<PAGE> 1
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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
PHARMACYCLICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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> 2
PHARMACYCLICS, INC.
995 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
NOVEMBER 9, 1998
DEAR STOCKHOLDER:
You are cordially invited to attend the Annual Meeting of Stockholders
("Annual Meeting") of Pharmacyclics, Inc. (the "Company"), which will be held at
12:00 P.M. on December 11, 1998, at the Sunnyvale Hilton, 1250 Lakeside Drive,
Sunnyvale, California 94086.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals:
(i) the election of five (5) directors to serve until the 1999 annual
meeting or until their successors are elected and qualified;
(ii) the amendment of the Company's 1995 Stock Option Plan (the "Option
Plan") in order to increase the total number of shares of common
stock authorized for issuance over the term of the Option Plan by an
additional 400,000 shares; and
(iii) the ratification of the appointment of PricewaterhouseCoopers LLP as
the Company's independent accountants for the fiscal year ending June
30, 1999.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote IN FAVOR OF each
such proposal.
After reading the Proxy Statement, please mark, date, sign and return by no
later than December 1, 1998, the enclosed proxy card in the accompanying reply
envelope. If you decide to attend the Annual Meeting, please notify the
Secretary of the Company that you wish to vote in person and your proxy will not
be voted. YOUR SHARES CANNOT BE VOTED UNLESS YOU MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
Copies of the Pharmacyclics, Inc. 1998 Annual Report and Annual Report on
Form 10-K for the fiscal year ended June 30, 1998 are also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
Richard A. Miller, M.D.
President and Chief Executive Officer
- --------------------------------------------------------------------------------
IMPORTANT
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
ACCOMPANYING POSTAGE-PAID RETURN ENVELOPE SO THAT YOUR SHARES MAY BE
VOTED IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING.
- --------------------------------------------------------------------------------
<PAGE> 3
PHARMACYCLICS, INC.
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 11, 1998
TO THE STOCKHOLDERS OF PHARMACYCLICS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of Pharmacyclics, Inc., a Delaware corporation (the "Company"), will
be held at 12:00 P.M. local time on Friday, December 11, 1998, at the Sunnyvale
Hilton, 1250 Lakeside Drive, Sunnyvale, California 94086, for the following
purposes:
1. To elect a Board of five (5) directors to serve for the ensuing
year or until their respective successors are elected and qualified.
2. To approve an amendment to the Company's 1995 Stock Option Plan
(the "Option Plan") in order to increase the total number of shares of
common stock authorized for issuance over the term of the Option Plan by an
additional 400,000 shares.
3. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending June 30, 1999.
4. To transact such other business as may properly come before the
Annual Meeting and any adjournment or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on October 29, 1998
are entitled to receive notice of and to vote at the Annual Meeting and any
adjournment thereof. The stock transfer books of the Company will remain open
between the record date and the date of the meeting. A list of the stockholders
entitled to vote at the Annual Meeting will be available for inspection at the
Company's offices for a period of ten (10) days immediately prior to the Annual
Meeting.
All stockholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, please carefully read the
accompanying Proxy Statement which describes the matters to be voted upon at the
Annual Meeting and mark, date, sign and return the enclosed proxy card in the
accompanying reply envelope. Should you receive more than one proxy because your
shares are registered in different names and addresses, each proxy should be
signed and returned to ensure that all your shares will be voted. You may revoke
your proxy at any time prior to the Annual Meeting. If you decide to attend the
Annual Meeting, please notify the Secretary of the Company that you wish to vote
in person and your proxy will not be voted and only your vote at the Annual
Meeting will be counted. The prompt return of your proxy card will assist us in
preparing for the Annual Meeting.
Sincerely,
J. Stephan Dolezalek,
Secretary
Sunnyvale, California
November 9, 1998
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY. IF YOU DO NOT EXPECT TO ATTEND THE
ANNUAL MEETING IN PERSON, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD IN THE ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE.
<PAGE> 4
PHARMACYCLICS, INC.
995 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
---------------
PROXY STATEMENT
---------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 11, 1998
GENERAL INFORMATION FOR STOCKHOLDERS
THE ENCLOSED PROXY ("PROXY") IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS (THE "BOARD") OF PHARMACYCLICS, INC., A DELAWARE CORPORATION (THE
"COMPANY"), FOR USE AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS (THE "ANNUAL
MEETING") TO BE HELD AT 12:00 P.M. ON DECEMBER 11, 1998, AT THE SUNNYVALE
HILTON, 1250 LAKESIDE DRIVE, SUNNYVALE, CALIFORNIA 94086 AND AT ANY ADJOURNMENT
THEREOF.
This Proxy Statement and the accompanying form of Proxy was first mailed to
all stockholders entitled to vote at the Annual Meeting on or about November 9,
1998.
RECORD DATE AND VOTING
Stockholders of record at the close of business on October 29, 1998 are
entitled to notice of and to vote at the Annual Meeting. As of the close of
business on October 29, 1998, there were 12,375,354 shares of the Company's
common stock (the "Common Stock") outstanding and entitled to vote, held by
approximately 115 stockholders of record. No shares of the Company's preferred
stock are outstanding. Each stockholder is entitled to one vote for each share
of Common Stock held by such stockholder as of the record date.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Stockholders may not cumulate votes in the
election of directors. If a choice as to the matters coming before the Annual
Meeting has been specified by a stockholder on the Proxy, the shares will be
voted accordingly. If no choice is specified, the shares will be voted IN FAVOR
OF the approval of the proposals described in the Notice of Annual Meeting of
Stockholders and in this Proxy Statement. Abstentions and broker non-votes
(i.e., the submission of a Proxy by a broker or nominee specifically indicating
the lack of discretionary authority to vote on the matter) are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. 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, whereas broker non-votes will not be counted for purposes of
determining whether a proposal has been approved or not.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate at the Annual Meeting may request reasonable assistance or
accommodation from the Company by contacting Leiv Lea, Vice President, Finance
and Administration, in writing at 995 East Arques Avenue, Sunnyvale, California
94086 or by telephone at (408) 774-0330. To provide the Company sufficient time
to arrange for reasonable assistance, please submit such requests by December 1,
1998.
REVOCABILITY OF PROXIES
Any stockholder giving a Proxy pursuant to this solicitation may revoke it
at any time prior to the meeting by filing with the Secretary of the Company at
its principal executive offices at 995 East Arques Avenue, Sunnyvale, California
94086, a written notice of such revocation or a duly executed Proxy bearing a
later date, or by attending the Annual Meeting and voting in person.
<PAGE> 5
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of the Notice of Annual Meeting,
this Proxy Statement, the Proxy and any additional solicitation materials
furnished to stockholders. Copies of solicitation materials will be furnished to
brokerage houses, fiduciaries and custodians holding shares in their names that
are beneficially owned by others so that they may forward this solicitation
material to such beneficial owners. The Company has engaged Corporate Investor
Communications, Inc. ("CIC") to provide routine advice and services for Proxy
solicitation. CIC will receive approximately $4,000 from the Company for such
advice and services, plus reimbursement of costs incurred in forwarding the
solicitation materials to the beneficial owners of Common Stock. To assure that
a quorum will be present in person or by proxy at the Annual Meeting, it may be
necessary for CIC, certain officers, directors, employees or other agents of the
Company to solicit proxies by telephone, facsimile or other means or in person.
Except with respect to CIC, the Company will not compensate such individuals for
any such services. Except as described above, the Company does not presently
intend to solicit proxies other than by mail.
IMPORTANT
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
POSTAGE-PREPAID ENVELOPE NO LATER THAN DECEMBER 1, 1998, SO THAT YOUR SHARES MAY
BE VOTED IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING.
THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED JUNE
30, 1998 (THE "ANNUAL REPORT") AND THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED JUNE 30, 1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE "FORM 10-K"), HAVE BEEN MAILED CONCURRENTLY WITH THE MAILING OF THE NOTICE
OF ANNUAL MEETING AND PROXY STATEMENT TO ALL STOCKHOLDERS ENTITLED TO NOTICE OF
AND TO VOTE AT THE ANNUAL MEETING. NEITHER THE ANNUAL REPORT NOR THE FORM 10-K
IS CONSIDERED PROXY-SOLICITING MATERIAL AND NEITHER IS INCORPORATED INTO THIS
PROXY STATEMENT.
2
<PAGE> 6
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE -- ELECTION OF DIRECTORS
At the Annual Meeting, a Board of five directors will be elected to serve
until the Company's next Annual Meeting or until their successors shall have
been duly elected and qualified or until their earlier death, resignation or
removal. The Board has selected five nominees, all of whom are current directors
of the Company. Each person nominated for election has agreed to serve if
elected, and management has no reason to believe that any nominee will be
unavailable to serve. Unless otherwise instructed, the Proxy holders will vote
the Proxies received by them IN FAVOR OF the nominees named below. The five
candidates receiving the highest number of affirmative votes of all the shares
entitled to vote at the Annual Meeting will be elected. By voting for the five
nominees, the stockholders also approve the reduction in the size of the Board
from six members to five members. If any nominee is unable to or declines to
serve as a director, the Proxies may be voted for a substitute nominee
designated by the current Board. As of the date of this Proxy Statement, the
Board is not aware of any nominee who is unable or will decline to serve as a
director.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE ELECTION OF
EACH OF THE FOLLOWING NOMINEES TO SERVE AS DIRECTORS OF THE COMPANY UNTIL THE
NEXT ANNUAL MEETING AND UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND
QUALIFIED OR UNTIL THEIR EARLIER DEATH, RESIGNATION OR REMOVAL.
INFORMATION WITH RESPECT TO DIRECTOR NOMINEES
Set forth below is information regarding the nominees.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY DIRECTOR SINCE
---- --- ---------------------------- --------------
<S> <C> <C> <C>
Joseph S. Lacob 42 Director 1991
Brian A. Markison 38 Director 1998
Richard A. Miller, M.D. 47 Director, President and 1991
Chief Executive Officer
Joseph C. Scodari 45 Director 1994
Craig C. Taylor 48 Director 1991
</TABLE>
BUSINESS EXPERIENCE OF DIRECTOR NOMINEES
MR. LACOB was elected as a Director of the Company in June 1991. He is a
General Partner of Kleiner Perkins Caulfied & Byers, a venture capital
investment firm, which he joined in 1987. Mr. Lacob is currently Chairman of the
Board of CellPro, Inc., and is a director of Corixa Corporation, both
biotechnology companies, and Heartport, Inc., a cardiovascular device company,
as well as several private life sciences companies.
MR. MARKISON was elected as a Director of the Company in February 1998. Mr.
Markison is currently Senior Vice President, Neuroscience/Anti-Infective Sales
for Bristol-Myers Squibb Company, a pharmaceutical company. Mr. Markison joined
Bristol-Myers Squibb Company in 1982 where he has held a variety of positions
including Vice President, Marketing and Advanced Medical Services for
Bristol-Myers Squibb Oncology.
DR. MILLER has served as President, Chief Executive Officer and a Director
since he co-founded the company in April 1991. Dr. Miller was a co-founder of
IDEC Pharmaceuticals Corporation and from 1984 to February 1992 served as Vice
President and a Director. Dr. Miller also is a Clinical Professor of Medicine
(Oncology) at Stanford University Medical Center.
3
<PAGE> 7
MR. SCODARI was elected as a Director of the Company in December 1994. He
is President and Chief Operating Officer of Centocor, Inc., a biotechnology
company. Prior to joining Centocor, he was Senior Vice President and General
Manager, North America Ethicals for Rhone-Poulenc Rorer Pharmaceuticals, Inc., a
pharmaceutical company, where he held various positions from 1989. From 1987 to
1989, Mr. Scodari was Executive Vice President of Sterling Drugs' U.S.
Diagnostic Imaging Division, where he held responsibilities for all marketing
and sales and business development activities for Sterling's imaging agent
business.
MR. TAYLOR was elected as a director of the Company in June 1991. He is a
General Partner of AMC Partners 89, L.P., the General Partner of Asset
Management Associates 1989, L.P., a private venture capital partnership. Mr.
Taylor has been with Asset Management Company, a venture management group, since
1977. Mr. Taylor is a Director of Metra BioSystems, Inc., and Lynx Therapeutics,
Inc., biotechnology companies and several private companies.
There are no family relationships among executive officers or directors of
the Company.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended June 30, 1998, the Board held four meetings.
As of June 30, 1998, the Company had two standing Committees: an Audit Committee
and a Compensation Committee. The Company does not have a standing Nominating
Committee.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent accountants and reviewing reports of the
Company's independent accountants regarding the Company's accounting practices
and systems of internal accounting controls. During the fiscal year ended June
30, 1998, the Audit Committee consisted of two directors. Mr. Taylor and Mr.
Latterell served until February 1998 when Mr. Latterell was replaced by Mr.
Lacob. The Audit Committee held one meeting during the fiscal year ended June
30, 1998.
The Compensation Committee reviews and approves the Company's general
compensation policies, sets compensation levels for the Company's executive
officers and administers the Company's 1995 Stock Option Plan, successor to the
Company's 1992 Stock Option Plan, and the Company's Employee Stock Purchase
Plan. During the fiscal year ended June 30, 1998, the Compensation Committee
consisted of three directors. Messrs. Lacob, Latterell and Taylor served until
February 1998 when Mr. Latterell was replaced by Mr. Scodari. The Compensation
Committee met four times during the fiscal year ended June 30, 1998.
During the last fiscal year no director attended fewer than 75% of the
aggregate number of meetings of the Board and meetings of Committees of the
Board on which such director serves, which were held during the period that such
individual was a member of the Board.
4
<PAGE> 8
DIRECTOR COMPENSATION
The non-employee Board members do not receive any cash compensation for
their service on the Board or any Committee of the Board. However, Board members
are reimbursed for travel expenses incurred in attending Board or Committee
meetings.
Under the Company's Non-Employee Directors Stock Option Plan (the
"Directors Plan"), each new non-employee Board member will receive an automatic
option grant for 10,000 shares of Common Stock under the Directors Plan on the
date of his or her initial election or appointment to the Board. Furthermore, on
the date of each Annual Stockholders Meeting, each individual re-elected as a
non-employee Board member will receive an automatic option grant for an
additional 5,000 shares of Common Stock, provided such individual has served as
a Board member for at least six months. The exercise price per share of Common
Stock subject to each automatic option grant will be equal to the fair market
value per share on the automatic grant date. Each automatic grant will have a
term of ten years, subject to earlier termination following the optionee's
cessation of Board service. Each automatic grant will be immediately
exercisable; however, any shares purchased upon exercise of the option will be
subject to repurchase should the optionee's service as a non-employee Board
member cease prior to vesting in the shares. Each 10,000-share grant will vest
in five equal and successive annual installments over the optionee's period of
Board service. Each 5,000-share grant will vest in 12 equal and successive
monthly installments over the optionee's period of Board service. However, each
outstanding option will immediately vest upon (i) certain changes in the
ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board member.
Messrs. Kiley, Lacob, Scodari and Taylor each received an option for 5,000
shares on December 17, 1997, the date of the last Annual Meeting of the
Company's stockholders, with an exercise price of $24.25 per share. Mr. Markison
received an option for 10,000 shares on February 27, 1998, the date of his
appointment to the Board, with an exercise price of $26.125. The exercise price
of options granted to directors represented the fair market value per share of
Common Stock on the grant dates.
5
<PAGE> 9
PROPOSAL TWO -- APPROVAL OF AN
AMENDMENT TO 1995 STOCK OPTION PLAN
INTRODUCTION
The Company's stockholders are being asked to approve an amendment to the
1995 Stock Option Plan (the "Option Plan") which will increase the maximum
number of shares available for issuance under the Option Plan by an additional
400,000 shares.
The amendment was adopted by the Board on September 24, 1998, subject to
stockholder approval at the Annual Meeting. The Board believes that the increase
in the share reserve is necessary in order to ensure that the Company will have
a sufficient reserve of Common Stock under the Option Plan to continue to
attract and retain the services of key individuals essential to the Company's
long-term growth and success.
The terms and provisions of the Option Plan, as amended through September
24, 1998, are summarized more fully below. This summary, however, does not
purport to be a complete description of all the provisions of the Option Plan. A
copy of the Option Plan will be furnished by the Company to any stockholder upon
written request to the Secretary of the Company at the Company's principal
offices in Sunnyvale, California.
PLAN STRUCTURE
Under the Option Plan, eligible persons may, at the discretion of the Plan
Administrator (as defined below), be granted options to purchase shares of
Common Stock at an exercise price not less than 85% of the fair market value of
such shares on the grant date. The Option Plan is currently administered by the
Compensation Committee of the Board. This committee (the "Plan Administrator")
has complete discretion (subject to the provisions of the Option Plan) to
authorize option grants under the Option Plan.
SHARE RESERVE
The maximum number of shares of Common Stock issuable over the term of the
Option Plan may not exceed 2,763,604 shares, including the 400,000-share
increase for which stockholder approval is sought under this Proposal Two. On
the first trading date of each calendar year beginning with the 1996 calendar
year, the share reserve will automatically increase by an amount equal to one
percent (1%) of the number of shares of Common Stock outstanding on the last day
of the preceding calendar year; provided that such annual increase may not
exceed 500,000 shares. The increase on January 2, 1998 was in an amount equal to
102,042 shares.
The maximum number of shares as to which any one individual participating
in the Option Plan may be granted stock options and separately exercisable stock
appreciation rights may not exceed 750,000 shares in the aggregate over the term
of the Option Plan.
Should any option terminate prior to exercise in full, the shares subject
to the unexercised portion of that option will be available for subsequent
option grants. In addition, any unvested shares issued under the Option Plan and
subsequently repurchased by the Company at the original exercise price paid per
share pursuant to the Company's repurchase rights under the Option Plan will be
added back to the number of shares of Common Stock reserved for issuance under
the Option Plan and will accordingly be available for reissuance through one or
more subsequent option grants made under the Option Plan.
In the event any change is made to the Common Stock issuable under the
Option Plan (by reason of any stock dividend, stock split, combination of
shares, recapitalization, or other change affecting the outstanding Common Stock
as a class without receipt of consideration), appropriate adjustments will be
made to the number and/or class of securities available for issuance (in the
aggregate and to each optionee) under the Option Plan.
6
<PAGE> 10
As of September 30, 1998, 1,617,280 shares were subject to outstanding
option grants under the Option Plan, 883,306 shares remained available for
future grants (assuming approval of this Proposal Two), and 263,018 shares have
been issued under the Option Plan.
ELIGIBILITY
Officers, other employees of the Company and its parent or subsidiaries,
non-employee members of the Board and the board of directors of its parent or
subsidiaries and independent consultants of the Company and its parent or
subsidiary corporations are eligible to participate in the Option Plan.
Non-employee Board members are also eligible to receive automatic option grants
under the Non-Employee Directors Stock Option Plan (the "Directors Plan").
As of September 30, 1998 approximately five executive officers, 65 other
employees and five non-employee Board members were eligible to participate in
the Option Plan and five non-employee Board members were eligible to participate
in the Directors Plan.
VALUATION
For purposes of establishing the option exercise price and for all other
valuation purposes under the Option Plan, the fair market value per share of
Common Stock on any relevant date will be the closing selling price per share as
reported on the Nasdaq National Market. As of September 30, 1998, the fair
market value per share of the Common Stock was $16.625 per share, as reported on
the Nasdaq National Market.
TERMS OF OPTION GRANT PROGRAM
Options may be granted at an exercise price per share not less than eighty
five percent (85%) of the fair market value per share of Common Stock on the
option grant date. No granted option will have a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under Option Plan:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.
Limited stock appreciation rights may be granted to officers of the Company
as part of their option grants. Any option with such a limited stock
appreciation right may be surrendered to the Company upon the successful
completion of a hostile take-over of the Company. In return for the
surrendered option, the officer will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the
excess of (a) the take-over price per share over (b) the exercise price
payable for such share.
7
<PAGE> 11
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Option Plan which have exercise prices in excess
of the then current market price of Common Stock and to issue replacement
options with an exercise price based on the market price of Common Stock at the
time of the new grant.
GENERAL PROVISIONS
Acceleration. In the event that the Company is acquired by merger or asset
sale, each outstanding option under the Option Plan which is not to be assumed
by the successor corporation or replaced with a comparable option to purchase
shares of the capital stock of the successor corporation will automatically
accelerate in full. Any options assumed or replaced in connection with such
acquisition will be subject to immediate acceleration, and any unvested shares
which do not vest at the time of such acquisition will be subject to full and
immediate vesting, in the event the individual's service is subsequently
terminated within 18 months following the acquisition. In connection with a
hostile change in control of the Company (whether by successful tender offer for
more than 50% of the outstanding voting stock or by proxy contest for the
election of Board members), the Plan Administrator will have the discretionary
authority to provide for automatic acceleration of outstanding options under the
Option Plan either at the time of such change in control or upon the subsequent
termination of the individual's service.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Financial Assistance. The Plan Administrator may permit one or more
participants to pay the exercise price of outstanding options or the purchase
price of shares under the Option Plan by delivering a promissory note payable in
installments. The Plan Administrator will determine the terms of any such
promissory note. However, the maximum amount of financing provided any
participant may not exceed the cash consideration payable for the issued shares
plus all applicable taxes incurred in connection with the acquisition of the
shares. Any such promissory note may be subject to forgiveness in whole or in
part, at the discretion of the Plan Administrator, over the participant's period
of service.
Special Tax Election. The Plan Administrator may provide one or more
holders of options or unvested shares with the right to have the Company
withhold a portion of the shares otherwise issuable to such individuals in
satisfaction of the tax liability incurred by such individuals in connection
with the exercise of those options or the vesting of those shares.
Alternatively, the Plan Administrator may allow such individuals to deliver
previously acquired shares of Common Stock in payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the Option Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the Option Plan at any time, and the Option Plan will in all events terminate on
August 1, 2005.
8
<PAGE> 12
STOCK AWARDS
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table elsewhere in this Proxy Statement and the
various indicated individuals and groups, the number of shares of Common Stock
subject to options granted under the Option Plan between July 1, 1997 and
September 30, 1998, together with the weighted average exercise price payable
per share.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
OPTIONS GRANTED WEIGHTED AVERAGE
NAME (NUMBER OF SHARES) EXERCISE PRICE
---- ------------------ ----------------
<S> <C> <C>
Richard A. Miller, President and Chief Executive Officer.......... 62,000 $27.00
Thomas D. Kiley, Director ........................................ 5,000 $24.25
Joseph S. Lacob, Director ........................................ 5,000 $24.25
Brian A. Markison, Director ...................................... 10,000 $26.13
Joseph C. Scodari, Director ...................................... 5,000 $24.25
Craig C. Taylor, Director ........................................ 5,000 $24.25
Marc L. Steuer, Senior Vice President, Business Development
and Chief Financial Officer..................................... 40,000 $27.00
William C. Dow, Ph.D., Vice President, Chemical Research
and Development (1) ............................................ --- ---
Michael J. Hensley, M.D., Vice President, Pharmaceutical
Development..................................................... 95,000 $24.97
All current executive officers as a group (5 persons)............. 367,000 $24.91
All current non-employee Board members as a group (5 persons)..... 30,000 $24.88
All employees, including current officers who are not
executive officers as a group (65 persons)...................... 382,825 $22.26
</TABLE>
(1) Dr. Dow resigned from the Company effective as of July 31, 1998.
FEDERAL TAX CONSEQUENCES OF OPTIONS
Options granted under the Option Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to satisfy such requirements. The
Federal income tax treatment for the two types of options differ as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize regular
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of disposition. For Federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two years after the option grant date and more
than one year after the exercise date. If either of these two holding periods is
not satisfied, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares at the date of exercise over
the exercise price, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
9
<PAGE> 13
If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company, at the original exercise price paid per
share, in the event the optionee's service terminates prior to vesting in the
shares, then the optionee will not recognize any taxable income at the time of
exercise. The optionee will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the difference between the
fair market value of the shares on the date the repurchase right lapses and the
option exercise price paid for those shares. The optionee may, however, elect
under Section 83(b) of the Internal Revenue Code to include as ordinary income
in the year of exercise an amount equal to the difference between the fair
market value of the purchased shares on the date of exercise (determined as if
the shares were not subject to the Company's repurchase right) and the option
exercise price paid for the shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the Company's
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee in connection with the
exercise of the non-statutory option. The deduction will in general be allowed
for the taxable year of the Company in which such ordinary income is recognized
by the optionee.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to an income tax
deduction equal to such distribution for the taxable year in which the ordinary
income is recognized by the optionee.
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions of
incentive stock option shares or exercises of non-statutory options granted with
exercise prices equal to the fair market value of the shares on the grant date
will qualify as performance-based compensation for purposes of Code Section
162(m) and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company.
ACCOUNTING TREATMENT
Option grants or stock issuances to employees with exercise or issue prices
less than the fair market value of the shares on the grant or issue date will
result in a compensation expense to the Company's earnings equal to the
difference between the exercise or issue price and the fair market value of the
shares on the grant or issue date. Such expense will be recognized by the
Company over the period that the option shares or issued shares are to vest.
Option grants or stock issuances at 100% of fair market value will not result in
any charge to the Company's earnings, but the Company must disclose, in
pro-forma statements to the Company's financial statements, the impact those
options would have upon the Company's reported earnings were the value of those
options at the time of grant treated as compensation expense. Whether or not
granted at a discount, the number of outstanding options may be a factor in
determining the Company's earnings per share on a diluted basis. Options or
stock appreciation rights granted other than to employees and non-employee Board
members will result in a charge to the Company's earnings based upon the
Black-Schoales valuation model.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to the
Company's earnings.
NEW PLAN BENEFITS
As of September 30, 1998, no stock options have been granted on the basis
of the 400,000-share increase for which stockholder approval is sought as part
of this Proposal Two.
10
<PAGE> 14
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendment to the Option Plan which will increase
the maximum number of shares of Common Stock authorized for issuance over the
term of the Option Plan by an additional 400,000 shares. Should such stockholder
approval not be obtained, then the 400,000-share increase to the share reserve
will not be implemented. The Option Plan will, however, continue to remain in
effect, and option grants may continue to be made pursuant to the provisions of
the Option Plan in effect prior to the amendment summarized in this Proposal
Two, until the available reserve of Common Stock as last approved by the
stockholders has been issued pursuant to option grants made under the Option
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF
THE AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN.
11
<PAGE> 15
PROPOSAL THREE -- RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS
The Board has appointed the firm of PricewaterhouseCoopers LLP, independent
accountants, to audit the financial statements of the Company for the fiscal
year ending June 30, 1999, and is asking the stockholders to ratify this
appointment.
In the event the stockholders fail to ratify the appointment, the Board
will reconsider its selection. Even if the selection is ratified, the Board in
its discretion may direct the appointment of a different independent accounting
firm at any time during the year if the Board feels that such a change would be
in the best interest of the Company and its stockholders. The affirmative vote
of the holders of a majority of the Company's Common Stock present or
represented by Proxy at the Annual Meeting and entitled to vote is required to
ratify the selection of PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP has served as independent auditors to the
Company for the fiscal year ended June 30, 1998. A representative of
PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting to
respond to appropriate questions, and will be given the opportunity to make a
statement if he or she so desires.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE
RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP TO SERVE AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING JUNE 30, 1999.
12
<PAGE> 16
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain compensation earned during the
fiscal year ended June 30, 1998, for services rendered in all capacities to the
Company, by (i) the Company's Chief Executive Officer, and (ii) the three other
highest paid executive officers whose salary and bonus for fiscal 1998 were in
excess of $100,000. The individuals named in the table will be hereinafter
referred to as the "Named Executive Officers." No other executive officers who
would otherwise have been includable in such table on the basis of salary and
bonus earned for the 1998 fiscal year has been excluded by reason of his or her
termination or change in executive status during the year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS ALL OTHER
SALARY SECURITIES UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) OPTIONS/SARS (#) ($)
- --------------------------- ---- ------------- --------------------- -----------
<S> <C> <C> <C> <C>
Richard A. Miller 1998 252,500 62,000 --
President and Chief Executive Officer 1997 229,833 60,000 --
1996 215,865 246,667 --
Marc L. Steuer 1998 218,800 40,000 --
Senior Vice President, Business Development 1997 199,200 55,000 --
and Chief Financial Officer 1996 181,827 80,000 --
William C. Dow, Ph.D. (2) 1998 152,500 -- --
Vice President, Chemical Research and 1997 140,237 30,000 --
Development 1996 130,098 67,667 --
Michael J. Hensley, M.D. (3) 1998 119,400 95,000 --
Vice President, Pharmaceutical Development 1997 -- -- --
1996 -- -- --
</TABLE>
- ----------
(1) Includes amounts earned but not paid in the fiscal year ended June 30,
1997.
(2) Dr. Dow resigned from the Company effective as of July 31, 1998.
(3) Dr. Hensley joined the Company during fiscal year 1998.
13
<PAGE> 17
STOCK OPTIONS, EXERCISES AND HOLDINGS
The following table provides certain information regarding stock options
granted to the Named Executive Officers during the fiscal year ended June 30,
1998. Except for the limited stock appreciation rights described in footnote (1)
below, no stock appreciation rights were granted during such fiscal year to the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION
------------------------------------------------------- FOR OPTION TERM(5)
NUMBER OF --------------------
SECURITIES PERCENTAGE OF
UNDERLYING TOTAL OPTIONS EXERCISE
OPTIONS GRANTED GRANTED TO PRICE PER EXPIRATION
NAME (1)(2) EMPLOYEES(3) SHARE(4) DATE 5% 10%
- ---- --------------- ------------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Miller, M.D........ 62,000 10.7% $ 27.00 04/16/08 $1,052,770 $2,667,925
Marc L. Steuer................ 40,000 6.9% $ 27.00 04/16/08 $ 679,206 $1,721,242
William C. Dow, Ph.D. (6) .... -- -- -- -- -- --
Michael J. Hensley, M.D. ..... 70,000 12.1% $ 24.25 12/16/07 $1,067,549 $2,705,378
25,000 4.3% $ 27.00 04/16/08 $ 424,504 $1,075,776
</TABLE>
- ----------
(1) Each option includes a limited stock appreciation right that allows the
optionee to surrender his or her option with such a right in effect for six
months, to the extent exercisable for vested shares of Common Stock, upon
the successful completion of a hostile tender offer for more than 50% of
the Company's outstanding securities. In return, the optionee will be
entitled to a cash distribution from the Company in an amount per
surrendered option share equal to the highest price per share of Common
Stock paid in the tender offer less the exercise price payable per share.
(2) The dates on which the options were granted are as follows:
<TABLE>
<CAPTION>
NAME NUMBER SHARES GRANT DATE
- ---- ------------- ----------
<S> <C> <C>
Richard A. Miller, M.D............... 62,000 04/17/98
Marc L. Steuer....................... 40,000 04/17/98
William C. Dow, Ph.D................. -- --
Michael J. Hensley, M.D. ............ 70,000 12/17/97
25,000 04/17/98
</TABLE>
The option for 62,000 shares granted to Dr. Miller on April 17, 1998 vests
as follows: (i) 10,000 shares in equal monthly installments over the two
year period beginning January 1, 1999, (ii) 22,000 shares in equal monthly
installments over the one year period beginning January 1, 2001 and (iii)
30,000 shares in equal monthly installments over the one year period
beginning January 1, 2002.
The option for 40,000 shares granted to Mr. Steuer on April 17, 1998 vests
as follows: (i) 7,000 shares in equal monthly installments over the one
year period beginning January 1, 1999, (ii) 20,000 shares in equal monthly
installments over the two year period beginning January 1, 2000 and (iii)
13,000 shares in equal monthly installments over the one year period
beginning January 1, 2002.
The option for 70,000 shares granted to Dr. Hensley on December 17, 1997
vests as follows: (i) 14,000 shares on December 17, 1998 and (ii) 56,000 in
equal monthly installments over the four year period beginning December 18,
1998.
The option for 25,000 shares granted to Dr. Hensley on April 17, 1998 vests
in equal monthly installments over the five year period beginning April 17,
1998.
Each of the granted options will immediately become vested for all of the
option shares in the event of certain acquisitions or hostile take-overs of
the Company as described in Proposal Two. Each option has a maximum term of
ten years, subject to earlier termination in the event of the optionee's
cessation of service with the Company.
14
<PAGE> 18
(3) Based on an aggregate of approximately 577,000 options granted to employees
in fiscal 1998, including options granted to the Named Executive Officers.
(4) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same day sale of the purchased
shares. The Company may also finance the option exercise price as described
in Proposal Two. The Plan Administrator has the discretionary authority to
reprice outstanding options under the Plan through the cancellation of
those options and the grant of replacement options with an exercise price
equal to the lower fair market value of the option shares on the regrant
date.
(5) Potential realizable value is based on the assumption that the price per
share of Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. The assumed 5% and 10% annual rates are
set forth in accordance with the rules and regulations adopted by the
Securities and Exchange Commission and do not represent the Company's
estimate of stock price appreciation. There can be no assurance that the
assumed 5% and 10% annual rates of appreciation (compounded annually) will
actually be realized over the term of the option. Unless the market price
of the Common Stock appreciates over the option term, no value will be
realized from the option grants made to the executive officers.
(6) Dr. Dow resigned from the Company effective as of July 31, 1998.
OPTION HOLDINGS
The table below sets forth certain information concerning the exercise of
options during the fiscal year ending June 30, 1998 by the Named Executive
Officers and unexercised options held as of the end of such year by such
individuals. No stock appreciation rights were exercised by the Named Executive
Officers during such fiscal year, and, except to the extent described in
footnote (1) to the Option Grants table above, no stock appreciation rights were
held by such individuals at the end of such fiscal year.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND 1998 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NO. OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR END AT FISCAL YEAR END (1)
ACQUIRED ON VALUE ----------------------------- -------------------------
NAME EXERCISE REALIZED (3) VESTED UNVESTED VESTED UNVESTED
---- ------------ ------------ ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Miller, M.D. ........ -- -- 112,555 256,112 $ 1,401,942 $ 2,061,397
Marc L. Steuer.................. -- -- 124,028 144,306 $ 2,139,736 $ 1,019,444
William C. Dow, Ph.D. (2)....... 10,000 $215,125 38,612 75,722 $ 582,238 $ 670,441
Michael J. Hensley, M.D. ....... -- -- 833 94,167 -- --
</TABLE>
- ----------
(1) Determined by subtracting the exercise price from the market price of the
Common Stock on June 30, 1998 ($23.75).
(2) Dr. Dow resigned from the Company effective as of July 31, 1998.
(3) Based upon fair market value on date of exercise less exercise price.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
In May 1992, the Company entered into an employment letter agreement with
William C. Dow. During the fiscal year ended June 30, 1998, Dr. Dow earned
$152,500 under the agreement. Dr. Dow resigned from the Company effective as of
July 31, 1998.
In June 1992, the Company entered into an employment agreement with Richard
A. Miller which either party may terminate at any time upon 90 days' prior
written notice of an intent to terminate. During the fiscal year ended June 30,
1998, Dr. Miller earned $252,500 under the agreement.
15
<PAGE> 19
In October 1994, the Company entered into an employment agreement with Marc
L. Steuer, which remains in effect unless and until terminated by either the
Company or Mr. Steuer at any time and for any reason, with or without cause.
During the fiscal year ended June 30, 1998, Mr. Steuer earned $218,800 under the
agreement.
In October 1997, the Company entered into an employment agreement with Dr.
Michael J. Hensley, M.D., which remains in effect unless and until terminated by
either the Company or Dr. Hensley at any time and for any reason, with or
without cause. During the fiscal year ended June 30, 1998, Dr. Hensley earned
$119,400 under the agreement.
The Company has entered into agreements with each of Dr. Miller, Mr. Steuer
and Dr. Hensley that provide for certain payments and accelerated vesting of the
shares of common stock subject to the outstanding options held by each officer
under the Company's 1995 Stock Option Plan in the event of certain changes in
control of the Company or a subsequent termination of employment. In the event
of such officer's involuntary termination within 36 months following the change
in control, the officer will be entitled to receive severance payments for a
period of 12 months in an aggregate amount equal to the officer's base salary at
the time of termination plus the bonus paid to the officer in the fiscal year
preceding the year of termination. The payments will be made in installments
over the 12-month period unless the officer elects to receive a lump-sum payment
equal to the present value of the installment payments. In addition, in the
event of a change in control, all outstanding options held by the officer which
would fully vest or become fully exercisable at least 18 months after the change
in control will accelerate as follows: 50% of the unvested or unexercisable
portion immediately upon the change in control; 25% of the portion unexercisable
or unvested at the time of the change in control one year after the change in
control (if the officer is then still employed by the Company or its successor);
and 25% of the portion unexercisable or unvested at the time of the change in
control 18 months after a change in control (if the officer is then still
employed by the Company or its successor). All Options held by the officer at
the time of a change in control which otherwise become fully exercisable or
fully vest within 18 months following the change in control will become
exercisable and vest in accordance with the following schedule: 50% of the
previously unexercisable or unvested portion immediately upon the change in
control; the remaining portion will continue to become exercisable and vest in
accordance with the exercise/vesting schedule applicable to those options at the
time of the change in control. Similarly, any repurchase rights exercisable by
the Company with respect to shares of Common Stock held by the officer will
lapse depending upon when the repurchase rights would have otherwise lapsed. In
the event of the officer's involuntary termination during the 18 month period
after the change in control, all previously unexercisable options (including
options which did not accelerate at the time of the change in control) will
become immediately exercisable and the repurchase rights will lapse as to all
shares then held by the officer.
Under the Option Plan, the Plan Administrator has the authority to
accelerate outstanding options in the event of certain changes in control of the
Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation matters relating to the Company's President and
Chief Executive Officer, Richard A. Miller, and the Company's other executive
officers are generally made by the Compensation Committee. The Compensation
Committee also administers the Company's 1995 Stock Option Plan (the "Plan")
under which grants may be made to executive officers and other key employees.
The Compensation Committee has furnished the following report on the
compensation established for Dr. Miller and the Company's other executive
officers for the period from July 1, 1997 to June 30, 1998.
In June 1997, the Compensation Committee set the compensation payable to
Dr. Miller for the 12-month period ending April 30, 1998. Similarly, in April
1998, the Compensation Committee set the compensation payable to Dr. Miller for
the 12-month period ending April 30, 1999. Dr. Miller in turn recommended,
subject to the Compensation Committee's review and approval, the compensation to
be paid for such 12-month period to the Company's other executive officers. For
those executive officers, the Compensation Committee had
16
<PAGE> 20
previously established performance factors to be considered by Dr. Miller in
making his recommendations with respect to the compensation level to be in
effect for each such officer. Dr. Miller provided the Compensation Committee
with his evaluation of the performance of each officer with respect to those
factors and his recommendation as to the compensation to be paid to that
individual on the basis of such performance. The Compensation Committee reviewed
and approved the recommendations of Dr. Miller.
General Compensation Policy. The Compensation Committee's overall policy as
to executive compensation is to ensure that an appropriate relationship exists
between the total compensation package established for each executive officer
and the creation of stockholder value, while at the same time assuring that
compensation is sufficiently competitive to motivate and retain key executives.
In furtherance of this goal, executive compensation is structured so as to
integrate competitive levels of annual base salary with discretionary stock
options based upon individual and corporate performance. This annual cash
compensation, together with the payment of equity incentives in the form of
stock option grants, is designed to attract and retain qualified executives and
to ensure that such executives have a continuing stake in the long-term success
of the Company.
Factors. Since the Company is in the development stage, the use of
traditional performance standards (such as profit levels and return on equity)
are not appropriate in evaluating the performance of the executive officers. In
particular, the unique nature of the biotechnology industry, specifically the
absence of revenues and the fact that the Company's stock performance is often
more a consequence of larger market forces than of actual Company achievements,
makes it impossible to tie performance objectives to standard financial
considerations. The primary factors which were considered in establishing the
components of each executive officer's compensation package for the 1998 fiscal
year are summarized below. The Compensation Committee may, however, in its
discretion apply entirely different factors, such as different measures of
strategic performance, for future fiscal years.
o BASE SALARY. When establishing or reviewing base compensation levels for
each executive officer, the Committee considers numerous factors, including the
qualifications of the executive and his or her level of relevant experience,
strategic goals for which the executive has responsibility, specific
accomplishments of the executive during the last fiscal year and the
compensation levels in effect at companies in the Company's industry which
compete with the Company for business and executive talent.
Base salaries are reviewed annually, and adjustments to each executive
officer's base salary are made to reflect individual performance and salary
increases effected by the peer group companies. A major objective, accordingly,
is to have base salary levels commensurate with those of comparable positions
with the peer group companies, given the level of seniority and skills possessed
by the executive officer in question and the Committee's assessment of such
executive's performance over the year.
o LONG-TERM INCENTIVE COMPENSATION. The Compensation Committee has the
authority under the Plan to provide executives and other key employees with
equity incentives primarily in the form of stock option grants. Generally, the
size of each option grant is set at a level which the Compensation Committee
deems appropriate to create a meaningful opportunity for stock ownership based
upon the individual's current position with the Company, but there is also taken
into account comparable awards made to individuals in similar positions in the
industry, as reflected in external surveys, the individual's potential for
future responsibility and promotion and the individual's performance in the
recent period. The Compensation Committee has also established general
guidelines for maintaining the unvested option holdings of each executive
officer at a targeted level based upon his or her position with the Company, and
option grants are periodically made to maintain the targeted levels. However,
the Committee does not strictly adhere to these guidelines, and the relative
weight given to each of the foregoing factors varies from individual to
individual as the Compensation Committee deems appropriate under the
circumstances.
17
<PAGE> 21
The grants are designed to align the interests of the executive officer
with those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an equity
stake in the business. Each grant allows the officer to acquire shares of Common
Stock at a fixed price per share (the market price on the grant date) over a
specified period (up to ten years). Accordingly, the option will provide a
return to the executive officer only if he or she remains in the Company's
employ, and then only if the market price appreciates over the option term.
CEO Compensation. In setting the compensation payable for the 1998 fiscal
year to the Company's President and Chief Executive Officer, Richard A. Miller,
the Committee reviewed a detailed performance evaluation compiled for Dr.
Miller. Such review considered Dr. Miller's qualifications, the level of
experience brought to his position and gained while in the position, Company
goals for which Dr. Miller had responsibility, specific accomplishments to date,
and the importance of Dr. Miller's individual achievement in meeting company
goals and objectives set during the prior fiscal year. In addition, the
Compensation Committee surveyed the salary levels in effect for chief executive
officers at the peer group companies which were taken into account for
comparative compensation purposes for all of the Company's other executive
officers.
In determining Dr. Miller's compensation level, the Committee sought to
establish a competitive rate of base salary, while at the same time tying a
significant percentage of his overall compensation package to individual and
Company performance, such as the attainment of certain milestones in the testing
of clinical products, the successful completion of a public offering and stock
price appreciation. Based on these factors, the Committee increased Dr. Miller's
base salary level to $277,211. The level of base salary set for Dr. Miller was
in the 34th percentile of the surveyed salary for the peer group companies.
In fiscal 1998, the Company also granted Dr. Miller options to purchase
62,000 shares of the Company's Common Stock under the Plan, at an exercise price
of $27.00 per share. The grant was intended to provide Dr. Miller with a
meaningful incentive to continue in the Company's employ and contribute to the
Company's financial success, as reflected in the future appreciation in the
market price of the Company's Common Stock.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
limitation applies only to compensation which is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 1998 fiscal year did not exceed the $1
million limit per officer, nor is it expected that the non-performance based
compensation to be paid to the Company's executive officers for fiscal 1999 will
exceed that limit. The Plan is structured so that any compensation deemed paid
to an executive officer in connection with the exercise of option grants made
under that plan with an exercise price equal to the fair market value of the
option shares on the grant date will qualify as performance-based compensation
which will not be subject to the $1 million limitation. Because it is very
unlikely that the cash compensation payable to any of the Company's executive
officers in the foreseeable future will approach the $1 million limit, the
Compensation Committee has decided at this time not to take any other action to
limit or restructure the elements of cash compensation payable to the Company's
executive officers. The Compensation Committee will reconsider this decision
should the individual compensation of any executive officer ever approach the $1
million level.
The above report is submitted by the Compensation Committee of the
Company's Board of Directors.
Joseph S. Lacob
Joseph C. Scodari
Craig C. Taylor
18
<PAGE> 22
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of June 30, 1998, the Compensation Committee of the Board was comprised
of Messrs. Lacob, Scodari and Taylor.
No current executive officer of the Company served on the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board or Compensation
Committee.
PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on October 23, 1995 (the date of the Company's initial
public offering) at the then current market price of $12.00 per share, along
with the composite prices of companies listed in the Nasdaq Pharmaceutical Index
and Nasdaq Total U.S. Stock Market Index. This information has been provided to
the Company by the Nasdaq Stock Market.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG PHARMACYCLICS, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
<TABLE>
<CAPTION>
NASDAQ NASDAQ STOCK
MEASUREMENT PERIOD PHARMACEUTICAL MARKET (U.S.)
(FISCAL YEAR COVERED) PHARMACYCLICS, INC. INDEX INDEX
<S> <C> <C> <C>
10/23/95 100 100 100
06/30/96 147 125 115
06/30/97 129 127 140
06/30/98 198 130 184
</TABLE>
* $100 invested on 10/23/95 in stock or index -- including reinvestment of
dividends. Fiscal Year ending June 30.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report on
Executive Compensation and the Company Stock Performance Graph will not be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those statutes.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Restated Certificate of Incorporation and Bylaws provide for
indemnification of directors, officers and other agents of the Company. Each of
the current directors, and certain officers and agents of the Company have
entered into separate indemnification agreements with the Company.
The Company believes that the transactions set forth above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors, principal stockholders and affiliates will be approved by a
majority of the independent and disinterested members of the Board and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
19
<PAGE> 23
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who beneficially own
more than 10% of a registered class of the Company's equity securities, to file
with the United States Securities and Exchange Commission (the "SEC") initial
reports of beneficial ownership and reports of changes in beneficial ownership
of Common Stock and other equity securities of the Company. Officers, directors
and greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations that no other reports were required, the
Company believes that during the period from July 1, 1997 to June 30, 1998, all
officers, directors and beneficial owners of more than ten percent of the
outstanding Common Stock complied with all Section 16(a) requirements.
STOCK OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Common Stock as of September 30,
1998 by (i) all persons who are beneficial owners of five percent or more of the
Company's Common Stock, (ii) each director and nominee for director, (iii) the
Named Executive Officers in the Summary Compensation Table above and (iv) all
current directors and executive officers as a group. The number of shares
beneficially owned by each director or executive officer is determined under
rules of the SEC and the information is not necessarily indicative of beneficial
ownership for any other purpose. Shares of Common Stock subject to convertible
securities that are currently exercisable or convertible or which will become
exercisable or convertible within the next 60 days are deemed to be beneficially
owned by the person holding such convertible security for computing the
percentage ownership of such person, but are not treated as outstanding for
computing the percentage of any other person. Except as otherwise indicated, the
Company believes that the beneficial owners of the Common Stock listed below,
based upon such information furnished by such owners, have sole investment power
with respect to such shares, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES TOTAL SHARES
NAME AND ADDRESS BENEFICIALLY OWNED OUTSTANDING (1)(2)
- ---------------- ------------------ ------------------
<S> <C> <C>
The Dreyfus Corp.(3)....................... 640,149 5.2%
Richard A. Miller, M.D. (4)................ 438,786 3.5%
Thomas D. Kiley (5)........................ 170,325 1.4%
Joseph S. Lacob (6) ....................... 160,959 1.3%
Brian A. Markison ......................... --- ---
Joseph C. Scodari (7)...................... 30,903 *
Craig C. Taylor (8)........................ 212,555 1.7%
Marc L. Steuer (9)......................... 138,500 1.1%
William C. Dow, Ph.D. (10) ................ 86,903 *
Michael J. Hensley, M.D. (11).............. 16,917 *
All executive officers and directors
as a group (12 persons) (12) .............. 1,256,515 9.8%
</TABLE>
20
<PAGE> 24
- ----------
* Less than 1%.
(1) Percentage of beneficial ownership is calculated assuming 12,345,951 shares
of Common Stock were outstanding as of September 30, 1998. 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. Shares of Common Stock subject to options or
warrants currently exercisable or convertible, or exercisable or
convertible within 60 days of September 30, 1998, are deemed outstanding
for computing the percentage of the person holding such option or warrant
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned.
(2) This table is based upon information supplied to the Company by executive
officers, directors and principal stockholders. The address of each officer
and director identified in this table is that of the Company's executive
offices, 995 East Arques Avenue, Sunnyvale, CA 94086. Unless otherwise
indicated in the footnotes to this table and subject to applicable
community property laws, each of the stockholders named in this table has
sole voting and investment power with respect to the shares shown as
beneficially owned by it or him.
(3) Represents shares owned by mutual funds and other investment portfolios
managed by The Dreyfus Corp. and its investment advisory subsidiary,
Dreyfus Investment Advisors Inc.
(4) Includes 13,334, 13,334, and 279,008 shares held in trust for Jordan Andrew
Miller, Jared David Miller and the Miller-Horning Family Trust,
respectively. Also, includes vested options exercisable for 133,110 shares
within 60 days of September 30, 1998.
(5) Includes 150,075 shares held in the Kiley Revocable Trust, Thomas D. Kiley,
TEE, Nancy L. Kiley, TEE. Also, includes vested options exercisable for
20,250 shares within 60 days of September 30, 1998.
(6) Includes vested options exercisable for 20,250 shares within 60 days of
September 30, 1998 and 147 shares held by the Lacob Children's Trust. Also
includes 11,511 shares held by persons and entities affiliated with Kleiner
Perkins Caufield & Byers V ("Kleiner Perkins"), as to which shares Mr.
Lacob disclaims beneficial ownership.
(7) Represents vested options exercisable for 30,903 shares within 60 days of
September 30, 1998.
(8) Includes vested options exercisable for 20,250 shares within 60 days of
September 30, 1998. Also includes 120,629 shares held by persons and
entities affiliated with Asset Management Associates 1989, L.P. ("Asset
Management"), as to which shares Mr. Taylor disclaims beneficial ownership.
(9) Represents vested options exercisable for 138,500 shares within 60 days of
September 30, 1998.
(10) Represents vested options exercisable for 40,236 shares within 60 days of
September 30, 1998. Dr. Dow resigned from the Company effective as of July
31, 1998.
(11) Represents vested options exercisable for 16,917 shares within 60 days of
September 30, 1998.
(12) Includes vested options exercisable for 421,083 shares within 60 days of
September 30, 1998. Also includes 11,511 shares held by persons and
entities affiliated with Kleiner Perkins and 120,629 shares held by persons
and entities affiliated with Asset Management. Certain directors may be
deemed to be the beneficial owners of such shares, but disclaim such
beneficial ownership, as discussed in Notes 6 and 8 above.
To the Company's knowledge, each beneficial owner of more than ten percent
of the Company's capital stock filed all reports and reported all transactions
on a timely basis with the SEC, National Association of Securities Dealers, Inc.
and the Company.
21
<PAGE> 25
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Under the present rules of the United States Securities and Exchange
Commission, the deadline for stockholders to submit proposals to be considered
for inclusion in the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders is expected to be July 20, 1999. Such proposals may be included in
next year's Proxy Statement if they comply with certain rules and regulations
promulgated by the United States Securities and Exchange Commission.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended June
30, 1998 has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. The Annual
Report is not incorporated into this Proxy Statement and is not considered
proxy-soliciting material.
FORM 10-K
The Company filed an Annual Report on Form 10-K (the "Form 10-K") with the
Securities and Exchange Commission. A copy of the Form 10-K has been mailed
concurrently with this Proxy Statement to all stockholders entitled to notice of
and to vote at the Annual Meeting. The Form 10-K is not incorporated into this
Proxy Statement and is not considered proxy-soliciting material. Stockholders
may obtain additional copies of the Form 10-K, without charge, by writing to
Leiv Lea, Pharmacyclics, Inc., 995 East Arques Avenue, Sunnyvale, California
94086.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
THE BOARD OF DIRECTORS
Dated: November 9, 1998
22
<PAGE> 26
APPENDIX B
PHARMACYCLICS, INC.
1995 STOCK OPTION PLAN
(AS AMENDED AND RESTATED THROUGH SEPTEMBER 24, 1998)
ARTICLE ONE
GENERAL PROVISIONS
III. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of
Pharmacyclics, Inc., a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
IV. STRUCTURE OF THE PLAN
Under the Plan, eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock.
V. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Plan with respect to Section 16 Insiders.
B. Administration of the Plan with respect to all other persons, may at
the Board's discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer the Plan with respect
to all such persons who are not Section 16 Insiders. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
<PAGE> 27
D. The Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority to establish such rules
and regulations as it may deem appropriate for proper administration of the Plan
and to make such determinations under, and issue such interpretations of, the
provisions of the Plan and any outstanding options thereunder as it may deem
necessary or advisable. Decisions of the Plan Administrator within the scope of
its administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Plan under its jurisdiction or any option
thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants made under the Plan.
VI. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority (subject to the provisions of
the Plan) to determine, with respect to the option grants, which eligible
persons are to receive option grants, the time or times when such option grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become exercisable and the
vesting schedule (if any) applicable to the option shares and the maximum term
for which the option is to remain outstanding.
VII. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 2,763,607 shares,
subject to adjustment from time to time in accordance with the provisions of
this Section V. Such authorized share reserve is comprised of (i) the number of
shares which remained available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders
prior to such date, including the shares subject to the outstanding options
incorporated into the Plan and any other shares which would have been available
for future option grants under the Predecessor Plan, (ii) the automatic increase
of 85,178 shares effected on January 2, 1996, the automatic increase of
<PAGE> 28
91,503 shares effected in January, 1997 and the automatic increase of 102,042
shares effected in January, 1998, pursuant to Section V.B. below, (iii) the
750,000-share increase approved by the Board on August 1, 1996 and approved by
the stockholders at the 1996 Annual Meeting, (iv) the 500,000-share increase
approved by the Board on September 11, 1997 and approved by the stockholders at
the 1997 Annual Meeting and (v) the 400,000-share increase approved by the Board
on September 24, 1998, subject to approval by the stockholders at the 1998
Annual Meeting.
B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of each calendar year
during the term of the Plan, beginning with the 1996 calendar year, by an amount
equal to one percent (1%) of the shares of Common Stock outstanding on December
31 of the immediately preceding calendar year; but in no event shall any such
annual increase exceed 500,000 shares. No Incentive Options may be granted on
the basis of the additional shares of Common Stock resulting from such annual
increases.
C. No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than 750,000 shares of
Common Stock in the aggregate over the term of the Plan.
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan (including unvested shares issued under
the Predecessor Plan) and subsequently repurchased by the Corporation, at the
original exercise price paid per share, pursuant to the Corporation's repurchase
rights under the Plan, shall be added back to the number of shares of Common
Stock reserved for issuance under the Plan and shall accordingly be available
for reissuance through one or more subsequent options under the Plan. Shares
subject to any stock appreciation rights exercised under the Plan and all shares
issued under the Plan (included shares issued upon exercise of options
incorporated from the Predecessor Plan), shall reduce on a share-for-share basis
the number of shares of Common Stock available for subsequent issuance under the
Plan. However, should the exercise price of an option under the Plan (including
any option incorporated from the Predecessor Plan) be paid with shares of Common
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an option under the Plan, then the number of
shares of Common Stock available for issuance under the Plan shall be reduced by
the gross number of shares for which the option is exercised, and not by the net
number of shares of Common Stock issued to the holder of such option.
<PAGE> 29
E. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the maximum number and/or class of securities for which the share
reserve is to increase automatically each year, (iii) the number and/or class of
securities for which any one person may be granted options and separately
exercisable stock appreciation rights over the term of the Plan, and (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
<PAGE> 30
ARTICLE TWO
GRANT OF OPTIONS
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan Administrator
but shall not be less than eighty-five percent (85%) of the Fair Market Value
per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Three and
the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to
(a) a Corporation-designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
<PAGE> 31
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by the Optionee
at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent it is not exercisable for
vested shares on the date of such cessation of Service.
(iv) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
(v) In the event of a Corporate Transaction,the provisions of
Section III of this Article Two shall govern the period for which the
outstanding options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the contrary
in this section.
2. The Plan Administrator shall have the discretion, exercisable either
at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect to
one or more additional installments in which the Optionee would have
vested under the option had the Optionee continued in Service.
<PAGE> 32
D. Stockholder Rights. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
G. Beneficiary Designation. An Optionee may file a written beneficiary
designation indicating the person entitled to exercise Optionee's outstanding
options on the Optionee's behalf at the time of his/her death. Such beneficiary
designation may be changed by the Optionee at any time by filing the appropriate
form with the Plan Administrator.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Three shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under the
Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Exercise Price. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one (1) calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become
<PAGE> 33
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding option shall NOT so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option or (iii) the acceleration of such option is subject to
other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall be
made by the Plan Administrator, and its determination shall be final, binding
and conclusive.
B. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed or replaced (or those repurchase rights
are to be assigned) in the Corporate Transaction.
D. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
<PAGE> 34
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.
F. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time, shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
G. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a specified period following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
I. The grant of options under the Plan shall in no way affect the right
of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
<PAGE> 35
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan (including
outstanding options incorporated from the Predecessor Plan) and to grant in
substitution new options covering the same or different number of shares of
Common Stock but with an exercise price per share based on the Fair Market Value
per share of Common Stock on the new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant
to selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect
between the exercise of the underlying option for shares of Common Stock
and the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (A) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (B) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be
made in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (A) five (5) business days after the
receipt of the rejection notice or (B) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
<PAGE> 36
(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock
appreciation right in effect shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of Common
Stock. In return for the surrendered option, the Optionee shall receive
a cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock which
are at the time vested under each surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days
following the option surrender date.
(iii) Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option
surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such
option.
<PAGE> 37
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee to pay the option
exercise price under the Plan by delivering a promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. Promissory notes may be authorized with or without
security or collateral. In all events, the maximum credit available to the
Optionee may not exceed the sum of (i) the aggregate option exercise price
payable for the purchased shares plus (ii) any Federal, state and local income
and employment tax liability incurred by the Optionee in connection with the
option exercise.
B. The Plan Administrator may, in its discretion, determine that one or
more such promissory notes shall be subject to forgiveness by the Corporation in
whole or in part upon such terms as the Plan Administrator may deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or stock appreciation rights under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options under the Plan with the right to use shares of
Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options. Such right may be
provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option, a portion of those shares with an
aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
(ii) Stock Delivery: The election to deliver to the Corporation,
at the time the Non-Statutory Option is exercised, one or more shares of
Common Stock previously acquired by such holder (other than in
connection with the option exercise triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
<PAGE> 38
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on August 2, 1995 and approved by
the Corporation's stockholders on September 11, 1995. The Plan became effective
on the Plan Effective Date and serves as the successor to the Predecessor Plan.
On August 1, 1996, the Board authorized a 750,000-share increase in the number
of shares of Common Stock available for issuance under the Plan; the increase
was approved by the stockholders at the 1996 Annual Stockholders Meeting.
B. The Plan was amended and restated by the Board on September 11, 1997
(the "1997 Restatement") to effect the following changes: (i) increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the Plan by 500,000 shares, (ii) increase the maximum number of shares of
Common Stock for which options and separately exercisable stock appreciation
rights may be granted to any one individual to 750,000 shares, (iii) render the
non-employee Board members who are serving on the Primary Committee eligible to
receive option grants under the Plan, (iv) allow unvested shares issued under
the Plan and subsequently repurchased by the Corporation at the option exercise
price paid per share to be reissued under the Plan, (v) remove certain
restrictions on the eligibility of non-employee Board members to serve on the
Primary Committee and (vi) effect a series of additional changes to the
provisions of the Plan (including the stockholder approval requirements and the
transferability of Non-Statutory Options) in order to take advantage of the
recent amendments to Rule 16b-3 of the Securities and Exchange Commission which
exempts certain officer and director transactions under the Plan from the
short-swing liability provisions of the federal securities laws. The 1997
Restatement is subject to stockholder approval at the 1997 Annual Meeting, and
no option grants made on the basis of the 500,000-share increase shall become
exercisable in whole or in part unless and until the 1997 Restatement is
approved by the stockholders. Should such stockholder approval not be obtained,
then (i) any options granted on the basis of the 500,000-share increase shall
terminate without ever becoming exercisable for those shares, and no further
option grants shall be made on the basis of such share increase and (ii) the
maximum number of shares of Common Stock for which any one individual may be
granted options and separately exercisable stock appreciation rights shall
remain at 335,334 shares. In addition, none of the other changes effected by
1997 Restatement shall be implemented, except to the extent the Plan
Administrator otherwise deems it advisable to do so. However, in the absence of
such stockholder approval, option grants may continue to be made pursuant to the
provisions of the Plan as in effect immediately prior to the 1997 Restatement.
All option grants made prior to the 1997 Restatement shall remain outstanding in
accordance with the terms and conditions of the respective instruments
evidencing those options, and nothing in the 1997 Restatement shall be deemed to
modify or in any way affect those outstanding options. Subject to the foregoing
limitations, the Plan Administrator may make option grants under the Plan at any
time before the date fixed herein for the termination of the Plan.
<PAGE> 39
C. The Plan was amended and restated by the Board on September 24, 1998
(the "1998 Restatement") to increase the maximum number of shares of Common
Stock authorized for issuance over the term of the Plan by 400,000 shares. The
1998 Restatement is subject to stockholder approval at the 1998 Annual Meeting,
and no option grants made on the basis of the 400,000-share increase shall
become exercisable in whole or in part unless and until the 1998 Restatement is
approved by the stockholders. Should such stockholder approval not be obtained,
then any options granted on the basis of the 400,000-share increase shall
terminate without ever becoming exercisable for those shares, and no further
option grants shall be made on the basis of such share increase. However, in the
absence of such stockholder approval, option grants may continue to be made
pursuant to the provisions of the Plan as in effect immediately prior to the
1998 Restatement.
D. The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants shall be made under the Predecessor Plan after the Plan
Effective Date. All options outstanding under the Predecessor Plan as of such
date shall be incorporated into the Plan and treated as outstanding options
under the Plan. However, each outstanding option so incorporated shall continue
to be governed solely by the terms of the documents evidencing such option, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with respect
to their acquisition of shares of Common Stock.
E. The option/vesting acceleration provisions of Article Two relating to
Corporate Transactions and Changes in Control may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise provide for such acceleration.
F. The Plan shall terminate upon the earliest of (i) August 1, 2005,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options under the Plan, (iii)
the termination of all outstanding options in connection with a Corporate
Transaction, or (iv) termination by the Board. Upon such Plan termination, all
options outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the documents evidencing such
options.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
options or stock appreciation rights at the time outstanding under the Plan
unless the Optionee consents to such amendment or modification. In addition,
certain amendments shall be subject to stockholder approval as required by
applicable laws or regulations.
<PAGE> 40
B. Options to purchase shares of Common Stock may be granted under the
Plan that are in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under the Plan are
held in escrow until there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees the exercise price paid for any excess shares issued
under the Plan and held in escrow, together with interest (at the applicable
Short Term Federal Rate) for the period the shares were held in escrow, and such
shares shall thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan and the issuance of any shares of Common Stock
upon the exercise of any option or stock appreciation right shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options and stock
appreciation rights granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining such person) or of the Optionee, which rights are hereby
expressly reserved by each, to terminate such person's Service at any time for
any reason, with or without cause.
<PAGE> 41
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Pharmacyclics, Inc., a Delaware corporation.
G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
<PAGE> 42
H. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
I. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) For purposes of option grants made on the date the
Underwriting Agreement is executed and the initial public offering price
of the Common Stock is established, the Fair Market Value shall be
deemed to be equal to the established initial offering price per share.
J. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
effected through the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
<PAGE> 43
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the Service of the Corporation (or any Parent
or Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
Q. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
S. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set
forth in this document.
T. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Plan with respect to one or more classes of eligible persons, to
the extent such entity is carrying out its administrative functions under the
Plan with respect to the persons under its jurisdiction.
U. PLAN EFFECTIVE DATE shall mean October 23, 1995, the date on which
the Underwriting Agreement was executed and the initial public offering price of
the Common Stock was established.
<PAGE> 44
V. PREDECESSOR PLAN shall mean the Corporation's existing 1992 Stock
Option Plan.
W. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the Plan with
respect to Section 16 Insiders.
X. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Plan with respect to eligible
persons other than Section 16 Insiders.
Y. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
Z. SECTION 12(g) REGISTRATION DATE shall mean the first date on which
the Common Stock is registered under Section 12(g) of the 1934 Act.
AA. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, or a
consultant or independent advisor, except to the extent otherwise specifically
provided in the documents evidencing the option grant.
BB. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
CC. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
DD. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
EE. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
FF. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
GG. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
<PAGE> 45
APPENDIX A
PROXY
PHARMACYCLICS, INC.
Annual Meeting of Stockholders, December 11, 1998
This Proxy is Solicited on Behalf of the Board of Pharmacyclics, Inc.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held December 11, 1998 and
the Proxy Statement and appoints Richard A. Miller and Marc L. Steuer and each
of them, the Proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock of Pharmacyclics, Inc. (the "Company") which the
undersigned is entitled to vote, either on his or her own behalf or on behalf of
any entity or entities, at the Annual Meeting of Stockholders of the Company to
be held at the Sunnyvale Hilton, 1250 Lakeside Drive, Sunnyvale, California
94086 on Friday, December 11, 1998 at 12:00 P.M. (the "Annual Meeting"), and at
any adjournment or postponement thereof, with the same force and effect as the
undersigned might or could do if personally present thereat. The shares
represented by this Proxy shall be voted in the manner set forth on the reverse
side.
The Board of Directors recommends a vote FOR each of the directors listed
below and a vote FOR the other proposals. This Proxy, when properly executed,
will be voted as specified below. If no specification is made, this proxy will
be voted IN FAVOR OF the election of the directors listed above and IN FAVOR OF
the other proposals.
1. To elect the following directors to serve until the next annual
meeting of stockholders or until their successors are elected and
qualified: Nominees: Joseph S. Lacob, Brian A. Markison, Richard A.
Miller, M.D., Joseph C. Scodari, Craig C. Taylor.
<TABLE>
<S> <C> <C>
FOR WITHHELD
---------------------------------------
For all nominees except as noted Above
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
2. FOR AGAINST ABSTAIN To approve an amendment to the Company's
1995 Stock Option Plan (the "Option
Plan") in order to increase the maximum
number of shares of common stock
authorized for issuance under the Plan by
an additional 400,000 shares.
3. FOR AGAINST ABSTAIN To ratify the Board of Directors'
selection of PricewaterhouseCoopers LLP
to serve as the Company's independent
accountants for the fiscal year ending
June 30, 1999.
</TABLE>
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
MARK HERE IF YOU PLAN TO ATTEND THE MEETING
Please sign your name(s) exactly as it appears
on the share certificate(s) over which you have
voting authority.
<TABLE>
<S> <C> <S> <C>
Signature:_________________ Date:________ Signature:__________________ Date:___________
</TABLE>
