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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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
AVIRON
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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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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
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7. Form, Schedule or Registration Statement No.:
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8. Filing Party:
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9. Date Filed:
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AVIRON
297 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CA 94043
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TO BE HELD ON JUNE 4, 1998
TO THE STOCKHOLDERS OF AVIRON:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of AVIRON, a
Delaware corporation (the "Company"), will be held on Thursday, June 4, 1998 at
8:00 a.m. local time at the Company's principal executive offices at 297 North
Bernardo Avenue, Mountain View, CA 94043 for the following purposes:
1. To elect one director to hold office until the 2001 Annual Meeting of
Stockholders and until his successor is elected.
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 1,500,000 shares, to 3,250,000 shares.
3. To approve an amendment to the Company's 1996 Employee Stock Purchase Plan to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 100,000 shares, to 350,000 shares.
4. To ratify the selection of Ernst & Young LLP as independent auditors of the
Company for its fiscal year ending December 31, 1998.
5. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 14, 1998 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
LOGO
Alan C. Mendelson
Secretary
Mountain View, California
April 30, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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AVIRON
297 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CA 94043
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 4, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Aviron, a Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held on Thursday, June 4, 1998 at 8:00 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 the Company's principal executive offices at 297
North Bernardo Avenue, Mountain View, CA 94043. The Company intends to mail this
proxy statement and accompanying proxy card on or about April 30, 1998, 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 or
at the Company's request, by Corporate Investor Communications, Inc. No
additional compensation will be paid to directors, officers or other regular
employees for such services, but Corporate Investor Communications, Inc. will be
paid its customary fee, estimated to be about $5,500, if it renders solicitation
services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April
14, 1998, will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 14, 1998, the Company had outstanding and
entitled to vote 15,628,925 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. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
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 offices at 297
North Bernardo Avenue, Mountain View, CA 94043 a written notice of revocation or
a duly
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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 1999 Annual Meeting of Stockholders must be received by the Company
not later than December 28, 1998 in order to be included in the proxy statement
and proxy relating to that Annual Meeting. 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 Restated 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.
The Board of Directors is presently composed of six members. There are two
directors in the class whose term of office expires in 1998, of which only one
is standing for re-election. James W. Strand has indicated a desire to step down
from the Board as of the Annual Meeting and has advised the Board that he does
not wish to stand for re-election. The Board of Directors will be reduced to
five members as of the Annual Meeting. The nominee for election to this class,
Dr. Bernard Roizman, is currently a director of the Company who was previously
elected by the stockholders. If elected at the Annual Meeting, Dr. Roizman would
serve until the 2001 Annual Meeting and until his successor is elected and has
qualified, or until his 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 nominee named below. In the event that the 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. Dr. Roizman has agreed to serve if elected, and management has no
reason to believe that he will be unable to serve.
Set forth below is biographical information for the nominee and each person
whose term of office as a director will continue after the Annual Meeting.
NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING
Bernard Roizman, Sc.D., age 69, has been a director of the Company since
1992. Dr. Roizman has been the Joseph Regenstein Distinguished Service Professor
of Virology at the University of Chicago since 1984. He holds B.A. and M.S.
degrees from Temple University and an Sc.D. from The Johns Hopkins University.
Dr. Roizman is also a member of the Company's Scientific Advisory Board.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF THE NAMED NOMINEE
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
Paul H. Klingenstein, age 42, has been a director of the Company since
1993. Mr. Klingenstein has been a General Partner of Accel Partners, a venture
capital firm, since 1988. He is a director of several private healthcare and
biopharmaceutical companies. Mr. Klingenstein holds an A.B. from Harvard
University and an M.B.A. from Stanford University.
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Jane E. Shaw, Ph.D., age 59, has been a director of the Company since 1996.
Dr. Shaw is currently the Chairman and Chief Executive Officer of AeroGen, Inc.,
a biopharmaceutical company. She founded The Stable Network, a biopharmaceutical
consulting company, in 1995. From 1987 to 1994, Dr. Shaw was President and Chief
Operating Officer of ALZA Corporation, a pharmaceutical company. Dr. Shaw joined
ALZA Corporation in 1970 where she held several positions including Principal
Scientist, Director of ALZA Corporation, and Chairman of the Board of ALZA
Limited, U.K. Dr. Shaw is also a director of Intel Corporation, McKesson
Corporation and Boise Cascade Corporation. Dr. Shaw holds a B.Sc. and a Ph.D. in
physiology from Birmingham University, England, and an honorary Sc.D. from the
Worcester Polytechnic Institute.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
J. Leighton Read, M.D., age 47, a founder of the Company, has been Chairman
and Chief Executive Officer of the Company since 1992 and was Chief Financial
Officer of the Company from 1992 until 1996. In 1989, he co-founded Affymax N.V.
with Dr. Alejandro Zaffaroni, serving initially as its Executive Vice President
and Chief Operating Officer and later, from 1990 to 1991, as President of the
Pharma Division and as a Managing Director of the parent company. From 1991 to
1993, Dr. Read was a principal with Interhealth Limited, an investment
partnership. He has served on the boards of a number of private biotechnology
companies and is currently on the board of CV Therapeutics, Inc., and AxyS
Pharmaceuticals, Inc., both of which are biotechnology companies, and is a
member of the Biotechnology Industry Organization (BIO) Board of Directors and
Emerging Companies Section Governing Body. Dr. Read holds a B.S. in Biology and
Psychology from Rice University and an M.D. from the University of Texas Health
Science Center at San Antonio.
Reid W. Dennis, age 71, has been a director of the Company since 1992. Mr.
Dennis has been active in venture capital investments since 1952. He founded
Institutional Venture Partners ("IVP"), a venture capital firm, in 1980, and has
acted as a General Partner of IVP since that time. He is currently a director of
Collagen Corporation, as well as several private companies. Mr. Dennis holds a
B.S. in Electrical Engineering and an M.B.A. from Stanford University.
BOARD COMMITTEES AND MEETINGS
During the year ended December 31, 1997, the Board of Directors held ten
meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of three non-employee
directors: Mr. Dennis, Mr. Klingenstein and Dr. Strand. The Audit Committee met
twice during 1997.
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 three non-employee
directors: Dr. Shaw, Mr. Klingenstein and Dr. Strand. The Compensation Committee
met twice during 1997.
During the year ended December 31, 1997, all directors except Reid W.
Dennis attended 75% or more of the aggregate of the meetings of the Board held
during the period for which he or she was a director. All committee members
attended 75% or more of the aggregate of the meetings of the committees on which
he or she served held during the period for which he or she was a committee
member.
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PROPOSAL 2
APPROVAL OF 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 "Incentive
Plan") as an amendment and restatement of its 1992 Stock Option Plan and
increased the number of shares reserved for issuance under the Incentive Plan to
1,750,000 shares.
At April 1, 1998, options (net of canceled or expired options) covering an
aggregate of 1,556,560 shares of the Company's Common Stock had been granted
under the Incentive Plan, and 193,440 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 Incentive Plan. The Board
has amended the Incentive Plan, subject to stockholder approval to increase the
aggregate number of shares of Common Stock authorized for issuance under the
Incentive Plan by 1,500,000 shares to 3,250,000 shares.
The Company faces competition for qualified individuals from numerous
pharmaceutical, biopharmaceutical and biotechnology companies, universities and
other research institutions. In amending the Incentive Plan, the Board reviewed
the number of shares set aside by competing Companies for employee equity
incentive plans and believes that the Company's increased share reserve is
consistent with competitive practices. Since the Company is highly dependent on
the principal members of its scientific and management staff, attracting and
retaining such personnel will be critical to the Company's success. To pursue
its product development and marketing plans, the Company will be required to
hire additional qualified scientific personnel to perform research and
development, as well as personnel with expertise in conducting clinical trials,
government regulation, manufacturing, marketing and sales. The Company believes
that equity incentives will be an important factor in attracting and retaining
such employees. In addition, the Company's current scientific and management
staff will require additional equity incentives to ensure long-term motivation.
The Board believes that the increase in the share reserve will enable the
Company to meet these needs.
The Incentive Plan permits the Company, under Section 162(m) of the
Internal Revenue Code of 1986, as amended ("Section 162(m)"), to continue to be
able to deduct as a business expense certain compensation attributable to the
exercise of stock options granted under the Incentive Plan. Section 162(m)
denies a deduction to any publicly held corporation for certain compensation
paid to a covered employee in a taxable year to the extent that the covered
employee's compensation exceeds $1,000,000. See "Federal Income Tax Information"
below for a discussion of the application of Section 162(m). The Board has
amended the Incentive Plan, subject to stockholder approval, to include a
limitation providing that no employee may be granted options under the Incentive
Plan during a calendar year to purchase in excess of 300,000 shares of Common
Stock. Previously, no person could be granted options or stock appreciation
rights in excess of 150,000 shares in any calendar year.
During the year ended December 31, 1997, options were granted in the
amounts and at the weighted average exercise price per share under the Incentive
Plan as follows: Dr. Read 25,000 shares ($9.50); Dr. Mendelman 15,000 shares
($9.50); Dr. Patzer 15,000 shares ($9.50); Dr. Bryant 7,500 shares ($9.50); Dr.
Jegede 7,500 shares ($9.50) and Dr. Kallmeyer 15,000 shares ($9.50); all current
executive officers (excluding Dr. Kallmeyer) as a group 135,000 shares ($15.94),
and all employees (excluding executive officers) as a group 276,780 shares
($15.90).
Stockholders are requested in this Proposal 2 to approve the amendment of
the Incentive Plan. If the stockholders fail to approve this Proposal 2, options
granted under the Incentive Plan after the Annual Meeting in excess of the
existing share reserve may not qualify as performance-based compensation and, in
some circumstances, the Company may be denied a business expense deduction for
compensation recognized in connection with the exercise of these stock options.
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 Incentive Plan. Abstentions will be
counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are
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counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Incentive Plan are outlined below:
GENERAL
The Incentive Plan provides for the grant or issuance of incentive stock
options to employees and nonstatutory stock options, restricted stock purchase
awards, stock bonuses, and stock appreciation rights to consultants, employees
and directors. To date only incentive stock options and nonstatutory stock
options have been awarded under the Incentive Plan. Incentive stock options
granted under the Incentive Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Nonstatutory stock options granted under the Incentive
Plan are intended not to qualify as incentive stock options under the Code. See
"Federal Income Tax Information" for a discussion of the tax treatment of the
various awards included in the Incentive Plan.
PURPOSE
The Incentive Plan provides a means by which selected employees (including
officers) of, and consultants to, the Company, and its affiliates, may be given
an opportunity to purchase Common Stock of the Company. The Company, by means of
the Incentive 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 Incentive Plan provides for incentive stock options, nonstatutory stock
options, restricted stock purchase awards, stock bonuses, and stock appreciation
rights (collectively "Stock Awards").
ADMINISTRATION
The Incentive Plan is administered by the Board unless and until the Board
delegates administration to a committee composed of not fewer than two Board
members, all of the members of which committee must 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 has been delegated to a committee, the committee will have, in
connection with the administration of the Incentive Plan, the powers possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Incentive Plan, as may be adopted from time to time by the
Board. The Board or 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 Incentive Plan.
The Board has delegated the administration of the Incentive Plan to the
Compensation Committee of the Board. As used herein with respect to the
Incentive Plan, the "Board" refers to the Compensation Committee as well as to
the Board of Directors itself.
The Board has the power to determine from time to time which of the persons
eligible under the Incentive Plan shall be granted Stock Awards, the type of
Stock Awards to be granted, when and how each Stock Award shall be granted, to
construe and interpret the Incentive Plan and Stock Awards granted under it,
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and to establish, amend and revoke rules and regulations for its administration.
The Board may correct any defect in the Incentive Plan or in any Stock Award
agreement to make the Incentive Plan fully effective.
SHARES SUBJECT TO THE PLAN
The Common Stock that may be sold pursuant to Stock Awards under the
Incentive Plan shall not exceed in the aggregate 3,250,000 shares of the
Company's Common Stock. If any Stock Award (other than a stock appreciation
right) expires or terminates, in whole or in part, without having been exercised
in full, the stock not purchased under such Stock Award will revert to and again
become available for issuance under the Incentive Plan. The Common Stock subject
to the Incentive Plan may be unissued shares or reacquired shares, bought on the
market or otherwise.
ELIGIBILITY
Incentive stock options may be granted only to employees. Nonstatutory
stock options, restricted stock purchase awards, stock bonuses, and stock
appreciation rights may be granted only to employees 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 restricted stock purchase award at date of grant.
For incentive stock options granted under the Incentive Plan the aggregate fair
market value, determined at the time of grant, of the shares of Common Stock
with respect to which such options are exercisable for the first time by an
optionee during any calendar year (under all such plans of the Company and its
affiliates) may not exceed $100,000.
Subject to stockholder approval of this Proposal 2, the Company has added
to the Incentive Plan a per-employee, per calendar year limitation equal to
300,000 shares of Common Stock. The purpose of adding this limitation is
generally to permit the Company to continue to be able to deduct for tax
purposes the compensation attributable to the exercise of options granted under
the Incentive Plan. Previously, the formal limitation on the number of shares
available for an option or stock appreciation right to any person was 150,000
shares in any calendar year.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Incentive Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the Incentive Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant, and in some
cases (see "Eligibility" above), may not be less than 110% of such fair market
value. The exercise price of nonstatutory options under the Incentive Plan may
not be less than 85% of the fair market value of the Common Stock subject to the
option on the date of the option grant.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. The Board also has the authority to include as part of an
option agreement a provision entitling the optionee to a further option in the
event that the optionee exercises his or her option by surrendering other shares
of Common Stock as payment of the exercise price.
The exercise price of options granted under the Incentive Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement; or (c) in any other form of
legal consideration acceptable to the Board.
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Option Exercise. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding options under the Incentive Plan typically vest
in 50 installments during the optionee's employment or services as a consultant.
Shares covered by options granted in the future under the Incentive Plan may be
subject to different vesting terms. The Board has the power to accelerate the
time during which an option may be exercised. In addition, options granted under
the Incentive Plan may permit exercise prior to vesting, but in such event the
optionee may be required to enter into an early exercise stock purchase
agreement that allows the Company to repurchase shares not yet vested at their
exercise price should the optionee leave the employ of the Company before
vesting. To the extent provided by the terms of an option, an optionee may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned stock of the Company or by a combination of these
means.
Term. The maximum term of options under the Incentive Plan is ten years,
except that in certain cases (see "Eligibility") the maximum term is five years.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Purchase Price; Payment. The Board will determine the purchase price under
each restricted stock purchase agreement. The purchase price of stock subject to
a restricted stock purchase agreement must be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board, according to a deferred
payment or other arrangement with the person to whom the Common Stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board in its discretion. Eligible participants may be awarded stock pursuant to
a stock bonus agreement in consideration of past services actually rendered to
the Company or for its benefit.
Repurchase. Shares of Common Stock sold or awarded under the Incentive Plan
may, but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule determined by the Board. In the event a
person ceases to be an employee of or ceases to serve as a director of or
consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the Common Stock
held by that person that have not vested as of the date of termination under the
terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees or directors of,
or consultants to, the Company or its affiliates. The Incentive Plan authorizes
three types of stock appreciation rights.
Tandem Stock Appreciation Rights. Tandem stock appreciation rights are tied
to an underlying option and require the holder to elect whether to exercise the
underlying option or to surrender the option for an appreciation distribution
equal to the market price of the vested shares purchasable under the surrendered
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of tandem stock appreciation rights must be
made in cash.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation rights
are tied to an underlying option and are exercised automatically at the same
time the underlying option is exercised. The holder receives an appreciation
distribution equal to the market price of the vested shares purchased under the
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of concurrent stock appreciation rights must
be made in cash.
Independent Stock Appreciation Rights. Independent stock appreciation
rights are granted independently of any option and entitle the holder to receive
upon exercise an appreciation distribution equal to the market price of a number
of shares equal to the number of share equivalents to which the holder is vested
under the independent stock appreciation right less than fair market value of
such number of shares of stock on the date of grant of the independent stock
appreciation rights. Appreciation distributions payable upon
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exercise of independent stock appreciation rights may, at the Board's
discretion, be made in cash, in shares of the Common Stock or a combination
thereof.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Incentive Plan or
subject to any Stock Award granted under the Incentive Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Incentive Plan
and Stock Awards outstanding thereunder will be appropriately adjusted as to the
class and the maximum number of shares subject to such plan the maximum number
of shares which may be granted to an employee during a calendar year and the
class, number of shares and price per share of stock subject to such outstanding
Stock Awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Incentive Plan provides that, in the event of a dissolution or
liquidation of the Company, specified type of merger or other corporate
reorganization (a "Change of Control"), then for Stock Awards held by any person
then performing services as an employee, director or consultant, the time during
which such Stock Awards may be exercised will be accelerated and such Stock
Awards terminated if not exercised prior to such event. The acceleration of a
Stock Award in the event of an acquisition or similar corporate event may be
viewed as an anti-takeover provision, which may have the effect of discouraging
a proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Incentive Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Incentive Plan will terminate in March 2006.
The Board may also amend the Incentive Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve months before or after its adoption by
the Board if the amendment would: (a) modify the requirements as to eligibility
for participation (to the extent such modification requires stockholder approval
in order for the Plan to satisfy Section 422 of the Code); (b) increase the
number of shares reserved for issuance upon exercise of options; or (c) change
any other provision of the Plan in any other 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. The Board may submit any
other amendment to the Incentive Plan for stockholder approval, including, but
not limited to, amendments intended to satisfy the requirements of Section
162(m) of the Code regarding the exclusion of performance-based compensation
from the limitation on the deductibility of compensation paid to certain
employees.
RESTRICTIONS ON TRANSFER
Under the Incentive Plan, an incentive stock option can not be transferred
by the optionee otherwise than by will or by the laws of descent and
distribution and, during the lifetime of an optionee, such an option may be
exercised only by the optionee. A nonstatutory stock option or an independent
stock appreciation right may not be transferred except by will, by the laws of
descent and distribution or pursuant to a domestic relations order or as may
otherwise be provided in the Stock Award agreement. In any case, an optionee may
designate in writing a third party who may exercise the option in the event of
the optionee's death. Rights under a stock bonus or restricted stock purchase
agreement are transferable only by will, by the laws of descent and distribution
or pursuant to a domestic relations order or to the extent transfer is expressly
authorized by the terms of the applicable stock bonus or restricted stock
purchase agreement. A tandem stock appreciation right or concurrent stock
appreciation right may be transferred only by the method(s) applicable to the
underlying option. In addition, any shares subject to repurchase by the Company
under an early exercise stock purchase agreement may be subject to restrictions
on transfer which the Board deems appropriate.
8
<PAGE> 11
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the Incentive Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be either long-term or mid-term 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 the length of time the stock was held. Capital gains
currently are generally subject to lower tax rates than ordinary income. The
maximum long-term capital gains rate for federal income tax purposes is
currently 20% (28% for mid-term capital gain) while the maximum ordinary income
rate is effectively 39.6% at the present time. Slightly different rules may
apply to optionees who acquire stock subject to certain repurchase options or
who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Incentive Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a 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 recognized as ordinary
income upon exercise of the option. Such gain or loss will be long-term,
mid-term or short-term depending on the length of time the stock was held.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the Incentive Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award,
the recipient normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the
9
<PAGE> 12
recipient. Upon disposition of the stock, the recipient will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock, if any, plus any amount recognized as ordinary
income upon acquisition (or vesting) of the stock. Such capital gain or loss
will be long-term, mid-term or short-term depending on the length of time the
stock was held from the date ordinary income was measured. Slightly different
rules may apply to persons who acquire stock subject to forfeiture under Section
16(b) of the Exchange Act.
Stock Appreciation Rights. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must be
treated as compensation taxable as ordinary income to the recipient in the year
of such exercise. Generally, with respect to employees, the Company is required
to withhold from the payment made on exercise of the stock appreciation right or
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a reporting obligation, the Company will be
entitled to a business expense deduction equal to the taxable ordinary income
recognized by the recipient.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m) which denies a deduction to any publicly held corporation for
compensation paid to a covered employee in a taxable year to the extent that
non-performance-based compensation paid to such a covered employee exceeds $1
million. It is possible that compensation attributable to Stock Awards, 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.
Treasury regulations issued under Section 162(m) of the Code, provide that
compensation attributable to stock options and stock appreciation rights will
qualify as performance-based compensation, if: (i) the stock award plan contains
a per-employee limitation on the number of shares for which stock options and
stock appreciation rights may be granted during a specified period; (ii) the
per-employee limitation is approved by the stockholders; (iii) the award is
granted by a compensation committee comprised solely of "outside directors"; and
(iv) the exercise price of the award is no less than the fair market value of
the stock on the date of grant. Restricted stock and stock bonuses qualify as
performance-based compensation under these Treasury regulations only if: (i) the
award is granted by a compensation committee comprised solely of "outside
directors"; (ii) the award is granted (or exercisable) only upon the achievement
of an objective performance goal established in writing by the compensation
committee while the outcome is substantially uncertain; (iii) the compensation
committee certifies in writing prior to the granting (or exercisability) of the
award that the performance goal has been satisfied; and (iv) prior to the
granting (or exercisability) of the award, stockholders have approved the
material terms of the award (including the class of employees eligible for such
award, the business criteria on which the performance goal is based, and the
maximum amount (or formula used to calculate the amount) payable upon attainment
of the performance goal).
The following table presents certain information with respect to an option
granted under the Incentive Plan as of February 4, 1998, subject to stockholder
approval of this Proposal 2, to the Company's Chief Executive Officer.
NEW PLAN BENEFITS
1996 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
NAME AND POSITION OPTIONS GRANTED(1)
----------------- ---------------------------
<S> <C>
J. Leighton Read, M.D....................................... 100,000
Chairman and Chief Executive Officer
</TABLE>
(1) Under certain circumstances following a Change of Control the vesting of a
portion of this option grant, as well as a portion of the additional 150,000
share option granted to Dr. Read in February 1998, may accelerate and become
immediately exercisable.
10
<PAGE> 13
PROPOSAL 3
APPROVAL OF AMENDMENT TO 1996 EMPLOYEE STOCK PURCHASE PLAN
In March 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the 1996 Employee Stock Purchase Plan (the "Purchase
Plan") authorizing the issuance of 250,000 shares of the Company's Common Stock.
At April 1, 1998, an aggregate of 46,388 shares had been issued under the
Purchase Plan and 203,612 shares remained for the grant of future rights under
the Purchase Plan. In March 1998, the Board of Directors of the Company adopted
an amendment to the Purchase Plan, subject to stockholder approval, to increase
the number of shares authorized for issuance under the Purchase Plan by 100,000
shares to 350,000 shares.
During the year ended December 31, 1997, shares were purchased in the
amounts and at the weighted average price per share under the Purchase Plan as
follows: Dr. Read 5,159 shares ($8.06); Dr. Patzer 1,819 shares ($8.04); Dr.
Bryant 1,578 shares ($6.80); Dr. Jegede 1,467 shares ($8.00) and Dr. Kallmeyer
3,617 shares ($8.02); all current executive officers (excluding Dr. Kallmeyer)
as a group 10,023 shares ($7.85), and all employees (excluding executive
officers) as a group 32,748 shares ($8.21). Stockholders are requested in this
Proposal 3 to approve the Purchase Plan, as amended.
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 Purchase Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Purchase Plan, as amended, are outlined
below.
PURPOSE
The purpose of the Purchase Plan is to provide a means by which key
employees of the Company (and any parent or subsidiary of the Company designated
by the Board of Directors to participate in the Purchase Plan) may be given an
opportunity to purchase Common Stock of the Company through payroll deductions,
to assist the Company in retaining the services of its employees, to secure and
retain the services of new employees, and to provide incentives for such persons
to exert maximum efforts for the success of the Company. All of the Company's
employees are eligible to participate in the Purchase Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors, which has the
final power to construe and interpret the Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the Purchase
Plan, to determine when and how rights to purchase Common Stock of the Company
will be granted, the provisions of each offering of such rights (which need not
be identical), and whether any parent or subsidiary of the Company shall be
eligible to participate in such plan. The Board has the power, which it has not
exercised, to delegate administration of such plan to a committee of not less
than three Board members. The Board may abolish any such committee at any time
and revest in the Board the administration of the Purchase Plan.
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. Generally, each such offering is of
six months' duration.
11
<PAGE> 14
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated from time to time by the Board) on the first day of an
offering period is eligible to participate in that offering under the Purchase
Plan, provided such employee has been in the continuous employ of the Company
for at least 30 days preceding the first day of the offering period. Officers of
the Company who are "highly compensated" as defined in the Code are not eligible
to be granted rights under the Purchase Plan.
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of any
parent or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding rights and options), nor will any employee be
granted rights that would permit him to buy more than $25,000 worth of stock
(determined at the fair market value of the shares at the time such rights are
granted) under all employee stock purchase plans of the Company in any calendar
year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering
to the Company, prior to the date selected by the Board as the offering date for
the offering, an agreement authorizing payroll deductions of up to 15% of such
employees' base total compensation during the purchase period.
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering under
the Purchase Plan is the lower of (a) 85% of the fair market value of a share of
Common Stock on the date of commencement of the offering, or (b) 85% of the fair
market value of a share of Common Stock on the last day of the purchase period.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. At any time during the purchase period, a participant may
reduce or terminate his or her payroll deductions. A participant may not
increase or begin such payroll deductions after the beginning of any purchase
period, except, if the Board provides, in the case of an employee who first
becomes eligible to participate as of a date specified during the purchase
period. All payroll deductions made for a participant are credited to his or her
account under the Purchase Plan and deposited with the general funds of the
Company. A participant may not make any additional payments into such account.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under such plan. In connection with offerings
made under the Purchase Plan, the Board specifies a maximum number of shares any
employee may be granted the right to purchase and the maximum aggregate number
of shares which may be purchased pursuant to such offering by all participants.
If the aggregate number of shares to be purchased upon exercise of rights
granted in the offering would exceed the maximum aggregate number, the Board
would make a pro rata allocation of shares available in a uniform and equitable
manner. Unless the employee's participation is discontinued, his right to
purchase shares is exercised automatically at the end of the purchase period at
the applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions
12
<PAGE> 15
and by delivering to the Company a notice of withdrawal from the Purchase Plan.
Such withdrawal may be elected at any time prior to the end of the applicable
offering period.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
stock on the employee's behalf during such offering, and such employee's
interest in the offering will be automatically terminated. The employee is not
entitled to again participate in such offering. An employee's withdrawal from an
offering will not have any effect upon such employee's eligibility to
participate in subsequent offerings under the Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan at any time. Unless
terminated earlier, such plan will terminate in March 2006.
The Board may amend the Purchase Plan at any time. Any amendment of the
Purchase Plan must be approved by the stockholders within 12 months of its
adoption by the Board if the amendment would (a) increase the number of shares
of Common Stock reserved for issuance under the Purchase Plan, (b) modify the
requirements relating to eligibility for participation in the Purchase Plan, or
(c) modify any other provision of the Purchase Plan in a manner that would
materially increase the benefits accruing to participants under the Purchase
Plan, if such approval is required in order to comply with the requirements of
Rule 16b-3 under the Exchange Act.
Rights granted before amendment or termination of the Purchase Plan will
not be altered or impaired by any amendment or termination of such plan without
consent of the person to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger of
the Company, the surviving corporation either will assume the rights under the
Purchase Plan or substitute similar rights, or the exercise date of any ongoing
offering will be accelerated such that the outstanding rights may be exercised
immediately prior to, or concurrent with, any such event.
STOCK SUBJECT TO PURCHASE PLAN
If rights granted under the Purchase Plan expire, lapse or otherwise
terminate without being exercised, the Common Stock not purchased under such
rights again becomes available for issuance under such plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. Other than this, no income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchase shares.
13
<PAGE> 16
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (a) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (b) the excess
of the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the offering period)
will be treated as ordinary income. Any further gain or any loss will be taxed
as a mid-term or long-term capital gain or loss. Such capital gains currently
are generally subject to lower tax rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition. The balance of any gain will be treated
as capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be short-term, mid-term or
long-term depending on how long the stock has been held.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is entitled
to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation).
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998, 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 1991.
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 By-laws 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.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
14
<PAGE> 17
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 April 1, 1998 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table employed by the Company in that capacity on April 1, 1998;
(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 PERCENTAGE
BENEFICIAL OWNER SHARES OF TOTAL
---------------- ---------- -----------
<S> <C> <C>
Biotech Target, S.A. ................................... 2,655,286 17.00 %
Bellevue Asset Management AG
Grafenauweg 4
CH-6301 Zug
Switzerland
FMR Corp.(2)............................................ 2,098,100 13.43 %
82 Devonshire Street
Boston, Massachusetts 02109
J. Leighton Read, M.D.(3)............................... 416,659 2.66 %
Martin L. Bryant, M.D., Ph.D.(4)........................ 49,028 *
Victor A. Jegede, Ph.D.(5).............................. 42,417 *
Paul M. Mendelman, M.D.(6).............................. 24,500 *
Eric J. Patzer, Ph.D.(7)................................ 51,319 *
Reid W. Dennis(8)....................................... 40,039 *
Paul H. Klingenstein(9)................................. 17,719 *
Bernard Roizman, Sc.D.(10).............................. 179,790 1.15 %
Jane E. Shaw, Ph.D.(11)................................. 30,181 *
L. James Strand, M.D.(12)............................... 12,070 *
All directors and executive officers as a group (10
persons)(13).......................................... 863,722 5.49 %
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of the Company's Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") and generally includes
voting or investment power with respect to securities. Beneficial ownership
also includes shares of stock subject to options and warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
the date of this table. Percentage of beneficial ownership is based on
15,628,480 shares of Common Stock outstanding as of April 1, 1998.
(2) Based on a Schedule 13G filed by FMR Corp. ("FMR") reporting such
beneficial ownership as of December 31, 1997. Consists of 2,098,100 shares
over which FMR has sole dispositive person and 27,500 shares over which FMR
has sole voting authority pursuant to discretionary investment management
agreements. The shares are held in various fiduciary accounts for which FMR
acts as an investment manager.
(3) Includes an aggregate of 110,000 shares acquired pursuant to an early
exercise of stock options, of which an aggregate of 25,100 will be subject
to repurchase by the Company 60 days from April 1, 1998. Also includes an
aggregate of 32,000 shares held by The Travis Read 1993 Trust and The Haley
Read 1993 Trust (the "Trusts") of which Robert Fitzwilson is the trustee.
Also includes 16,500 shares Dr. Read has the right to acquire pursuant to
options exercisable within 60 days of April 1, 1998. Dr. Read disclaims
beneficial ownership of the shares held by the Trusts.
(4) Includes 26,000 shares acquired pursuant to an early exercise of stock
options, of which 13,000 will be subject to repurchase by the Company 60
days from April 1, 1998. Also includes 21,450 shares Dr. Bryant has the
right to acquire pursuant to options exercisable within 60 days of April 1,
1998.
15
<PAGE> 18
(5) Includes 26,000 shares acquired pursuant to an early exercise of stock
options, of which 13,000 will be subject to repurchase by the Company 60
days from April 1, 1998. Also includes 14,950 shares Dr. Jegede has the
right to acquire pursuant to options exercisable within 60 days of April 1,
1998.
(6) Represents 24,500 shares Dr. Mendelman has the right to acquire pursuant to
options exercisable within 60 days of April 1, 1998.
(7) Includes 40,000 shares acquired pursuant to an early exercise of stock
options, 20,000 of which will be subject to repurchase by the Company 60
days from April 1, 1998. Also includes 4,500 shares Dr. Patzer has the
right to acquire pursuant to options exercisable within 60 days of April 1,
1998.
(8) Includes 7,924 shares held by Institutional Venture Management V, of which
Mr. Dennis is a General Partner. Mr. Dennis disclaims beneficial ownership
of the shares held by Institutional Venture Management V, except to the
extent of his pecuniary interest therein. Also includes 990 shares Mr.
Dennis has the right to acquire pursuant to options exercisable within 60
days of April 1, 1998.
(9) Includes 990 shares Mr. Klingenstein has the right to acquire pursuant to
options exercisable within 60 days of April 1, 1998.
(10) Includes 5,790 shares Dr. Roizman has the right to acquire pursuant to
options exercisable within 60 days of April 1, 1998.
(11) Includes 2,000 shares held by Peter F. Carpenter and Jane Elizabeth
Carpenter Trustees of the Carpenter 1983 Family Trust and 1,600 shares held
by Peter Frederick and Jane Elizabeth Carpenter Trustees of the Carpenter
1985 Irrevocable Trust (the "Trusts"). Dr. Shaw disclaims beneficial
ownership of the shares held by the Trusts. Also includes 20,581 shares Dr.
Shaw has the right to acquire pursuant to options exercisable within 60
days of April 1, 1998.
(12) Includes 5,990 shares Dr. Strand has the right to acquire pursuant to
options exercisable within 60 days of April 1, 1998.
(13) Includes 7,924 shares held by an entity affiliated with a director of the
Company as described in footnote 8 above and 116,241 shares subject to
options exercisable within 60 days of April 1, 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 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 year ended December 31, 1997 all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with; except that the initial report of
ownership was filed late by Biotech Target, S.A., a Form 4 report, covering two
transactions, was filed late by Biotech Target, S.A. and two Form 5 reports,
covering automatic option grants, were filed late by Mr. Dennis and Dr. Strand.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The members of the Board of Directors do not currently receive any cash
compensation for their services as members of the Board of Directors although
they are eligible for reimbursement for their expenses incurred in connection
with attendance at Board and committee meetings in accordance with Company
policy.
Each non-employee director of the Company also receives stock option 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 200,000. The
16
<PAGE> 19
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. Pursuant to
the terms of the Directors' Plan, each director of the Company not otherwise
employed by the Company and who is first elected as a non-employee director
automatically will be granted an option to purchase 15,000 shares of Common
Stock upon such election. In addition, on December 31, of each year, each
director who has served as a non-employee director since December 31 of the
immediately preceding year 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 3,000 shares of Common Stock
of the Company. If the non-employee director has not served a director since
December 31 of the immediately preceding year 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 3,000
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. 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 options 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
changes in the beneficial ownership of the Company's securities representing at
least a 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.
During the last fiscal year, the Company granted options under the
Directors' Plan covering 3,000 shares to each of Mr. Dennis, Mr. Klingenstein,
Dr. Roizman, Dr. Strand, and Dr. Shaw, at an exercise price per share of
$27.125, the fair market value of such Common Stock on the date of grant. As of
April 1, 1998, no options had been exercised under the Directors' Plan.
17
<PAGE> 20
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1997,
December 31, 1996, and December 31, 1995, compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and its five other most highly
compensated executive officers at December 31, 1997 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS (#) ($)(1)
--------------------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
J. Leighton Read, M.D.,............ 1997 260,000 80,000 31,726(2) 25,000 574
Chairman and Chief Executive 1996 230,000 -- 78,420(3) 50,000 1,427
Officer 1995 210,000 -- -- 100,000 743
Paul M. Mendelman, M.D.(16),....... 1997 200,000 40,000 23,251(4) 15,000 2,016
Vice President, Clinical Research 1996 115,032 25,000 53,022(5) 40,000 742
1995 -- -- -- -- --
Eric J. Patzer, Ph.D.(17),......... 1997 194,327 65,000(17) 45,522(6) 15,000 1,179
Vice President, Development 1996 169,583 25,000(17) 21,425(7) 40,000 1,021
1995 -- -- -- -- --
Martin L. Bryant, M.D., Ph.D.,..... 1997 176,800 20,000 43,567(8) 7,500 1,057
Vice President, Research 1996 169,833 -- 60,584(9) 26,000 1,009
1995 153,333 -- 120,411(10) 24,000 940
Victor A. Jegede, Ph.D.,........... 1997 176,800 25,000 48,672(11) 7,500 950
Vice President, Technical Affairs 1996 169,583 -- 60,585(12) 26,000 1,670
1995 156,667 -- 92,639(13) 24,000 1,555
Vera Kallmeyer, M.D., Ph.D.,....... 1997 179,633 -- 19,762(14) 15,000 401
Chief Financial Officer and Vice 1996 168,750 -- 21,360(15) 16,000 383
President Corporate Development 1995 148,167 -- -- 44,000 304
</TABLE>
- ---------------
(1) Includes group term life insurance paid by the Company.
(2) Includes $20,739 of reimbursement for income taxes and $10,987 in income tax
gross-up in connection with the early exercise of stock options in 1996.
(3) Includes reimbursement by the Company of $62,500 in connection with the
early exercise of stock options.
(4) Includes reimbursement of expenses incurred in connection with relocating to
California as follows: $1,734 in direct reimbursement and $1,517 in income
tax gross-up; and loan forgiveness of $20,000 in connection with a
promissory note for the purchase of a principal residence.
(5) Includes reimbursement of expenses incurred in connection with relocating to
California as follows: $28,278 in direct reimbursement and $24,744 in income
tax gross-up.
(6) Includes $10,732 of reimbursement for income taxes and $11,758 in income
tax gross-up in connection with the early exercise of stock options in
1996, and loan forgiveness of $20,000 in connection with a promissory note
for the purchase of a principal residence.
(7) Includes loan forgiveness of $21,114 in connection with the early exercise
of stock options.
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<PAGE> 21
(8) Includes $14,748 of reimbursement for income taxes and $11,569 in income
tax gross-up in connection with the early exercise of stock options in
1996, loan forgiveness of $13,100 in connection with a promissory note for
the purchase of a principal residence, and $4,000 in monthly housing
assistance
(9) Includes loan forgiveness of $34,207 in connection with the early exercise
of stock options, loan forgiveness of $13,875 in connection with a
promissory note for the purchase of a principal residence, and $12,000 in
monthly housing assistance.
(10) Includes reimbursement of expenses incurred in connection with relocating
to California as follows: $45,308 in direct reimbursement, $16,000 in
relocation assistance, $8,000 in monthly housing assistance, and $25,953 in
income tax gross-up; and $25,000 as reimbursement for a bonus forfeited by
Dr. Bryant upon leaving his former employer.
(11) Includes $16,401 of reimbursement for income taxes and $15,171 in income
tax gross-up in connection with the early exercise of stock options in
1996, loan forgiveness of $13,100 in connection with a promissory note for
the purchase of a principal residence, and $4,000 in monthly housing
assistance
(12) Includes loan forgiveness of $34,207 in connection with the early exercise
of stock options, loan forgiveness of $13,875 in connection with a
promissory note for the purchase of a principal residence, and $12,000 in
monthly housing assistance.
(13) Includes reimbursement of expenses incurred in connection with relocating
to California as follows: $47,042 in direct reimbursement, $16,000 in
relocation assistance, $6,500 in monthly housing assistance, and $23,097 in
income tax gross-up.
(14) Includes $10,045 of reimbursement for income taxes and $9,717 in income tax
gross-up in connection with the early exercise of stock options in 1996.
(15) Includes loan forgiveness of $21,050 in connection with the early exercise
of stock options.
(16) Dr. Mendelman joined the Company in April 1996.
(17) Dr. Patzer joined the Company in February 1996 and received a sign on bonus
of $50,000 which was paid in equal installments in fiscal 1996 and 1997.
STOCK OPTION GRANTS AND EXERCISES
The following tables show for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS (4) VALUE AT ASSUMED
---------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM($)(3)
OPTION TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH)(2) DATE 5%($) 10%($)
---- ---------- --------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
J. Leighton Read, M.D...... 25,000 5.66 9.50 2/12/07 149,362 378,514
Paul M. Mendelman, M.D..... 15,000 3.40 9.50 2/12/07 89,617 227,108
Eric J. Patzer, Ph.D....... 15,000 3.40 9.50 2/12/07 89,617 227,108
Martin L. Bryant, M.D.,
Ph.D..................... 7,500 1.70 9.50 2/12/07 44,809 113,554
Victor A. Jegede, Ph.D..... 7,500 1.70 9.50 2/12/07 44,809 113,554
Vera Kallmeyer, M.D.,
Ph.D..................... 15,000 3.40 9.50 2/12/07 89,617 227,108
</TABLE>
- ---------------
(1) Based on an aggregate of 441,780 options granted to employees and directors
of the Company in fiscal 1997, including the Named Executive Officers set
forth in the "Summary Compensation Table" above and directors set forth in
"Director Compensation" above.
(2) The exercise price is equal to 100% of the fair market value of the Common
Stock on the date of grant, as determined by the Board of Directors.
19
<PAGE> 22
(3) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of five percent
and ten percent is assumed pursuant to rules promulgated by the Securities
and Exchange Commission and does not represent the Company's prediction of
its stock price performance. The potential realizable value at 5% and 10%
appreciation is calculated by assuming that the exercise price appreciates
at the indicated rate for the entire term of the option and that the option
is exercised at the exercise price and sold on the last day of its term at
the appreciated price.
(4) Each of the options listed in the table was granted under the 1996 Equity
Incentive Plan and vests ratably over fifty months.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON REALIZED OPTIONS AT DECEMBER 31, 1997 AT DECEMBER 31, 1997(2)
NAME EXERCISE(#) ($)(1) (#)EXERCISABLE/UNEXERCISABLE ($)EXERCISABLE/UNEXERCISABLE
---- --------------- -------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
J. Leighton Read, M.D........ 0 0 5,000/20,000 88,125/352,500
Paul M. Mendelman, M.D....... 0 0 19,000/36,000 466,875/832,500
Eric J. Patzer, Ph.D......... 0 0 3,000/12,000 52,875/211,500
Martin L. Bryant, M.D.,
Ph.D....................... 0 0 18,300/13,200 473,738/297,450
Victor A. Jegede, Ph.D....... 6,500 173,063 11,800/13,200 300,675/297,450
Vera Kallmeyer, M.D.,
Ph.D....................... 0 0 53,913/25,087 1,380,934/552,411
</TABLE>
- ---------------
(1) Value realized is based on the closing price of the Company's Common Stock
($27.125) on December 31, 1997 as reported on the Nasdaq National Market,
less the exercise price, without taking into account any taxes that may be
payable in connection with the transaction, multiplied by the number of
shares underlying the option.
(2) Based on the closing price of the Company's Common Stock ($27.125) on
December 31, 1997 as reported on the Nasdaq National Market, less the
exercise price, without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares
underlying the option.
EMPLOYMENT AGREEMENTS
Vera Kallmeyer, M.D., Ph.D. resigned as Chief Financial Officer and Vice
President Corporate Development of the Company effective January 31, 1998, but
agreed to continue to provide consulting services to the Company for a period of
up to six months thereafter. The Company will continue to pay Dr. Kallmeyer's
salary and benefits and continue vesting on Dr. Kallmeyer's options during the
consulting period.
20
<PAGE> 23
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 composed
of Mr. Klingenstein, Dr. Shaw and Dr. Strand, none 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 goals of the compensation program are to align compensation with
business objectives and performance and to enable the Company to attract, retain
and reward executive officers and other key employees who contribute to the
long-term success of the Company and to motivate them to enhance long-term
stockholder value. Key elements of this philosophy are:
O The Company pays competitively with other biotechnology companies with
which the Company competes for talent. To ensure that pay is competitive,
the Company compares its pay practices with these companies and sets it
pay parameters based on this review.
O 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.
Salary. The Committee annually reviews each executive officer's salary.
When reviewing salaries, the Committee considers individual and corporate
performance, levels of responsibility, prior experience, breadth of knowledge
and competitive pay practices.
Cash Bonus. The Company established a bonus plan in January 1998 and the
Committee will annually review each executive officer's bonus, the aggregate
bonus pool for the Company and the bonus allocations by employee position.
Payment of cash bonuses is tied to the accomplishment of specific corporate
milestones set at the beginning of the year and to each individual officer's
year-end performance review.
Equity Incentives. The Company's equity incentive program consists of the
Incentive Plan and the Purchase Plan. The option program utilizes 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. Grants are made at 100%
of fair market value on the date of grant. Executives 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 in the
biotechnology industry and the Company's philosophy of significantly linking
executive compensation with stockholder interests. The Committee believes this
approach creates an appropriate focus on longer term objectives and promotes
executive retention. The Board granted options to purchase an aggregate of
85,000 shares of the Company's Common Stock to the Named Executive Officers
during 1997.
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
- ---------------
(1) Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, (the
"Securities Act") or the Exchange Act that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report
and Performance Graph on page 23 shall not be incorporated by reference into
any such filings. The Committee's objective is to set executive compensation
at the market average when compared to leading companies in the
biotechnology industry. The primary components of executive compensation are
base salary, annual incentives and long-term equity incentives.
21
<PAGE> 24
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 relevant purchase date or commencement date of the relevant
offering period. There were two offerings during fiscal 1997.
CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Read's salary during 1997 as President and Chief Executive Officer was
$260,000. Following the Committee's review of the Company's performance against
corporate milestones for 1997 and Dr. Read's performance during 1997, the
Committee awarded Dr. Read a 1997 merit bonus of $80,000. In addition, the
Committee has set Dr. Read's annual salary for 1998 at $275,000. In determining
Dr. Read's 1997 bonus and 1998 salary, the Committee took into account (i) Dr.
Read's recent performance as CEO of the Company, (ii) the scope of Dr. Read's
responsibilities, and (iii) the Board's confidence in Dr. Read to lead the
Company's continued development. Considering these factors, in February 1998 Dr.
Read was granted an option to purchase 150,000 shares of Common Stock as an
incentive for future performance. In addition, the Compensation Committee
granted Dr. Read an additional option for 100,000 shares of Common Stock
conditioned upon approval by the Stockholders of Proposal 2 which includes an
amendment to the Incentive Plan to raise the limit or the number of option
shares that can be granted to any one person in a fiscal year to 300,000 shares.
The Committee determined that the aggregate amount of 250,000 shares was
consistent with competitive practices based on information provided by outside
consultants regarding CEO stock ownership in comparable companies.
FEDERAL TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of no more than $1 million of
compensation paid to certain Named Executive Officers in a taxable year.
Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code.
The statute containing this law and the applicable Treasury regulations
offer a number of transitional exceptions to this deduction limit for
pre-existing compensation plans, arrangements and binding contracts. As a
result, the Compensation Committee believes that at the present time it is quite
unlikely that the compensation paid to any Named Executive Officer in a taxable
year which is subject to the deduction limit will exceed $1 million. Therefore,
the Compensation Committee has not yet established a policy for determining
which forms of incentive compensation awarded to its Named Executive Officers
shall be designed to qualify as "performance-based compensation." The
Compensation Committee intends to continue to evaluate the effects of the
statute and any applicable Treasury regulations and to comply with Code Section
162(m) in the future to the extent consistent with the best interests of the
Company.
CONCLUSION
Through the plans described above, a significant portion of the Company's
compensation program and Dr. Read's compensation are contingent on Company
performance, and realization of benefits is closely linked to increases in
long-term stockholder value. The Company remains committed to this philosophy of
pay for performance, recognizing that the competitive market for talented
executives and the volatility of the Company's business may result in highly
variable compensation for a particular time period.
COMPENSATION COMMITTEE
Paul H. Klingenstein
Jane E. Shaw, Ph.D.
L. James Strand, M.D.
22
<PAGE> 25
PERFORMANCE MEASUREMENT COMPARISON(2)
The following graph shows the total stockholder return of an investment of $100
in cash on November 5, 1996 for (i) the Company's Common Stock, (ii) the Nasdaq
Stock Market -- U.S. Index (the "Nasdaq Stock Market U.S.") and (iii) the Nasdaq
Pharmaceutical Index (the "Nasdaq Pharmaceutical"). All values assume
reinvestment of the full amount of all dividends and are calculated as of
December 31 of each year:
COMPARISON OF 14 MONTH CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) 11/05/96 12/31/96 12/31/97
<S> <C> <C> <C>
AVIRON 100 94 339
NASDAQ Stock Market (U.S.) 100 105 129
NASDAQ Pharmaceutical 100 105 108
</TABLE>
- ---------------
(2) This Section is not "soliciting material," is not deemed "filed" with the
Securities and Exchange Commission and is not to be incorporated by
reference in any filing of the Company under the Securities Act or the
Exchange Act whether made before or after the date hereof and irrespective
of any general incorporation language in any such filing.
23
<PAGE> 26
CERTAIN TRANSACTIONS
At April 1, 1998, the Company had loans outstanding in the principal amount
of $32,500 to Dr. Jegede, $32,500 to Dr. Bryant, and $50,000 to Dr. Patzer, all
of whom are executive officers of the Company. Each of such loans was entered
into for the purpose of allowing the early exercise of stock options by such
officers, subject to a right of repurchase by the Company. The annual interest
rate on such loans is 5.73%. In addition, at April 1, 1998, the Company had
loans outstanding in the principal amount of $30,000 to each of Dr. Jegede and
Dr. Bryant and $80,000 to each of Dr. Mendelman and Dr. Patzer in connection
with their relocation to California. Each of such loans was entered into for the
purpose of assisting such officers in the purchase of their principal residence
and is evidenced by a secured promissory note. The annual interest rate on such
loans is 7.75%. Interest on these loans will be forgiven annually at the rate of
20% per year as long as Dr. Jegede, Dr. Bryant, Dr. Mendelman and Dr. Patzer
remain with the Company.
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
By-laws.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
LOGO
Alan C. Mendelson
Secretary
April 30, 1998
REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997 IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST
TO: CHIEF FINANCIAL OFFICER, AVIRON, 297 NORTH BERNARDO AVENUE, MOUNTAIN VIEW,
CA 94043.
24
<PAGE> 27
AVIRON
1996 EQUITY INCENTIVE PLAN
ADOPTED MARCH 6, 1996
APPROVED BY STOCKHOLDERS JULY 22, 1996
AMENDED MARCH 12, 1998
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which
selected Employees 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. The Plan is successor
to, and restatement of, the Company's 1992 Stock Option Plan.
(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees of or Consultants, 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.
(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.
<PAGE> 28
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means Aviron, 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 shareholders 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.
<PAGE> 29
(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;
(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) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "NON-EMPLOYEE DIRECTOR" means a Director of the Company 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.
(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 Treasury regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or
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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 Aviron 1996 Equity Incentive Plan.
(x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(y) "STOCK APPRECIATION RIGHT" means any of the various types of
rights which may be granted under Section 8 of the Plan.
(z) "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.
(aa) "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.
(ab) "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
4.
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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 composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee shall be Non-Employee Directors and may also be,
in the discretion of the Board, 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 (and
references in this Plan to the Board shall thereafter be to the Committee),
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 in this Section 3 to the contrary, at any
time 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 avoid the
application of 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 three million two hundred fifty
thousand (3,250,000) 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.
<PAGE> 32
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 or Consultants.
(b) A Director shall in no event be eligible for the benefits of
the Plan unless at the time of grant the Director is also an Employee or
Consultant.
(c) 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.
(d) 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 three hundred thousand
(300,000) shares of the Company's common stock in any calendar year.
6. OPTION PROVISIONS.
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; 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
6.
<PAGE> 33
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 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. Unless otherwise expressly
provided in the Option Agreement, a Nonstatutory Stock Option shall not be
transferable except by will, by the laws of descent and distribution or
pursuant to a domestic relations order satisfying the requirements of Rule
16b-3 and any administrative interpretations or pronouncements thereunder (a
"DRO"), 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 DRO.
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 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
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<PAGE> 34
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 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
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<PAGE> 35
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(c)), 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 shall be subject to the availability of
sufficient shares under subsection 4(a) 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:
9.
<PAGE> 36
(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. No rights under a stock bonus or restricted
stock purchase agreement shall be transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order
satisfying the requirements of Rule 16b-3 and any administrative
interpretations or pronouncements thereunder, so long as stock awarded under
such 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 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 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 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. If a Stock Appreciation Right is granted to an
individual who is at the time subject to Section 16(b) of the Exchange Act (a
"Section 16(b) Insider"), the Stock Award Agreement of grant shall incorporate
all the terms and conditions at the time necessary to assure that the
subsequent exercise of such right shall qualify for the safe-harbor exemption
from short-swing profit liability provided by Rule 16b-3 promulgated under the
Exchange Act (or any successor rule or regulation). Except as provided in
subsection 5(d), no limitation shall exist
10.
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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 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.
11.
<PAGE> 38
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(c)), 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(d) 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(d) 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 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
12.
<PAGE> 39
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, a 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 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
13.
<PAGE> 40
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
14.
<PAGE> 41
for 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 within twelve (12) months before or after the
adoption of the amendment, where the amendment will modify the Plan in any way
that would require stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3 (e.g., increases in the number of shares available for awards or
changes to eligibility for Awards).
(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.
15.
<PAGE> 42
(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.
The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company, which approval shall
be within twelve (12) months before or after the date the Plan is adopted by
the Board.
16.
<PAGE> 43
AVIRON
1996 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED MARCH 6, 1996
APPROVED BY STOCKHOLDERS JULY 22, 1996
AMENDED MARCH 12, 1998
1. PURPOSE.
(a) The purpose of the 1996 Employee Stock Purchase Plan (the
"Plan") is to provide a means by which employees of Aviron, a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may 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 (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of its employees, to secure and retain the services of new employees,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to
a Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of
the Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
1.
<PAGE> 44
(ii) To designate from time to time which Affiliates of
the Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights
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, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) 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 and its Affiliates and to carry out the intent that
the Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
(c) 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 12 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
rights granted under the Plan shall not exceed in the aggregate three hundred
fifty thousand (350,000) shares of the Company's common stock (the "Common
Stock"). If any right granted under the Plan shall for any reason terminate
without having been exercised, the Common Stock not purchased under such right
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. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form
and shall contain such terms and conditions as the Board or the Committee shall
deem appropriate, which shall comply with the requirements of Section 423(b)(5)
of the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be
2.
<PAGE> 45
incorporated by reference into the Plan and treated as part of the Plan. The
provisions of separate Offerings need not be identical, but each Offering shall
include (through incorporation of the provisions of this Plan by reference in
the document comprising the Offering or otherwise) the period during which the
Offering shall be effective, which period shall not exceed twenty-seven (27)
months beginning with the Offering Date, and the substance of the provisions
contained in paragraphs 5 through 8, inclusive.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as
the Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan,
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that, each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall
have the same characteristics as any rights originally granted under that
Offering, as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights
under the Plan if, immediately after any such rights are granted, such employee
owns stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 5(c), the rules of Section
3.
<PAGE> 46
424(d) of the Code shall apply in determining the stock ownership of any
employee, and stock which such employee may purchase under all outstanding
rights and options shall be treated as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only
if such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock
of the Company or any Affiliate to accrue at a rate which exceeds twenty five
thousand dollars ($25,000) of fair market value of such stock (determined at
the time such rights are granted) for each calendar year in which such rights
are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that
the Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering
(the "Purchase Date(s)") on which rights granted under the Plan shall be
exercised and purchases of Common Stock carried out in accordance with such
Offering.
(b) In connection with each Offering made under the Plan, the
Board or the Committee may specify a maximum number of shares that may be
purchased by any employee as well as a maximum aggregate number of shares that
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each Offering that contains more than one Purchase
Date, the Board or the Committee may specify a maximum aggregate number of
shares which may be purchased by all eligible employees on any given Purchase
Date under the Offering. If the aggregate purchase of shares upon exercise of
rights granted under the Offering would exceed any such maximum aggregate
number, the Board or the Committee shall make a pro rata allocation of the
shares available in as nearly a uniform manner as shall be practicable and as
it shall deem to be equitable.
(c) The purchase price of stock acquired pursuant to rights
granted under the Plan shall be not less than the lesser of:
4.
<PAGE> 47
(i) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan
pursuant to an Offering by delivering a participation agreement to the Company
within the time specified in the Offering, in such form as the Company
provides. Each such agreement shall authorize payroll deductions of up to the
maximum percentage specified by the Board or the Committee of such employee's
Earnings during the Offering. "Earnings" is defined as an employee's regular
salary or wages (including amounts thereof elected to be deferred by the
employee, that would otherwise have been paid, under any arrangement
established by the Company that is intended to comply with Section 125, Section
401(k), Section 402(h) or Section 403(b) of the Code or that provides
non-qualified deferred compensation), which shall include overtime pay, but
shall exclude bonuses, commissions, incentive pay, profit sharing, other
remuneration paid directly to the employee, the cost of employee benefits paid
for by the Company or an Affiliate, education or tuition reimbursements,
imputed income arising under any group insurance or benefit program, traveling
expenses, business and moving expense reimbursements, income received in
connection with stock options, contributions made by the Company or an
Affiliate under any employee benefit plan, and similar items of compensation,
or such other set of inclusions or exclusions as may be determined by the Board
or the Committee. The payroll deductions made for each participant shall be
credited to an account for such participant under the Plan and shall be
deposited with the general funds of the Company. A participant may reduce
(including to zero) or increase such payroll deductions, and an eligible
employee may begin such payroll deductions, after the beginning of any Offering
only as provided for in the Offering. A participant may make additional
payments into his or her account only if specifically provided for in the
Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate
his or her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering.
Upon such withdrawal from the Offering by a participant, the Company shall
distribute to such participant all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire stock
for the participant) under the Offering, without interest, and such
participant's interest in that Offering shall be automatically terminated. A
participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
5.
<PAGE> 48
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee) under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such
rights are granted.
8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant
Offering, each participant's accumulated payroll deductions and other
additional payments specifically provided for in the Offering (without any
increase for interest) will be applied to the purchase of whole shares of stock
of the Company, up to the maximum number of shares permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase price specified
in the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of shares
which is less than the amount required to purchase one share of stock on the
final Purchase Date of an Offering shall be held in each such participant's
account for the purchase of shares under the next Offering under the Plan,
unless such participant withdraws from such next Offering, as provided in
subparagraph 7(b), or is no longer eligible to be granted rights under the
Plan, as provided in paragraph 5, in which case such amount shall be
distributed to the participant after such final Purchase Date, without
interest. The amount, if any, of accumulated payroll deductions remaining in
any participant's account after the purchase of shares which is equal to the
amount required to purchase whole shares of stock on the final Purchase Date of
an Offering shall be distributed in full to the participant after such Purchase
Date, without interest.
(b) No rights granted under the Plan may be exercised to any
extent unless the shares to be issued upon such exercise under the Plan
(including rights granted thereunder) are covered by an effective registration
statement pursuant to the Securities Act of 1933, as amended (the "Securities
Act") and the Plan is in material compliance with all applicable state, foreign
and other securities and other laws applicable to the Plan. If on a Purchase
Date in any Offering hereunder the Plan is not so registered or in such
compliance, no rights granted under the Plan or any Offering shall be exercised
on such Purchase Date, and the Purchase Date shall be delayed until the Plan is
subject to such an effective registration statement and such compliance, except
that the Purchase Date shall not be delayed more than twelve (12) months and
the Purchase Date shall in no event be more than twenty-seven (27) months from
the Offering Date. If on the Purchase Date of any Offering hereunder, as
delayed to the maximum extent permissible, the Plan is not registered and in
such compliance, no rights granted under the Plan
6.
<PAGE> 49
or any Offering shall be exercised and all payroll deductions accumulated
during the Offering (reduced to the extent, if any, such deductions have been
used to acquire stock) shall be distributed to the participants, without
interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the
Company shall keep available at all times the number of shares of stock
required to satisfy such rights.
(b) The Company shall seek to obtain from each federal, state,
foreign or other 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 rights granted under the Plan. 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 rights
unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any rights 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 other transaction
not involving the receipt of consideration by the Company), the Plan and
outstanding rights 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 rights. 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.")
7.
<PAGE> 50
(b) In the event of: (1) a dissolution or liquidation 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 converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4)
the acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or any comparable successor provisions (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or any
Affiliate of the Company) of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then, as
determined by the Board in its sole discretion (i) any surviving or acquiring
corporation may assume outstanding rights or substitute similar rights for
those under the Plan, (ii) such rights may continue in full force and effect,
or (iii) participants' accumulated payroll deductions may be used to purchase
Common Stock immediately prior to the transaction described above and the
participants' rights under the ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 12 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:
(i) Increase the number of shares reserved for rights
under the Plan;
(ii) Modify the provisions as to eligibility for
participation in the Plan (to the extent such modification requires
stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply
with the requirements of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3")); or
(iii) Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan to
obtain employee stock purchase plan treatment under Section 423 of the
Code or to comply with the requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to employee stock purchase
plans and/or to bring the Plan and/or rights granted under it into compliance
therewith.
8.
<PAGE> 51
(b) Rights and obligations under any rights granted before
amendment of the Plan shall not be impaired by any amendment of the Plan,
except with the consent of the person to whom such rights were granted, or
except as necessary to comply with any laws or governmental regulations, or
except as necessary to ensure that the Plan and/or rights granted under the
Plan comply with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to the end
of an Offering but prior to delivery to the participant of such shares and
cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its sole discretion, may
deliver such shares and/or cash to the spouse or to any one or more dependents
or relatives of the participant, or if no spouse, dependent or relative is
known to the Company, then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan
at any time. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except as expressly provided in the Plan or with the consent of the person to
whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section
423 of the Code.
16. EFFECTIVE DATE OF PLAN.
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"), but no rights granted under the Plan shall be exercised
unless and until the Plan has
9.
<PAGE> 52
been approved by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted by the Board or the Committee,
which date may be prior to the Effective Date.
10.
<PAGE> 53
DETACH HERE
PROXY
AVIRON
297 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints J. Leighton Read, M.D. and Fred Kurland,
or either of them, each with the power of substitution, and hereby authorizes
them to represent and to vote, as designated on the reverse side, all shares of
common stock of Aviron (the "Company") held of record by the undersigned on
April 14, 1998 at the Annual Meeting of Stockholders to be held on June 4, 1998
and any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED, IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
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SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
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<PAGE> 54
Dear Stockholder:
Please take note of the important information enclosed with this Proxy. There
are a number of issues related to the operation of the Company that require your
immediate attention.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your prompt consideration of
these matters.
Sincerely,
Aviron
DETACH HERE
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
1. Election of Director.
NOMINEE: Bernard Roizman, Sc.D.
FOR [ ] WITHHELD [ ]
2. Approve the Company's 1996 Equity Incentive Plan, as amended, to increase
the aggregate number of shares of Common Stock authorized for issuance
under such plan by 1,500,000 shares, to 3,250,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approve the Company's 1996 Employee Stock Purchase Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 100,000 shares, to 350,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Ratify the appointment of Ernst & Young LLP as independent auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
Please sign exactly as name appears hereon. Joint owners should each sign.
Executors, administrators, trustees, guardians or other fiduciaries should
give full title as such. If signing for a corporation, please sign in full
corporate name by a duly authorized officer.
Signature: Date: Signature: Date:
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