<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
NEUROCRINE BIOSCIENCES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
NEUROCRINE BIOSCIENCES, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1997
------------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
Neurocrine Biosciences, Inc., a Delaware corporation (the "Company"), will be
held on May 27, 1997, at 10:00 a.m. local time, at the Sheraton Grande Torrey
Pines, located at 10950 North Torrey Pines Road, La Jolla, California, 92037 for
the following purposes as more fully described in the Proxy Statement
accompanying this Notice:
1. To amend the Bylaws to increase the number of directors on the
Board of Directors from six to seven.
2. To elect the appropriate number of Class I directors to the Board
of Directors to serve for a term of three years.
3. To increase the number of shares of Common Stock reserved for
issuance under the Company's 1992 Incentive Stock Plan from 3,300,000 to
4,100,000 shares.
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1997.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 7, 1997 are
entitled to receive notice of and to vote at the meeting. All stockholders are
cordially invited to attend the meeting in person. However, to assure your
representation at the meeting, you are urged to mark, sign, date and return the
enclosed Proxy card as promptly as possible in the postage-prepaid envelope
enclosed for that purpose. Stockholders attending the meeting may vote in person
even if they have returned a Proxy.
By Order of the Board of Directors,
Michael J. O'Donnell
Secretary
San Diego, California
April 28, 1997
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING,
YOU MAY VOTE IN PERSON, EVEN IF YOU RETURN A PROXY.
<PAGE> 3
NEUROCRINE BIOSCIENCES, INC.
------------------------
PROXY STATEMENT
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of Neurocrine Biosciences, Inc.,
a Delaware corporation (the "Company"), for use at its 1997 Annual Meeting of
Stockholders to be held on May 27, 1997, at 10:00 a.m., local time, or at any
adjournments or postponements thereof, for the purposes set forth in this Proxy
Statement and in the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held at the Sheraton Grande Torrey Pines, located at
10950 North Torrey Pines Road, La Jolla, California. The telephone number for
the location of the Annual Meeting of Stockholders is (619) 558-1500. The
Company's principal executive offices are located at 3050 Science Park Road, San
Diego, California, 92121. The Company's telephone number is (619) 658-7600.
These proxy solicitation materials were mailed on or about April 28, 1997,
to all stockholders entitled to vote at the meeting.
RECORD DATE; OUTSTANDING SHARES
Stockholders of record at the close of business on April 7, 1997 (the
"Record Date"), are entitled to receive notice of and vote at the meeting. On
the Record Date, 16,869,820 shares of the Company's Common Stock, $0.001 par
value, were issued and outstanding and held of record by approximately 475
shareholders. For information regarding holders of more than five percent of the
outstanding Common Stock, see "Election of Directors -- Stock Ownership of
Principal Stockholders and Management."
REVOCABILITY OF PROXIES
Proxies given pursuant to this solicitation may be revoked at any time
before they have been used. Revocation will occur by delivering a written notice
of revocation to the Company or by duly executing a proxy bearing a later date.
Revocation will also occur if the individual attends the meeting and votes in
person.
VOTING AND SOLICITATION
Every stockholder of record on the Record Date is entitled, for each share
held, to one vote on each proposal or item that comes before the meeting. In the
election of directors, each stockholder will be entitled to vote for two
nominees (three if the proposal to increase the size of the Board of Directors
from six to seven is approved) and the appropriate number of nominees with the
greatest number of votes will be elected.
The cost of this solicitation will be borne by the Company. The Company may
reimburse expenses incurred by brokerage firms and other persons representing
beneficial owners of shares in forwarding solicitation material to beneficial
owners. Proxies may be solicited by certain of the Company's directors, officers
and regular employees, without additional compensation, personally, by telephone
or by telegram.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's Transfer Agent. The Inspector will also determine whether or not a
quorum is present. Except in certain specific circumstances, the affirmative
vote of a majority of shares present in person or represented by proxy at a duly
held meeting at which a quorum is present is required under Delaware law for
approval of proposals presented to stockholders. In general, Delaware law
<PAGE> 4
also provides that a quorum consists of a majority of shares entitled to vote
and present or represented by proxy at the meeting.
The Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN" as
being present and entitled to vote for purposes of determining the presence of a
quorum but will not be treated as votes in favor of approving any matter
submitted to the stockholders for a vote. Any proxy which is returned using the
form of proxy enclosed and which is not marked as to a particular item will be
voted for the election of the directors named in the proxy, for the increase of
the number of directors from six to seven, for the approval of the amendment of
the 1992 Stock Plan, for the confirmation of the appointment of the designated
independent auditors and, as the proxy holders deem advisable, on other matters
that may come before the meeting, as the case may be with respect to the items
not marked.
If a broker indicates on the enclosed proxy or its substitute that it does
not have discretionary authority as to certain shares to vote on a particular
matter ("Broker Non-Votes"), those shares will be considered as present with
respect to that matter. The Company believes that the tabulation procedures to
be followed by the Inspector are consistent with the general statutory
requirements in Delaware concerning voting of shares and determination of a
quorum.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals which are intended to be presented at the Company's
1998 Annual Meeting must be received by the Company no later December 19, 1997
in order that they may be included in the proxy statement and form of proxy for
that meeting.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership on Form 3 and changes in ownership on
Form 4 or Form 5 with the SEC. Such officers, directors and 10% stockholders are
also required by SEC rules to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting persons, the
Company believes that, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and 10%
stockholders were complied with.
2
<PAGE> 5
STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of April 7, 1997 by (i) each of the executive officers named in
the table under "Executive Compensation -- Summary Compensation Table," (ii)
each director, (iii) all current directors and executive officers as a group and
(iv) all persons known to the Company to be the beneficial owners of more than
5% of the Company's Common Stock. A total of 16,869,820 shares of the Company's
Common Stock were issued and outstanding as of April 7, 1997.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) PERCENT
------------------------------------------------------------- ------------ -------
<S> <C> <C>
Abingworth Bioventures SICAV................................. 878,970 5.2%
231 Val Des Bons Malades
Boite Postale 566
L-2015 Luxembourg
Ciba-Geigy Limited........................................... 1,121,353 6.6
Klybeckstrasse 141
CH-4002
Basle, Switzerland
David Schnell(2)............................................. 545,337 3.2
Gary A. Lyons(3)............................................. 620,767 3.6
Errol B. De Souza(4)......................................... 512,734 3.0
Wylie W. Vale(5)............................................. 427,130 2.5
Harry F. Hixson, Jr.(6)...................................... 215,261 1.3
Paul W. Hawran(7)............................................ 173,050 1.0
Howard C. Birndorf(8)........................................ 83,650 *
David E. Robinson(9)......................................... 28,000 *
All executive officers and directors as a group (8
persons)(10)............................................... 2,605,929 15.0
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent (1%) of the
outstanding shares of the Company's Common Stock.
(1) Beneficial ownership is determined with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to stock options and
warrants currently exercisable or exercisable within 60 days are deemed to
be outstanding for computing the percentage ownership of the person holding
such options and the percentage ownership of any group of which the holder
is a member, but are not deemed outstanding for computing the percentage of
any other person. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown beneficially owned by them.
(2) Includes 537,676 shares held by Kleiner Perkins Caufield & Byers VI, L.P.
("KPCB VI") and 7,661 shares held by David Schnell, M.D. Dr. Schnell, a
director of the Company, is a venture limited partner of Kleiner Perkins
Caufield & Byers VII Associates, which is the General Partner of KPCB VI.
Dr. Schnell disclaims beneficial ownership of the shares held by KPCB VI,
except to the extent of his partnership interest in such shares.
(3) Includes 220,567 shares issuable pursuant to options exercisable within 60
days of April 7, 1997.
(4) Includes 131,667 shares issuable pursuant to options exercisable within 60
days of April 7, 1997.
(5) Includes 101,000 shares issuable pursuant to options exercisable within 60
days of April 7, 1997.
3
<PAGE> 6
(6) Includes 205,897 shares of Common Stock held in the name of The Hixson
Family Trust of which Dr. Hixson is Trustee, 1,364 shares held by Dr.
Hixson, and 8,000 shares issuable pursuant to options exercisable within 60
days of April 7, 1997.
(7) Includes 61,050 shares issuable pursuant to options exercisable within 60
days of April 7, 1997.
(8) Includes 8,000 shares issuable pursuant to options exercisable within 60
days of April 7, 1997.
(9) Includes 28,000 shares issuable pursuant to options exercisable within 60
days of April 7, 1997.
(10) Includes 558,284 shares issuable pursuant to options exercisable within 60
days of April 7, 1997.
PROPOSAL ONE:
INCREASE IN NUMBER OF DIRECTORS FROM SIX TO SEVEN
The Bylaws of the Company currently provide that the Board of Directors of
the Company shall consist of six (6) directors. In April 1997, the Board of
Directors approved a resolution which would, subject to the approval of the
stockholders at the Annual Meeting, amend Section 3.2 of the Bylaws to provide
that the Board of Directors shall consist of seven (7) directors.
The Board of Directors believes that an increase in the number of directors
would be in the best interests of the Company because it would, among other
things, avail the Company of the expertise, guidance, and business judgment of a
greater number of individuals.
The Company's Certificate of Incorporation provides for a Board of
Directors that is divided into three classes. Currently there are two directors
in each class. The directors in Class I hold office until the 1997 Annual
Meeting of Stockholders; the directors in Class II hold office until the 1998
Annual Meeting of Stockholders; and the directors in Class III hold office until
the 1999 Annual Meeting of Stockholders (or, in each case, until their
successors are duly elected and qualified or their earlier resignation, removal
from office or death). After each such election, the directors in each such case
will then serve in succeeding terms of three years and until their successors
are duly elected and qualified.
In the event the shareholders approve the proposal to increase the number
of directors to seven, then Class I shall consist of three directors, Class II
shall consist of two directors, and Class III shall consist of two directors. In
such event, at the 1997 Annual Meeting, the shareholders will elect three Class
I directors. At the 1998 Annual Meeting, the shareholders will vote in the
election of two Class II directors. At the 1999 Annual Meeting, the shareholders
will vote in the election of two Class III directors.
VOTE REQUIRED
The affirmative vote of 66 2/3% of the outstanding voting securities of the
Company, voting together as a single class, will be required to approve the
amendment to the Bylaws to increase the number of directors from six to seven.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE AMENDMENT
OF THE BYLAWS TO INCREASE THE NUMBER OF DIRECTORS FROM SIX TO SEVEN.
PROPOSAL TWO:
ELECTION OF DIRECTORS
GENERAL
The Company's Certificate of Incorporation provides for a Board of
Directors that is divided into three classes. The Directors in Class I hold
office until the 1997 Annual Meeting of Stockholders; the Directors in Class II
hold office until the 1998 Annual Meeting of Stockholders; and the Directors in
Class III hold office until the 1999 Annual Meeting of Stockholders (or, in each
case, until their earlier resignation, removal from office or death). After each
such election, the Directors in each such case will then serve in succeeding
terms of three years and until their successors are duly elected and qualified.
Officers of the Company serve at the
4
<PAGE> 7
discretion of the Board of Directors. There are no family relationships among
the Company's Directors and executive officers.
The Company currently has six directors with two directors each in Class I,
Class II and Class III. The terms of office of directors David Schnell and Wylie
Vale expire at the 1997 Annual Meeting. Assuming Proposal One for the increase
in the size of the Board of Directors from six to seven is approved, at the 1997
Annual Meeting the stockholders will elect three directors for a term of three
years. Assuming Proposal Two is not approved by the stockholders at the 1997
Annual Meeting, then the stockholders will elect two directors for a term of
three years.
VOTE REQUIRED
If Proposal One is approved, the three nominees receiving the highest
number of affirmative votes of the shares present in person or represented by
proxy at the Annual Meeting and entitled to vote on the election of directors
shall be elected to the Board of Directors. If Proposal One is not approved, the
two nominees receiving the highest number of affirmative votes of the shares
present in person or represented by proxy at the Annual Meeting and entitled to
vote on the election of directors shall be elected to the Board of Directors.
Votes withheld from any director are counted for purposes of determining
the presence or absence of a quorum, but have no legal effect under Delaware
law. While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions and broker non-votes in the election of
directors, the Company believes that both abstentions and broker non-votes
should be counted for purposes of whether a quorum is present at the Annual
Meeting. In the absence of precedent to the contrary, the Company intends to
treat abstentions and broker non-votes with respect to the election of directors
in this manner.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's three nominees named below. In the event that
Proposal One increasing the size of the Board is not approved, then the proxy
holders will vote the proxies received by them for Wylie Vale and Joseph A.
Mollica. If any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who is designated by the present Board of Directors to fill the vacancy.
It is not expected that any nominee will be unable or will decline to serve as a
director. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
NOMINEES LISTED BELOW.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
Of the three nominees, one is a co-founder and director of the Company
(Wylie W. Vale), one is not presently an employee or director of the Company
(Joseph A. Mollica) and one is a co-founder and executive officer, but not
presently a director, of the Company (Errol B. DeSouza). David Schnell,
currently a director of the Company, is not seeking re-election at the 1997
Annual Meeting of Shareholders. The names of the nominees, and certain
information about them, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION IN THE COMPANY SINCE
- ------------------------ --- ----------------------------------------------- --------
<S> <C> <C> <C>
Wylie W. Vale(1)........ 55 Chief Scientist, Neuroendocrinology and 1992
Director
Joseph A. Mollica....... 56 n/a n/a
Errol B. DeSouza........ 43 Executive Vice President, Research and n/a
Development
</TABLE>
- ---------------
(1) Member of Audit Committee.
Wylie W. Vale, Ph.D., is Neurocrine's Founder and Chief Scientist,
Neuroendocrinology and Chairman of the Company's Founding Board of Scientific
and Medical Advisors and its Executive Committee. Dr. Vale was elected a
Director of the Company in September 1992. He is a Professor at The Salk
Institute for Biological Studies ("The Salk Institute") and is the Senior
Investigator and Head of The Clayton Foundation Laboratories for Peptide Biology
at The Salk Institute, where he has been employed for 25 years. Dr. Vale is the
current Chairman of the Faculty and a current Member of the Board of Trustees of
The Salk Institute. Dr. Vale is recognized for his work on the identification of
neuroendocrine factors such as somatostatin,
5
<PAGE> 8
growth hormone releasing factor, corticotropin releasing factor, CRF-BP,
gonadotropin releasing hormone, activin and the activin receptor, the CRF(1)
receptor and urocortin, the native ligand for the CRF(2) receptor. These
scientific advances have distinguished him as one of the 10 most cited
scientific authors in the world in the past decade. Dr. Vale received a B.A. in
Biology from Rice University, and a Ph.D. in Physiology and Biochemistry from
the Baylor College of Medicine.
Joseph A. Mollica, Ph.D., has served as the Chairman of the Board of
Directors and Chief Executive Officer of Pharmacopeia, Inc., a biopharmaceutical
and combinatorial chemistry company, since February 1994. From 1987 to December
1993, Dr. Mollica was employed initially by the DuPont Company and then by The
DuPont Merck Pharmaceutical Company, most recently as President and Chief
Executive Officer. Dr. Mollica is a director of USP, Inc. and ImPath, Inc. Dr.
Mollica received a Ph.D. from the University of Wisconsin and a Doctor of
Science, h.c., from the University of Rhode Island.
Errol B. De Souza, Ph.D., is a Founder and Executive Vice President,
Research and Development for the Company. Prior to joining the Company in
October 1992, Dr. De Souza was Director of Central Nervous System Diseases
Research for The Du Pont Merck Pharmaceutical Company ("Du Pont Merck"), where
he directed the discovery efforts of over 100 scientists in the fields of
neurobiology, molecular biology, pharmacology and chemistry commencing in May
1990. Prior to joining Du Pont Merck, Dr. De Souza was Chief of the Laboratory
of Neurobiology at the National Institute on Drug Abuse and an Associate
Professor in the Department of Pathology at The Johns Hopkins University School
of Medicine. Dr. De Souza received a B.A. in Physiology and a Ph.D. in
Endocrinology from the University of Toronto and pursued post-doctoral training
at The Johns Hopkins University School of Medicine and the University of
Kentucky.
INCUMBENT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER THE ANNUAL MEETING
The Class II and III directors will remain in office after the 1997 Annual
Meeting. The Class II directors are Howard Birndorf and David Robinson. The
Class III directors are Gary Lyons and Harry Hixson. The names and certain other
information about the Directors whose terms of office continue after the Annual
Meeting are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF DIRECTOR AGE POSITION/PRINCIPAL OCCUPATION SINCE
- ---------------------------- --- ------------------------------------------- --------
<S> <C> <C> <C>
Harry F. Hixson,
Jr.(1)(2)................. 58 Chairman of the Board 1992
Gary A. Lyons............... 46 President, Chief Executive Officer and 1993
Director
Howard C. Birndorf(2)....... 47 Director 1992
David E. Robinson(2)........ 48 Director 1994
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Harry F. Hixson, Jr., Ph.D., has served as a Director and Chairman of the
Board of the Company since September 1992. Dr. Hixson worked with Amgen, Inc.
("Amgen") from July 1985 through February 1991, most recently as President,
Chief Operating Officer and director. While at Amgen, he was responsible for
pharmaceutical development, manufacturing and marketing and sales in the United
States and the rest of the world. Dr. Hixson is a director of Allergan Ligand
Retinoid Therapeutics, Inc. Dr. Hixson holds a Ph.D. in Physical Biochemistry
from Purdue University and an M.B.A. from the University of Chicago.
Gary A. Lyons has served as President, Chief Executive Officer and a
Director of the Company since February 1993. Prior to joining the Company in
February 1993, Mr. Lyons was Vice President of Business Development at
Genentech, Inc. ("Genentech") since 1989. At Genentech, he was responsible for
international licensing, acquisitions and partnering. He was also responsible
for Genentech's Corporate Venture Program which participated in early financing
and/or formation of a number of biotechnology companies. In addition, Mr. Lyons
had operating responsibility for Genentech's two subsidiaries, Genentech Canada,
Inc. and Genentech Limited (Japan). Previously, he served as Vice President of
Sales and was responsible for building the marketing and sales organization for
the commercial introduction of Genentech's first two
6
<PAGE> 9
pharmaceutical products, Protropin (human growth hormone) and Activase (TPA).
Mr. Lyons holds a B.S. in Marine Biology from the University of New Hampshire
and an M.B.A. from Northwestern University's J.L. Kellogg Graduate School of
Management.
Howard C. Birndorf became a Director of the Company in September 1992. Mr.
Birndorf is Chairman and Chief Executive Officer and Co-Founder of Nanogen,
Inc., a biotechnology company. From November 1991 to January 1994, Mr. Birndorf
was president of Birndorf Biotechnology Development, an investment and
consulting company. Mr. Birndorf was Co-Founder and Chairman Emeritus of Ligand
Pharmaceuticals Incorporated ("Ligand"). He held the position of President and
Chief Executive Officer of Ligand from January 1988 to November 1991. In
addition, Mr. Birndorf was Co-Founder of IDEC Pharmaceuticals, Inc, a
biotechnology company, in 1985 and was involved in the formation of Gensia
Pharmaceuticals, Inc., a biotechnology company, in 1986 and served on the boards
of directors of these companies from their respective inceptions until 1991. He
is a director of the Cancer Center of the University of California at San Diego
and a Presidential Appointee to the United States Department of Commerce
Biotechnology Technical Advisory Committee. Mr. Birndorf received an M.S. in
Biochemistry from Wayne State University.
David E. Robinson became a Director of the Company in May 1994. Since 1991,
he has served as President and Chief Executive Officer of Ligand, a
biotechnology company. Prior to joining Ligand in 1991, he was Chief Operating
Officer at Erbamont N.V. ("Erbamont"), a pharmaceutical company. Prior to that,
Mr. Robinson was President of Adria Laboratories, Erbamont's North American
subsidiary. He also was employed in various executive positions for more than 10
years by Abbott Laboratories, most recently as Regional Director of Abbott
Europe. Mr. Robinson received his M.B.A. from the University of New South Wales,
Australia.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of six meetings and took
action by written consent on three occasions during 1996. During 1996 the Board
of Directors had an Audit Committee and a Compensation Committee. No director
attended fewer than 75% of the aggregate of the total number of meetings of the
Board of Directors and the total number of meetings held by all committees of
the Board of Directors on which he served other than David Schnell, who did not
attend two meetings of the Board of Directors in 1996.
The Audit Committee in 1996 consisted of directors Harry F. Hixson, Jr. and
Wylie W. Vale and met once during 1996. This committee is primarily responsible
for approving the services performed by the Company's independent auditors and
for reviewing and evaluating the Company's accounting principles and its system
of internal accounting controls.
The Compensation Committee in 1996 consisted of directors Howard C.
Birndorf, David E. Robinson, David Schnell (until December 1996), and Harry F.
Hixson, Jr. (commencing December 1996), and met twice during 1996. The
Compensation committee reviewed and recommended to the Board the compensation of
all executive officers.
BOARD COMPENSATION
Non-employee directors are reimbursed for expenses incurred in connection
with performing their respective duties as directors of the Company. The Company
paid no cash compensation to any director during the 1996 fiscal year. However,
beginning in 1997, the Company will pay each director who is not an employee or
consultant of the Company $1750 for each regular meeting of the Board of
Directors, $750 for each special meeting, $600 for each committee meeting, and
$600 for each telephone meeting lasting more than one hour, which such director
attends.
1996 Director Stock Option Plan. Each non-employee director participates
in the 1996 Director Stock Option Plan (the "Director Plan"). The Director Plan
was adopted by the Board of Directors in March 1996 and approved by the
stockholders at the Company's 1996 annual stockholders' meeting. A total of
100,000 shares of Common Stock is reserved for issuance under the Director Plan.
The option grants under the
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<PAGE> 10
Director Plan are automatic and non-discretionary, and the exercise price of the
options are 100% of the fair market value of the Common Stock on the grant date.
To date, no options have been granted under the Director Plan.
The Director Plan provides for the grant of options to purchase 10,000
shares of Common Stock to each non-employee director of the Company at each
annual meeting of the stockholders commencing in 1997, providing such
non-employee director has been a non-employee director of the Company for at
least six months prior to the date of such annual meeting of the stockholders.
Each new non-employee director is automatically granted an option to purchase
10,000 shares of Common Stock upon the date such person joins the Board of
Directors. The term of such options is ten years. Any option granted to a
non-employee director becomes exercisable over a three-year period following the
date of grant. The Director Plan prohibits any transfer by the optionee other
than by will or the laws of descent or distribution. Any optionee whose
relationship with the Company or any related corporation ceases for any reason
(other than by death or permanent and total disability) may exercise options
only during a 90-day period following such cessation (unless such options
terminate or expire sooner by their terms). Upon a merger or asset sale, all
outstanding options under the Director Plan will be assumed or replaced with an
equivalent option by the successor corporation. In the event that the successor
corporation does not agree to assume the outstanding options or substitute an
equivalent option, each outstanding option shall become fully vested and
exercisable, including as to shares not otherwise exercisable. Each optionee
will be given 30 days' notice of the merger or asset sale and be given the
opportunity to fully exercise all outstanding options. All options not exercised
within the 30 day notice period will expire. The Director Plan will terminate in
March 2006, unless sooner terminated by the Board of Directors.
PROPOSAL THREE:
APPROVAL OF INCREASE IN SHARES ISSUABLE
UNDER THE 1992 INCENTIVE STOCK PLAN
INCREASE OF 800,000 SHARES
The Company's 1992 Incentive Stock Plan, as amended (the "Plan") was
approved by the Board of Directors and the stockholders of the Company in 1992.
Currently there are a total of 3,300,000 shares of Common Stock reserved for
issuance under the Plan. In April 1997, the Board of Directors approved a
further increase of 800,000 shares issuable under the Plan, which, if approved
by the stockholders, would increase the total shares reserved for issuance under
the Plan to 4,100,000 shares.
The Board believes the proposed increase in the number of shares reserved
for issuance under the Plan is in the best interest of the Company. In
particular, the Board has determined that the proposed increase will provide an
additional reserve of shares for issuance under the Plan and thus enable the
Company to attract and retain valuable employees.
As of February 28, 1997, there were options outstanding to purchase
1,851,939 shares of Common Stock pursuant to the 1992 Stock Plan; 56,618 shares
remained available for future option grants; 1,343,300 shares had been exercised
pursuant to restricted stock agreements by founders of the Company; and 48,143
shares were issued and outstanding pursuant to option exercises by employees
and/or consultants of the Company.
SUMMARY OF THE PLAN
The essential features of the Plan, as amended and restated, are summarized
below. This summary does not purport to be complete and is subject to, and
qualified by, reference to all provisions of the Plan, as amended and restated.
GENERAL. The purpose of the Plan is to attract and retain the best
available personnel, to provide additional incentive to the employees and
consultants of the Company and to promote the success of the Company's business.
Options and stock purchase rights may be granted under the Plan. Options granted
under
8
<PAGE> 11
the Plan may be either "incentive stock options," as defined in Section 422 of
the Code, or nonstatutory stock options.
ADMINISTRATION. The Plan may generally be administered by the Board or a
Committee appointed by the Board. However, with respect to grants of options to
employees who are also officers or directors of the Company ("Insiders"), the
Plan shall be administered by: (i) the Board if the Board may administer the
Plan in a manner complying with Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or any successor rule
thereto ("Rule 16b-3") with respect to a plan under which discretionary grants
and awards of equity securities are to be made to Insiders; or (ii) a committee
designated by the Board to administer the Plan, which committee shall be
constituted to comply with the rules under Rule 16b-3 governing a plan under
which discretionary grants and awards of equity securities are to be made to
Insiders. The administrators of the Plan are referred to herein as the
"Administrator."
ELIGIBILITY; LIMITATIONS. Nonstatutory stock options and stock purchase
rights may be granted under the Plan to employees and consultants of the Company
and any parent or subsidiary of the Company. Incentive stock options may be
granted only to employees. The Administrator, in its discretion, selects the
employees and consultants to whom options and stock purchase rights may be
granted, the time or times at which such options and stock purchase rights shall
be granted, and the number of shares subject to each such grant.
Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options and stock purchase rights granted to such
persons, the Plan provides that no employee may be granted, in any fiscal year
of the Company, options and stock purchase rights to purchase more than 250,000
shares of Common Stock. Notwithstanding this limit, however, in connection with
an employee's initial employment, he or she may be granted options or stock
purchase rights to purchase up to an additional 250,000 shares of Common Stock.
TERMS AND CONDITIONS OF OPTIONS. Each option is evidenced by a stock
option agreement between the Company and the optionee, and is subject to the
following additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price
of options at the time the options are granted. The exercise price of an
incentive stock option may not be less than 100% of the fair market value
of the Common Stock on the date such option is granted; provided, however,
the exercise price of an incentive stock option granted to a 10%
shareholder may not be less than 110% of the fair market value of the
Common Stock on the date such option is granted. The exercise price of a
nonstatutory stock option may not be less than 85% of the fair market value
of the Common Stock on the date such option is granted; provided, however,
the exercise price of a nonstatutory stock option granted to a 10%
shareholder may not be less than 110% of the fair market value of the
Common Stock on the date such option is granted. The fair market value of
the Common Stock is generally determined with reference to the closing sale
price for the Common Stock (or the closing bid if no sales were reported)
on the last market trading day prior to the date the option is granted.
(b) Exercise of Option; Form of Consideration. The Administrator
determines when options become exercisable. The means of payment for shares
issued upon exercise of an option is specified in each option agreement.
The Plan permits payment to be made by cash, check, promissory note, other
shares of Common Stock of the Company (with some restrictions), cashless
exercise, any other form of consideration permitted by applicable law, or
any combination thereof.
(c) Term of Option. The term of option may be no more than ten (10)
years from the date of grant; provided that in the case of an incentive
stock option granted to a 10% shareholder, the term of the option may be no
more than five (5) years from the date of grant. No option may be exercised
after the expiration of its term.
(d) Termination of Employment. If an optionee's employment or
consulting relationship terminates for any reason (other than death or
disability), then all options held by the optionee under the Plan
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<PAGE> 12
expire on the earlier of (i) the date set forth in his or her notice of
grant (which date in the case of an incentive stock option may not be more
than three (3) months after the date of such termination, and in the case
of a nonstatutory stock option, may not be more than six (6) months after
the date of such termination), or (ii) the expiration date of such option.
To the extent the option is exercisable at the time of the optionee's
termination, the optionee may exercise all or part of his or her option at
any time before it terminates.
(e) Disability. If an optionee's employment or consulting
relationship terminates as a result of disability, then all options held by
such optionee under the Plan expire on the earlier of (i) 6 months from the
date of such termination (or such longer period of time not exceeding 12
months as determined by the Administrator) or (ii) the expiration date of
such option. The optionee (or the optionee's estate or a person who has
acquired the right to exercise the option by bequest or inheritance), may
exercise all or part of the option at any time before such expiration to
the extent that the option was exercisable at the time of such termination.
(f) Death. In the event of an optionee's death: (i) during the
optionee's employment or consulting relationship with the Company, the
option may be exercised, at any time within 6 months of the date of death
(but no later than the expiration date of such option) by the optionee's
estate or a person who has acquired the right to exercise the option by
bequest or inheritance, but only to the extent that the optionee's right to
exercise the option would have accrued if he or she had remained an
employee or consultant of the Company 6 months after the date of death; or
(ii) within 30 days (or such other period of time not exceeding 3 months as
determined by the Administrator) after the optionee's employment or
consulting relationship with the Company terminates, the option may be
exercised at anytime within 6 months (or such other period of time as
determined by the Administrator) following the date of death (but in no
event later than the expiration date of the option) by the optionee's
estate or a person who has acquired the right to exercise the option by
bequest or inheritance, but only to the extent of the optionee's right to
exercise the option at the date of termination.
(g) Nontransferability of Options. Options granted under the Plan are
not transferable other than by will or the laws of descent and
distribution, and may be exercisable during the optionee's lifetime only by
the optionee.
(h) Other Provisions. The stock option agreement may contain other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Administrator.
STOCK PURCHASE RIGHTS. A stock purchase right gives the purchaser a period
of no longer than 6 months from the date of grant to purchase Common Stock. The
purchase price of Common Stock purchased pursuant to a stock purchase right is
determined in the same manner as for nonstatutory stock options. A stock
purchase right is accepted by the execution of a restricted stock purchase
agreement between the Company and the purchaser, accompanied by the payment of
the purchase price for the shares. Unless the Administrator determines
otherwise, the restricted stock purchase agreement shall give the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment or consulting relationship with the Company for any
reason (including death and disability). The purchase price for any shares
repurchased by the Company shall be the original price paid by the purchaser.
The repurchase option lapses at a rate determined by the Administrator. A stock
purchase right is nontransferable other than by will or the laws of descent and
distribution, and may be exercisable during the optionee's lifetime only by the
optionee.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of stock
subject to the Plan, the number and class of shares of stock subject to any
option or stock purchase right outstanding under the Plan, and the exercise
price of any such outstanding option or stock purchase right.
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<PAGE> 13
In the event of a liquidation or dissolution, any unexercised options or
stock purchase rights will terminate. The Administrator shall notify the
optionee fifteen (15) days prior to the consummation of the liquidation or
dissolution.
In connection with any merger, consolidation, acquisition of assets or like
occurrence involving the Company, each outstanding option or stock purchase
right may be assumed or an equivalent option or right may be substituted by the
successor corporation. The vesting of each outstanding option or stock purchase
right shall accelerate (i.e. become exercisable immediately in full) in any of
the following events: (1) if the successor corporation refuses to assume the
option or stock purchase rights, or to substitute substantially equivalent
options or rights, (2) if the employment of the optionee is involuntarily
terminated without cause within one year following the date of closing of the
merger or acquisition, or (3) if the merger or acquisition is not approved by
the members of the board of directors in office prior to the commencement of
such merger or acquisition.
AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend, alter, suspend
or terminate the Plan, or any part thereof, at any time and for any reason.
However, the Company shall obtain shareholder approval for any amendment to the
Plan to the extent necessary to comply with Rule 16b-3 Section 162(m) of the
Code and Section 422 of the Code, or any similar rule or statute. No such action
by the Board or shareholders may alter or impair any option or stock purchase
right previously granted under the Plan without the consent of the optionee.
Unless terminated earlier, the Plan shall terminate ten years from the date of
its approval by the shareholders or the Board of the Company, whichever is
earlier.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director, or
10% shareholder of the Company. The Company is entitled to a deduction in the
same amount as the ordinary income recognized by the optionee.
NONSTATUTORY STOCK OPTIONS. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period.
STOCK PURCHASE RIGHTS. Stock purchase rights will generally be taxed in
the same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when a stock ceases to be subject to
a substantial risk of forfeiture. The stock will generally cease to be subject
to a substantial risk of forfeiture when it is no longer subject to the
Company's right to repurchase the stock upon the purchaser's termination of
employment with the Company. At such times, the purchaser will recognize
ordinary income
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<PAGE> 14
measured as the difference between the purchase price and the fair market value
of the stock on the date the stock is no longer subject to a substantial risk of
forfeiture.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding period
by timely filing an election pursuant to Section 83(b) of the Code. In such
event, the ordinary income recognized, if any, is measured as the difference
between the purchase price and the fair market value of the stock on the date of
purchase, and the capital gain holding period commences on such date. The
ordinary income recognized by a purchaser who is an employee will be subject to
tax withholding by the Company. Different rules may apply if the purchaser is
also an officer, director, or 10% shareholder of the Company.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES, HOLDERS OF STOCK PURCHASE RIGHTS, AND THE COMPANY WITH RESPECT
TO THE GRANT AND EXERCISE OF OPTIONS AND STOCK PURCHASE RIGHTS UNDER THE PLAN.
IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF
THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF
ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE EMPLOYEE OR CONSULTANT
MAY RESIDE.
VOTE REQUIRED
At the Annual Meeting, the shareholders are being asked to approve the
amendment of the 1992 Incentive Plan to increase the number of shares reserved
for issuance thereunder. The affirmative vote of the holders of a majority of
the shares entitled to vote at the Annual Meeting will be required to approve
the amendment of the 1992 Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE AMENDMENT OF THE STOCK
PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER.
PROPOSAL FOUR:
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP ("Ernst & Young"),
independent accountants, to audit the books, records and accounts of the Company
for the current fiscal year ending December 31, 1997.
The affirmative vote of the holders of a majority of the shares represented
and voting at the meeting will be required to approve and ratify the Board's
selection of Ernst & Young. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
APPROVAL AND RATIFICATION OF SUCH SELECTION. In the event of a negative vote on
such ratification, the Board of Directors will reconsider its selection.
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<PAGE> 15
OTHER INFORMATION REGARDING THE COMPANY
PERFORMANCE GRAPH
The following is a line graph comparing the cumulative total return to
stockholders of the Company's Common Stock from May 23, 1996 (the date of the
Company's initial public offering) through December 31, 1996 to the cumulative
total return over such period of: (i) The Nasdaq Stock Market (U.S. Companies)
Index and (ii) the Nasdaq Pharmaceutical Index. The performance shown is not
necessarily indicative of future price performance. The information contained in
the Performance Graph shall not be deemed to be "soliciting material" or to be
"filed" with the Securities and Exchange Commission (the "SEC"), nor shall such
information be incorporated by reference into any future filing under the
Securities Act of 1933, as amended (the "Securities Act"), or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), except to the extent that
the Company specifically incorporates it by reference into any such filing.
COMPARISON OF 7 MONTH CUMULATIVE TOTAL RETURN*
AMONG NEUROCRINE BIOSCIENCES, INC., THE NASDAQ STOCK MARKET -- U.S. INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NEUROCRINE NASDAQ NASDAQ STOCK
(FISCAL YEAR COVERED) BIOSCIENCES, INC. PHARMACEUTICAL MARKET (U.S.)
<S> <C> <C> <C>
5/23/96 100 100 100
12/31/96 95 87 103
</TABLE>
- ---------------
* $100 invested on 5/23/96 in stock or index -- including reinvestment of
dividends.
Fiscal Year ending December 31.
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<PAGE> 16
EXECUTIVE COMPENSATION
COMPENSATION TABLES
Summary Compensation Table. The following table sets forth the
compensation paid by the Company for each of the two years in the period ended
December 31, 1996 to the Chief Executive Officer and each of the other executive
officers of the Company (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- -------------------------
OTHER RESTRICTED
ANNUAL STOCK SECURITIES OTHER
SALARY BONUS COMPENSATION AWARDS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) OPTIONS(#) ($)
- ------------------------------- ---- ------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary A. Lyons.................. 1995 275,000 $25,000 -- -- 148,000 17,757(1)
President and Chief Executive 1996 290,000 55,000 -- -- -- 6,531(2)
Officer
Errol B. De Souza.............. 1995 215,700 15,000 -- -- 92,000 12,745(3)
Executive Vice President, 1996 227,700 35,000 -- -- -- 4,524(4)
Research and Development
Paul W. Hawran................. 1995 180,000 15,000 -- -- 65,000 29,379(5)
Senior Vice President and 1996 190,500 35,000 -- -- 20,000 10,236(6)
Chief Financial Officer
</TABLE>
- ---------------
(1) Represents reimbursement for taxes incurred by Mr. Lyons as a result of the
payments by the Company in 1995 of moving, housing and other expenses
incurred in connection with relocating to the Company's geographic region
($14,636) and the premium paid for the term life insurance policies for the
benefit of Mr. Lyons ($3,121).
(2) Represents payments by the Company of premiums for the term life insurance
policies for the benefit of Mr. Lyons.
(3) Represents reimbursement for taxes incurred by Dr. De Souza as a result of
the payments by the Company in 1995 of moving, housing and other expenses
incurred in connection with relocating to the Company's geographic region
($10,297) and the premium paid for the term life insurance policies for the
benefit of Dr. De Souza ($2,448).
(4) Represents payments by the Company of premiums for the term life insurance
policies for the benefit of Mr. De Souza.
(5) Represents reimbursement for taxes incurred by Mr. Hawran as a result of the
payments by the Company in 1995 of moving, housing and other expenses
incurred in connection with relocating to the Company's geographic region
($21,645), payments relating to relocation costs ($6,289) and the premium
paid for the term life insurance policies for the benefit of Mr. Hawran
($1,445).
(6) Represents payments by the Company of premiums for the term life insurance
policies for the benefit of Hawran ($4,431) and the mortgage equalization
payments on Mr. Hawran's residence ($5,805).
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<PAGE> 17
Option Grants in Last Fiscal Year. The following table sets forth certain
information concerning grants of options made during the year ended December 31,
1996 by the Company to each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF STOCK
% OF TOTAL APPRECIATION FOR
OPTIONS OPTION
OPTIONS GRANTED TO TERM(2)
GRANTED EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME #(1) FISCAL YEAR PRICE DATE 5% 10%
- --------------------------- ------ ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary A. Lyons.............. -- -- -- -- -- --
Errol B. De Souza.......... -- -- -- -- -- --
Paul W. Hawran............. 20,000 5.3% $ 8.25 7/9/06 $103,768 $262,968
</TABLE>
- ---------------
(1) All options shown granted in 1996 become exercisable as to 1/60th of the
option shares each month, with full vesting occurring on the fifth
anniversary of the date of hire. Under the 1992 Incentive Stock Plan, the
Board of Directors retains the discretion to modify the terms, including
price, of outstanding options. Options were granted at an exercise price
equal to the fair market value of the Company's Common Stock, as determined
by the Board of Directors on the date of grant. Exercise price may be paid
in cash, promissory note, by delivery of already owned shares subject to
certain conditions, or pursuant to a cashless exercise procedure under which
the optionee provides irrevocable instructions to a brokerage firm to sell
the purchased shares and remit to the Company, out of sale proceeds, an
amount equal to the exercise price plus all applicable withholding taxes.
(2) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of the grant until the expiration of the ten-year option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End
Values. The following table sets forth certain information regarding the stock
options held at December 31, 1996 by each of the Named Executive Officers.
During 1996, no such stock options were exercised by any of the Named Executive
Officers. The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
VALUE OF IN-THE-MONEY OPTIONS
NUMBER OF OPTIONS AT YEAR-END AT YEAR-END ($)(1)
--------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Gary A. Lyons................. 205,767 93,733 $1,448,285 $ 538,965
Errol B. De Souza............. 122,467 70,533 $ 880,935 $ 405,565
Paul W. Hawran................ 50,025 65,275 $ 121,270 $ 287,481
</TABLE>
- ---------------
(1) "In-the-money" options are those for which the fair market value of the
underlying securities exceeds the exercise or base price of the option.
These columns are based upon the closing price of $10.00 per share on
December 31, 1996, minus the per share exercise price, multiplied by the
number of shares underlying the option.
EMPLOYMENT AGREEMENTS
Gary A. Lyons has an employment contract that provides that: (i) Mr. Lyons
serves as the Company's President and Chief Executive Officer for a term of
three years commencing in March 1997 at a current annual salary of $328,300,
subject to annual adjustment by the Board of Directors; (ii) the agreement will
automatically renew for three-year periods thereafter unless the Company or Mr.
Lyons gives 90 days notice of termination, or notice of intent to renew the
agreement for less than a three-year term; (iii) Mr. Lyons is eligible for a
discretionary annual bonus of up to a maximum of $75,000 as determined by the
Board of Directors, based upon achieving certain performance criteria; (iv) the
Company will forgive $67,500, representing the balance of a loan made available
to reimburse Mr. Lyons for housing expenses over the three-
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<PAGE> 18
year period starting in March 1997, subject to continued employment and (v) Mr.
Lyons is entitled to continue to receive his salary for 12 months in the event
that the Company terminates his employment without cause, elects not to renew
the agreement, or materially reduces the power and duties of his employment
without cause, which will be deemed to be a termination. In addition, Mr. Lyons
received upon the signing of the agreement a one-time contract renewal bonus of
an option to purchase 75,000 shares of Common Stock of the Company, with such
option becoming exercisable over a four-year period and exercisable at a
per-share price equal to the fair market value of the Company's Common Stock on
the date of grant. The contract also sets the terms of repayment of a loan of
$85,000 described below in "Transactions and Relationships with Directors and
Officers."
Errol B. De Souza has an employment contract that provides that: (i) Dr. De
Souza serves as the Company's Executive Vice President of Research and
Development for a term of three years commencing in March 1997 at a current
annual salary of $261,716, subject to annual adjustment by the Board of
Directors; (ii) the agreement will automatically renew for three-year periods
thereafter unless the Company or Dr. De Souza gives 90 days notice of
termination, or notice of intent to renew the agreement for less than a
three-year term; (iii) Dr. De Souza is eligible for a discretionary annual bonus
of up to a maximum of $50,000 as determined by the Board of Directors, based
upon achieving certain performance criteria; (iv) the Company will forgive
$37,500, representing the balance of a loan made to reimburse Dr. De Souza for
the loss on the sale of his former residence over the three-year period starting
October 1996 (based on continued employment); and (v) Dr. De Souza is entitled
to continue to receive his salary for up to 12 months or the remainder of the
term of employment, whichever is less, in the event that the Company terminates
his employment without cause, or elects not to renew the agreement. In addition,
Dr. De Souza received upon the signing of the agreement a one-time contract
renewal bonus of an option to purchase 50,000 shares of Common Stock of the
Company, with such option becoming exercisable over a four-year period and
exercisable at a per-share price equal to the fair market value of the Company's
Common Stock on the date of grant.
Paul W. Hawran has an employment contract that provides that: (i) Mr.
Hawran serves as the Company's Senior Vice President for a term of three years
commencing in March 1997 at a current annual salary of $209,740 subject to
annual adjustment by the Board of Directors; (ii) the agreement will
automatically renew for three-year periods thereafter unless the Company or Mr.
Hawran gives 90 days notice of termination, or notice of intent to renew the
agreement for less than a three-year term; (iii) Mr. Hawran is eligible for a
discretionary annual bonus of up to a maximum of $50,000 as determined by the
Board of Directors based upon achieving certain performance criteria; (iv) the
Company will forgive $87,500, representing the balance of a loan made to
reimburse Mr. Hawran for 50% of the loss on sale of his former residence over
the three-year period starting in March 1997 (based on continued employment);
and (v) Mr. Hawran is entitled to continue to receive his salary for 12 months
in the event that the Company terminates his employment without cause, or
materially reduces the power and duties of his employment without cause, which
will be deemed to be a termination. In addition, Mr. Hawran received upon the
signing of the agreement a one-time contract renewal bonus of an option to
purchase 50,000 shares of Common Stock of the Company, with such option becoming
exercisable over a four-year period and exercisable at a per-share price equal
to the fair market value of the Company's Common Stock on the date of grant.
The Company also has consulting agreements with Drs. Vale and Steinman
pursuant to which Dr. Vale serves as Chief Scientist, Neuroendocrinology and Dr.
Steinman serves as Chief Scientist, Neuroimmunology. Dr. Vale's consulting
agreement requires him to spend a significant amount of time performing services
for the Company and prohibits him from providing consulting services to or
participating in the formation of any company in Neurocrine's field of interest
or that may be competitive with Neurocrine. Dr. Vale's agreement is for a
five-year term that commenced in February 1996 and provides for an annual
consulting fee of $42,500 in exchange for his consulting services to the
Company. In addition, in November 1996 Dr. Vale received a cash bonus of $32,500
for services rendered in connection with the Company's strategic alliances. Dr.
Steinman's consulting agreement is for a five-year term that commenced in
February 1996 and provides for an annual consulting fee of $85,000. Dr. Steinman
is obligated to consult for a minimum of 40 days per year. The
16
<PAGE> 19
agreement prohibits Dr. Steinman from providing consulting services to or
participating in the formation of any other company, except for his position as
a member of the Board of Directors of Centocor, Inc.
REPORT OF THE COMPENSATION COMMITTEE
The following is a report of the Compensation Committee of the Company
describing the compensation policies and rationale applicable to the Company's
executive officers with respect to the compensation paid to such executive
officers for the year ended December 31, 1996. The information contained in this
report shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission nor shall such information be incorporated by
reference into any future filing under the Securities Act or the Exchange Act,
except to the extent that the Company specifically incorporates it by reference
into any such filing.
The Compensation Committee (the "Committee") of the Board of Directors
reviews and recommends to the Board of Directors for approval the Company's
executive compensation policies. The Committee is responsible for reviewing the
salary and benefits structure of the Company at least annually to insure its
competitiveness within the Company's industry. The following is the report of
the Committee describing the compensation policies and rationales applicable to
the Company's executive officers with respect to the compensation paid to such
executive officers for the fiscal year ended December 31, 1996. From January
1996 through December 1996, the members of the Committee were Howard Birndorf,
David Robinson, and David Schnell. In December 1996 David Schnell was replaced
by Harry Hixson as a member of the Committee. Accordingly, this report is from
Howard Birndorf, David Robinson and David Schnell as it relates to events prior
to December 1996 and from Howard Birndorf, David Robinson and Harry Hixson as it
relates to events occurring after that date.
COMPENSATION PHILOSOPHY
The Company's philosophy in establishing its compensation policy for
executive officers and other employees is to create a structure designed to
attract and retain highly skilled individuals by establishing salaries,
benefits, and incentive compensation which compare favorably with those for
similar positions in other biotechnology companies. Compensation for the
Company's executive officers consists of a base salary and potential incentive
cash bonuses, as well as potential incentive compensation through stock options
and stock ownership.
BASE SALARY
The base salary component of compensation is designed to compensate
executive officers competitively at levels necessary to attract and retain
qualified executives in the pharmaceutical and biotechnology industry. The base
salaries have been targeted at or above the average rates paid by competitors to
enable the Company to attract, motivate, reward and retain highly skilled
executives. In order to evaluate the Company's competitive position in the
industry, the Committee reviewed and analyzed the compensation packages,
including base salary levels, offered by other biotechnology and pharmaceutical
companies. The competitive information was obtained from surveys prepared by
consulting companies or industry associations (e.g., the Radford Biotechnology
Compensation Survey). As a general matter, the base salary for each executive
officer is initially established through negotiation at the time the officer is
hired taking into account such officer's qualifications, experience, prior
salary, and competitive salary information. Year-to-year adjustments to each
executive officer's base salary are based upon personal performance for the
year, changes in the general level of base salaries of persons in comparable
positions within the industry, and the average merit salary increase for such
year for all employees of the Company established by the Compensation Committee,
as well as other factors the Compensation Committee judges to be pertinent
during an assessment period. In making base salary decisions, the Committee
exercises its judgment to determine the appropriate weight to be given to each
of these factors.
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ANNUAL INCENTIVE COMPENSATION
A portion of the cash compensation paid to the Company's executive
officers, including the Chief Executive Officer, is in the form of discretionary
bonus payments that are paid on an annual basis as part of the Company's
Incentive Compensation Plan. Bonus payments are linked to the attainment of
overall corporate goals established by the Board of Directors and individual
goals established for each executive officer. The maximum potential amount of
each officer's bonus payment is established annually by the Board of Directors
based upon the recommendation of the Committee. The appropriate weight to be
given to each of the various goals used to calculate the amount of each
officer's bonus payment is determined by the Committee. The goal of the
Company's Incentive Compensation Plan is to support the achievement of Company
goals and objectives by basing compensation on a pay for performance basis.
LONG-TERM INCENTIVES
The Committee provides the Company's executive officers with long-term
incentive compensation through grants of stock options under the Company's 1992
Incentive Stock Plan and the opportunity to purchase stock under the 1996
Employee Stock Purchase Plan (the "Purchase Plan"). The Board believes that
stock options provide the Company's executive officers with the opportunity to
purchase and maintain an equity interest in the Company and to share in the
appreciation of the value of the Company's Common Stock. The Board believes that
stock options directly motivate an executive to maximize long-term shareholder
value. The options also utilize vesting periods (generally four years) that
encourage key executives to continue in the employ of the Company. The Board
considers the grant of each option subjectively, considering factors such as the
individual performance of the executive officer and the anticipated contribution
of the executive officer to the attainment of the Company's long-term strategic
performance goals. Long-term incentives granted in prior years are also taken
into consideration. Executive officers of the Company, along with other
employees of the Company, receive options under the 1992 Incentive Stock Plan
based on performance criteria established by the Board of Directors.
The Company established the Purchase Plan both to encourage employees to
continue in the employ of the Company and to motivate employees through
ownership interest in the Company. Under the Purchase Plan, employees, including
officers, may have up to 15% of their earnings withheld for purchases of Common
Stock on certain dates specified by the Board. The price of Common Stock
purchased will be equal to 85% of the lower of the fair market value of the
Common Stock on the date of commencement of participation in each six-month
offering period or on each specified purchase date.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of the Chief Executive Officer is reviewed annually on the
same basis as discussed above for all executive officers. Gary Lyons' base
salary for 1996 was $290,000. Gary Lyons joined the Company in February 1993.
His initial salary, potential bonus, and stock grants were determined on the
basis of negotiation between the Board of Directors and Mr. Lyons with due
regard for his qualifications, experience, prior salary, and competitive salary
information. Mr. Lyons' base salary for 1996 was established in part by
comparing the base salaries of chief executive officers at other biotechnology
and pharmaceutical companies of similar size. Mr. Lyons earned a $55,000 bonus
in 1996. As with other executive officers, Mr. Lyons' total compensation was
based on the Company's accomplishments and the Chief Executive Officer's
contribution thereto, including the collaborations with Ciba-Geigy and Eli Lilly
and Company and the Company's initial public offering.
SECTION 162(M)
The Board has considered the potential future effects of Section 162(m) of
the Internal Revenue Code on the compensation paid to the Company's executive
officers. Section 162(m) disallows a tax deduction for any publicly-held
corporation for individual compensation exceeding $1.0 million in any taxable
year for any of the executive officers named in the proxy statement, unless
compensation is performance-based. The Company has adopted a policy that, where
reasonably practicable, the Company will seek to qualify the
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variable compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m).
In approving the amount and form of compensation for the Company's
executive officers, the Committee will continue to consider all elements of the
cost to the Company of providing such compensation, including the potential
impact of Section 162(m).
Respectfully submitted by:
COMPENSATION COMMITTEE
Howard C. Birndorf
David E. Robinson
David Schnell
Harry F. Hixson, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Howard C. Birndorf, David E.
Robinson and Harry F. Hixson, Jr. No member of the Compensation Committee has a
relationship that would constitute an interlocking relationship with executive
officers or directors of another entity.
TRANSACTIONS AND RELATIONSHIPS WITH DIRECTORS AND EXECUTIVE OFFICERS
In December 1993, the Company made available to Gary Lyons, President,
Chief Executive Officer and Director of the Company, a loan in the amount of
$67,500 for the loss on sale of his former residence and $67,500 for housing
expenses. One-half of this loan was forgiven by the Company over the four-year
period ended February 1997 and the remaining one-half is being forgiven over a
three-year period starting in March 1997, subject to repayment by Mr. Lyons in
the event of termination of employment. In April 1995 the Company granted Mr.
Lyons an option to purchase an additional 148,000 shares of Common Stock at a
purchase price of $4.25 per share. Such shares are subject to vesting. In March
1997, the Company granted Mr. Lyons an option to purchase 75,000 shares of
Common Stock at a purchase price of $8 per share. Such shares are subject to
vesting. Prior to April 1993, the Company loaned Mr. Lyons $85,000 for the
purchase of stock in the Company.
In June 1994, the Company loaned Paul Hawran, Senior Vice President and
Chief Financial Officer of the Company, $175,000 toward the loss on sale of his
former residence. One half of this amount will be forgiven by the Company over
the four-year period ending May 1997, and the remaining one-half is being
forgiven over a three-year period starting in March 1997, subject to repayment
by Mr. Hawran in the event of: (i) voluntary termination of employment, (ii)
sale of his San Diego residence, or (iii) receipt of proceeds from the sale of
Common Stock held by him. In April 1995, the Company granted Mr. Hawran an
option to purchase 65,000 shares of Common Stock at a purchase price of $4.25
per share. In July 1996, the Company granted Mr. Hawran an option to purchase
20,000 shares of Common Stock at a purchase price of $8.25 per share. In March
1997, the Company granted Mr. Hawran an option to purchase 50,000 shares of
Common Stock at a purchase price of $8 per share. Such shares are subject to
vesting.
Dr. Wylie Vale, Chief Scientist, Neuroendocrinology and a Director of the
Company, is a Professor and the Senior Investigator and Head of the Clayton
Foundation Laboratories for Peptide Biology at The Salk Institute. In 1996,
1995, 1994 and 1993, the Company paid $262,982, $30,162, $91,644 and $5,070
respectively, to The Salk Institute in connection with various license
agreements.
In April 1994, the Company loaned Dr. Errol De Souza, Executive Vice
President of Research and Development, $70,500 toward the loss on sale of his
former residence. One half of this amount has been forgiven by the Company over
the four-year period ended September 1996, and the remaining one-half will be
forgiven over a three-year period starting October 1996, subject to payment by
Dr. De Souza in the event of termination of employment. In April 1995, the
Company granted an option to Dr. De Souza to purchase 92,000 shares of Common
Stock at an exercise price of $4.25 per share. In March 1997, the Company
granted Dr. De Souza on option to purchase 50,000 shares of Common Stock at a
purchase price of $8 per share. Such shares are subject to vesting.
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In September 1995, the Company granted David E. Robinson, a Director of the
Company, an option to purchase 8,000 shares of Common Stock at a purchase price
of $5.00 per share.
In September 1995, the Company granted Harry Hixson, Chairman of the
Company's Board of Directors, an option to purchase 8,000 shares of Common
Stock, at an exercise price of $5.00 per share.
In September 1995, the Company granted Howard Birndorf, a Director of the
Company, an option to purchase 8,000 shares of Common Stock, at an exercise
price of $5.00 per share.
The Company has agreed to indemnify each of its directors and officers to
the fullest extent permitted by the Delaware General Corporations Law.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders, and their
affiliates will be approved by a majority of the board of directors, including a
majority of the independent and disinterested outside directors and will
continue to be on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
San Diego, California
Dated: April 28, 1997
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NEUROCRINE BIOSCIENCES, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1997
The undersigned stockholder of NEUROCRINE BIOSCIENCES, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 28, 1997 and hereby appoints
Gary A. Lyons and Paul W. Hawran, and each of them, proxies and attorneys-in-
fact, with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1997 Annual Meeting of
Stockholders of NEUROCRINE BIOSCIENCES, INC. to be held on May 27, 1997 at 10:00
a.m. local time, at the Sheraton Grande Torrey Pines, located at 10950 North
Torrey Pines Road, La Jolla, California, 92037 and at any adjournment or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below:
1. AMENDMENT OF BYLAWS TO INCREASE THE NUMBER OF DIRECTORS ON THE
BOARD FROM SIX TO SEVEN:
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS:
/ / FOR all nominees listed below / / AGAINST all nominees
(except as indicated) listed below
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST
BELOW:
NOMINEES: Wylie W. Vale, Joseph A. Mollica, and
Errol B. De Souza
3. AMENDMENT OF 1992 INCENTIVE STOCK PLAN TO INCREASE THE NUMBER OF
SHARES RESERVED FOR GRANT THEREUNDER FROM 3,300,000 SHARES TO
4,100,000 SHARES:
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL PERIOD ENDING
DECEMBER 31, 1997:
/ / FOR / / AGAINST / / ABSTAIN
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE AMENDMENT OF THE BYLAWS TO INCREASE THE NUMBER OF
DIRECTORS, FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT OF THE 1992
INCENTIVE STOCK PLAN, FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG
LLP AS INDEPENDENT AUDITORS AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated: , 1997
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Signature
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Signature
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
