SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Aviron
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
________________________________________________________________________________
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
[_] Fee paid previously with preliminary materials:
________________________________________________________________________________
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
AVIRON
297 North Bernardo Avenue
Mountain View, CA 94043
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 3, 1999
----------
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 3, 1999 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 two directors to hold office until the 2002 Annual Meeting of
Stockholders and until their successors are 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 780,000 shares, to 4,030,000 shares.
3. To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending December 31, 1999.
4. 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 15, 1999 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
/s/ Alan C. Mendelson
Alan C. Mendelson
Secretary
Mountain View, California
April 26, 1999
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
AVIRON
297 North Bernardo Avenue
Mountain View, CA 94043
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
April 26, 1999
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 3, 1999 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 26, 1999, 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 $5,000, if it renders solicitation
services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April
15, 1999, will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 15, 1999, the Company had outstanding and
entitled to vote 15,768,680 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 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.
1
<PAGE>
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 of the Securities and Exchange Commission, the
deadline for submitting a stockholder proposal for inclusion in the Company's
proxy statement and form of proxy for the Company's 2000 Annual Meeting of
Stockholders is December 24, 1999. Pursuant to the Company's By-laws,
stockholders who wish to bring matters or propose nominees for director at the
Company's 2000 Annual Meeting of Stockholders must provide specified information
to the Company between March 5, 2000 and April 4, 2000. 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 five members. There are two
directors in the class whose term of office expires in 1999, of which both are
standing for re-election. The nominees for election to this class, Jane E. Shaw,
Ph.D. and Paul H. Klingenstein are currently directors of the Company both of
whom were previously elected by the stockholders. If elected at the Annual
Meeting, Dr. Shaw and Mr. Klingenstein would serve until the 2002 Annual Meeting
and until their successors are elected and qualified, or until their 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. Shaw and Mr. Klingenstein have agreed to serve if elected, and
management has no reason to believe that they will be unable to serve.
Set forth below is biographical information for the nominees and each
person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2002 ANNUAL MEETING
Paul H. Klingenstein, age 43, has been a director of the Company since
1993. Mr. Klingenstein has been the Managing Director of Aberdare Ventures since
1999. From 1986 until 1997, Mr. Klingenstein was associated with Accel Partners,
a venture capital firm, where he was a General Partner 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.
Jane E. Shaw, Ph.D., age 60, 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 and Director of ALZA Corporation. 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.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF THE NAMED NOMINEES.
2
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
J. Leighton Read, M.D., age 48, 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 72, 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
Cohesion Technologies, Inc., as well as several private companies. Mr. Dennis
holds a B.S. in Electrical Engineering and an M.B.A. from Stanford University.
DIRECTOR CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
Bernard Roizman, Sc.D., age 70, 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.
BOARD COMMITTEES AND MEETINGS
During the year ended December 31, 1998, the Board of Directors held seven
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. Roizman. The Audit Committee met
twice during 1998. In addition, Audit Committee business was performed at two
regular meetings of the Board.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of two non-employee directors:
Dr. Shaw and Mr.Klingenstein. The Compensation Committee met four times during
1998.
During the year ended December 31, 1998, all directors 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 except Mr. Dennis and Dr.
Roizman 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.
3
<PAGE>
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. As a
result of a series of amendments, as of April 1, 1999, there were 3,250,000
shares reserved for issuance 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 780,000 shares to 4,030,000 shares. This increase represents less than
five percent of the outstanding Common Stock of the Company as of April 1, 1999.
As of April 1, 1999, options (net of canceled or expired options) covering
an aggregate of 2,230,232 shares of the Company's Common Stock had been granted
under the Incentive Plan, and 1,019,768 shares (plus any shares that might in
the future be returned to the Incentive Plan as a result of cancellations or
expiration of options) remained available for future grant under the Incentive
Plan.
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.
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 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 (collectively "Stock Awards"). 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) and directors of, and consultants to, the Company, and its affiliates,
may be given an opportunity to purchase Common Stock of the
4
<PAGE>
Company. The Company, by means of the Incentive Plan, seeks to retain the
services of persons who are now employees or directors of or consultants to the
Company or its affiliates, to secure and retain the services of new employees,
directors and consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its affiliates.
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, 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. Any interpretation of the
Incentive Plan by the Board and any decision by the Board under the Incentive
Plan shall be final and binding on all persons.
STOCK SUBJECT TO THE INCENTIVE PLAN
Subject to stockholder approval of this Proposal 2, an aggregate of
4,030,000 shares of Common Stock is reserved for issuance under the Incentive
Plan. 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, directors or consultants.
No person is eligible for the grant of an incentive stock option if, at the
time of grant, such person owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company unless
the exercise price of such option is at least one hundred ten percent (110%) of
the fair market value of such Common Stock subject to the option at the date of
grant and the option is not exercisable after the expiration of five (5) years
from the date of grant, or in the case of a restricted stock purchase award, the
purchase price is at least one hundred percent (100%) of the fair market value
of Common Stock subject to the 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.
5
<PAGE>
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. As of April 1, 1999, the closing price
of the Common Stock as reported on the Nasdaq Stock Market was $19.0625 per
share.
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.
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 or terminate
his or her relationship as a consultant or director 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.
6
<PAGE>
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 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, sale of all or substantially all of the Company's
assets, specified type of merger or other corporate reorganization (a "Change of
Control"), to the extent permitted by law, any surviving corporation shall
assume any Stock Awards outstanding under the Incentive Plan, substitute similar
Stock Awards for those outstanding under the Incentive Plan or such outstanding
Stock Awards will continue in full force and effect. If any surviving
corporation declines to assume Stock Awards outstanding under the Incentive Plan
or to substitute similar Stock Awards, 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 Incentive 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 Incentive 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
7
<PAGE>
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.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
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 participant
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
participant's alternative minimum tax liability, if any.
If a participant 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
participant upon exercise of the option, any gain or loss on a disposition of
such stock will be a long-term capital gain or loss.
Generally, if the participant disposes of the stock before the expiration
of either of these holding periods (a "disqualifying disposition"), then at the
time of disposition the participant will realize taxable ordinary income equal
to the lesser of (i) the excess of the stock's fair market value on the date of
exercise over the exercise price, or (ii) the participant's actual gain, if any,
on the purchase and sale. The participant's additional gain or any loss upon the
disqualifying disposition will be a capital gain or loss, which will be
long-term or short-term depending on whether the stock was held for more than
one year.
To the extent the participant 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, Restricted Stock Purchase Awards and Stock
Bonuses. Nonstatutory stock options, restricted stock purchase awards and stock
bonuses granted under the Incentive Plan generally have the following federal
income tax consequences:
There are no tax consequences to the participant or the Company by reason
of the grant. Upon acquisition of the stock, the participant normally will
recognize taxable ordinary income equal to the excess, if any, of the stock's
fair market value on the acquisition date over the purchase price. However, to
the extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
participant elects to be taxed on receipt of the stock. With respect to
employees, the Company is generally required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income
8
<PAGE>
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation,
the Company will generally be entitled to a business expense deduction equal to
the taxable ordinary income realized by the participant.
Upon disposition of the stock, the participant 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 acquisition (or vesting) of the stock. Such gain or loss will be long-term
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to 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 participant 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 participant.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly-held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that compensation to
such covered employee exceeds $1 million. It is possible that compensation
attributable to 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. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options and stock appreciation rights will qualify as
performance-based compensation if the award is granted by a compensation
committee comprised solely of "outside directors" and either (i) the plan
contains a per-employee limitation on the number of shares for which such awards
may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the award is no less
than the fair market value of the stock on the date of grant, or (ii) the award
is granted (or exercisable) only upon the achievement (as certified in writing
by the compensation committee) of an objective performance goal established in
writing by the compensation committee while the outcome is substantially
uncertain, and the award is approved by stockholders.
Compensation attributable to restricted stock and stock bonuses will
qualify as performance-based compensation, provided that: (i) the award is
granted by a compensation committee comprised solely of "outside directors" and
(ii) the purchase price of the award is no less than the fair market value of
the stock on the date of grant. Stock bonuses qualify as performance-based
compensation under the Treasury regulations only if (i) the award is granted by
a compensation committee comprised solely of "outside directors," (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
- -- or formula used to calculate the amount -- payable upon attainment of the
performance goal).
9
<PAGE>
PROPOSAL 3
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, 1999, 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 3.
10
<PAGE>
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 15, 1999 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 15, 1999;
(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.
Beneficial Ownership(1)
------------------------
Number of Percentage
Beneficial Owner Shares of Total
---------------- --------- --------
Biotech Invest, S.A ........................... 2,655,286 16.84%
Swiss Bank Tower
Panama 1
Republic of Panama
Oracle Partners, L.P. (2) ..................... 983,700 6.24%
712 Fifth Avenue, 45th Floor
New York, NY 10019
J. Leighton Read, M.D. (3) .................... 497,193 3.13%
Fred Kurland (4) .............................. 37,176 *
Carol A. Olson (5) ............................ 76,753 *
Reid W. Dennis (6) ............................ 37,176 *
Paul H. Klingenstein (7) ...................... 24,679 *
Bernard Roizman, Sc.D. (8) .................... 184,200 1.17%
Jane E. Shaw, Ph.D. (9) ....................... 36,829 *
All directors and executive officers as a group
(7 persons) (10) ............................ 894,501 5.58%
- ----------
* 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 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
15,768,680 shares of Common Stock outstanding as of April 15, 1999.
(2) Based on a Schedule 13G filed by Oracle Partners, L.P. reporting such
beneficial ownership as of December 31, 1998.
(3) Includes an aggregate of 110,000 shares acquired pursuant to an early
exercise of stock options, of which an aggregate of 7,400 will be subject
to repurchase by the Company 60 days from April 15, 1999. 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.
Dr. Read disclaims beneficial ownership of the shares held by the Trusts.
Also includes 97,000 shares Dr. Read has the right to acquire pursuant to
options exercisable within 60 days of April 15, 1999.
(4) Includes 36,400 shares Mr. Kurland has the right to acquire pursuant to
options exercisable within 60 days of April 15, 1999.
(5) Includes 75,497 shares Ms. Olson has the right to acquire pursuant to
options exercisable within 60 days of April 15, 1999.
(6) Includes 3,546 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 3,000 shares Mr.
Dennis has the right to acquire pursuant to options exercisable within 60
days of April 15, 1999.
(7) Includes 7,950 shares Mr. Klingenstein has the right to acquire pursuant to
options exercisable within 60 days of April 15, 1999.
11
<PAGE>
(8) Includes 10,200 shares Dr. Roizman has the right to acquire pursuant to
options exercisable within 60 days of April 15, 1999.
(9) 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 27,229 shares Dr.
Shaw has the right to acquire pursuant to options exercisable within 60
days of April 15, 1999.
(10) Includes 3,546 shares held by an entity affiliated with a director of the
Company as described in footnote 6 above and 257,276 shares subject to
options exercisable within 60 days of April 15, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities 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, 1998 all Section 16(a)
filing requirements were complied with by its officers, directors and greater
than ten percent beneficial owners.
12
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Since June 1998, each non-employee director of the Company has received
cash compensation for their services, in addition to being eligible for
reimbursement for their expenses incurred in connection with attendance at Board
and committee meetings in accordance with Company policy. The cash compensation
includes a retainer of $1,000 per month, plus $500 per Board Meeting attended
and $300 per Committee Meeting attended. However, should a Committee Meeting
fall on the same date as a Board Meeting, such non-employee director receives
only the $500 Board Meeting attendance stipend.
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 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 as a director since
December 31 of the immediately preceding year, he or she is 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, and Dr. Shaw, at an exercise price per share of $25.875, the fair
market value of such Common Stock on the date of grant. As of April 1, 1999,
options for an aggregate of 990 shares of the Company's Common Stock have been
exercised under the Directors' Plan.
13
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1998,
December 31, 1997, and December 31, 1996, compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and its two other executive
officers at December 31, 1998 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
---------------------------------------- ------------
Other Securities
Annual Under- All Other
Compensation Lying Compensation
Name and Principal Position Year Salary($) Bonus($) ($) Options(#) ($)(1)
- -------------------- ---- --------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
J. Leighton Read, M.D ....... 1998 275,000 50,000 -- 250,000 290
Chairman and 1997 260,000 80,000 31,726(2) 25,000 574
Chief Executive Officer 1996 230,000 -- 78,420(3) 50,000 1,427
Fred Kurland(4) ............. 1998 223,955 25,000 -- 100,000 283
Senior Vice President and 1997 -- -- -- -- --
Chief Financial Officer 1996 -- -- -- -- --
Carol A. Olson(5) ........... 1998 143,013 40,000 -- 166,617 93
Senior Vice President, 1997 -- -- -- -- --
Commercial Development 1996 -- -- -- -- --
</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 $62,500 in connection with the
early exercise of stock options.
(4) Mr. Kurland joined the Company in January 1998.
(5) Ms. Olson joined the Company in May 1998.
STOCK OPTION GRANTS AND EXERCISES
The following tables show for the fiscal year ended December 31, 1998,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants (4) Value at Assumed
----------------------------- Annual Rates of
Number of % of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise or Option Term ($)(3)
Option 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 ......... 150,000 14.04 25.625 02/03/08 2,417,314 6,125,948
100,000 9.36 27.563 06/03/08 1,733,391 4,392,753
Fred Kurland .................. 100,000 9.36 24.750 01/21/08 1,556,514 3,944,513
Carol A. Olson ................ 1,617 0.15 24.875 03/11/08 25,296 64,105
150,000 14.04 25.375 05/07/08 2,393,730 6,066,182
15,000 1.40 14.938 09/09/08 140,912 357,098
</TABLE>
- ----------
(1) Based on an aggregate of 1,068,717 options granted to employees and
directors of the Company in fiscal 1998, 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.
14
<PAGE>
(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 vest ratably over fifty months. Under certain
circumstances following a change of control, the vesting of such option
grants may accelerate and become immediately exercisable.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at December 31, 1998 at December 31, 1998(2)
Name (#) Exercisable/Unexercisable ($) Exercisable/Unexercisable
- ---- ----------------------------- ----------------------------
<S> <C> <C>
J. Leighton Read, M.D ......... 61,000/214,000 187,625/259,250
Fred Kurland .................. 0/100,000 0/112,500
Carol A. Olson ................ 12,397/165,000 33,957/239,063
</TABLE>
- ----------
(1) During the fiscal year ended December 31, 1998 no shares were acquired on
exercise by the Named Executive Officers set forth in the "Summary
Compensation Table" above.
(2) Based on the closing price of the Company's Common Stock ($25.875) on
December 31, 1998 as reported on the Nasdaq Stock 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.
EMPLOYEE STOCK PURCHASE PLAN
In March 1996, the Board adopted, and the stockholders subsequently
approved, the 1996 Employee Stock Purchase Plan (the "Purchase Plan"). As of
April 1, 1999, there were 350,000 shares of Common Stock reserved for issuance
under the Purchase Plan. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Under the
Purchase Plan, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the Purchase Plan. The offering period for any offering will be no more than 27
months.
As of April 1, 1999, purchase rights (net of canceled or expired purchase
rights) covering an aggregate of 71,513 shares of the Company's Common Stock had
been granted under the Purchase Plan, and 178,487 shares of Common Stock (plus
any shares that might in the future be returned to the Purchase Plan as a result
of cancellations or expiration of purchase rights) remain available for future
grant under the Purchase Plan.
Employees are eligible to participate if they are employed by the Company,
or an affiliate of the Company designated by the Board of Directors, for at
least 20 hours per week and are employed by the Company, or an affiliate of the
Company designated by the Board, for at least five months per calendar year.
Employees who participate in an offering can have up to 15% of their earnings
withheld pursuant to the Purchase Plan. The amount withheld will then be used to
purchase shares of the Common Stock on specified dates determined by the Board
of Directors. The price of Common Stock purchased under the Purchase Plan will
be equal to 85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or on the specified purchase date.
Employees may end their participation in the offering at any time during the
offering period. Participation ends automatically on termination of employment
with the Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, in which the Company is not the surviving corporation,
the Board of Directors has discretion to provide that each right to purchase
Common Stock will be assumed or an equivalent right substituted by the successor
corporation, or the Board may shorten the offering period and provide for all
sums collected by payroll deductions to be applied to purchase stock immediately
prior to such merger or other transaction. The Purchase Plan will terminate at
the Board's discretion. The Board has the authority to amend or terminate the
Purchase Plan, subject to the limitation that no such action may adversely
affect any outstanding rights to purchase Common Stock.
15
<PAGE>
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 Dr. Shaw and Mr.Klingenstein, neither of whom have ever been
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 its 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 annually reviews 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
1996 Equity Incentive Plan and the 1996 Employee Stock Purchase Plan (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 516,617 shares of the
Company's Common Stock to the Named Executive Officers during 1998.
The Company established the Purchase Plan both to encourage employees to
continue in the employ of the Company and to motivate employees through
ownership interest in the Company. Under the Purchase Plan, employees, including
officers, may have up to 15% of their earnings withheld for purchases of Common
Stock on certain dates specified by the Board. The price of Common Stock
purchased will be equal to 85% of the lower of the fair market value of the
Common Stock on the relevant purchase date or commencement date of the relevant
offering period. There were two offerings during fiscal 1998.
- ----------
(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 18 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.
16
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Read's salary during 1998 as President and Chief Executive Officer was
$275,000. Following the Committee's review of the Company's performance against
corporate milestones for 1998 and Dr. Read's performance during 1998, the
Committee awarded Dr. Read a 1998 merit bonus of $50,000. In addition, the
Committee has set Dr. Read's annual salary for 1999 at $300,000. In determining
Dr. Read's 1998 bonus and 1999 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 1999 Dr.
Read was granted an option to purchase 50,000 shares of Common Stock as an
incentive for future performance.
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.
17
<PAGE>
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:
[PERFORMANCE GRAPH]
11/05/96 12/31/96 12/31/97 12/31/98
------- ------- ------- -------
AVIRON ...................... $100 $ 94 $339 $323
NASDAQ Stock Market (U.S.) .. 100 105 129 182
NASDAQ Pharmaceutical ....... 100 105 108 139
- ----------
(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.
18
<PAGE>
CERTAIN TRANSACTIONS
Prior to joining the Company in May 1998, Ms. Olson was a partner with the
Churchill Madison Group. During the fiscal year ended December 31, 1998, the
Company made payments to the Churchill Madison Group of approximately $1,154,000
for marketing research services. No services have been rendered to the Company
by the Churchill Madison Group since Ms. Olson joined the Company.
In June 1998, the Company granted an option covering 15,000 shares to Mr.
Klingenstein, at an exercise price per share of $27.5625, the fair market value
of such Common Stock on the date of grant, for his services as an advisor to 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
/s/ Alan C. Mendelson
Alan C. Mendelson
Secretary
April 26, 1999
Report to the United States Securities and Exchange Commission on Form 10-K for
the fiscal year ended December 31, 1998 is available without charge upon written
request to: Corporate Communications, Aviron, 297 North Bernardo Avenue,
Mountain View, CA 94043.
<PAGE>
AVIRON
1996 EQUITY INCENTIVE PLAN
Adopted March 6, 1996
Approved By Stockholders July 22, 1996
Amended by the Board of Directors March 12, 1998
Amendment Approved by the Stockholders June 4, 1998
Amended by the Board of Directors April 12, 1999
Amendment Approved by the Stockholders June __, 1999
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 and Directors of or Consultants to the Company, 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.
1.
<PAGE>
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(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>
(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) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or a subsidiary, does not receive
compensation (directly or indirectly) from the Company or its parent or a
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 transaction as to which
disclosure would be required under Item 404(a) of Regulation S-K and is not
engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(q) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(r) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.
(u) "Optionee" means a person 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 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.
3.
<PAGE>
(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.
(bb) "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). Any
interpretation of the Plan by the Board and any decision by the Board under the
Plan shall be final and binding on all persons.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall
be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical),
including the time or times when a person shall be permitted to receive
stock pursuant to a Stock Award; whether a person shall be permitted to
receive stock upon exercise of an Independent Stock Appreciation Right; and
the number of shares with respect to which a Stock Award shall be granted
to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
4.
<PAGE>
(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 may be, in the discretion of the Board, 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 four million thirty thousand (4,030,000) shares of
the Company's common stock. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. Shares subject to Stock Appreciation
Rights exercised in accordance with Section 8 of the Plan shall not be available
for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
to Employees, Consultants or Non-Employee Directors.
(b) A Non-Employee Director shall be eligible for the benefits of the Plan,
provided, however, that any grant to a Non-Employee Director shall not exceed
the lesser of (1) 1% of the shares of Common Stock outstanding on the date of
grant or, (2) 25,000 shares.
5.
<PAGE>
(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.
(e) Consultants.
(i) A Consultant shall not be eligible for the grant of a Stock Award
if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act ("Form S-8") is not available to register either the offer
or the sale of the Company's securities to such Consultant because of the
nature of the services that the Consultant is providing to the Company, or
because the Consultant is not a natural person, or as otherwise provided by
the rules governing the use of Form S-8, unless the Company determines both
(i) that such grant (A) shall be registered in another manner under the
Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not
require registration under the Securities Act in order to comply with the
requirements of the Securities Act, if applicable, and (ii) that such grant
complies with the securities laws of all other relevant jurisdictions.
(ii) As of April 7, 1999 Form S-8 generally is available to
consultants and advisors only if (i) they are natural persons; (ii) they
provide bona fide services to the issuer, its parents, its majority-owned
subsidiaries or majority-owned subsidiaries of the issuer's parent; and
(iii) the services are not in connection with the offer or sale of
securities in a capital-raising transaction, and do not directly or
indirectly promote or maintain a market for the issuer's securities.
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.
6.
<PAGE>
(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 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. Further, the "par value" of any stock subject to an Option
shall not be payable pursuant to a deferred payment arrangement.
(d) Transferability. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option 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.
7.
<PAGE>
(f) Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it at the date of termination) but only within such period
of time ending on the earlier of (i) the date three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) Disability of Optionee. In the event an Optionee's Continuous Status as
an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the 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
8.
<PAGE>
exercise the option upon the Optionee's death pursuant to subsection 6(d), but
only within the period ending on the earlier of (i) the date twelve (12) months
following the date of death (or such longer or shorter period specified in the
Option Agreement), or (ii) the expiration of the term of such Option as set
forth in the Option Agreement. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) Re-Load Options. Without in any way limiting the authority of the Board
or Committee to make or not to make grants of Options hereunder, the Board or
Committee shall have the authority (but not an obligation) to include as part of
any Option Agreement a provision entitling the Optionee to a further Option (a
"Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(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.
9.
<PAGE>
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each restricted stock purchase
agreement shall be such amount as the Board or Committee shall determine and
designate in such agreement but in no event shall the purchase price be less
than eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made. Notwithstanding the foregoing, the Board or the Committee may
determine that eligible participants in the Plan may be awarded stock pursuant
to a stock bonus agreement in consideration for past services actually rendered
to the Company for its benefit.
(b) Transferability. 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
10.
<PAGE>
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 on the aggregate amount of cash
payments the Company may make under the Plan in connection with the exercise of
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
11.
<PAGE>
which the holder is vested under such Independent Right, and with respect
to which the holder is exercising the Independent Right on such date, over
(B) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall
be in cash or, if so provided, in an equivalent number of shares of stock
based on Fair Market Value on the date of the exercise of the Independent
Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options and/or
any Stock Appreciation Rights under the Plan and/or (ii) with the consent of any
adversely affected holders of Options and/or Stock Appreciation Rights, the
cancellation of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and the grant in substitution therefor of new Options and/or
Stock Appreciation Rights under the Plan covering the same or different numbers
of shares of stock, but having an exercise price per share not less than:
eighty-five percent (85%) of the Fair Market Value for a Nonstatutory Stock
Option, one hundred percent (100%) of the Fair Market Value in the case of an
Incentive Stock Option or, in the case of an Incentive Stock Option held by a
10% stockholder (as described in subsection 5(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
12.
<PAGE>
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest pursuant to subsection 6(e), 7(d) or 8(b), notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Employee, 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
13.
<PAGE>
with any present intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the exercise or
acquisition of stock under the Stock Award has been registered under a then
currently effective registration statement under the Securities Act, or (ii) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any calendar year
pursuant to subsection 5(d), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then to the extent permitted by applicable law: (i) any
surviving corporation or an Affiliate of such surviving corporation shall assume
any Stock Awards outstanding under the Plan or shall substitute similar Stock
Awards for those outstanding under the Plan, or (ii) such Stock Awards shall
continue in full force and effect. In the event any surviving corporation and
its Affiliates refuse to assume or continue such Stock Awards, or to substitute
similar options for
14.
<PAGE>
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 or
any Nasdaq or securities exchange listing requirements (e.g., an increase in the
number of shares available for awards or a change 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.
<PAGE>
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board or approved by the stockholders of the Company, whichever
is earlier. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
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.
<PAGE>
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 15, 1999 at the Annual Meeting of Stockholders to be held on June 3, 1999
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.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE>
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
|_| Please mark
votes as in
this example.
1. Election of two Directors.
Nominee: Paul H. Klingenstein
FOR WITHHELD
|_| |_|
Nominee: Jane E. Shaw, Ph.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 780,000 shares, to 4,030,000 shares.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. Ratify the appointment of Ernst & Young LLP as independent auditors of the
Company for its fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
|_| |_| |_|
4. 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.
<PAGE>
Signature: Date:
-------------------------------------------- -------------------
Signature: Date:
-------------------------------------------- -------------------
2.
