<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
DEPOTECH CORPORATION
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
DEPOTECH CORPORATION
10450 Science Center Drive
San Diego, California 92121
April 7, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of DepoTech Corporation, which will be held at the Company's executive offices,
10450 Science Center Drive, San Diego, California on Wednesday, May 14, 1997 at
9:00 a.m.
Details of the business to be conducted at the Annual Meeting are given
in the attached Notice of Annual Meeting of Shareholders and Proxy Statement.
In order for us to have an efficient meeting, please sign, date and
return the enclosed proxy promptly in the accompanying reply envelope. If you
are able to attend the Annual Meeting and wish to change your proxy vote, you
may do so simply by voting in person at the Annual Meeting.
We look forward to seeing you on May 14, 1997.
Sincerely,
/s/ Edward L. Erickson
EDWARD L. ERICKSON
President and Chief Executive Officer
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YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are
requested to complete, sign and date the enclosed proxy as promptly as possible
and return it in the enclosed envelope. No postage need be affixed if mailed in
the United States.
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<PAGE> 3
DEPOTECH CORPORATION
10450 Science Center Drive
San Diego, California 92121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
May 14, 1997
The Annual Meeting of Shareholders of DepoTech Corporation (the
"Company") will be held at the Company's executive offices, 10450 Science Center
Drive, San Diego, California on Wednesday, May 14, 1997 at 9:00 a.m. for the
following purposes:
1. To elect a Board of Directors. Management has nominated the
following persons for election at the meeting: Roger C.
Davisson, George W. Dunbar, Jr., Edward L. Erickson, Stephen
B. Howell M.D., Fred A. Middleton, Peter Preuss and Pieter J.
Strijkert Ph.D.
2. To approve amendments to the Company's 1995 Stock Option/Stock
Issuance Plan (i) to increase the number of shares authorized
for issuance under the Plan by 750,000 shares to a total of
2,750,000 shares (the Company currently has 30,226 shares
available for issuance under the 1995 Stock Option/Stock
Issuance Plan), (ii) to replace the current annual automatic
grants to eligible non-employee directors of 4,000 shares with
automatic grants to eligible non-employee directors of 20,000
shares, which shall vest over five (5) years of service, and
(iii) to amend the Plan to take advantage of recent changes in
Section 16 of the Exchange Act.
3. To ratify the appointment of Ernst & Young LLP as the
Company's independent public auditors for the fiscal year
ending December 31, 1997.
4. To transact any other business which may properly come before
the meeting or any adjournment(s) thereof.
Shareholders of record at the close of business on March 20, 1997 will
be entitled to vote at the Annual Meeting. A list of shareholders entitled to
vote at the Meeting will be available for inspection at the offices of the
Company. Whether or not you plan to attend the meeting in person, please sign,
date and return the enclosed proxy in the reply envelope provided. If you attend
the Meeting and vote by ballot, your proxy will be revoked automatically and
only your vote at the meeting will be counted. The prompt return of your proxy
will assist us in preparing for the Meeting.
By Order of the Board of Directors
Dated: April 7, 1997 /S/ Faye H. Russell
FAYE H. RUSSELL, ESQ.
Secretary
<PAGE> 4
DEPOTECH CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1997
These proxy materials and the enclosed proxy card are being mailed in
connection with the solicitation of proxies by the Board of Directors of
DepoTech Corporation, a California company (the "Company"), for the Annual
Meeting of Shareholders to be held at 9:00 a.m. on May 14, 1997 and at any
adjournment or postponement of the Annual Meeting. These proxy materials were
first mailed to shareholders of record beginning on approximately April 7, 1997.
The mailing address of the principal executive office of the Company is
10450 Science Center Drive, San Diego, California 92121.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
Any shareholder executing a proxy has the power to revoke it at any
time before it is voted by delivering written notice of such revocation to the
Secretary of the Company before the Meeting or by properly executing and
delivering a proxy bearing a later date. Proxies may also be revoked by any
shareholder present at the Meeting who elects to vote his shares in person. The
cost of soliciting proxies will be paid by the Company and may include
reimbursement paid to brokerage firms and others for their expense in forwarding
solicitation material. Solicitation will be made primarily through the use of
the mail, but regular employees of the Company may, without additional
remuneration, solicit proxies personally by telephone or telegram.
The record date for determining those shareholders who are entitled to
notice of, and to vote at, the Meeting has been fixed as March 20, 1997. At the
close of business on the record date, the Company had 13,079,209 outstanding
shares of Common Stock (the "Common Stock"). Each share of Common Stock is
entitled to one vote on matters brought before the Meeting. Article VIII of the
Company's Fourth Restated Articles of Incorporation provides that no cumulative
voting will be available in the election of directors once the Company is a
"listed corporation" within the meaning of California Corporations Code Section
301.5(d). The Company currently qualifies as a "listed corporation," and
therefore cumulative voting is not available in the election of directors.
At the record date, directors and executive officers of the Company may
be deemed to be beneficial owners of an aggregate of 3,406,530 shares of the
Common Stock (not including shares of the Common Stock issuable upon exercise of
outstanding stock options and warrants) constituting approximately 26% of the
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
Such directors and executive officers have indicated to the Company that each
such person intends to vote or direct the vote of all shares of Common Stock
held or owned by such persons, or over which such person has voting control, in
favor of all of the Proposals. The approval of the Proposals is not assured. See
"Principal Shareholders" and "Common Stock Ownership of Management."
<PAGE> 5
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named below are nominees for director to serve until the
next annual meeting of shareholders and until their successors have been elected
and qualified. The Company's Bylaws provide that the authorized number of
directors shall be determined by resolution of the Board of Directors or by the
shareholders at the annual meeting of shareholders within the range of five to
nine. The authorized number of directors is currently eight. The Board of
Directors has selected seven nominees, all of whom are currently directors of
the Company. Each person nominated for election has agreed to serve if elected,
and management has no reason to believe that any nominee will be unavailable to
serve. Unless otherwise instructed, the proxyholders will vote the proxies
received by them for the nominees named below. The proxies received by the
proxyholders cannot be voted for more than seven directors and, unless otherwise
instructed, the proxyholders will vote such proxies for the nominees named
below. The seven candidates receiving the highest number of affirmative votes of
the shares entitled to vote at the Annual Meeting will be elected directors of
the Company.
If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the Meeting, the persons named in the enclosed
proxy will exercise discretionary authority to vote for substitutes. The Board
of Directors is not aware of any circumstances that would render any nominee
unavailable for election. The following schedule sets forth certain information
concerning the nominees for election as directors.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE NOMINEES LISTED HEREIN.
<TABLE>
<CAPTION>
FIRST YEAR
ELECTED
NAME DIRECTOR AGE POSITION
- ----------------------------------- ---------- ----- ------------------------------------------------
<S> <C> <C> <C>
Fred A. Middleton (1)............. 1990 47 Chairman of the Board and Director
Edward L. Erickson (2)............ 1993 50 President, Chief Executive Officer and Director
Roger C. Davisson (3)............. 1993 53 Director
George W. Dunbar, Jr. (3)......... 1996 50 Director
Stephen B. Howell, M.D. (2)....... 1989 52 Co-founder and Director
Peter Preuss (1)(2)............... 1992 54 Director
Pieter J. Strijkert, Ph.D. (1).... 1996 61 Director
</TABLE>
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(1) Member of Compensation Committee.
(2) Member of Nominating Committee.
(3) Member of Audit Committee.
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BUSINESS EXPERIENCE OF DIRECTORS
Fred A. Middleton is a founder of DepoTech and has served as Chairman
of the Board and a director of the Company since August 1990. In addition, Mr.
Middleton served as Chief Executive Officer of the Company from August 1990
through June 1993. Mr. Middleton has been active in developing biomedical
companies since 1978 and has been general partner of Sanderling Ventures, a
venture capital firm specializing in the development of early stage biomedical
companies, since 1987. Sanderling Ventures is a principal shareholder of the
Company. From May 1984 through July 1986, he served as Managing General Partner
of Morgan Stanley Ventures, L.P., a venture capital firm which funded research
and development programs at leading technology companies. Prior to that, Mr.
Middleton served as Chief Financial Officer, Vice President of Finance and
Corporate Development, and President of Genentech Development Corporation, for
Genentech, Inc. Mr. Middleton received his B.S. in chemistry from Massachusetts
Institute of Technology and an M.B.A. from the Harvard Graduate School of
Business Administration. Currently, he is a director of two other publicly-held
biomedical companies, Regeneron Pharmaceuticals, Inc. and Vical, Inc., as well
as several privately-held biomedical companies.
Edward L. Erickson has served as President, Chief Executive Officer and
a director of the Company since June 1993. Prior to joining the Company, Mr.
Erickson served as President, Chief Executive Officer and a director of
Cholestech Corporation, a publicly-traded medical products company, from October
1991 through June 1993. Prior to that, Mr. Erickson served as President of
Serono-Baker Diagnostics, Inc., a medical products company and a subsidiary of
The Ares-Serono Group ("Ares-Serono"), an international pharmaceutical company,
from June 1990 to September 1991 and as Vice President, Financial Operations of
Ares-Serono from August 1988 through June 1990. Mr. Erickson previously held
senior staff and general management positions with Amersham International, a
medical and life-science research products company based in the United Kingdom.
Mr. Erickson received a B.S. in mathematics with distinction and an M.S. in
mathematics from the Illinois Institute of Technology and an M.B.A. with high
distinction from the Harvard Graduate School of Business Administration, where
he was elected a George F. Baker Scholar and received the John L. Loeb
Fellowship in Finance. Mr. Erickson currently serves as a director of a
privately-held biomedical company.
Roger C. Davisson has served as a director of the Company since January
1993. Since September 1980, Mr. Davisson has been a general partner of Brentwood
Associates, a venture capital firm that manages private investment funds. One of
those funds, Brentwood Associates V, L.P., is a principal shareholder of the
Company. Mr. Davisson received a B.S. in engineering and an M.S. in engineering
science from the California Institute of Technology and an M.B.A. from Stanford
Graduate School of Business. Currently, he is a director of several
privately-held companies.
George W. Dunbar, Jr. has served as a director of the Company since May
1996. He has served as President, Chief Executive Officer and a director of
Metra Biosystem, Inc. ("Metra") since July 1991. Prior to joining Metra, he was
the Vice President of Licensing and Business Development of Ares-Serono, from
1988 until 1991, where he established a licensing and acquisition group for its
health care divisions. From 1974 until 1987, he held various senior management
positions with Amersham International ("Amersham"), a health care and life
sciences company, where he most recently served as Vice President for its Life
Sciences business in North America. Mr. Dunbar also served as Amersham's General
Manager of Pacific Rim markets and Eastern Regional operations and, prior to
that, he managed the international marketing of Amersham's medical and
industrial radioisotopes. Mr. Dunbar currently serves as a director of two
privately-held companies. Mr. Dunbar holds a B.S. in electrical engineering and
an M.B.A. from Auburn University and sits on the Auburn School of Business
M.B.A. Advisory Committee.
Stephen B. Howell, M.D. is a co-founder of the Company and has served
as a director of the Company since December 1989. Dr. Howell also served as Vice
President, Medical Affairs, from October 1989 to May 1995, and currently serves
in a consultant capacity as Senior Medical Advisor. Dr. Howell is a Professor of
Medicine in the Department of Medicine and the Cancer Center at the University
of California, San Diego where he has been since 1977. Dr. Howell is Associate
Director for Translational Research of the UCSD Cancer Center, and Director of
the Center's Pharmacology Program. Dr. Howell is a member of the National
Research Council of the American Cancer Society. Dr. Howell received an A.B.
degree in biology from the University
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<PAGE> 7
of Chicago and an M.D. magna cum laude from Harvard Medical School. Dr. Howell
also holds an honorary M.D. from the University of Goteborg, Sweden. He
completed his residency at the Massachusetts General Hospital and the University
of California, San Francisco, research training at the National Institutes of
Health, and medical oncology specialty training at the Dana Farber Cancer
Institute.
Peter Preuss has served as a director of the Company since December
1992. Since 1985, Mr. Preuss has acted as a private investor. He was founder and
Chief Executive Officer of Integrated Software Systems Corporation (ISSCO), a
leading computer graphic software developer, from 1970 to its sale in 1986. Mr.
Preuss received a B.S. equivalent from the Technical University of Hanover,
Germany and an M.S. in Mathematics from the University of California, San Diego.
Mr. Preuss is a Regent of the University of California and has served a term on
the advisory committee to the Director of the National Institutes of Health. He
is president of The Preuss Foundation for Brain Tumor Research and is a
recipient of the Distinguished Service Award from the American Association of
Neurosurgeons. Mr. Preuss currently serves on a number of boards of
not-for-profit institutions as well as Network Computing Devices, a
publicly-held company, and several privately-held companies.
Pieter J. Strijkert, Ph.D. has served as a director of the Company
since June 1996. He has served as a member of the Board of Management for Royal
Gist-Brocades NV, a biomedical products company ("Royal-Gist Brocades"), since
June 1995. From July 1993 until June 1995, Dr. Strijkert served as an advisor to
that same group. Prior to that, Dr. Strijkert served as a member of the Board of
Management of Royal Gist-Brocades from May 1985 through June 1993 and served in
other capacities with Royal Gist-Brocades from 1979 through 1985, including Head
of the Biotechnology Group and Associate Director of Research and Development
and Manager of the Microbiology Group Research and Development. Dr. Strijkert
received a Ph.D. in microbiology and a bachelor's degree in biology from the
State University of Utrecht. Dr. Strijkert is a member of the board of directors
of Chiron Corporation and other advisory or technical groups.
All Directors currently are elected annually and hold office until the
next annual meeting of the shareholders and their successors are duly elected
and qualified. Officers serve at the discretion of the Board of Directors.
Directors are reimbursed for their out-of-pocket expenses incurred in attending
meetings of the Board of Directors and its committees. The Company presently
pays its outside Directors $500 per Board meeting attended via teleconference
facilities and $1,500 per Board meeting attended in person, and reimburses its
directors for out-of-pocket expenses incurred in attending each meeting and
performing other duties as a director. No additional payments are made with
respect to attendance at committee meetings.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors met a total of nine times during the
fiscal year ended December 31, 1996. Except for Dr. Strijkert, each of the
directors nominated for reelection attended at least 75% of the aggregate of (i)
the total meetings of the Board (held during the period for which he has been a
director) and (ii) the total number of meetings held by all committees of the
board on which he served (held during the period for which he served on such
committee). Dr. Strijkert missed two telephonic meetings, due to international
time differences. Subsequently, and on the day following the telephonic meeting,
Dr. Strijkert was briefed on the items discussed and actions taken, and he
confirmed his support for these actions.
The Company has a standing Compensation Committee currently composed of
Directors Pieter J. Strijkert, Fred A. Middleton and Peter Preuss. The
Compensation Committee met five times in fiscal 1996. The Compensation Committee
reviews and acts on matters relating to compensation levels and benefit plans
for executive officers and key employees of the Company, including salary and
stock options. The Committee is also responsible for granting stock awards,
stock options and stock appreciation rights and other awards to be made under
the Company's existing incentive compensation plans. The Company also has a
standing Audit Committee currently composed of Directors Roger C. Davisson, Jean
Deleage and George W. Dunbar, Jr. The Audit Committee met two times in fiscal
1996. The Audit Committee assists in selecting the independent auditors,
designating services they are to perform and in maintaining effective
communication with those auditors. The Company also has a standing Nominating
Committee currently composed of Directors Jean Deleage, Edward
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<PAGE> 8
L. Erickson, Stephen B. Howell and Peter Preuss. The Nominating Committee met
two times in fiscal 1996. The Nominating Committee recommends nominees to the
Company's Board of Directors. Mr. Deleage is not standing for re-election.
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<PAGE> 9
PROPOSAL 2
APPROVAL OF AMENDMENTS TO THE COMPANY'S
1995 STOCK OPTION/STOCK ISSUANCE PLAN
GENERAL
The shareholders are being asked to vote on proposed amendments to the
Company's 1995 Stock Option/Stock Issuance Plan (the "Plan"), which amendments
were approved by the Compensation Committee on February 26, 1997, subject to
shareholder approval. The effect of the amendments will be (i) to increase the
number of shares authorized for issuance under the Plan by 750,000 shares to a
total of 2,750,000 shares, (ii) to replace the current annual automatic grants
to eligible non-employee directors of 4,000 shares with automatic grants to
eligible non-employee directors of 20,000 shares, which shall vest over five (5)
years of service, and (iii) to amend the Plan to take advantage of recent
changes in Section 16 of the Exchange Act. The Company currently has 30,226
shares available for issuance under the Plan. Over the last two years, the
Company has granted options exercisable into approximately 726,044 shares. The
Board of Directors believes the Company's stock option programs have created
significant incentives for its employees, officers and directors to increase
shareholder value. The Board of Directors considers it critical to the future
success of the Company to continue to grant stock options on a basis comparable
to those granted by other companies with which it competes in attracting,
retaining and motivating highly qualified employees, including key executives.
The terms and provisions of the Plan, assuming shareholder approval of the
750,000 share increase, are summarized below. This summary, however, does not
purport to be a complete description of the Plan. Copies of the actual plan
document may be obtained by any shareholder upon written request to the
Secretary of the Company at the corporate offices in San Diego, California. The
affirmative vote of a majority of the total votes cast on such amendments is
required for approval of the amendments to the Plan. For this purpose, broker
non-votes will be disregarded and abstentions will be treated as negative votes.
The Plan, as amended, will become effective immediately upon approval by the
shareholders at the Annual Meeting.
SUMMARY OF STOCK OPTION/STOCK ISSUANCE PLAN
The Plan serves as the successor equity incentive program to the
Company's 1991 Stock Option Plan, the 1994 Stock Option Plan and the 1995 Stock
Option Plan (collectively, the "Prior Plans"). The Plan was adopted by the Board
and the shareholders as of June 1995, and amended during 1996. All outstanding
stock options and unvested share issuances under the Prior Plans have been
incorporated into the Plan but continue to be governed by the terms and
conditions of the specific instruments evidencing those options and issuances. A
total of 2,750,000 shares of Common Stock are authorized for issuance under the
Plan (assuming shareholder approval of the 750,000 share increase), of which, as
of March 20, 1997, 1,471,586 shares of Common Stock are subject to outstanding
options, 498,188 shares have been issued upon exercise of previously granted
options and 780,226 additional shares are available for issuance under the Plan.
The total number of shares authorized, as well as shares subject to outstanding
options, will be appropriately adjusted in the event of certain changes to the
Company's capital structure, such as stock dividends, stock splits or other
recapitalizations.
The Plan is divided into three separate programs: (i) the discretionary
option grant program under which eligible individuals in the Company's employ or
service (including officers and other employees, non-employee Board members and
independent consultants) may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, (ii) the automatic option
grant program under which options grants will automatically be made at periodic
intervals to eligible non-employee Board members to purchase shares of Common
Stock at an exercise price equal to 100% of their fair market value on the grant
date; and (iii) the stock issuance program under which such eligible individuals
may, in the Plan Administrator's discretion, be issued shares of Common Stock
directly, through the purchase of such shares at a price not less than 85% of
their fair market value at the time of issuance or as a bonus tied to the
performance of services. The discretionary option grant program and the stock
issuance program will be administered by committees of the Board of Directors or
by a committee appointed by the Board (the "Plan Administrator"). The
administration of the automatic option grant program will be self-executing in
accordance with the express provisions of such program. The Plan Administrator
will have complete discretion to determine which eligible individuals are to
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receive option grants or stock issuances, the number of shares subject to each
such grant or issuance, the status of any granted option as either an incentive
option (which potentially qualify for certain favorable treatment under federal
tax law) or a nonstatutory option, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding.
Under the automatic option grant program, effective at this Annual
Meeting, each newly-elected eligible non-employee director elected to the Board
at this Annual Meeting shall automatically be granted a nonstatutory option to
purchase 20,000 shares of Common Stock. In addition, each newly-elected eligible
non-employee director shall automatically be granted a nonstatutory option to
purchase 20,000 shares of Common Stock at the first Annual Meeting to occur
following such director's election to the Board as long as such director has
served as a director of the Company for at least six months prior to such Annual
Meeting. Each continuing Board member will automatically be granted a
nonstatutory option to purchase an additional 20,000 shares upon re-election at
the fifth Annual Meeting following such Board member's initial automatic grant.
The options granted under the automatic grant program to directors will become
exercisable in 60 equal monthly installments with the first installment becoming
exercisable one month following the grant date and each successive installment
vesting one calendar month from the prior vesting date. No option is exercisable
for any additional option shares following the optionee's cessation of Board
service for any reason.
The exercise price for each incentive stock option or for any option
granted under the automatic option grant program must be at least 100% of the
fair market value of the stock on the date of the option grant. The exercise
price for each nonstatutory option or for any share issuance under the Plan must
be at least 85% of the fair market value of the shares on the date of the option
grant or stock issuance except that the option exercise price may be reduced
below 85% if the optionee makes a payment to the Company in connection with the
option grant equal to such reduction (including payments to be made pursuant to
a salary reduction agreement). The purchase price for any shares may be paid in
cash, by delivery of shares of Common Stock or through a same-day sale program
pursuant to which the purchased shares will be sold immediately and a portion of
the sale proceeds applied to the payment of the purchase price. The Plan
Administrator may also permit a participant (other than a non-employee director
receiving automatic option grants) to deliver a promissory note in payment of
the purchase price and any tax liability incurred in connection with the
purchase.
Options granted under the discretionary option grant program may be
immediately exercisable for all the option shares, on either a vested or
unvested basis, or may become exercisable for shares in one or more installments
over the participant's period of service. Shares issued under the stock issuance
program may either be fully vested or subject to a vesting schedule tied to
future service. All unvested shares will be subject to repurchase by the
Company, at the original purchase price paid for such shares, upon the
participant's cessation of service prior to vesting in the shares. The Committee
will have full discretionary authority to accelerate the exercisability of any
outstanding discretionary option grant or the vesting of any issued shares.
Each option granted under the Plan will have a maximum term of 10 years
and will be subject to earlier termination in the event of the optionee's
cessation of service. The participant will have no shareholder rights with
respect to the shares subject to his or her outstanding options until such
options are exercised and the purchase price is paid for the shares. The
participant will, however, have full shareholder rights with respect to any
shares issued under the Plan.
Participants subject to federal or state tax withholding in connection
with any issuance of shares under the Plan may be permitted to apply a portion
of the shares issuable upon the exercise of their outstanding options to the
satisfaction of the federal and state withholding taxes incurred in connection
with such exercise. Alternatively, such participants may be permitted to deliver
existing shares of Common Stock in satisfaction of such tax liability. In either
case, the Company will pay cash to the appropriate government authority equal to
the fair market value of the stock as a deposit of taxes withheld.
Directors of the Company receiving automatic option grants will have a
special stock appreciation right in connection with their options under which
the outstanding options can be surrendered for cancellation upon a hostile
take-over of the Company in return for a cash distribution from the Company,
based on the excess of the price per share paid by the acquiring entity in
effecting the take-over above the option exercise price.
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<PAGE> 11
Officers may be granted similar rights at the discretion of the Plan
Administrator. The Committee may grant other stock appreciation rights with
respect to discretionary option grants. The other stock appreciation rights
would provide the holders with the right to receive an appreciation distribution
from the Company equal to the excess of (i) the fair market value (on the date
such right is exercised) of the shares of Common Stock in which the optionee is
at the time vested under the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution would be able to
be made, at the Plan Administrator's discretion, in shares of Common Stock
valued at fair market value on the exercise date, in cash or in a combination of
cash and Common Stock.
In the event the Company is acquired, whether by merger, asset sale or
change in control each outstanding option which is not to be assumed by the
successor corporation or replaced with a comparable option to purchase the
capital stock of the successor corporation will automatically accelerate in
full, and all unvested shares not assigned to the successor corporation will
automatically vest, except to the extent such accelerated vesting is precluded
by the terms of the agreements evidencing those unvested shares. The Committee
can apply this acceleration to options outstanding under the Prior Plans.
To the extent outstanding options terminate prior to exercise, the
shares subject to those options will be available for subsequent grant. In
addition, the Committee may effect cancellation/regrant programs pursuant to
which outstanding options under the discretionary option grant program
(including options incorporated from the Prior Plans) are cancelled and new
options are granted for the same or different number of option shares at an
exercise price per share not less than 85% of the fair market value of the
Common Stock on the new grant date.
The Board may amend or modify the Plan at any time. Shareholder
approval of amendments of the Plan will be required when the Board makes the
amendments conditional on such approval or when such approval is required by law
or regulation. The Plan will terminate September 28, 2005 unless sooner
terminated by the Board.
OUTSTANDING OPTION GRANTS UNDER THE PLAN
The table below shows, as to the Company's President and Chief
Executive Officer and each of the other four most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers") and as to
the various indicated groups, the following information with respect to stock
options granted during fiscal 1997 and 1996 and during all other Plan years
which are outstanding as of December 31, 1996, as well as options which the
Company has determined to grant under the Plan on the effective date to the
extent currently known or determinable: (i) the number of shares of Common Stock
subject to options granted and (ii) the weighted average exercise price per
share for such options.
-8-
<PAGE> 12
<TABLE>
<CAPTION>
FISCAL FISCAL
1997 1996 ALL OTHER PLAN YEARS
------------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(#) PRICE (#) PRICE (#) PRICE
------- ----------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
EDWARD L. ERICKSON ................ 8,550 $ 18.625 11,250 $ 19.625 239,200 $ 0.47
Director, President, Chief
Executive Officer and
Nominee for Director (1)
JOHN P. LONGENECKER, PH.D. ........ 8,892 $ 18.625 81,750 $ 18.82 28,430 $ 1.38
Senior Vice President,
Research, Development and
Operations (1)
SINIL KIM, M.D. ................... 4,520 $ 18.625 7,750 $ 19.625 60,200 $ 1.28
Vice President, Advanced
Technology and
Chief Scientific Officer (1)
DAVID B. THOMAS ................... 5,006 $ 18.625 6,750 $ 19.625 29,034 $ 0.92
Senior Vice President, Quality
Assurance and Regulatory Affairs (1)
WILLIAMS S. ETTOUATI, D. PHARM. ... 5,676 $ 18.625 32,906 $ 18.83 35,200 $ 7.03
Vice President, Marketing
and Business Development (1)
All current directors who are not
executive officers (7 persons) .... 22,850 $ 16.22 24,375 $ 22.80 160,065 $ 0.98
All current executive officers as a
group (8 persons)(1) .............. 101,980 $ 18.27 205,406 $ 19.14 412,264 $ 1.28
All employees who are not
executive officers ................ 89,986 $ 17.69 207,182 $ 19.27 275,425 $ 4.35
</TABLE>
- --------------------
(1) Includes options granted as of February 26, 1997 for performance in
1996, the vesting of which is contingent on the filing by the Company
of a New Drug Application for DepoCyt. Also includes options granted to
a new officer hired in January 1997.
NEW PLAN BENEFITS
Effective as of the 1997 Annual Meeting, the effect of the amendment
will be (i) to increase the number of shares authorized for issuance under the
Plan by 750,000 shares to a total of 2,750,000 shares, (ii) to replace the
current annual automatic grants to eligible non-employee directors of 4,000
shares with automatic grants to eligible non-employee directors of 20,000
shares, which shall vest over five (5) years of service and (iii) to amend the
Plan to take advantage of recent changes in Section 16 of the Exchange Act. None
of the 750,000 share increase has been granted prior to the date of this
meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
AMENDMENTS TO THE COMPANY'S 1995 STOCK OPTION/STOCK ISSUANCE PLAN.
-9-
<PAGE> 13
PROPOSAL 3
APPROVAL OF
SELECTION OF INDEPENDENT AUDITORS
The Company is asking the shareholders to ratify the selection of Ernst
& Young LLP as the Company's independent public auditors for the year ending
December 31, 1997. In the event that the shareholders fail to ratify the
appointment, the Board of Directors will reconsider its selection. Even if the
selection is ratified, the Board of Directors, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors feels that such a change would be in the
Company's and the shareholders' best interest.
A representative of Ernst & Young LLP is expected to be present at the
meeting to respond to your questions and will have the opportunity to make a
statement if they desire to do so.
The affirmative vote of the holders of a majority of shares represented
and voting at the Annual Meeting will be required to ratify the selection of
Ernst & Young LLP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION AND APPROVAL OF THE SELECTION OF ERNST & YOUNG LLP
AS THE COMPANY'S INDEPENDENT AUDITORS.
-10-
<PAGE> 14
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of February 1, 1997 by all
those known by the Company to be beneficial owners of more than 5% of its
outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER (1) PERCENT (2)
- ------------------------------------------------- ---------- ------------
<S> <C> <C>
Janus Capital Corp.(3) ........................... 2,266,975 17.4%
100 Filmore Street
Denver, Colorado 80206
Chancellor LGT Asset Management, Inc. (4) ........ 1,293,800 9.9%
1166 Avenue of the Americas
New York, New York 10036
Sanderling Ventures (5) .......................... 1,262,753 9.7%
2730 Sand Hill Road, Suite 200
Menlo Park, California 94025
</TABLE>
- --------------------
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them. Share
ownership in each case includes shares issuable upon exercise of
certain outstanding options and warrants as described in the footnotes
below. Shares issuable upon exercise of certain outstanding options by
directors of the Company affiliated with certain principal shareholders
are not included. See "-Common Stock Ownership of Management."
(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
(3) Information reported in the table is based on disclosures made in the
Schedule 13G filed initially on February 10, 1997 by Janus Capital
Corp., Janus Venture Fund and Thomas H. Bailey.
(4) Information reported in the table is based on disclosures made in the
Schedule 13G filed on February 7, 1997 by Chancellor LGT Asset
Management, Inc.
(5) Includes 724,936 shares and 7,500 shares issuable upon exercise of
warrants within 60 days of February 1, 1997 held by Sanderling Ventures
Partners II, L.P., 117,181 shares held by Sanderling Biomedical, L.P.
and 408,731 shares and 4,405 shares issuable upon exercise of warrants
within 60 days of February 1, 1997 held by Sanderling Ventures Limited,
L.P. Mr. Middleton, a director of the Company, is a general partner of
Sanderling Ventures. Mr. Middleton disclaims beneficial ownership of
these shares other than to the extent of his individual partnership
interest, but exercises shared voting and investment power with respect
to all such shares.
-11-
<PAGE> 15
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of February 1, 1997 by (i)
each director and nominee named under "Election of Directors," (ii) each Named
Executive Officer and (iii) directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER (1) PERCENT (2)
- ------------------------------------------------ -------------- -----------
<S> <C> <C>
Fred A. Middleton (3) .......................... 1,321,126 10.1%
Jean Deleage (4) ............................... 435,738 3.3%
Stephen B. Howell, M.D. (5) .................... 528,566 4.0%
Sinil Kim, M.D. (6) ............................ 434,565 3.3%
Edward L. Erickson (7) ......................... 254,056 1.9%
Roger C. Davisson (8) .......................... 199,063 1.5%
Peter Preuss (9) ............................... 163,858 1.2%
John P. Longenecker, Ph.D. (10) ................ 104,306 *
David B. Thomas (11) ........................... 46,743 *
Williams S. Ettouati, D. Pharm. (12) ........... 18,272 *
George W. Dunbar, Jr. (13) ..................... 4,166 *
Pieter J. Strijkert, Ph.D. (14) ................ 833 *
All directors and executive officers
as a group (15 persons) (15) ................... 3,538,928 26.0%
</TABLE>
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws, where applicable. Share ownership in each case
includes shares issuable on exercise of certain outstanding options as
described in the footnotes below. The address for those individuals for
whom an address is not otherwise indicated is: 10450 Science Center
Drive, San Diego, California 92121.
(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
(3) Includes 724,936 shares and 7,500 shares issuable upon exercise of
warrants within 60 days of February 1, 1997 held by Sanderling Ventures
Partners II, L.P., 117,181 shares held by Sanderling Biomedical, L.P.,
408,731 shares and 4,405 shares issuable upon exercise of warrants
within 60 days of February 1, 1997 held by Sanderling Ventures Limited,
L.P. Also includes 46,373 shares and 12,000 shares issuable upon
exercise of stock options beneficially held by Mr. Middleton and
exercisable within 60 days of February 1, 1997. Mr. Middleton, a
director of the Company, is a general partner of Sanderling Ventures.
Mr. Middleton disclaims beneficial ownership of these shares other than
to the extent of his individual partnership interest, but exercises
shared voting and investment power with respect to these shares.
(4) Includes 352,310 shares owned by funds affiliated with Burr, Egan,
Deleage & Co. Also includes 71,428 shares and 12,000 shares issuable
upon exercise of warrants and stock options, respectively, that are
exercisable within 60 days of February 1, 1997. When the stock options
are exercised, Mr. Deleage has agreed to transfer the net profit after
tax to Alta V Limited Partnership and Customs House Partners.
-12-
<PAGE> 16
Mr. Deleage, a director of the Company, is Vice President of Burr,
Egan, Deleage & Co., and a general partner of Alta V Management
Partners, L.P. (which is the general partner of Alta V Limited
Partnership) and Customs House Partners. As a general partner of these
funds, he may be deemed to share voting and investment power for the
shares held by the fund. Mr. Deleage disclaims beneficial ownership of
these shares except to the extent of his proportionate pecuniary
interest therein.
(5) Includes 23,694 shares issuable upon exercise of stock options
exercisable within 60 days of February 1, 1997. Dr. Howell is a trustee
of the Howell Family Trust and two trusts for the benefit of his
children.
(6) Includes 57,493 shares issuable upon exercise of stock options
exercisable within 60 days of February 1, 1997. Also includes 40,000
shares indirectly held by the Kim Charitable Remainder Unitrust.
(7) Includes 175,556 shares issuable upon exercise of stock options
exercisable within 60 days of February 1, 1997.
(8) Includes 162,945 shares and 11,904 shares issuable upon exercise of
warrants exercisable within 60 days of February 1, 1997 held by
Brentwood Associates V, L.P. Also includes 12,214 shares and 12,000
shares issuable upon exercise of stock options exercisable within 60
days of February 1, 1997 beneficially held by Mr. Davisson. Mr.
Davisson, a director of the Company, is a general partner of the
general partner of Brentwood Associates V, L.P. Mr. Davisson disclaims
beneficial ownership of these shares other than to the extent of his
individual partnership interest, but exercises shared voting and
investment power with respect to these shares.
(9) Includes 4,761 shares issuable upon exercise of warrants and 57,000
shares issuable upon exercise of stock options exercisable within 60
days of February 1, 1997.
(10) Includes 37,536 shares issuable upon exercise of stock options
exercisable within 60 days of February 1, 1997.
(11) Includes 17,577 shares issuable upon exercise of stock options
exercisable within 60 days of February 1, 1997.
(12) Includes 18,007 shares issuable upon exercise of stock options
exercisable within 60 days of February 1, 1997.
(13) Includes 4,166 shares issuable upon exercise of stock options
exercisable within 60 days of February 1, 1997.
(14) Includes 833 shares issuable upon exercise of stock options exercisable
within 60 days of February 1, 1997.
(15) Includes 2,987,502 shares and 451,428 and 99,998 shares issuable upon
exercise of stock options and warrants, respectively, exercisable
within 60 days of February 1, 1997.
EXECUTIVE OFFICERS
The executive officers of the Company as of February 1, 1997, are as
follows:
<TABLE>
<CAPTION>
NAME Age Position
- ------------------------------------ --- -----------------------------------------------
<S> <C> <C>
Edward L. Erickson.................. 50 President, Chief Executive Officer and Director
John P. Longenecker, Ph.D........... 49 Senior Vice President, Research, Development and
Operations
David B. Thomas..................... 57 Senior Vice President, Quality Assurance and
Regulatory Affairs
Williams S. Ettouati, D. Pharm...... 37 Vice President, Marketing and Business
Development
Sinil Kim, M.D...................... 41 Co-founder, Vice President, Advanced Technology,
Chief Scientific Officer and Director Emeritus
Linda J. Paradiso, D.V.M............ 43 Vice President, Clinical Development
Sheldon A. Schaffer, Ph.D........... 53 Vice President, Pharmaceutical Development
Dana S. McGowan, C.P.A.............. 38 Sr. Director, Finance and Administration, Chief
Financial Officer, Treasurer and Assistant Secretary
</TABLE>
Edward L. Erickson is being considered for the position of director of
the Company. See "-Election of Directors" for a discussion of Mr. Erickson's
business experience.
-13-
<PAGE> 17
John P. Longenecker, Ph.D. has served as Senior Vice President,
Research, Development and Operations, of the Company since November 1992. Prior
to joining the Company, Dr. Longenecker served in a number of management and
technical positions with Scios, Inc. (formerly California Biotechnology, Inc.),
a biotechnology company, from 1982 through 1992, including Vice President and
Director of Development from August 1986 through October 1992. In this position
Dr. Longenecker was responsible for pharmaceutical research and development,
including a novel drug delivery group, preclinical studies, process development,
manufacturing and quality control. Dr. Longenecker received a B.S. in chemistry
from Purdue University and a Ph.D. in biochemistry from the Australian National
University and served as a postdoctoral fellow at Stanford University.
David B. Thomas has served as Senior Vice President, Quality Assurance
and Regulatory Affairs, of the Company since August 1996 and as Vice President,
Quality Assurance and Regulatory Affairs, of the Company from June 1993 until
August 1996. Prior to joining the Company, Mr. Thomas served as Vice President
of Gen-Probe Incorporated, a diagnostics company, from February 1993 to June
1993. Prior to that, Mr. Thomas served as a Vice President, Regulatory Affairs
and Quality Assurance of Ares-Serono from September 1990 through February 1993.
Prior to that, Mr. Thomas served as Vice President, Regulatory Affairs, for C.R.
Bard, Inc., a medical device company, from April 1987 through February 1990. Mr.
Thomas also served as Vice President, Regulatory Affairs/Product Assurance of
the Hospital Products Group of Pfizer, Inc., a pharmaceutical company, from
April 1985 through March 1987 and held senior scientific positions at the
Biometric Research Institute, Inc. and at the National Institutes of Health. He
has been responsible for the clinical development and regulatory approvals of a
number of new pharmaceuticals including LAAM and has obtained approvals for new
delivery modes and controlled release formulations for more than 15 drugs. Mr.
Thomas received a B.A. in anthropology (with a minor in mathematics) from San
Francisco State University and an M.A. in anthropology as part of an
interdisciplinary program in human biology from University of California, Los
Angeles where he was a National Science Foundation Fellow at the Brain Research
Institute. Mr. Thomas currently serves as chairman and a director of a
privately-held company.
Williams S. Ettouati, D.Pharm. has served as Vice President, Marketing
and Business Development, of the Company since August 1996, and as Executive
Director of Strategic Marketing of the Company from July 1995 to August 1996.
Prior to joining the Company, Dr. Ettouati served as a consultant to the Company
from May 1995 to July 1995. Dr. Ettouati served as Director, New Product
Planning at Dura Pharmaceuticals, Inc. from November 1993 to April 1995. From
January 1990 to August 1993, Dr. Ettouati served as Senior Product Manager and
Product Manager for Syntex International. Dr. Ettouati served as a post doctoral
fellow at University of California, Santa Barbara ("UCSB"). Dr. Ettouati
received a Diplome de Bachelier in mathematics and biology from Academie de
Paris, an M.A. in biology from UCSB and a Diplome d'Etat de Docteur en pharmacie
from Universite Rene Descartes, Paris V.
Sinil Kim, M.D. is a co-founder of the Company, has served as Vice
President, Advanced Technology, and Chief Scientific Officer, since December
1993 and served as a director of the Company from October 1989 to May 1995, at
which time he was appointed as a director emeritus in recognition of his many
contributions to the founding and development of the Company. Dr. Kim previously
served as a consultant to the Company in the capacity of Vice President of
Technology of the Company from October 1992 through December 1993. Prior to
joining the Company, Dr. Kim served as an assistant professor of medicine in
residence at the University of California, San Diego Cancer Center ("UCSD Cancer
Center") in its division of Hematology/Oncology from February 1988 through July
1992, an assistant adjunct professor of medicine at UCSD Cancer Center in its
division of Hematology/Oncology from July 1992 through May 1994 and an associate
clinical professor at UCSD Cancer Center from May 1994 through the present. Dr.
Kim received a B.S. in chemistry, summa cum laude, and an M.D. with Alpha Omega
Alpha election from University of Washington, Seattle. Dr. Kim served his
internship and residency at University of California, Irvine and a postdoctoral
fellowship at University of California, San Diego in hematology and oncology.
Linda J. Paradiso, D.V.M. has served as Vice President, Clinical
Development of the Company since August 1996. Prior to joining the Company, Dr.
Paradiso served as Senior Director, Clinical Research with SEQUUS
Pharmaceuticals, Inc., a biotechnology company, from November 1995 to August
1996. From June 1994 to October 1995, Dr. Paradiso served as Senior Director,
Clinical Research with Cytel Corporation, a biotechnology company. Previously,
Dr. Paradiso served in a number of positions with the Parke-Davis Pharmaceutical
Research Division of Warner-Lambert Company, an international pharmaceutical
company, from
-14-
<PAGE> 18
March 1983 to April 1994, including Director, Oncology Clinical Research and
Associate Director, Anti-infectives Clinical Research. Dr. Paradiso has
performed research at the Upjohn Company. Dr. Paradiso holds a B.S. in zoology
and natural resources from the University of Michigan, and a D.V.M. from
Michigan State University.
Sheldon A. Schaffer, Ph.D. was appointed as Vice President of
Pharmaceutical Development in January 1997. Dr. Schaffer previously served as a
consultant to the Company from May 1996 until January 1997. Prior to joining the
Company, Dr. Schaffer was an independent consultant to various pharmaceutical
companies from May 1995 to April 1996. From March 1989 to April 1995, Dr.
Schaffer served as Vice President of Pharmaceutical Development and then as Vice
President of Business Development at Cholestech Corporation, a publicly traded
medical products company. Previously Dr. Schaffer served as Director,
Inflammation/Atherosclerosis Research at Ciba-Geigy Corporation, a
pharmaceutical company, and held senior scientific positions at the Medical
Research Division of American Cyanamid Co., a pharmaceutical company. Dr.
Schaffer received his B.S. in chemistry from the University of California,
Berkeley and a Ph.D. in chemistry from the University of Illinois, and served as
a postdoctoral and teaching fellow at Harvard Medical School.
Dana S. McGowan, C.P.A. has served as Director of Finance and
Administration of the Company from January 1994 through May 1994, as Chief
Financial Officer and Treasurer since June 1994 and as Assistant Secretary since
September 1996. Prior to joining the Company, Ms. McGowan served as Director,
Accounting and Finance at Alliance Pharmaceutical Corp., a biotechnology
company, from May 1993 to December 1993. Previously, Ms. McGowan held various
financial positions, including Associate Director and Controller at Cytel
Corporation, a biotechnology company, from June 1988 to May 1993. Previously,
she held various financial positions with Science Applications International
Corporation, a technical services company. Ms. McGowan received a B.S. in
Business Administration from San Diego State University.
-15-
<PAGE> 19
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company to the Named Executive Officers for services rendered in all capacities
to the Company for the years ended December 31, 1994, 1995 and 1996:
Summary Compensation Table
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ---------------
NAME AND OTHER SECURITIES
PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS(#) COMPENSATION(1)
- ------------------------------ ------ ----------- ----------- ------------ --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
EDWARD L. ERICKSON ........... 1996 $250,000 $42,750(2) $ -0- 8,550(5) $52
President and Chief Executive 1995 194,250 49,138(2) 27,000(4) 11,450(6) 51
Officer and Director 1994 185,000 -0- 29,000(4) 50,000 2
JOHN P. LONGENECKER, PH.D. ... 1996 200,000 40,000(2) -0- 83,892(5) 52
Senior Vice President, 1995 178,500 24,098(3) 14,667(4) 16,950(6) 46
Research, 1994 167,769 -0- 14,667(4) -0- 2
Development and Operations
DAVID B. THOMAS .............. 1996 156,976 21,277(2) -0- 5,006(5) 41
Senior Vice President, Quality 1995 136,500 18,428(3) 10,800(4) 6,950(6) 35
Assurance and Regulatory 1994 130,000 -0- 11,600(4) 20,000 2
Affairs
SINIL KIM, M.D. .............. 1996 155,000 14,012(2) -0- 4,520(5) 40
Vice President, Advanced 1995 141,750 21,971(3) -0- 17,950(6) 37
Technology 1994 135,000 -0- 5,093(7) 50,000 2
WILLIAMS S. ETTOUATI,
D.PHARM. (8) ................. 1996 126,277 15,663(2) -0- 35,675(5) 33
Vice President, Marketing 1995 57,500 8,913(3) -0- 38,106(6) 15
and Business Development
</TABLE>
- --------------------
(1) Consists of the dollar value of insurance premiums paid by the Company
with respect to term life insurance for the benefit of the Named
Executive Officers.
(2) Consists of amounts earned in 1996 and to be paid in 1997 upon the
filing by the Company of a New Drug Application for DepoCyt.
(3) Consists of amounts earned in 1995 and paid in 1996.
(4) Consists of forgiveness of a portion of a loan made to cover relocation
expenses.
(5) Includes options granted in 1997 for performance during 1996. Vesting
is contingent on the filing by the Company of a New Drug Application
for DepoCyt.
(6) Includes options granted in 1996 for performance during 1995.
(7) Consists of forgiveness of a loan used to purchase 400,000 shares of
the Company's Common Stock.
(8) Dr. Ettouati was hired in July 1995. Prior to that time, Dr. Ettouati
served as a consultant to the Company for a period of two months and
amounts paid under that consulting arrangement are not included above.
-16-
<PAGE> 20
Stock Options
The following table sets forth information concerning stock option grants
made to each of the Named Executive Officers for the year ended December 31,
1996. The Company granted no stock appreciation rights ("SARs") to Named
Executive Officers during 1996.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
==================================================================================================================================
Individual Grants Potential Realizable
------------------------------ Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options/SARS Price Appreciation for
Underlying Granted Exercise or Option Term (3)
Options/SARS to Employees Base Price Expiration ------------------------
Name Granted(1) in Fiscal Year ($/Sh)(2) Date 5% ($) 10% ($)
- ------------------------------------------ ------------ -------------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edward L. Erickson 11,250 2.65% $19.625 1/16/06 $138,848 $ 351,868
John P. Longenecker, Ph.D. 6,750 1.59% $19.625 1/16/06 83,309 211,121
75,000 17.68% $18.75 8/27/06 884,383 2,241,200
David B. Thomas 6,750 1.59% $19.625 1/16/06 83,309 211,121
Sinil Kim, M.D. 7,750 1.83% $19.625 1/16/06 95,651 242,398
Williams S. Ettouati, 2,906 .68% $19.625 1/16/06 35,866 90,892
D.Pharm. 30,000 7.07% $18.75 8/27/06 353,753 896,480
==================================================================================================================================
</TABLE>
(1) All of the options were granted under the Plan. The shares subject to
each option will immediately vest in the event the acquired by a merger
or asset sale, unless the Company's repurchase rights with respect to
those shares are transferred to the acquiring entity. The grant dates
for the above options are as follows:
<TABLE>
<CAPTION>
Name Options Granted (#) Grant Date
- --------------------------------- -------------------- ------------
<S> <C> <C>
Edward L. Erickson 11,250 1/16/96
John P. Longenecker, Ph.D. 6,750 1/16/96
75,000 8/27/96
David B. Thomas 6,750 1/16/96
Sinil Kim, M.D. 7,750 1/16/96
Williams S. Ettouati, D.Pharm. 2,906 1/16/96
30,000 8/27/96
</TABLE>
(2) The exercise price per share of options granted represented the fair
market value of the underlying shares of Common Stock on the dates the
respective options were granted as determined by the Board of
Directors. The exercise price may be paid in cash or in shares of
Common Stock valued at fair market value on the exercise date or a
combination of cash or shares or any other form of consideration
approved by the Board of Directors. The fair market value of shares of
Common Stock will be determined in accordance with certain provisions
of the Plan based on the closing selling price per share of a share of
Common Stock on the date in question on the primary exchange on which
the Company's common stock is listed or reported. If shares of the
Common Stock are not listed or admitted to trading on any stock
exchange nor traded on the Nasdaq National Market, then the fair market
value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
-17-
<PAGE> 21
(3) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% or
10% levels or at any other defined level. Unless the market price of
the Common Stock does in fact appreciate over the option term, no value
will be realized from the option grants made to the executive officers.
Option Exercises and Holdings
The following table provides information concerning option exercises
during 1996 by the Named Executive Officers and the value of unexercised options
held by each of the Named Executive Officers as of December 31, 1996. No SARs
were exercised during 1996 or outstanding as of December 31, 1996.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
==================================================================================================================
Number of Securities
Underlying Value of Unexercised
Unexercised Options at in-the-Money Options
Shares December 31, 1996 (#) at December 31, 1996(2)
Acquired on Value ---------------------------------------------------------
Name Exercise(#) Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Edward L. Erickson ...... 20,000 $ 375,000 163,031 87,419 $2,544,266 $1,260,484
John P. Longenecker, .... 57,292 $1,383,602 31,198 78,982 $ 342,303 $ 84,016
Ph.D
Sinil Kim, M.D .......... -- -- 53,677 14,273 $ 752,797 $ 156,078
David B. Thomas ......... 9,166 $ 216,860 13,302 22,482 $ 159,734 $ 288,922
Williams S. Ettouati, ... -- -- 13,874 54,232 $ 93,516 $ 235,484
D.Pharm
==================================================================================================================
</TABLE>
(1) "Value realized" is calculated on the basis of the fair market value of
the Company's Common Stock on the date of exercise minus the exercise
price and does not necessarily indicate that the optionee sold such
stock.
(2) "Value" is defined as fair market price of the Company's Common Stock
at fiscal year-end ($16.375) less exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, the Compensation Committee of
the Company's Board of Directors established the levels of compensation for the
Company's executive officers. The members of the Company's Compensation
Committee during the year ended December 31, 1996 were Messrs. Davisson,
Deleage, Middleton and Preuss. Mr. Erickson, the Company's President and Chief
Executive Officer, participated in the deliberations of the Compensation
Committee regarding executive compensation that occurred during 1996, but did
not take part in the deliberations regarding his own compensation. Since January
1, 1997, the members of the Compensation Committee have been Messrs. Middleton
and Preuss and Dr. Strijkert.
EMPLOYMENT ARRANGEMENTS
In November 1996, Mr. Thomas, Senior Vice President, Quality Assurance
and Regulatory Affairs,entered into a Confidential Early Retirement and
Separation Agreement with the Company whereby, upon the receipt of an
approvable letter for DepoCyt from the United States Food and Drug
Administration, the Company will award Mr. Thomas a cash bonus and accelerate
the vesting of options to purchase 25,784 shares of stock options currently
owned. In addition, upon the date of the first commercial sale of DepoCyt to a
third party, Mr. Thomas will retire as Senior Vice President and will enter into
a consulting agreement with the
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<PAGE> 22
Company for an initial one-year term. The terms of the consulting agreement
provide for a monthly retainer and accelerated vesting for currently outstanding
stock options over the consulting period.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
report and the Performance Graph on page 21 shall not be incorporated by
reference into any such filings.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee presents this report regarding compensation
for the Company's executive officers and the Chief Executive Officer of the
Company.
GENERAL COMPENSATION POLICY
The Company's primary objective is to maximize the value of the
Company's shares over time. Accomplishing this objective requires
achieving specific Company milestones and developing and ultimately
marketing superior products that provide cost-effective solutions for
the medical community. The overall goal of the Compensation Committee
is to develop compensation practices that will allow the Company to
attract and retain the people needed to create, develop, manufacture
and market such products.
The Company compensates its executive officers with a combination of
salary and incentives designed to focus and balance their efforts on
maximizing both the near-term and long-term financial performance of
the Company. In addition, the Company's compensation structure rewards
individual performance that furthers Company goals. Elements of each
officer's compensation include the following:
- Base Salary
- Annual Incentives
- Long-term Incentives
- Benefits
Each officer's compensation package is designed to provide an
appropriately weighted mix of these elements which cumulatively
provides a level of compensation roughly equivalent to that paid by
companies of similar size and complexity in similar industries.
BASE SALARY and increases in base salary are determined by individual
performance and the salary levels in effect for companies of similar
size and complexity in similar industries. The Compensation Committee
attempts to keep the base salaries of the Company's officers at a level
broadly in line with the median of the salaries of officers in
comparative companies. The Compensation Committee relies primarily on
survey data on base salary from a compensation study performed by
Watson Wyatt in 1995 and updated with other published studies. These
studies included data on competitive practices among peer group
companies, early-stage high growth technology companies and
biotechnology published survey data. In addition, the Compensation
Committee also evaluates individual experience and performance and
specific issues particular to the Company, such as success in raising
capital, creation of shareholder value and achievement of specific
Company milestones. Certain of the companies contained in the survey on
which this Compensation Committee relied are included in the indices
used to compare shareholder returns in the Stock Performance Graph.
ANNUAL INCENTIVES are paid in accordance with an annual Incentive
Compensation Plan. Bonus awards are set at a level competitive among
peer group companies, early-stage high growth technology companies and
biotechnology published survey data. Potential cash incentive
compensation paid under this plan is set as a significant percentage of
each officers' base salary. All of the incentive compensation is
directly tied to performance and is at risk. Each officer earns
incentive compensation based upon a mix of Company performance and
personal performance. Company performance is measured by achievement of
specific Company milestones. Compensation for personal performance
under this plan is awarded by the Compensation Committee based upon
both an objective and subjective evaluation of the performance of each
officer. No incentive compensation is paid for Company performance or
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<PAGE> 23
personal performance unless specific Company and individual goals are
achieved during the fiscal year. In 1996, incentive compensation earned
by officers ranged from approximately 4% to 20% of base salary.
LONG-TERM INCENTIVE compensation in the form of stock options is
expected to be the largest element of total compensation over time.
Grants of stock options are designed to align the long-term interests
of each officer with the long-term interests of the Company and its
shareholders. Stock options provide each officer with a significant
incentive to manage the Company from the perspective of an owner with
an equity stake in the business. The size of the option grant to each
officer is based on the officer's current and expected future
contributions to the business and vesting position. Awards of stock
options are designed to have an expected aggregate exercise value over
time equal to a multiple of salary which will create a significant
opportunity for stock ownership, motivation to remain with the Company
and incentive to increase shareholder value.
BENEFITS offered to the Company's officers serve as a safety net of
protection against the financial catastrophes that can result from
illness, disability or death. Benefits offered to the Company's
officers are substantially the same as those offered to all the
Company's regular employees.
CEO COMPENSATION
In setting compensation payable to the Company's Chief Executive
Officer, Mr. Erickson, we have sought to be competitive with companies
of similar size and complexity in similar industries. Mr. Erickson's
incentive compensation under the Company's annual Incentive
Compensation Plan is entirely dependent upon the Company's performance
and our evaluation of his personal contribution to the Company's
performance. No incentive compensation is paid to Mr. Erickson unless
progress is made toward specific Company goals or these goals are
achieved during the fiscal year. In 1996, incentive compensation earned
by Mr. Erickson was 17% of base salary.
We conclude our report with the acknowledgement that no member of the
Compensation Committee is a current officer or employee of DepoTech or any of
its subsidiaries.
COMPENSATION COMMITTEE
Peter Preuss, Chairman
Fred A. Middleton
Pieter J. Strijkert, Ph.D.
PERFORMANCE GRAPH
The following graph compares total shareholder returns since the
Company became a reporting company under the Exchange Act to the Nasdaq CRSP
Total Return Index ("Nasdaq Broad Index") for the Nasdaq Stock Market (U.S.
Companies) and the Nasdaq CRSP Pharmaceutical Index ("Nasdaq Pharmaceutical
Index"). The total return for each of the Company's Common Stock, the Nasdaq
Broad Index and the Nasdaq Pharmaceutical Index assumes the reinvestment of
dividends, although dividends have not been declared on the Company's Common
Stock. The Nasdaq Pharmaceutical Index is made up of all companies with the
standard industrial classification (SIC) Code 283 (category description
"Drugs"). The companies comprising the Nasdaq Pharmaceutical Index are available
upon written request to Investor Relations at the Company's executive offices.
The shareholder return shown on the graph below is not necessarily indicative of
future performance and the Company will not make or endorse any predictions as
to future shareholder returns.
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<PAGE> 24
COMPARISON OF TOTAL CUMULATIVE RETURN ON INVESTMENT (1)
<TABLE>
<CAPTION>
09/29/95 12/95 3/96 6/96 9/96 12/96
-------- ----- ---- ---- ---- -----
(DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
DEPOTECH CORPORATION ..... 100 160 204 210 144 136
NASDAQ STOCK MARKET-US ... 100 101 106 115 119 125
NASDAQ PHARMACEUTICAL .... 100 117 121 118 121 117
</TABLE>
- --------------------
(1) The total cumulative return on investment (change in stock price plus
reinvested dividends) assumes $100 invested on September 29, 1995 in
each of DepoTech's Common Stock (at the initial public offering price
of $12.00 per share), the Nasdaq Broad Index and the Nasdaq
Pharmaceutical Index.
DIRECTOR COMPENSATION
The Company presently pays its outside Directors $500 per Board meeting
attended via teleconference facilities and $1,500 per Board meeting attended in
person, and reimburses its directors for out-of-pocket expenses incurred in
attending each meeting and performing other duties as a director. No additional
payments are made with respect to attendance at committee meetings. Non-employee
directors also are eligible to participate in the discretionary option grant
program and the automatic option grant program under the Plan. In December 1996,
and as a result of certain tax consequences in Dr. Strijkert's tax domicile, the
Compensation Committee cancelled an option to purchase 20,000 shares of Common
Stock granted to Dr. Strijkert in June 1996. On January 2, 1997, the
Compensation Committee granted to Dr. Strijkert a new option to purchase 20,000
shares of Common Stock. The Company intends to grant a non-forgivable loan to
Dr. Strijkert in a principal amount equal to the income tax to be paid by Dr.
Strijkert in connection with the grant of the option hereunder. Such loan shall
be full recourse and shall accrue interest at the minimum rate required by
federal tax laws. Dr. Howell is a party to a consulting agreement with the
Company. See "Certain Transactions."
CERTAIN TRANSACTIONS
Mr. Thomas, Senior Vice President, Quality Assurance and Regulatory
Affairs, is a director and shareholder of Sierra Scientific Software, Inc.
("Sierra"). Sierra entered into a Software License Agreement dated June 30, 1993
with DepoTech pursuant to which Sierra provides DepoTech with certain scientific
software and other software development services. Sierra earned an aggregate of
approximately $112,715 in fiscal 1996. Mr. Thomas is a party to an employment
agreement with the Company. See "Executive Officers--Employment Arrangements."
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<PAGE> 25
Dr. Howell, a director of the Company, entered into a consulting
agreement with the Company in November 1993 for a period of four years which was
subsequently amended in May 1995. Pursuant to the amended agreement, the Company
pays $40,000 per year to Dr. Howell for consulting services in connection with
which Dr. Howell will serve as the senior medical advisor to the Company's Board
of Directors and senior management. In addition, in November 1993, Dr. Howell
received stock options for 30,000 shares of common stock, at an exercise price
of $0.80 per share, vesting over four years. The amended agreement provides for
continued payments to Dr. Howell and continued vesting of the stock options for
a period of 12 months in the event the Company terminates the agreement. Dr.
Howell also received a grant of 6,000 options in connection with the amendment
of the agreement, and received an additional option grant of 600 and 4,375
shares in fiscal years 1995 and 1996, respectively. In addition, Dr. Howell was
granted 2,850 options in fiscal 1997 for his service to the Company in fiscal
1996.
Holders of 3,680,595 shares of Common Stock or their permitted
transferees (the "Holders") are entitled to certain rights with respect to the
registration of such shares under the Securities Act (taking into account the
exercise of outstanding options). Under the terms of agreements between the
Company and such Holders, if the Company proposes to register any of its
securities under the Securities Act for its own account, such Holders are
entitled to notice of such registration and are entitled to include shares of
such Common Stock therein, provided, among other conditions, that the
underwriters of any such offering have the right to limit the number of shares
included in such registration. In addition, Holders of at least 30% of
approximately 3,680,595 shares of Common Stock with demand registration rights
may require the Company to prepare and file a registration statement under the
Securities Act with respect to the shares entitled to demand registration
rights, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations. The Company is not
obligated to effect more than one of these shareholder-initiated registrations
nor to effect such a registration within 90 days following an offering of the
Company's securities. The Holders of approximately 3,680,595 shares of Common
Stock may also request the Company to register such shares on Form S-3 provided
the shares registered have an aggregate market value of at least $500,000.
Generally, the Company is required to bear the expense of all such
registrations. The registration rights of the Holders expire in October 2000.
Officers and directors of the Company are indemnified pursuant to
certain provisions of the California General Corporation Law and the Company's
charter documents to the fullest extent permitted under California law.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the Nasdaq National Market System. Officers,
directors and greater than 10% beneficial owners are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company or written representations from certain reporting persons that no Forms
5 were required, the Company believes that, during the 1996 fiscal year, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were satisfied except with regard (i) to Mr.
Preuss, who filed two late Forms 4 (Statement of Changes of Beneficial Ownership
and Securities) with respect to two transactions for shares received in a
pro-rata distribution from a limited partnership of which Mr. Preuss was a
limited partner, (ii) to Dr. Strijkert, who filed a late Form 5 (Annual
Statement of Beneficial Ownership of Securities) with respect to one transaction
relating to the cancellation of stock options, (iii) to Dr. Ettouati, who
filed a late Form 3 (Initial Statement of Beneficial Ownership of Securities)
with respect to his beneficial ownership position, and (iv) to Dr. Paradiso,
who filed a late Form 3 (Initial Statement of beneficial Ownership of
Securities) with respect to her beneficial ownership position.
SHAREHOLDER PROPOSALS
Under the present rules of the SEC, the deadline for shareholders to
submit proposals to be considered for inclusion in the Company's Proxy Statement
for next year's Annual Meeting of Shareholders is expected to be December 7,
1997 (120 days prior to April 7, 1998). Such proposals may be included in next
year's Proxy Statement if they comply with certain rules and regulations
promulgated by the SEC and the procedure set forth in the Bylaws of the Company,
which requires notice to be delivered or mailed and received at the Company's
executive offices not less than 120 days prior to the date specified above. The
date by which shareholders must submit proposals will be September 16, 1997.
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<PAGE> 26
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the meeting other than the matters set forth in this Proxy Statement.
Should any other matter requiring a vote of the shareholders arise, the persons
named as proxies on the enclosed proxy card will vote the shares represented
thereby in accordance with their best judgment in the interest of the Company.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed proxy card.
By Order of the Board of Directors
/s/ Faye H. Russell
Dated: April 7, 1997 FAYE H. RUSSELL, ESQ.
Secretary
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<PAGE> 27
DEPOTECH CORPORATION
1995 STOCK OPTION/STOCK ISSUANCE PLAN
AMENDED AND RESTATED AS OF FEBRUARY 26, 1997
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan ("Plan") is intended to
promote the interests of DepoTech Corporation, a California corporation (the
"Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations), (ii) Directors and (iii) consultants and other
independent contractors who provide valuable services to the Corporation (or its
parent or subsidiary corporations) with the opportunity to acquire or increase
their proprietary interest in the Corporation as an incentive for them to remain
in the service of the Corporation (or its parent or subsidiary corporations).
II. GENERAL
A. Effective Date. The Plan shall become effective on the first date on
which shares of the Corporation's common stock are registered under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Such
date is hereby designated as the "Effective Date" of this Plan.
B. Predecessor Plans. This Plan shall serve as the successor to the
Corporation's 1991 Stock Option Plan, 1994 Stock Option Plan and 1995 Stock
Option Plan (together, the "Predecessor Plans"), and no further option grants or
share issuances shall be made under the Predecessor Plans from and after the
Effective Date. Each outstanding option or share issuances under the Predecessor
Plans immediately prior to the Effective Date are hereby incorporated into this
Plan and shall accordingly be treated as outstanding options or share issuances
under this Plan. However, each such option or share issuance shall continue to
be governed solely by the terms and conditions of the instrument evidencing such
grant or issuance, and, except as otherwise expressly provided herein, no
provision of this Plan shall affect or otherwise modify the rights or
obligations of the holders of such incorporated options or shares with respect
to their acquisition of shares of the Corporation's common stock or otherwise
modify the rights or obligations of the holders of such options or shares.
<PAGE> 28
C. Definitions. For purposes of this Plan, the following provisions
shall be applicable in determining the parent and subsidiary corporations of the
Corporation:
Any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation shall be considered
to be a PARENT of the Corporation, provided each such corporation in
the unbroken chain (other than the Corporation) owns, at the time of
the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be
considered to be a SUBSIDIARY of the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
D. No Limitation on Corporate Action. Neither the grant of options nor
the issuance of any shares pursuant to this Plan shall in any way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
E. No Rights as Shareholder. The holder of an option grant under this
Plan shall have none of the rights of a shareholder with respect to any shares
subject to such option until such individual shall have exercised the option,
paid the exercise price for the purchased shares and been issued a stock
certificate for such shares.
III. STRUCTURE OF THE PLAN
A. Components of Plan. The Plan shall be divided into three separate
components: the Discretionary Option Grant Program specified in Article Two; the
Automatic Option Grant Program specified in Article Three; and the Stock
Issuance Program specified in Article Four. Under the Discretionary Option Grant
Program, eligible individuals may be granted options to purchase shares of the
Corporation's common stock at not less than 85% of the Fair Market Value of such
shares on the grant date. Under the Automatic Option Grant Program, non-employee
Directors will automatically be granted options to purchase Common Stock of the
Corporation at 100% of the Fair Market Value on the grant date. Under the Stock
Issuance Program, eligible individuals may be allowed to purchase shares of the
Corporation's common stock at discounts from the Fair Market Value of such
shares of up to 15%. Such shares may be issued as fully-vested shares or as
shares to vest over time.
- 2 -
<PAGE> 29
B. Application of Certain Articles. The provisions of Articles One and
Five of the Plan, except as otherwise expressly provided, shall apply to the
Discretionary Option Grant Program, the Automatic Option Grant Program and the
Stock Issuance Program, and shall accordingly govern the interests of all
individuals in the Plan.
IV. ADMINISTRATION OF THE PLAN
A. Plan Administrator. The committee of two (2) or more non-employee
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to Section 16 insiders (the
"Primary Committee") shall have sole and exclusive authority to administer the
Plan with respect to Section 16 Insiders.
B. Committees. Administration of the Discretionary Option Grant and
Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a committee of two (2) or more Board members appointed by
the Board to administer the Discretionary Option Grant Program and Stock
Issuance Program with respect to eligible persons other than Section 16 insiders
(the "Secondary Committee"), or the Board may retain the power to administer
those programs with respect to all such persons. The members of the Secondary
Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of Committees. Members of the Primary Committee or any
Secondary Committee shall serve for such period of time as the Board may
determine and may be removed by the Board at any time. The Board may also at any
time terminate the functions of any Secondary Committee and assume all powers
and authority previously delegated to such committee.
D. Service as Committee Members. Service on the Primary Committee or
the Secondary Committee shall constitute service as a Board member, and members
of each such committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member of
the Primary Committee or the Secondary Committee shall be liable for any act or
omission made in good faith with respect to the Plan or any option grants or
stock issuances under the Plan.
E. Authority. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the express provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for the proper administration of the Discretionary
Option Grant Program and Stock Issuance Programs and to make such determinations
under, and issue such interpretations of, such programs and any outstanding
option grants or stock issuances as it may deem necessary or advisable.
Decisions of each Plan Administrator shall be final
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<PAGE> 30
and binding on all parties who have an interest in the Discretionary Option
Grant Program and Stock Issuance Program or any outstanding option or stock
issuance thereunder.
Each Plan Administrator shall have full authority to
determine, (i) with respect to the option grants made under the Discretionary
Option Grant Program, which eligible individuals are to receive option grants,
the number of shares to be covered by each such grant, whether the granted
option is to be an incentive stock option ("Incentive Option") which satisfies
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code") or a non-statutory option not intended to meet
such requirements, the time or times at which and the circumstances under which
each granted option is to become exercisable and the maximum term for which the
option may remain outstanding and (ii) with respect to stock issuances under the
Stock Issuance Program, the number of shares to be issued to each Participant,
the vesting schedule and conditions to vesting (if any) to be applicable to the
issued shares, and the consideration to be paid by the individual for such
shares. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
F. Restriction on Discretion. The administration of the Automatic
Option Grant Program under Article Three shall be self executing in accordance
with the terms and conditions thereof and the Plan Administrator shall not
exercise any discretionary functions in respect to matters governed by Article
Three.
V. OPTION GRANTS AND STOCK ISSUANCES
A. Eligible Persons. The persons eligible to receive stock issuances
under the Stock Issuance Program ("Participant") and/or option grants pursuant
to the Discretionary Option Grant Program ("Optionee") are as follows:
(i) officers and other key employees of the Corporation (or
its parent or subsidiary corporations) who render services which
contribute to the management, growth or financial success of the
Corporation (or its parent or subsidiary corporations);
(ii) non-employee members of the Board of Directors; and
(iii) those consultants or other independent contractors who
provide valuable services to the Corporation (or its parent or
subsidiary corporations).
B. Eligible individuals under Automatic Option Grant Program. The
individuals who shall be eligible to participate in the Automatic Option Grant
Program shall be limited to non-employee Board members who are elected to the
Board at or
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<PAGE> 31
after the annual meeting of shareholders held in 1997 and who, at the time of
such election, have previously served on the Board for a minimum of six months.
C. Limitation on Option Grants. Notwithstanding any other provision of
this Plan, no individual shall be granted options to acquire more than one
million (1,000,000) shares of stock hereunder.
VI. STOCK SUBJECT TO THE PLAN
A. Shares Available. Shares of the Corporation's Common Stock shall be
available for issuance under the Plan and shall be drawn from either the
Corporation's authorized but unissued shares of Common Stock or from reacquired
shares of Common Stock, including shares repurchased by the Corporation on the
open market. The maximum number of shares of Common Stock which may be issued
over the term of the Plan shall not exceed 2,750,000 shares, subject to
adjustment from time to time in accordance with the provisions of this Section
VI.
B. Additional Available Shares. Should one or more outstanding options
under this Plan (including outstanding options under the Predecessor Plans
incorporated into this Plan) expire or terminate for any reason prior to
exercise in full (including any option cancelled in accordance with the
cancellation-regrant provisions of Section III of Article Two of the Plan), then
the shares subject to the option not so exercised shall be available for
subsequent option grant or share issuance under this Plan. Shares subject to any
option or portion thereof surrendered or cancelled in accordance with Section
I.D of Article Five and all share issuances under the Plan, whether or not such
shares are subsequently repurchased by the Corporation pursuant to repurchase
rights, shall reduce on a share-for-share basis the number of shares of Common
Stock available for subsequent option grant or stock issuance under the Plan. In
addition, should the exercise price of an outstanding option under the Plan be
paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an outstanding
option under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised.
C. Adjustments. In the event any change is made to the Common Stock
issuable under the Plan by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares, conversion or other
change affecting the outstanding Common Stock, or any class of Common Stock as a
class, without the Corporation's receipt of consideration, then appropriate
adjustments shall be made to (i) the number and/or class of shares issuable
under the Plan, (ii) the number and/or class of shares and price per share in
effect under each outstanding option under this Plan (including outstanding
options incorporated into this Plan from the Predecessor Plans). Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under
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<PAGE> 32
such options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
D. Additional Possible Restrictions. Common Stock issuable under the
Discretionary Option Grant Program or the Stock Issuance Program may be subject
to such restrictions on transfer, repurchase rights or such other restrictions
as determined by the Plan Administrator.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted to employees of the Corporation (or its parent or
subsidiary corporations) pursuant to this Article Two shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non-statutory options. Individuals
who are not employees of the Corporation or its parent or subsidiary
corporations may only be granted non-statutory options. Each granted option
shall be evidenced by one or more instruments in a form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. Option Price.
(i) In General. The option price per share shall be fixed by
the Plan Administrator. In no event, however, shall the option price
for any share be less than eighty-five percent (85%) of the Fair Market
Value of that share on the date of the option grant, provided that the
Plan Administrator may fix the exercise price at less than 85% if the
optionee makes a payment to the Company (including payment made by
means of a salary reduction agreement) equal to the excess of the Fair
Market Value of the Common Stock on the option grant date over such
exercise price.
(ii) 10% Shareholder. If any individual to whom an option is
granted is the owner of stock (as determined under Section 424(d) of
the Internal Revenue Code) possessing 10% or more of the total combined
voting power of all classes of stock of the Corporation (or any one of
its parent or subsidiary corporations), then the option price per share
shall not be less than one hundred and ten percent (110%) of the Fair
Market Value per share of Common Stock on the grant date.
(iii) How Payable. The option price shall become immediately
due upon exercise of the option and, subject to the provisions of
Article Five, Section III and the instrument evidencing the grant,
shall be payable in one of the following alternative forms specified
below:
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<PAGE> 33
- full payment in cash or check drawn to the Corporation's
order;
- full payment in shares of Common Stock held for at least six
(6) months and valued at Fair Market Value on the Exercise Date (as
such term is defined below);
- full payment in a combination of shares of Common Stock held
for at least six (6) months and valued at Fair Market Value on the
Exercise Date and cash or check; or
- full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee (I) shall provide irrevocable
written instructions to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate option price payable for the purchased
shares plus all applicable Federal and State income and employment
taxes required to be withheld by the Corporation in connection with
such purchase and (II) shall provide written directives to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
For purposes of this subparagraph (iii), the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.
B. Term and Exercise of Options. Each option granted under this Article
Two shall have such term as may be fixed by the Plan Administrator, be
exercisable at such time or times and during such period, and on such
conditions, as is determined by the Plan Administrator and set forth in the
stock option agreement evidencing the grant. No such option, however, shall have
a maximum term in excess of ten (10) years from the grant date and no option
granted to a 10% shareholder shall have a maximum term in excess of five (5)
years from the grant date.
C. Termination of Service.
(i) Except to the extent otherwise provided pursuant to
Section V of this Article Two, the following provisions shall govern
the exercise period applicable to any outstanding options under this
Article Two which are held by the Optionee at the time of his or her
cessation of Service or death.
- Should an Optionee's Service terminate for any reason
(including death or permanent disability as defined in Section
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22(e)(3) of the Internal Revenue Code) while the holder of one or more
outstanding options under the Plan, then none of those options shall
(except to the extent otherwise provided pursuant to Section V of this
Article Two) remain exercisable beyond the later of (i) the limited
post-Service period designated by the Plan Administrator at the time of
the option grant and set forth in the option agreement; or (ii) (A)
ninety (90) days from the date of termination if termination was caused
by other than the death or disability (as defined in Section 22(e)(3)
of the Internal Revenue Code) of such Optionee or (B) twelve (12)
months from the date of termination if termination was caused by death
or disability of Optionee.
- Any option granted to an Optionee under this Article Two and
exercisable in whole or in part on the date of the Optionee's death may
be subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution, provided and only if such exercise
occurs prior to the earlier of (i) the first anniversary of the date of
the Optionee's death or (ii) the specified expiration date of the
option term. Upon the occurrence of the earlier event, the option shall
terminate and cease to be exercisable.
- Notwithstanding the above, under no circumstances will any
option be exercisable after the specified expiration date of the option
term.
- During the limited post-Service period of exercisability,
the option may not be exercised for more than the number of shares for
which the option was exercisable on the date the Optionee's Service
terminates. Upon the expiration of such limited exercise period or (if
earlier) upon the expiration of the option term, the option shall
terminate and cease to be exercisable.
(ii) The Plan Administrator shall have complete discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to permit one or more options held by the Optionee under this
Article Two to be exercised, during the limited period of exercisability
provided under subparagraph (1) above, not only with respect to the number of
shares for which each such option is exercisable at the time of the Optionee's
cessation of Service but also with respect to one or more subsequent
installments of purchasable shares for which the option would otherwise have
become exercisable had such cessation of Service not occurred.
(iii) For purposes of the foregoing provisions of this Section I.C of
Article Two (and for all other purposes under the Plan):
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<PAGE> 35
- The Optionee shall (except to the extent otherwise
specifically provided in the applicable option or issuance agreement)
be deemed to remain in the SERVICE of the Corporation for so long as
such individual renders services on a periodic basis to the Corporation
(or any parent or subsidiary corporation) in the capacity of an
employee, a non-employee member of the Board or an independent
consultant or advisor.
- The Optionee shall be considered to be an EMPLOYEE for so
long as he or she remains in the employ of the Corporation or one or
more parent or subsidiary corporations, subject to the control and
direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may be assigned in whole or in part during the Optionee's lifetime. The assigned
portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option immediately
prior to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Options which are specifically
designated as "non-statutory" options when issued under the Plan shall not be
subject to such terms and conditions.
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A. Eligibility. Incentive Options may only be granted to individuals
who are employees of the Corporation.
B. Option Price. The option price per share of any share of Common
Stock subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the Fair Market Value of such share of Common Stock on the
grant date.
C. Dollar Limitation. The aggregate Fair Market Value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
Incentive Options granted to any employee after December 31, 1986, under this
Plan (or any other option plan of the Corporation or its parent or subsidiary
corporations) may for the first time become exercisable as Incentive Options
under the Federal tax laws during any one calendar year shall not exceed the sum
of One Hundred Thousand Dollars ($100,000). To the extent the employee holds two
or more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
Incentive Options under the Federal tax laws shall be applied on the basis of
the order in which such options are granted.
D. Application of Certain Articles. Except as modified by the preceding
provisions of this Section II, the provisions of Articles One, Two and Five of
the Plan shall apply to all Incentive Options granted hereunder. Any option
designated as an Incentive Option but which fails to meet any requirement of
this Section II or of the Internal Revenue Code for qualification as an
Incentive Option shall nevertheless be a valid and outstanding option under the
Plan and shall be treated as a non-statutory option.
III. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected Optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the Predecessor Plans incorporated into this Plan) and
to grant in substitution new options under this Article Two covering the same or
different numbers of shares of Common Stock but having an option price for each
share which is not less than (i) eighty-five percent (85%) of the Fair Market
Value of such share on the new grant date or (ii) one hundred percent (100%) of
such Fair Market Value in the case of an Incentive Option.
IV. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
IV, one or more Optionees under the Discretionary Option Grant Program may be
granted the right, exercisable upon such terms and conditions as the Plan
Administrator may establish, to surrender all or part of an unexercised option
under this Article Two in exchange for a distribution from the Corporation in an
amount equal to the excess of (i) the Fair Market Value (on the option surrender
date) of the number of shares in which
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the Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (ii) the aggregate option price payable for such vested
shares.
B. No surrender of an option shall be effective hereunder unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section IV may be made in shares of any class of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
C. If the surrender of an option is rejected by the Plan Administrator,
then the Optionee shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time prior to the later of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
after the specified expiration date for the option.
D. One or more officers of the Corporation subject to the short- swing
profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over (as defined in Section II.B of Article Five)
effected at any time when the Corporation's outstanding Common Stock is
registered under Section 12(g) of the 1934 Act, each outstanding option with
such a limited stock appreciation right in effect for at least six (6) months
shall automatically be cancelled, to the extent such option is at the time
exercisable for fully-vested shares of Common Stock. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject to the cancelled option (or cancelled portion of such
option) over (ii) the aggregate exercise price payable for such shares. The cash
distribution payable upon such cancellation shall be made within five (5) days
following the consummation of the Hostile Take-Over. Neither the approval of the
Plan Administrator nor the consent of the Board shall be required in connection
with such option cancellation and cash distribution. The balance of the option
(if any) shall continue to remain outstanding and exercisable in accordance with
the terms of the instrument evidencing such grant.
E. The shares of Common Stock subject to any option surrendered or
cancelled for an appreciation distribution pursuant to this Section IV shall NOT
be available for subsequent option grant under the Plan.
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<PAGE> 38
V. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority to extend
the period of time for which any option granted under this Article Two is to
remain exercisable following the Optionee's cessation of Service or death from
the limited period in effect under Section I.C.(i) of this Article Two to such
greater period of time as the Plan Administrator shall deem appropriate;
provided, however, that in no event shall such option be exercisable after the
specified expiration date of the option term.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant of Options. Each non-employee Board member who is elected to
the Board at or after the annual shareholder meeting held in 1997 shall
automatically be granted nonstatutory options to purchase 20,000 shares of
Common Stock at the first such election in which such non-employee Board member
is eligible to receive an Automatic Option Grant. Each continuing eligible
non-employee Board member shall receive an additional grant of nonstatutory
options to purchase 20,000 shares of Common Stock on the fifth anniversary of
the date on which such person was last granted an option under this Article
Three. The number of shares granted pursuant to this Automatic Grant Program
shall be subject to periodic adjustment pursuant to the applicable provisions of
Section VI.C of Article One.
B. Exercise Price. The exercise price per share of each automatic
option grant made under this Article Three shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the grant date.
C. Payment. The exercise price shall be payable in one of the
alternative forms specified below:
(i) full payment in cash or check drawn to the Corporation's
order;
(ii) full payment in shares of Common Stock held for at least
six (6) months and valued at Fair Market Value on the Exercise Date (as
such term is defined below);
(iii) full payment in a combination of shares of Common Stock
held for at least six (6) months and valued at Fair Market Value on the
Exercise Date and cash or check; or
(iv) full payment through a broker-dealer sale and remittance
procedure pursuant to which the non-employee Board member
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<PAGE> 39
(A) shall provide irrevocable written instructions to a designated
brokerage firm to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate option price
payable for the purchased shares plus all applicable Federal and state
income taxes required to be withheld by the Corporation in connection
with such purchase and (B) shall provide written directives to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
For purposes of this Section I.C. of Article Three, the
Exercise Date shall be the date on which written notice of the option exercise
is delivered to the Corporation, and the Fair Market Value per share of Common
Stock on any relevant date shall be determined in accordance with the provisions
of Section II.A of Article Five. Except to the extent the sale and remittance
procedure is utilized in connection with the exercise of the option, payment of
the option price for the purchased shares must accompany such notice.
D. Option Term. Each automatic grant under this Article Three shall
have a term of ten (10) years measured from the automatic grant date.
E. Exercisability. Each option granted pursuant to this automatic
option grant program shall become exercisable in a series of sixty (60) equal
monthly installments during the optionee's period of service on the Board, with
the first such installment to become exercisable one month after the automatic
grant date. No option shall become exercisable for any additional option shares
following the optionee's cessation of Board service for any reason.
F. Effect of Termination of Board Membership. Should the optionee cease
to serve as a Board member for any reason (other than death) while holding one
or more automatic option grants under this Article Three, such optionee shall
have a six (6) month period following the date of such cessation of Board
membership in which to exercise each such option for any or all of the shares of
Common Stock for which the option was exercisable at the time of such cessation
of Board service. Each such option shall immediately terminate and cease to be
outstanding at the time of such cessation of Board service with respect to any
shares for which the option is not then exercisable.
Should the optionee die while serving as a member of the Board or
within six (6) months after cessation of Board service, then each outstanding
automatic option grant held by the optionee at the time of death may
subsequently be exercised, for any or all of the shares of Common Stock for
which the option is exercisable at the time of the optionee's cessation of Board
service (less any option shares subsequently purchased by the optionee prior to
death), by the personal representative of the optionee's estate or by the person
or persons to whom the option is transferred pursuant to the optionee's will or
in accordance with the laws of descent and distribution. Any such exercise must
occur within twelve (12) months after the date of the optionee's
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<PAGE> 40
death. However, each such automatic option grant shall immediately terminate and
cease to be outstanding, at the time of the optionee's cessation of Board
service, with respect to any option shares for which it is not otherwise at such
time exercisable.
In no event shall any automatic grant under this Article Three remain
exercisable after the specified expiration date of the ten (10)-year option
term. Upon the expiration of the applicable exercise period in accordance with
this paragraph G or (if earlier) upon the expiration of the ten (10) year option
term, the automatic grant shall terminate and cease to be outstanding for any
unexercised shares for which the option was exercisable at the time of the
optionee's cessation of Board service.
II. LIMITED STOCK APPRECIATION RIGHT.
A. Upon the occurrence of a Hostile Take-Over (as defined in Section
II.B of Article Five), each non-employee Board member holding an automatic
option grant which has been outstanding under this Article Three for a period of
at least six (6) months shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender such
option in return for a cash distribution from the Corporation in an amount equal
to the excess of (i) the Take-Over Price of the shares of Common Stock at the
time subject to the surrendered option (whether or not the option is otherwise
at the time exercisable for such shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date. Neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection with
such option surrender and cash distribution.
B. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under this Plan.
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate purchases without any intervening stock option
grants. The issued shares shall be evidenced by a Stock Issuance Agreement
("Issuance Agreement") that complies with the terms and conditions of this
Article Four.
A. Consideration. Shares of Common Stock shall be issued under the Plan
for one or more of the following items of consideration, which the Plan
Administrator may deem appropriate in each individual instance:
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<PAGE> 41
(i) cash or cash equivalents (such as a personal check or bank
draft) paid to the Corporation;
(ii) in common stock of the Corporation valued at Fair Market
Value on the date of issuance;
(iii) a promissory note payable to the Corporation's order in
one or more installments, which may be subject to cancellation in whole
or in part upon terms and conditions established by the Plan
Administrator;
(iv) past services rendered to the Corporation or any parent
or subsidiary corporation;
(v) any combination of the above approved by the Plan
Administrator.
Shares may, in the absolute discretion of the Plan
Administrator, be issued for consideration with a value less than one-hundred
percent (100%) of the Fair Market Value of such shares, but in no event less
than eighty-five percent (85%) of such Fair Market Value. Notwithstanding the
foregoing, in the case of 10% shareholders, Shares must be issued at one hundred
percent (100%) of Fair Market Value of such shares.
B. Vesting Provisions.
1. Shares of Common Stock issued under this Article Four may,
in the absolute discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service (as such term is defined in Section I.C.(iii) of
Article Two); provided, that such vesting must be at a rate of at least 20% per
year over no more than five years from the date such shares are issued. The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Plan, namely:
(i) the Service period to be completed by the Participant or
the performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to
vest,
(iii) the interval or intervals (if any) which are to lapse
between installments,
(iv) any conditions or contingencies to vesting, and
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<PAGE> 42
(v) the effect which death, disability or other events
designated by the Plan Administrator are to have upon the vesting
schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to him or her under this Article
Four, whether or not his or her interest in those shares is vested. Accordingly,
the Participant shall have the right to vote such shares and to receive any
regular cash dividends paid on such shares. Any new, additional or different
shares of stock or other property (including money paid other than as a regular
cash dividend) which the Participant may have the right to receive with respect
to his or her unvested shares by reason of any stock dividend, stock split,
reclassification of Common Stock or other similar change in the Corporation's
capital structure or by reason of any Corporate Transaction under Section I of
Article Five shall be issued, subject to (i) the same vesting requirements
applicable to his or her unvested shares and (ii) such escrow arrangements as
the Plan Administrator shall deem appropriate.
3. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock under this Article Four,
then those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further shareholder rights with
respect to those shares. The Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the principal
balance of any outstanding purchase-money note of the Participant to the extent
attributable to such surrendered shares. The surrendered shares may, at the Plan
Administrator's discretion, be retained by the Corporation as Treasury Shares or
may be retired to authorized but unissued share status.
4. The Plan Administrator may in its discretion elect to waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Escrow Arrangements and Legends. Unvested shares under this Article
Four may, in the Plan Administrator's discretion, be held in escrow by the
Corporation until the Participant's interest in such shares vests or may be
issued directly
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to the Participant with restrictive legends on the certificates evidencing such
unvested shares. To the extent an escrow arrangement is utilized, the unvested
shares and any securities or other assets issued with respect to such shares
(other than regular cash dividends) shall be delivered in escrow to the
Corporation to be held until the Participant's interest in such shares (or other
securities or assets) vests. Alternatively, if the unvested shares are issued
directly to the Participant, the restrictive legend on the certificates for such
shares shall read substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND
ARE ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS
AND TO (II) CANCELLATION OR REPURCHASE IN THE EVENT THE
REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES
TO REMAIN IN THE CORPORATION'S SERVICE. SUCH TRANSFER
RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH
CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE
AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER
(OR HIS/HER PREDECESSOR IN INTEREST) DATED __________, 19__,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION."
B. Limited Transferability. The Participant shall have no right to
transfer any unvested shares of Common Stock issued to him or her under this
Article Four. For purposes of this restriction, the term "transfer" shall
include (without limitation) any sale, pledge, assignment, encumbrance, gift, or
other disposition of such shares, whether voluntary or involuntary. Upon any
such attempted transfer, the unvested shares shall immediately be cancelled, and
neither the Participant nor the proposed transferee shall have any rights with
respect to those shares. However, the Participant shall have the right to make a
gift of unvested shares acquired under the Plan to his or her spouse or issue,
including adopted children, or to a trust established for such spouse or issue,
provided the donee of such shares delivers to the Corporation a written
agreement to be bound by all the provisions of the Plan and the Issuance
Agreement applicable to the gifted shares.
ARTICLE FIVE
MISCELLANEOUS
I. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Assumption of Options. Each outstanding option which is assumed
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<PAGE> 44
in connection with a Corporate Transaction (as defined below) or is otherwise to
continue in effect following a Corporate Transaction shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply and pertain to
the number and class of securities which would be issuable, in consummation of
such Corporate Transaction, to an actual holder of the same number of shares of
Common Stock as are subject to such option immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the option price
payable per share, provided the aggregate option price payable for such
securities shall remain the same. Appropriate adjustments shall also be made to
the class and number of securities available for issuance under the Plan
following the consummation of such Corporate Transaction.
B. Acceleration of Options. In the event of any Corporate Transaction
the exercisability of each option grant at the time outstanding under this Plan
which is not continued under paragraph A above shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares. Upon the consummation of
the Corporate Transaction, all option grants under this Plan shall terminate and
cease to be outstanding. The Plan Administrator may, in its discretion, extend
the provisions of this paragraph B to options outstanding under the Predecessor
Plans.
C. Corporate Transaction. A Corporate Transaction means:
(i) a merger or consolidation in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of
which is to change the State of the Corporation's incorporation,
(ii) the sale, transfer or disposition of all or substantially
all of the assets of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which the holders of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities (as measured immediately prior to
such merger) transfer ownership of those securities to person or
persons not otherwise part of the transferor group.
D. Change in Control. Except as otherwise provided by the Plan
Administrator in agreements governing the grant of discretionary option grants
or stock issuances, in connection with any Change in Control of the Corporation,
the exercisability of each option grant at the time outstanding under this Plan
shall automatically accelerate so that each such option shall, immediately prior
to the specified effective date for the Change in Control, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be
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<PAGE> 45
exercised for all or any portion of such shares. Similarly, all unvested shares
issued under the Plan shall automatically vest immediately prior to the
effective date of the Change in Control. For purposes of this Article Five, a
Change in Control shall be deemed to occur in the event:
(i) a Hostile Take-Over (as defined below)
(ii) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a
majority of the Board members (rounded up to the next whole number)
cease, by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B)
have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time such election or
nomination was approved by the Board.
The provisions of this paragraph D shall apply to option grants and/or stock
issuances under the Predecessor Plans only to the extent expressly extended
thereto by the Plan Administrator.
II. CERTAIN DEFINITIONS
A. Fair Market Value. The FAIR MARKET VALUE of a share of Common Stock
shall be determined in accordance with the following provisions:
- If shares of the Class of Common Stock to be valued are not
at the time listed or admitted to trading on any national stock
exchange but is traded on the Nasdaq National Market, the fair market
value shall be the closing selling price per share of a share of that
class on the date in question, as such price is reported by the
National Association of Securities Dealers through the Nasdaq National
Market or any successor system. If there is no reported closing selling
price for the series on the date in question, then the closing selling
price on the last preceding date for which such quotation exists shall
be determinative of fair market value.
- If shares of the class of common stock to be valued are at
the time listed or admitted to trading on any national stock exchange,
then the fair market value of a share of that class shall be the
closing selling price per share on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
reported sale of a share of the class on such exchange on the date in
question, then the fair
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<PAGE> 46
market value shall be the closing selling price on the exchange on the
last preceding date for which such quotation exists.
- If shares of the series of common stock to be valued at the
time are neither listed nor admitted to trading on any stock exchange
nor traded on the Nasdaq National Market, then the fair market value
shall be determined by the Plan Administrator after taking into account
such factors as the Plan Administrator shall deem appropriate, which
may include independent professional appraisals.
B. Hostile Take-Over. A HOSTILE TAKE-OVER shall be deemed to occur in
the event (i) any person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer made directly to the Corporation's shareholders
which the Board does not recommend such shareholders to accept.
C. Take-Over Price. The TAKE-OVER PRICE per share shall be deemed to be
equal to the greater of (a) the fair market value per share on the option
surrender date, as determined pursuant to the valuation provisions of Section
II.A of this Article Five, or (b) the highest reported price per share paid by
the tender offeror in effecting such Hostile Take- Over.
III. LOANS OR GUARANTEE OF LOANS
A. Loans or Guarantees. The Plan Administrator may, in its discretion,
assist any Optionee or Participant (including an Optionee or Participant who is
an officer of the Corporation) in the exercise of one or more options granted to
such Optionee under the Article Two Discretionary Option Grant Program or the
purchase of one or more shares issued to such Participant under the Article Four
Stock Issuance Program, including the satisfaction of any Federal and State
income and employment tax obligations arising therefrom by (i) authorizing the
extension of a loan from the Corporation to such Optionee or Participant or (ii)
permitting the Optionee or Participant to pay the option price or purchase price
for the purchased Common Stock in installments over a period of years. The terms
of any loan or installment method of payment (including the interest rate and
terms of repayment) will be upon such terms as the Plan Administrator specifies
in the applicable option or issuance agreement or otherwise deems appropriate
under the circumstances. Loans and installment payments may be granted with or
without security or collateral (other than to individuals who are consultants or
independent contractors, in which event the loan must be adequately secured by
collateral other than the purchased shares). However, the maximum credit
available to the Optionee or Participant may not exceed the option or purchase
price of the acquired shares (less the par value of such shares) plus any
Federal and State
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<PAGE> 47
income and employment tax liability incurred by the Optionee or Participant in
connection with the acquisition of such shares.
B. Discretion of Plan Administrator. The Plan Administrator may, in its
absolute discretion, determine that one or more loans extended under this
financial assistance program shall be subject to forgiveness by the Corporation
in whole or in part upon such terms and conditions as the Plan Administrator may
deem appropriate.
IV. TAX WITHHOLDING
A. Withholding. The Company's obligation to deliver shares or cash upon
the exercise of stock options or stock appreciation rights granted under the
Discretionary Option Grant Program or the Automatic Option Grant Program or upon
direct issuance under the Stock Issuance Program shall be subject to the
satisfaction of all applicable Federal, State and local income and employment
tax withholding requirements.
B. Withholding of Shares Otherwise Issuable. The Plan Administrator
may, in its discretion and upon such terms and conditions as it may deem
appropriate (including the applicable safe-harbor provisions of SEC Rule 16b-3),
provide any or all holders of outstanding option grants under the Discretionary
Option Grant Program with the election to have the Company withhold, from the
shares of Common Stock otherwise issuable upon the exercise of such options, a
portion of such shares with an aggregate fair market value equal to the
designated percentage (up to 100% as specified by the optionee) of the Federal
and State income taxes ("Taxes") incurred in connection with the acquisition of
such shares. In lieu of such direct withholding, one or more option holders may
also be granted the right to deliver shares of Common Stock to the Company in
satisfaction of such Taxes. The withheld or delivered shares shall be valued at
the fair market value on the applicable determination date for such Taxes or
such other date required by the applicable safe-harbor provisions of SEC Rule
16b-3.
V. AMENDMENT OF THE PLAN AND AWARDS
A. Amendment. Except as herein provided, the Board has complete and
exclusive power and authority to amend or modify the Plan (or any component
thereof) in any or all respects whatsoever. No amendment or modification may
adversely affect the rights and obligations of an Optionee with respect to
options at the time outstanding under the Plan, nor adversely affect the rights
of any Participant with respect to Common Stock issued under the Plan prior to
such action, unless the Optionee or Participant consents to such amendment or
modification. In addition, certain amendments may require shareholder approval
if so determined by the Board or pursuant to applicable laws or regulations.
B. Limitation on Amendment of Options. Notwithstanding Article Five,
Section V.A, neither the provisions of the Automatic Option Grant Program nor
the options outstanding under Article Three may be amended at intervals more
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<PAGE> 48
frequently than once every six (6) months, other than to the extent necessary to
comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act or any rules thereunder.
C. Escrow Prior to Shareholder Approval. (i) Options to purchase shares
of Common Stock may be granted under the Discretionary Option Grant Program and
(ii) shares of Common Stock may be issued under the Stock Issuance Program,
which are in both instances in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued under the
Discretionary Option Grant Program or the Stock Issuance Program are held in
escrow until shareholder approval is obtained for a sufficient increase in the
number of shares available for issuance under the Plan. If such shareholder
approval is not obtained within twelve (12) months after the date the first such
excess option grants or excess share issuances are made, then (I) any
unexercised excess options shall terminate and cease to be exercisable and (II)
the Corporation shall promptly refund the purchase price paid for any excess
shares actually issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow.
VI. EFFECTIVE DATE AND TERM OF PLAN
A. Effective Date. This Plan, as successor to the Company's Predecessor
Plans, shall become effective as of the Effective Date, and no further option
grants shall be made under the Predecessor Plans after such Effective Date. If
shareholder approval of this Plan is not obtained within twelve (12) months
after the date this Plan is adopted by the Board, then each option granted under
this Plan from and after the Effective Date shall terminate without ever
becoming exercisable for the option shares and all shares issued hereunder shall
be repurchased by the Corporation at the purchase price paid, together with
interest (at the applicable Short Term Federal Rate). However, in the event such
shareholder approval is not obtained, the Predecessor Plans shall continue in
effect in accordance with the terms and provisions last approved by the
Corporation's shareholders, and all outstanding options and unvested stock
issuances under the Predecessor Plans shall remain in full force and effect in
accordance with the instruments evidencing such options and issuances.
B. Predecessor Plans. Each outstanding option and share issuance under
the Predecessor Plans immediately prior to the Effective Date of this Plan are
hereby incorporated into this Plan and shall accordingly be treated as an
outstanding option or share issuance under this Plan. However, each such option
or share issuance shall continue to be governed solely by the terms and
conditions of the instrument evidencing such grant or issuance, and except as
otherwise expressly provided in this Plan, no provision of this Plan shall
affect or otherwise modify the rights or obligations of the holders of such
options or shares with respect to their acquisition of shares of Common Stock,
or otherwise modify the rights or obligations of the holders of such options or
shares.
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<PAGE> 49
C. Applicability of Certain Procedures to Predecessor Plans. The sale
and remittance procedure authorized for the exercise of outstanding options
under this Plan shall be available for all options granted under this Plan on or
after the Effective Date and for all non-statutory options outstanding under the
Predecessor Plans and incorporated into this Plan. The Plan Administrator may
also allow such procedure to be utilized in connection with one or more
disqualifying dispositions of Incentive Option shares effected after the
Effective Date, whether such Incentive Options were granted under this Plan or
the Predecessor Plans.
D. Termination. The Plan shall terminate upon the earlier of (i) the
tenth anniversary of the Effective Date or (ii) the date on which all shares
available for issuance under the Plan shall have been issued or cancelled
pursuant to the exercise, surrender or cash-out of the options granted under the
Discretionary Option Grant Program or the issuance of shares (whether vested or
unvested) under the Stock Issuance Program. If the date of termination is
determined under clause (i) above, then all option grants and unvested stock
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
grants or issuances.
VII. USE OF PROCEEDS
Cash proceeds received by the Company from the sale of shares under the
Plan shall be used for general corporate purposes.
VIII. REGULATORY APPROVALS
A. Regulatory Approvals. The implementation of the Plan, the granting
of any option under the Discretionary Option Grant Program, the issuance of any
shares under the Stock Issuance Program, and the issuance of Common Stock upon
the exercise or surrender of the option grants made hereunder shall be subject
to the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options granted
under it, and the Common Stock issued pursuant to it.
B. Federal and State Securities Laws. No shares of Common Stock or
other assets shall be issued or delivered under this Plan unless and until there
shall have been compliance with all applicable requirements of Federal and State
securities laws, including the filing and effectiveness of the Form S-8
registration statement for the shares of Common Stock issuable under the Plan,
and all applicable listing requirements of any securities exchange on which
stock of the same class is then listed.
IX. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of the Plan
shall be construed so as to grant any individual the right to remain in the
employ or service of
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<PAGE> 50
the Corporation (or any parent or subsidiary corporation) for any period of
specific duration, and the Corporation (or any parent or subsidiary corporation
retaining the services of such individual) may terminate such individual's
employment or service at any time and for any reason, with or without cause.
X. MISCELLANEOUS PROVISIONS
A. Successors. The provisions of the Plan shall inure to the benefit
of, and be binding upon, the Corporation and its successors or assigns, whether
by Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
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<PAGE> 51
DEPOTECH CORPORATION PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Edward L. Erickson and Dana S. McGowan
jointly and severally, as proxies, with full power of substitution, to vote all
shares of stock which the undersigned is entitled to vote at the Annual Meeting
of Shareholders of DepoTech Corporation to be held on Wednesday, May 14, 1997,
or at any postponements or adjournments thereof, as specified below, and to
vote in his discretion on such other business as may properly come before the
Meeting and any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3
1. Election of Directors:
Nominees: Roger C. Davisson, George W. Dunbar, Jr., Edward L. Erickson,
Stephen B. Howell, M.D., Fred A Middleton, Peter Preuss and Pieter J.
Strijkert, Ph.D.
[ ] Vote FOR all nominees above [ ] Vote WITHHELD from all nominees
(except as withheld in the
space below)
Instruction: To withhold authority to vote for any individual nominee,
check the box "Vote FOR" and write the nominee's name on the line below.
- ------------------------------------------------------------------------------
2. Approval of amendments to the Company's 1995 Stock Option/Stock Issuance
Plan.
[ ] Vote FOR [ ] Vote AGAINST [ ] ABSTAIN
3. Ratification and approval of the selection of Ernst & Young LLP as
independent accountants for the fiscal year ending December 31, 1997.
[ ] Vote FOR [ ] Vote AGAINST [ ] ABSTAIN
(Please sign and date on reverse side)
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2 AND 3 AND WILL BE VOTED BY THE PROXY/HOLDER AT HIS DISCRETION AS
TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE MEETING OR ANY ADJOURNMENTS
THEREOF. TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS
JUST SIGN BELOW, NO BOXES NEED BE CHECKED.
Dated: _______________________________, 19_____
_______________________________________________
Signature of Shareholder
_______________________________________________
Printed Name of Shareholder
_______________________________________________
Title (if appropriate)
Please sign exactly as name appears hereon. If
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such, and, if signing for a corporation, give
your title. When shares are in the names of more
than one person, each should sign.
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING. [ ]
