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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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
INHALE THERAPEUTIC SYSTEMS
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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)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(4) Date Filed:
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"PRELIMINARY COPY"
INHALE THERAPEUTIC SYSTEMS, INC.
150 INDUSTRIAL ROAD
SAN CARLOS, CA 94070
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 6, 2000
------------------------
TO THE STOCKHOLDERS OF INHALE THERAPEUTICS SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of INHALE
THERAPEUTIC SYSTEMS, INC., a Delaware corporation (the "Company"), will be held
on Tuesday, June 6, 2000 at 10:00 A.M. local time at the Company's executive
office located at 150 Industrial Road, San Carlos, California 94070 for the
following purposes:
(1) To elect three directors to hold office until the 2003 Annual Meeting of
Stockholders.
(2) To approve the amendment and restatement of the Company's 1994 Equity
Incentive Plan, which as amended, is entitled the 2000 Equity Incentive
Plan, and to increase the aggregate number of shares of common stock
authorized for issuance under such plan by 500,000 shares.
(3) To approve an amendment to the Company's Certificate of Incorporation to
increase the authorized number of shares of Common Stock from 50,000,000
shares to 300,000,000 shares.
(4) To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 2000.
(5) To transact such other business as may properly come before the meeting
or any adjournment or postponement 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 20, 2000 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
[/S/ STEPHEN L. HURST]
Stephen L. Hurst
SECRETARY
San Carlos, California
May 5, 2000
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 YOUR SHARES ARE
HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT
THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR
NAME.
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INHALE THERAPEUTIC SYSTEMS, INC.
150 INDUSTRIAL ROAD
SAN CARLOS, CA 94070
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 6, 2000
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Inhale Therapeutic Systems, Inc., a Delaware corporation, for use at the Annual
Meeting of Stockholders to be held on June 6, 2000, at 10:00 A.M. local time, or
at any adjournment or postponement thereof, for the purposes set forth herein
and in the accompanying Notice of Annual Meeting. The Annual Meeting will be
held at the Company's executive office located at 150 Industrial Road, San
Carlos, California 94070. The Company intends to mail this proxy statement and
accompanying proxy card on or about May 5, 2000, to all stockholders entitled to
vote at the Annual Meeting.
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 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 20, 2000 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on April 20, 2000 the Company had outstanding and
entitled to vote 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.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effects as negative votes. Except for Proposal 3, broker non-votes
will be counted towards a quorum, but will not be counted for any purpose in
determining whether a matter has been approved. With respect to Proposal 3,
abstentions and broker non-votes will have the same effect as negative votes.
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 executive office, 150 Industrial Road,
San Carlos, California 94070, a written notice of revocation or a duly executed
proxy
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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 2001 Annual
Meeting of Stockholders pursuant to Rule 14a-8, of the Securities and Exchange
Act of 1934 (the "Exchange Act") is January 4, 2001. The deadline for submitting
a stockholder proposal or a nomination for director that is not to be included
in such proxy statement and form of proxy is no earlier than the close of
business on March 8, 2001 and no later than the close of business on April 7,
2001. Stockholders are also advised to review the Company's Bylaws, which
contain additional requirements with respect to advance notice of stockholder
proposals and director nominations.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and Bylaws provide that
the Board of Directors shall be divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in the Board of Directors) shall 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 qualified.
The Board of Directors is presently composed of seven members. There are
three directors in the class whose term of office expires in 2000. Each of the
nominees for election to this class is currently a director of the Company who
was previously elected by the stockholders. If elected at the Annual Meeting,
each of the nominees would serve until the 2003 annual meeting and until his or
her 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 the three nominees named below. In the event that 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 management 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 for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2003 ANNUAL MEETING
ROBERT B. CHESS
Mr. Chess, age 43, has served as Chairman of the Board of Directors since
April 1999. Mr. Chess served as Co-Chief Executive Officer from August 1998 to
April 2000. Mr. Chess served as President from December 1991 to August 1998 and
as Chief Executive Officer from May 1992 to September 1998. Mr. Chess was
elected a Director in May 1992. From September 1990 until October 1991, he was
an Associate Deputy Director in the White House Office of Policy Development. In
March 1987, Mr. Chess co-founded Penederm Incorporated, a topical dermatological
drug delivery company, and served as its President until February 1989. He left
Penederm in October 1989. Prior to co-founding Penederm, Mr. Chess held
management positions at Intel Corp., a semiconductor manufacturer, and Metaphor,
a computer software company. Mr. Chess holds a BS in Engineering from the
California Institute of Technology and an MBA from the Harvard Business School.
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MARK J. GABRIELSON
Mr. Gabrielson, age 43, has been a Director since May 1992. Since
January 1991 he has been a general partner of Prince Ventures, L.P., a venture
capital management firm that serves as the general partner of Prince Venture
Partners III, L.P. Mr. Gabrielson is a Director of several private companies.
From 1978 until joining Prince, Mr. Gabrielson served in a variety of marketing
and business development positions with SmithKline Beecham plc.
JAMES B. GLAVIN
Mr. Glavin, age 64, has been a Director since May 1993. Mr. Glavin is
Chairman of the Board of The Immune Response Corporation, a biotechnology
company. He was President and Chief Executive Officer of The Immune Response
Corporation from 1987 until September 1994. From 1987 to 1990, Mr. Glavin served
as Chairman of the Board of Smith Laboratories, Inc. and was President and Chief
Executive Officer of Smith Laboratories from 1985 to 1989. From 1985 to 1987, he
was a partner in CH Ventures, a venture capital firm. From 1983 to 1985, he
served as Chairman of the Board of Genetic Systems Corporation, a biotechnology
firm, and as its President and Chief Executive Officer from 1981 to 1983.
Mr. Glavin is a director of The Meridian Fund and Gish Biomedical, Inc.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE
DIRECTORS CONTINUING IN OFFICE UNTIL 2001 ANNUAL MEETING
JOHN S. PATTON, PH.D.
Dr. Patton, age 53, a co-founder of Inhale, has been Vice President,
Research since December 1991 and a Director since July 1990. He served as
President of Inhale from its incorporation in July 1990 to December 1991. From
1985 to 1990, Dr. Patton was a Project Team Leader with Genentech, Inc., a
biotechnology company, where he headed their non-invasive drug delivery
activities. Dr. Patton was on the faculty of the Marine Science and Microbiology
Departments at the University of Georgia from 1979 through 1985, where he was
granted tenure in 1984. Dr. Patton received a BS in Zoology and Biochemistry
from Pennsylvania State University, an MS from the University of Rhode Island, a
Ph.D. in Biology from the University of California, San Diego and received post
doctoral fellowships from Harvard Medical School and the University of Lund,
Sweden, both in biomedicine.
IRWIN LERNER
Mr. Lerner, age 69, has been a Director since April 1999. Mr. Lerner served
as Chairman of the Board of Directors and of the Executive Committee of
Hoffman-La Roche Inc., a pharmaceutical and health care company, from
January 1993 until his retirement in September 1993, and from 1980 through
December 1992, also served as President and Chief Executive Officer. From
September 1995 until present, Mr. Lerner has served on the Board of
Medarex, Inc., a monoclonal antibodies products company and became Chairman of
the Board in May 1997. Mr. Lerner served as the Chairman of the Board of Sequana
Therapeutics, Inc., a biotechnology company, from May 1995 until Sequana merged
with Arris Pharmaceuticals Inc., a pharmaceutical company, to form Axys
Pharmaceuticals, Inc. in January 1998 and has served on the Board of Axys since
then. Mr. Lerner served for 12 years on the Board of the Pharmaceutical
Manufacturers' Association where he chaired the Association's FDA Issues
Committee. Mr. Lerner received a B.S. and an M.B.A. from Rutgers University. He
is currently Distinguished Executive-in-Residence at Rutgers University Graduate
School of Management. Mr. Lerner is also a director of Public Service Enterprise
Group Incorporated, a diversified public utility holding company, Humana Inc., a
health care company, Covance, Inc., a contract drug development company, and
V.I. Technologies, Inc., a blood products company.
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DIRECTORS CONTINUING IN OFFICE UNTIL 2002 ANNUAL MEETING
AJIT S. GILL
Mr. Gill, age 52, has served as Chief Executive Officer since April 2000, as
President since April 1999, and as a Director since April 1998. Mr. Gill served
as Co-Chief Executive Officer from August 1988 to April 1998. Mr. Gill served as
Chief Operating Officer from October 1996 to August 1998 and Chief Financial
Officer from January 1993 until October 1996. Before joining Inhale, Mr. Gill
was Vice President and General Manager of Kodak's Interactive Systems division.
Mr. Gill has served as Chief Financial Officer for TRW-Fujitsu, Director of
Business Development for Visicorp, and as President for three start-up high
technology companies. He completed a BTech at the Indian Institute of
Technology, an MS in Electrical Engineering from the University of Nebraska, and
holds an MBA from the University of Western Ontario.
MELVIN PERELMAN, PH.D
Dr. Perelman, age 69, has been a Director since January 1996. Dr. Perelman
spent 36 years at Eli Lilly & Company, most recently as Executive Vice-President
and President of Lilly Research Laboratories, a position which he held from 1986
until his retirement in 1993. Dr. Perelman served as President of Lilly
International from 1976 until 1986. Dr. Perelman is a member of the Board of
Directors of Cinergy, Inc., DataChem, Inc., Immusol, Inc. and of The Immune
Response Corporation.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1999 the Board of Directors held
eight meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of two non-employee
directors: Messrs. Perelman and Glavin. It met once during the fiscal year ended
December 31, 1999.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards, stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of two non-employee directors:
Messrs. Gabrielson and Glavin. It met seven times during the fiscal year ended
December 31, 1999.
During the fiscal year ended December 31, 1999, each director attended 75%
or more of the aggregate of the meetings of the Board and of the committees on
which he then served.
PROPOSAL TWO
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 1994 EQUITY INCENTIVE PLAN, IN
THE FORM OF THE 2000 EQUITY INCENTIVE PLAN
In February 1994, the Board of Directors adopted, and the shareholders
subsequently approved, the Company's 1994 Equity Incentive Plan (the "1994
Equity Incentive Plan"). The 1994 Equity Incentive Plan was an amendment and
restatement of the Company's 1992 Stock Option Plan. In March 1996, the Board
approved, and the shareholders subsequently approved, an increase in the number
of shares reserved for issuance under the 1994 Equity Incentive Plan to a total
of 3,900,000 shares of Common Stock. In April 1998, the Board amended and
restated the 1994 Equity Incentive Plan. As part of such approval the Board
approved, and the shareholders subsequently approved, an increase in the number
of shares
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reserved for issuance under the 1994 Equity Incentive Plan to a total of
4,675,000 shares of Common Stock.
In April 2000, the Board approved an amendment and restatement of the 1994
Equity Incentive Plan in the form of the 2000 Equity Incentive Plan (the "Equity
Incentive Plan"), subject to stockholder approval. As part of such approval the
Board approved (i) an increase in the number of shares reserved for issuance
under the Equity Incentive Plan by 500,000 shares to a total of 5,175,000 shares
of Common Stock; (ii) the extension of the term of the Equity Incentive Plan
from 2004 to 2010; (iii) the inclusion of provisions accelerating vesting of
options upon an optionee's death under certain circumstances; and (iv) other
amendments as to bring the Equity Incentive Plan into conformity with current
law and prevalent plan design terms. These amendments are intended to afford the
Company greater flexibility in providing employees with stock incentives and
ensures that the Company can continue to provide such incentives at levels and
in accordance with such terms determined appropriate by the Board.
At March 15, 2000, options (net of canceled or expired options) covering an
aggregate 4,118,847 shares of the Company's Common Stock had been granted under
the Equity Incentive Plan, and 556,153 shares (plus any shares that might in the
future be returned to the Equity Incentive Plan as a result of cancellations or
expiration of options) remained available for future grant under the Equity
Incentive Plan. During the last fiscal year, under the Equity Incentive Plan,
the Company granted options to purchase 201,801 shares at exercise prices
ranging from $28.00 per share to $28.50 per share. All of these grants were made
to executive officers.
Stockholders are requested in this Proposal Two to approve the Equity
Incentive Plan, as amended. If the stockholders fail to approve this Proposal
Two, the Equity Incentive Plan will remain as is without any changes thereto.
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 Annual Meeting will
be required to approve the Equity Incentive Plan, as amended. 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
will be counted towards a quorum, but will not be counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL TWO
The essential features of the Equity Incentive Plan are outlined below:
GENERAL
The Equity Incentive Plan provides for the grant or issuance of incentive
stock options to employees and nonstatutory stock options, restricted stock
purchase awards, stock bonuses and stock appreciation rights to consultants,
employees, officers and directors. To date only incentive stock options and
nonstatutory stock options have been awarded under the Equity Incentive Plan.
Incentive stock options granted under the Equity Incentive Plan are intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the Equity Incentive Plan are intended not to qualify as
incentive stock options under the Code. See "Federal Income Tax Information" for
a discussion of the tax treatment of the various awards included in the Equity
Incentive Plan.
PURPOSE
The Equity Incentive Plan was adopted to provide a means by which selected
officers, employees and directors of and consultants to the Company and its
affiliates could be given an opportunity to purchase stock in the Company, to
assist in retaining the services of such persons, to secure and retain the
services of persons capable of filling such positions and to provide incentives
for such persons to exert maximum
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efforts for the success of the Company. The Company currently has approximately
374 employees, including three directors who are also employees, and
approximately 25 consultants who are eligible to participate in the Equity
Incentive Plan.
ADMINISTRATION
The Board of Directors of the Company administers the Equity Incentive Plan.
The Board has the power to construe and interpret the Equity Incentive Plan and,
subject to the provisions of the Equity Incentive Plan, to determine the persons
to whom and the dates on which awards will be granted, whether an award granted
will be an incentive stock option, a nonstatutory stock option, a stock bonus, a
right to purchase restricted stock, a stock appreciation right, or a combination
of the foregoing, the number of shares to be subject to each award, the time or
times during the term of each award within which all or a portion of such award
may be exercised, the exercise price, the type of consideration and other terms
of the award. The Board of Directors is authorized to delegate administration of
the Equity Incentive Plan to a committee composed of one or more members of the
Board.
The Company currently limits the directors who may serve as members of the
Compensation Committee to those who are "outside directors." This limitation
excludes from the Compensation Committee (i) current employees of the Company,
(ii) former employees of the Company receiving compensation for past services
(other than benefits under a tax-qualified pension plan), (iii) current and
former officers of the Company, and (iv) directors currently receiving direct or
indirect compensation from the Company in any capacity (other than as a
director), unless any such person is otherwise considered an "outside director"
under applicable Internal Revenue Service regulations.
ELIGIBILITY
Incentive stock options may be granted under the Equity Incentive Plan only
to employees (including officers) of the Company and its affiliates.
Consultants, employees (including officers) and directors are eligible to
receive other awards under the Equity Incentive Plan.
No incentive stock option may be granted under the Equity Incentive Plan to
any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the date of
grant. For incentive stock options granted under the Equity Incentive Plan, the
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which such options are exercisable for the first
time by an optionee during any calendar year (under all such plans of the
Company and its affiliates) may not exceed $100,000.
No employee may be granted options covering more than 400,000 shares of the
Common Stock within a calendar year. The purpose of this limitation is to ensure
that the Company generally will continue to be able to deduct for tax purposes
the compensation attributable to the exercise of options granted under the
Equity Incentive Plan with an exercise price at or above the fair market value
of the Company's common stock on the date of grant. To date, the Company has not
granted to any employee in any calendar year awards to purchase a number of
shares equal to the limitation and does not currently have any intention of
granting such number of awards to any employee. There can be no assurance,
however, that the Board of Directors will not determine in some future
circumstances that it would be in the best interests of the Company and its
stockholders to grant awards to purchase such number of shares to a single
employee during a calendar year.
STOCK SUBJECT TO THE EQUITY INCENTIVE PLAN
Subject to this Proposal, an aggregate of 5,175,000 shares of Common Stock
is reserved for issuance under the Equity Incentive Plan. If awards granted
under the Equity Incentive Plan expire or otherwise
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terminate without being exercised, the Common Stock not purchased pursuant to
such awards again becomes available for issuance under the Equity Incentive
Plan. If stock under the Equity Incentive Plan is repurchased, such repurchased
shares also will become available for Issuance under the Equity Incentive Plan
for all stock awards other than incentive stock options.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
Equity Incentive Plan. Individual option grants may be more restrictive as to
any or all of the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the Equity Incentive Plan may not be less than the fair market value of
the Common Stock subject to the option on the date of the option grant, and in
some cases (see "Eligibility" above), may not be less than 110% of such fair
market value. The exercise price of nonstatutory options under the Equity
Incentive Plan may not be less than 85% of the fair market value of the
Company's common stock. (However, if options are granted with exercise prices
below market value, deductions for compensation attributable to the exercise of
such options could be limited by Section 162(m) of the Code. See "Federal Income
Tax Information.") At April 19, 2000, the closing price of the Common Stock as
reported on the Nasdaq National Market was $58.00 per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m) of the Code, an
option canceled or repriced under the Equity Incentive Plan is deemed to be
canceled and a new option granted. Both the option deemed to be canceled and the
new option deemed to be granted will be counted against the 400,000 share
per-employee limitation. The Board also has the authority to include as part of
an option agreement a provision entitling the optionee to a further option in
the event that the optionee exercises his or her option by surrendering other
shares of Common Stock as payment of the exercise price.
The exercise price of options granted under the Equity Incentive Plan must
be paid either: (a) in cash at the time the option is exercised; (b) at the
discretion of the Board, (i) by delivery of the Common Stock of the Company, or
(ii) pursuant to a deferred payment arrangement; or (c) in any other form of
legal consideration acceptable to the Board.
OPTION EXERCISE. Options granted under the Equity Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Options generally vest in monthly installments beginning one year from the date
of grant, with the effect that such shares are fully vested after five years
from the date of grant. However, subject to this stockholder approval if the
optionee's service to the Company and its affiliates terminates due to death,
then subject to certain restrictions, the vesting of the option will accelerate.
Shares covered by options granted in the future under the Equity Incentive Plan
may be subject to different vesting terms. The Board has the power to accelerate
the time during which an option may be exercised. In addition, options granted
under the Equity Incentive Plan may permit exercise prior to vesting, but in
such event the optionee may be required to enter into an early exercise stock
purchase agreement that allows the Company to repurchase shares not yet vested
at their exercise price should the optionee leave the service of the Company and
its affiliates before vesting. To the extent provided by the terms of an option,
an optionee may satisfy any federal, state or local tax withholding obligation
relating to the exercise of such option by a cash payment upon exercise, by
authorizing the Company to withhold a portion of the stock otherwise issuable to
the optionee, by delivering already-owned stock of the Company or by a
combination of these means.
TERM. The maximum term of incentive stock options under the Equity
Incentive Plan is ten years, except that in certain cases (see "Eligibility")
the maximum term is five years. Options under the Equity
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Incentive Plan generally terminate three months after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless (a) such termination is due to such
person's permanent and total disability (as defined in the Code), in which case
the option may, but need not, provide that it may be exercised at any time
within one year of such termination; (b) the optionee dies while employed by or
serving a consultant or director of the Company or any affiliate of the Company,
or within three months after termination of such relationship, in which case the
option may, but need not, provide that it may be exercised (to the extent the
option was exercisable at the time of the optionee's death) within eighteen
months of the optionee's death by the person or persons to whom the rights to
such option pass by will or by the laws of descent and distribution; or (c) the
option by its terms specifically provides otherwise. Individual options by their
terms may provide for exercise within a longer period of time following
termination of employment or the consulting relationship. The option term may
also be extended in the event that exercise of the option within these periods
is prohibited for specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
PURCHASE PRICE; PAYMENT. The purchase price under each stock purchase
agreement will be determined by the Board, but in any event may be no less than
85% of the fair market value of the Company's common stock on the date of grant.
The purchase price of stock pursuant to a stock purchase agreement must be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other arrangement with the person to
whom the Common Stock is sold; or (iii) in any other form of legal consideration
that may be acceptable to the Board in its discretion. Eligible participants may
also be awarded stock pursuant to a stock bonus agreement in consideration of
past services actually rendered to the Company for its benefit.
REPURCHASE. Shares of the Common Stock sold or awarded under the Equity
Incentive Plan may, but need not, be subject to a repurchase option in favor of
the Company in accordance with a vesting schedule determined by the Board. In
the event a person ceases to be an employee of or ceases to serve as a director
of or consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the Common Stock
held by that person that have not vested as of the date of termination under the
terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees or directors of,
or consultants to, the Company or its affiliates. The Equity Incentive Plan
authorizes three types of stock appreciation rights.
TANDEM STOCK APPRECIATION RIGHTS. Tandem stock appreciation rights are tied
to an underlying option and require the holder to elect whether to exercise the
underlying option or to surrender the option for an appreciation distribution
equal to the market price of the vested shares purchasable under the surrendered
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of tandem stock appreciation rights must be
made in cash.
CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent stock appreciation rights
are tied to an underlying option and are exercised automatically at the same
time the underlying option is exercised. The holder receives an appreciation
distribution equal to the market price of the vested shares purchased under the
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of concurrent stock appreciation rights must
be made in cash.
INDEPENDENT STOCK APPRECIATION RIGHTS. Independent stock appreciation
rights are granted independently of any option and entitle the holder to receive
upon exercise an appreciation distribution equal to the market price of a number
of shares equal to the number of share equivalents to which the holder is
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<PAGE>
vested under the independent stock appreciation right less than fair market
value of such number of shares of stock on the date of grant of the independent
stock appreciation rights. Appreciation distributions payable upon exercise of
independent stock appreciation rights may, at the Board's discretion, be made in
cash, in shares of the Common Stock or a combination thereof.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Equity Incentive Plan or
subject to any award granted under the Equity Incentive Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Equity Incentive Plan and awards outstanding thereunder will be appropriately
adjusted as to the type of security and the maximum number of shares subject to
such plan and the type of security, the maximum number of shares which may be
granted to an employee during a calendar year, and the type of security, number
of shares and price per share of stock subject to such outstanding awards.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution or liquidation of the Company, outstanding
awards will terminate if not exercised prior to such event. In the event of a
specified type of merger or corporate reorganization, then the surviving or
acquiring corporation may assume or replace outstanding awards. If it declines
to do so, then outstanding awards also will terminate if not exercised prior to
such event but, in addition, the vesting and exercisability of awards held by
persons whose service to the Company and its affiliates has not terminated will
be accelerated prior to such event. If there is an acquisition of majority
ownership of the Company, then the vesting and exercisability of awards held by
persons whose service to the Company and its affiliates has not terminated also
will be accelerated but outstanding awards will not terminate due to such event.
The acceleration of an award in the event of an acquisition or similar corporate
event may be viewed as an anti-takeover provision, which may have the effect of
discouraging a proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Equity Incentive Plan without
stockholder approval or ratification at any time or from time to time. Subject
to this stockholder approval, unless sooner terminated, the Equity Incentive
Plan will terminate in February 2010 instead of February 2004. The Board may
also amend the Equity Incentive Plan at any time or from time to time. However,
no amendment will be effective unless approved by the stockholders of the
Company to the extent stockholder approval is necessary to satisfy the
requirements of Section 422 of the Code, Rule 16b-3 promulgated under the
Exchange Act, or any Nasdaq or securities exchange listing requirements.
RESTRICTIONS ON TRANSFER
Under the Equity Incentive Plan, an incentive stock option may not be
transferred by the optionee otherwise than by will or by the laws of descent and
distribution. A nonstatutory stock option may be transferred to the extent
permitted in the individual optionee's agreement. During the lifetime of an
optionee, only the optionee may exercise an option. No rights under a stock
bonus or restricted stock purchase agreement are transferable except as
expressly authorized by the terms of the applicable stock bonus or restricted
stock purchase agreement. In addition, shares subject to repurchase by the
Company under an early exercise stock purchase agreement may be subject to
restrictions on transfer that the Board deems appropriate.
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<PAGE>
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the Equity Incentive
Plan are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be a capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which will be long-term or short-term depending on the length of time that the
stock was held. Capital gains currently are generally subject to lower tax rates
than ordinary income. The maximum long-term capital gains rate for federal
income tax purposes is currently 20% while the maximum ordinary income rate is
effectively 39.6% at the present time. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
Equity Incentive Plan generally have the following federal income tax
consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of any tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
recognizable by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be
long-term or short-term depending on the length of time the stock was held.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
RESTRICTED STOCK AND STOCK BONUSES. Restricted stock and stock bonuses
granted under the Equity Incentive Plan generally have the following federal
income tax consequences:
Upon acquisition of stock under a restricted stock or stock bonus award, the
recipient normally will recognize taxable ordinary income equal to the excess of
the stock's fair market value over the purchase price, if any. However, to the
extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
recipient elects to be taxed on receipt of the stock. Generally, with respect to
employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, Section 162(m) of the Code and the
satisfaction of any tax reporting
10
<PAGE>
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income recognizable by the recipient.
Upon disposition of the stock, the recipient will recognize a capital gain or
loss equal to the difference between the selling price and the sum of the amount
paid for such stock, if any, plus any amount recognized as ordinary income upon
acquisition (or vesting) of the stock. Such gain or loss will be long-term or
short-term depending on the length of time the stock was held. Slightly
different rules may apply to persons who acquire stock subject to forfeiture
under Section 16(b) of the Exchange Act.
STOCK APPRECIATION RIGHTS. No taxable income is recognized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must be
treated as compensation taxable as ordinary income to the recipient in the year
of such exercise. Generally, with respect to employees, the Company is required
to withhold from the payment made on exercise of the stock appreciation right or
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of any withholding obligation, the Company will
be entitled to a business expense deduction equal to the taxable ordinary income
recognizable by the recipient.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m) which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to awards under the Equity Incentive Plan, when
combined with all other types of compensation received by a covered employee
from the Company, may cause this limitation to be exceeded in any particular
year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options and stock appreciation rights will
qualify as performance-based compensation, provided that: (i) the stock award
plan contains a per-employee limitation on the number of shares for which stock
options and stock appreciation rights may be granted during a specified period;
(ii) the per-employee limitation is approved by the stockholders; (iii) the
award is granted by a compensation committee comprised solely of "outside
directors"; and (iv) the exercise price of the award is no less than the fair
market value of the stock on the date of grant. Restricted stock and stock
bonuses qualify as performance-based compensation under these Treasury
regulations only if: (i) the award is granted by a compensation committee
comprised solely of "outside directors"; (ii) the award is granted (or
exercisable) only upon the achievement of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain; (iii) the compensation committee certifies in writing
prior to the granting (or exercisability) of the award that the performance goal
has been satisfied; and (iv) prior to the granting (or exercisability) of the
award, stockholders have approved the material terms of the award (including the
class of employees eligible for such award, the business criteria on which the
performance goal is based, and the maximum amount (or formula used to calculate
the amount) payable upon attainment of the performance goal. The Company has
taken steps to ensure that options granted at fair market value qualify as
performance-based compensation.
PROPOSAL THREE
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Restated Certificate of Incorporation to increase the
Company's authorized number of shares of Common Stock from 50,000,000 to
300,000,000 shares.
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<PAGE>
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common Stock
of the Company, except for the effects incidental to increasing the number of
shares of the Company's Common Stock outstanding, such as dilution of the
earnings per share and voting rights of current holders of Common Stock. If the
amendment is adopted, it will become effective upon filing of a Certificate of
Amendment of the Company's Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware.
In addition, to the 20,742,112 shares of Common Stock outstanding at
March 15, 2000, the Board has reserved (i) 8,400,000 shares for issuance upon
exercise of options and rights granted under the Company's stock option and
stock purchase plans; (ii) up to 32,777 shares of Common Stock which may be
issued upon exercise of warrants; (iii) up to 3,388,268 shares of Common Stock
which may be issued upon exercise of the Company's subordinated convertible
debentures due October 13, 2006 (of which approximately 3,100,000 shares have
already been converted); and (iv) up to 2,998,305 shares of Common Stock which
may be issued upon exercise of the Company's subordinated convertible notes due
February 8, 2007.
Although at present the Board of Directors has no other plans to issue
additional shares of Common Stock, it desires to have such shares available to
provide additional flexibility to use its capital stock for business and
financial purposes in the future. The additional shares may be used, without
further stockholder approval, for various purposes, including, without
limitation, the issuance of stock dividends to existing stockholders, raising
capital, providing equity incentives to employees, officers or directors,
establishing strategic relationships with other companies and expanding the
Company's business or product lines through the acquisition of other businesses
or products.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval the
Board could strategically sell shares of Common Stock in a private transaction
to purchasers who would oppose a takeover or favor the current Board, or adopt a
"poison pill" which would, under certain circumstances related to an acquisition
not approved by the Board of Directors, give certain holders the right to
acquire additional shares of Common Stock at a low price. Although this proposal
to increase the authorized Common Stock has been prompted by business and
financial considerations and not by the threat of any known or threatened
hostile takeover attempt, nevertheless, stockholders should be aware that
approval of this proposal could facilitate future efforts by the Company to
deter or prevent changes in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
then current market prices.
The affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock will be required to approve this amendment to the Company's
Restated Certificate of Incorporation. As a result, abstentions and broker
non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL THREE
PROPOSAL FOUR
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, 2000 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 1990.
Representatives of Ernst &
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Young LLP are expected to be present at the Annual Meeting, 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 Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
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 Annual Meeting will
be required to ratify the selection of Ernst & Young LLP. Abstentions will be
counted toward the tabulation of votes cast on proposals presented to
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL FOUR.
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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 15, 2000 by: (i) each director;
(ii) each of the Named Executive Officers; (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 5% of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNER(1)
--------------------------------------
BENEFICIAL OWNERSHIP(1) NUMBER OF SHARES PERCENT OF TOTAL(2)
- ----------------------- ---------------- -------------------
<S> <C> <C>
Franklin Resources, Inc.(3)................................. 2,627,330 12.7%
777 Mariners Island Boulevard
San Mateo, CA 94404
T. Rowe Price Associates, Inc.(4)........................... 2,128,950 10.3%
100 East Pratt Street
Baltimore, MD 21202
Baxter International Inc. & Subsidiaries Pension Trust...... 1,335,897 6.4%
One Baxter Parkway
Deerfield, IL 60015
Capital Research and Management Company(5).................. 1,301,650 6.3%
333 South Hope Street, 55th Floor
Los Angeles, CA 90071
Dresdner Bank AG(6)......................................... 1,073,225 5.2%
Jurgen-Ponto-Platz 1
60301 Frankfurt, Germany
Robert B. Chess(7).......................................... 334,993 1.6%
John S. Patton(8)........................................... 334,896 1.6%
Robert M. Platz(9).......................................... 245,983 1.2%
Ajit S. Gill(10)............................................ 173,874 *
Mark J. Gabrielson(11)...................................... 50,369 *
Melvin Perelman(14)......................................... 43,467 *
James B. Glavin(12)......................................... 29,965 *
Stephen L. Hurst(13)........................................ 8,901 *
Irwin Lerner(14)............................................ 9,167 *
All directors and executive officers as a group
(10 persons)(15).......................................... 1,231,615 5.8%
</TABLE>
- ------------------------
* Less than 1%
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to the 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
shown as beneficially owned.
(2) Applicable percentages are based on 20,742,112 shares of Common Stock
outstanding as of March 15, 2000, adjusted as required by
rules promulgated by the SEC.
(3) Based solely on information obtained from a filing with the SEC made on
amended Schedule 13G reporting such beneficial ownership as of January 25,
2000. Includes 1,030,920 shares of common stock issuable upon conversion of
$33,000,000 principal amount of the Company's convertible subordinated
debentures due October 13, 2006. Franklin Resources, Inc. ("FRI") is the
parent
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<PAGE>
holding company of two registered investment advisers: Franklin
Advisers, Inc. ("Franklin Advisers") and Franklin Management, Inc.
("Franklin Management"), which provide investment advisory services for
Franklin Small Cap Growth Fund, a series of Franklin Strategic Series, a
registered investment company which holds the shares. Franklin Advisers has
sole voting and dispositive power over 2,562,920 of the shares. Franklin
Management has sole investment power over 64,410 of the shares. Charles B.
Johnson and Rupert H. Johnson, Jr. (collectively, "Principal Shareholders")
each own in excess of 10% of the outstanding common stock of FRI and are
the principal shareholders of FRI. FRI, Franklin Advisers, Franklin
Management and the Principal Shareholders disclaim any beneficial interest
in the shares.
(4) Based solely on information obtained from a filing with the SEC made on an
amended Schedule 13G reporting such beneficial ownership as of February 7,
2000. These shares are owned by various individual and institutional
investors which T. Rowe Price Associates, Inc. ("Price Associates"), an
investment adviser registered under the Investment Advisers Act of 1940,
serves as investment adviser with power to direct investments and/or sole
power to vote the shares. For purposes of the reporting requirements of the
Securities Act of 1934, Price Associates is deemed to be a beneficial owner
of such securities; however, Price Associates expressly disclaims that it
is, in fact, the beneficial owner of such securities. Price Associates
provides investment advisory services for T. Rowe Price New Horizons
Fund, Inc. ("T. Rowe Price Fund"), a registered investment company. Price
Associates has sole voting power over 528,600 of the shares and has sole
dispositive power over 2,128,950 of the shares. T. Rowe Price Fund has sole
voting power over 875,000 of the shares.
(5) Based solely on information obtained from a filing with the SEC made on a
Schedule 13G reporting such beneficial ownership as of December 31, 1999.
Capital Research and Management Company ("CRMC") is a registered investment
adviser registered under Section 203 of the Investment Advisers Act of 1940
which provides investment advisory services to SMALLCAP World Fund, Inc.
("SWFI") , an investment company registered under the Investment Company
Act of 1940. SWFI has sole voting power over 1,101,650 of the shares. CRMC
has sole dispositive power over 1,301,650 of the shares. CRMC disclaims
beneficial ownership of such shares.
(6) Based solely on information obtained from a filing with the SEC made on a
Schedule 13G reporting such beneficial ownership as of December 31, 1999.
Dresdner Bank AG, an international banking organization headquartered in
Frankfurt, Germany, ("Dresdner Bank") is the parent company of Dresdner RCM
US Holdings LLC, a Delaware Limited Liability Company ("DRCM Holdings"),
the parent holding company of a registered investment adviser: Dresdner RCM
Global Investors LLC, a Delaware Limited Liability Company ("Dresdner
RCM"). Dresdner RCM and DRCM Holdings each has sole voting power over
818,275 of the shares, sole dispositive power over 908,475 of the shares
and shared dispositive power over 164,650 of the shares, respectively.
Dresdner Bank has sole voting power over 818, 375 of the shares, sole
dispositive power over 908,575 of the shares and shared dispositive power
over 164,650 of the shares.
(7) Includes 109,283 shares issuable upon exercise of options exercisable
within 60 days of March 15, 2000.
(8) Includes 223,004 shares held by John S. Patton & Jamie S. Patton, Trustees,
under the July 2, 1997 Patton Revocable Trust ("Patton Trust"). Dr. Patton
and his wife, are sole trustees. Dr. Patton and his wife, Jamie S. Patton,
each acting alone, have the power to vote and dispose of such shares.
Includes 667 shares held by Dr. Patton's minor child. Also includes 1,499
shares held by two other children of Dr. Patton as to which shares
Dr. Patton disclaims beneficial ownership. Also includes 109,726 shares
issuable upon exercise of options exercisable within 60 days of March 15,
2000.
(9) Includes 79,578 shares issuable upon exercise of options exercisable within
60 days of March 15, 2000.
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<PAGE>
(10) Includes 8,475 shares held by Ajit S. Gill & Ann C. Gill, Trustees, under
agreement dated October 14, 1998 FBO Ajit S. Gill & Ann C. Gill ("Gill
Trust"). Mr. Gill and his wife, are sole trustees. Mr. Gill and his wife,
Ann C. Gill, each acting alone, have the power to vote and dispose of such
shares. Also includes 154,599 shares issuable upon exercise of options
exercisable within 60 days of March 15, 2000.
(11) Also includes 47,966 shares issuable upon the exercise of options
exercisable within 60 days of March 15, 2000.
(12) Includes 23,966 shares issuable upon exercise of options exercisable
within 60 days of March 15, 2000.
(13) Includes 1,000 shares held as joint tenants with Mr. Hurst's wife, Antonia
Althea Hurst. Also includes 7,901 shares issuable upon exercise of options
exercisable within 60 days of March 15, 2000.
(14) All shares issuable upon exercise of options exercisable within 60 days of
March 15, 2000.
(15) Includes 223,004 shares held by Patton Trust and an aggregate of 2,166
shares held by Mr. Patton's children, as described in footnote 8. Includes
8,475 shares held by Gill Trust, as described in footnote 10. Includes
1,000 shares held by Mr. Hurst as joint tenants with right of survivorship
with Mrs. Hurst as described in footnote 13. Also includes 551,675 shares
issuable upon exercise of outstanding options exercisable within 60 days
of March 15, 2000. See footnotes 7 through 14.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% 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% 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, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.
16
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives an annual retainer of
$15,000. In the fiscal year ended December 31, 1999, the total compensation paid
to non-employee directors was $78,250 including, the consulting fees paid to one
director as discussed below. The members of the Board of Directors are also
eligible for reimbursement for their expenses incurred in connection with
attendance at Board meetings in accordance with Company policy.
Each member of the Company's Board of Directors who is not an employee of
the Company is automatically granted under the 1994 Non-Employee Directors' Plan
(the "Non-Employee Directors' Plan"), without further action by the Company, the
Board of Directors or the stockholders of the Company, an option to purchase
30,000 shares of Common Stock of the Company for each three year term to which
he or she is elected. The non-employee directors who began with a one or a
two-year term when the Company first instituted the classified board were
granted 10,000 and 20,000 shares of Common Stock, respectively. Vesting is
monthly over the period of the term being served. Only non-employee directors of
the Company are eligible to receive options under the Non-Employee Directors'
Plan. Options granted under the Non-Employee Directors' Plan are intended by the
Company not to qualify as incentive stock options under the Code. The exercise
price of options granted under the Non-Employee Directors' Plan is 100% of the
fair market value of the Common Stock subject to the option on the date of the
option grant. Option grants under the Non-Employee Directors' Plan are
non-discretionary. The term of options granted under the Non-Employee Directors'
Plan is ten years. In the event of a merger of the Company with or into another
corporation or a consolidation in which the Company is the surviving
corporation, but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, or any other capital reorganization in which 50% of the shares
of the Company entitled to vote are exchanged, the vesting of each option will
accelerate and the option will terminate if not exercised prior to the
consummation of the transaction.
Options to purchase an aggregate of 160,200 shares of Common Stock have been
granted to all Non-Employee Directors of the Company to date under the
Non-Employee Directors' Plan, 79,800 of which have been exercised as of
March 15, 2000. Options to purchase an aggregate of 1,645,646 shares of Common
Stock have been granted to Directors who are employees of the Company as of
March 15, 2000 under the Company's Equity Incentive Plan, 606,212 of which have
been exercised as of March 15, 2000.
On April 1, 1999, Irwin Lerner entered into a consulting agreement with the
Company. Pursuant to the agreement, Mr. Lerner performs consulting services
relating to product marketing and general business issues of at least four half
days per year as well as telephone discussions as needed in consideration for
his standard consulting fee. In 1999, Mr. Lerner received $14,500 in consulting
fees for services performed for the Company.
17
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1999, 1998
and 1997, compensation awarded or paid to, or earned by, the Company's Co-Chief
Executive Officers and its other four most highly compensated executive officers
at December 31, 1999 (the "Named Executive Officers"(1)):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
OTHER ------------
ANNUAL COMPENSATION ANNUAL SECURITIES
------------------------------- COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(4) OPTIONS(#) COMPENSATION($)(2)
- --------------------------- -------- --------- -------- ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Chess ......... 1999 $248,013 $113,249 -- 50,000 $ 6,005
Chairman of the Board and 1998 201,183 $ 78,859 50,000 709
Co-Chief Executive 1997 195,666 136,763 15,900 510
Officer
Ajit S. Gill ............ 1999 248,013 113,249 -- 50,000 6,452
President and Co-Chief 1998 201,176 78,859 50,000 1,945
Executive Officer 1997 194,155 51,757 54,600 870
John S. Patton .......... 1999 190,774 76,518 -- 14,000 6,117
Vice President, Research 1998 159,887 61,264 70,000 1,523
1997 150,119 32,344 7,500 1,440
Stephen L. Hurst ........ 1999 179,316 57,605 -- 10,801 1,186
Vice President, Secretary 1998 160,333 54,054 39,000 461
and General Counsel 1997 156,682 27,098 25,400 510
Robert M. Platz ......... 1999 159,607 38,576 -- 7,000 5,459
Vice President, 1998 145,374 36,345 19,900 838
Technology 1997 140,797 24,651 5,400 850
Brigid A. Makes(3) ...... 1999 87,739 30,000 11,707 70,000 175
Vice President, 1998 -- -- -- --
Finance & Administration
and Chief Financial
Officer
</TABLE>
- ------------------------
(1) The Named Executive Officers include all the executive officers of the
Company.
(2) Amounts include perquisites consisting of one or more of the following:
(i) life insurance premiums paid by the Company; (ii) reimbursement for
computer equipment used for Company business; (iii) entertainment gifts
associated with Company business; and (iv) Company's matching payments under
its 401(k) plan.
(3) Ms. Makes became an executive officer of the Company on June 26, 1999. Her
annualized salary in 1999 was $267,000.
(4) Includes $11,707 as reimbursement of expenses in connection with Ms. Makes
relocation.
18
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under the Equity
Incentive Plan. As of March 15, 2000, options to purchase a total of 4,427,125
shares had been granted under the Equity Incentive Plan and options to purchase
556,153 shares remained available for grant thereunder.
The following tables show for the fiscal year ended December 31, 1999
certain information regarding options granted to, exercised by, and held at
year-end by, the Named Executive Officers at December 31, 1999:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENTAGE OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------------
NAME GRANTED(1)(#) FISCAL YEAR(2) ($/SHARE) DATE 5% 10%
- ---- ------------- -------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Chess......... 50,000(4) 3.52% $28.50 02/22/09 $ 896,175 $2,271,083
Ajit S. Gill............ 50,000(4) 3.52% 28.50 02/22/09 896,175 2,271,083
John S. Patton.......... 14,000(5) 0.99% 28.50 02/22/09 250,929 635,903
Stephen L. Hurst........ 9,801(5) 0.69% 28.50 02/22/09 175,668 445,177
1,000(6) 0.07% 28.50 02/22/09 17,923 45,421
Robert M. Platz......... 7,000(5) 0.49% 28.50 02/22/09 125,464 317,952
Brigid A. Makes......... 70,000(7) 4.93% 28.00 06/27/09 1,232,634 3,123,735
</TABLE>
- ------------------------
(1) The options will fully vest upon a change in control, asset sale, merger,
consolidation or reverse merger, as defined in the Company's Equity
Incentive Plan, unless the acquiring Company assumes the options or
substitutes similar options. The options will fully vest upon a securities
acquisition, as defined in the Company's Equity Incentive Plan. The Board of
Directors may reprice the options under the terms of the Company's Equity
Incentive Plan.
(2) Based on an aggregate of 1,419,251 options granted to employees and
consultants to the Company in 1999, including the Named Executive Officers.
(3) The potential realizable value is based on the term of the option at the
time of grant (ten years). Assumed stock price appreciation of 5% and 10% is
used pursuant to rules promulgated by the SEC. The potential realizable
value is calculated by assuming that the market price on the date of grant
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
(4) This option vests monthly over 5 years commencing in February 1999.
(5) This option vests monthly over 1 year commencing in February 2003.
(6) This option vests annually over 5 years commencing in February 1999.
(7) One-fifth ( 1/5) of this option vests one year after June 28, 1999 and
one-sixtieth ( 1/60th) of this option vests monthly thereafter over the next
four years.
19
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND DECEMBER 31, 1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999(2) DECEMBER 31, 1999(3)
ACQUIRED ON VALUE --------------------------------- ---------------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- ----------- -------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Chess........ -- -- 110,083 156,162 $3,634,556 $3,277,737
Ajit S. Gill........... -- -- 183,295 138,183 6,398,711 2,610,580
John S. Patton......... -- -- 99,749 95,029 3,280,096 1,763,165
Stephen L. Hurst....... -- -- 28,167 75,453 742,038 1,528,311
Robert M. Platz........ -- -- 74,291 43,087 2,664,727 947,434
Brigid A. Makes ....... -- -- -- 70,000 -- 1,019,375
</TABLE>
- ------------------------
(1) Based on the fair market value of the Company's Common Stock on the exercise
date, minus the exercise price, multiplied by the number of shares
exercised.
(2) On January 18, 1995, the Board amended the provisions of the options held by
the Named Executive Officers to provide that upon a change-in control of the
Company the vesting of all outstanding options held by such persons would be
accelerated by two years.
(3) Based on the fair market value of the Company's Common Stock as of
December 31, 1999 ($42.5625 per share), minus the exercise price, multiplied
by the number of shares underlying the options.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Board has delegated to the Compensation Committee of the Board (the
"Committee") the authority to establish and administer the Company's
compensation programs. The Committee is comprised of two non-employee directors:
Messrs. Gabrielson and Glavin. The Committee is responsible for:
(i) determining the most effective total executive compensation strategy, based
upon the business needs of the Company and consistent with stockholders'
interests; (ii) administering the Company's executive compensation plans,
programs and policies; (iii) monitoring corporate performance and its
relationship to compensation of executive officers; and (iv) making appropriate
recommendations concerning matters of executive compensation.
COMPENSATION PHILOSOPHY
The primary goals of the compensation program are to align compensation with
the attainment of key business objectives and to enable the Company to attract,
retain and reward capable executives who can contribute to the continued success
of the Company. Equity participation and a strong alignment to stockholders'
interests are key elements of the Company's compensation philosophy. Four key
goals form the basis for compensation decisions for all employees of the
Company:
1. To attract and retain the most highly qualified management and employee
team;
2. To emphasize sustained performance by aligning rewards with stockholder
interests, especially through the use of equity participation programs;
3. To pay competitively compared to similar drug delivery and
biopharmaceutical companies and to provide appropriate reward
opportunities for achieving high levels of performance compared to
similar organizations in the marketplace; and
4. To motivate executives and employees to achieve the Company's annual and
long-term business goals and encourage behavior toward the fulfillment of
those objectives.
20
<PAGE>
To meet these goals, the Committee has adopted a mix among the compensation
elements of salary, stock options and bonuses with a bias towards stock options.
BASE SALARY
The Committee recognizes the importance of maintaining compensation
practices and levels of compensation competitive with drug delivery and
biopharmaceutical companies in comparable stages of development. Base salary
represents the fixed component of the executive compensation program. The
Company's philosophy regarding base salaries is conservative, maintaining
salaries below the competitive industry median. Base salary levels are
established on an annual review of marketplace competitiveness with similar
pharmaceutical and drug delivery companies and on the basis of individual
performance. Periodic increases in base salary are the result of individual
contributions evaluated against established performance objectives, relative
success toward achieving the Company's annual and long-term business goals,
length of service with the Company and an annual salary survey of comparable
companies in Inhale's industry. Base salaries for executives were increased for
fiscal 1999 but remain below the industry median. In 1999, the Company continued
the variable compensation program implemented in 1996 for all employees,
including all executive officers, which provides that a portion of base salary
is variable based on certain qualitative and quantitative criteria for both the
Company and each employee.
STOCK OPTIONS
The option plans offered by the Company have been established to provide all
executive officers of the Company with an opportunity to share, along with the
stockholders of the Company, in the long-term performance of the Company. The
Committee strongly believes that a goal of the compensation program should be to
provide key employees who have significant responsibility for the management,
growth and future success of the Company with an opportunity to increase their
ownership of the Company and potentially gain financially from Company stock
price increases. The interests of stockholders, executives and employees should
thereby be closely aligned. Executives and employees are eligible to receive
stock options generally not more often than once a year, giving them the right
to purchase shares of Common Stock of the Company in the future at a price equal
to fair market value at the date of grant. All grants must be exercised
according to the provisions of the Company's stock option plans. All outstanding
options expire ten years from the date of grant.
As the base salaries for executive officers of the Company are in the lower
range for comparable companies, the Company has used stock options as the
primary incentive to attract and retain its executive officers. Option amounts
are based on salary grade within the Company and overall Company and individual
performance. After considering the criteria relating to awarding stock options,
the Committee determined that all executive officers, including the Co-Chief
Executive Officers, would receive option grants in fiscal 1999. The options
granted to executive officers in fiscal 1999 include options with standard
five-year vesting commencing upon the date of grant, as well as "evergreen"
options, which typically vest over a twelve month period commencing upon the
date previously granted options become fully vested.
Section 162(m) of 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. The Committee believes that at the present time it is unlikely that the
compensation paid to any Named Executive Officer in a taxable year, which is
subject to the deduction limit will exceed $1 million. However, the Committee
has determined that stock awards granted under the Equity Incentive Plan with an
exercise price at least equal to the fair market value of the Company's Common
Stock on the date of grant shall be treated as "performance-based compensation."
21
<PAGE>
BONUSES
Bonus awards are another component of the compensation program. Bonuses, if
any, are both linked to the achievement of specified corporate goals, which is
determined at the discretion of the Committee. Corporate performance goals on
which 1999 bonuses were based were: the successful signing of new collaborative
partners and convening existing collaborative partners with feasibility
agreements to long-term development agreements; advancing the delivery system
technology by improving the performance and efficiency of the inhalation device,
the powder processing and the powder filling; and improving the Company's
liquidity by obtaining funding from corporate partners and from the sale of
securities. In January 2000, the Committee reviewed the Company's 1999 corporate
performance goals and determined that most of the goals had been achieved. Based
on such achievement, the Committee awarded bonuses for 1999 for all executive
officers.
CO-CEO COMPENSATION
The total cash compensation paid to Messrs. Chess and Gill in 1999 was below
the average for chief executive officers in the Company's industry comparative
group. Under the Company's executive compensation program, the total
compensation mix for senior executives emphasizes longer-term rewards in the
form of stock options. In 1999, Messrs. Chess and Gill received option grants to
purchase 50,000 shares each of the Company's Common Stock at the fair market
value of the Common Stock on the date of grant. This grant was based on the same
factors used in making grants to other executive officers. This grant was made
to enhance retention and the overall competitiveness of the compensation package
of Messrs. Chess and Gill and to strengthen the alignment of Messrs. Chess's and
Gill's interests with those of the stockholders. For 1999, the Committee set a
bonus of approximately 33% of salary for both Messrs. Chess' and Gill's bonuses
based upon the achievement of virtually all of the corporate goals discussed
above.
SUMMARY
The Committee believes that the compensation of executives by the Company is
appropriate and competitive with the compensation programs provided by other
drug delivery and biopharmaceutical companies with which the Company competes
for executives and employees. The Committee believes its compensation strategy,
principles and practices result in a compensation program tied to stockholder
returns and linked to the achievement of annual and longer-term financial and
operational results of the Company on behalf of the Company's stockholders.
COMPENSATION COMMITTEE
Mark J. Gabrielson
James B. Glavin
22
<PAGE>
COMPARISON OF STOCKHOLDER RETURN(1)
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on the Company's Common Stock with the CRSP Total
Return Index for the Nasdaq Stock Market (U.S. Companies) and the CRSP Total
Return Index for the Nasdaq Pharmaceutical Stocks(2) for the period commencing
on May 2, 1994, and ending on December 31, 1999.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM MAY 2, 1994(3), AND ENDING ON
DECEMBER 31, 1999(4)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
COMPARISON OF CUMULATIVE TOTAL RETURN FROM MAY 2, 1994(3)
THROUGH DECEMBER 31, 1998(4) INHALE THERAPUTIC SYSTEMS, INC.
<TABLE>
<CAPTION>
NASDAQ US NASDAQ PHARMACEUTICAL INHALE THERAPEUTIC SYSTEMS, INC.
<S> <C> <C> <C>
5/2/94 100 100 100
6/30/94 96 90 73
9/30/94 104 101 130
12/30/94 102 95 123
3/31/95 114 103 103
6/30/95 131 119 107
9/30/95 146 149 160
12/31/95 148 174 130
3/31/96 155 181 203
6/30/96 168 176 247
9/30/96 174 180 172
12/31/96 182 174 202
3/31/97 172 129 255
6/30/97 204 136 330
9/30/97 239 151 418
12/31/97 224 133 347
3/31/98 262 149 362
6/30/98 269 140 330
9/30/98 243 140 373
12/31/98 315 192 440
3/31/99 353 252 362
6/30/99 387 256 318
9/30/99 396 293 405
12/31/99 584 426 568
</TABLE>
(1) The material in this report is not "soliciting material" and is not deemed
filed with the SEC, and is not to be incorporated by reference into any filing
of the company under the Act or the Exchange Act, whether made before or after
the date hereof and irrespective of any general incorporation language contained
in any such filing.
(2) The CRSP Total Return Index for the NASDAQ Stock Market and for the NASDAQ
Stock Market Pharmaceutical Stocks are calculated by the Center for Research in
Securities Prices (CRSP).
(3) For purposes of this presentation, the Company has assumed that its initial
offering price of $7.50 per share would have been the closing sales price on May
2, 1994, the day prior to commencement of trading. The Company's initial public
offering commenced on May 3, 1994 and the Company's 1998 fiscal year ended
December 31, 1998.
(4) Assumes that $100.00 was invested on May 2, 1994, in the Company's Common
Stock at the Company's initial offering price of $7.50 per share and at the
closing sales price for each index on that date and that all dividends were
reinvested. No cash dividends have been declared on the Company's Common Stock.
Shareholder returns over the indicated period should not be considered
indicative of future shareholder returns.
- ------------------------
(1) The material in this report is not "soliciting material" and is not deemed
filed with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933 as amended or the
Exchange Act, whether made before or after the date hereof and irrespective
of any general incorporation language contained in any such filing.
(2) The CRSP Total Return Index for the Nasdaq Stock Market and for the Nasdaq
Stock Market Pharmaceutical Stocks are calculated by the Center for Research
in Securities Prices (CRSP).
(3) For purposes of this presentation, the Company has assumed that its initial
offering price of $7.50 per share would have been the closing sales price on
May 2, 1994, the day prior to commencement of trading. The Company's initial
public offering commenced on May 3, 1994 and the Company's 1999 fiscal year
ended December 31, 1999.
(4) Assumes that $100.00 was invested on May 2, 1994, in the Company's Common
Stock at the Company's initial offering price of $7.50 per share and at the
closing sales price for each index on that date and that all dividends were
reinvested. No cash dividends have been declared on the Company's Common
Stock. Stockholder returns over the indicated period should not be
considered indicative of future shareholder returns.
23
<PAGE>
CERTAIN TRANSACTIONS
The Company's Bylaws provide that the Company will indemnify its directors
and may indemnify its officers, employees and other agents to the fullest extent
permitted by Delaware law. The Company is also empowered under its Bylaws to
enter into indemnification contracts with its directors and officers and to
purchase insurance on behalf of any person whom it is required or permitted to
indemnify.
In addition, the Company's Restated Certificate of Incorporation provides
that the liability of the directors for monetary damages shall be eliminated to
the fullest extent permissible under Delaware law. Pursuant to Delaware law, the
Company's directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty of care to the Company and its stockholders. However,
this provision does not eliminate the duty of care, and in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for (i) breach of the
directors duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions, (iii) violating Section 174 of the Delaware General Corporation Law,
or (iv) any transaction from which the director derived an improper personal
benefit. The provision also does not affect a director's responsibilities under
any other law, such as the federal securities laws or state or federal
environmental laws.
- ------------------------
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
[/S/ STEPHEN L. HURST]
Stephen L. Hurst
SECRETARY
May 5, 2000
A COPY OF THE COMPANY'S AMENDED ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K/A FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, INHALE
THERAPEUTIC SYSTEMS, INC., 150 INDUSTRIAL ROAD, SAN CARLOS, CALIFORNIA 94070.
24
<PAGE>
INHALE THERAPEUTIC SYSTEMS, INC.
PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 6, 2000
The undersigned hereby appoints ROBERT B. CHESS and AJIT S. GILL, 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 Inhale Therapeutic Systems,
Inc. which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Inhale Therapeutic Systems, Inc. to be held at the Company's
executive offices, 150 Industrial Road, San Carlos, California on Tuesday, June
6, 2000 at 10:00 a.m. local time, and at any and all postponements,
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, PROPOSAL 3 AND PROPOSAL 4, AS
MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS
ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark your votes as indicated in this example /X/
PROPOSAL 1. To elect directors to hold office until the next Annual Meeting of
stockholders and until their successors are elected.
/ / FOR
/ / WITHHOLD AUTHORITY
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
Nominees: Robert B. Chess, Mark Gabrielson and James B. Glavin.
To withhold authority to vote for any individual nominee(s), write such
nominee(s)' name(s) below.
- -----------------------------------------------------
- -----------------------------------------------------
PROPOSAL 2. To approve the amendment and restatement of the Company's 1994
Equity Incentive Plan, which as amended, is entitled the 2000
Equity Incentive Plan, and to increase the aggregate number of
shares of common stock authorized for issuance under such plan
by 500,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 3. To approve an amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of Common
Stock from 50,000,000 shares to 300,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 4. To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending December 31, 2000.
/ / FOR / / AGAINST / / ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 4.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY CARD IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
Signature(s)__________________________________________ Dated__________, 2000
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.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
