<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
Pursuant to Section 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COCENSYS, INC.
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(Name of Registrant as Specified in its Charter)
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(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:
________________________________________________________________
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>
[LETTERHEAD]
COCENSYS, INC.
201 Technology Drive
Irvine, California 92618
May 10, 1999
Dear Stockholder:
On behalf of CoCensys, Inc. (the "Company"), I cordially invite you to
attend the 1999 Annual Meeting of Stockholders, which will begin at 2:00 p.m. on
Wednesday, June 9, 1999, at The Sutton Place Hotel, 4500 MacArthur Boulevard,
Newport Beach, California. At the meeting, stockholders will be asked to (i)
elect three directors to hold office until the 2002 Annual Meeting of
Stockholders, and (ii) ratify the selection of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31, 1999.
The accompanying Notice and Proxy Statement describe these proposals. Also
enclosed with these proxy materials is the Company's 1998 Annual Report. We
urge you to read this information carefully.
The directors and officers of the Company hope that as many stockholders as
possible will be present at the meeting. BECAUSE THE VOTE OF EACH STOCKHOLDER
IS IMPORTANT, WE ASK THAT YOU SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED, WHETHER OR NOT YOU NOW PLAN TO ATTEND THIS MEETING. This
will not limit your right to attend the meeting or to change your vote at the
meeting.
We appreciate your cooperation and interest in the Company. To assist us
in preparation for the meeting, please return your proxy card at your earliest
convenience.
Sincerely yours,
F. RICHARD NICHOL, PH.D.
Chairman of the Board, President &
Chief Executive Officer
<PAGE>
COCENSYS, INC.
201 Technology Drive
Irvine, California 92618
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 9, 1999
TO THE STOCKHOLDERS OF COCENSYS, INC.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of CoCensys,
Inc., a Delaware corporation (the "Company"), will be held on Wednesday, June 9,
1999, at 2:00 p.m., local time, at The Sutton Place Hotel, 4500 MacArthur
Boulevard, Newport Beach, California for the following purposes:
1. To elect three directors to hold office until the 2002 Annual Meeting
of Stockholders;
2. To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending December 31, 1999; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice. The Board of Directors has fixed the close of
business on April 14, 1999, as the record date for the determination of
stockholders entitled to notice of and to vote at this Annual Meeting and at any
adjournment thereof.
By Order of the Board of Directors,
ROBERT R. HOLMEN
Secretary
Irvine, California
May 10, 1999
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ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID
IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU
HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING. PLEASE NOTE, HOWEVER, THAT IF A BROKER, BANK OR OTHER NOMINEE IS THE
RECORD HOLDER OF YOUR SHARES AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
- -------------------------------------------------------------------------------
<PAGE>
COCENSYS, INC.
201 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
PROXY STATEMENT
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
CoCensys, Inc., a Delaware corporation ("CoCensys" or the "Company"), for use at
its 1999 Annual Meeting of Stockholders (the "Annual Meeting"), or at any
adjournment or postponement thereof, for the purposes set forth in this proxy
statement and in the accompanying Notice of Annual Meeting. The Annual Meeting
will be held at The Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach,
California, on June 9, 1999, at 2:00 p.m. local time. The Company intends to
mail this proxy statement and accompanying proxy card on or about May 10, 1999
to all stockholders entitled to vote at the Annual Meeting.
On April 15, 1999, the Company implemented a reverse stock split pursuant
to which each stockholder received one share of post-reverse split CoCensys
common stock for every eight shares of CoCensys common stock held prior to the
reverse stock split. All the share numbers listed in this proxy statement
reflect implementation of that reverse stock split.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Company common stock ("Common
Stock") beneficially owned by others to forward to such beneficial owners. The
Company may reimburse persons representing beneficial owners of Common Stock for
their costs of forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram or personal solicitation by directors, officers or other regular
employees of the Company. No additional compensation will be paid to directors,
officers or other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April
14, 1999 (the "Record Date"), will be entitled to notice of and to vote at the
Annual Meeting. At the close of business on the Record Date, the Company had
outstanding and entitled to vote 4,258,828 shares of Common Stock. Each holder
of record of Common Stock on such date will be entitled to one vote for each
share held on all matters to be voted upon at the Annual Meeting.
The inspector of election appointed for the meeting will separately
tabulate affirmative and negative votes, abstentions and broker non-votes.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted toward a quorum, but are not counted for any
purpose in determining whether a matter has been approved.
1.
<PAGE>
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company, at the Company's principal executive office, 201
Technology Drive, Irvine, California 92618, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
Stockholder Proposals
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 Annual
Meeting of Stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission (the "Commission") is January 14, 2000. The deadline for submitting
a stockholder proposal or a nomination for director that is not to be included
in such proxy statement and proxy is also January 14, 2000.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation, as
amended, and its Bylaws provide for the Board of Directors to be divided into
three classes of directors, with each class having a three-year term. Vacancies
on the Board may be filled by persons elected by either (i) a majority of the
then outstanding shares of stock of the Company entitled to vote generally in
the election of directors voting together as a class or (ii) a majority of the
remaining directors. Newly created directorships resulting from any increase in
the number of directors must be filled by a majority vote of the directors then
in office, unless the Board of Directors determines by resolution that the
stockholders should fill such directorships. A director elected by the Board to
fill a vacancy created by an increase in the Board of Directors is entitled to
serve for the remainder of the full term of the class of directors in which the
vacancy occurred and until such director's successor is elected and has
qualified.
The Board of Directors presently is composed of eight members. There are
three directors in the class whose term of office expires at the Annual Meeting:
James C. Blair, Ph.D., Alan C. Mendelson and Eckard Weber, M.D., each of whom
was previously elected to the Board by the stockholders. The Board has
nominated Drs. Blair and Weber and Mr. Mendelson as candidates for election to
the Board; if elected at the Annual Meeting, each of the nominees would serve
until the 2002 Annual Meeting of Stockholders and until his successor is elected
and has qualified, or until such director's earlier death, resignation or
removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of Drs. Blair and Weber and Mr. Mendelson, the three nominees named in
this proxy statement. If any nominee should be unavailable for election as a
result of an unexpected occurrence, such shares will be voted for the election
of such substitute nominee as the Board may propose. Each person nominated for
election has agreed to serve if elected, and management has no reason to believe
that any nominee will be unable to serve.
Set forth below is biographical information, including age as of the Record
Date, for each person nominated and each person whose term of office as a
director will continue after the Annual Meeting.
2.
<PAGE>
NOMINEES FOR ELECTION FOR THREE-YEAR TERMS EXPIRING AT THE 2002 ANNUAL MEETING
CLASS I DIRECTORS
JAMES C. BLAIR, PH.D.
Dr. Blair, 59, has served as a director of the Company since August 1990. He
has been a general partner of Domain Associates, a venture capital management
company, since July 1985. Dr. Blair is a director of Amylin Pharmaceuticals,
Inc., Aurora Biosciences Corporation, Cytovia, Inc., Dura Pharmaceuticals, Inc.,
Trega Biosciences, Inc., and Vista Medical Technologies, Inc. Dr. Blair holds a
B.S.E. in Electrical Engineering from Princeton University and M.S.E. and Ph.D.
degrees in Electrical Engineering from the University of Pennsylvania.
ALAN C. MENDELSON
Mr. Mendelson, 51, has served as a director of the Company since April 1994 and
served as Secretary of the Company from July 1990 to December 1997. He has been
a partner of Cooley Godward LLP, a private law firm and counsel to the Company,
since 1980, and served as managing partner of its Palo Alto office from May 1990
through March 1995 and from November 1996 to November 1997. Mr. Mendelson also
served as Acting General Counsel of Cadence Design Systems, Inc., an electronic
design automation software company, from November 1995 to June 1996. Mr.
Mendelson is currently a director of Isis Pharmaceuticals, Inc. Mr. Mendelson
received his J.D. from Harvard University in 1973.
ECKARD WEBER, M.D.
Dr. Weber, 49, was elected to the Board of Directors of CoCensys in June 1994
pursuant to the terms of the agreement governing the Company's acquisition of
Acea Pharmaceuticals, Inc. Since January 1998, Dr. Weber has been a director
and President and Chief Executive Officer of Cytovia, Inc., which was founded by
CoCensys and Dr. Weber to develop and commercialize proprietary drug screening
technology in the field of apoptosis or programmed cell death. He was the
Company's Senior Vice President, Research and Drug Discovery, from November 1995
through December 1997, and he has been a Professor of Pharmacology at the
University of California, Irvine since 1989. Dr. Weber received his Doctor of
Medicine degree from the University of Ulm School of Medicine, West Germany. He
also completed his internship at the University Hospital, University of Ulm
School of Medicine.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
CLASS II DIRECTORS
F. RICHARD NICHOL, PH.D.
Dr. Nichol, 57, joined the Company as its President, Chief Executive Officer and
a director in January 1997, and was named Chairman of the Board in November
1998. From October 1995 until joining CoCensys, Dr. Nichol was a consultant
providing clinical research and clinical data management expertise to
biopharmaceutical and pharmaceutical organizations through his firm, Nichol
Clinical Technologies Corporation. From 1975 until October 1995, he was
co-founder, President, Chief Executive Officer and a director (including serving
as Chairman of the Board from 1983 to 1990) of IBRD, Inc., which has since
become IBRD - Rostrum Global, Inc., a contract clinical research organization.
Dr. Nichol served as a Senior Research Scientist specializing in virology at the
Upjohn Company from 1967 until 1975. Dr. Nichol is a director of Cytovia, Inc.,
and of G Recordings. He earned his B.S. in Science, his M.S. in
Microbiology/Biophysics and his Ph.D. in Microbiology from Pennsylvania State
University.
3.
<PAGE>
TIMOTHY J. RINK, M.D., SC.D.
Dr. Rink, 52, has served as a director of the Company since August 1990. Dr.
Rink is Chairman of the Board of Directors, Chief Executive Officer and
President of Aurora Biosciences Corporation. From February 1990 until November
1995, he served as President, Chief Technical Officer and as a director of
Amylin Pharmaceuticals, Inc., a pharmaceutical company. From 1984 to January
1990, he served as Vice President, Research (U.K.) for SmithKline Beecham, PLC.
From 1988 to February 1990, he was a founding member of the Emerging
Technologies Committee of the Prime Minister's Advisory Council of Science and
Technology in the United Kingdom. Dr. Rink received his M.D. and Sc.D. degrees
from the University of Cambridge.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
CLASS III DIRECTORS
KELVIN W. GEE, PH.D.
Dr. Gee, 46, co-founded CoCensys in February 1989 and has been a director since
that time. He also served as Chairman of the Board of the Company from
inception until October 1991. He has served as the Company's Chief Scientific
Officer on a consulting basis since October 1991. Dr. Gee is President and
Chief Executive Officer of Zygelan, Inc. and, since July 1996, Dr. Gee has been
a Professor of Pharmacology at the University of California, Irvine, College of
Medicine. From January 1992 to July 1996, Dr. Gee was an Associate Professor of
Pharmacology at the same institution. From July 1985 to January 1992, Dr. Gee
was an Assistant and then Associate Professor of Pharmacology at the University
of Southern California. Dr. Gee received his Ph.D. in Pharmacology and
Toxicology from the University of California, Davis in 1981.
ROBERT L. ROE, M.D.
Dr. Roe, 58, has served as a director of the Company since June 1998. He has
served since 1996 as Executive Vice President, Chief Operating Officer and a
director of Cytel Corporation, a biotechnology company. From 1995 to 1996, Dr.
Roe served as Executive Vice President, Chief Operating Officer and a director
of Chugai Biopharmaceuticals, Inc., a subsidiary of Chugai Pharmaceuticals Co.,
Ltd., of Japan, and from 1976 to 1995, Dr. Roe served in a number of positions
at Syntex Corporation, a pharmaceutical company, the most recent of which was
President, Development Research Division, and Senior Vice President. Dr. Roe
received his M.D. from the University of California, San Francisco School of
Medicine and his B.A. in Biological Sciences with Honors from Stanford
University. Dr. Roe is a Fellow of the American College of Physicians and the
American College of Rheumatology.
LOWELL E. SEARS
Mr. Sears, 48, has served as a director of the Company since November 1994; he
also served as Chairman of the Board of the Company from June 1995 to November
1998. He is the Chairman and Chief Executive Officer of Sears Capital
Management, Inc., a private holding and investment company. From 1988 to April
1994, he was Chief Financial Officer of Amgen, Inc., a biotechnology company.
In addition to his role as Chief Financial Officer of Amgen, Mr. Sears served
from 1992 to 1994 as Senior Vice President, responsible for the Asia-Pacific
region. In this role, he established development, marketing and sales
capabilities in a number of countries, including Japan and the People's Republic
of China. He also served as Chief Executive Officer for the joint venture
Kirin-Amgen Inc. Mr. Sears is a director of Techne Corporation, Neose
Technologies, Inc., Dendreon, Inc., Integrated Biosystems, Inc. and Encore
Pharmaceuticals, Inc. Mr. Sears holds a B.A. in Economics from Claremont
McKenna College and an M.B.A. from Stanford University.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE
4.
<PAGE>
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998, the Board of Directors held
ten meetings. The Board has standing Audit, Compensation and Nominating
Committees.
The Audit Committee performs the following functions: it meets with the
Company's independent auditors at least annually to review the results of the
annual audit and discuss the financial statements; it recommends to the Board
whether the independent auditors should be retained; and it receives and
considers the auditors' comments as to controls, adequacy of staff and
management performance and procedures in connection with audit and financial
controls. The Audit Committee, which is currently composed of three
non-employee directors, Messrs. Sears and Mendelson and Dr. Roe, met once during
the fiscal year ended December 31, 1998. Dr. Roe joined the committee in June
1998.
The Compensation Committee sets the Company's compensation policies,
evaluates the performance and determines the compensation of executive officers
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee met twice during the fiscal year ended
December 31, 1998. It is currently composed of three non-employee directors:
Drs. Blair and Rink and Mr. Sears. In addition, Robert G. McNeil, Ph.D., who
served on the Board until June 1998, was a member of the Committee until that
time. A Non-Officer Stock Option Administration Committee, currently composed
of Dr. Nichol, was established in August 1995. Such Committee is authorized to
make stock option grants covering up to 15,000 shares each under the Company's
stock option plans to non-officer employees of the Company. Such Committee
acted 17 times during fiscal 1998.
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Board and committees thereof and nominates
specific individuals to be elected as officers of the Company by the Board. No
procedure has been established for the consideration of nominees recommended by
stockholders. The Nominating Committee is currently composed of three
non-employee directors: Dr. Blair and Messrs. Mendelson and Sears. In
addition, Dr. McNeil was a member of the Committee until June 1998. During the
fiscal year ended December 31, 1998, the Committee did not meet; its functions
were performed by the full Board during that year.
During the fiscal year ended December 31, 1998, each Board member attended
75 percent or more of the aggregate of the meetings of the Board and of the
committees on which he served that were held during the period for which he was
a director or committee member, respectively.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999, and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception in 1989.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, at which time they will have an opportunity to make a statement if they
so desire and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Board will reconsider whether
or not to retain that firm. Even if the selection is ratified, the Board in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if the Board determines that such a change would be
in the best interests of the Company and its stockholders.
5.
<PAGE>
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
MANAGEMENT
Set forth below is information regarding current executive officers of the
Company, including age as of the Record Date, April 14, 1999:
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY
- ---- -------------------------
<S> <C>
F. Richard Nichol, Ph.D. Chairman of the Board, President and Chief
Executive Officer
Joann L. Data, M.D., Ph.D. Executive Vice President, Product
Development and Regulatory Affairs
Robert R. Holmen Vice President, General Counsel and
Secretary; acting Chief Financial
Officer
Nancy C. Lan, Ph.D. Vice President, Scientific Affairs and
Intellectual Property
Kelvin W. Gee, Ph.D. Chief Scientific Officer
</TABLE>
Biographical information about Drs. Nichol and Gee is set forth under PROPOSAL 1
above.
Dr. Data, 54, has been the Company's Executive Vice President, Product
Development and Regulatory Affairs, since January 1998. Dr. Data joined the
Company in September 1996 as Senior Vice President, Regulatory Affairs, and was
promoted to Senior Vice President, Clinical Development and Regulatory Affairs,
in March 1997. From 1990 until 1996, Dr. Data held several positions at The
Upjohn Company, a pharmaceutical company, the most recent of which was Corporate
Vice President for Worldwide Pharmaceutical Regulatory Affairs and Project
Management. Previously, she held a number of positions at Hoffmann-LaRoche,
including Vice President of Clinical Research and Development, from 1985 to
1990. Dr. Data has been an adjunct assistant professor in medicine and
pharmacology at Duke University Medical Center since 1982 and at Cornell Medical
Center since 1986. She earned her M.D. from Washington University School of
Medicine and her Ph.D. in Pharmacology from Vanderbilt University.
Mr. Holmen, 35, is the Company's Vice President, General Counsel and
Secretary and is currently serving as acting Chief Financial Officer. He joined
the Company as General Counsel in November 1997, was named Secretary of the
Company in December 1997 and was promoted to Vice President and General Counsel
in October 1998. From March 1994 to October 1997, he served as Corporate
Counsel of National Education Corporation, a publicly traded company based in
Irvine, California. Prior to that, Mr. Holmen was an associate at the law firms
of Morrison & Foerster and Latham & Watkins. He received his B.S. in electrical
engineering from Stanford University and his J.D. from Boalt Hall School of Law
at the University of California, Berkeley.
Dr. Lan, 52, co-founded the Company in February 1989 and has served as its
Vice President, Scientific Affairs and Intellectual Property since August 1996.
She also served as Director of Research and Development from August through
October 1992 and Executive Director of Research and Development from October
1992 to January 1993 when she was named as Vice President, Research and Drug
Discovery. From 1987 to August 1992, she was a Research Associate Professor of
Molecular Pharmacology and Toxicology at the University of Southern California
School of Pharmacy. From July 1989 to August 1992, she was the Principal
Investigator for research sponsored by the Company at the University of Southern
California.
6.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 31, 1999 by the following
stockholders: (i) each director; (ii) each of the executive officers named in
the Summary Compensation Table later in this proxy statement; (iii) all
executive officers and directors of the Company as a group; and (iv) all those
known by the Company to be beneficial owners of more than five percent of the
Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER PERCENT
BENEFICIAL OWNER(1) OF SHARES OF TOTAL
- ---------------- --------- --------
<S> <C> <C>
Novartis AG(2)
Schwarzwaldallee 215
CH402 Basel, Switzerland...........................317,987 7.5
James C. Blair, Ph.D.(3)..............................165,038 3.8
Joann L. Data, M.D., Ph.D.(4)..........................17,343 *
Kelvin W. Gee, Ph.D.(5)................................62,334 1.5
Robert R. Holmen(6).....................................4,328 *
Peter E. Jansen(7).....................................12,686 *
Nancy C. Lan, Ph.D.(8).................................36,154 *
Alan C. Mendelson(9)...................................12,433 *
F. Richard Nichol, Ph.D.(10)...........................52,789 1.2
Timothy J. Rink, M.D., Sc.D.(11)........................8,625 *
Robert L. Roe, M.D.(12).................................1,250 *
Lowell E. Sears(13)....................................30,260 *
Eckard Weber, M.D.(14).................................63,487 1.5
All current executive officers and directors
as a group (11 persons)(15).........................454,041 10.2
</TABLE>
- -----------------------------
* Less than one percent.
(1) The table is based on information supplied by officers, directors and
principal stockholders and on Schedules 13D and 13G filed with the
Securities and Exchange Commission ("SEC"). Applicable percentages are
based on 4,258,543 shares outstanding on March 31, 1999, adjusted as
required by SEC rules and regulations. Unless otherwise indicated in the
footnotes to this table, and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned.
(2) Consists of the following shares: (i) 297,274 shares held by Novartis
Produkte AG, a subsidiary of Novartis AG; (ii) 10,037 shares held by
Sanderling Ventures Limited, L.P., over which Novartis AG has shared voting
and investment power; and (iii) 10,676 shares held by Sanderling III
Limited, L.P., over which Novartis AG has shared voting and investment
power.
(3) Dr. Blair is a director of the Company. Shares held by Dr. Blair include
2,158 shares held directly by Dr. Blair and 4,125 shares subject to stock
options exercisable within 60 days following March 31, 1999, plus the
shares held by the following entities affiliated with Domain Associates
(the "Domain Shares"): (i) 3,130 shares held by Domain Associates
("Domain"); (ii) 105,769 shares held by Domain Partners III, L.P. ("Domain
III") and 42,308 shares issuable to Domain III on exercise of warrants;
(iii) 3,701 shares held by DP III Associates, L.P. ("DP III") and 1,481
shares issuable to DP III on exercise of warrants; and (iv) 2,366 shares
issuable to Domain Partners II, L.P. ("Domain II") on exercise of warrants.
Dr. Blair is a general partner of Domain, and is a general partner in the
general partner of each of Domain II, Domain III and DP III. Dr. Blair has
voting and investment power with respect to, and may be deemed beneficial
7.
<PAGE>
owner of, the Domain Shares. Dr. Blair disclaims beneficial ownership of
the Domain Shares, and any proceeds thereof, that exceed his pecuniary
interest therein and/or that are not actually distributed to him.
(4) Dr. Data is the Company's Executive Vice President, Product Development and
Regulatory Affairs. Shares listed include 15,782 shares subject to stock
options exercisable within 60 days following March 31, 1999.
(5) Dr. Gee is the Company's Chief Scientific Officer and a director. Shares
listed include 4,125 shares subject to stock options exercisable within 60
days following March 31, 1999, 2,100 shares held by members of Dr. Gee's
immediate family and 10,129 shares held in the Kelvin & Kay Gee Living
Trust.
(6) Mr. Holmen is the Company's Vice President, General Counsel and Secretary.
Shares listed include 4,328 shares subject to stock options exercisable
within 60 days following March 31, 1999.
(7) Mr. Jansen was the Company's Vice President and Chief Financial Officer
until September 22, 1998. Shares listed include 10,352 shares subject to
stock options exercisable within 60 days following March 31, 1999.
(8) Dr. Lan is the Company's Vice President, Scientific Affairs and
Intellectual Property. Shares listed include 2,500 shares held by Dr. Lan
as Custodian for a family member and 26,225 shares subject to stock options
exercisable within 60 days following March 31, 1999.
(9) Mr. Mendelson is a director of the Company. Shares listed include the
following: (i) 8,625 shares subject to stock options exercisable within 60
days following March 31, 1999; (ii) 50 shares held in trust for the benefit
of Mr. Mendelson's children, for which Mr. Mendelson's spouse is trustee;
(iii) 1,673 shares held by CGCH&T Profit Sharing Trust FBO Mr. Mendelson
(the "Mendelson Trust"); (vi) 1,815 shares held by Cooley Godward LLP, of
which Mr. Mendelson is a partner; and (v) 270 shares issuable pursuant to
warrants held in the Mendelson Trust. Mr. Mendelson disclaims beneficial
ownership of shares held in trust for the benefit of his children. Mr.
Mendelson also disclaims beneficial ownership of shares held by Cooley
Godward LLP, except to the extent of his pecuniary interest therein.
(10) Dr. Nichol is President, Chief Executive Officer and Chairman of the Board
of the Company. Shares listed include 50,039 shares subject to stock
options exercisable within 60 days following March 31, 1999.
(11) Dr. Rink is a director of the Company. Shares listed include 8,625 shares
subject to stock options exercisable within 60 days following March 31,
1999.
(12) Dr. Roe is a director of the Company. Shares listed include 625 shares
subject to stock options exercisable within 60 days following March 31,
1999.
(13) Mr. Sears is a director of the Company. Shares listed include the
following: (i) 18,187 shares held in The Sears Living Trust dated March
11, 1991 (the "Sears Trust"); (ii) 11,573 shares subject to stock options
exercisable within 60 days following March 31, 1999; and (iii) 500 shares
issuable pursuant to warrants held in the Sears Trust.
(14) Dr. Weber is a director of the Company. Shares listed include 24,329
shares subject to stock options exercisable within 60 days following March
31, 1999.
(15) Includes 158,401 shares subject to stock options exercisable within 60 days
following March 31, 1999 and 46,925 shares issuable pursuant to warrants
held by directors or entities affiliated with such directors. See Notes
(3) through (6) and (8) through (14) above.
8.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) ("Section 16(a)") of the Exchange Act requires the Company's
directors and executive officers, and persons who own more that 10 percent of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater
than 10 percent stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with except for the
following: (i) in April 1998, Robert G. McNeil, Ph.D., (former director and
greater than 10 percent beneficial owner), and Sanderling Biomedical, L.P.
(affiliated with Dr. McNeil) filed a Form 4 reporting an October 1997 pro rata
distribution to a limited partner of Sanderling Biomedical, L.P.; and (ii) in
April 1998, Dr. Blair filed an amended Form 4 correcting the number of shares
held directly by Dr. Blair that had been reported on his Form 4 for October
1997.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives a fee of $2,500 for each
meeting of the Board attended by such director in person and $500 for each
telephonic meeting of the Board. In addition, each non-employee director of the
Company receives a fee of $500 for each committee meeting attended by such
director unless the committee meeting is held in conjunction with a regular or
telephonic meeting of the full Board, in which case no additional fee is paid.
The Chairman of the Board, if he or she is a not an employee of the Company,
receives an additional $500 per month. Directors may elect to receive meeting
fees in the form of cash or shares of Company common stock, based on the market
value of such stock at the time of each meeting. During 1998, Dr. Blair and Mr.
Mendelson elected to receive meeting fees in the form of Company common stock;
all other non-employee directors received their fees in cash. All non-employee
directors are reimbursed for expenses incurred in connection with attendance at
meetings of the Board of Directors and committees thereof in accordance with
Company policy.
In addition, each non-employee director of the Company receives stock
options under the 1992 Non-Employee Directors' Stock Option Plan, as amended
(the "Directors' Plan"). Option grants under the Directors' Plan are automatic
and non-discretionary. Each non-employee director receives an option to
purchase 2,500 shares when he or she is first elected to the Board, which option
(I) is granted with an exercise price equal to 100 percent of the fair market
value of the stock on the date of grant, (ii) vests in five equal installments
over a period of five years, and (iii) expires ten years from the date of grant
or three months after termination of an optionee's services as non-employee
director of the Company (12 months in the event of death of the director).
Non-employee directors also receive annual grants of options to purchase 1,000
shares (1,500 shares in the case of a non-employee Chairman of the Board).
Annual grants have an exercise price equal to 100 percent of the fair market
value of the stock on the date of grant, vest in full one year from the date of
grant and expire ten years from the date of grant or three months after
termination of an optionee's services as non-employee director of the Company
(12 months in the event of death of the director). Vesting of options is
suspended in any year that the non-employee director fails to attend at least 75
percent of the Board meetings and the meetings of Board committees of which he
is a member.
The Directors' Plan provides that, in the event of a merger or
consolidation in which the Company is not the surviving corporation, a reverse
merger in which the Company's common stock is converted into other property or
any other capital reorganization involving a change in control of the Company,
then the time during which such options may be exercised will be accelerated and
the options terminated if not exercised prior to such event.
9.
<PAGE>
From October 1996 until November 1998 (when Mr. Sears stepped down as
Chairman of the Board), Mr. Sears and the Company were parties to an agreement
pursuant to which Mr. Sears was paid $3,300 per eight-hour day for additional
services performed as Chairman, payable one-third in cash and two-thirds in
common stock of the Company. Mr. Sears did not receive any compensation under
this agreement in the fiscal year ended December 31, 1998.
Directors, including the Chairman of the Board, who are employees of the
Company do not receive separate compensation for their services as directors.
COMPENSATION OF EXECUTIVE OFFICERS
In addition to cash compensation, the Company's executive officers are
eligible to receive stock options and other stock awards under the 1996 Equity
Incentive Plan (the "Equity Plan") and to receive stock options under the 1990
Stock Option Plan (the "1990 Plan").
The Equity Plan provides for grants of incentive stock options ("ISOs"),
nonstatutory stock options ("NSOs"), stock appreciation rights, rights to
purchase restricted stock and stock bonuses to employees (including officers),
directors and consultants, although ISOs may be granted only to employees
(including officers). The Equity Plan provides that, in the event of
dissolution or liquidation of the Company or specified types of mergers or other
corporate reorganizations, any surviving corporation is required to either
assume awards outstanding under the Equity Plan or substitute similar awards;
otherwise, outstanding awards will continue in full force and effect. If any
surviving corporation declines to assume, substitute or continue awards
outstanding under the Equity Plan, then the time during which such awards may be
exercised will be accelerated and the awards terminated if not exercised during
such time.
The 1990 Plan provides for grants of ISOs and NSOs to employees (including
officers), directors and consultants, although ISOs may be granted only to
employees (including officers). The 1990 Plan provides that, in the event of
dissolution, liquidation or sale of substantially all of the assets of the
Company, a merger or consolidation in which the Company is not the surviving
corporation or a reverse merger in which the Company is the surviving
corporation but the shares of the Common Stock outstanding immediately preceding
the merger are converted by virtue of the merger into other property, whether in
the form of securities, cash or otherwise, then to the extent permitted by
applicable law: (i) any surviving corporation must assume any options
outstanding under the 1990 Plan or must substitute similar options for those
outstanding under the 1990 Plan, or (ii) such options will continue in full
force and effect. If any surviving corporation refuses to assume or continue
such options, or to substitute similar options for those outstanding under the
1990 Plan, then the time during which such options may be exercised will be
accelerated and the options terminated if not exercised prior to such event.
10.
<PAGE>
The following table shows for the fiscal years ended December 31, 1998,
1997 and 1996, certain compensation awarded or paid to or earned by the
Company's Chief Executive Officer and its other four most highly compensated
executive officers at December 31, 1998 (the "Named Executives Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------- AWARDS/
SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS UNDERLYING COMPENSATION
POSITION YEAR ($) ($) OPTIONS (#) ($)
- ----------------------------------- -------- -------------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
F. Richard Nichol, Ph.D.(1) 1998 282,375 54,000 37,657 1,000(2)
President and Chief Executive 1997 251,654 100,000 71,250 3,200(2)
Officer
Peter E. Jansen(3) 1998 188,526(4) 22,500 -- 209,245(5)
Former Vice President and 1997 179,010 20,000 2,500 35,300(6)
Chief Financial Officer 1996 72,917 28,229 14,375 28,193(7)
Nancy C. Lan, Ph.D. 1998 167,333 15,000 2,875 1,333(2)
Vice President, Scientific 1997 159,069 35,000 2,563 3,181(2)
Affairs and Intellectual 1996 145,294 37,210 11,875 1,453(2)
Property
Joann L. Data, M.D., Ph.D.(8) 1998 225,000 30,000 9,375 63,310(9)
Executive Vice President, 1997 203,820 50,000 6,250 105,116(10)
Product Development and 1996 66,667 56,667 15,000 60,410(11)
Regulatory Affairs
Robert Holmen(12) 1998 117,567 16,000 3,750 1,580(2)
Vice President, General 1997 17,029 4,928 6,250 --
Counsel and Secretary
</TABLE>
(1) Dr. Nichol joined the Company on January 29, 1997.
(2) Consists of 401(k) employer matching contributions.
(3) Mr. Jansen joined the Company on August 1, 1996 and separated from the
Company September 22, 1998.
(4) Includes $7,772 in vacation payout at termination and $48,581 in severance
pay.
(5) Consists of $2,793 in 401(k) employer matching funds, cancellation of
indebtedness and related interest of $101,058 and tax gross up of $105,394.
(6) Consists of $2,691 in 401(k) employer matching funds, cancellation of
indebtedness and related interest of $17,254, and tax gross up of $15,355.
(7) Consists of relocation expenses of $10,208 and tax gross ups.
(8) Dr. Data joined the Company on September 1, 1996.
(9) Consists of $2,857 in 401(k) employer matching funds, cancellation of
indebtedness and related interest of $29,592 and tax gross up of $30,861.
(10) Consists of $2,034 in 401(k) employer matching funds, cancellation of
indebtedness and related interest of $27,126, relocation expenses of
$27,415, and tax gross up of $48,541.
(11) Consists of relocation expenses of $13,127 and tax gross ups.
(12) Mr. Holmen joined the Company on November 10, 1997.
11.
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The following tables show for the fiscal year ended December 31, 1998,
certain information regarding options granted to, exercised by and held at year
end by the Named Executive Officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO OR BASE TERM(2)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------------------- ------------- ------------ -------- ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
F. Richard Nichol, Ph.D. 37,657 16.94 9.00 09/15/08 213,136 540,129
Peter E. Jansen -- -- -- -- -- --
Nancy C. Lan, Ph.D. 2,875 1.29 9.00 09/15/08 16.273 41,238
Joann L. Data, M.D., Ph.D. 9,375 4.22 9.00 09/15/08 53,063 134,472
Robert R. Holmen 3,750 1.69 9.00 09/15/08 21,225 53,789
</TABLE>
- --------------------------------
(1) All options granted in this table vest at the rate of 25 percent six months
following grant, 25 percent on the first anniversary date of grant and
1/48th of the original amount per month thereafter over the next 24 months
so that the grant is fully vested three years from the date of grant. The
options continue in full force and effect upon a change in control, as
defined in the Company's option plans, unless the acquiring company refuses
to continue or assume the options or to substitute similar options, in
which event the vesting of such options is accelerated. In addition, if
the Named Executive Officer is terminated in connection with a change in
control of the Company, the vesting of such options is accelerated as of
the date of termination. See "Employment and Severance Agreements" below.
(2) The potential realizable value is calculated based on the term of the
option at its time of grant (10 years). It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term of the option, and that the
option is exercised and sold on the last day of its term for the
appreciated stock price. No gain to the optionee is possible unless the
stock price increases over the option term.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS
SHARES UNDERLYING UNEXERCISED AT FY-END ($)
ACQUIRED ON VALUE OPTIONS AT FY-END (#) EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE
- --------------------------------- ------------ ------------ ------------------------- --------------------
<S> <C> <C> <C> <C>
F. Richard Nichol, Ph.D. -- -- 30,704/78,204 0/0
Peter E. Jansen -- -- 8,594/8,282 0/0
Nancy C. Lan, Ph.D. -- -- 24,224/6,665 0/0
Joann L. Data, M.D., Ph.D. -- -- 9,766/20,860 0/0
Robert R. Holmen -- -- 1,823/8,178 0/0
</TABLE>
12.
<PAGE>
EMPLOYMENT AND SEVERANCE AGREEMENTS
In January 1997, the Company entered into a severance agreement with Dr.
Nichol which provides that, if Dr. Nichol's employment is terminated without
cause, the Company will continue payment of Dr. Nichol's base salary for a
period of six months. In November 1997, the Board approved a severance
agreement for Dr. Data which provides the following benefits if Dr. Data's
employment is terminated without cause: (i) the Company will continue payment
of Dr. Data's base salary for a period of six months; (ii) the Company will pay
Dr. Data her pro-rated target bonus through her termination date; (iii) options
to acquire Company common stock held by Dr. Data will continue to vest during
the salary continuation period, with 50% of any unvested options accelerating at
the end of the salary continuation period and vested options remaining
exercisable for three years beyond Dr. Data's termination date; and (iv) any
remaining principal balance and interest due on Dr. Data's housing loan will be
forgiven.
In December 1997, the Board of Directors approved a severance arrangement
available to the executive officers of the Company (including the President and
Chief Executive Officer, the Vice Presidents and the General Counsel) upon
termination of employment in connection with a change in control of the Company.
A termination is deemed to have occurred in connection with a change in control
if the executive is terminated without cause during the period beginning three
months prior to and ending 15 months after one of the following events: (a)
dissolution, liquidation or sale of substantially all of the assets of the
Company; (b) a reorganization, merger or consolidation of the Company in which
the Company is not the surviving entity; (c) a reorganization, merger or
consolidation of the Company in which the Company is the surviving entity but a
person or group of persons other than the existing stockholders control the
Company following the event; or (d) at such time that a person or group of
persons acquires a controlling interest in the Company through a tender or
exchange offer. Under the arrangement, eligible officers receive the following
benefits: (i) base salary and target bonus continuation for 12 months (24
months for the President and Chief Executive Officer); (ii) acceleration of
options not vested as of the termination date, which vested options will remain
exercisable for two years after the end of the salary continuation period; and
(iii) continued payment by the Company of its share of the executive's health
insurance premiums under COBRA for up to 18 months, so long as the executive
continues to pay his or her share of the premiums.
In March 1998, the Board of Directors approved a severance arrangement
available to the executive officers of the Company (including the President and
Chief Executive Officer, the Vice Presidents and the General Counsel) upon
termination of employment without cause (other than in connection with a change
in control of the Company that entitles the executives to benefits under the
preceding arrangement). Under this arrangement, eligible officers receive the
following benefits: (i) base salary continuation for six months (12 months for
the President and Chief Executive Officer); (ii) payment of target bonus through
the date of termination; and (iii) continued payment by the Company of its share
of the executive's health insurance premiums under COBRA for the salary
continuation period so long as the executive continues to pay his or her share
of the premiums. An executive becomes eligible for benefits under this
arrangement only after completing six months of service to the Company; in
addition, for the period from six months after the executive joins the Company
until the executive has been with the Company for one year, the salary
continuation period is reduced by 50%.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently is composed
of Drs. Blair and Rink and Mr. Sears. In addition, Dr. McNeil served on the
committee until June 1998. Dr. McNeil served as the Company's Chief Executive
Officer from February 1989 to October 1991. There are no compensation committee
interlocks between any executive officer of the Company and any entity whose
directors or executive officers serve on the Company's Board or Compensation
Committee.
In January 1998, the Company announced the formation of Cytovia, Inc.
("Cytovia"), as a separate, stand-alone venture to develop and commercialize
drug discovery and screening technology in the field of apoptosis or programmed
cell death. Dr. Weber left employment with the Company to join Cytovia as its
President and Chief Executive Officer and as a director. Dr. Weber remains on
the Board of the Company and will continue to consult
13.
<PAGE>
on and oversee the Company's research program with Warner-Lambert Company under
the terms of a Consulting Agreement entered into by Dr. Weber and the Company
effective January 1, 1998.
On March 25, 1998, the Company entered into an Assignment Agreement with
Cytovia pursuant to which the Company assigned certain technology to Cytovia in
exchange for (i) a share of revenues realized by Cytovia on commercialization of
a segment of that technology and (ii) a license back to the Company of certain
rights to the technology to develop products for central nervous system
disorders. In addition, pursuant to an Option, Services and Release Agreement
entered into on that same date, Cytovia granted to CoCensys, among other things,
a right of first refusal to enter into a license agreement with Cytovia to
develop and commercialize any Cytovia technology for central nervous system
disorders.
On March 27, 1998, the Company and Dr. Weber entered into separate
Founder's Stock Purchase Agreements with Cytovia, pursuant to which the Company
and Dr. Weber acquired, respectively, approximately 55% and 45% of the initial
common stock of Cytovia. On that date, Cytovia completed the sale of preferred
stock to a number of equity investors, including without limitation the
following investors: Dr. Weber; Dr. Nichol; The Sears Living Trust dated March
11, 1991, for which Mr. Sears is a Trustee; and Domain Partners III, L.P. and DP
III Associates, L.P., for each of which Dr. Blair is a general partner in the
general partner. In connection with the foregoing, the Company and Dr. Weber
(as founding stockholders) and the preferred stock equity investors (including
all those listed above) entered into an Investor Rights Agreement and a Voting
Agreement; under the Voting Agreement, Drs. Weber, Nichol and Blair, among
others, have been named to the Board of Directors of Cytovia.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION(1)
The Compensation Committee (the "Committee") of the Company's Board of
Directors sets the Company's compensation policies and evaluates the performance
and determines the compensation of executive officers. During the year ended
December 31, 1998, the Committee was comprised of Dr. Blair (Chairman), Dr. Rink
and Mr. Sears; Dr. McNeil also was a member until June 1998. The Committee
attempts to design compensation policies that will attract and retain the
highest quality executives, reward them for the Company's progress and motivate
them to enhance long-term stockholder value. The key components of the
Company's executive officer compensation program are base salary, bonuses and
stock options grants.
EXECUTIVE OFFICER COMPENSATION. In evaluating the Company's executive
officers and making compensation decisions, the Committee makes a subjective
assessment of a variety of factors, both corporate and individual. These
factors include, in order of importance, the following: the progress of the
Company toward its identified objectives; the individual contributions to the
Company by each officer, determined by the extent to which each officer achieves
certain impact goals established by the Committee ("Impact Goals"); and the
compensation paid by selected biotechnology companies to individuals in
comparable positions. The companies examined may, but need not, include those
comprising the H&Q Biotechnology Index. The weight of these factors in the case
of a particular individual's compensation may vary. When using comparative
data, the Committee attempts to set compensation levels in the mid-range of
management compensation at the companies examined. In awarding stock options,
the Committee considers the number and value of an executive officer's
outstanding stock options.
As the Company has developed, the measures of its progress have changed,
and the Committee expects them to continue to change. Currently, significant
measures of progress for the Company include the following: (i) advancing the
Company's lead products through development and clinical testing, (ii)
recruiting a high quality management team, (iii) planning and entering into
appropriate collaborative arrangements with larger pharmaceutical and
biotechnology companies to research, develop and commercialize the Company's
technology, and (iv) generating revenues and securing capital sufficient to
enable the Company to complete development and achieve significant revenues.
The Impact Goals include these factors.
14.
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION. F. Richard Nichol, Ph.D., was hired
as the Company's President and Chief Executive Officer in January 1997. His
base salary for 1998 of $285,000 was established by the Committee in December
1997, and represented an increase over his 1997 salary of $270,000. The
Committee provided Dr. Nichol the increase based on his and the Company's
achievements in 1997, including completion of Phase I and Phase II clinical
trials for certain of the Company's compounds, entering into a collaboration
agreement with the Wyeth-Ayerst Laboratories Division of American Home Products
Corporation for the Company's lead anxiolytic compound, entering into an
agreement with the Parke-Davis Pharmaceutical Division of Warner-Lambert Company
to amend and extend the companies' 1995 collaboration agreement, and
consummating sale of the Company's sales and marketing division to Watson
Laboratories, Inc.
For 1998, the Committee established a target bonus for Dr. Nichol of 35% of
his base salary, which would be awarded based on Dr. Nichol and the Company
achieving certain goals for 1998. Those goals consisted of (i) achieving
certain research and development milestones for the Company's compounds, (ii)
achieving certain levels of overall financial performance for the Company, (iii)
achieving certain levels of financial support and performance from research and
drug discovery and (iv) creating multiple contingent plans for rapid
implementation following receipt of significant trial results,
In December 1998, the Committee determined that Dr. Nichol was eligible to
receive his full target bonus for 1998, based on his and the Company's
achievements in 1998, including the following: (i) completing the Company's
Phase II clinical trial for ganaxolone in a timely, cost efficient manner; (ii)
preparing and rapidly implementing an appropriate contingency plan upon receipt
of those Phase II results in order to stabilize the Company and position the
Company for future growth; and (iii) continuing to improve the finances of the
Company through completion of the Cytovia spin-off, further reduction of
expenses and active pursuit of SBIR and other government grant funds. However,
in order to balance the need of the Company to retain and properly compensate
its employees with the Company's current financial condition, the Committee
determined to reduce all bonus awards to Company officers, including Dr. Nichol,
by one-half. Therefore, Dr. Nichol's final bonus award for 1998 was $54,000.
Also, in September 1998, the Committee awarded Dr. Nichol an option to acquire
37,657 shares of Company common stock under the Company's 1996 Equity Incentive
Plan at the fair market value of such stock on the date of grant, vesting over
three years.
For 1999, the Committee awarded Dr. Nichol a 5% pay increase to $299,250
per year. Dr. Nichol is again eligible for a target bonus of 35% of his
compensation; also, the Committee approved an additional, one-time bonus program
in 1999 whereby the officers, including Dr. Nichol, will be eligible to receive
the remaining one-half of their 1998 bonuses upon achievement of certain
extraordinary Company goals.
LIMITS ON DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") limits the Company to a deduction
for federal income tax purposes of no more than $1 million of compensation paid
to certain Named Executive Officers in a taxable year. Compensation above $1
million may be deducted if it is "performance-based compensation" within the
meaning of the Code. Compensation received by Named Executive Officers on
exercise of stock options granted under the 1996 Equity Incentive Plan and under
the 1990 Stock Option Plan, as amended, in each case with exercise prices at
least equal to the fair market value of the Common Stock on the date of grant,
is considered performance-based compensation deductible by the Company under the
Code.
COMPENSATION COMMITTEE
James C. Blair, Ph.D.
Timothy J. Rink, M.D., Sc.D.
Lowell E. Sears
(1) THIS SECTION IS NOT "SOLICITING MATERIAL," IS NOT DEEMED "FILED" WITH THE
SEC AND IS NOT TO BE INCORPORATED BY REFERENCE IN ANY FILING OF THE COMPANY
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE
EXCHANGE ACT WHETHER MADE BEFORE OR AFTER THE DATE HEREOF AND IRRESPECTIVE OF
ANY GENERAL INCORPORATION LANGUAGE IN ANY SUCH FILING.
15.
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
The following chart shows the value of an investment of $100 on December
31, 1993 in the Nasdaq Stock Market-U.S. Index, the H&Q Biotechnology Index and
the Company's Common Stock:
COMPARISON OF TOTAL CUMULATIVE RETURN ON INVESTMENT
<TABLE>
<CAPTION>
Nasdaq Stock H&Q Bio-
Date CoCensys Market-U.S. Index technology Index
- ---- ------- ----------------- ----------------
<S> <C> <C> <C>
December 31, 1993 100.00 100.00 100.00
December 31, 1994 75.00 97.75 95.00
December 31, 1995 200.00 138.26 161.59
December 31, 1996 143.75 170.01 149.10
December 31, 1997 85.93 208.58 150.92
December 31, 1998 7.81 293.21 229.82
</TABLE>
(1) THIS SECTION IS NOT "SOLICITING MATERIAL," IS NOT DEEMED "FILED" WITH THE
SEC AND IS NOT TO BE INCORPORATED BY REFERENCE IN ANY FILING OF THE COMPANY
UNDER THE SECURITIES ACT OR THE EXCHANGE ACT WHETHER MADE BEFORE OR AFTER THE
DATE HEREOF AND IRRESPECTIVE OF ANY GENERAL INCORPORATION LANGUAGE IN ANY SUCH
FILING.
CERTAIN TRANSACTIONS
LOANS TO OFFICERS
In January 1997, in connection with her relocation to California, the
Company made a housing loan in the principal amount of $100,000 to Dr. Data.
The loan bears interest at the rate of 8.5% per year. The loan is repayable
(forgivable) over four years in equal monthly installments. As of March 31,
1999, principal in the amount of $50,072 was outstanding on the loan.
In May 1997, in connection with his relocation to California, the Company
made a housing loan in the principal amount of $100,000 to Mr. Jansen. In
accordance with the terms of his employment, the outstanding principal balance
and accrued interest on the loan were forgiven in connection with his separation
from the Company on September 22, 1998.
16.
<PAGE>
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officers and directors, under the circumstances and to the extent provided
therein, for expenses, damages, judgments, fines and settlements he or she may
be required to pay in actions or proceedings which he or she is or may be made a
party because he or she is a director, officer or other agent of the Company,
and otherwise to the full extent permitted under Delaware law and the Company's
Bylaws.
ADDITIONAL TRANSACTIONS
In fiscal year ended December 31, 1998, the Company paid Dr. Gee $111,064
as Chief Scientific Officer, which payments covered his services as Chief
Scientific Officer from January 1, 1998 through June 30, 1999. The payments
were made under a consulting agreement with Dr. Gee pursuant to which Dr. Gee
must pay back to the Company any royalties received from any university or other
institution for rights to technology invented or developed by Dr. Gee as the
Company's Chief Scientific Officer (capped at the aggregate amount paid by the
Company to Dr. Gee under the consulting agreement).
See "Compensation Committee Interlocks and Insider Participation" above for
additional transactions.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors,
ROBERT R. HOLMEN
May 10, 1999 Secretary
17.
<PAGE>
COCENSYS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 1999
The undersigned hereby appoints LOWELL E. SEARS and F. RICHARD NICHOL, PH.D.,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of CoCensys, Inc. which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
CoCensys, Inc. to be held at The Sutton Place Hotel, 4500 MacArthur Boulevard,
Newport Beach, California on Wednesday, June 9, 1999, at 2:00 p.m., local time,
and at any and all continuations and adjournments thereof, with all powers that
the undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2 AS MORE SPECIFICALLY DESCRIBED
IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL
BE VOTED IN ACCORDANCE THEREWITH. THE BOARD OF DIRECTORS OF THE COMPANY
RECOMMENDS A VOTE IN FAVOR OF ALL OF THE NOMINEES LISTED IN PROPOSAL 1 AND FOR
APPROVAL OF PROPOSAL 2.
(CONTINUED ON OTHER SIDE)
- --------------------------------------------------------------------------------
/X/ Please mark your vote as in this example.
PROPOSAL 1: To elect three directors to hold office until the 2002 Annual
Meeting of Stockholders.
<TABLE>
<S> <C> <C>
/ / FOR all nominees / / WITHHOLD Nominees:
listed at right AUTHORITY to vote James C. Blair, Ph.D.
(except as marked to for all nominees listed Alan C. Mendelson
the contrary below). at right. Eckard Weber, M.D.
To withhold authority to vote for any nominee(s), write such nominee(s)' name(s) below:
---------------------------------------------------------------------------------------
</TABLE>
PROPOSAL 2: To ratify selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending December 31,
1999.
<TABLE>
<S> <C> <C>
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE, WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES. THANK YOU.
Signature(s): Date:
--------------------------------------- ---------------------
Note: Please sign exactly as your name appears hereon. If the stock is
registered in the names of two or more persons, each should sign.
Executors, administrators, trustees, guardians and attorneys-in-fact
should add their titles. If signer is a corporation, please give full
corporate name and have a duly authorized officer sign, stating title.
If signer is a partnership, please sign in partnership name by
authorized person.
