanding option to purchase shares of Class A Common
Stock must be adjusted to reflect such conversion. Such adjustments are as
follows:
1. Each option to purchase a share of Class A Common
Stock (a "Converted Option") is automatically converted into an option to
purchase 1.33 shares of Common Stock.
-24-
<PAGE> 64
2. The aggregate option price per share for each Converted
Option will remain unchanged, but the price per share for each share of Common
Stock under a Converted Option will equal the purchase price payable for a share
of Class A Common Stock divided by 1.33.
3. Any remaining vesting schedule imposed under a
Converted Option will apply to the Common Stock available under such Option.
II. LOANS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Article Two Discretionary Option Grant Program or the
purchase of one or more shares issued to such Participant under the Article Four
Stock Issuance Program, including the satisfaction of any Federal and State
income and employment tax obligations arising therefrom by (i) authorizing the
extension of a loan from the Corporation to such Optionee or Participant or (ii)
permitting the Optionee or Participant to pay the option price or purchase price
for the purchased Common Stock in installments over a period of years. The terms
of any loan or installment method of payment (including the interest rate and
terms of repayment) will be upon such terms as the Plan Administrator specifies
in the applicable option or issuance agreement or otherwise deems appropriate
under the circumstances. Loans and installment payments may be granted with or
without security or collateral (other than to individuals who are consultants or
independent contractors, in which event the loan must be adequately secured by
collateral other than the purchased shares). However, the maximum credit
available to the Optionee or Participant may not exceed the option or purchase
price of the acquired shares (less the par value of such shares) plus any
Federal and State income and employment tax liability incurred by the Optionee
or Participant in connection with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this financial assistance
program shall be subject to forgiveness by the Corporation in whole or in part
upon such terms and conditions as the Plan Administrator may deem appropriate.
III. TAX WITHHOLDING
A. The Company's obligation to deliver shares or cash upon the
exercise of stock options or stock appreciation rights granted under the
Discretionary Option Grant Program or upon direct issuance under the Stock
Issuance Program shall be subject to the satisfaction of all applicable Federal,
State and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion and upon such
terms and conditions as it may deem appropriate provide any or all holders of
outstanding option grants under the Discretionary Option Grant Program with the
election to have the Company withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such options, a portion of such shares with an
aggregate Fair Market Value equal to the designated percentage (up to
-25-
<PAGE> 65
100% as specified by the optionee) of the Federal and State income taxes
("Taxes") incurred in connection with the acquisition of such shares. In lieu of
such direct withholding, one or more option holders may also be granted the
right to deliver shares of Common Stock to the Company in satisfaction of such
Taxes. The withheld or delivered shares shall be valued at the Fair Market Value
on the applicable determination date for such Taxes.
IV. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to
amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. No amendment or modification may adversely affect the rights and
obligations of an Optionee with respect to options at the time outstanding under
the Plan, nor adversely affect the rights of any Participant with respect to
Common Stock issued under the Plan prior to such action, unless the Optionee or
Participant consents to such amendment or modification. In addition, certain
amendments may require stockholder approval if so determined by the Board or
pursuant to applicable laws or regulations.
B. (i) Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program or the Automatic Option Grant
Program and (ii) shares of Common Stock may be issued under the Stock Issuance
Program, which are in both instances in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under the Option Grant Program, the Automatic Option Grant Program or the
Stock Issuance Program are held in escrow until stockholder approval is obtained
for a sufficient increase in the number of shares available for issuance under
the Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess option grants or excess share issuances are
made, then (I) any unexercised excess options shall terminate and cease to be
exercisable and (II) the Corporation shall promptly refund the purchase price
paid for any excess shares actually issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow.
C. On April __, 1998, the Board amended and restated the Plan to
effect the following changes (the "1998 Restatement"): (i) increase the maximum
number of shares of Common Stock authorized for issuance over the term of the
Plan from 7,303,457 shares to 8,088,457 shares, (ii) increase the number of
shares of Common Stock for which the initial automatic option grants are to be
made under the Automatic Option Grant Program from 16,237 shares to 20,000
shares and increase the number of shares of Common Stock for which the annual
automatic option grants are to be made under the same program from 8,118 shares
to 10,000 shares, (iii) implement a new Director Fee Option Grant Program, (iv)
limit the maximum number of shares of Common Stock for which an individual may
be granted options, separately exercisable stock appreciation rights and direct
stock issuances over the term of the Plan to 1,000,000 shares, (v) render the
non-employee Board members eligible to receive option grants and direct stock
issuances under the Discretionary Option Grant and Stock Issuance Programs in
effect under the Plan, (vi) remove certain restrictions on the eligibility of
non-employee Board members to serve as Plan Administrator, (vii) allow unvested
shares under the Plan and subsequently repurchased by the Company at the option
exercise or direct issue price paid per share to be reissued under the Plan, and
(viii) effect a series of additional changes to the
-26-
<PAGE> 66
provisions of the Plan (including the stockholder approval requirements, the
transferability of Non-Statutory Options and the elimination of the six
(6)-month holding requirement as a condition to the exercise of stock
appreciation rights) in order to take advantage of the amendments to Rule 16b-3
of the 1934 Act which exempts certain officer and director transactions under
the Plan from the short-swing liability provisions of the federal securities
laws. The 1998 Restatement is subject to stockholder approval at the 1998 Annual
Meeting. Until such stockholder approval is obtained, any options granted on the
basis of the amendments effected by the 1998 Restatement (including the
785,000-share increase) shall not become exercisable in whole or in part, and
those options shall terminate without ever becoming exercisable for the option
shares. In addition, in the absence of such stockholder approval, none of the
other amendments to the Plan effected by the 1998 Restatement shall be
implemented. All option grants and direct stock issuances made prior to the 1998
Restatement shall remain outstanding in accordance with the terms and conditions
of the respective instruments evidencing those options or issuances, and nothing
in the 1998 Restatement shall be deemed to modify or in any way affect those
outstanding options or issuances. The Plan Administrator may make option grants
and direct stock issuances under the Plan at any time before the date fixed
herein for the termination of the Plan.
V. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan, as successor to the Company's Predecessor Plans,
became effective as of the Effective Date, and no further option grants shall be
made under the Option Plan nor shall any further shares be issued under the
Stock Plan from and after such Effective Date.
B. Each outstanding option and share issuance under the
Predecessor Plans immediately prior to the Effective Date of this Plan are
hereby incorporated into this Plan and shall accordingly be treated as an
outstanding option or share issuance under this Plan. Each such option or share
issuance shall continue to be governed solely by the terms and conditions of the
instrument evidencing such grant or issuance, and except as otherwise expressly
provided in this Plan, no provision of this Plan shall affect or otherwise
modify the rights or obligations of the holders of such options or shares with
respect to their acquisition of shares of Common Stock, or otherwise modify the
rights or obligations of the holders of such options or shares.
C. The sale and remittance procedure authorized for the exercise
of outstanding options under this Plan shall be available for all options
granted under this Plan on or after the Effective Date and for all Non-Statutory
Options outstanding under the Option Plan and incorporated into this Plan. The
Plan Administrator may also allow such procedure to be utilized in connection
with one or more disqualifying dispositions of Incentive Option shares effected
after the Effective Date, whether such Incentive Options were granted under this
Plan or the Option Plan.
D. The Plan shall terminate upon the earlier of (i) November 16,
2002, or (ii) the date on which all shares available for issuance under the Plan
shall have been issued or cancelled pursuant to the exercise, surrender or
cash-out of the options granted under the Discretionary Option Grant Program or
the issuance of shares (whether vested or unvested) under
-27-
<PAGE> 67
the Stock Issuance Program. If the date of termination is determined under
clause (i) above, then all option grants and unvested stock issuances
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants or
issuances.
-28-
<PAGE> 68
VI. USE OF PROCEEDS
Cash proceeds received by the Company from the sale of shares
under the Plan shall be used for general corporate purposes.
VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option
under the Discretionary Option Grant Program, the issuance of any shares under
the Stock Issuance Program, and the issuance of Common Stock upon the exercise
or surrender of the option grants made hereunder shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it, and
the Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and State securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which stock of the same class is then listed.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan,
nor any action taken by the Plan Administrator hereunder, nor any provision of
the Plan shall be construed so as to grant any individual the right to remain in
the employ or service of the Corporation (or any parent or subsidiary
corporation) for any period of specific duration, and the Corporation (or any
parent or subsidiary corporation retaining the services of such individual) may
terminate such individual's employment or service at any time and for any
reason, with or without cause.
IX. MISCELLANEOUS PROVISIONS
The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
-29-
<PAGE> 69
LIGAND PHARMACEUTICALS INCORPORATED
1992 EMPLOYEE STOCK PURCHASE PLAN
AS AMENDED THROUGH APRIL __, 1998
I. PURPOSE
The Ligand Pharmaceuticals Incorporated 1992 Employee Stock
Purchase Plan (the "Plan") is intended to provide eligible employees of the
Company and one or more of its Corporate Affiliates with the opportunity to
acquire a proprietary interest in the Company through the periodic application
of their payroll deductions to the purchase of shares of the Company's common
stock.
II. DEFINITIONS
For purposes of plan administration, the following terms shall
have the meanings indicated:
Base Salary means the regular basic earnings paid to a
Participant by one or more Participating Companies before deduction for any
pre-tax contributions made by the Participant to any Code Section 401(k) salary
deferral plan or any Code Section 125 cafeteria benefit program now or hereafter
established by the Company or any Corporate Affiliate. There shall be excluded
from the calculation of Base Salary (I) all overtime payments, bonuses,
commissions, profit-sharing distributions and other incentive-type payments and
(II) all contributions (other than Code Section 401(k) or Code Section 125
contributions) made on the Participant's behalf by the Company or one or more
Corporate Affiliates under any employee benefit or welfare plan now or hereafter
established.
Board means the Company's Board of Directors.
Code means the Internal Revenue Code of 1986, as amended from
time to time.
Company means Ligand Pharmaceuticals Incorporated, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Ligand Pharmaceuticals Incorporated which shall by
appropriate action adopt the Plan.
Common Stock means shares of the Company's Common Stock.
Corporate Affiliate means any company which is a parent or
subsidiary corporation of the Company (as determined in accordance with Code
Section 424), including any parent or subsidiary corporation which becomes such
after the Effective Date.
<PAGE> 70
Effective Date means November 17, 1992, the start date of the
initial offering period under the Plan. However, for any Corporate Affiliate
which becomes a Participating Company in the Plan after such start date, a
subsequent Effective Date shall be designated with respect to participation by
its Eligible Employees.
Eligible Employee means any person who is engaged, on a
regularly-scheduled basis of more than twenty (20) hours per week and more than
five (5) months per calendar year, in the rendition of personal services to the
Company or any other Participating Company for earnings considered wages under
Section 3121(a) of the Code.
Entry Date means the date an Eligible Employee first joins the
offering period in effect under the Plan. The earliest Entry Date under the Plan
shall be the Effective Date.
Participant means any Eligible Employee of a Participating
Company who is actively participating in the Plan.
Participating Company means the Company and such Corporate
Affiliate or Affiliates as may be designated from time to time by the Board.
Quarterly Entry Date means the first business day of January, the
first business day of April, the first business day of July and the first
business day of October during each offering period in effect under the Plan.
The earliest Quarterly Entry Date for an individual who is not otherwise
eligible to join the Plan on the Effective Date shall be January 1, 1993.
Quarterly Period of Participation means each quarterly period for
which the Participant actually participates in an offering period in effect
under the Plan. Except as otherwise designated by the Plan Administrator, each
quarterly period shall begin on the first business day of each calendar quarter
and shall end on the last business day of such quarter.
Quarterly Purchase Date means the last business day of March,
June, September and December each year on which shares of Common Stock are
automatically purchased for Participants under the Plan.
Service means the period during which an individual remains in
the employ of the Company or any Corporate Affiliate, whether or not in Eligible
Employee status, and shall be measured from such individual's most recent date
of hire by the Company or such Corporate Affiliate.
III. ADMINISTRATION
The Plan shall be administered by a committee (the "Plan
Administrator") comprised of two or more non-employee Board members appointed
from time to time by the Board. The Plan Administrator shall have full authority
to administer the Plan, including authority to interpret and construe any
provision of the Plan. Decisions of the Plan Administrator shall be final and
binding on all parties who have an interest in the Plan.
2.
<PAGE> 71
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated in
accordance with Article X.
B. The initial offering period began on Nobember 17, 1992, and
ended on the last business day in December 1993. Subsequent offering periods
shall be coincidental with the calendar year and shall accordingly commence on
the first business day in January each year.
D. The Participant shall be granted a separate purchase right for
each offering period in which he/she participates. The purchase right shall be
granted on the Entry Date on which such individual first joins the offering
period in effect under the Plan and shall be automatically exercised in
successive installments on each Quarterly Purchase Date within the offering
period.
E. The acquisition of Common Stock through participation in the
Plan for any offering period shall neither limit nor require the acquisition of
Common Stock by the Participant in any subsequent offering period.
V. ELIGIBILITY AND PARTICIPATION
A. Each Eligible Employee of a Participating Company shall be
eligible to participate in the Plan in accordance with the following provisions:
- An Eligible Employee with at least five (5) months
of Service on the start date of the offering period may enter that
offering period on such start date, provided such individual enrolls in
the offering period on or before such date in accordance with Section
V.B below. That start date shall then become such individual's Entry
Date for the offering period, and on that date such individual shall be
granted his/her purchase right for the offering period. Should such
Eligible Employee not enter the offering period on the start date, then
he/she may not subsequently join that particular offering period on any
later date.
- An individual who is not an Eligible Employee with
at least five (5) months of Service on the start date of the offering
period may subsequently enter that offering period on the first
Quarterly Entry Date on which he/she is an Eligible Employee with at
least five (5) months of Service, provided he/she enrolls in the
offering period on or before such date in accordance with Section V.B
below. That Quarterly Entry Date shall then become such
3.
<PAGE> 72
individual's Entry Date for the offering period, and on that date such
individual shall be granted his/her purchase right for the offering
period. Should such Eligible Employee not enter the offering period on
the first Quarterly Entry Date on which he/she is first eligible to join
the offering period, then he/she may not subsequently join that
particular offering period on any later date.
B. To participate for a particular offering period, the Eligible
Employee must complete the enrollment forms prescribed by the Plan Administrator
(including the purchase agreement and payroll deduction authorization) and file
such forms with the Plan Administrator on or before his/her scheduled Entry
Date.
C. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Base Salary paid to the Participant during each
Quarterly Period of Participation within the offering period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect for
the remainder of the offering period, except to the extent such rate is changed
in accordance with the following guidelines:
- The Participant may, at any time during the
Quarterly Period of Participation, reduce his/her rate of payroll
deduction. Such reduction shall become effective as soon as possible
after filing of the requisite reduction form with the Plan Administrator
(or its designate), but the Participant may not effect more than one
such reduction during the same Quarterly Period of Participation.
- The Participant may, prior to the commencement of
any new Quarterly Period of Participation within the offering period,
increase or decrease the rate of his/her payroll deduction by filing the
appropriate form with the Plan Administrator (or its designate). The new
rate (which may not exceed the ten percent (10%) maximum) shall become
effective as of the first date of the first Quarterly Period of
Participation following the filing of such form.
Payroll deductions will automatically cease upon the
termination of the Participant's purchase right in accordance with the
applicable provisions of Section VII below.
VI. STOCK SUBJECT TO PLAN
A. The Common Stock purchasable by Participants under the Plan
shall, solely in the discretion of the Plan Administrator, be made available
from either authorized but unissued shares of Common Stock or from shares of
Common Stock reacquired by the Company, including shares of Common Stock
purchased on the open market. The total number of shares which may
4.
<PAGE> 73
be issued under the Plan shall not exceed 265,000 shares of Common Stock
(provided that, for this purpose, each issuance of Class A Common Stock
occurring prior to November 24, 1994 shall be treated as if it were an issuance
of 1.33 shares of Common Stock).
Such share reserve includes the 58,500-share increase
approved by the Board on April __, 1998, subject to stockholder approval at the
1998 Annual Meeting. The number of shares of Common Stock issuable under the
Plan shall be adjusted from time to time in accordance with Section VI.B hereof.
B. In the event any change is made to the Company's outstanding
Common Stock by reason of any stock dividend, stock split, combination of shares
or other change affecting such outstanding Common Stock as a class without
receipt of consideration, then appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of shares issuable over the
term of the Plan, (ii) the class and maximum number of shares purchasable per
Participant during any one offering period and (iii) the class and number of
shares and the price per share in effect under each purchase right at the time
outstanding under the Plan. Such adjustments shall be designed to preclude the
dilution or enlargement of rights and benefits under the Plan.
VII. PURCHASE RIGHTS
An Employee who participates in the Plan for a particular
offering period shall have the right to purchase shares of Common Stock, in a
series of successive quarterly installments during such offering period, upon
the terms and conditions set forth below and shall execute a purchase agreement
embodying such terms and conditions and such other provisions (not inconsistent
with the Plan) as the Plan Administrator may deem advisable.
Purchase Price. Common Stock shall be issuable at the end of each
Quarterly Period of Participation at a purchase price equal to eighty-five
percent (85%) of the lower of (i) the fair market value per share on the
Participant's Entry Date into the offering period or (ii) the fair market value
per share on the Quarterly Purchase Date on which such Quarterly Period of
Participation ends. However, for each Participant whose Entry Date is other than
the start date of the offering period in effect under the Plan, the clause (i)
amount shall in no event be less than the fair market value of the Common Stock
on the start date of such offering period.
Valuation. For purposes of determining the fair market value per
share of Common Stock on any relevant date the fair market value shall be the
closing selling price on that date, as officially quoted on the Nasdaq National
Market. If there is no quoted selling price for such date, then the closing
selling price on the next preceding day for which there does exist such a
quotation shall be determinative of fair market value.
5.
<PAGE> 74
Number of Purchasable Shares. The number of shares purchasable
per Participant for each Quarterly Period of Participation shall be the number
of whole shares obtained by dividing the amount collected from the Participant
through payroll deductions during such Quarterly Period of Participation by the
purchase price in effect for the Quarterly Purchase Date on which such Quarterly
Period of Participation ends. However, no Participant may, during any one
offering period, purchase more than 1,330 shares of Common Stock, subject to
periodic adjustment under Section VI.B.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or any of its Corporate Affiliates.
Payment. Payment for the Common Stock purchased under the Plan
shall be effected by means of the Participant's authorized payroll deductions.
Such deductions shall begin on the first pay day coincident with or immediately
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of the offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from a Participant may be
commingled with the general assets of the Company and may be used for general
corporate purposes.
Termination of Purchase Right. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last
five (5) business days of the Quarterly Period of Participation,
terminate his/her outstanding purchase right under the Plan by filing
the prescribed notification form with the Plan Administrator (or its
designate). No further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right, and any
payroll deductions collected for the Quarterly Period of Participation
in which such termination occurs shall, at the Participant's election,
be immediately refunded or held for the purchase of shares on the next
Quarterly Purchase Date. If no such election is made, then such funds
shall be refunded as soon as possible after the close of such Quarterly
Period of Participation.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which such terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of a
new purchase agreement and payroll deduction authorization) during the
applicable enrollment period for the new offering.
6.
<PAGE> 75
(iii) If the Participant ceases to remain an Eligible
Employee while his/her purchase right remains outstanding, then such
individual (or the personal representative of the estate of a deceased
Participant) shall have the following election, exercisable up until the
end of the Quarterly Period of Participation in which the Participant
ceases Eligible Employee status:
- to withdraw all of the Participant's payroll
deductions for such Quarterly Period of Participation, or
- to have such funds held for the purchase of
shares on the Quarterly Purchase Date immediately following such
cessation of Eligible Employee status.
If no such election is made, then such funds shall
be refunded as soon as possible after the close of such Quarterly Period
of Participation. In no event, however, may any payroll deductions be
made on the Participant's behalf following his/her cessation of Eligible
Employee status.
Stock Purchase. Shares of Common Stock shall automatically be
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded in accordance with the Termination of
Purchase Right provisions above) on each Quarterly Purchase Date. The purchase
shall be effected by applying each Participant's payroll deductions for the
Quarterly Period of Participation ending on such Quarterly Purchase Date
(together with any carryover deductions from the preceding Quarterly Period of
Participation) to the purchase of whole shares of Common Stock (subject to the
limitation on the maximum number of purchasable shares set forth above) at the
purchase price in effect for such Quarterly Period of Participation. Any payroll
deductions not applied to such purchase because they are not sufficient to
purchase a whole share shall be held for the purchase of Common Stock in the
next Quarterly Period of Participation. However, any payroll deductions not
applied to the purchase of Common Stock by reason of the limitation on the
maximum number of shares purchasable by the Participant for that offering period
shall be promptly refunded to the Participant.
Proration of Purchase Rights. Should the total number of shares
of Common Stock which are to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro-rata allocation
of the available shares on a uniform and nondiscriminatory basis, and the
payroll deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded to such Participant.
7.
<PAGE> 76
Rights as Stockholder. A Participant shall have no stockholder
rights with respect to the shares subject to his/her outstanding purchase right
until the shares are actually purchased on the Participant's behalf in
accordance with the applicable provisions of the Plan. No adjustments shall be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
A Participant shall be entitled to receive, as soon as
practicable after each Quarterly Purchase Date, a stock certificate for the
number of shares purchased on the Participant's behalf. Such certificate may,
upon the Participant's request, be issued in the names of the Participant and
his/her spouse as community property or as joint tenants with right of
survivorship.
Assignability. No purchase right granted under the Plan shall be
assignable or transferable by the Participant other than by will or by the laws
of descent and distribution following the Participant's death, and during the
Participant's lifetime the purchase right shall be exercisable only by the
Participant.
Change in Ownership. Should the Company or its stockholders enter
into an agreement to dispose of all or substantially all of the assets or
outstanding capital stock of the Company by means of:
(i) a sale, merger or other reorganization in
which the Company will not be the surviving corporation (other than a
reorganization effected primarily to change the State in which the
Company is incorporated), or
(ii) a reverse merger in which the Company is the
surviving corporation but in which more than 50% of the Company's
outstanding voting stock is transferred to holders different from those
who held the stock immediately prior to the reverse merger,
then all outstanding purchase rights under the Plan shall
automatically be exercised immediately prior to the consummation of such sale,
merger, reorganization or reverse merger by applying the payroll deductions of
each Participant for the Quarterly Period of Participation in which such
transaction occurs to the purchase of whole shares of Common Stock at
eighty-five percent (85%) of the lower of (i) the fair market value of the
Common Stock on the Participant's Entry Date into the offering period in which
such transaction occurs or (ii) the fair market value of the Common Stock
immediately prior to the consummation of such transaction. However, the
applicable share limitations of Articles VII and VIII shall continue to apply to
any such purchase, and the clause (i) amount above shall not, for any
Participant whose Entry Date for the offering period is other than the start
date of such offering period, be less than the fair market value of the Common
Stock on such start date.
8.
<PAGE> 77
The Company shall use its best efforts to provide at least ten
(10)-days advance written notice of the occurrence of any such sale, merger,
reorganization or reverse merger, and Participants shall, following the receipt
of such notice, have the right to terminate their outstanding purchase rights in
accordance with the applicable provisions of this Article VII.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (I) rights to purchase Common
Stock accrued under any other purchase right outstanding under this Plan and
(II) similar rights accrued under other employee stock purchase plans (within
the meaning of Section 423 of the Code) of the Company or its Corporate
Affiliates, would otherwise permit such Participant to purchase more than
$25,000 worth of stock of the Company or any Corporate Affiliate (determined on
the basis of the fair market value of such stock on the date or dates such
rights are granted to the Participant) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations, the right
to acquire Common Stock pursuant to each purchase right outstanding under the
Plan shall accrue as follows:
(i) The right to acquire Common Stock under each
such purchase right shall accrue in a series of successive quarterly
installments as and when the purchase right first becomes exercisable
for each quarterly installment on the last business day of each
Quarterly Period of Participation for which the right remains
outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
$25,000 worth of Common Stock (determined on the basis of the fair
market value on the date or dates of grant) pursuant to one or more
purchase rights held by the Participant during such calendar year.
(iii) If by reason of such accrual limitations,
any purchase right of a Participant does not accrue for a particular
Quarterly Period of Participation, then the payroll deductions which the
Participant made during that Quarterly Period of Participation with
respect to such purchase right shall be promptly refunded.
C. In the event there is any conflict between the provisions of
this Article VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article VIII shall be controlling.
9.
<PAGE> 78
IX. STATUS OF PLAN UNDER FEDERAL TAX LAWS
The Plan is designed to qualify as an employee stock purchase
plan under Code Section 423. Accordingly, the Participant will not recognize any
taxable income at the time one or more shares of Common Stock are purchased on
his/her behalf on any Quarterly Purchase Date under the Plan.
X. AMENDMENT AND TERMINATION
A. The Board may alter, amend, suspend or discontinue the Plan
following the close of any Quarterly Period of Participation. However, the Board
may not, without the approval of the Company's stockholders:
(i) increase the number of shares issuable under the Plan
or the maximum number of shares which may be purchased per Participant during
any one offering period under the Plan, except that the Plan Administrator shall
have the authority, exercisable without such stockholder approval, to effect
adjustments to the extent necessary to reflect changes in the Company's capital
structure pursuant to Section VI.B;
(ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares issuable under the Plan; or
(iii) materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility to participate in the Plan.
B. The Company shall have the right, exercisable in the sole
discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following the close of any Quarterly Period of
Participation. Should the Company elect to exercise such right, then the Plan
shall terminate in its entirety. No further purchase rights shall thereafter be
granted or exercised, and no further payroll deductions shall thereafter be
collected, under the Plan.
C. On April __, 1998, the Board amended the Plan to increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the Plan from 206,500 shares to 265,000 shares. This amendment to the Plan is
subject to stockholder approval at the 1998 Annual Meeting.
XI. GENERAL PROVISIONS
A. The Plan shall terminate upon the earlier of (i) December 31,
2002 or (ii) the date on which all shares available for issuance under the Plan
shall have been sold pursuant to purchase rights exercised under the Plan.
10.
<PAGE> 79
B. All costs and expenses incurred in the administration of the
Plan shall be paid by the Company.
C. Neither the action of the Company in establishing the Plan,
nor any action taken under the Plan by the Board or the Plan Administrator, nor
any provision of the Plan itself shall be construed so as to grant any person
the right to remain in the employ of the Company or any of its Corporate
Affiliates for any period of specific duration, and such person's employment may
be terminated at any time, with or without cause.
11.
<PAGE> 80
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 Thursday, May 21, 1998, 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)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 81
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: Irving S. Johnson
Henry F. Bissenbach Carl C. Peck
Alexander D. Cross David E. Robinson
Victoria R. Fash
John Groom
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.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
