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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant [X]
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Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Avigen, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required. Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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1.
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AVIGEN, INC.
1201 HARBOR BAY PARKWAY, #1000
ALAMEDA, CALIFORNIA 94502
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 17, 2000
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TO THE STOCKHOLDERS OF AVIGEN, INC.:
NOTICE IS HEREBY Given that the Annual Meeting of Stockholders of AVIGEN,
INC., a Delaware corporation (the "Company"), will be held on Friday, November
17, 2000 at 9:00 a.m. local time at the offices of the Company, 1201 Harbor Bay
Parkway, #1000, Alameda, California 94502 for the following purpose:
1. To elect two directors to hold office until the 2003 Annual Meeting of
Stockholders.
2. To approve an amendment to the Company's 1996 Equity Incentive Plan to
increase the aggregate number of shares of common stock authorized for
issuance under such plan by 600,000.
3. To approve an amendment to the Company's 1996 Non-Employee Directors'
Stock Option Plan to increase the aggregate number of shares of common
stock authorized for issuance under such plan by 100,000.
4. To approve an amendment to the Company's Certificate of Incorporation to
increase the aggregate number of shares of Common Stock authorized for
issuance from 30,000,000 shares to 50,000,000 shares.
5. To ratify the selection of Ernst & Young, LLP as independent auditors of
the Company for its fiscal year ending June 30, 2001.
6. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on September 22,
2000, as the record date for the determination of stockholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
/S/ THOMAS J. PAULSON
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Thomas J. Paulson
Secretary
Alameda, California
October 13, 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. YOU
MAY VOTE YOUR SHARES ON THE ENCLOSED PROXY CARD BY DATING, SIGNING AND RETURNING
IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOUR SHARES ARE REGISTERED DIRECTLY
WITH THE COMPANY'S TRANSFER AGENT, AMERICAN STOCK TRANSFER & TRUST COMPANY, THEN
YOU CAN VOTE THOSE SHARES BY USING A TOLL FREE TELEPHONE NUMBER OR THE INTERNET.
INSTRUCTIONS FOR USING THESE CONVENIENT SERVICES ARE SET FORTH ON THE ENCLOSED
PROXY CARD. STREET NAME HOLDERS MAY ALSO VOTE BY TELEPHONE OR THE INTERNET IF
THEIR BANK OR BROKER MAKES THOSE METHODS AVAILABLE, IN WHICH CASE THE BANK OR
BROKER WILL ENCLOSE THE INSTRUCTIONS WITH THE PROXY STATEMENT.
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AVIGEN, INC.
1201 HARBOR BAY PARKWAY, #1000
ALAMEDA, CALIFORNIA 94502
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 17, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Avigen, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on November 17, 2000 at 9:00 a.m. local time
(the "Annual Meeting"), or at any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting. The
Annual Meeting will be held at 1201 Harbor Bay Parkway, #1000, Alameda,
California 94502. The Company intends to mail this proxy statement and
accompanying proxy card on or about October 13, 2000, to all stockholders
entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
September 22, 2000 will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on September 22, 2000 the Company had
outstanding and entitled to vote 17,048,994 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Except for Proposal 4, broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether a matter has been approved. With respect to Proposal 4, broker non-votes
will have the same effect as negative votes.
VOTING VIA THE INTERNET OR BY TELEPHONE
Stockholders may grant a proxy to vote their shares by means of the
telephone or on the Internet. The law of Delaware, under which the Company is
incorporated, specifically permits electronically transmitted proxies, provided
that each such proxy contains or is submitted with information from which the
inspectors of election can determine that such proxy was authorized by the
stockholder.
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The telephone and Internet voting procedures below are designed to
authenticate stockholders identities, to allow stockholders to grant a proxy to
vote their shares and to confirm that stockholders' instructions have been
recorded properly. Stockholders granting a proxy to vote via the Internet should
understand that there may be costs associated with electronic access, such as
usage charges from Internet access providers and telephone companies, that must
be borne by the stockholder.
For Shares Registered in Your Name
Stockholders of record may go to http://www.voteproxy.com to grant a proxy
to vote their shares by means of the Internet. They will be required to provide
the company number and control number contained on their proxy cards. The voter
will then be asked to complete an electronic proxy card. The votes represented
by such proxy will be generated on the computer screen and the voter will be
prompted to submit or revise them as desired. Any stockholder using a touch-tone
telephone may also grant a proxy to vote shares by calling 1-800-PROXIES and
following the recorded instructions.
For Shares Registered in the Name of a Broker or Bank
Most beneficial owners whose stock is held in street name receive
instruction for granting proxies from their banks, brokers or other agents,
rather than the Company's proxy card.
A number of brokers and banks are participating in a program provided
through ADP Investor Communication Services that offers the means to grant
proxies to vote shares by means of the telephone and Internet. If your shares
are held in an account with a broker or bank participating in the ADP Investor
Communications Services program, you may grant a proxy to vote those shares
telephonically by calling the telephone number shown on the instruction form
received from your broker or bank, or via the Internet at ADP Investor
Communication Services' web site at http://www.proxyvote.com.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 1201
Harbor Bay Parkway, #1000, Alameda, California 94502, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 2001 Annual Meeting of Stockholders must be received by the Company
not later than June 15, 2001 in order to be included in the proxy statement and
proxy relating to that Annual Meeting. The deadline for submitting a stockholder
proposal or a nomination for director that is not to be included in such proxy
statement is September 18, 2001. Stockholders are also advised to review the
Company's By-laws, which contain additional requirements with respect to advance
notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and By-laws provide that the
Board of Directors shall be divided into three classes, each class consisting,
as nearly as possible, of one-third of the total number of directors, with each
class having a three-year term. Vacancies on the Board may be filled only by
persons elected by a majority of the remaining directors. A director elected by
the Board to fill a vacancy (including a vacancy created by an increase in the
Board of Directors) shall serve for the remainder of the full term of the class
of directors in which the vacancy occurred and until such director's successor
is elected and qualified, or until such director's earlier death, resignation or
removal.
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The Board of Directors is presently composed of five members. At the Annual
Meeting, the term of office of the two current Class II Directors shall expire.
Each of the nominees for election to this class is currently a director of the
Company, and was previously elected by the stockholders. If elected at the
Annual Meeting, each nominee would serve until the 2003 Annual Meeting of
Stockholders and until his successor is elected and has qualified, or until such
director's earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the two nominees named below. In the event that either nominee
should be unavailable for election as a result of an unexpected occurrence, such
shares will be voted for the election of such substitute nominee as management
may propose. Each person nominated for election has agreed to serve if elected,
and management has no reason to believe that either nominee will be unable to
serve.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2003 ANNUAL MEETING
CLASS II DIRECTORS
PHILIP J. WHITCOME, PH.D.
Philip J. Whitcome, Ph.D., 52, has served as a director of the Company
since December 1992. In April 1995, Dr. Whitcome was elected Chairman of the
Board and from March 1996 to December 1996 he served as acting Chief Financial
Officer. From 1988 to 1994, Dr. Whitcome was President and Chief Executive
Officer of Neurogen Corporation, a biopharmaceutical company. From 1981 to 1988,
Dr. Whitcome was employed at Amgen Inc. ("Amgen"), a biopharmaceutical company,
serving most recently as Director of Strategic Planning. Prior to joining Amgen,
he served as Manager of Corporate Development for Medical Products at
Bristol-Myers, and held research and marketing management positions with the
Diagnostics Division of Abbott Laboratories, a pharmaceutical and medical
products company. Dr. Whitcome holds a Ph.D. in Molecular Biology from the
University of California at Los Angeles, a M.B.A. from the Wharton School at the
University of Pennsylvania and a B.S. in Physics from Providence College.
JOHN K.A. PRENDERGAST, PH.D.
John K.A. Prendergast, Ph.D., 46, is a co-founder of the Company and has
served as a director of the Company since December 1992. He is currently
President of SummerCloud Bay Inc., a consulting firm providing services to the
biotechnology industry. From December 1992 to March 1996, Dr. Prendergast also
served as a Vice President and the Treasurer of the Company. Dr. Prendergast
served as a Managing Director of Paramount Capital Investments, LLC, The Castle
Group, Ltd., a medical technology venture capital firm, from 1991 to 1996. Dr.
Prendergast is a co founder and director of a number of publicly held
biotechnology companies including AVAX Technologies, Inc., Avigen, Inc., Palatin
Technology Inc., and Xenometrix Inc. Dr. Prendergast received M.Sc. and Ph.D.
degrees from the University of New South Wales, Sydney, Australia and a C.S.S.
in Administration and Management from Harvard University.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE NAMED NOMINEES.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
CLASS III DIRECTOR
JOHN MONAHAN, PH.D.
John Monahan, Ph.D., 53, has served as President, Chief Executive Officer
and a director of the Company since its inception in 1992. Prior to joining
Avigen, Dr. Monahan was Vice President of Research and Development at Somatix
Therapy Corporation ("Somatix"), a gene therapy company, from 1989 to 1992,
where he was responsible for the initiation and development of all research
programs. From 1983 to 1988, he was Director of Molecular and Cell Biology at
Berlex Laboratories, a pharmaceutical company. From 1981 to
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1983, he was Group Research Chief at Hoffmann La Roche, a pharmaceutical
company. Dr. Monahan received his Ph.D. in biochemistry from McMaster
University, Hamilton, Canada and his B.S. in science from University College,
Dublin, Ireland.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING
CLASS I DIRECTORS
ZOLA HOROVITZ, PH.D.
Zola Horovitz, Ph.D., 66, has served as a director of the Company since
November 1994. From 1991 through May 1994, Dr. Horovitz served as Vice
President, Business Development and Planning and from 1990 to 1991 as Vice
President, Licensing at Bristol-Myers Squibb Co. ("Bristol-Myers"), a
pharmaceutical and healthcare products company. Prior to this, Dr. Horovitz
served from 1959 through 1989 in various positions at the Squibb Institute for
Medical Research, including Vice President, Research, Planning & Scientific
Liaison, Vice President, Drug Development, and Vice President, Biological and
Pharmaceutical R&D. Dr. Horovitz currently serves on the Board of Directors of
Biocryst Pharmaceuticals, Diacrin, Inc., Shire Pharmaceuticals, Magainin
Pharmaceuticals, Heavenly Door.com, Synaptic Pharmaceuticals and Three
Dimensional Pharmaceuticals, all of which are biotechnology companies. From 1975
through 1993 Dr. Horovitz served on the Scientific Advisory Council at Princeton
University and from 1976 through 1989 on the Advisory Board of Rutgers
University College of Pharmacy. Dr. Horovitz received a Ph.D. in Pharmacology,
and both a M.S. in Pharmacology and B.S. in Pharmacy from the University of
Pittsburgh.
YUICHI IWAKI, M.D., PH.D.
Yuichi Iwaki, M.D., Ph.D., 51, has served as a director of the Company
since November 1994. Since 1992, Dr. Iwaki has held two professorships at the
University of Southern California School of Medicine in the Departments of
Urology and Pathology, and is Director of the Transplantation Immunology and
Immunogenetic Laboratory. In addition, he holds visiting professorships at
University of California, Irvine, School of Medicine and Nihon University School
of Medicine in Japan and at the University of Pittsburgh School of Medicine.
Prior to joining the University of Southern California Medical School faculty in
1992, Dr. Iwaki held professorships at the University of Pittsburgh in the
Departments of Surgery and Pathology from 1989 through 1991 and the director of
transplantation laboratory. Dr. Iwaki received an M.D. and a Ph.D. from Sapporo
Medicine School in Sapporo, Japan.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 2000 the Board of Directors held 10
meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors to review
the results of the annual audit and discuss the financial statements, it
recommends to the Board the independent auditors to be retained and receive and
consider the accountants' comments as to controls, adequacy of staff and
management performance and procedures in connection with audit and financial
controls. The Audit Committee is composed of three non-employee directors: Drs.
Iwaki, Horovitz and Prendergast. It met one time during the fiscal year ended
June 30, 2000.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of two non-employee directors:
Drs. Horovitz and Prendergast. It met two times during the fiscal year ended
June 30, 2000.
The Board of Directors has no standing Nominating Committee or any
committee performing the functions of such committee.
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During the fiscal year ended June 30, 2000, all of the directors attended
at least 75% of the aggregate of the total of meetings of the Board of Directors
and the committees on which they served during the period for which they were a
director or committee member, respectively.
PROPOSAL 2
APPROVAL OF THE 1996 EQUITY INCENTIVE PLAN, AS AMENDED
In March 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1996 Equity Incentive Plan (the "1996
Plan") under which 600,000 shares of the Company's Common Stock were reserved
for issuance. In September 1997 and September 1999, the Board approved
amendments to the 1996 Plan, which the stockholders approved, to enhance the
flexibility of the Board and the Compensation Committee in granting stock
options to the Company's employees and to modify the requirements related to
stockholder approval of amendments to the 1996 Plan to bring the 1996 Plan into
conformity with and take advantage of new regulations under Section 16 of the
Exchange Act, and to increase the total number of shares reserved for issuance
under the 1996 Plan to 1,900,000.
At June 30, 2000, options (net of canceled or expired options) covering an
aggregate of 1,727,157 shares of the Company's Common Stock had been granted
under the 1996 Plan, and only 172,843 shares (plus any shares that might in the
future be returned to the plans as a result of cancellations or expiration of
options) remained available for future grant under the 1996 Plan. During the
last fiscal year, under the 1996 Plan, the Company granted to all current
executive officers as a group options to purchase 132,000 shares at an exercise
price of $29.00 per share and to all employees (excluding executive officers) as
a group options to purchase 418,844 shares at exercise prices of $5.875 to
$56.00 per share.
On June 14, 2000 the Board of Directors adopted the 2000 Equity Incentive
Plan (the "2000 Plan") reserving 5,000,000 shares of the Company's authorized
Common Stock for issuance of future grants of stock options thereunder. Options
granted under the 2000 Plan will be treated as non-qualified stock options
unless the 2000 Plan is approved by the stockholders of the Company. Under the
2000 Plan, the Board granted to current executive officers as a group options to
purchase at total of 393,000 shares at an exercise price of $38.1875 per share.
Each Named Executive Officer received options as set forth in the table under
"Executive Compensation -- Stock Option Grants and Exercises."
In August 2000, the Board approved an amendment to the 1996 Plan, subject
to stockholder approval, to increase the number of shares authorized for
issuance under the 1996 Plan from a total of 1,900,000 shares to 2,500,000
shares. The Board adopted this amendment to ensure that the Company can continue
to grant stock options to employees at levels determined appropriate by the
Board and the Compensation Committee.
Stockholders are requested in this Proposal 2 to approve the 1996 Plan, as
amended. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and voting at the meeting will be required to
approve the 1996 Plan, as amended. Abstentions will be counted towards the
tabulation of votes cast and will have the same effect as negative votes. Broker
non-votes are counted towards a quorum, but are not counted for any purpose in
determining whether a matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 1996 Plan are outlined below:
GENERAL
Under the 1996 Plan incentive stock options and stock appreciation rights
appurtenant thereto may be granted to employees, and nonstatutory stock options,
stock appreciation rights, restricted stock purchase awards, and stock bonuses
may be granted to employees, directors and consultants. To date only incentive
stock options and nonstatutory stock options have been awarded under the 1996
Plan. Incentive stock options granted under the 1996 Plan are intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the 1996 Plan are intended not to qualify as incentive
stock options under the Code. See
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"Federal Income Tax Information" for a discussion of the tax treatment of the
various awards included in the 1996 Plan.
PURPOSE
The 1996 Plan provides a means by which selected employees and directors
of, and consultants to, the Company, and its affiliates, may be given an
opportunity to purchase Common Stock of the Company or receive stock
appreciation rights. The Company, by means of the 1996 Plan, seeks to retain the
services of persons who are now employees of or consultants to the Company or
its affiliates, to secure and retain the services of new employees and
consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its affiliates.
FORMS OF BENEFIT
The 1996 Plan provides for incentive stock options, nonstatutory stock
options, restricted stock purchase awards, stock bonuses and stock appreciation
rights (collectively "Stock Awards"). Stock appreciation rights authorized for
issuance under the 1996 Plan may be tandem stock appreciation rights, concurrent
stock appreciation rights or independent stock appreciation rights. Tandem and
concurrent stock appreciation rights are generally subject to the same terms and
conditions of the particular option grant to which they pertain. Independent
stock appreciation rights are granted independently of any option and are
generally subject to the same terms and conditions applicable to nonstatutory
stock options.
ADMINISTRATION
The 1996 Plan is administered by the Board unless and until the Board
delegates administration to a committee composed of two or more Board members,
who may be non-employee directors (unless the Board expressly declares that such
requirement shall not apply) and may also be, in the discretion of the Board,
outside directors. If administration is delegated to a committee, such committee
will have, in connection with the administration of the 1996 Plan, the powers
possessed by the Board, subject, however, to such resolutions, not inconsistent
with the provisions of the 1996 Plan, as may be adopted from time to time by the
Board. The Board or the committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
are not then subject to Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and/or who are either (i) not then employees
covered by Section 162(m) of the Code and are not expected to be covered by
Section 162(m) of the Code at the time of recognition of income resulting from
such Stock Award, or (ii) not persons with respect to whom the Company wishes to
avoid the application of Section 162(m) of the Code. The Board may abolish such
committee at any time and revest in the Board the administration of the 1996
Plan. The Board has delegated the administration of the 1996 Plan to the
Compensation Committee, and references to the Board include the Compensation
Committee.
The Board has the power to determine from time to time which of the persons
eligible under the 1996 Plan shall be granted awards, the type of awards to be
granted, when and how each award shall be granted, to construe and interpret the
1996 Plan and awards granted under it, and to establish, amend and revoke rules
and regulations for its administration. The Board may correct any defect in the
1996 Plan or in any award agreement to make the 1996 Plan fully effective.
SHARES SUBJECT TO THE PLAN
Pursuant to the August 2000 amendment, and subject to approval of this
Proposal 2, the Common Stock that may be sold pursuant to awards under the 1996
Plan shall not exceed in the aggregate two million five hundred thousand
(2,500,000) shares of the Company's Common Stock. If any award expires or
terminates, in whole or in part, without having been exercised in full, the
stock not purchased under such award will revert to and again become available
for issuance under the 1996 Plan. Shares subject to stock appreciation rights
will not be available for subsequent issuance under the 1996 Plan. The Common
Stock subject to the 1996 Plan may be unissued shares or reacquired shares,
bought on the market or otherwise.
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SECTION 162(M) LIMIT
Pursuant to the provisions of the 1996 Plan relating to adjustments upon
changes in stock, no participant shall be eligible to be granted stock options
and stock appreciation rights in a calendar year covering more than five hundred
thousand (500,000) shares of the Company's Common Stock.
ELIGIBILITY
Incentive stock options and stock appreciation rights appurtenant thereto
may be granted only to employees. Nonstatutory stock options, restricted stock
purchase awards, stock appreciation rights and stock bonuses may be granted to
employees, directors or consultants.
No person is eligible for the grant of an incentive stock option if, at the
time of grant, such person owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company unless
the exercise price of such option is at least one hundred ten percent (110%) of
the fair market value of such Common Stock subject to the option at the date of
grant and the option is not exercisable after the expiration of five (5) years
from the date of grant, or in the case of a restricted stock purchase award, the
purchase price is at least one hundred percent (100%) of the fair market value
of Common Stock subject to the award at date of grant. In addition, no person
shall be eligible to be granted options and stock appreciation rights covering
more than five hundred thousand (500,000) shares of the Company's Common Stock
in any calendar year.
TERM AND TERMINATION
No option is exercisable after the expiration of ten (10) years from the
date it was granted.
In the event an optionee's continuous status as an employee, director or
consultant is terminated, the optionee may exercise his or her option (to the
extent that the optionee was entitled to exercise it at the time of termination)
but generally only within the earlier of (i) the date three (3) months after the
termination of the optionee's continuous status as an employee, director or
consultant (or such longer or shorter period specified in the option agreement
at the time of grant), or (ii) the expiration of the term of the option as set
forth in the option agreement.
An optionee's option agreement may also provide that if the exercise of the
option following the termination of the optionee's continuous status as an
employee, director, or consultant would result in liability under Section 16(b)
of the Exchange Act, then the option shall terminate on the earlier of (i) the
expiration of the term of the option set forth in the option agreement, or (ii)
the tenth (10th) day after the last date on which such exercise would result in
such liability under Section 16(b) of the Exchange Act. Finally, an optionee's
option agreement may also provide that if the exercise of the option following
the termination of the optionee's continuous status as an employee, director or
consultant would be prohibited at any time solely because the issuance of shares
would violate the registration requirements under the Securities Act, then the
option shall terminate on the earlier of (i) the expiration of the term of the
option as set forth in the immediately preceding paragraph, or (ii) the
expiration of a period of three (3) months after the termination of the
optionee's continuous status as an employee, director or consultant during which
the exercise of the option would not be in violation of such registration
requirements.
In the event an optionee's continuous status as an employee, director or
consultant terminates as a result of the optionee's death or disability, the
optionee (or such optionee's estate, heirs or beneficiaries) may exercise his or
her option, but only within the period ending on the earlier of (i) twelve (12)
months following such termination (or such longer or shorter period as specified
in the option agreement at the time of grant) or (ii) the expiration of the term
of the option as set forth in the option agreement.
In the event a stock bonus or restricted stock recipient's continuous
status as an employee, director or consultant terminates, the Company may
repurchase or otherwise reacquire any or all of the shares of stock held by that
person which have not vested as of the date of termination under the terms of
the stock bonus or restricted stock purchase agreement between the Company and
such person.
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EXERCISE PRICE
The exercise price of each incentive stock option will not be less than one
hundred percent (100%) of the fair market value of the Company's Common Stock on
the date of grant. The exercise price of each nonstatutory stock option will not
be less than eighty-five percent (85%) of the fair market value on the date of
grant. The purchase price of restricted stock will not be less than eighty-five
percent (85%) of the fair market value of the Company's Common Stock on the date
such award is made. Stock bonuses may be awarded in consideration for past
services actually rendered to the Company or for its benefit.
CONSIDERATION
The purchase price of stock acquired pursuant to a Stock Award is paid
either in cash at the time of exercise or purchase, or (if determined by the
Board at the time of grant for an option) by deferred payment or other
arrangement or in any other form of legal consideration that may be acceptable
to the Board, including, in the case of an option, and in the discretion of the
Board at the time of the grant of an option, by delivery to the Company of other
Common Stock of the Company. In the case of any deferred payment arrangement,
interest will be payable at least annually and will be charged at the minimum
rate of interest necessary to avoid the treatment as interest of amounts that
are not stated to be interest.
TRANSFERABILITY
An incentive stock option will not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the incentive stock option is granted only by such person.
A nonstatutory stock option, stock bonus, or restricted stock award generally
will not be transferable except by will or by the laws of descent and
distribution or pursuant to a domestic relations order. Some nonstatutory stock
option agreements may provide for very limited transferability. In addition, an
optionee may designate a beneficiary who may exercise his or her option after
death.
VESTING
The total number of shares of stock subject to an option may, but need not,
be allotted in periodic installments. The option agreement may provide that from
time to time during each of such installment periods, the option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period and/or any prior period as to which the option became vested but
was not fully exercised. The option agreement may also provide that an optionee
may exercise an option prior to full vesting, provided that the Company may have
a repurchase right with respect to any unvested shares.
Restricted stock purchase awards and stock bonuses granted under the 1996
Plan may be granted pursuant to a repurchase option in favor of the Company in
accordance with a vesting schedule determined by the Board.
ADJUSTMENTS UPON CHANGES IN STOCK
If any change is made in the Common Stock subject to the 1996 Plan, or
subject to any Stock Award, without receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the class(es) and maximum number of shares subject to
the 1996 Plan, the maximum annual award applicable under the 1996 Plan and the
class(es) and number of shares and price per share of stock subject to
outstanding Stock Awards will be appropriately adjusted.
In the event of a merger, consolidation, liquidation, dissolution or the
sale of substantially all of the Company's assets or a reverse merger in which
the Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, any surviving corporation shall
8
<PAGE> 11
assume any Stock Awards outstanding under the 1996 Plan or shall substitute
similar awards for those outstanding under the 1996 Plan, or such Stock Awards
shall continue in full force and effect. In the event a surviving corporation
refuses to assume such Stock Awards or substitute similar awards, then, with
respect to Stock Awards held by persons then performing services as employees,
directors or consultants, the time during which such Stock Awards may be
exercised shall be accelerated prior to completion of such transaction and such
Stock Awards terminated if not exercised prior to such transaction.
AMENDMENT OF THE 1996 PLAN
The Board at any time, and from time to time, may amend the 1996 Plan.
However, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will require stockholder approval in order for
the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3
promulgated under Section 16 of the Exchange Act or any Nasdaq or securities
exchange requirements.
TERMINATION OR SUSPENSION OF THE 1996 PLAN
The Board may suspend or terminate the 1996 Plan at any time. Unless sooner
terminated, the 1996 Plan shall terminate in March 2006. No Stock Awards may be
granted under the 1996 Plan while the 1996 Plan is suspended or after it is
terminated.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1996 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which will be long-term, mid-term or short term depending on how long the
optionee holds the stock. Capital gains are generally subject to lower tax rates
than ordinary income. Slightly different rules may apply to optionees who
acquire stock subject to certain repurchase options or who are subject to
Section 16 of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness and the satisfaction of a tax reporting
obligation) to a corresponding business expense deduction in the tax year in
which the disqualifying disposition occurs.
Nonstatutory Stock Options. There are no tax consequences to the optionee
or the Company by reason of the grant of a nonstatutory stock option. Upon
exercise of a nonstatutory stock option, the optionee normally will recognize
taxable ordinary income equal to the excess of the stock's fair market value on
the date of exercise over the option exercise price. Generally, with respect to
employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness and the satisfaction of a tax
reporting obligation, the Company will generally be entitled to a business
expense deduction equal to the taxable ordinary income realized by the optionee.
Upon disposition of the stock, the optionee will recognize a capital gain or
loss equal to the difference between the selling price and the sum of the amount
paid for such stock plus any amount
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<PAGE> 12
recognized as ordinary income upon exercise of the option. Such gain or loss
will be long term or short-term depending on how long the optionee holds the
stock. Slightly different rules may apply to optionees who acquire stock subject
to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain employees in a taxable year to the extent that compensation exceeds $1
million for a covered employee. It is possible that compensation attributable to
awards granted in the future under the 1996 Plan, when combined with all other
types of compensation received by a covered employee from the Company, may cause
this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury Regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that: (i) the stock award plan contains a per-employee limitation on
the number of shares for which stock options and stock appreciation rights may
be granted during a specified period; (ii) the per-employee limitation is
approved by the stockholders; (iii) the award is granted by a compensation
committee comprised solely of "outside directors;" and (iv) the exercise price
of the award is no less than the fair market value of the stock on the date of
grant. Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors"; and (ii) the
purchase price of the award is no less than the fair market value of the stock
on the date of grant. Stock bonuses qualify as performance-based compensation
under the Treasury regulations only if: (i) the award is granted by a
compensation committee comprised solely of "outside directors;" (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain; (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied; and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the amount) payable upon attainment of the
performance goal).
PROPOSAL 3
APPROVAL OF THE 1996 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN, AS AMENDED
In March 1996, the Board of Directors of the Company adopted, and in April
1996 the stockholders subsequently approved, the 1996 Non-Employee Directors'
Stock Option Plan ("Directors' Plan"). In September 1999, the Board approved
amendments to the Directors' Plan, which the stockholders approved, to increase
the number of shares subject to automatic annual grants under the Directors'
Plan from 5,000 shares to 7,500 shares. In August 2000, the Board approved an
amendment to the Directors' Plan, subject to stockholder approval, to increase
the number of shares authorized for issuance under the Directors' Plan from a
total of 200,000 shares to 300,000 shares.
As of June 30, 2000, options (net of canceled or expired options) covering
an aggregate of 107,500 shares of the Company's Common Stock had been granted
under the Directors' Plan. Only 92,500 shares of Common Stock (plus any shares
that might in the future be returned to the Directors' Plan as a result of
cancellations or expiration of options or the reacquisition by the Company of
issued shares) remained available for future grant under the Directors' Plan.
Stockholders are requested in this Proposal 3 to approve the amendment to
the Directors' Plan increasing the number of shares subject to the Directors'
Plan from 200,000 shares to 300,000 shares. The affirmative vote of the holders
of a majority of the shares present in person or represented by proxy and
entitled to vote at the meeting will be required to approve the amendment to the
Directors' Plan. Abstentions will be counted towards the tabulation of votes
cast and will have the same effect as negative votes. Broker non-votes are
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<PAGE> 13
counted towards a quorum, but are not counted for any purpose in determining
whether a matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Directors' Plan are outlined below:
GENERAL
The Directors' Plan provides for the automatic grant of nonstatutory stock
options. Options granted under the Directors' Plan are not intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Code. See
"Federal Income Tax Information" for a discussion of the tax treatment of
nonstatutory stock options.
PURPOSE
The Board adopted the Directors' Plan to provide a means by which
non-employees directors of the Company may be given an opportunity to purchase
stock in the Company, to assist in retaining the services of such persons, to
secure and retain the services of persons capable of filling such positions and
to provide incentives for such persons to exert maximum efforts for the success
of the Company. Three of the current directors of the Company are eligible to
participate in the Directors' Plan.
ADMINISTRATION
The Board administers the Directors' Plan. The Board has the power to
construe and interpret the Directors' Plan but not to determine the persons to
whom or the dates on which options will be granted, the number of shares to be
subject to each option, the time or times during the term of each option within
which all or a portion of such option may be exercised, the exercise price, the
type of consideration or the other terms of the option.
The Board has the power, which it has not yet exercised, to delegate
administration of the Directors' Plan to a committee composed of not fewer than
two members of the Board. As used herein with respect to the Directors' Plan,
the "Board" refers to any committee the Board appoints as well as to the Board
itself.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to
non-employee directors of the Company. A "non-employee director" is defined in
the Directors' Plan as a director of the Company who is not otherwise an
employee of the Company or any affiliate.
STOCK SUBJECT TO THE DIRECTORS' PLAN
Pursuant to the August 2000 amendment, and subject to approval of this
Proposal 3, the Common Stock that may be sold pursuant to awards under the 1996
Plan shall not exceed in the aggregate three hundred thousand (300,000) shares
of the Company's Common Stock. If options granted under the Directors' Plan
expire or otherwise terminate without being exercised, the shares of Common
Stock not acquired pursuant to such options again becomes available for issuance
under the Directors' Plan. If the Company reacquires unvested stock issued under
the Directors' Plan, the reacquired stock will again become available for
reissuance under the Directors' Plan.
TERMS OF OPTIONS
The following is a description of the terms of options under the Directors'
Plan. Individual option grants may not be more restrictive as to the terms
described.
Automatic Grants. An option to purchase 15,000 shares of the Company's
Common Stock is automatically granted to each person who is elected for the
first time to be a non-employee director of the Company. In
11
<PAGE> 14
addition, options to purchase 7,500 shares of the Company's Common Stock are
automatically granted at each annual meeting of the Company's stockholders to
each non-employee director who has served for the entire preceding year, or a
prorated number of options for each non-employee director who has served for
less than the full preceding year.
Exercise Price; Payment. The exercise price of options may not be less than
100% of the fair market value of the stock subject to the option on the date of
the grant. On September 18, 2000, the closing price of the Company's Common
Stock as reported on the Nasdaq National Market System was $32.25 per share.
The exercise price of options granted under the Directors' Plan must be
paid in one of the following manners (i) in cash at the time the option is
exercised, (ii) by delivery of other Common Stock of the Company or (iii) a
combination of (i) and (ii).
Repricing. In the event of a decline in the value of the Company's Common
Stock, the Board does not have the authority to offer optionholders the
opportunity to replace outstanding higher priced options with new lower priced
options.
Option Exercise. Options granted under the Directors' Plan become
exercisable ("vest") with respect to one-third of such shares on each
anniversary of the date of grant, provided that the optionholder has
continuously served as a non-employee director or employee of or consultant to
the Company ("service"). The Board does not have the power to accelerate the
time during which an option may vest or be exercised. Options granted under the
Directors' Plan do not permit exercise prior to vesting. To the extent provided
by the terms of an option, an optionholder may satisfy any federal, state or
local tax withholding obligation relating to the exercise of such option by a
cash payment upon exercise, by authorizing the Company to withhold a portion of
the stock otherwise issuable to the optionholder, by delivering already-owned
Common Stock of the Company or by a combination of these means.
Term. The term of options under the Directors' Plan is 10 years. Options
under the Directors' Plan terminate 12 months after termination of the
optionholder's service unless the optionholder dies before the optionholder's
service has terminated, or within 12 months after termination of such service,
in which case the option may be exercised (to the extent the option was
exercisable at the time of the optionholder's death) within 18 months of the
optionholder's death by the person or persons to whom the rights to such option
pass by will or by the laws of descent and distribution. An optionholder may
designate a beneficiary who may exercise the option following the optionholder's
death. The option term is not extended in the event that exercise of the option
within these periods.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as
determined by the Board.
RESTRICTIONS ON TRANSFER
The optionholder may transfer an option otherwise than by will or by the
laws of descent and distribution
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company, such as
a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of Common Stock subject to the Directors'
Plan and outstanding options. In that event, the Directors' Plan will be
appropriately adjusted as to the class and the maximum number of shares of
Common Stock subject to the Directors' Plan, and outstanding options will be
adjusted as to the class, number of shares and price per share of Common Stock
subject to such options.
EFFECT OF CERTAIN CORPORATE EVENTS
The Directors' Plan provides that, in the event of a dissolution,
liquidation or sale of substantially all of the assets of the Company, specified
types of merger, or other corporate reorganization ("change in control"), the
vesting and the time during which such options may be exercised will be
accelerated. An outstanding
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<PAGE> 15
option will terminate if the optionholder does not exercise it before a change
in control. The acceleration of an option in the event of an acquisition or
similar corporate event may be viewed as an anti-takeover provision, which may
have the effect of discouraging a proposal to acquire or otherwise obtain
control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Directors' Plan without stockholder
approval or ratification at any time. Unless sooner terminated, the Directors'
Plan will terminate upon a change in control.
The Board may also amend the Directors' Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within 12 months before or after its adoption by the
Board if the amendment would change any provision of the Directors' Plan in any
way if such modification requires stockholder approval in order to comply with
Rule 16b-3 of the Exchange Act or satisfy the requirements of Section 422 of the
Code or any securities exchange listing requirements. However, the Board may not
amend the Plan more than once every six months with respect to the provisions of
the Plan that relate to the amount, price and timing of grants, other than to
comport with changes in the Code, or applicable regulation or rulings
thereunder. The Board may submit any other amendment to the Directors' Plan for
stockholder approval.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to optionholders who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Directors' Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionholder or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionholder normally will recognize taxable ordinary income
equal to the excess of the stock's fair market value on the date of exercise
over the option exercise price. However, to the extent the stock is subject to
certain types of vesting restrictions, the taxable event will be delayed until
the vesting restrictions lapse unless the participant elects to be taxed on
receipt of the stock. If the optionholder becomes an employee, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionholder.
Upon disposition of the stock, the optionholder will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income
upon exercise of the option (or vesting of the stock). Such gain or loss will be
long-term or short-term depending on whether the stock was held for more than
one year. Slightly different rules may apply to optionholders who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
PROPOSAL 4
APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Restated Certificate of Incorporation to increase the
authorized number of shares of Common Stock from 30,000,000 shares to 50,000,000
shares. The authorized number of shares of Preferred Stock remains at 5,000,000.
Accordingly, the aggregate number of shares of capital stock (including both
Common Stock and
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<PAGE> 16
Preferred Stock) authorized under the amendment would increase from 35,000,000
shares to 55,000,000 shares.
As amended, Article IV.A. of the Company's Amended and Restated Certificate
of Incorporation would read in its entirety as follows:
"A. This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is
Fifty Five Million (55,000,000) shares. Fifty Million (50,000,000) shares
shall be Common Stock, each having a par value of one tenth of one cent
($.001). Five Million (5,000,000) shares shall be Preferred Stock, each
having a par value of one tenth of one cent ($.001)."
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common Stock
of the Company, except for effects incidental to increasing the number of shares
of the Company's Common Stock outstanding. If the amendment is adopted, it will
become effective upon filing of a Certificate of Amendment of the Company's
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware.
On June 14, 2000 the Board of Directors adopted the 2000 Equity Incentive
Plan and reserved 5,000,000 shares of the Company's authorized Common Stock for
issuance of future grants thereunder. At June 30, 2000, there were 17,000,267
shares of the Company's Common Stock outstanding. In addition, at the same date,
2,355,313 shares were issuable upon exercise of options and rights outstanding
under the Company's stock option and stock purchase plans and 5,232,343 shares
remained available for future grants under these plans. In addition, as of June
30, 2000, the Company reserved 1,613,366 shares of the Company's authorized
Common Stock for issuance upon conversion of outstanding warrants.
Although at present the Board of Directors has no other plans to issue
additional shares of Common Stock, it desires to have such shares available to
provide additional flexibility to use its capital stock for business and
financial purposes in the future. The additional shares may be used, without
further stockholder approval, for various purposes including, without
limitation, raising capital, providing equity incentives to employees, officers
or directors, stock splits, stock dividends, establishing strategic
relationships with other companies, and expanding the Company's business or
product lines through the acquisition of other businesses or products.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board could strategically sell shares of Common Stock in a private
transaction to purchasers who would oppose a takeover or favor the current
Board. In addition, if the Board were to adopt a Share Purchase Rights Plan and
a person or group of persons attempted a hostile takeover of us, such shares
could be issued in connection with that plan, which would allow stockholders
(other than the hostile parties) to purchase the Company's Common Stock at a
discount to the then current market price, which would have a dilutive effect on
the hostile parties. Although this proposal to increase the authorized Common
Stock has been prompted by business and financial considerations and not by the
threat of any hostile takeover attempt (nor is the Board currently aware of any
such attempts directed at the Company), nevertheless, stockholders should be
aware that approval of this proposal could facilitate future efforts by the
Company to deter or prevent changes in control of the Company, including
transactions in which the stockholders might otherwise receive a premium for
their shares over then current market prices.
The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding at the Record Date will be required to approve this amendment
to the Company's Restated Certificate of Incorporation. As a result, abstentions
and broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
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<PAGE> 17
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending June 30, 2001, and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Ernst & Young LLP, has
audited the Company's financial statements since its inception in 1992.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Amended and
Restated Bylaws or otherwise. However, the Board is submitting the selection of
Ernst & Young LLP to the stockholders for ratification as a matter of good
corporate practice. If the stockholders fail to ratify the selection, the Audit
Committee and the Board will reconsider whether or not to retain that firm. Even
if the selection is ratified, the Audit Committee and the Board in their
discretion may direct the appointment of different independent auditors at any
time during the year if they determine that such a change would be in the best
interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP. Abstentions will be
counted towards the tabulation of votes cast and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether a matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 5.
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<PAGE> 18
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of August 15, 2000 by: (i) each director; (ii)
each of the executive officers named in the Summary Compensation Table employed
by the Company in that capacity on June 30, 2000; (iii) all executive officers
and directors of the Company as a group; and (iv) all those known by the Company
to be beneficial owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL %
---------------- --------- ----------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Philip J. Whitcome, Ph.D.(2)........................... 553,284 3.15
John Monahan, Ph.D.(3)................................. 310,558 1.82
Yuichi Iwaki, M.D., Ph.D.(4)........................... 208,696 1.23
Thomas J. Paulson(5)................................... 115,791 *
John K.A. Prendergast, Ph.D. (6)....................... 79,145 *
Kenneth G. Chahine(7).................................. 29,216 *
Zola Horovitz, Ph.D.(8)................................ 28,465 *
Alan McClelland(9)..................................... 24,249 *
All executive officers and directors as a group (8
persons)(10)......................................... 1,349,404 7.57
5% SHAREHOLDERS
Pictet Global Sector Fund(11).......................... 1,690,666 9.93
Lindsay A. Rosenwald, M.D.(12)......................... 1,205,066 7.08
</TABLE>
---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
17,023,806 shares outstanding on August 15, 2000, adjusted as required by
rules promulgated by the SEC.
(2) Includes 536,097 shares issuable upon the exercise of options held by Dr.
Whitcome that are exercisable within 60 days of the date of this table.
Also includes 17,187 shares of Common Stock held by the Whitcome Family
Trust. Dr. Whitcome is a trustee of the Whitcome Family Trust and disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(3) Includes 67,968 shares issuable upon the exercise of options held by Dr.
Monahan that are exercisable within 60 days of the date of this table. Also
includes 115,652 shares held in the name of Dr. Monahan's former spouse and
for which Dr. Monahan has voting rights.
(4) Includes 6,250 shares issuable upon the exercise of options held by Dr.
Iwaki that are exercisable within 60 days of the date of this table,
148,371 shares of Common Stock held by the Iwaki Family Limited Partnership
and 5,000 shares of Common Stock held in the names of members of Mr.
Iwaki's immediate family. Dr. Iwaki is a partner of the Iwaki Family
Limited Partnership and disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein. Also includes 5,130
shares of Common Stock, and warrants to purchase 3,221 shares of Common
Stock held by the Aries Domestic Fund, L.P. and warrants to purchase 37,081
shares of common stock held by Iwaki & Associates. Dr. Iwaki is a director
of the Aries Domestic Fund and partner of Iwaki & Associates and disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
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<PAGE> 19
(5) Includes 80,791 shares issuable upon the exercise of options held by Mr.
Paulson that are exercisable within 60 days of the date of this table. Also
includes 1,000 shares held in the name of two members of Mr. Paulson's
immediate family and for which Mr. Paulson has voting rights.
(6) Includes 20,537 shares issuable upon the exercise of options held by Dr.
Prendergast that are exercisable within 60 days of this table.
(7) Includes 29,216 shares issuable upon the exercise of options held by Dr.
Chahine that are exercisable within 60 days of the date of this table.
(8) Includes 28,465 shares issuable upon the exercise of options held by Dr.
Horovitz that are exercisable within 60 days of the date of this table.
(9) Includes 24,249 shares issuable upon the exercise of options held by Mr.
McClelland that are exercisable within 60 days of the date of this table.
(10) Includes shares described in the notes above, as applicable. Includes an
aggregate of 833,875 shares issuable upon exercise of certain options and
warrants which certain executive officers and directors of the Company have
the right to acquire within 60 days of the date of this table.
(11) Represents shares held by Pictet Global Sector Fund RGT CO. and its
affiliates.
(12) Includes 25,663 shares issuable upon the exercise of options and warrants
held by Dr. Rosenwald that are exercisable within 60 days of the date of
this table. Also includes 160,574 shares held by Dr. Rosenwald's wife, of
which Dr. Rosenwald disclaims beneficial ownership. Also includes 44,803
shares owned by June Street Corporation and 44,803 shares owned by
Huntington Street Corporation, each of which Dr. Rosenwald acts as sole
proprietor. Also includes 348,919 shares and warrants to purchase 6,025
shares held by the Aries Master Fund II, 184,488 shares and warrants to
purchase 4,724 shares held by Aries Domestic Fund, L.P. and 52,117 shares
and warrants to purchase 117 shares held by Aries Domestic Fund II, L.P.
Dr. Rosenwald is the chairman and sole stockholder of Paramount Capital
Assets Management, Inc. ("PCAM"), which is the general partner of each of
Aries Domestic Fund, L.P. and Aries Domestic Fund II, L.P., and is the
investment manager of Aries Master Fund II. Dr. Rosenwald disclaims
beneficial ownership of the shares held by Aries Master Fund II, Aries
Domestic Fund, L.P. and Aries Domestic Fund II, L.P. except to the extent
of his beneficial ownership therein, if any.
17
<PAGE> 20
MANAGEMENT
EXECUTIVE OFFICERS OF THE COMPANY
The names of the executive officers of the Company and certain information
about them are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Philip J. Whitcome, Ph.D. ........... 52 Chairman of the Board
John Monahan, Ph.D. ................. 53 President, Chief Executive Officer and Director
Thomas J. Paulson ................... 54 Vice President, Finance and Chief Financial
Officer and Secretary
Alan McClelland, Ph.D. .............. 44 Vice President, Research and Development
Kenneth G. Chahine, Ph.D., J.D. ..... 35 Vice President, Business Development
</TABLE>
Biographical information about Drs. Whitcome and Monahan is set forth under
Proposal 1 above.
Thomas J. Paulson was appointed Vice President, Finance and Chief Financial
Officer and Secretary of the Company effective September 20, 1996. Prior to
joining Avigen, Mr. Paulson was president of Paulson Associates, a biotechnology
consulting firm. From its inception in 1989 until 1994, Mr. Paulson was Chief
Financial Officer of Neurogen Corporation. From 1986 to 1989, he was Director of
Finance at CibaCorning Diagnostics, Gilford Systems. From 1984 to 1986, Mr.
Paulson served as financial director at Quidel Corporation. From 1971 to 1984,
Mr. Paulson held various financial management positions at Abbott Laboratories.
Mr. Paulson holds a M.B.A. from the University of Chicago Graduate School of
Business and a B.B.A. in Accounting from Loyola University in Chicago.
Alan McClelland, Ph.D. was appointed Vice President, Research and
Development in April of 1999. From 1997 until joining Avigen, Dr. McClelland was
Vice President of Research at Genetic Therapy, Inc., a Novartis Company, and
from 1992 to 1997 served as its Director of Molecular Biology. From 1985 to 1992
Dr. McClelland held various research scientist positions with Molecular
Therapeutics, Inc., a research and discovery unit of Bayer AG. Dr. McClelland
conducted postdoctoral research at Yale University, and holds a Ph.D. from the
University of London. Dr. McClelland graduated with a first class honors B.S.
degree in Molecular Biology from the University of Edinburgh, Scotland.
Kenneth Chahine, J.D., Ph.D, was appointed Vice President, Business
Development in February of 1998. Prior to joining Avigen, Dr. Chahine worked at
the patent law firm of Madson and Metcalf, P.C. in Salt Lake City from 1994 to
1998. Between 1992 and 1993, Dr. Chahine worked as a research scientist at
Parke-Davis Pharmaceuticals and held another research scientist post at the
University of Utah Department of Human Genetics from 1994 through 1996. Dr.
Chahine also serves as Western Regional News and Legal Correspondent for Nature
Biotechnology. Dr. Chahine holds a J.D. from the University of Utah and a Ph.D.
in Biochemistry and Molecular Biology form the University of Michigan.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 2000, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with, except that Kenneth G. Chahine
filed one Form 4 regarding six transactions late and Dr. Yuichi Iwaki filed one
Form 4 regarding one transaction late.
18
<PAGE> 21
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The members of the Board of Directors currently receive twelve thousand
dollars ($12,000.00) in cash, paid in equal quarterly installments, as
compensation for their services as members of the Board of Directors and are
reimbursed for their expenses incurred in connection with attendance at Board
meetings.
The members of the Audit Committee and Compensation Committee currently
receive five hundred dollars ($500.00) in cash compensation per committee
meeting attended for their services as members of the Audit Committee or
Compensation Committee and are reimbursed for their expenses incurred in
connection with attendance at committee meetings.
Each non-employee director of the Company also receives stock options
grants under the 1996 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). The maximum number of shares of Common Stock that may be issued pursuant
to options granted under the Directors' Plan is 300,000, subject to stockholder
approval of Proposal 3. The Directors' Plan is administered by the Board of
Directors, unless the Board delegates administration to a committee comprised of
not less than two members of the Board.
Option grants under the Directors' Plan are non-discretionary. On the date
of the annual meeting of stockholders each year, each member of the Company's
Board of Directors who is not an employee of the Company and has served as a
non-employee director since the previous year's annual meeting of stockholders
is automatically granted under the Directors' Plan, without any further action
by the Company, the Board of Directors or the stockholders of the Company, an
option to purchase 7,500 shares of Common Stock of the Company. If the
non-employee director has not served as a director since the previous year's
annual meeting of stockholders he or she shall be automatically granted an
option to purchase the number of shares of Common Stock of the Company (rounded
up to the nearest whole share) determined by multiplying 7,500 shares by a
fraction, the numerator of which is the number of days the person continuously
has been a non-employee director as of the date of such grant and the
denominator of which is 365. Each director who is elected for the first time to
be a non-employee director of the Company is automatically granted under the
Directors' Plan, without any further action by the Company, the Board of
Directors or the stockholders of the Company, an option to purchase fifteen
thousand (15,000) shares upon the date of initial election to the Board of
Directors whether by the Board or stockholders of the Company. No other options
may be granted at any other time under the Directors' Plan.
The exercise price of options under the Directors' Plan is equal to 100% of
the fair market value of the Common Stock subject to the option on the date of
the grant. Options granted under the Directors' Plan may not be exercised until
the date upon which such optionee, or the affiliate of such optionee, as the
case may be, has provided one year of continuous service as a non-employee
director following the date of grant of such option, whereupon such option shall
become exercisable as to 33% of the option shares, 34% of the option shares
shall become exercisable two years after the date of grant, and 33% shall become
exercisable three years after the date of grant, in accordance with its terms.
The term of option granted under the directors' Plan is ten years. The
Directors' Plan will terminate in March 2006, unless earlier terminated by the
Board.
In the event of a merger, consolidation, reverse reorganization,
dissolution, sale of substantially all of the assets of the Company, or certain
other changes in the beneficial ownership of the Company's securities
representing at least 50% change of such ownership, the options outstanding
under the Directors' Plan will automatically become fully vested and will
terminate if not exercised prior to such event.
In the fiscal year ended June 30, 2000, the compensation of the
non-employee directors included an option grant to Drs. Horovitz, Iwaki and
Prendergast to purchase 7,500 shares each, of Common Stock at an exercise price
of $22.375 per share, respectively, the fair market value of such Common Stock
on the date of such grant. As of August 15, 2000, options to purchase 20,000
shares have been exercised under the Directors' Plan.
19
<PAGE> 22
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended June 30, 2000, 1999,
and 1998, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at June 30, 2000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL AWARDS(1)
COMPENSATION -------------------------
----------------- SECURITIES ALL OTHER
SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS(#) ($)(2)
--------------------------- ---- ------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Philip J. Whitcome, Ph.D. ..................... 2000 100,000 75,000 75,000 4,901
Chairman of the Board 1999 100,000 25,000 25,000 4,901
John Monahan, Ph.D. ........................... 2000 250,000 150,000 150,000 2,155
President and Chief Executive Officer 1999 210,000 50,000 50,000 2,236
1998 210,000 -- 22,500 1,891
Thomas J. Paulson.............................. 2000 180,000 75,000 100,000 6,874
Vice President, Finance and 1999 167,000 30,000 30,000 5,092
Chief Financial Officer 1998 167,000 -- 22,500 1,713
Alan McClelland, Ph.D.(3)...................... 2000 190,000 75,000 100,000 15,395(4)
Vice President, Research and Development 1999 190,000 -- 120,000 28,272(5)
Kenneth G. Chahine, Ph.D.(6)................... 2000 140,000 75,000 100,000 1,467
Vice President, Business Development 1999 126,459 17,500 77,500 1,464
</TABLE>
---------------
(1) The Company has no restricted stock awards, stock appreciation rights (SARs)
or long-term incentive plans (LTIPs).
(2) Except as otherwise indicated, represents insurance premiums paid by the
Company with respect to term life insurance for the benefit of the named
executive.
(3) Mr. McClelland became an executive officer for the Company in April 1999.
His annualized salary for fiscal year ended June 30, 1999 was approximately
$190,000.
(4) $13,562 represents payment of non-exempt relocation expenses for Mr.
McClelland for the fiscal year ended June 30, 1999.
(5) $27,814 represents payment of non-exempt relocation expenses for Mr.
McClelland for the fiscal year ended June 30, 2000.
(6) Mr. Chahine became Vice President, Business Development in January 1999.
STOCK OPTION GRANTS AND EXERCISES
The Company has granted options to its executive officers under its 1993
Stock Option Plan (the "1993 Plan"), its 1996 Equity Incentive Plan (the "1996
Plan") and its 2000 Equity Incentive Plan (the "2000 Plan") (collectively the
"Plans").
As of June 30, 2000, options to purchase a total of 1,752,565 shares were
outstanding under the Plans and options to purchase 4,779,843 shares remained
available for grant under the 1996 Plan and 2000 Plan. In March 1996, the Board
of Directors determined that no further options would be granted under the 1993
Plan.
20
<PAGE> 23
The following tables show for the fiscal year ended June 30, 2000, certain
information regarding options granted to, exercised by, and held at year end by,
the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
TOTAL OPTIONS RATES OF STOCK PRICE
GRANTED TO APPRECIATION FOR OPTION
OPTIONS EMPLOYEES IN EXERCISE OR TERM(1)
GRANTED FISCAL BASE PRICE EXPIRATION -----------------------
NAME (#)(2) YEAR%(3) ($/SH) DATE 5%($) 10%($)
---- ------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Philip J. Whitcome, Ph.D. ....... 19,000 1.94 29.00 5/18/10 346,521 878,152
56,000 5.71 38.1875 6/13/10 1,344,891 3,408,218
------- --------- ---------
Total.................. 75,000 7.65 1,691,412 4,286,370
John Monahan, Ph.D. ............. 38,000 3.88 29.00 5/18/10 693,042 1,756,304
112,000 11.42 38.1875 6/13/10 2,689,782 6,816,437
------- --------- ---------
Total.................. 150,000 15.30 3,382,824 8,572,741
Thomas J. Paulson................ 25,000 2.55 29.00 5/18/10 455,949 1,155,463
75,000 7.65 38.1875 6/13/10 1,801,194 4,564,578
------- --------- ---------
Total.................. 100,000 10.20 2,257,143 4,680,041
Alan McClelland.................. 25,000 2.55 29.00 5/18/10 455,949 1,155,463
75,000 7.65 38.1875 6/13/10 1,801,194 4,564,578
------- --------- ---------
Total.................. 100,000 10.20 2,257,143 4,680,041
Kenneth G. Chahine, Ph.D. ....... 25,000 2.55 29.00 5/18/10 455,949 1,155,463
75,000 7.65 38.1875 6/13/10 1,801,194 4,564,578
------- --------- ---------
Total.................. 100,000 10.20 2,257,143 4,680,041
</TABLE>
---------------
(1) The potential realizable value is based on the term of the option at the
time of grant (10 years). Assumed stock price appreciation of 5% and 10% is
used pursuant to rules promulgated by the commission. The potential
realizable value is calculated by assuming that the stock price on the date
of grant appreciates at the indicated rate, for the entire term of the
option and that the option is exercised and sold on the last day of its term
at the appreciated price. No gain to the optionee is possible unless the
stock price increases over the option term.
(2) Options granted become exercisable at the rate of 6.25% of the shares
subject to the option each quarter for four years. The options expire 10
years from the date of grant, or earlier upon termination of employment.
(3) Based on 980,344 options granted to employees and directors of, and
consultants to, the Company during the fiscal year ended June 30, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
SHARES AT FY-END (#) IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE EXERCISABLE/ FY-END ($) EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE(2)
---- ------------------ ------------ ------------------- -----------------------
<S> <C> <C> <C> <C>
Philip J. Whitcome, Ph.D. ... -- -- 528,285/ 96,963 18,701,100/ 809,123
John Monahan, Ph.D. ......... 11,286 416,314 46,093/211,407 1,482,495/2,190,068
Thomas Paulson............... 59,000 1,652,375 60,479/146,407 1,962,719/1,639,110
Alan McClelland.............. 15,000 323,438 15,000/178,000 445,313/2,490,625
Kenneth G. Chahine........... 30,000 787,812 14,529/172,971 457,451/2,443,799
</TABLE>
---------------
(1) Reflects shares vested and unvested at June 30, 2000.
(2) Fair market value of the Company's Common Stock at June 30, 2000 ($36.00)
minus the exercise price of the options.
21
<PAGE> 24
EMPLOYMENT AGREEMENTS
In August 1992, the Company entered into an employment agreement with John
Monahan, the Company's President and Chief Executive Officer. The employment
agreement provides for, among other items: (i) a minimum base salary of at least
$150,000 per year and (ii) severance payments and benefits at the standard
compensation rate for 12 months or until new employment in the gene therapy
field is commenced, unless termination is for just cause. The employment
agreement automatically renews for successive one year periods unless 30 days
prior written notice is provided by either party or unless terminated by either
party for just cause.
In August 1996, the Company entered into an employment agreement with
Thomas J. Paulson, the Company's Vice President and Chief Financial Officer. The
employment agreement provides for, among other items, (i) a minimum base salary
of $160,000, and (ii) an options for 100,000 shares of common stock of Avigen at
a price and vesting schedule to be determined by the Board.
The Company has established the Management Transition Plan. Under this
plan, all executive officers and certain non-officers of the Company will
receive salary and benefits under certain change of ownership situations.
Officers will receive up to eighteen months of salary and benefits continuation
if terminated within eighteen months following a "Change in Control" as defined
in the Management Transition Plan.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT(1)
The Compensation Committee of the Board of Directors ("Committee") is
currently composed of Dr. Horovitz and Dr. Prendergast, neither of whom are
currently officers or employees of the Company. The Committee is responsible for
establishing the Company's compensation programs for all employees, including
executives. For executive officers, the Committee evaluates performance and
determines compensation policies and levels.
COMPENSATION PHILOSOPHY
The primary goal of the compensation program is to align compensation with
business objectives and performance. The Company's aim is to attract, retain and
reward executive officers and other key employees who contribute to the
long-term success of the Company and to motivate those individuals to enhance
long-term stockholder value. To establish this relationship between executive
compensation and creation of stockholder value, the Board of Directors has
adopted a total compensation package comprised of base salary, bonus and stock
option awards. Key elements of this philosophy are:
- The Company pays competitively with biotechnology companies with which
the Company competes for talent.
- The Company maintains annual incentive opportunities sufficient to
provide motivation to achieve specific operating goals and to generate
rewards that bring total compensation to competitive levels.
- The Company provides significant equity-based incentives for executives
and other key employees to ensure that they are motivated over the
long-term to respond to the Company's business challenges and
opportunities as owners and not just as employees.
---------------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any
filing of the Company under the 1933 Act or 1934 Act, whether made before or
after the date hereof and irrespective of any general incorporation language
contained in such filing.
22
<PAGE> 25
BASE SALARY. The Committee annually reviews each executive officer's base
salary. Among the factors taken into consideration are (1) individual and
corporate performance, (2) levels of responsibility, (3) prior experience, (4)
breadth of knowledge of the industry, and (5) competitive pay practices.
BONUS. The Company believes that executive performance may be maximized via
a system of annual incentive awards. The actual incentive awards earned depend
on the extent to which the Company and individual performance objectives are
achieved. During the fiscal year, the Compensation Committee will review and
approve the annual performance objectives for the Company and the individual
officers. The Company's objectives consist of operating, strategic and financial
goals that are considered to be critical to the Company's overall goal: building
stockholder value. For the next fiscal year the Board of Directors determined
that the primary goals in building stockholder value were:
- understanding, identifying and developing products in the research
pipeline as candidates for clinical testing
- implementing strategies relating to the development of manufacturing
capacity for clinical testing
- establishing strategic corporate collaborations to facilitate product
development and provide support for clinical testing
- identifying additional potential uses for products which are currently
under development
LONG-TERM INCENTIVES. The Company's long-term incentive program consists of
the Plans. The Plans utilize vesting periods (generally four years) to encourage
key employees to continue in the employ of the Company. Through option grants,
executives receive significant equity incentives to build long-term stockholder
value. The exercise price of options granted under the Plans generally is 100%
of fair market value of the underlying stock on the date of grant. Employees
receive value from these grants only if the Company's Common Stock appreciates
over the long-term. The size of option grants is determined based on competitive
practices at leading companies in the biotechnology industry and the Company's
philosophy of significantly linking executive compensation with stockholder
interests.
CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Monahan's base salary, bonus and grants of stock options were
determined in accordance with the criteria described in the "Base Salary,"
"Bonus," and "Long Term Incentives" sections of this report. Dr. Monahan's Base
Salary of $250,000 reflects the Board's subjective assessment of (1) his
performance, (2) his skills in relation to other CEOs in the Company's industry,
(3) the Board's confidence in Dr. Monahan's ability to lead the Company's
continued development, and (4) the Board's assessment of the Company's
performance. Considering these factors, the Committee set Dr. Monahan's base
annual salary through the fiscal year ending June 30, 2000 at $250,000.
CERTAIN TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of not more than $1 million of
compensation paid to certain executive officers in a taxable year. Compensation
above $1 million may be deducted if it is "performance-based compensation"
within the meaning of the Code.
The Board of Directors believes that at the present time it is unlikely
that the compensation paid to any executive officer in a taxable year will
exceed $1 million. Therefore, the Board of Directors has not established a
policy for determining which forms of incentive compensation awarded to
executive officers shall be designed to qualify as "performance based
compensation."
From the disinterested members of the Board of Directors and Compensation
Committee:
Zola Horovitz, Ph.D.
John K. Prendergast, Ph.D.
23
<PAGE> 26
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on June 30, 2000 for (i) the Company's Common Stock, (ii) the
Nasdaq Stock Market (U.S.) and (iii) the American Stock Exchange Biotechnology
Index (the "AMEX Biotech"). All values assume reinvestment of the full amount of
all dividends and are calculated as of May 22nd and June of each year:
[PERFORMANCE GRAPH]<QC>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
5/22/96 6/28/96 6/30/97 6/30/98 6/30/99 6/30/00
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVIGEN, INC. 100 87.50 43.75 43.75 75.00 548.44
AMEX BIOTECHNOLOGY
INDEX 100 90.50 91.68 94.46 137.88 414.43
NASDAQ 100 95.23 115.88 152.26 215.85 318.71
--------------------------------------------------------------------------------
</TABLE>
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
RELATED TRANSACTIONS
The Company has entered into employment agreements with certain of its
officers. See "Management -- Employment Agreements."
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party be
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Delaware law and the Company's
Amended and Restated Bylaws.
24
<PAGE> 27
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/S/ THOMAS J. PAULSON
--------------------------------------
Thomas J. Paulson
Secretary
October 13, 2000
25
<PAGE> 28
AVIGEN, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF THE STOCKHOLDERS
TO BE HELD ON NOVEMBER 17, 2000
The undersigned hereby appoints PHILIP J. WHITCOME and THOMAS J.
PAULSON, and each of them, as the attorneys and proxies of the undersigned, with
power of substitution, to vote all shares of the stock of Avigen, Inc. a
Delaware corporation (the "Company"), which the undersigned may be entitled to
vote at the Annual Meeting of Stockholders of Avigen, Inc. to be held at 1201
Harbor Bay Parkway, #1000, Alameda, California on Friday, November 17, 2000, at
9:00 a.m. local time, and at any and all continuations and adjournments thereof,
with all powers that the undersigned would possess if personally present, upon
and in respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters that
may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR ON THE REVERSE SIDE
OF THIS PROXY CARD.
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
PROPOSAL 1: To elect two directors to hold office until the 2003 Annual Meeting
of Stockholders.
<TABLE>
<S> <C> <C>
[ ] WITH AUTHORIty to vote for [ ] WITHHOLD AUTHOrity to vote NOMINEES:
nominees listed to the for all nominees listed Philip J. Whitcome, Ph.D.
right (except as marked to the right John K.A. Prendergast, M.D.,
below) Ph.D.
</TABLE>
To withhold authority to vote for either nominee write such nominee's name
below:
--------------------------------------------------------------------------------
(Continued on other side)
1.
<PAGE> 29
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2, PROPOSAL 3, PROPOSAL 4 AND
PROPOSAL 5.
<TABLE>
<S> <C> <C> <C> <C>
PROPOSAL 2: To approve an amendment to the Company's 1996 Equity FOR AGAINST ABSTAIN
Incentive Plan to increase the aggregate number of shares
of common stock authorized for issuance under such plan [ ] [ ] [ ]
by 600,000 shares.
PROPOSAL 3: To approve an amendment to the Company's 1996 Non-Employee FOR AGAINST ABSTAIN
Directors' Stock Option Plan to increase the aggregate
number of shares of common stock authorized for issuance [ ] [ ] [ ]
under such plan by 100,000 shares.
PROPOSAL 4: To approve an amendment to the Company's Certificate of FOR AGAINST ABSTAIN
Incorporation to increase the aggregate number of shares
for issuance from 30,000,000 shares to 50,000,000 shares. [ ] [ ] [ ]
PROPOSAL 5: To ratify the selection of Ernst & Young, LLP as FOR AGAINST ABSTAIN
independent auditors of the Company for its fiscal year
ending June 30, 2001. [ ] [ ] [ ]
</TABLE>
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
Dated , 2000
-------------------------------
--------------------------------------------
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Signature(s)
2.
<PAGE> 30
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
YOUR CONTROL NUMBER IS [ ]
3.
<PAGE> 31
AVIGEN, INC.
1996 EQUITY INCENTIVE PLAN
ADOPTED MARCH 29, 1996
APPROVED BY STOCKHOLDERS APRIL 30, 1996
AMENDED SEPTEMBER 12, 1997
APPROVED BY STOCKHOLDERS NOVEMBER 20, 1997
AMENDED SEPTEMBER 24, 1999
APPROVED BY STOCKHOLDERS NOVEMBER 12, 1999
AMENDED JUNE 14, 2000
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the stock of the
Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) stock bonuses, (iv) rights to purchase restricted stock,
and (v) Stock Appreciation Rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) Stock
Appreciation Rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
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(e) "COMPANY" means Avigen, Inc., a Delaware corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the National Market of
The Nasdaq Stock Market, the Fair Market Value of a share of Common Stock shall
be the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(2) If the Common Stock is quoted on The Nasdaq Stock Market (but
not on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the bid and asked prices for
the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
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<PAGE> 33
(3) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(u) "OPTIONEE" means an Employee or Consultant who holds an outstanding
Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "PLAN" means this Avigen, Inc. 1996 Equity Incentive Plan.
(x) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
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<PAGE> 34
(y) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(z) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(aa) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
a Stock Appreciation Right, or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee or
committees of the Board composed of two (2) or more members (the "Committee"),
all of the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board shall
thereafter be to the
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<PAGE> 35
Committee or such a subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan. Notwithstanding anything to the
contrary contained herein, the Board or the Committee may delegate to a
committee of one or more members of the Board the authority to grant Stock
Awards to eligible persons who (1) are not then subject to Section 16 of the
Exchange Act and/or (2) are either (i) not then Covered Employees and are not
expected to be Covered Employees at the time of recognition of income resulting
from such Stock Award, or (ii) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate two million five hundred thousand (2,500,000) shares
of the Company's Common Stock. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. Shares subject to Stock Appreciation
Rights exercised in accordance with Section 8 of the Plan shall not be available
for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant, or in the case of a restricted stock purchase award, the
purchase price is at least one hundred percent (100%) of the Fair Market Value
of such stock at the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights covering more than five hundred thousand (500,000) shares of
the Company's Common Stock in any calendar year.
6. OPTION PROVISIONS.
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<PAGE> 36
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of a Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment arrangement, except that payment of the Common
Stock's "par value" (as defined in the Delaware General Corporation Law) shall
not be made by deferred payment, or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other Common Stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
to the extent provided in the Option Agreement; provided that if the Option
Agreement does not expressly permit the transfer of a Nonstatutory Stock Option,
the Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option
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<PAGE> 37
Agreement may provide that from time to time during each of such installment
periods, the Option may become exercisable ("vest") with respect to some or all
of the shares allotted to that period, and may be exercised with respect to some
or all of the shares allotted to such period and/or any prior period as to which
the Option became vested but was not fully exercised. The Option may be subject
to such other terms and conditions on the time or times when it may be exercised
(which may be based on performance or other criteria) as the Board may deem
appropriate. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the
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<PAGE> 38
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option Agreement, in whole or in part, by surrendering other shares of
common stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(b)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(d) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option
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<PAGE> 39
shall be subject to the availability of sufficient shares under subsection 4(a)
and the limits on the grants of Options under subsection 5(c) and shall be
subject to such other terms and conditions as the Board or Committee may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. Rights under a stock bonus or restricted stock
purchase agreement shall be transferable by the grantee only upon such terms and
conditions as are set forth in the applicable Stock Award Agreement, as the
Board or the Committee shall determine in its discretion, so long as stock
awarded under such Stock Award Agreement remains subject to the terms of the
agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment arrangement, except that payment of the Common Stock's "par
value" (as defined in the Delaware General Corporation Law) shall not be made by
deferred payment, or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be acceptable
to the Board or the Committee in its discretion. Notwithstanding the foregoing,
the Board or the Committee to which administration of the Plan has been
delegated may award stock pursuant to a stock bonus agreement in consideration
for past services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that
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person which have not vested as of the date of termination under the terms of
the stock bonus or restricted stock purchase agreement between the Company and
such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees, Directors and Consultants. To exercise any outstanding Stock
Appreciation Right, the holder must provide written notice of exercise to the
Company in compliance with the provisions of the Stock Award Agreement
evidencing such right. Except as provided in subsection 5(d), no limitation
shall exist on the aggregate amount of cash payments the Company may make under
the Plan in connection with the exercise of a Stock Appreciation Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionee is vested over (B) the aggregate exercise price payable for such
vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights will
be granted independently of any Option and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions applicable
to Nonstatutory Stock Options as set forth in Section 6. They shall be
denominated in share equivalents. The appreciation distribution payable on the
exercised Independent Right shall be not greater than an amount equal to the
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<PAGE> 41
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (B) the aggregate Fair Market Value (on the date of the grant
of the Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall be in
cash or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at
any time and from time to time, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and/or (ii) with the consent
of any adversely affected holders of Options and/or Stock Appreciation Rights,
the cancellation of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and the grant in substitution therefor of new Options and/or
Stock Appreciation Rights under the Plan covering the same or different numbers
of shares of stock, but having an exercise price per share not less than:
eighty-five percent (85%) of the Fair Market Value for a Nonstatutory Stock
Option, one hundred percent (100%) of the Fair Market Value in the case of an
Incentive Stock Option or, in the case of an Incentive Stock Option held by a
10% stockholder (as described in subsection 5(b)), not less than one hundred ten
percent (110%) of the Fair Market Value per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or the Committee may grant an
Option and/or Stock Appreciation Right with an exercise price lower than that
set forth above if such Option and/or Stock Appreciation Right is granted as
part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled
under this Section 9 shall continue to be counted against the maximum award of
Options and Stock Appreciation Rights permitted to be granted pursuant to
subsection 5(c) of the Plan. The repricing of an Option and/or Stock
Appreciation Right under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Right and the grant of a substitute Option and/or
Stock Appreciation Right; in the event of such repricing, both the original and
the substituted Options and Stock Appreciation Rights shall be counted against
the maximum awards of Options and Stock Appreciation Rights permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 9(b) shall be applicable only to the extent required by Section
162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities
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<PAGE> 42
Act") either the Plan, any Stock Award or any stock issued or issuable pursuant
to any such Stock Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority which counsel
for the Company deems necessary for the lawful issuance and sale of stock under
the Plan, the Company shall be relieved from any liability for failure to issue
and sell stock upon exercise of such Stock Awards unless and until such
authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b),
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director nor Consultant nor any person to whom
a Stock Award is transferred in accordance with the Plan shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate or to continue acting as a Consultant or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee with or
without notice and with or without cause, or the right to terminate the
relationship of any Consultant pursuant to the terms of such Consultant's
agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred in accordance with the Plan,
as a condition of exercising or acquiring stock under any Stock Award, (1) to
give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such
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<PAGE> 43
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any calendar year
pursuant to subsection 5(d), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then to the extent permitted by applicable law: (i) any
surviving corporation or an Affiliate of such surviving corporation shall assume
any Stock Awards outstanding under the Plan or shall substitute similar Stock
Awards for those outstanding under the Plan, or (ii) such Stock Awards shall
continue in full force and effect. In the event any surviving corporation and
its Affiliates refuse to assume or continue such Stock Awards, or to substitute
similar options for
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<PAGE> 44
those outstanding under the Plan, then, with respect to Stock Awards held by
persons then performing services as Employees, Directors or Consultants, the
time during which such Stock Awards may be exercised shall be accelerated and
the Stock Awards terminated if not exercised prior to such event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary in order for the
Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any
Nasdaq of securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible Employees
or Consultants with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating to
Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options
granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
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<PAGE> 45
The Plan, as amended, shall become effective on such date, but no
Options granted under the Plan, as amended, shall be exercised unless and until
the Plan, as amended, has been approved by the stockholders of the Company.
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<PAGE> 46
AVIGEN, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED MARCH 29, 1996
APPROVED BY STOCKHOLDERS APRIL 30, 1996
AMENDED BY THE BOARD OF DIRECTORS ON SEPTEMBER 24, 1999
APPROVED BY STOCKHOLDERS NOVEMBER 12, 1999
AMENDED BY THE BOARD OF DIRECTORS ON JUNE 14, 2000
1. PURPOSE.
(a) The purpose of the Avigen, Inc. 1996 Non-Employee Directors' Stock
Option Plan (the "Plan") is to provide a means by which each director of Avigen,
Inc. a Delaware corporation (the "Company") who is not otherwise an employee of
the Company or of any Affiliate of the Company (each such person being hereafter
referred to as a "Non-Employee Director") will be given an opportunity to
purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
<PAGE> 47
(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate three hundred thousand
(300,000) (after giving effect to the 4.43-for-1 reverse split of the Company's
Common Stock) shares of the Company's Common Stock. If any option granted under
the Plan shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall again become
available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is, after the Effective Date, elected for the first
time to be a Non-Employee Director automatically shall, upon the date of initial
election to be a Non-Employee Director by the Board or stockholders of the
Company, be granted an option to purchase fifteen
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<PAGE> 48
thousand (15,000) (after giving effect to the 4.43-for-1 reverse split of the
Company's Common Stock) shares of Common Stock of the Company on the terms and
conditions set forth herein.
(b) At each annual meeting of the Company's stockholders after the
Effective Date (i) each person who is then a Non-Employee Director and
continuously has been a Non-Employee Director since the preceding annual meeting
of the Company's stockholders automatically shall be granted an option to
purchase seven thousand five hundred (7,500) (after giving effect to the
4.43-for-1 reverse split of the Company's Common Stock) shares of Common Stock
of the Company on the terms and conditions set forth herein, and (ii) each other
person who is then a Non-Employee Director automatically shall be granted an
option to purchase, on the terms and conditions set forth herein, the number of
shares of Common Stock of the Company (rounded up to the nearest whole share)
determined by multiplying the seven thousand five hundred (7,500) shares by a
fraction, the numerator of which is the number of days the person continuously
has been a Non-Employee Director as of the date of such grant and the
denominator of which is 365.
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death. In any and all circumstances, an
option
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<PAGE> 49
may be exercised following termination of the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate only as to that number of shares as to which it was exercisable on the
date of termination of such service under the provisions of subparagraph 6(e).
(b) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted.
(c) Payment of the exercise price of each option is due in full in cash
upon any exercise when the number of shares being purchased upon such exercise
is fewer than 1,000 shares. However, when the number of shares being purchased
upon an exercise is 1,000 or more shares, the optionee may elect to make payment
of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash or by check
at the time of exercise; or
(ii) Provided that at the time of the exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of Common Stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which Common Stock shall be valued at its fair market
value on the date preceding the date of exercise; or
(iii) Payment by a combination of the methods of payment
specified in subparagraph 6(c)(i) and 6(c)(ii) above.
Notwithstanding the foregoing, this option may be exercised pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board which results in the
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<PAGE> 50
receipt of cash (or check) by the Company prior to the issuance of shares of the
Company's Common Stock.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, or pursuant to a qualified domestic relations order
satisfying the requirements of Rule 16b-3 under the Securities Exchange Act of
1934 ("Rule 16b-3") and shall be exercisable during the lifetime of the person
to whom the option is granted only by such person (or by his guardian or legal
representative) or transferee pursuant to such an order. Notwithstanding the
foregoing, the optionee may, by delivering written notice to the Company in a
form satisfactory to the Company, designate a third party who, in the event of
the death of the optionee, shall thereafter be entitled to exercise the option.
(e) The option shall become exercisable in installments over a period of
three (3) years from the date of grant commencing on the date one (1) year after
the date of grant of the option, with thirty-three percent (33%) becoming
exercisable one (1) year after the date of the grant, thirty-four percent (34%)
becoming exercisable two (2) years after the date of grant and the remaining
thirty-three percent (33%) becoming exercisable three (3) years after the date
of grant; provided that the optionee has, during the entire period prior to such
vesting date, continuously served as a Non-Employee Director or employee of or
consultant to the Company or any Affiliate of the Company, whereupon such option
shall become fully exercisable in accordance with its terms with respect to that
portion of the shares represented by that installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in
5
<PAGE> 51
financial and business matters; and (ii) to give written assurances satisfactory
to the Company stating that such person is acquiring the stock subject to the
option for such person's own account and not with any present intention of
selling or otherwise distributing the stock. These requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the exercise of the option has been registered under
a then-currently-effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), or (ii), as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then-applicable
securities laws.
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
(h) The Company (or a representative of the underwriters) may, in
connection with the first underwritten registration of the offering of any
securities of the Company under the Securities Act, require that any optionee
not sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or the
representative of the underwriters.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
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<PAGE> 52
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Throughout the term of any option granted pursuant to the Plan, the
Company shall make available to the holder of such option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the option term, upon request, such financial and other information
regarding the Company as comprises the annual report to the stockholders of the
Company provided for in the Bylaws of the Company and such other information
regarding the Company as the holder of such option may reasonably request.
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<PAGE> 53
(c) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate or shall affect any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any
Non-Employee Director.
(d) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of Common Stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(e) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to the
Company to insure that the amount of any federal or other withholding tax
required to be withheld with respect to such sale or transfer, or such removal
or lapse, is made available to the Company for timely payment of such tax.
(f) As used in this Plan, "fair market value" means, as of any date, the
value of the Common Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market of The Nasdaq Stock Market , the Fair Market Value of a share of Common
Stock shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such system or exchange (or the exchange with
the greatest volume of trading in Common Stock) on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Board deems reliable;
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<PAGE> 54
(ii) If the Common Stock is quoted on The Nasdaq Stock Market
(but not on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the bid and asked prices for
the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the Board.
Notwithstanding the foregoing, the Fair Market Value of the Common Stock
for an option granted on the Effective Date shall be the price per share at
which shares of Common Stock are first sold to the public in the Company's
initial public offering.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Plan and outstanding options will be appropriately adjusted in the class(es) and
maximum number of shares subject to the Plan and the class(es) and number of
shares and price per share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
Common Stock outstanding immediately preceding the merger are
9
<PAGE> 55
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) any other capital reorganization
(including a sale of stock of the Company to a single purchaser or single group
of affiliated purchasers) after which less than fifty percent (50%) of the
outstanding voting shares of the new or continuing corporation are owned by
stockholders of the Company immediately before such transaction, the time during
which options outstanding under the Plan may be exercised shall be accelerated
to permit the optionee to exercise all such options in full prior to such event,
and the options shall terminate if not exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the Plan more than once every
six (6) months, with respect to the provisions of the Plan which relate to the
amount, price and timing of grants, other than to comport with changes in the
Code, or applicable regulations or rulings thereunder. Except as provided in
paragraph 10 relating to adjustments upon changes in stock, no amendment shall
be effective unless approved by the stockholders of the Company within twelve
(12) months before or after the adoption of the amendment, where the amendment
will modify the Plan in any way if such modification requires stockholder
approval in order for the Plan to comply with the requirements of Rule 16b-3.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii) such
person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
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<PAGE> 56
(a) The Board may suspend or terminate the Plan at any time. No options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective on the same day that the Company's
initial public offering of shares of Common Stock becomes effective (the
"Effective Date"), subject to the condition that the Plan is approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
11
