<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
SEQUANA THERAPEUTICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
SEQUANA THERAPEUTICS, INC.
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 24, 1997
TO THE SHAREHOLDERS:
Notice is hereby given that the 1997 Annual Meeting of Shareholders of
Sequana Therapeutics, Inc., a California corporation, (the "Company") will be
held on Tuesday, June 24, 1997 at 9:00 a.m., local time, at the La Jolla
Marriott Hotel, located at 4240 La Jolla Village Drive, La Jolla, California
92037, for the following purposes:
1. To elect directors of the Company.
2. To approve an amendment to the Company's 1994 Incentive Stock
Plan to increase the number of shares of Common Stock reserved
for issuance thereunder.
3. To confirm the appointment of Ernst & Young LLP as the
Company's independent auditors for the 1997 fiscal year.
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
These matters are more fully described in the Proxy Statement
accompanying this Notice.
Only shareholders of record at the close of business on April 25, 1997
are entitled to vote at the Annual Meeting.
All shareholders are cordially invited to attend the meeting in
person. However, to ensure your representation at the meeting, you are urged
to sign and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if the shareholder has returned a proxy.
By Order of The Board of Directors
Michael J. O'Donnell
Secretary
La Jolla, California
May 15, 1997
<PAGE> 3
- --------------------------------------------------------------------------------
IMPORTANT
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN
IF YOU RETURNED A PROXY.
- --------------------------------------------------------------------------------
SEQUANA THERAPEUTICS, INC.
------------------
PROXY STATEMENT
1997 ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Sequana Therapeutics, Inc. (the "Company") for use at the Annual Meeting of
Shareholders to be held on June 24, 1997 at 9:00 a.m., local time, or at any
adjournment thereof, for the purposes set forth in this Proxy Statement and in
the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting
will be held at the La Jolla Marriott Hotel, 4240 La Jolla Village Drive, La
Jolla, California 92037. The Company's principal executive offices are located
at 11099 North Torrey Pines Road, Suite 160, La Jolla, California 92037. The
Company's telephone number is (619) 452-6550.
This Proxy Statement is being mailed on or about May 15, 1997 to all
shareholders entitled to vote at the meeting.
RECORD DATE
Only holders of Common Stock of record at the close of business on
April 25, 1997 are entitled to notice of the meeting and to vote at the
meeting. At the record date, 10,194,337 shares of the Company's Common Stock
were issued and outstanding and held of record by approximately 344
shareholders.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each share of Common Stock outstanding on the record date is entitled
to one vote. In the election of directors (Proposal No. 1), each shareholder
may cast for a single candidate, or distribute among up to seven candidates, a
number of votes equal to seven multiplied by the number of shares held by such
shareholder. Cumulative voting will apply only to those candidates whose names
have been properly placed in nomination prior to the commencement of voting,
and only if a shareholder has given notice to the Secretary prior to the
commencement of voting of the shareholder's intention to cumulate votes. On
all other matters, each share has one vote.
2
<PAGE> 4
The cost of soliciting proxies will be borne by the Company. The
Company expects to reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, in person or by telephone or facsimile.
REQUIRED VOTE
If a quorum is present at the Annual Meeting or any adjournments
thereof, the seven candidates receiving the highest number of affirmative votes
shall be elected directors; votes against any candidate and votes withheld
shall have no legal effect. On all other proposals set forth herein, the
affirmative vote of the majority of the Votes Cast (as defined below) shall be
the act of the shareholders.
The affirmative vote of a majority of the Votes Cast will be required
under California law to approve the amendment to the Company's 1994 Incentive
Stock Plan and other proposals set forth herein. For this purpose, the "Votes
Cast" are defined under California law to be the shares of the Company's Common
Stock represented and "voting" at the Annual Meeting. In addition, the
affirmative votes must constitute at least a majority of the required quorum,
which quorum is a majority of the shares outstanding on the Record Date. Votes
that are cast against the proposal will be counted for purposes of determining
(i) the presence or absence of a quorum and (ii) the total number of Votes Cast
with respect to the proposal. While there is no definitive statutory or case
law authority in California as to the proper treatment of abstentions in the
counting of votes with respect to a proposal such as the amendment of the 1994
Incentive Stock Plan, the Company believes that abstentions should be counted
for purposes of determining both (i) the presence or absence of a quorum for
the transaction of business and (ii) the total number of Votes Cast with
respect to the proposal. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions in this manner.
Accordingly, abstentions will have the same effect as a vote against the
proposal. Broker non-votes will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business, but will not
be counted for purposes of determining the number of Votes Cast with respect to
the proposal.
PRINCIPAL SHARE OWNERSHIP
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock of the Company as of March 31, 1997 by (i)
each person known by the Company to be a beneficial owner of 5% or more of the
Company's outstanding Common Stock, (ii) each director, (iii) each executive
officer named in the Summary Compensation Table below, (iv) entitites
affiliated with certain directors, and (v) all directors and executive officers
as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
FIVE PERCENT SHAREHOLDERS, ----------------------------
DIRECTORS AND EXECUTIVE OFFICERS NUMBER PERCENT
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Entities affiliated with The Carlyle Group(2) 945,219 9.3%
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20001
Boehringer Ingelheim International GmbH 555,556 5.5%
D-55216 Ingelheim am Rhein
New Enterprise Associates VI, L.P. (3) 464,017 4.6%
235 Montgomery Street
San Francisco, CA 94104
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
FIVE PERCENT SHAREHOLDERS, ----------------------------
DIRECTORS AND EXECUTIVE OFFICERS NUMBER PERCENT
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Entities affiliated with Sequoia Capital(4) 298,696 2.9%
3000 Sand Hill Road, Bldg. 4, Ste. 280
Menlo Park, CA 94025
Richard Darman (5) 949,323 9.3%
Kevin J. Kinsella (6) 333,822 3.3%
Thomas C. McConnell (7) 468,121 4.6%
Thomas F. Stephenson (8) 302,800 3.0%
Irwin Lerner (9) 44,271 *
Howard D. Palefsky (10) 4,375 *
Timothy J. R. Harris (11) 41,663 *
M. Scott Salka (12) 50,507 *
Nic C. Dracopoli (13) 14,924 *
Carl D. Johnson 83,240 *
Audrey D. Keane (14) -- --
All current directors and executive officers as a group (9 persons)(15) 2,278,122 22.2%
---------------------------------------------------------------------------------------------------------
</TABLE>
* Less than one percent of the outstanding shares.
(1) Applicable percentage of ownership is based on 10,189,695 shares of Common
Stock outstanding as of March 31, 1997 together with applicable options or
warrants for such shareholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities,
subject to the community property laws, where applicable. Shares of
Common Stock subject to options or warrants that are currently exercisable
or exercisable within 60 days of March 31, 1997 are deemed to be
beneficially owned by the person holding such options or warrants for the
purpose of computing the percentage of ownership of such person but are
not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) TC Group L.L.C. ("The Carlyle Group") is the General Partner of
Carlyle-Sequana Investors II, L.P., which holds 773,360 shares, and the
Managing Member of Carlyle-Sequana Investors L.L.C., which holds 171,859
shares. Richard Darman, a director of the Company, is a Member and
Managing Director of TCG Holdings L.L.C., which is the Managing Member of
TC Group L.L.C.
(3) Thomas McConnell, a director of the company, is a General Partner of New
Enterprise Associates.
(4) Thomas F. Stephenson, a director of the Company, is a General Partner of
the Sequoia Partnerships that are investors in Sequana. Includes 275,380
shares held by Sequoia Capital VI, 13,106 shares held by Sequoia
Technology Partners VI, 5,673 shares held by Sequoia XXIV, and 4,537
shares held by Sequoia XXIII.
(5) Includes shares beneficially owned by The Carlyle Group and certain of its
affiliates and related parties, which Mr. Darman may be deemed to
beneficially own in his capacity as a member of TCG Holdings L.L.C. and
as a Managing Director of TC Group L.L.C. and TCG Holdings L.L.C. Mr.
Darman disclaims beneficial ownership of such shares. A trust of which
Mr. Darman is trustee controlled by Mr. Darman is a non-controlling member
of Carlyle-Sequana Investors L.L.C. Also includes 4,104 shares issuable
to Mr. Darman pursuant to options exercisable within 60 days of March 31,
1997.
4
<PAGE> 6
(6) Includes 304,318 shares held by the Kevin J. Kinsella Declaration of
Trust, of which Mr. Kinsella is Trustee, 16,668 shares issuable pursuant
to currently exercisable warrants held by Mr. Kinsella, and 12,836 shares
issuable to Mr. Kinsella pursuant to options exercisable within 60 days of
March 31, 1997.
(7) Includes shares beneficially owned by New Enterprise Associates VI, L.P.,
which Mr. McConnell may be deemed to beneficially own in his capacity as a
General Partner of New Enterprise Associates. Also includes 4,104 shares
issuable to Mr. McConnell pursuant to options exercisable within 60 days
of March 31, 1997
(8) Includes shares beneficially owned by entities affiliated with Sequoia
Capital, which Mr. Stephenson may be deemed to beneficially own in his
capacity as a General Partner of Sequoia Capital. Mr. Stephenson
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein. Also includes 4,104 shares issuable to Mr.
Stephenson pursuant to options exercisable within 60 days of March 31,
1997.
(9) Includes 1,000 shares held by Mr. Lerner's spouse and 4,104 shares
issuable to Mr. Lerner pursuant to options exercisable within 60 days of
March 31, 1997.
(10) Includes 4,375 shares issuable pursuant to options exercisable within 60
days of March 31, 1997.
(11) Includes 7,357 shares issuable pursuant to options exercisable within 60
days of March 31, 1997.
(12) Includes 17,635 shares issuable pursuant to options exercisable within 60
days of March 31, 1997.
(13) Includes 1,635 shares issuable pursuant to options exercisable within 60
days of March 31, 1997. In February 1997, Mr. Dracopoli resigned from the
Company to join Genos Biosciences, Inc., a joint venture between Sequana
Therapeutics and Memorial Sloan-Kettering Cancer Center.
(14) Ms. Keane's employment was terminated in July 1996.
(15) Includes 58,619 shares issuable pursuant to options exercisable within 60
days of March 31, 1997.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
NOMINEES
A board of seven directors will be elected at the Annual Meeting. The
Company's Bylaws authorize a board of seven to eleven directors, currently set
at seven. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the seven nominees of the Board of Directors named below.
If any nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. It is not
expected that any nominee will be unable or will decline to serve as a
director. If shareholders nominate persons other than the Company's nominees
for election as directors, the proxy holders will vote all proxies received by
them in accordance with cumulative voting to assure the election of as many of
the Board's nominees as possible.
5
<PAGE> 7
The Board of Directors recommends a vote FOR the nominees listed below:
<TABLE>
<CAPTION>
DIRECTOR
NAME NOMINEE AGE PRINCIPAL OCCUPATION SINCE
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Irwin Lerner (2) . . . . . . . . . . . . . 66 Director; Chairman of the Board 1994
Kevin J. Kinsella . . . . . . . . . . . . 51 Director; President, Chief Executive Officer 1993
Timothy J. R. Harris . . . . . . . . . . . 46 Director; Senior Vice President, Research 1994
and Development
Howard D. Palefsky (1) . . . . . . . . . . 50 Director; Chairman of Collagen Corporation 1996
Richard Darman (1) . . . . . . . . . . . . 53 Director; Managing Director of T.C.G. 1995
Holdings L.L.C.
Thomas C. McConnell (2) . . . . . . . . . 42 Director; General Partner of New 1993
Enterprise Associates
Thomas F. Stephenson (1) . . . . . . . . . 55 Director; General Partner of the Sequoia 1994
Capital Group of Venture Capital Funds
</TABLE>
(1) Member of the Compensation Committee
(2) Member of Audit Committee
Irwin Lerner has served as a director of the Company since June 1994
and became Chairman of the Board of Directors of the Company in May 1995. Mr.
Lerner served as Chairman of the Board of Directors and of the Executive
Committee of Hoffmann-La Roche, Inc., a pharmaceutical and health care company,
from January 1993 until his retirement in September 1993, and also served as
President and Chief Executive Officer from 1980 through December 1992. He
serves on the Boards of Project Hope and the New Jersey Chamber of Commerce,
where he chairs the Governor's Council for a Drug-Free Workplace. Mr. Lerner
served for 12 years on the Board of the Pharmaceutical Manufacturers'
Association, where he chaired the Association's FDA Issues Committee. Mr.
Lerner also serves on the Boards of Directors of Public Service Enterprise
Group, Humana Inc. and Medarex Inc. Mr. Lerner received a B.S. and an M.B.A.
from Rutgers University. He is currently Distinguished Executive-in-Residence
at Rutgers University Graduate School of Management.
Kevin J. Kinsella, the founder of the Company, has been a director
since its inception in February 1993. Mr. Kinsella served as the Chairman of
the Board of Directors and acting chief executive of the Company until January
1995, when he was named President and Chief Executive Officer. Mr. Kinsella
also served as Chief Financial Officer of the Company from January 1995 to
September 1995. Mr. Kinsella was previously the Managing General Partner of
Avalon Ventures, a venture capital firm founded by him. Avalon Ventures has
established over thirty companies, many of which are in the biopharmaceutical
field, including IMPATH Laboratories, Inc., Metra Biosystems, Inc. and
Pharmacopeia, Inc. Mr. Kinsella founded Aurora Biosciences Corporation, Athena
Neurosciences Inc., NeoRx Corporation, Vertex Pharmaceuticals Inc., Microcide
Pharmaceuticals, Inc. and Landmark Graphics Corporation. Mr. Kinsella is also a
director of Onyx Pharmaceuticals, Inc. He received a B.S. from the
Massachusetts Institute of Technology ("MIT") and an M.A. from the Johns Hopkins
School of Advanced International Studies.
Timothy J. R. Harris has served as Senior Vice President, Research and
Development, Chief Technical Officer and a director of the Company since
January 1994. From March 1989 to December 1993, Dr. Harris served as Director
of Biotechnology of Glaxo Group Research, Ltd., a pharmaceutical company.
Prior to that, Dr. Harris was a Senior Molecular Biologist at Celltech Ltd., a
biotechnology company. He received a B.Sc. in Biochemistry and an M.A. and
Ph.D. in General Virology from the University of Birmingham in England. He is
the author of approximately 60 research papers and inventor on five patent
applications.
6
<PAGE> 8
Howard D. Palefsky has been a director since March 1996. Mr. Palefsky
is currently Chairman of the Board of Collagen Corporation, a biomedical device
company, where he has been employed since 1978. He is also a director of
Calgene, Inc. and Target Therapeutics, Inc. Mr. Palefsky received his B.S.
from the City College of the City University of New York and an M.B.A. from
Stanford University Graduate School of Business.
Richard Darman has served as a director of the Company since April
1995. Mr. Darman is currently a Member and Managing Director of TCG Holdings
L.L.C., which is the Managing Member of TC Group L.L.C. ("The Carlyle Group"),
a private investment firm. From January 1989 to January 1993, Mr. Darman
served as Director of the Office of Management and Budget and a member of
President Bush's Cabinet. Mr. Darman is a Trustee of The New England Funds.
He received his B.A. from Harvard College and M.B.A. from Harvard Business
School.
Thomas C. McConnell has served as a director of the Company since
December 1993. Mr. McConnell has been with New Enterprise Associates, a
venture capital investment firm, since 1985 and has served as a General Partner
of that firm since 1989. Prior to that, Mr. McConnell was a Product Manager
at Apple Computer, Inc. and a consultant with The Boston Consulting Group. Mr.
McConnell also serves on the Board of Directors of Applied Imaging Corporation,
Conceptus, Inc., CardioThoracic Systems, Inc. and Innovasive Devices, Inc.
Mr. McConnell received an A.B. in Engineering Science from Dartmouth College
and an M.B.A. from Stanford University Graduate School of Business.
Thomas F. Stephenson has served as a director of the Company since
January 1994. Since 1988, Mr. Stephenson has been a general partner of the
Sequoia Capital group of venture capital funds. Prior to that, Mr. Stephenson
spent 19 years with Fidelity Investment Company, an investment management firm,
where he was a co-founder of Fidelity Ventures and served as its President from
1977 until 1988. Mr. Stephenson received a B.A. from Harvard College, and
M.B.A. from Harvard Business School and a J.D. from Boston College Law School.
All directors are elected at the annual meeting of shareholders and
hold office until the election and qualification of their successors at the next
annual meeting of shareholders. In April 1997, Kevin J. Kinsella married the
sister of Scott Salka, Vice President Operations, Chief Financial Officer of the
Company. There are no other family relationships among the Company's directors
and executive officers.
REQUIRED VOTE
The seven nominees receiving the highest number of affirmative votes
present or represented and entitled to be voted for them will be elected as
directors.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held six meetings during the
1996 fiscal year. No nominee who was a director during the entire fiscal year
attended fewer than 75% of the meetings of the Board of Directors and of the
committees of the Board on which the director served.
The Board of Directors has a Compensation Committee and an Audit
Committee. It does not have a nominating committee or a committee performing
the functions of a nominating committee.
The Compensation Committee consisted of directors Thomas Stephenson
(Chairman), Irwin Lerner, Thomas McConnell and Howard Palefsky through
September 1996. From September 25, 1996 through December 31, 1996, the
Compensation Committee consisted of directors Thomas Stephenson (Chairman),
Richard Darman and Howard Palefsky. Mr. Kinsella, President, Chief Executive
Officer and a director of the Company, participates in all discussions and
decisions
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<PAGE> 9
regarding salaries and incentive compensation for all employees and consultants
of the Company, except that Mr. Kinsella is excluded from discussions regarding
his own salary and incentive compensation. The Compensation Committee held
seven meetings during 1996.
The Audit Committee during 1996 consisted of directors Irwin Lerner
and Thomas McConnell. The Audit Committee oversees the actions taken by the
Company's independent auditors and reviews the Company's internal financial and
accounting controls and policies. The Audit Committee held two meetings during
1996.
The Company has adopted provisions in its Articles of Incorporation
that eliminate the personal liability of its directors for monetary damages
arising from a breach of their fiduciary duties in certain circumstances to the
fullest extent permitted by law and that authorize the Company to indemnify its
directors and officers to the fullest extent permitted by law. Such limitation
does not affect the availability of equitable remedies such as injunctive
relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by California law,
including circumstances in which indemnification is otherwise discretionary
under California law. The Company has entered into indemnification agreements
with its officers and directors containing provisions which are in some
respects broader than the specific indemnification provisions contained in the
California Corporations Code. The indemnification agreements may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted, nor is the Company aware of any threatened litigation
or proceeding that may result in a claim for such indemnification.
DIRECTOR COMPENSATION
The non-employee members of the Company's Board of Directors, other
than Mr. Lerner, receive compensation in the amount of $2,000 for each meeting
of the Board of Directors they attend. The Company's 1995 Director Option Plan,
as amended, ("The Director Plan") provides that options shall be granted to
non-employee directors of the Company pursuant to an automatic nondiscretionary
grant mechanism. The exercise price of all options granted under the Director
Plan is 100% of the fair market value of the Common Stock on the date of grant.
Pursuant to the Director Plan, on July 31, 1995, Messrs. Lerner, Darman,
McConnell and Stephenson each received an option to purchase 10,000 shares of
the Company's Common Stock at an exercise price equal to $9.00 per share. Such
options become exercisable at a rate of 25% of the shares subject to the option
on each anniversary of its date of grant. On March 26, 1996, Mr. Palefsky
received an option to purchase 15,000 shares of the Company's Common Stock at an
exercise price equal to $18.50 per share. Pursuant to provisions of the
Director Plan, on May 30, 1996, Messrs. Lerner, Darman, McConnell and Stephenson
were authorized to receive an option grant to purchase 7,000 shares of the
Company's Common Stock at an exercise price equal to $21.00 per share. Such
options become exercisable at a rate of 12.5% of the shares subject to the
option on the six month anniversary of the date of grant and an additional
1/48th of the option shares at the end of each month thereafter.
The Company has entered into a consulting agreement with Mr. Lerner to
provide advice and counsel to the Chief Executive Officer and other officers of
the Company. Under the terms of the agreement, Mr. Lerner devotes
approximately three days per month to the Company's business. Mr. Lerner is
paid an annual retainer of $75,000 and receives $3,500 for each meeting of the
Board attended. During 1995, Mr. Lerner was
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<PAGE> 10
granted and he subsequently exercised rights to purchase 3,333 shares of Common
Stock at a price of $.48 per share. In January 1995, Mr. Lerner was granted
an option to purchase 16,667 shares of Common Stock at a price of $.90 per
share. Such option becomes exercisable as to 1/48th of the option shares each
month. Pursuant to an agreement in place prior to his being elected Chairman,
Mr. Lerner purchased 167 shares of Common Stock at a price of $.48 per share
in October 1994, and 500 and 167 shares of Common Stock at $.90 per share and
$1.80 per share, respectively, in April 1995. In June 1995, Mr. Lerner
purchased 10,000 shares of Common Stock at a price of $3.00 per share. The
10,000 shares are subject to repurchase by the Company at the original purchase
price and are released from the Company's repurchase option as to 1/48th of the
shares each month.
EXECUTIVE OFFICER COMPENSATION
COMPENSATION TABLE
The following table sets forth total compensation for each of the
three years ended December 31, 1994, 1995 and 1996 for the Chief Executive
Officer and each of the next five most highly compensated executive officers of
the Company (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS (1)
--------------------------------------------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING OTHER
COMPENSATION AWARDS($) OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) SARS(#) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kevin J. Kinsella (2) 1996 $275,005 $11,551 $-- $-- 50,000 $ --
President and Chief 1995 249,792 -- -- -- -- --
Executive Officer 1994 -- -- -- -- -- --
Timothy J. R. Harris, Ph.D.(3) 1996 200,659 7,000 -- -- 16,567 --
Senior Vice President, 1995 193,146 -- -- -- 20,833 --
Research and Development 1994 176,500 -- -- -- 33,333 62,582(4)
and Chief Technical Officer
Audrey D. Keane 1996 94,775 -- -- -- -- 75,000(5)
Vice President, Business 1995 138,750 -- -- -- 20,834 --
Development 1994 103,288 6,259 -- -- 8,333 --
Nic C. Dracopoli, Ph.D. (6) 1996 154,438 4,620 -- -- 9,200 --
Vice President, Molecular 1995 129,088 -- -- -- 35,417 13,635(4)
Genetics 1994 -- -- -- -- -- --
M. Scott Salka (7) 1996 154,438 4,620 -- -- 34,200 --
Vice President, Operations 1995 123,337 -- -- -- 22,500 --
and Chief Financial Officer 1994 -- -- -- -- -- --
Carl D. Johnson, Ph.D. (8) 1996 35,000 980 -- -- 20,000 --
Vice President, Research, 1995 -- -- -- -- -- --
NemaPharm, Inc. 1994 -- -- -- -- -- --
</TABLE>
9
<PAGE> 11
(1) Stock purchase rights to purchase 208,333 shares of Common Stock at a
price of $.90 per share were granted to, and exercised by, Mr. Kinsella
in March 1995. As of December 31, 1996, Mr. Kinsella held 108,507
unvested shares of Common Stock having a value of $1,817,492 based upon
the fair market value of the Common Stock on December 31, 1996 of $16.75
per share. All of such unvested shares are subject to repurchase by the
Company at the original purchase price in the event of a termination of
Mr. Kinsella's employment with the Company. The shares are released from
the Company's repurchase option as to 1/48th of the original 208,333
shares each month. As of December 31, 1996, Dr. Harris held 12,500
unvested shares of Common Stock having a value of $209,375 based upon the
fair market value of the Common Stock on December 31, 1996 of $16.75 per
share. All of such unvested shares are subject to repurchase by the
Company at the original purchase price ($.012) in the event of a
termination of Dr. Harris' employment with the Company. The shares are
released from the Company's repurchase option as to 1/48th of the original
50,000 shares each month. As of December 31, 1996, Mr. Salka held 1,389
unvested shares of Common Stock having a value of $23,266 based upon the
fair market value of the Common Stock on December 31, 1996 of $16.75 per
share. All of such unvested shares are subject to repurchase by the
Company at the original purchase price ($.012) in the event of a
termination of Mr. Salka's employment with the Company. The shares are
released form the Company's repurchase option as to 1/48th of the original
16,667 shares each month. Mr. Kinsella, Dr. Harris and Mr. Salka will
receive the same dividends on all shares of restricted stock as all other
shareholders; however, the Company does not anticipate paying any cash
dividend in the foreseeable future.
(2) During 1994, Mr. Kinsella served as Chairman and acting chief executive of
the Company and, due to his significant equity stake in the Company,
served without cash compensation.
(3) Dr. Harris joined the Company in January 1994.
(4) Represents reimbursement of moving, housing and other expenses incurred in
connection with relocating to the Company's geographic region.
(5) Represents a payment of $75,000 in connection with Ms. Keane's termination
of employment with the Company.
(6) Dr. Dracopoli joined the Company in December 1994.
(7) Mr. Salka became an executive officer of the Company in September 1995.
(8) Dr. Johnson joined the Company in October 1996 in connection with the
acquisition of NemaPharm, and receives an annual salary of $140,000.
STOCK OPTION INFORMATION
Option Grants in Last Fiscal Year. The following table provides
information concerning each grant of options to purchase the Company's Common
Stock made during the year ended December 31, 1996 to the Named Executive
Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE MINUS
EXERCISE PRICE AT
ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
--------------------------------------- --------------------
NUMBER OF % OF TOTAL EXERCISE
SECURITIES OPTIONS PRICE PER
UNDERLYING GRANTED TO SHARE
OPTIONS EMPLOYEES IN ($/SH) EXPIRATION
NAME GRANTED(#) FISCAL YEAR (2)(3)(4) DATE 5% ($) 10% ($)
- ------------------------- ---------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kevin J. Kinsella 50,000 10.2% $ 15.50 7/24/06 $487,500 $1,235,000
Timothy J. R. Harris, Ph.D. 16,567 3.4% 15.50 7/24/06 161,528 409,205
Carl D. Johnson, Ph.D. 20,000 4.1% 15.25 10/29/06 191,800 486,000
Nic C. Dracopoli, Ph.D. 9,200 1.9% 15.50 7/24/06 89,700 227,240
M. Scott Salka 9,200 1.9% 15.50 7/24/06 89,700 227,240
25,000 5.1% 16.75 12/11/06 263,250 667,500
Audrey D. Keane -- -- -- -- -- --
</TABLE>
10
<PAGE> 12
(1) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the ten year
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth.
(2) All options shown granted in 1996 become exercisable as to 1/48th of the
option shares each month, with full vesting generally occurring on the
fourth anniversary of the date of hire or grant.
(3) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on the date of grant, as determined by
reference to the closing sale price of the Common Stock on the Nasdaq
National Market.
(4) Exercise price may be paid in cash, by delivery of already-owned shares
subject to certain conditions, or pursuant to a cashless exercise
procedure under which the optionee provides irrevocable instructions to a
brokerage firm to sell the purchased shares and to remit to the Company,
out of the sale proceeds, an amount equal to the exercise price plus all
applicable withholding taxes.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End
Values. The following table sets forth certain information regarding the stock
options held as of December 31, 1996 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31,
(#) 1996($)(1)
------------- -------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
- --------------------------- --------------- -------------------- ------------- -------------
<S> <C> <C> <C> <C>
Kevin J. Kinsella -- $ -- 8,299 / $10,374 /
41,701 52,126
Timothy J. R. Harris, Ph.D. 9,462 141,770 3,462 / 37,859 /
24,476 207,533
Carl D. Johnson, Ph.D. -- -- -- / -- /
20,000 30,000
Nic C. Dracopoli, Ph.D. -- -- 20,629 / 219,147 /
38,571 305,227
M. Scott Salka -- -- 12,578 / 86,004 /
44,122 143,371
Audrey D. Keane (2) 12,500 150,097 -- / -- /
-- --
</TABLE>
(1) Fair market value of the Common Stock as of the date of exercise or
December 31, 1996, as the case may be, minus the exercise price.
(2) Ms. Keane's employment was terminated in July 1996.
11
<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee ("the Committee") of the Board of Directors
reviews and recommends to the Board of Directors for approval the Company's
executive compensation policies. The Compensation Committee consisted of
directors Thomas Stephenson (Chairman), Irwin Lerner, Thomas McConnell and
Howard Palefsky through September 1996. From September 25, 1996 through
December 31, 1996, the Compensation Committee consisted of directors Thomas
Stephenson (Chairman), Richard Darman and Howard Palefsky. The following is
the report of the Committee describing the compensation policies and rationales
applicable to the Company's executive officers with regard to the compensation
payable to such executive officers for the fiscal year ended December 31, 1996.
Compensation Philosophy
The goal of the Company's compensation policies is to align executive
compensation with business objectives and corporate performance, and to attract
and retain executives who contribute to the long-term success and value of the
Company. Compensation for the Company's executive officers consist of a base
salary and potential cash bonus, as well as potential incentive compensation
through stock options and stock ownership. The Committee considers the total
current and potential long-term compensation of each executive officer in
establishing each element of compensation.
Base Salary
The base salary component is designed to compensate executive officers
competitively at levels necessary to attract and retain qualified executives in
the pharmaceutical and biotechnology industry. The base salary for each
officer is set on the basis of personal performance, the salary levels in
effect for comparable positions within the Company's principal competitors, and
internal comparability considerations. As a general matter, year to year
adjustments to each executive officer's base salary are based upon personal
performance for the year and changes in the general level of base salaries of
persons in comparable positions within the industry.
Bonus
In addition to base salary, the Committee may provide the Company's
employees, including its executive officers, with an incentive cash bonus based
upon the achievement of certain corporate goals. The Company's incentive cash
bonus plan was implemented in 1996.
Long-Term Incentives
The Committee provides the Company's executive officers with long-term
incentive compensation through grants of stock options under the Company's 1994
Incentive Stock Plan and the opportunity to purchase stock under the 1995
Employee Stock Purchase Plan (the "Purchase Plan"). The Committee believes
that stock options provide the Company's executive officers with the
opportunity to purchase and maintain an equity interest in the Company and to
share in the appreciation of the value of the Company's Common Stock. The
Committee believes that stock options directly motivate an executive to
maximize long-term shareholder value. The options also utilize vesting periods
(generally four years) that encourage key executives to continue in the employ
of the Company. All options granted to executive officers to date have been
granted at the fair market value of the Company's Common Stock on the date of
grant. The Board considers the grant of each option subjectively, considering
factors such as the individual performance of the executive officer and the
anticipated contribution of the executive officer to the attainment of the
Company's
12
<PAGE> 14
long-term strategic performance goals. Long-term incentives granted in prior
years are also taken into consideration.
The Company established the Purchase Plan both to encourage employees
to continue in the employ of the Company and to motivate employees through
ownership interest in the Company. Under the Purchase Plan, employees,
including officers, may have up to 15% of their earnings withheld for purchases
of Common Stock on certain dates specified by the Board. The price of Common
Stock purchased will be equal to 85% of the lower of the fair market value of
the Common Stock on the date of commencement of participation in each 24-month
offering period or on each specified purchase date.
Chief Executive Officer Compensation
The compensation of the Chief Executive Officer is reviewed annually
on the same basis as discussed above for all executive officers. Mr. Kinsella
served as chairman and acting chief executive of the Company during 1994 and,
due to his significant equity stake in the Company, served without cash
compensation. During 1996, Mr. Kinsella received a base salary of $275,000 and
a bonus of $11,551. Mr. Kinsella's salary and stock grants were determined on
the basis of negotiations between the Board of Directors and Mr. Kinsella with
due regard for his experience, prior salary, and competitive salary
information. Mr. Kinsella's base salary for 1996 was established in part by
comparing the base salaries of Chief Executive Officers at other biotechnology
and pharmaceutical companies of similar size.
SECTION 162(M)
The Board has considered the potential future effects of Section
162(m) of the Internal Revenue Code on the compensation paid to the Company's
executive officers. Section 162(m) disallows a tax deduction for any
publicly-held corporation for individual compensation exceeding $1.0 million in
any taxable year for any of the executive officers named in the proxy
statement, unless compensation is performance-based. The Company has adopted a
policy that, where reasonably practicable, the Company will seek to qualify the
variable compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m).
In approving the amount and form of compensation for the Company's
executive officers, the Committee will continue to consider all elements of the
cost to the Company of providing such compensation, including the potential
impact of Section 162(m).
Respectfully submitted by:
COMPENSATION COMMITTEE
Thomas F.Stephenson, Chairman
Richard Darman
Howard D. Palefsky
13
<PAGE> 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consisted of directors Thomas Stephenson
(Chairman), Irwin Lerner, Thomas McConnell and Howard Palefsky through
September 1996. From September 25, 1996 through December 31, 1996, the
Compensation Committee consisted of directors Thomas Stephenson (Chairman),
Richard Darman and Howard Palefsky. No member of the Compensation Committee,
as constituted during 1996, was a former or current officer or employee of the
Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership on Form 3 and
changes in ownership on Form 4 or Form 5 with the SEC. Such officers,
directors and 10% stockholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that, during the fiscal year ended December 31, 1996, all Section 16(a) filing
requirements applicable to its officers, directors and 10% stockholders were
met, with the exception of certain late filings made in connection with sales
of stock pursuant to the exercise of the underwriters' over-allotment option in
connection with the Company's public offering of Common Stock, completed
on March 7, 1996. These include the sale of 35,983 shares of Common Stock by
NEA Partners VI, of which director Thomas C. McConnell is General Partner, the
sale of 22,656 shares of Common Stock by entities affiliated with Sequoia
Capital, of which director Thomas F. Stephenson is a General Partner, and the
sale of 73,299 shares of Common Stock by entities affiliated with The Carlyle
Group, of which director Richard Darman is Managing Director. Form 5s were not
filed timely to report the automatic grant of options to acquire 7,000 shares
of the Company's Common Stock pursuant to the Company's Director Plan to
Messrs. Lerner, Darman, McConnell and Stephenson.
14
<PAGE> 16
STOCK PERFORMANCE GRAPH
The following line graph compares cumulative total shareholder return
on the Company's Common Stock from July 31, 1995 (the date of the Company's
initial public offering) through December 31, 1996 with the cumulative total
return over the same period for companies on the Nasdaq Stock Market (U.S.)
Index and the Nasdaq Pharmaceutical Index. The Nasdaq Pharmaceutical Index
represents all companies trading on Nasdaq under the Standard Industrial
Classification Code for pharmaceuticals, including biotechnology companies.
The graph assumes that $100 was invested on July 31, 1995 in the Company and in
each of the two indices and that any and all dividends were reinvested. It
should be noted that the Company has not paid dividends on its Common Stock,
and no dividends are included in the representation of the Company's
performance. The cumulative total shareholder return on the Company's Common
Stock shown on the graph below is not necessarily indicative of future
performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG SEQUANA THERAPEUTICS, INC., THE NASDAQ (U.S.)
INDEX AND THE NASDAQ PHARMACEUTICAL INDEX
<TABLE>
<CAPTION>
ACTUALS 7/95 9/95 12/95 3/96 6/96 9/96 12/96
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sequana Therapeutics, Inc. 9 11.25 23.375 19.5 15.5 18.25 16.75
Nasdaq Stock Market (U.S.) 327.239 341.548 345.715 361.864 391.401 405.339 425.258
Nasdaq Pharmaceutical 294.832 339.19 395.549 411.617 399.964 408.978 395.975
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
INDEX 7/95 9/95 12/95 3/96 6/96 9/96 12/96
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sequana Therapeutics, Inc. $100.00 $125.00 $259.72 $216.67 $172.22 $202.78 $186.11
------------------------------------------------------------------------
Nasdaq Stock Market (U.S.) $100.00 $104.37 $105.65 $110.58 $119.61 $123.87 $129.95
------------------------------------------------------------------------
Nasdaq Pharmaceutical $100.00 $115.05 $134.16 $139.61 $135.66 $138.72 $134.31
- ----------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 17
CERTAIN TRANSACTIONS
In December 1993, under the terms of his acceptance of employment with
the Company and in order to defray the costs of relocating to the Company's
geographic area, Timothy J. R. Harris, Senior Vice President, Research and
Development, Chief Technical Officer and a director of the Company, borrowed
$175,000 from the Company pursuant to a non-recourse promissory note. In
addition, in connection with the exercise of an option to purchase 33,333
shares of the Company's Common Stock, Dr. Harris borrowed $10,000 from the
Company pursuant to a full recourse promissory note. During 1996, the
principal and accrued interest on both notes was paid in full by Dr. Harris.
The Company has entered into a consulting agreement with Mr. Lerner to
provide advice and counsel to the Chief Executive Officer and other officers of
the Company. See "Election of Directors -- Director Compensation."
In March 1995, in connection with the purchase of 208,333 shares of
the Company's Common Stock, Kevin J. Kinsella, President, Chief Executive
Officer and a director for the Company, borrowed $187,500 from the Company
pursuant to a full recourse promissory note. The note is secured by the shares
so purchased and bears interest at a rate of 7.2% per annum. The principal and
all accrued interest under the note become due and payable upon the earlier of
(i) March 15, 1998 and (ii) 90 days after the date of any termination of Mr.
Kinsella's employment with the Company. The shares are subject to repurchase
by the Company at the original purchase price in the event of a termination of
Mr. Kinsella's employment with the Company. At the end of each month, 1/48th
of the shares are released from the Company's repurchase option. As of
December 31, 1996, the outstanding principal and accrued interest under the
note was approximately $212,000.
In September 1993, under the terms of his acceptance of employment
with the Company and in order to defray the costs of relocating to the
Company's geographic area, M. Scott Salka, Vice President, Operations and Chief
Financial Officer of the Company, borrowed $50,000 from the Company pursuant to
a non-recourse promissory note. The note bears interest at a rate equal to the
blended short-term applicable federal rate (currently 5.77%) and is adjusted
annually. The note is secured by all shares of the Company's Common Stock
issued to Mr. Salka. The principal and all accrued interest under the note are
due on demand. As of December 31, 1996, the outstanding principal and accrued
interest under the note was approximately $50,000. In addition, in connection
with the exercise of an option to purchase 20,833 shares of the Company's
Common Stock in October 1994, Mr. Salka borrowed $6,250 from the Company
pursuant to a full recourse promissory note. The note is secured by the shares
so purchased and bears interest at a rate of 7.12% per annum. The principal
and all accrued interest under the note become due and payable upon the earlier
of (i) March 15, 1998 and (ii) 90 days after the date of any termination of Mr.
Salka's employment with the Company. At the end of each month, 1/48th of the
shares are released from the Company's repurchase option. As of December 31,
1996, the outstanding principal and accrued interest under the note was
approximately $7,000.
In April 1996, the Company entered into a collaborative agreement with
Aurora Biosciences Corporation ("Aurora"). Under the agreement, the Company
gained access to certain technologies and rights to contract with Aurora for
the application of Aurora's proprietary mammalian cell-based screening
technology to genetic targets selected by the Company. In connection with the
agreement, the Company also made a $1.5 million minority equity investment in
Aurora. Mr. Kinsella is affiliated with Avalon Ventures (a founder and
shareholder of Aurora) and is a shareholder and member of the Board of
Directors of Aurora.
16
<PAGE> 18
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All future transactions, including loans,
between the Company and its officers, directors, principal shareholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors,
and will continue to be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
PROPOSAL NO. 2:
APPROVAL OF AMENDMENT TO 1994 INCENTIVE STOCK PLAN
The Company's 1994 Incentive Stock Plan (the "Incentive Plan")
provides for the grant of incentive stock options to employees (including
officers and employee directors) and nonstatutory stock options to employees
(including officers and employee directors) and consultants (including
non-employee directors) of the Company. The Board of Directors of the Company
amended the Incentive Plan in February 1997 subject to shareholder approval, to
increase the number of shares reserved for issuance under the Plan by an
aggregate of 500,000 shares to a new total of 1,563,125 shares. The summary of
the Incentive Plan is attached hereto as Appendix A.
The proposed increase in the number of shares of Common Stock reserved
for issuance under the Incentive Plan is for the purpose of establishing a
reserve for stock option grants to new employees or consultants that may be
hired, granting stock options to key employees in connection with annual
performance reviews and granting options to key employees of businesses that
the Company may seek to acquire in the future. The Board believes that the
proposed increase is in the best interests of the Company in order to provide
an adequate reserve of shares for issuance under the Incentive Plan to enable
the Company to compete successfully with other companies to attract and retain
valuable employees.
Of the 1,063,125 shares authorized prior to the amendment described
above, options to purchase an aggregate of 243,244 shares had been exercised as
of March 31, 1997, options to purchase an aggregate of 715,359 shares were
outstanding as of such date, and 104,522 shares remained available for future
grants as of such date.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast will be required
to approve the amendment to the Incentive Plan. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE INCREASE IN THE SHARES ISSUABLE
UNDER THE INCENTIVE PLAN.
17
<PAGE> 19
PROPOSAL NO. 3:
CONFIRMATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Management has selected Ernst & Young LLP, independent auditors, to
audit the financial statements of the Company for the current fiscal year
ending December 31, 1997. The affirmative vote of a majority of the Votes Cast
will be required to confirm the Board's selection of Ernst & Young LLP. THE
BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE CONFIRMATION
OF SUCH SELECTION. In the event of a negative vote on such confirmation, the
Board of Directors will reconsider its selection.
A representative of Ernst & Young LLP is expected to be available at
the Annual Meeting to make a statement if such representative desires to do so
and to respond to appropriate questions.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, the persons named in the
accompanying form of proxy will vote the shares represented by proxy as the
Board may recommend or as the proxy holders, acting in their sole discretion,
may determine.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals to be presented by shareholders of the Company at the 1998
Annual Meeting must be received by the Company no later than December 31, 1997
in order that they may be included in the proxy statement and form of proxy
relating to that meeting.
BY ORDER OF THE BOARD OF DIRECTORS
La Jolla, California
Dated: May 15, 1997
18
<PAGE> 20
APPENDIX A
SUMMARY OF THE 1994 INCENTIVE STOCK PLAN
General. The purpose of the 1994 Incentive Stock Plan (the "Incentive
Plan") is to attract and retain the best available personnel for positions of
substantial responsibility with the Company, to provide additional incentive to
the employees and consultants of the Company and to promote the success of the
Company's business. Options granted under the Incentive Plan may be either
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or nonstatutory stock options. Before
the proposed amendment to the Incentive Plan, a total of 1,063,125 shares of
Common Stock has been reserved for issuance under the Incentive Plan. The
Incentive Plan is not a qualified deferred compensation plan under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), nor is it
subject to the Employee Retirement Income Security Act of 1974.
Administration. The Incentive Plan may generally be administered by
the Board or a Committee appointed by the Board. The administrators of the
Incentive Plan are referred to herein as the "Administrator."
Eligibility. Nonstatutory stock options may be granted under the
Incentive Plan to employees, consultants and directors of the Company and any
parent or subsidiary of the Company. Incentive stock options may be granted
only to employees. The Administrator, in its discretion, selects the employees,
consultants and directors to whom options may be granted, the time or times at
which such options may be exercised, and the number of shares subject to each
such option.
Limitations. Section 162(m) of the Code places limits on the
deductibility for federal income tax purposes of compensation paid to certain
executive officers of the Company. In order to preserve the Company's ability
to deduct the compensation income associated with options granted to such
persons, the Incentive Plan provides that no employee may be granted, in any
fiscal year of the Company, options to purchase more than 200,000 shares of
Common Stock.
Terms and Conditions of Options. Each option is evidenced by a stock
option agreement between the Company and the optionee, and is subject to the
following additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise
price of options at the time the options are granted. However, the exercise
price of an incentive stock option may not be less than 100% of the fair market
value of the Common Stock on the date such option is granted; provided, however,
the exercise price of an incentive stock option granted to a 10% shareholder may
not be less than 110% of the fair market value of the Common Stock on the date
such option is granted. The fair market value of the Common Stock is generally
determined with reference to the closing sale price for the Common Stock on the
last market trading day prior to the date the option is granted.
(b) Exercise of Option; Form of Consideration. The Administrator
determines when options become exercisable. The means of payment for shares
issued upon exercise of an option is specified in each option agreement. The
Incentive Plan permits payment to be made by cash, check, other shares of Common
Stock (with some restrictions), cashless exercise, or any combination thereof.
(c) Term of Option. The term of an incentive stock option may be
no more than ten (10) years from the date of grant; provided that in the case of
an incentive stock option granted to a 10% shareholder, the
<PAGE> 21
term of the option may be no more than five (5) years from the date of grant.
No option may be exercised after the expiration of its term.
(d) Termination of Employment or Consulting Relationship. If an
optionee's employment or consulting relationship terminates for any reason
(other than death or permanent disability), the optionee may exercise his or her
option, within such period of time as is determined by the Administrator (but
such period must be of at least thirty days and in the case of an incentive
stock option, such period may not be more than three months) from the date of
such termination, and only to the extent that the optionee was entitled to
exercise the option at the date of such termination (and in no event later than
the expiration of the term of such option as set forth in the option agreement).
To the extent that the optionee was not entitled to exercise an option at the
date of such termination, and to the extent that the optionee does not exercise
such option (to the extent otherwise so entitled) within the time permitted, the
option shall terminate.
(e) Permanent Disability. If an optionee is unable to continue
employment or consulting with the Company as a result of disability (as defined
in Section 22(e)(3) of the Code), then all his or her options under the
Incentive Plan shall expire within six months after the date of termination of
the optionee's employment, and in no event later than the expiration of the
term of such option as set forth in the option agreement. The optionee may
exercise all or part of his or her option at any time before such expiration
date to the extent that such option was exercisable at the time of termination
of employment. To the extent that the options were not exercisable at the date
of such termination, and to the extent that the options are not exercised (to
the extent otherwise permissible) within the time permitted, the options shall
terminate.
(f) Death. If an optionee is unable to continue employment or
consulting with the Company as a result of death, then all his or her options
under the Incentive Plan shall expire within twelve months after the date of
termination of the optionee's employment and in no event later than the
expiration of the term of such option as set forth in the option agreement. The
executor or other legal representative of the optionee may exercise all or part
of the optionee's options at any time before such expiration date to the extent
that such option was exercisable at the time of termination of employment. To
the extent that the options were not exercisable at the date of such
termination, and to the extent that the options are not exercised (to the extent
otherwise permissible) within the time permitted, the options shall terminate.
(g) Nontransferability of Options. Options granted under the
Incentive Plan are not transferable other than by will or the laws of descent
and distribution, and may be exercised during the optionee's lifetime only by
the optionee.
(h) Other Provisions. The stock option agreement may contain such
other terms, provisions and conditions not inconsistent with the Incentive Plan
as may be determined by the Administrator.
Adjustments Upon Changes in Capitalization. In the event that the
Common Stock of the Company changes by reason of any stock split, reverse stock
split, stock dividend, combination, reclassification or other similar change in
the capital structure of the Company effected without the receipt of
consideration, appropriate adjustments shall be made in the number of shares of
stock subject to the Incentive Plan, the number and class of shares of stock
subject to any option outstanding under the Incentive Plan, and the exercise
price of any such outstanding award.
In the event of a liquidation or dissolution, any unexercised options
will terminate. The Administrator may, in its discretion, provide that each
optionee shall have the right to exercise all of the optionee's options,
including those not otherwise exercisable.
A-2
<PAGE> 22
In connection with any merger or sale of all or substantially all of
the assets of the Company, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation. If the successor
corporation refuses to assume the options or to substitute substantially
equivalent options, the options will terminate unless the Administrator grants
the optionee the right to exercise his or her options, including shares not
otherwise exercisable. In such event, the Administrator shall notify the
optionee that the option is fully exercisable for fifteen (15) days from the
date of such notice and that the option terminates upon expiration of such
period.
Amendment and Termination of the Incentive Plan. The Board may amend,
alter, suspend or terminate the Incentive Plan, or any part thereof, at any time
and for any reason. However, the Company shall obtain shareholder approval for
any amendment to the Incentive Plan to the extent necessary to comply with
Section 422 of the Code, or any other applicable rule or statute. No such
action by the Board or shareholders may alter or impair any option previously
granted under the Incentive Plan without the written consent of the optionee.
Unless terminated earlier, the Incentive Plan shall terminate ten (10) years
from the date of its approval by the shareholders or the Board, whichever is
earlier.
Federal Income Tax Consequences
Incentive Stock Options. No taxable income is recognized by the
optionee upon the grant or exercise of an ISO (unless the alternative minimum
tax rules apply). If Common Stock is issued to an optionee pursuant to the
exercise of an ISO, and if no disqualifying disposition of the shares is made by
the optionee within two years after the date of grant of the option or within
one year after the issuance of shares to the optionee, then (i) upon the resale
of such shares, any amount realized in excess of the option exercise price will
be treated as a long-term capital gain and any loss sustained will be a
long-term capital loss, and (ii) no deduction will be allowed to the Company for
federal income tax purposes.
If Common Stock acquired upon the exercise of an ISO is disposed of
before the expiration of either holding period described above, generally (i)
the optionee will recognize ordinary income in the year of disposition in an
amount equal to the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized on the disposition of the shares)
over the option exercise price paid for such shares, and (ii) the Company is
entitled to a tax deduction in the same amount. Any further gain or loss
realized by the participant will be taxed as short-term or long-term capital
gain or loss, as the case may be, and will not result in any deduction by the
Company. Different rules may apply if shares are purchased by an optionee who
is also a Section 16 Insider.
Nonstatutory Stock Options. With respect to NSOs: (i) no income is
recognized by the optionee at the time the option is granted; (ii) generally, at
exercise, ordinary income is recognized by the optionee in an amount equal to
the difference between the option exercise price paid for the shares and the
fair market value of the shares on the date of exercise, and the Company is
entitled to a tax deduction in the same amount; and (iii) upon disposition of
the shares, any further gain or loss is treated as capital gain or loss. In the
case of an optionee who is also an employee at the time of grant, any income
recognized upon exercise of an NSO will constitute wages for which withholding
will be required. The Company will receive a tax deduction equal to the amount
of ordinary income recognized by the optionee.
Alternative Minimum Tax. The exercise of an ISO granted under the Plan
may subject the optionee to the alternative minimum tax ("AMT") under Section 55
of the Code. In calculating alternative minimum taxable income, shares
purchased upon exercise of an ISO are treated as if they had been acquired by
the optionee pursuant to an NSO. This may be particularly significant if shares
subject to a repurchase option
A-3
<PAGE> 23
of the Company are purchased upon exercise of an ISO or if the optionee
is subject to Section 16(b) of the Exchange Act. See "Nonstatutory Stock
Options," above. Under certain circumstances, an optionee may affect the timing
and measurement of AMT by filing an election with the Internal Revenue Service
under Section 83(b) within 30 days after the date of exercise of an ISO.
Accordingly, an optionee should consult his or her own tax advisor prior to
exercising an ISO concerning the advisability of filing an election under
Section 83(b) of the Code for alternative minimum tax purposes.
If an optionee pays AMT in excess of his or her regular tax liability,
the amount of such AMT relating to ISOs may be carried forward as a credit
against any subsequent years' regular tax in excess of the AMT.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE
OF OPTIONS UNDER THE INCENTIVE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND
DOES NOT DISCUSS THE TAX CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR
THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN
COUNTRY IN WHICH THE EMPLOYEE OR CONSULTANT MAY RESIDE.
A-4
<PAGE> 24
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SEQUANA THERAPEUTICS, INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 24, 1997
The undersigned shareholder of SEQUANA THERAPEUTICS, INC., a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated May 15, 1997 and hereby appoints M.
Scott Salka and Michael J. O'Donnell, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1997 Annual
Meeting of Shareholders of SEQUANA THERAPEUTICS, INC. to be held on June 24,
1997 at 9:00 a.m. local time, at the La Jolla Marriott Hotel, 4240 La Jolla
Village Drive, La Jolla, California 92037 and at any adjournment or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below:
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT OF
THE 1994 INCENTIVE STOCK PLAN, FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST
& YOUNG LLP AS INDEPENDENT AUDITORS AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
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<PAGE> 25
Please mark
your vote as
indicated in
this example. [X]
<TABLE>
<CAPTION>
FOR
all nominees
listed below
(except as
indicated) WITHHOLD
<S> <C> <C>
1. ELECTION OF DIRECTORS
If you wish to withhold authority to vote [ ] [ ]
for any individual nominee, strike a line
through that nominee's name in the list
below:
Irwin Lerner, Kevin J. Kinsella, Timothy J.R. Harris,
Howard D. Palefsky, Richard Darman,
Thomas C. McConnell and Thomas C. Stephenson.
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. AMENDMENT OF 1994 INCENTIVE STOCK PLAN TO INCREASE [ ] [ ] [ ]
THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER.
FOR AGAINST ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & [ ] [ ] [ ]
YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE
COMPANY FOR THE FISCAL PERIOD ENDING DECEMBER 31,
1997.
</TABLE>
and in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment or adjournments thereof.
Signature(s)______________________________________________ Dated:________, 1997
(This Proxy should be marked, dated and signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
