<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Houghten Pharmaceuticals, Inc.
(NOTE: Changing name to "Trega Biosciences, Inc." on May 1,1997)
- --------------------------------------------------------------------------------
(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
[LOGO]
T R E G A
B I O S C I E N C E S, I N C.
(Formerly Known as Houghten Pharmaceuticals, Inc.)
3550 GENERAL ATOMICS COURT
SAN DIEGO, CALIFORNIA 92121
(619) 455-3814
May 1, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Trega Biosciences, Inc. (formerly known as Houghten Pharmaceuticals, Inc.) which
will be held on Wednesday, June 11, 1997, at 9:00 a.m., at the Company's
headquarters located at 3550 General Atomics Court, San Diego, California.
The formal notice of the Annual Meeting and the Proxy Statement have been
made a part of this invitation.
After reading the Proxy Statement, please mark, date, sign and return, at
your earliest convenience, the enclosed proxy in the enclosed prepaid envelope
to ensure that your shares will be represented. YOUR SHARES CANNOT BE VOTED
UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING
IN PERSON.
A copy of the 1996 Annual Report to Stockholders is also enclosed.
The Board of Directors and management look forward to seeing you at the
meeting.
Sincerely yours,
Robert S. Whitehead
President and Chief Executive Officer
<PAGE> 3
TREGA BIOSCIENCES, INC.
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 1997
--------------
To the Stockholders of Trega Biosciences, Inc.:
The Annual Meeting of Stockholders of Trega Biosciences, Inc., a Delaware
corporation (the "Company"), will be held at the Company's headquarters located
at 3550 General Atomics Court, San Diego, California, on Wednesday, June 11,
1997, at 9:00 a.m., Pacific Daylight Time, for the following purposes:
1. To elect five Directors (two Class II Directors and three Class III
Directors);
2. To consider and vote upon a proposal to increase the number of shares
of the Company's Common Stock available for issuance with respect to
the Company's 1996 Stock Incentive Plan (from 1,860,465 to 2,960,465);
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors; and
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
Stockholders of record as of the close of business on April 16, 1997 are
entitled to notice of and to vote at the Annual Meeting and any adjournment or
postponement thereof. A complete list of stockholders entitled to vote at the
Annual Meeting will be available for the ten days immediately preceding the
Annual Meeting at the Office of the Secretary, Trega Biosciences, Inc., 3550
General Atomics Court, San Diego, California 92121.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING.
EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING, WE HOPE THAT YOU WILL PROMPTLY
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY. THIS WILL NOT LIMIT YOUR RIGHT
TO ATTEND OR VOTE AT THE ANNUAL MEETING.
By Order of the Board of Directors,
Terence E. McMorrow
Vice President, Finance and Corporate
Development, and Secretary
May 1, 1997
<PAGE> 4
TREGA BIOSCIENCES, INC.
3550 GENERAL ATOMICS COURT
SAN DIEGO, CALIFORNIA 92121
--------------
PROXY STATEMENT
--------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Trega Biosciences, Inc., a Delaware corporation (the
"Company"), of proxies in the accompanying form to be used at the Annual Meeting
of Stockholders of the Company to be held at the Company's headquarters located
at 3550 General Atomics Court, San Diego, California, on Wednesday, June 11,
1997, at 9:00 a.m., Pacific Daylight Time, and any adjournment or postponement
thereof (the "Annual Meeting").
Shares represented by proxies received in response to this solicitation and
not revoked will be voted at the Annual Meeting. A stockholder who has given a
proxy may revoke it at any time before it is exercised by filing with the
Secretary of the Company a written revocation or a duly executed proxy bearing a
later date or by voting in person at the Annual Meeting; however, attendance at
the Annual Meeting will not in and of itself constitute revocation of a proxy.
On the matters coming before the Annual Meeting for which a choice has been
specified by a stockholder by means of the ballot on the proxy, the
stockholder's shares will be voted accordingly. If no choice is specified, the
stockholder's shares will be voted (i) "FOR" the election of the five nominees
for director listed in this Proxy Statement (two Class II Directors and three
Class III Directors), (ii) "FOR" approval of the proposal to increase the number
of shares of the Company's Common Stock available for issuance with respect to
the Company's 1996 Stock Incentive Plan, and (iii) "FOR" ratification of the
appointment of Ernst & Young LLP as the Company's independent auditors. In the
event that any other matters properly come before the Annual Meeting, the
holders of proxies solicited by the Board of Directors will vote on those
matters in accordance with their judgment, and discretionary authority to do so
is included in the proxy.
Stockholders of record at the close of business on April 16, 1997 (the
"Record Date") are entitled to vote at the Annual Meeting. As of the close of
business on such date, the Company had 13,427,352 shares of its Common Stock
("Common Stock") outstanding. Each holder of Common Stock is entitled to one
vote for each share held as of the Record Date.
The presence in person or by proxy of the holders of a majority of the
issued and outstanding Common Stock constitutes a quorum for the transaction of
business at the Annual Meeting. Directors are elected by a plurality vote. The
other matters submitted for stockholder approval at the Annual Meeting will be
decided by the affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy and entitled to vote on each such matter.
Abstentions with respect to any matter are treated as shares present or
represented and entitled to vote on that matter and thus have the same effect as
negative votes. If a broker who is the record holder of certain shares indicates
on a proxy that he or she does not have discretionary authority to vote on a
particular matter as to such shares, or if shares are not voted in other
circumstances in which proxy authority is defective or has been withheld with
respect to any matter, these non-voted shares will be counted for quorum
purposes but are not deemed to be present or represented for purposes of
determining whether stockholder approval of a particular matter has been
obtained.
The expense of printing and mailing proxy materials will be borne by the
Company. In addition to the solicitation of proxies by mail, solicitation may be
made by certain Directors, officers and other employees of the Company by
personal interview, telephone or facsimile. No additional compensation will be
paid to such persons for such solicitation. The Company will reimburse brokerage
firms and others for their reasonable expenses in forwarding solicitation
materials to beneficial owners of Common Stock.
This Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about May 1, 1997.
IMPORTANT
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO THAT, WHETHER YOU
INTEND TO BE PRESENT AT THE ANNUAL MEETING OR NOT, YOUR SHARES CAN BE VOTED.
THIS WILL NOT LIMIT YOUR RIGHTS TO ATTEND OR VOTE AT THE ANNUAL MEETING.
<PAGE> 5
ITEM 1 - ELECTION OF DIRECTORS
The Company has three classes of Directors (designated Class I, Class II
and Class III) serving staggered three-year terms. Presently, three Directors
comprise each of Class I, Class II and Class III. However, following the Annual
Meeting the size of the Board of Directors will be reduced to eight, and the
number of Directors in Class II will be reduced to two in order to accommodate
this change. Accordingly, two Class II Directors and three Class III Directors
are to be elected at the Annual Meeting for a total of five Directors to be
elected at the Annual Meeting. Such Class II and Class III Directors will have
terms expiring at the time of the Annual Meetings of Stockholders to be held in
1999 and 2000, respectively, or until each such Director's successor shall have
been elected and qualified. Class I Directors will continue in office for their
existing term (which expires at the Annual Meeting of Stockholders to be held in
1998, or until each such Director's successor shall have been elected and
qualified).
Unless authority to vote for Directors is withheld, it is intended that the
shares represented by the enclosed proxy will be voted (i) "FOR" the election of
Dr. Levin and Mr. Wiklund as Class II Directors and (ii) "FOR" Dr. Blair, Mr.
Lambert and Dr. Tuttle as Class III Directors. In the event that any of such
nominees becomes unable or unwilling to accept nomination or election, the
shares represented by the enclosed proxy will be voted for the election of the
balance of those Directors named and such other person(s) as the Board of
Directors may select. The Board of Directors has no reason to believe that any
such nominee will be unable or unwilling to serve.
Set forth below is information regarding the nominees for Class II and
Class III Directors, as well as information regarding the continuing Class I
Directors, including information furnished by the nominees and the continuing
Directors as to their principal occupations at present and for the past five
years, certain directorships held by each and their ages as of March 1, 1997.
<TABLE>
<CAPTION>
Name Age
- ---- ---
CLASS II
<S> <C>
Jeremy M. Levin, D. Phil.................................................... 43
Dr. Levin is the Chief Executive Officer, President and Chairman
of the Board of Directors of Cadus Pharmaceutical Corporation
("Cadus"). Dr. Levin joined Cadus in December 1992 as its Chief
Executive Officer and became a Director in January 1993. In May
1995, Dr. Levin became a Co-Chairman of the Board of Directors
and in May 1996, Dr. Levin became the Chairman of the Board of
Directors of Cadus. From December 1990 to December 1992, Dr.
Levin was Vice President of Corporate Development for Genzyme
Corporation's majority-owned subsidiary, IG Laboratories, Inc., a
public laboratory testing company. Prior to that time, Dr. Levin
served in a number of positions at biotechnology companies and at
major teaching hospitals in Europe. Dr. Levin is a member of the
Board of Directors of Physiome Sciences, Inc., a private
biotechnology company, a member of the Board and Executive
Committee of the New York Biotechnology Association and a member
of the Emerging Companies Section of the Biotechnology Industry
Organization. Dr. Levin received a D.Phil. in Molecular Biology
from the University of Oxford and an MB.BCHIR from the University
of Cambridge.
Anders Wiklund.............................................................. 56
Mr. Wiklund has been an advisor to the biotechnology and
pharmaceutical industries since January of 1997 when he formed
Wiklund International Inc. In 1997, Mr. Wiklund was appointed
Senior Vice President of Biacore Holding, Inc. and presently
serves as President of Biacore, Inc., a supplier of analytical
instruments to the life sciences industry. Between
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
Name Age
- ---- ---
<S> <C>
1993 and 1996, Mr. Wiklund served as President of Pharmacia
Development Corporation, as Executive Vice President of Pharmacia
U.S. Inc. and as Vice President, Pharmacia & Upjohn. Prior to
1993, Mr. Wiklund held a series of executive management positions
within the Pharmacia group, including President and CEO of Kabi
Vitrum Inc. and Kabi Pharmacia Inc. Mr. Wiklund is on the Board
of Directors of InSite Vision, Inc., Ribozyme Pharmaceuticals,
Inc., PharmaGenics, Inc. and Vascular Therapeutics, Inc., a
private biotechnology company. Mr. Wiklund graduated from the
Pharmaceutical Institute in Stockholm where he received a Master
of Pharmacy degree.
CLASS III
James C. Blair, Ph.D........................................................ 57
Dr. Blair has served as Chairman of the Board of Directors of the
Company since September 1992 and as a Director since May 1992.
Dr. Blair has been a general partner of Domain Associates, a
venture capital management company, since 1985. Domain Associates
manages Domain Partners, L.P., Domain Partners II, L.P., Domain
Partners III, L.P. and DP III Associates, L.P., and is the
venture capital advisor to Biotechnology Investments Limited. Dr.
Blair is on the Boards of Directors of Amylin Pharmaceuticals,
Inc., CoCensys, Inc., Dura Pharmaceuticals, Inc. ("Dura") and
Gensia, Inc. ("Gensia"). Dr. Blair received a B.S.E. from
Princeton University and an M.S.E. and Ph.D. from the University
of Pennsylvania, all in electronic engineering.
Harry D. Lambert............................................................ 57
Mr. Lambert has served as a Director of the Company since April
1994. He has been a partner of InnoCal Associates, L.P., a
venture capital company, since June 1993. Prior to joining
InnoCal, Mr. Lambert was a partner of the Edison Venture Fund
from January 1991 to June 1993. He is a former Group Vice
President of Phelps Dodge International Company. Mr. Lambert is
on the Boards of Directors of several private companies. Mr.
Lambert received his B.S. from the U.S. Military Academy at West
Point, and is a graduate of the Columbia University Graduate
School of Business Administration Executive Program and the
Harvard Graduate School of Business Administration Advanced
Management Program.
Ronald R. Tuttle, Ph.D...................................................... 60
Dr. Tuttle has served as a Director of the Company since May
1992. He served as the Company's Executive Vice President,
Research and Development, from January 1992 to January 1996 and
as Chief Scientific Officer from January 1996 to December 1996.
Dr. Tuttle was Vice President, New Drug Discovery at Gensia from
1987 to 1992 and is the inventor of the pharmacological cardiac
stress testing system marketed by that company. Prior to joining
Gensia, Dr. Tuttle served as the Vice President, New Drug
Development at Key Pharmaceuticals, Inc. Dr. Tuttle spent 13
years at Eli Lilly & Co., where he invented and led the
development of dobutamine (Dobutrex(E)). Dr. Tuttle received his
Ph.D. in Pharmacology from the University of Manitoba, Canada.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
Name Age
- ---- ---
<S> <C>
CLASS I
Cam L. Garner............................................................... 48
Mr. Garner has served as a Director of the Company since May
1995. Since 1990, he has been President and Chief Executive
Officer and a Director of Dura, a pharmaceutical marketing
company and developer of pulmonary drug delivery technology, and
in January 1996 he was elected Chairman of the Board of Dura.
Prior to joining Dura, Mr. Garner served as President of Syntro
Corp. Earlier positions included serving as Senior Vice President
of Sales and Marketing for Hybritech, Inc., a division of Eli
Lilly & Co., and acting in several management positions at
Corning Glass Works and its subsidiary, Gilford, Inc. Mr. Garner
is on the Board of Directors of Spiros Development Corporation, a
private drug delivery research and development company ("Spiros
Corp."). Mr. Garner earned an M.B.A. from Baldwin-Wallace College
and a B.A. in Biology from Virginia Wesleyan College.
Harvey S. Sadow, Ph.D....................................................... 74
Dr. Sadow has served as a Director of the Company since October
1992. From January 1988 through December 1990, Dr. Sadow served
as Chairman of the Board of Boehringer Ingelheim Corporation and
Boehringer Ingelheim Pharmaceuticals, Inc. Dr. Sadow served as
the President and Chief Executive Officer of Boehringer Ingelheim
Corporation until his retirement in January 1988. Dr. Sadow
serves as the Chairman of the Board of Cortex Pharmaceuticals,
Inc. and Cholestech Corp., and is a Director of Anika Research
Inc. and Penaderm Corporation. Dr. Sadow received a B.S. from the
Virginia Military Institute, an M.S. from the University of
Kansas and a Ph.D. from the University of Connecticut.
Robert S. Whitehead......................................................... 46
Mr. Whitehead has served as President and Chief Executive Officer
of the Company and as a Director of the Company since August
1993. Prior to joining the Company, Mr. Whitehead was Senior Vice
President, Commercial Operations at Solvay Pharmaceuticals
("Solvay") from February 1992 to April 1993. Before joining
Solvay, Mr. Whitehead worked at Searle Pharmaceuticals where,
over 13 years, he held such positions as President and General
Manager, Searle Canada, from March 1989 to February 1992; Vice
President, International Marketing Operations, Director of
Marketing, Europe; and Vice President, Sales and Marketing,
Searle de Mexico. Mr. Whitehead is on the Board of Directors of
Spiros Corp. Mr. Whitehead graduated from Temple University with
a degree in pre-medicine.
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF EACH OF THE NOMINEES
FOR CLASS II DIRECTORS AND CLASS III DIRECTORS SET FORTH ABOVE.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held 10 meetings during the year ended December 31,
1996. Each Director attended at least 75% of all meetings of (i) the Board of
Directors during the period in 1996 in which such person served as a Director
and (ii) all committees of the Board of Directors during the period in 1996 in
which such person served on such committees.
The Board of Directors has appointed a Compensation Committee and an Audit
Committee.
4
<PAGE> 8
The members of the Compensation Committee are Dr. Blair, Dr. Comer and Mr.
Lambert. The Compensation Committee held 5 meetings during 1996. The
Compensation Committee administers the Company's 1996 Stock Incentive Plan, the
Company's 1996 Employee Stock Purchase Plan and the Officer and Associate Bonus
Plan, determines compensation for the Company's executive officers and makes
decisions concerning salaries and incentive compensation for employees and
consultants of the Company.
The members of the Audit Committee are Mr. Forrest, Mr. Garner and Dr.
Sadow. The Audit Committee held 2 meetings during 1996. The Audit Committee
makes recommendations to the Board of Directors regarding the selection of
independent auditors, reviews the results and scope of the audit and other
services provided by the Company's independent auditors, and reviews and
evaluates the Company's audit and control functions.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any fees for
service on the Board of Directors. The Company's non-employee Directors receive
an initial grant of a non-qualified option to purchase 10,000 shares of Common
Stock (an "Initial Option") and a yearly grant (following each Annual Meeting of
Stockholders) of a non-qualified option to purchase 3,500 shares of Common Stock
(an "Annual Option"). The exercise price for each Initial Option and Annual
Option is equal to the fair market value of Common Stock on the date of grant.
Initial Options become exercisable in 12 equal installments at three-month
intervals over the 36-month period commencing on the date of grant. Annual
Options vest in full on the earlier of the first anniversary of the date of
grant or the date of the next Annual Meeting of Stockholders. Directors may also
be reimbursed for certain expenses in connection with attendance at meetings of
the Company's Board of Directors and its committees.
5
<PAGE> 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 1, 1997 as
to shares of Common Stock beneficially owned by: (i) each person who is known by
the Company to own beneficially more than 5% of the issued and outstanding
Common Stock; (ii) each of the Company's directors and nominees; (iii) each of
the Company's executive officers named below under "Executive
Compensation--Summary Compensation Table;" and (iv) all directors and executive
officers of the Company as a group. Ownership information is based upon
information furnished by the respective individuals or entities, as the case may
be.
<TABLE>
<CAPTION>
Directors, Nominees, Named Executive Percent
Officers, 5% Stockholders, and Directors Shares Beneficially Beneficially
and Executive Officers as a Group Owned (1)(2) Owned(1)(2)
- --------------------------------- ------------------- -----------
<S> <C> <C>
Amerindo Investment Advisors 855,000 6.4%
399 Park Avenue, 18th Floor
New York, New York 10022
Biotechnology Investments Limited 1,429,832 10.7
Post Office Box 58
St. Julian's Court
St. Peter Port
Guernsey, Channel Islands
Domain Partners II, L.P. 1,444,084 10.8
One Palmer Square
Princeton, New Jersey 08542
Domain Partners III, L.P. 989,977 7.4
One Palmer Square
Princeton, New Jersey 08542
DP III Associates, L.P. 34,449 *
One Palmer Square
Princeton, New Jersey 08542
Dura Pharmaceuticals, Inc. 775,193 5.8
5880 Pacific Center Boulevard
San Diego, California 92121
InnoCal, L.P.(3) 645,971 4.8
600 Anton Blvd
Costa Mesa, California 92626
SBIC Partners, L.P. 642,001 4.8
201 Main Street, Suite 2302
Fort Worth, Texas 76102
James C. Blair(4) 4,711,691 35.1
William T. Comer(5) 7,457 *
Gregory J. Forrest(6) 644,183 4.8
Cam L. Garner(7) 779,632 5.8
Richard A. Houghten(8) 644,687 4.8
Harry D. Lambert(9) 645,971 4.8
Harvey S. Sadow(10) 15,133 *
Ronald R. Tuttle(11) 228,775 1.7
Robert S. Whitehead(12) 156,635 1.2
Jeremy M. Levin 0 0
Anders Wiklund 0 0
Michael J. Green (13) 9,259 *
Bernard D. King(14) 36,391 *
Terence E. McMorrow(15) 28,363 *
All directors and executive officers as a group (12 persons)(16) 7,132,984 53.1
</TABLE>
- ----------
* Less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
6
<PAGE> 10
(2) The number of shares of Common Stock beneficially owned includes the shares
issuable pursuant to stock options that may be exercised within 60 days
after March 1, 1997. Shares issuable pursuant to such options are deemed
outstanding for purposes of computing the percentage of the person holding
such options but are not deemed outstanding for purposes of computing the
percentage of any other person.
(3) Includes 3,970 shares issuable upon exercise of options held by InnoCal,
L.P. that are exercisable within the 60-day period following March 1, 1997.
(4) Includes 1,190 shares issuable upon exercise of options held by Dr. Blair
that are exercisable within the 60-day period following March 1, 1997. Also
includes 1,444,084 shares beneficially owned by Domain Partners II, L.P.,
989,977 shares beneficially owned by Domain Partners III, L.P., 34,449
shares beneficially owned by DP III Associates, L.P. and 6,966 shares
beneficially owned by Domain Associates. Dr. Blair is a general partner of
One Palmer Square Associates, II, L.P., which is the general partner of
Domain Partners II, L.P., and he is also a general partner of One Palmer
Square Associates, III, L.P., the general partner of Domain Partners III,
L.P. and DP III Associates, L.P. Dr. Blair has indirect beneficial
ownership of these shares. Also includes 1,429,832 shares beneficially
owned by Biotechnology Investment Limited ("BIL"). Pursuant to a
contractual agreement, Domain Associates is the U.S. venture capital
advisor to BIL. Dr. Blair is a general partner of Domain Associates. Domain
Associates has neither voting nor investment power over BIL and Dr. Blair
and Domain Associates disclaim beneficial ownership of the BIL shares. Dr.
Blair disclaims beneficial ownership of shares held by One Palmer Square
Associates, II, L.P. and One Palmer Square Associates, III, L.P. which are
not actually distributed to him. Also includes 775,193 shares beneficially
owned by Dura Pharmaceuticals, Inc. ("Dura"). Dr. Blair is a director of
Dura. Dr. Blair disclaims beneficial ownership of shares held by Dura.
(5) Includes 3,896 shares issuable upon exercise of options held by Dr. Comer
that are exercisable within the 60-day period following March 1, 1997.
(6) Includes 642,001 shares beneficially owned by SBIC Partners, L.P. Mr.
Forrest is an executive officer, director and shareholder of Forrest
Binkley & Brown Venture Co., the general partner of Forrest Binkley & Brown
L.P. which is the managing general partner of SBIC Partners, L.P. Mr.
Forrest disclaims beneficial ownership of these shares. Also includes 2,182
shares issuable upon exercise of options held by Mr. Forrest that are
exercisable within the 60-day period following March 1, 1997.
(7) Includes 775,193 shares beneficially owned by Dura. Mr. Garner is
President, Chief Executive Officer and Chairman of the Board of Dura. Mr.
Garner disclaims beneficial ownership of shares held by Dura. Includes
4,439 shares issuable upon exercise of options held by Mr. Garner that are
exercisable within the 60-day period following March 1, 1997.
(8) Includes 536,046 shares beneficially owned by Richard A. Houghten and
Christy L. Hendrickson, Co-Trustees, UTD 11/09/90 (the "Houghten Trust").
Dr. Houghten is also a beneficiary of the Houghten Trust, which is a
revocable trust established by the Co-Trustees. Also includes 62,093 shares
beneficially owned by The Torrey Pines Institute for Molecular Studies
("TPIMS"). Dr. Houghten is a director and President of TPIMS. Dr. Houghten
disclaims beneficial ownership of shares held by TPIMS. Also includes
46,547 shares issuable upon exercise of options held by Dr. Houghten that
are exercisable within the 60-day period following March 1, 1997.
(9) Includes 642,001 shares beneficially owned by InnoCal, L.P. Mr. Lambert is
a general partner of InnoCal Associates, L.P., the general partner of
InnoCal, L.P. Also includes 3,970 shares issuable upon exercise of options
held by InnoCal, L.P. that are exercisable within the 60-day period
following March 1, 1997. Mr. Lambert disclaims beneficial ownership of the
shares issued or issuable to InnoCal, L.P. except to the extent of his
pecuniary interest therein.
(10) Includes 3,673 shares issuable upon exercise of options held by Dr. Sadow
that are exercisable within the 60-day period following March 1, 1997.
7
<PAGE> 11
(11) Includes 20,696 shares issuable upon exercise of options held by Dr. Tuttle
that are exercisable within the 60-day period following March 1, 1997.
(12) Includes 154,418 shares issuable upon exercise of options held by Mr.
Whitehead that are exercisable within the 60-day period following March 1,
1997.
(13) Includes 8,465 shares issuable upon exercise of options held by Dr. Green
that are exercisable within the 60-day period following March 1, 1997.
(14) Includes 36,082 shares issuable upon exercise of options held by Dr. King
that are exercisable within the 60-day period following March 1, 1997.
(15) Includes 27,673 shares issuable upon exercise of options held by Mr.
McMorrow that are exercisable within the 60-day period following March 1,
1997.
(16) Includes 313,231 shares issuable upon exercise of options that are
exercisable within the 60-day period following March 1, 1997. Includes
1,444,084 shares held by Domain Partners II, L.P., 989,977 shares held by
Domain Partners III, L.P., 34,449 shares held by DP III Associates, L.P.,
6,966 shares held by Domain Associates and 1,429,832 shares held by BIL.
See footnote (4). Includes 775,193 shares held by Dura, 642,001 shares held
by SBIC Partners, L.P. and 645,971 shares held by InnoCal, L.P. See
footnotes (3), (6), (7) and (9).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's Directors,
executive officers and any persons holding more than 10% of the issued and
outstanding Common Stock are required to report their initial ownership of
Common Stock, any subsequent changes in that ownership and, in certain
instances, an annual statement of changes in ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established
and the Company is required to identify in this Proxy Statement those persons
who failed to file these reports in a timely manner. In making this disclosure
the Company has relied solely upon the written representations of its Directors
and executive officers and copies of the reports that have been filed with the
SEC. Based upon the Company's review of such representations and reports, the
Company believes that all such reports were filed on a timely basis for the year
ended December 31, 1996.
8
<PAGE> 12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation paid in the fiscal years
ended December 31, 1995 and 1996 to (i) the Company's Chief Executive Officer
and (ii) certain of the Company's other most highly compensated executive
officers.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------
Annual Compensation Number of
------------------------------------- Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary(1) Bonus Compensation Options(#)(2) Compensation (3)
- --------------------------- ---- --------- ----- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Whitehead 1996 $254,167 $24,300 $25,000(4) 151,627 1,333
President and Chief Executive Officer 1995 225,000 -- 25,000(4) -- 2,000
Michael J. Green(5) 1996 141,288 -- -- 30,232 38,080
Vice President, Chemistry -- -- -- -- -- --
Richard A. Houghten(6) 1996 124,226 -- -- 44,678 2,000
Chief Technical Officer 1995 118,117 -- -- -- 2,000
Bernard D. King(7) 1996 195,000 -- -- 62,557 2,000
Executive Vice President, Biological 1995 179,500 -- -- 58,139 2,000
Sciences and Development
Terence E. McMorrow 1996 145,000 27,000 -- 33,069 31,640
Vice President, Finance and 1995 145,000 -- -- -- 2,000
Corporate Development, and Secretary
</TABLE>
- ----------
(1) Includes amounts deferred pursuant to the Company's 401(k) Plan.
(2) In January 1996, the unvested portions of certain options granted under the
Company's Amended and Restated 1992 Stock Plan for certain Company
executive officers were canceled and options exercisable for share amounts
equivalent to such canceled portions were granted under the Company's 1995
Stock Plan to such executives (the "Regranted Options"). Although the
exercise price of the Regranted Options ($2.15 per share of Common Stock)
represented an increase over the exercise prices of the canceled options
(ranging from $.60 to $1.075 per share of Common Stock), the Company has
agreed to distribute to each executive, at the time of any exercise of a
Regranted Option, an amount equal to the increase in exercise price
incurred. The Regranted Options retain the vesting schedule of the canceled
options. The Regranted Options include options to acquire 9,795 shares,
45,348 shares, 26,093 shares and 58,604 shares for Dr. Houghten, Dr. King,
Mr. McMorrow and Mr. Whitehead, respectively.
(3) With the exception of reimbursement for relocation expenses paid in 1996 to
Dr. Green ($36,080) and Mr. McMorrow ($29,640), these amounts reflect the
Company's matching contributions pursuant to the Company's 401(k) plan.
(4) In 1994, the Company loaned Mr. Whitehead $100,000, which is evidenced by a
promissory note. The loan bears simple interest at prime rate plus 1% per
annum, with interest payable quarterly. The original principal amount of
the loan is forgiven at a rate
9
<PAGE> 13
of 25% per year on the anniversary date of the note. Amounts reflected
represent the recognition of compensation for the forgiveness of principal
on the loan.
(5) Dr. Green joined the Company on February 12, 1996.
(6) Dr. Houghten served as Chief Scientific Officer during 1995. Dr. Houghten
resigned from his position as an officer of the Company on February 28,
1997.
(7) Dr. King joined the Company on January 31, 1995.
STOCK OPTIONS
The following tables set forth certain information as of December 31, 1996
and for the fiscal year then ended with respect to options to acquire Common
Stock granted to and exercised by the individuals named in the Summary
Compensation Table above. No stock appreciation rights have been granted to
date.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
Individual Grants(1) Potential Realizable
---------------------------------------------------- Value at Assumed
Number of Percentage of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise for Option Term(4)
Options Employees in Price Expiration ----------------------------
Name Granted(#) Fiscal Year ($/Sh)(2) Date(3) 5%($) 10%($)
---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Whitehead 151,627 24.4% $ 2.15 1/26/06 $205,018 $519,557
Michael J. Green 30,232 4.9% 2.15 2/12/06 40,877 103,591
Richard A. Houghten 44,678 7.2% 2.15 1/26/06 60,410 153,091
Bernard D. King 62,557 10.0% 2.15 1/26/06 84,585 214,354
Terence E. McMorrow 33,069 5.3% 2.15 1/26/06 44,713 113,312
</TABLE>
- ----------
(1) Each of the options listed in the table is subject to the following vesting
schedule: (i) 4% of the shares subject to the option immediately vest upon
grant; and (ii) 6% of the shares subject to the option vest at the end of
each successive three-month period following the date of grant (thus
permitting 100% vesting over the course of 48 months); provided that (x)
grants to new employees defer the initial 4% vesting until the end of the
first three-month period (as was the case for Dr. Green) and (y) these
options immediately vest upon a merger, reorganization or other change in
control of the Company. Upon a merger or reorganization of the Company,
these options may be assumed; if not assumed, these options may be canceled
for cash payment (with an optionee's consent).
In January 1996, the unvested portions of certain options granted under the
Company's Amended and Restated 1992 Stock Plan for certain Company
executive officers were canceled and options exercisable for share amounts
equivalent to such canceled portions were granted under the Company's 1995
Stock Plan to such executives (the "Regranted Options"). Although the
exercise price of the Regranted Options ($2.15 per share of Common Stock)
represented an increase over the exercise prices of the canceled options
(ranging from $.60 to $1.075 per share of Common Stock), the Company has
agreed to distribute to each executive, at the time of any exercise of a
Regranted Option, an amount equal to the increase in exercise price
incurred. The Regranted Options retain the vesting schedule of the canceled
options. The
10
<PAGE> 14
Regranted Options include options to acquire 9,795 shares, 45,348 shares,
26,093 shares and 58,604 shares for Dr. Houghten, Dr. King, Mr. McMorrow
and Mr. Whitehead, respectively.
(2) The exercise price on the date of grant was equal to 100% of the fair
market value of Common Stock on the date of grant.
(3) The options have a term of 10 years, subject to earlier termination in
certain events related to termination of employment.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are suggested by rules of the Securities and Exchange Commission and do not
represent Company estimates or projections regarding the future price of
Common Stock. There can be no assurance provided to any executive officer
or any other holder of the Company's securities that actual stock price
appreciation over the 10-year option term will be at the assumed 5% and 10%
levels, or any other defined level.
AGGREGATED OPTION EXERCISES IN 1996
AND 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Shares Unexercised Options in-the-Money Options
Acquired at December 31, 1996(#) At December 31, 1996(1)
on Value --------------------------- ---------------------------
Name Exercise(#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Whitehead -- -- 134,883 97,674 $531,237 $302,789
Michael J. Green -- -- 6,651 23,581 20,618 73,101
Richard A. Houghten -- -- 15,152 31,395 49,760 97,325
Bernard D. King -- -- 30,529 44,819 108,390 138,939
Terence E. McMorrow -- -- 24,464 22,046 90,287 68,343
</TABLE>
- ----------
(1) Calculated on the basis of (i) the fair market value of Common Stock at
December 31, 1996 ($5.25 per share) minus (ii) the exercise price.
EXECUTIVE EMPLOYMENT AGREEMENT AND TERMINATION OF EMPLOYMENT AND CHANGE IN
CONTROL ARRANGEMENTS
Pursuant to the terms of an Executive Employment Agreement dated August 16,
1993 between the Company and Robert S. Whitehead, the Company agreed to retain
Mr. Whitehead as President and Chief Executive Officer of the Company at an
annual salary of $225,000. In May 1996, this amount was increased to $275,000
per year. The Agreement also provides that Mr. Whitehead is entitled to a
continuation of 75% of his base salary for up to 180 days if he is terminated
without cause. In connection with the Agreement, Mr. Whitehead was granted
options to acquire 139,534 shares of Common Stock at $0.75 per share (vesting
over four years). Of this amount, options to acquire 58,604 shares were canceled
under the original grant and regranted in January 1996, but with an exercise
price of $2.15 per share (although arrangements have been made by the Company to
distribute to Mr. Whitehead an amount equal to the difference in exercise prices
upon any exercise - see "Certain Transactions" below). In March 1994, the
Company also made a loan in the principal amount of $100,000 to Mr. Whitehead.
The principal amount of the loan is being forgiven on a quarterly basis over a
term of four years which commenced in June 1994.
Options granted to officers and Directors of the Company vest fully in the
event the Company is subject to a change in control (as defined in the
respective stock option plans under which such options are granted).
11
<PAGE> 15
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
This Report shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement (or
any specific statement incorporating by reference any other portion of
this Proxy Statement) into any filing under the Securities Act of 1933
or under the Securities Exchange Act of 1934, except to the extent the
Company specifically incorporates this Report by reference, and this
Report shall not otherwise be deemed filed under such Acts.
This report on executive compensation is provided by the Compensation
Committee of the Board of Directors (the "Compensation Committee") to assist
stockholders in understanding the Compensation Committee's objectives and
procedures in establishing the compensation of the Company's executive officers
and describes the bases on which 1996 compensation determinations were made by
the Compensation Committee. The Compensation Committee is comprised of three
non-employee Directors (Dr. Blair, Dr. Comer and Mr. Lambert). In making its
determinations, the Compensation Committee relied, in part, on independent
surveys and public disclosures of compensation of management of companies in the
biotechnology and biopharmaceutical industries.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Compensation Committee believes the compensation of the Company's
executive officers should:
- Encourage creation of stockholder value and achievement of strategic
corporate objectives.
- Integrate compensation with the Company's annual and long-term
corporate objectives and strategy, and focus executive behavior on the
fulfillment of those objectives.
- Enable the Company to attract and retain, on a long-term basis, high
caliber personnel by providing a total compensation opportunity that
is competitive with companies in the biopharmaceutical and
biotechnology industries, taking into account relative company size,
performance and geographic location, as well as individual
responsibilities and performance.
- Align the interests of management and stockholders by providing
management with longer term incentives through equity ownership.
KEY ELEMENTS OF EXECUTIVE COMPENSATION
Because the Company is still at an early stage of its development, the use
of traditional performance standards, such as profit levels and return on
equity, is not appropriate in the evaluation of executive officer performance.
Accordingly, the compensation of executive officers is based, in substantial
part, on the Company's achievement of key corporate objectives including the
closing of equity financings, the execution of corporate and collaborative
agreements, the development or acquisition of drug discovery technologies and
development progress of compounds proprietary to the Company, as well as the
achievement of individual business objectives by each executive officer. The
Company's existing compensation structure for executive officers includes a
combination of salary and stock options and may include cash bonuses for
performance determined to be deserving by the Compensation Committee.
Salary. Salary levels are largely determined through comparisons with
companies of similar headcount and market capitalization and/or complexity in
the biopharmaceutical and biotechnology industries. Actual salaries are based on
individual performance contributions within a competitive salary range for each
position that is established through evaluation of responsibilities and market
comparisons. The Compensation Committee, on the basis of its knowledge of
executive compensation in the industry, believes that the Company's salaries for
its executive officers are at levels that the Compensation Committee, at the
time such salary determinations were
12
<PAGE> 16
made, considered to be reasonable and appropriate given the Company's financial
resources and the stage of its development.
Stock Options. The Compensation Committee believes that by providing those
persons who have substantial responsibility for the management and growth of the
Company with an opportunity to increase their ownership of Company stock, the
best interests of stockholders and executive officers will be closely aligned.
Therefore, executive officers are eligible to receive stock options when the
Compensation Committee performs its annual salary review; although the
Compensation Committee, at its discretion, may grant options at other times in
recognition of exceptional achievements. The number of shares underlying stock
options granted to executive officers is based on competitive practices in the
industry as determined by independent surveys and the Compensation Committee's
knowledge of industry practice. The Company's 1996 Stock Incentive Plan is
administered by the Compensation Committee.
Cash Bonuses. Cash bonuses paid to certain of the Company's executive
officers in 1996 were based upon the achievement of specific objectives pursuant
to the Company's Officer and Associate Bonus Plan. The Officer and Associate
Bonus Plan utilized in 1996 was approved by the Compensation Committee in 1995
and the Compensation Committee approved the specific awards made under that
plan.
The Compensation Committee may, at its discretion, award cash bonuses in
recognition of performance deemed to be deserving by the Compensation Committee.
Any such bonuses will be determined by the Compensation Committee to be in
amounts that the Compensation Committee, at the time such determinations are
made, considers to be reasonable given the Company's financial resources and
stage of development as well as achievement of Company-wide and individual
goals.
CHIEF EXECUTIVE OFFICER COMPENSATION
Robert S. Whitehead is the Company's President and Chief Executive Officer.
Mr. Whitehead's annual salary increased from $225,000 to $275,000 effective May
1, 1996. Factors that the Compensation Committee considered in establishing this
annual salary included the Company's progress since Mr. Whitehead joined the
Company as CEO, as well as his increased responsibilities as CEO of a newly
public company. Company achievements during Mr. Whitehead's tenure through April
1996 included the Company's initial public offering, several private financings,
establishment of funded drug discovery collaborations with The Procter & Gamble
Company and Novo Nordisk A/S, initiation of Phase I and Phase II clinical trials
of the Company's lead compound (HP 228), discovery of additional potential
therapeutic applications of HP 228 and initiation of a small molecule
combinatorial chemistry program, as well as attracting experienced
pharmaceutical executives to senior management positions with the Company.
In January 1996, Mr. Whitehead was granted additional options to acquire
Common Stock pursuant to the Company's 1996 Stock Incentive Plan. Essentially
all Company employees were granted additional options at that time. In Mr.
Whitehead's case, the Compensation Committee evaluated CEO option levels at a
number of companies at similar levels of development and determined that the
additional option grant would make Mr. Whitehead's option position competitive.
Mr. Whitehead received a bonus of $24,300 in 1996 under the Company's
Officer and Associate Bonus Plan based upon the achievement of certain
objectives pursuant to such plan.
COMPENSATION COMMITTEE
James C. Blair, Ph.D.
William T. Comer, Ph.D.
Harry D. Lambert
13
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Compensation Committee consisted of Dr. Blair, Dr. Comer
and Mr. Lambert, each of whom is an outside Director of the Company. None of the
members of the Compensation Committee had any "interlock" relationship to report
during the Company's fiscal year ended December 31, 1996.
CERTAIN TRANSACTIONS
SALE OF SERIES G PREFERRED STOCK
In January and February 1996, the Company issued shares of its Series G
Preferred Stock convertible into 1,565,890 shares of Common Stock at a price per
share of Common Stock equivalent of $6.45. Such Series G Preferred Stock
converted into shares of Common Stock upon the consummation of the Company's
initial public offering of Common Stock (the "IPO") on April 3, 1996. The
following table summarizes the shares of Series G Preferred Stock purchased by
certain holders of more than 5% of the issued and outstanding Common Stock as
well as certain entities with which certain of the Company's Directors are
associated:
<TABLE>
<CAPTION>
Shares of
Series G
Name Preferred Stock(1)
- ---- ------------------
<S> <C>
Domain Partners III, L.P.(2) ..................................... 254,751
DP III Associates, L.P.(2) ....................................... 8,814
Biotechnology Investments Limited(3) ............................. 155,039
InnoCal, L.P.(4) ................................................. 100,775
SBIC Partners, L.P.(5) ........................................... 100,775
Dura Pharmaceuticals, Inc.(6) .................................... 775,193
</TABLE>
- --------------------
(1) Share amounts are stated on an as-converted to Common Stock basis.
(2) James C. Blair is a general partner of One Palmer Square Associates, III,
L.P., the general partner of Domain Partners III, L.P. and DP III
Associates, L.P. Dr. Blair is the Chairman of the Board of Directors of the
Company.
(3) James C. Blair is a general partner of Domain Associates. Pursuant to a
contractual agreement, Domain Associates is the U.S. venture capital
advisor to Biotechnology Investments Limited ("BIL"). Domain Associates has
neither voting nor investment power over shares owned by BIL. Dr. Blair is
the Chairman of the Board of Directors of the Company.
(4) Harry D. Lambert is a general partner of InnoCal Associates, L.P., the
general partner of InnoCal, L.P. Mr. Lambert is a Director of the Company.
(5) Gregory J. Forrest is a Director, executive officer and shareholder of
Forrest Binkley & Brown Venture Co., the general partner of Forrest Binkley
& Brown L.P. which is the managing general partner of SBIC Partners, L.P.
Mr. Forrest is a Director of the Company.
(6) Cam L. Garner is the President, Chief Executive Officer and Chairman of the
Board of Directors of Dura Pharmaceuticals, Inc. ("Dura"). Mr. Garner is a
Director of the Company. James C. Blair, a member of the Board of Directors
of Dura, is the Chairman of the Board of Directors of the Company.
14
<PAGE> 18
OTHER ARRANGEMENTS
Jeremy M. Levin, a nominee for the Board of Directors, is the Chief
Executive Officer, President and Chairman of the Board of Directors of Cadus
Pharmaceutical Corporation ("Cadus"). The Company and Cadus are parties to a
joint discovery alliance which commenced in January 1995. Pursuant to this
arrangement, the Company is providing Cadus with access to the Company's
combinatorial libraries at no charge in exchange for joint ownership of any
resulting discoveries. During 1996, no amounts were paid either to Cadus from
the Company or from Cadus to the Company pursuant to this or any other
relationship between the parties.
The Company's scientific founder and a current member of the Company's
Board of Directors, Richard A. Houghten, is a founder, Director and President of
the Torrey Pines Institute for Molecular Studies ("TPIMS"). TPIMS owns and
licenses to the Company technology that is fundamental to the Company's
combinatorial chemistry program. Pursuant to a Research and Option Agreement
(the "TPIMS Agreement"), the Company presently relies upon TPIMS, as an
independent contractor, for basic research and laboratory facilities and
scientific personnel necessary for the Company to conduct a significant portion
of its combinatorial chemistry program and syntheses of iterations and
individual compounds. Pursuant to the TPIMS Agreement, the Company has provided
TPIMS with funding totaling approximately $2,522,000, $2,434,000, $1,797,000,
$1,855,000 and $1,351,000 for the years ending December 31, 1996, 1995, 1994,
1993 and 1992, respectively.
In February 1996, the Company entered into an agreement with Dura
Pharmaceuticals, Inc. ("Dura") which requires, among other things, the Company
to pay Dura $6,000,000 over four years for product development (the "Dura
Agreement"). As of December 31, 1996, $1,078,000 had been funded under the Dura
Agreement. Cam L. Garner, a member of the Board of Directors of the Company, is
the President, Chief Executive Officer and Chairman of the Board of Directors of
Dura. James C. Blair, a member of the Board of Directors of Dura, is the
Chairman of the Board of Directors of the Company. Mr. Garner and Robert S.
Whitehead, the Company's President and Chief Executive Officer, are members of
the Board of Directors of Spiros Development Corporation, a private research and
development company for which Dura performs certain work concerning applications
of Dura's drug delivery technology. In connection with the Dura Agreement, Dura
invested $5,000,000 in the Company's stock (originally shares of Series G
Preferred Stock, as noted above, which converted into 775,193 shares of Common
Stock upon the consummation of the IPO).
In January 1996, the unvested portions of certain options granted under the
Company's Amended and Restated 1992 Stock Plan (the "1992 Plan") for certain
Company executive officers were canceled and options exercisable for share
amounts equivalent to such canceled portions were granted under the Company's
1995 Stock Plan (the "1995 Plan") to such executives (the "Regranted Options").
Although the exercise price of the Regranted Options ($2.15 per share of Common
Stock) represented an increase over the exercise prices of the canceled options
(ranging from $.60 to $1.075 per share of Common Stock), the Company has agreed
to distribute to each executive, at the time of any exercise of a Regranted
Option, an amount equal to the increase in exercise price incurred. The
Regranted Options retain the vesting schedule of the canceled options. Unlike
the 1992 Plan, the 1995 Plan contains provisions permitting the acceleration of
vesting of options in the event of a change in control of the Company (which
event is defined in a manner similar to that used in the 1996 Stock Plan (see
"Item 2 Proposal to Increase the Number of Shares Available Under the 1996 Stock
Incentive Plan" below), but excluding the provision regarding a change in
control resulting from a change in the composition of the Board of Directors).
The Regranted Options include options to acquire 9,795 shares, 45,348 shares,
26,093 shares and 58,604 shares for Dr. Houghten, Dr. King, Mr. McMorrow and Mr.
Whitehead, respectively.
On February 28, 1997, the Company sold all of the issued and outstanding
shares (the "Shares") of the capital stock of Multiple Peptide Systems, Inc.
("MPS") to a company ("Newco") owned by Richard A. Houghten. In exchange for the
Shares, the Company received (i) $500,000.00 in cash and (ii) promissory notes
of Newco for an additional $1,000,000.00 (the "Notes"). The Notes require
principal payments of $500,000.00 on each of June 1 and December 1, 1997. In
addition, on each of February 28, 2000, 2001 and 2002, Newco will be required to
make payments to the Company of at least $250,000.00 (the "Future Payments").
The obligations of Newco with respect to the Notes and the Future Payments are
secured by a pledge of shares of Common Stock held by a revocable trust formed
by Dr. Houghten and his wife. The consideration for the Shares was determined by
15
<PAGE> 19
negotiation between Dr. Houghten and the Company. As part of the arrangements
made in connection with the sale of the Shares, the Company has agreed, for a
period of seven years, not to (i) engage in certain activities which would be
competitive with the business of MPS or (ii) license certain technologies (which
are presently licensed from the Company to MPS) to entities which are engaged
primarily in a business similar to the business of MPS. In addition to being a
founder and a Director of the Company, prior to the sale of the Shares Dr.
Houghten was also the Chief Technical Officer of the Company. In connection with
the sale, however, Dr. Houghten resigned as an officer of the Company. Upon such
resignation (effective February 28, 1997), previously unvested options held by
Dr. Houghten to acquire 28,605 shares of Common Stock (with an exercise price of
$2.15 per share) became fully vested. Following the Annual Meeting, Dr. Houghten
will no longer be serving as a Director of the Company.
16
<PAGE> 20
STOCK PRICE PERFORMANCE GRAPH
This Graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement (or
any specific statement incorporating by reference any other portion of
this Proxy Statement) into any filing under the Securities Act of 1933
or under the Securities Exchange Act of 1934, except to the extent the
Company specifically incorporates this Graph by reference, and this
Graph shall not otherwise be deemed filed under such Acts.
The following graph illustrates a comparison of the cumulative total
stockholder return (change in stock price plus reinvested dividends) of (a)
Common Stock with (b) each of (i) the CRSP Total Return Index for The Nasdaq
Stock Market (U.S.) (the "Nasdaq Composite Index") and (ii) the CRSP Total
Return Index for Nasdaq Pharmaceutical Stocks (the "Nasdaq Pharmaceutical
Index"), assuming an investment of $100 in each on April 1, 1996 (the first date
of trading in the Common Stock following the IPO). The comparisons in the graph
are required by the Securities and Exchange Commission and are not intended to
forecast or be indicative of the possible future performance of an investment in
Common Stock.
[INSERT GRAPH]
<TABLE>
<CAPTION>
4/1/96 6/28/96 9/30/96 12/31/96
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Trega Biosciences, Inc........................... $ 100.00 $ 86.49 $ 81.08 $ 56.76
Nasdaq Composite Index........................... 100.00 107.63 111.46 116.92
Nasdaq Pharmaceutical Index...................... 100.00 96.81 89.99 96.03
</TABLE>
The Nasdaq Pharmaceutical Index includes all companies listed on The Nasdaq
Stock Market within SIC Code 283. A list of the companies included in the Nasdaq
Pharmaceutical Index may be obtained upon request to Terence E. McMorrow, Office
of the Secretary, Trega Biosciences, Inc., 3550 General Atomics Court, San
Diego, California 92121 (or (619) 455-3814).
17
<PAGE> 21
ITEM 2 - PROPOSAL TO INCREASE THE NUMBER OF SHARES AVAILABLE
UNDER THE 1996 STOCK INCENTIVE PLAN
The Company has adopted, and presently utilizes, a 1996 Stock Incentive
Plan under which 1,860,465 shares of Common Stock have been reserved for
issuance, either by direct sale or upon exercise of options granted to
employees, Directors, consultants and advisors of the Company and its
subsidiary. As of April 22, 1997, the Board of Directors amended and restated
the 1996 Stock Incentive Plan (as amended and restated, the "1996 Stock Plan")
to reserve an additional 1,100,000 shares of Common Stock for issuance under the
1996 Stock Plan, subject to the approval of the Company's stockholders at the
Annual Meeting. A copy of the 1996 Stock Plan is attached hereto as Appendix A.
1996 STOCK PLAN
The 1996 Stock Plan was originally adopted by the Board of Directors on
February 7, 1996 and approved by the Company's stockholders in March 1996,
becoming effective upon the consummation of the IPO. An amendment to Section
4.2(c) of the Plan, to make adequate provision for grants of Annual Options to
Directors in 1996 pursuant to the Company's compensation arrangements with its
outside Directors (see "Compensation of Directors" above), was approved by the
Board of Directors on October 23, 1996 (the "October Amendment"). Approval by
the Company's stockholders of this proposal to increase the number of shares of
Common Stock available for issuance under the 1996 Stock Plan shall be deemed to
constitute ratification of the October Amendment.
The 1996 Stock Plan replaced the 1992 Plan and the 1995 Plan (collectively,
the "Predecessor Plans"), although awards made under the Predecessor Plans
continue to be administered in accordance with the Predecessor Plans. The
outstanding options under the Predecessor Plans contain substantially the same
terms and conditions specified below for option grants under the 1996 Stock
Plan.
The 1996 Stock Plan is administered by the Compensation Committee of the
Board of Directors. Employees, Directors, consultants and advisors of the
Company (or any subsidiary of the Company) are eligible to participate in the
1996 Plan, although incentive stock options may be granted only to employees. As
of April 1, 1997, there were 87 employees, officers and outside Directors of the
Company and its subsidiary (ChromaXome Corp.). No individual may receive options
or stock appreciation rights ("SARs") covering more than 250,000 shares in any
calendar year. The participation of the outside Directors of the Company is
limited to automatic annual grants of nonstatutory stock options (the Annual
Options referenced above - see "Item 1 - Election of Directors -- Compensation
of Directors"). The Annual Grants are further described below. The Compensation
Committee selects the employees of the Company who will receive awards,
determines the size of any award and establishes any vesting or other
conditions. Therefore, the benefits and amounts that will be received by each of
the "named" executive officers (those officers identified in the "Summary
Compensation Table" above), the executive officers as a group and all other key
employees are not presently identifiable. However, in 1996, aside from options
granted to the "named" executive officers (identified above in "Executive
Compensation -- Summary Compensation Table," "-- Option Grants in 1996" and "--
Aggregated Option Exercises in 1996 and 1996 Year-End Option Values") and Annual
Options granted to each of the six outside Directors (see "Item 1 -- Election of
Directors -- Compensation of Directors"), 90 persons received options to acquire
Common Stock under the 1996 Stock Plan. Except for certain "named" executive
officers (identified above in "Executive Compensation --Summary Compensation
Table," "-- Option Grants in 1996" and "-- Aggregated Option Exercises in 1996
and 1996 Year-End Option Values"), no one person received one or more options to
acquire more than 5% of the shares of Common Stock for which options were
granted in 1996.
The 1996 Stock Plan provides for awards in the form of restricted shares,
stock units, options or SARs, or any combination thereof. No payment is required
upon receipt of an award, except that a recipient of newly issued restricted
shares must pay at least the par value of such restricted shares to the Company.
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Restricted shares are shares of Common Stock that are subject to forfeiture
in the event that the applicable vesting conditions are not satisfied, and such
shares are nontransferable prior to vesting (except for certain transfers to a
trustee). Restricted shares have the same voting and dividend rights as other
shares of Common Stock.
A stock unit is an unfunded bookkeeping entry representing the equivalent
of one share of Common Stock, and it is nontransferable prior to the holder's
death. A holder of stock units has no voting rights or other privileges as a
stockholder but may be entitled to receive dividend equivalents equal to the
amount of dividends paid on the same number of shares of Common Stock. Dividend
equivalents may be converted into additional stock units or settled in the form
of cash, Common Stock or a combination of both. Stock units, when vested, may be
settled by distributing shares of Common Stock or by a cash payment
corresponding to the fair market value of an equivalent number of shares of
Common Stock, or a combination of both. Vested stock units will be settled at
the time determined by the Compensation Committee. If the time of settlement is
deferred, interest or additional dividend equivalents may be credited on the
deferred payment.
The recipient of restricted shares or stock units may pay all withholding
taxes relating to the award with Common Stock rather than cash.
Options may include nonstatutory stock options ("NSOs") as well as
incentive stock options ("ISOs") intended to qualify for special tax treatment.
The term of an ISO cannot exceed 10 years, and the exercise price of an ISO must
be equal to or greater than the fair market value of Common Stock on the date of
grant. The exercise price of an NSO must be equal to or greater than the par
value of the Common Stock on the date of grant.
The exercise price of an option may be paid in any lawful form permitted by
the Compensation Committee, including, without limitation, the surrender of
shares of Common Stock or restricted shares already owned by the optionee. The
Compensation Committee may likewise permit optionees to satisfy their
withholding tax obligation upon exercise of an NSO by surrendering a portion of
their option shares to the Company. The 1996 Stock Plan also allows the optionee
to pay the exercise price of an option by giving "exercise/sale" or
"exercise/pledge" directions. If exercise/sale directions are given, a number of
option shares sufficient to pay the exercise price and any withholding taxes is
issued directly to a securities broker selected by the Company who, in turn,
sells these shares in the open market. The broker remits to the Company the
proceeds from the sale of these shares, and the optionee receives the remaining
option shares. If exercise/pledge directions are given, the option shares are
issued directly to a securities broker or other lender selected by the Company.
The broker or other lender will hold the shares as security and will extend
credit for up to 50% of their market value. The loan proceeds will be paid to
the Company to the extent necessary to pay the exercise price and any
withholding taxes. Any excess loan proceeds may be paid to the optionee. If the
loan proceeds are insufficient to cover the exercise price and withholding
taxes, the optionee will be required to pay the deficiency to the Company at the
time of exercise.
The amount payable on exercise of an SAR is measured by the difference
between the market value of the underlying stock at exercise and the exercise
price. SARs may, but need not, be granted in conjunction with options. An SAR
permits the participant to receive any appreciation in the value of the
underlying stock from the Company, either in shares of Common Stock, in cash or
in a combination of the two, with the Compensation Committee having the
discretion to determine the form in which such payment will be made. Upon
exercise of an SAR granted in tandem with an option, the corresponding portion
of the related option must be surrendered and cannot thereafter be exercised.
Conversely, upon exercise of an option to which an SAR is attached, the SAR may
no longer be exercised to the extent that the corresponding option has been
exercised. All options and SARs are nontransferable prior to the optionee's
death.
As noted above, the Compensation Committee determines the number or size of
restricted shares, stock units, options or SARs to be included in any award as
well as vesting and other conditions. Vesting conditions may be based on an
employee's service, his or her individual performance, the Company's performance
or other appropriate criteria. Usually, vesting conditions will be based on an
employee's service after the date of grant. Vesting may be accelerated in the
event of the employee's death, disability or retirement or in the event of a
"change in control" with respect to the Company.
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For purposes of the 1996 Stock Plan, the term "change in control" means
that (i) any person is or becomes the beneficial owner, directly or indirectly,
of at least 50% of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote in an election of Directors, (ii)
the stockholders of the Company approve a merger, consolidation or other
corporate reorganization and either the Company is not the surviving entity or,
if the Company is the surviving entity, more than 50% of the combined voting
power of the Company immediately after the merger, consolidation or
reorganization is owned by persons who were not stockholders of the Company
immediately before the merger, consolidation or reorganization, or (iii) a
greater than 50% change in the composition of the Board of Directors occurs over
a period of 24 months, if such change was not approved by a majority of the
existing Directors.
Awards under the 1996 Stock Plan may provide that if any payment (or
transfer) by the Company to a recipient would be nondeductible by the Company
for federal income tax purposes, then the aggregate present value of all such
payments (or transfers) will be reduced to an amount which maximizes such value
without causing any such payment (or transfer) to be nondeductible.
The Compensation Committee is authorized, within the provisions of the 1996
Stock Plan, to amend the terms of outstanding restricted shares or stock units,
to modify or extend outstanding options or SARs or to exchange new options for
outstanding options, including outstanding options with a higher exercise price
than the new options.
Members of the Company's Board of Directors who are not employees of the
Company are not eligible for any awards under the 1996 Stock Plan other than an
annual grant of an NSO to acquire 3,500 shares of Common Stock (subject to
antidilution adjustments) (referred to herein as an "Annual Option" - see "Item
1 -- Election of Directors -- Compensation of Directors" above). Grants of
Annual Options are made at the conclusion of each regular annual meeting of the
Company's stockholders to non-employee Directors who will continue to serve on
the Board of Directors thereafter. In addition, all new Directors receive a
one-time grant of an NSO to acquire 10,000 shares of Common Stock on the date
they take office (subject to antidilution adjustments) (referred to herein as an
"Initial Option" - see "Item 1 -- Election of Directors -- Compensation of
Directors" above). The exercise price of all options granted to non-employee
Directors under the 1996 Stock Plan is equal to the fair market value of Common
Stock on the date of grant. Annual Options become exercisable one year after the
grant (or the date of the next annual meeting of stockholders, if earlier),
while Initial Options are exercisable in 12 equal installments over a three-year
period commencing on the date of grant. In addition, all options granted to
non-employee Directors (i) vest in the event of the Director's death, total and
permanent disability or retirement after age 65, or in the event of a change in
control of the Company, and (ii) expire ten years after the date of grant, 12
months after the termination of the Director's service due to disability or
death or three months after the termination of the Director's service for any
other reason.
As of April 21, 1997, options to acquire 1,656,288 shares had been issued
under the 1996 Stock Plan and the Predecessor Plans to approximately 200
executives, Directors, employees, consultants and advisors of the Company. The
total number of shares of Common Stock reserved for issuance under the 1996
Stock Plan (as amended) and the Predecessor Plans would be 2,960,465 (subject to
anti-dilution provisions), reduced by the number of shares issued or subject to
options outstanding under the 1996 Stock Plan and the Predecessor Plans (which
numbers were 234,918 shares and options to acquire 1,061,845 shares,
respectively, on April 21, 1997, thus making available 1,663,702 shares, units,
shares underlying options and/or SARs under the 1996 Stock Plan as of April 21,
1997 if the 1996 Stock Plan is amended as provided herein). If any restricted
shares, stock units, options or SARs are forfeited, or if options or SARs
terminate for any other reason prior to exercise (other than the exercise of a
related SAR or option, and including any forfeiture or termination under the
Predecessor Plans), then shares underlying such awards again become available
for use under the 1996 Stock Plan (as of April 21, 1997, options to acquire
359,525 shares had been canceled without exercise).
The 1996 Stock Plan may be amended by the Board of Directors. Stockholder
approval is only required in those instances where mandated by applicable laws,
rules and regulations. A Registration Statement on Form S-8 has been filed with
respect to 1,860,465 shares of Common Stock available for issuance under the
1996 Stock Plan. The Company anticipates filing an additional Registration
Statement on Form S-8 with respect to the
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additional 1,100,000 shares which are the subject of the proposed increase
promptly following approval by the stockholders of this proposal.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the federal income tax consequences
of the 1996 Stock Plan, as it relates to NSOs, ISOs and share awards, is
intended to be a summary of applicable federal law. State and local tax
consequences may differ.
Options
ISOs and NSOs are treated differently for federal income tax purposes. ISOs
are intended to comply with the requirements of Section 422 of the Internal
Revenue Code of 1986 (the "Code"). NSOs need not comply with such requirements.
An optionee is not taxed on the grant or exercise of an ISO. The difference
between the exercise price and the fair market value of the shares on the
exercise date will, however, be a preference item for purposes of the
alternative minimum tax. If an optionee holds the shares acquired upon exercise
of an ISO for at least two years following grant and at least one year following
exercise, the optionee's gain, if any, upon a subsequent disposition of such
shares is long-term capital gain. The measure of the gain is the difference
between the proceeds received on disposition and the optionee's basis in the
shares (which generally equals the exercise price). If an optionee disposes of
stock acquired pursuant to exercise of an ISO before satisfying the one and
two-year holding periods described above, the optionee will recognize both
ordinary income and capital gain in the year of disposition. The amount of the
ordinary income will be the lesser of (i) the amount realized on disposition
less the optionee's adjusted basis in the stock (usually the exercise price) or
(ii) the difference between the fair market value of the stock on the exercise
date and the exercise price. The balance of the consideration received on such a
disposition will be long-term capital gain if the stock had been held for at
least one year following exercise of the ISO. The Company is not entitled to an
income tax deduction on the grant or exercise of an ISO or on the optionee's
disposition of the underlying shares after satisfying the holding period
requirement described above. If the holding periods are not satisfied, the
Company will be entitled to a deduction in the year the optionee disposes of the
shares in an amount equal to the ordinary income recognized by the optionee.
An optionee is not taxed on the grant of an NSO. On exercise, however, the
optionee recognizes ordinary income equal to the difference between the exercise
price and the fair market value of the underlying shares on the date of
exercise. The Company is entitled to an income tax deduction in the year of
exercise in the amount recognized by the optionee as ordinary income. The
Company is responsible for wage withholding on the income recognized and will
not transfer the shares on exercise until appropriate arrangements are made with
the participant to satisfy the Company's withholding obligations. Any gain on
subsequent disposition of the shares is long-term capital gain if the shares are
held for at least one year following exercise. The Company does not receive a
deduction for this gain.
Share Awards
If a participant is awarded or purchases shares, the amount by which the
fair market value of the shares on the date of award or purchase exceeds the
amount paid for the shares will be taxed to the participant as ordinary income.
The Company is entitled to a corresponding deduction. Also, the Company is
responsible for wage withholding on the income recognized and will not transfer
shares until appropriate arrangements are made with the participant to satisfy
the Company's withholding obligations. The participant's tax basis in the shares
acquired is equal to the fair market value of the shares on the date of
acquisition. Upon a subsequent sale of any shares, the participant will realize
capital gain or loss (long-term or short-term, depending on whether the shares
were held for more than one year before the sale) in an amount equal to the
difference between his or her basis in the shares and the sale price.
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If a participant is awarded or purchases shares that are subject to a
vesting schedule, the participant is deemed to receive an amount of ordinary
income equal to the excess of the fair market value of the shares at the time
they vest over the amount (if any) paid for such shares by the participant. The
Company is entitled to a deduction equal to the amount of the income recognized
by the participant. However, Code Section 83(b) permits a participant to elect,
within 30 days after the transfer to him or her of any shares subject to a
vesting schedule, to be taxed at ordinary income rates on the excess of the fair
market value of the shares at the time of the transfer over the amount (if any)
paid by the participant for such shares. If the participant makes a Section
83(b) election, any later appreciation in the value of the shares is not taxed
as ordinary income, but instead is taxed as capital gain when the shares are
sold or transferred. Once again, the participant must make suitable arrangements
with the Company so that the Company may meet its wage withholding obligations
at the time the participant recognizes ordinary income (whether because of the
Section 83(b) election or the satisfaction of vesting requirements).
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE UNDER THE
COMPANY'S 1996 STOCK PLAN.
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ITEM 3 - RATIFICATION OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of Ernst & Young LLP as the Company's independent auditors
for the fiscal year ending December 31, 1997, subject to ratification by the
stockholders. Ernst & Young LLP has audited the Company's financial statements
since the Company's inception. Representatives of Ernst & Young LLP are expected
to be present at the Annual Meeting. Such representatives will have an
opportunity to make a statement, if they desire to do so, and are expected to be
available to respond to appropriate questions.
In the event ratification is not provided, the Board of Directors will
review its future selection of the Company's independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF ERNST & YOUNG LLP
AS THE COMPANY'S INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting must be received by
the Secretary of the Company no later than January 1, 1998 in order that they
may be included in the Company's proxy statement and form of proxy relating to
that meeting.
ANNUAL REPORT AND AVAILABILITY OF FORM 10-K
The Company's 1996 Annual Report to Stockholders accompanies this Proxy
Statement. The Company's Annual Report on Form 10-K for 1996, which has been
filed with the Securities and Exchange Commission, will be provided to
stockholders of the Company, without charge, upon written request to Terence E.
McMorrow, Office of the Secretary, Trega Biosciences, Inc., 3550 General Atomics
Court, San Diego, California 92121.
OTHER MATTERS
The Company knows of no other business that will be presented at the Annual
Meeting. If any other business is properly brought before the Annual Meeting, it
is intended that proxies in the enclosed form will be voted in accordance with
the judgment of the persons voting the proxies.
Whether you intend to be present at the Annual Meeting or not, we urge you
to return your signed proxy promptly.
By order of the of Directors.
Robert S. Whitehead
President and Chief Executive Officer
May 1, 1997
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APPENDIX A
1996 STOCK INCENTIVE PLAN OF
TREGA BIOSCIENCES, INC.
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on February 7, 1996, and subsequently
approved by the Company's stockholders in March 1996. An amendment to Section
4.2(c) of the Plan was approved by the Board on October 23, 1996. An increase by
1,100,000 in the number of Common Shares available under the Plan was approved
by the Board of Directors as of April 22, 1997 (to be effective upon stockholder
approval). The Plan is effective as of the date of the Company's initial public
offering. The Plan replaces the 1992 Stock Plan of Houghten Pharmaceuticals,
Inc. and the 1995 Stock Plan of Houghten Pharmaceuticals, Inc.
The purpose of the Plan is to promote the long-term success of the Company
and the creation of stockholder value by (a) encouraging Key Employees to focus
on critical long-range objectives, (b) encouraging the attraction and retention
of Key Employees with exceptional qualifications and (c) linking Key Employees
directly to stockholder interests through increased stock ownership. The Plan
seeks to achieve this purpose by providing for Awards in the form of Restricted
Shares, Stock Units, Options (which may constitute incentive stock options or
nonstatutory stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of directors of the Company,
who shall be appointed by the Board. In addition, the composition of the
Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission may
establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may establish
for outside directors acting under plans intended to qualify for exemption
under section 162(m)(4)(C) of the Code.
The Board may also appoint one or more separate committees of the Board, each
composed of one or more directors of the Company who need not satisfy the
foregoing requirements, who may administer the Plan with respect to Key
Employees who are not considered officers or directors of the Company under
section 16 of the Exchange Act, may grant Awards under the Plan to such Key
Employees and may determine all terms of such Awards.
2.2 Committee Responsibilities. The Committee shall (a) select the Key
Employees who are to receive Awards under the Plan, (b) determine the type,
number, vesting requirements and other features and conditions of such Awards,
(c) interpret the Plan and (d) make all other decisions relating to the
operation of the Plan. The Committee may adopt such rules or guidelines as it
deems appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.
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ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Restricted Shares, Stock Units, Options and SARs awarded under the Plan shall
not exceed 2,960,465 minus the number of Common Shares that have been issued or
are subject to option under the 1992 Stock Plan of Houghten Pharmaceuticals,
Inc. or the 1995 Stock Plan of Houghten Pharmaceuticals, Inc. The limitation of
this Section 3.1 shall be subject to adjustment pursuant to Article 10.
3.2 Additional Shares. If Stock Units, Options or SARs are forfeited or if
Options or SARs terminate for any other reason before being exercised, then the
corresponding Common Shares shall again become available for Awards under the
Plan. If Restricted Shares are forfeited before any dividends have been paid
with respect to such Shares, then such Shares shall again become available for
Awards under the Plan. If Stock Units are settled, then only the number of
Common Shares (if any) actually issued in settlement of such Stock Units shall
reduce the number available under Section 3.1 and the balance shall again become
available for Awards under the Plan. If SARs are exercised, then only the number
of Common Shares (if any) actually issued in settlement of such SARs shall
reduce the number available under Section 3.1 and the balance shall again become
available for Awards under the Plan.
3.3 Dividend Equivalents. Any dividend equivalents distributed under the
Plan shall not be applied against the number of Restricted Shares, Stock Units,
Options or SARs available for Awards, whether or not such dividend equivalents
are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Key Employees (including, without limitation,
independent contractors who are not members of the Board) shall be eligible for
designation as Participants by the Committee. Key Employees who are Outside
Directors shall only be eligible for the grant of the NSOs described in Section
4.2 and for making an election described in Article 12.
4.2 Outside Directors. Any other provision of the Plan notwithstanding,
the participation of Outside Directors in the Plan shall be subject to the
following conditions:
(a) Outside Directors shall receive no Awards except as described in
this Section 4.2 and Article 12.
(b) Each Outside Director who first becomes a member of the Board
after the date of the Company's initial public offering shall receive a
one-time grant of an NSO covering 10,000 Common Shares (subject to
adjustment under Article 10). Such NSO shall be granted on the date when
such Outside Director first joins the Board and shall become exercisable in
12 equal installments at three-month intervals over the 36-month period
commencing on the date of grant.
(c) Upon the conclusion of each regular annual meeting of the
Company's stockholders held in the year 1997 or thereafter, each Outside
Director who will continue serving as a member of the Board thereafter
shall receive an NSO covering 3,500 Shares (subject to adjustment under
Article 10), except that such NSO shall not be granted in the calendar year
in which the same Outside Director received the NSO described in Subsection
(b) above. NSOs granted under the first sentence of this Subsection (c)
shall become exercisable in full on the first anniversary of the date of
grant. On October 23, 1996, each Outside Director who will continue serving
as a member of the Board thereafter shall receive an NSO covering 3,500
Shares (subject to adjustment under Article 10), except that such NSO shall
not be granted to any Outside Director who received the NSO described in
Subsection (b) above in the year 1996. NSOs granted under the immediately
preceding sentence of this Subsection (c) shall become exercisable in full
on the earlier of (1) the date of the regular annual meeting of the
Company's stockholders held in the year 1997 or (2) the first anniversary
of the date of grant.
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(d) All NSOs granted to an Outside Director under this Section 4.2
shall also become exercisable in full in the event of (i) the termination
of such Outside Director's service because of death, total and permanent
disability or retirement at or after age 65 or (ii) a Change in Control
with respect to the Company.
(e) The Exercise Price under all NSOs granted to an Outside Director
under this Section 4.2 shall be equal to 100% of the Fair Market Value of a
Common Share on the date of grant, payable in one of the forms described in
Sections 6.1, 6.2, 6.3 and 6.4.
(f) All NSOs granted to an Outside Director under this Section 4.2
shall terminate on the earliest of (i) the 10th anniversary of the date of
grant, (ii) the date three months after the termination of such Outside
Director's service for any reason other than death or total and permanent
disability or (iii) the date 12 months after the termination of such
Outside Director's service because of death or total and permanent
disability.
The Committee may provide that the NSOs that otherwise would be granted to an
Outside Director under this Section 4.2 shall instead be granted to an affiliate
of such Outside Director. Such affiliate shall then be deemed to be an Outside
Director for purposes of the Plan, provided that the service-related vesting and
termination provisions pertaining to the NSOs shall be applied with regard to
the service of the Outside Director.
4.3 Incentive Stock Options. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, a Key Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or any
of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a cash payment
or in consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that a new Option will be granted automatically to
the Optionee when he or she exercises a prior Option and pays the Exercise Price
in the form described in Section 6.2.
5.2 Number of Shares. Each Stock Option Agreement shall specify the number
of Common Shares subject to the Option and shall provide for the adjustment of
such number in accordance with Article 10. Options granted to any Optionee in a
single calendar year shall in no event cover more than 250,000 Common Shares,
subject to adjustment in accordance with Article .
5.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price; provided that the Exercise Price under an ISO shall in no event be less
than 100% of the Fair Market Value of a Common Share on the date of grant and
the Exercise Price under an NSO shall in no event be less than the par value of
the Common Shares subject to such NSO. In the case of an NSO, a Stock Option
Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the NSO is outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided that
the term of an ISO shall in no event exceed 10 years from the date of grant. A
Stock Option Agreement may provide for accelerated exercisability in the event
of the Optionee's death, disability or retirement or other events and may
provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. Options may be awarded in combination
with SARs, and such an Award may provide
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that the Options will not be exercisable unless the related SARs are forfeited.
NSOs may also be awarded in combination with Restricted Shares or Stock Units,
and such an Award may provide that the NSOs will not be exercisable unless the
related Restricted Shares or Stock Units are forfeited.
5.5 Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company.
5.6 Modification or Assumption of Options. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash at the time when such Common Shares
are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is applicable,
payment for all or any part of the Exercise Price may be made with Common Shares
which have already been owned by the Optionee for more than six months. Such
Common Shares shall be valued at their Fair Market Value on the date when the
new Common Shares are purchased under the Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
payment may be made with a full-recourse promissory note; provided that the par
value of the Common Shares shall be paid in cash.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR Agreement. Each grant of an SAR under the Plan shall be evidenced
by an SAR Agreement between the Optionee and the Company. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various SAR
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Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.
7.2 Number of Shares. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Article 10. SARs granted to any Optionee in a
single calendar year shall in no event pertain to more than 250,000 Common
Shares, subject to adjustment in accordance with Article .
7.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price.
An SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
7.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may
also be awarded in combination with Options, Restricted Shares or Stock Units,
and such an Award may provide that the SARs will not be exercisable unless the
related Options, Restricted Shares or Stock Units are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. An SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 Effect of Change in Control. The Committee may determine, at the time
of granting an SAR or thereafter, that such SAR shall become fully exercisable
as to all Common Shares subject to such SAR in the event that a Change in
Control occurs with respect to the Company.
7.6 Exercise of SARs. The exercise of an SAR shall be subject to the
restrictions imposed by Rule 16b-3 (or its successor) under the Exchange Act, if
applicable. If, on the date when an SAR expires, the Exercise Price under such
SAR is less than the Fair Market Value on such date but any portion of such SAR
has not been exercised or surrendered, then such SAR shall automatically be
deemed to be exercised as of such date with respect to such portion. Upon
exercise of an SAR, the Optionee (or any person having the right to exercise the
SAR after his or her death) shall receive from the Company (a) Common Shares,
(b) cash or (c) a combination of Common Shares and cash, as the Committee shall
determine. The amount of cash and/or the Fair Market Value of Common Shares
received upon exercise of SARs shall, in the aggregate, be equal to the amount
by which the Fair Market Value (on the date of surrender) of the Common Shares
subject to the SARs exceeds the Exercise Price.
7.7 Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.
8.1 Time, Amount and Form of Awards. Awards under the Plan may be granted
in the form of Restricted Shares, in the form of Stock Units, or in any
combination of both. Restricted Shares or Stock Units may also be awarded in
combination with NSOs or SARs, and such an Award may provide that the Restricted
Shares or Stock Units will be forfeited in the event that the related NSOs or
SARs are exercised.
8.2 Payment for Awards. To the extent that an Award is granted in the form
of newly issued Restricted Shares, the Award recipient, as a condition to the
grant of such Award, shall be required to pay the Company in cash an amount
equal to the par value of such Restricted Shares. To the extent that an Award is
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granted in the form of Restricted Shares from the Company's treasury or in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.
8.3 Vesting Conditions. Each Award of Restricted Shares or Stock Units
shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. A Stock Award Agreement may
provide for accelerated vesting in the event of the Participant's death,
disability or retirement or other events. The Committee may determine, at the
time of making an Award or thereafter, that such Award shall become fully vested
in the event that a Change in Control occurs with respect to the Company.
8.4 Form and Time of Settlement of Stock Units. Settlement of vested Stock
Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both, as determined by the Committee. The actual number of Stock
Units eligible for settlement may be larger or smaller than the number included
in the original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of Common Shares over a series of trading days.
Vested Stock Units may be settled in a lump sum or in installments. The
distribution may occur or commence when all vesting conditions applicable to the
Stock Units have been satisfied or have lapsed, or it may be deferred to any
later date. The amount of a deferred distribution may be increased by an
interest factor or by dividend equivalents. Until an Award of Stock Units is
settled, the number of such Stock Units shall be subject to adjustment pursuant
to Article 10.
8.5 Death of Recipient. Any Stock Units Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
8.6 Creditors' Rights. A holder of Stock Units shall have no rights other
than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Award Agreement.
ARTICLE 9. VOTING AND DIVIDEND RIGHTS.
9.1 Restricted Shares. The holders of Restricted Shares awarded under the
Plan shall have the same voting, dividend and other rights as the Company's
other stockholders. A Stock Award Agreement, however, may require that the
holders of Restricted Shares invest any cash dividends received in additional
Restricted Shares. Such additional Restricted Shares shall be subject to the
same conditions and restrictions as the Award with respect to which the
dividends were paid. Such additional Restricted Shares shall not reduce the
number of Common Shares available under Article 3.
9.2 Stock Units. The holders of Stock Units shall have no voting rights.
Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at
the Committee's discretion, carry with it a right to dividend equivalents. Such
right entitles the holder to be credited with an amount equal to all cash
dividends paid on one Common Share while the Stock Unit is outstanding. Dividend
equivalents may be converted into additional Stock Units. Settlement of dividend
equivalents may be made in the form of cash, in the form of Common Shares, or in
a combination of both. Prior to distribution, any dividend equivalents which are
not paid shall be subject to the same conditions and restrictions as the Stock
Units to which they attach.
ARTICLE 10. PROTECTION AGAINST DILUTION.
10.1 Adjustments. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the
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outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spinoff or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Options, SARs, Restricted Shares
and Stock Units available for future Awards under Article 3, (b) the limitations
set forth in Sections and , (c) the number of NSOs to be granted to Outside
Directors under Section 4.2, (d) the number of Stock Units included in any prior
Award which has not yet been settled, (e) the number of Common Shares covered by
each outstanding Option and SAR or (f) the Exercise Price under each outstanding
Option and SAR. Except as provided in this Article 10, a Participant shall have
no rights by reason of any issue by the Company of stock of any class or
securities convertible into stock of any class, any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class.
10.2 Reorganizations. In the event that the Company is a party to a merger
or other reorganization, outstanding Options, SARs, Restricted Shares and Stock
Units shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting and
accelerated expiration, or for settlement in cash.
ARTICLE 11. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards may
be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Common Shares
issued in settlement of Stock Units and shall, when issued, reduce the number of
Common Shares available under Article 3.
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
12.1 Effective Date. No provision of this Article shall be effective unless
and until the Board has determined to implement such provision.
12.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An
Outside Director may elect to receive his or her annual retainer payments and
meeting fees from the Company in the form of cash, NSOs, Restricted Shares,
Stock Units, or a combination thereof, as determined by the Board. Such NSOs,
Restricted Shares and Stock Units shall be issued under the Plan. An election
under this Article shall be filed with the Company on the prescribed form.
12.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The number
of NSOs, Restricted Shares or Stock Units to be granted to Outside Directors in
lieu of annual retainers and meeting fees that would otherwise be paid in cash
shall be calculated in a manner determined by the Board. The terms of such NSOs,
Restricted Shares or Stock Units shall also be determined by the Board.
ARTICLE 13. LIMITATION ON RIGHTS.
13.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee,
consultant or director of the Company, a Parent or a Subsidiary. The Company and
its Parents and Subsidiaries reserve the right to terminate the service of any
employee, consultant or director at any time, with or without cause, subject to
applicable laws, the Company's certificate of incorporation and by-laws and a
written employment agreement (if any).
13.2 Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Common Shares. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date when such certificate is
issued, except as expressly provided in Articles 8, 9 and 10.
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13.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 14. LIMITATION ON PAYMENTS.
14.1 Basic Rule. Any provision of the Plan to the contrary notwithstanding,
in the event that the independent auditors most recently selected by the Board
(the "Auditors") determine that any payment or transfer by the Company under the
Plan to or for the benefit of a Participant (a "Payment") would be nondeductible
by the Company for federal income tax purposes because of the provisions
concerning "excess parachute payments" in section 280G of the Code, then the
aggregate present value of all Payments shall be reduced (but not below zero) to
the Reduced Amount; provided that the Committee, at the time of making an Award
under this Plan or at any time thereafter, may specify in writing that such
Award shall not be so reduced and shall not be subject to this Article . For
purposes of this Article , the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
section 280G of the Code.
14.2 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article , present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article shall be binding upon the
Company and the Participant and shall be made within 60 days of the date when a
Payment becomes payable or transferable. As promptly as practicable following
such determination and the elections hereunder, the Company shall pay or
transfer to or for the benefit of the Participant such amounts as are then due
to him or her under the Plan and shall promptly pay or transfer to or for the
benefit of the Participant in the future such amounts as become due to him or
her under the Plan.
14.3 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.
14.4 Related Corporations. For purposes of this Article , the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
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ARTICLE 15. WITHHOLDING TAXES.
15.1 General. To the extent required by applicable federal, state, local or
foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
15.2 Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Common Shares that otherwise would be
issued to him or her or by surrendering all or a portion of any Common Shares
that he or she previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
Any payment of taxes by assigning Common Shares to the Company may be subject to
restrictions, including any restrictions required by rules of the Securities and
Exchange Commission.
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS.
16.1 General. Except as provided in Article , an Award granted under the
Plan shall not be anticipated, assigned, attached, garnished, optioned,
transferred or made subject to any creditor's process, whether voluntarily,
involuntarily or by operation of law. An Option or SAR may be exercised during
the lifetime of the Optionee only by him or her or by his or her guardian or
legal representative. Any act in violation of this Article shall be void.
However, this Article shall not preclude a Participant from designating a
beneficiary who will receive any outstanding Awards in the event of the
Participant's death, nor shall it preclude a transfer of Awards by will or by
the laws of descent and distribution.
16.2 Trusts. Neither this Article nor any other provision of the Plan shall
preclude a Participant from transferring or assigning Restricted Shares to (a)
the trustee of a trust that is revocable by such Participant alone, both at the
time of the transfer or assignment and at all times thereafter prior to such
Participant's death, or (b) the trustee of any other trust to the extent
approved in advance by the Committee in writing. A transfer or assignment of
Restricted Shares from such trustee to any person other than such Participant
shall be permitted only to the extent approved in advance by the Committee in
writing, and Restricted Shares held by such trustee shall be subject to all of
the conditions and restrictions set forth in the Plan and in the applicable
Stock Award Agreement, as if such trustee were a party to such Agreement.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 Term of the Plan. The Plan, as set forth herein, was originally
adopted on February 7, 1996, and became effective on the date of the Company's
initial public offering. The Plan shall remain in effect until it is terminated
under Section , except that no ISOs shall be granted after February 6, 2006.
17.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan, except that the provisions of Section 4.2
relating to the amount, price and timing of Option grants to Outside Directors
shall not be amended more often than permitted by Rule 16b-3 under the Exchange
Act. An amendment of the Plan shall be subject to the approval of the Company's
stockholders only to the extent required by applicable laws, regulations or
rules. No Awards shall be granted under the Plan after the termination thereof.
The termination of the Plan, or any amendment thereof, shall not affect any
Award previously granted under the Plan.
ARTICLE 18. DEFINITIONS.
18.1 "Award" means any award of an Option, an SAR, a Restricted Share or a
Stock Unit under the Plan.
18.2 "Board" means the Company's Board of Directors, as constituted from
time to time.
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18.3 "Change in Control" shall mean the occurrence of any of the following
events:
(a) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not stockholders of the
Company immediately prior to such merger, consolidation or other
reorganization;
(b) A change in the composition of the Board, as a result of which
fewer than one-half of the incumbent directors are directors who either:
(A) Had been directors of the Company 24 months prior to such
change; or
(B) Were elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the directors who had
been directors of the Company 24 months prior to such change and who
were still in office at the time of the election or nomination; or
(c) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) by the acquisition or aggregation of securities is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the
Company's then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at elections
of directors (the "Base Capital Stock"); except that any change in the
relative beneficial ownership of the Company's securities by any person
resulting solely from a reduction in the aggregate number of outstanding
shares of Base Capital Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until such person increases
in any manner, directly or indirectly, such person's beneficial ownership
of any securities of the Company.
The term "Change in Control" shall not include a transaction, the sole purpose
of which is to change the state of the Company's incorporation.
18.4 "Code" means the Internal Revenue Code of 1986, as amended.
18.5 "Committee" means a committee of the Board, as described in Article 2.
18.6 "Common Share" means one share of the common stock of the Company.
18.7 "Company" means Trega Biosciences, Inc., a Delaware corporation.
18.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
18.9 "Exercise Price," in the case of an Option, means the amount for which
one Common Share may be purchased upon exercise of such Option, as specified in
the applicable Stock Option Agreement. "Exercise Price," in the case of an SAR,
means an amount, as specified in the applicable SAR Agreement, which is
subtracted from the Fair Market Value of one Common Share in determining the
amount payable upon exercise of such SAR.
18.10 "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date in
question but was not traded on the Nasdaq system or the Nasdaq National
Market System, then the Fair Market Value shall be equal to the mean
between the last reported representative bid and asked prices quoted for
such date by the principal automated inter-dealer quotation system on which
the Common Shares are quoted or, if the
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Common Shares are not quoted on any such system, by the "Pink Sheets"
published by the National Quotation Bureau, Inc.;
(b) If the Common Shares were traded over-the-counter on the date in
question and were traded on the Nasdaq system or the Nasdaq National Market
System, then the Fair Market Value shall be equal to the last-transaction
price quoted for such date by the Nasdaq system or the Nasdaq National
Market System;
(c) If the Common Shares were traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.
18.11 "ISO" means an incentive stock option described in section 422(b) of
the Code.
18.12 "Key Employee" means (a) a common-law employee of the Company, a
Parent or a Subsidiary, (b) an Outside Director and (c) a consultant or advisor
who provides services to the Company, a Parent or a Subsidiary as an independent
contractor. Service as an Outside Director or as an independent contractor shall
be considered employment for all purposes of the Plan, except as provided in
Sections 4.2 and 4.3.
18.13 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
18.14 "Option" means an ISO or NSO granted under the Plan and entitling the
holder to purchase one Common Share.
18.15 "Optionee" means an individual or estate who holds an Option or SAR.
18.16 "Outside Director" shall mean a member of the Board who is not a
common-law employee of the Company, a Parent or a Subsidiary.
18.17 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
18.18 "Participant" means an individual or estate who holds an Award.
18.19 "Plan" means this 1996 Stock Incentive Plan of Trega Biosciences,
Inc., as amended from time to time.
18.20 "Restricted Share" means a Common Share awarded under the Plan.
18.21 "SAR" means a stock appreciation right granted under the Plan.
18.22 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
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18.23 "Stock Award Agreement" means the agreement between the Company and
the recipient of a Restricted Share or Stock Unit which contains the terms,
conditions and restrictions pertaining to such Restricted Share or Stock Unit.
18.24 "Stock Option Agreement" means the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her Option.
18.25 "Stock Unit" means a bookkeeping entry representing the equivalent of
one Common Share, as awarded under the Plan.
18.26 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
ARTICLE 19. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused its
duly authorized officer to affix the corporate name and seal hereto.
TREGA BIOSCIENCES, INC.
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PROXY PROXY
TREGA BIOSCIENCES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING - JUNE 11, 1997
JAMES C. BLAIR, ROBERT S. WHITEHEAD and TERENCE E. MCMORROW, or any of
them, each with the power of substitution, are hereby authorized to represent as
proxies and vote all shares of stock of Trega Biosciences, Inc. (the "Company")
that the undersigned is entitled to vote at the Annual Meeting of Stockholders
of the Company to be held at the Company's headquarters located at 3550 General
Atomics Court, San Diego, California, on Wednesday, June 11, 1997, at 9:00 a.m.,
or at any postponement or adjournment thereof, and the undersigned instructs
said proxies to vote as follows (with reference to the Proxy Statement of the
Company dated May 1, 1997):
1. Election of Directors:
<TABLE>
<CAPTION>
<S> <C>
[_] FOR all Class II and Class III nominees listed [_] WITHHOLD AUTHORITY
below (EXCEPT AS INDICATED TO THE CONTRARY BELOW) to vote for all nominees listed below
</TABLE>
Nominees: Jeremy M. Levin (Class II), Anders Wiklund (Class II), James C.
Blair (Class III), Harry D. Lambert (Class III) and Ronald R. Tuttle
(Class III)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
2. To approve the proposal to increase the number of shares of the Company's
Common Stock available for issuance under the Company's 1996 Stock
Incentive Plan:
[_] FOR [_] AGAINST [_] ABSTAIN
3. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors:
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion, upon such other business as may properly come before
the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES
INDICATED ABOVE AND FOR ITEMS 2 AND 3.
(continued and to be signed on reverse side)
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(continued from reverse side)
Shares represented by this proxy will be voted as directed by the stockholder.
IF NO SUCH DIRECTIONS ARE INDICATED, THE PROXIES WILL HAVE AUTHORITY TO VOTE FOR
THE ELECTION OF ALL NOMINEES AND FOR ITEMS 2 AND 3.
Dated __________________ , 1997
_______________________________
Signature of Stockholder
_______________________________
Signature of Stockholder
Please sign exactly as your name or names appear on this proxy. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If shares are held jointly, each holder should sign. By your signature,
you acknowledge receipt of the Company's Proxy Statement dated May 1, 1997 and
the related Notice of Annual Meeting.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
BACK
