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o | Confidential, for Use of the Commission Only (as permitted by Rule | ||||
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o | Soliciting Material Pursuant to §240.14a-12 |
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o | Fee paid previously with preliminary materials. | |
o | 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. |
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1.To elect three directors to hold office until the 2008 Annual Meeting of Stockholders.
2.To ratify the selection of Ernst & Young LLP by the Audit Committee of our Board of Directors as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2005.
3.To conduct any other business properly brought before the meeting.
1. | To elect two directors to hold office until the 2010 Annual Meeting of Stockholders. | |
2. | To ratify the selection of Ernst & Young LLP by the Audit Committee of our Board of Directors as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2007. | |
3. | To conduct any other business properly brought before the meeting. |
By Order of the Board of Directors | |||||
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Denise L. | Wheeler | ||||
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Vice President of | |||||
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11, 2007
• | Election of two directors to hold office until the 2010 Annual Meeting of Stockholders; and | ||
• | Ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007. |
• Election of three directors to hold office until the 2008 Annual Meeting of Stockholders; and
• Ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2005.
1
How do I vote?
• To vote in person, come to the annual meeting, where a ballot will be made available to you.
• To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the annual meeting, we will vote your shares as you direct.
• | To vote in person, come to the annual meeting, where a ballot will be made available to you. | ||
• | To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the annual meeting, we will vote your shares as you direct. |
25, 2007.
��
2
• You may submit another properly completed proxy card with a later date.
• You may send a written notice that you are revoking your proxy to our Secretary at 4350 Executive Drive, Suite 325, San Diego, CA 92121.
• You may attend the meeting and vote in person. Simply attending the annual meeting will not, by itself, revoke your proxy.
• | You may submit another properly completed proxy card with a later date. | ||
• | You may send a written notice that you are revoking your proxy to our Secretary at 4350 Executive Drive, Suite 325, San Diego, CA 92121. | ||
• | You may attend the meeting and vote in person. Simply attending the annual meeting will not, by itself, revoke your proxy. |
If your
mergers or shareholder proposals.
• | For Proposal 1, the election of two directors to hold office until the 2010 Annual Meeting of Stockholders, the nominees receiving the most “For” votes (among votes properly cast in person or by proxy) will be elected. Only votes “For” or “Withheld” will affect the outcome. | ||
• | To be approved, Proposal No. 2, the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007, must receive a “For” vote from the majority of shares present either in person or by proxy and entitled to vote. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect. |
• For the election of directors to hold office until the 2008 Annual Meeting of Stockholders, the three nominees receiving the most “For” votes (among votes properly cast in person or by proxy) will be elected. Only votes “For” or “Withheld” will affect the outcome.
• To be approved, Proposal No. 2, the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2005, must receive a “For” vote from the majority of shares present either in person or by proxy and entitled to vote. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect.
3
What is the quorum requirement?
Thus the holders of 16,147,566 shares of common stock must be present in person or represented by proxy at the meeting to have a quorum.
4
Directors are elected by a plurality of the votes of the holders of shares present in person or represented by proxy and entitled to vote on the election of directors. The nominees receiving the highest number of affirmative votes will be elected.
2006.
meeting.
Jon W. McGarity
Apthera. He is also a member of the Board of Directors for Clinical Information Network, Inc.
Dr. Tollefson, age 54, has served as a director since September 2004. Dr. Tollefson accepted the position of Chief Executive Officer of Orexigen Therapeutics, a private biotechnology company in April 2005 and is
5
President of Consilium, Inc., a consulting firm focused on the development of central nervous system products. Dr. Tollefson is a Visiting Clinical Professor in the Department of Psychiatry, Indiana University School of Medicine. He currently holds a senior guest scientific position with Eli Lilly and Company as the Distinguished Visiting Lilly Research Scholar. He is past President of the Neuroscience Product Group at Lilly where he was employed for 13 years. Dr. Tollefson is an active international speaker and has authored over 200 peer reviewed manuscripts. Since March 2004, Dr. Tollefson has also served on the Board of Directors of Cortex Pharmaceuticals, Inc., a public biotechnology company.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 20062009 ANNUAL MEETING
Dr.
Samuel D. Anderson
Samuel D. Anderson, age 68, has served as a director since April 1998. Currently, Mr. Anderson is an independent consultant. From 1990 to 1991, he was the President and Chief Executive Officer of Trancel Corporation, a biotechnology company. From 1984 to 1989, Mr. Anderson was the Chief Executive Officer of Alpha Therapeutics Corporation, a blood plasma fractionator, and between 1989 and 1990 served as its Chairman of
6
the Board. Mr. Anderson was the Chairman of the Board of Hycor, formerly a publicly traded company, from 1998 to 2004 and has also been a Board member of publicly traded SeraCare Life Sciences since 2001.
Jack H. Vaughn
Jack H. Vaughn, age 83, has served as a director since 1991. Mr. Vaughn is a retired foreign service officer, his last post having been ambassador to Colombia from 1969 to 1970. Mr. Vaughn was a director of the Nature Conservancy from 1986 to 1988, Columbia Pictures from 1978 to 1981 and Allegheny & Western Energy Corporation from 1980 to 1987. Mr. Vaughn was a director of EARTH University of Costa Rica from 1991 to 2003.
NON-DIRECTOR EXECUTIVE OFFICERS
R. Michael Gendreau
R. Michael Gendreau, M.D., Ph.D., age 49, was appointed as our Vice President of Research and Development and Chief Medical Officer in December 1996 and is currently serving as our Vice President of Development and Chief Medical Officer. Dr. Gendreau joined us in 1994 and held various positions from 1994 through 1996, including Executive Director of Scientific Affairs. From 1991 to 1994, Dr. Gendreau was Vice President of Research and Development and Chief Medical Officer for MicroProbe Corporation, a developer and manufacturer of DNA probe-based diagnostic equipment.
Sabrina Martucci Johnson
Sabrina Martucci Johnson, age 39, was appointed as our interim Chief Financial Officer in February 2002 and, in April 2002, she was appointed as our Vice President and Chief Financial Officer. Ms. Johnson served as our Vice President of Marketing from March 2001 to April 2002. Ms. Johnson joined us in August 1998 and held various positions from 1998 through 2000, including Product Director, Executive Director of Marketing and Sales, and Vice President of Marketing and Sales. From 1993 to 1998, Ms. Johnson held marketing and sales positions with Advanced Tissue Sciences and Clonetics. Ms. Johnson has an MBA from the American Graduate School of International Management (Thunderbird) and a MSc in Biochemical Engineering from the University of London. Ms. Johnson began her career in the biotechnology industry as a research scientist in 1990 with Baxter Healthcare, Hyland Division.
Denise L. Woolard
Denise L. Woolard, age 35, was appointed as our Vice President of Business and Legal Affairs and Corporate Secretary in February 2004. Prior to joining us, from September 1997 until January 2004, Ms. Woolard worked as a corporate attorney at the law firm of Cooley Godward LLP. Ms. Woolard has a B.A. from Old Dominion University and a J.D. from the University of San Diego, School of Law.
INDEPENDENCE OF THE BOARD OF DIRECTORS
7
Name |
| Audit |
| Compensation |
| Non- |
| Nominating |
Jay D. Kranzler |
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| X |
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Samuel D. Anderson |
| X |
| X |
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| X |
Jon W. McGarity(1) |
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| X |
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Jean-Pierre Millon(2) |
| X |
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| X |
Perry Molinoff(3) |
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| X |
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Daniel H. Petree(4) |
| X |
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Gary Tollefson(5) |
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Jack H. Vaughn(6) |
| X |
| X |
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| X |
Total meetings in fiscal year 2004(7) |
| 6 |
| 7 |
| 4 |
| 2 |
Non- | ||||||||||||||||
Executive | Nominating | |||||||||||||||
Officer Stock | and Corporate | |||||||||||||||
Name | Audit | Compensation | Option | Governance | ||||||||||||
Jay D. Kranzler | X | |||||||||||||||
Samuel D. Anderson (3) | X | * | X | |||||||||||||
Jon W. McGarity | X | |||||||||||||||
Jean-Pierre Millon | X | X | * | |||||||||||||
Perry Molinoff (1) | X | |||||||||||||||
Daniel H. Petree | X | * | ||||||||||||||
Gary Tollefson (2) | ||||||||||||||||
Jack H. Vaughn (3) | X | X | X | |||||||||||||
Roger L. Hawley (4) | ||||||||||||||||
Tina S. Nova (4) | ||||||||||||||||
Total meetings in fiscal year 2006 (5) | 4 | 5 | 3 | 1 |
(1)Mr. McGarity became a member of the Compensation Committee in March 2004 upon his election to our Board of Directors.
(2)Mr. Millon became the Chairman of the Nominating and Corporate Governance Committee in March 2004 upon his election to our Board of Directors.
(3)Dr. Molinoff became a member of our Compensation Committee in September 2004 upon his election to our Board of Directors.
(4)Mr. Petree became the Chairman of the Audit Committee in June 2004 upon his election to our Board of Directors.
(5)Dr. Tollefson resigned from the Nominating and Corporate Governance Committee in April 2005.
(6)Mr. Vaughn became a member of the Nominating and Corporate Governance Committee in March 2004.
(7)Includes actions taken by written consent.
* | Committee Chairperson | |
(1) | Dr. Molinoff resigned from the Compensation Committee in April 2006. | |
(2) | Dr. Tollefson resigned from the Board of Directors in February 2007. | |
(3) | Mr. Anderson and Mr. Vaughn are not standing for re-election to the Board. | |
(4) | Mr. Hawley and Dr. Nova were appointed to the Board on April 26, 2007. | |
(5) | Includes actions taken by written consent. |
2006.
8
any proposed permissible non-audit
* | This report is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, as amended (the“Securities Act”) or the Securities Exchange Act of 1934, as amended (the“Exchange Act”), whether before or after the date hereof and irrespective of any general incorporation language in any such filing. |
www.cypressbio.com.
9
Three directors currently comprise the Nominating and Corporate Governance Committee: Mr. Millon (Chairman), Dr. Tollefson, Mr. Vaughn and Mr. Anderson. Due to the decision of Mr. Anderson and Mr. Vaughn not to stand for re-election as members of the Board, and their resignations effective immediately prior to the 2007 Annual Meeting of Stockholders, we anticipate that as of the date of the 2007 Annual Meeting of Stockholders, the Nominating and Corporate Governance Committee will be comprised of one member. In his role as Chairman of the Nominating and Corporate Governance Committee, Mr. Millon will serveserves as lead director to interface on behalf of the other outside directors with management on strategic and other issues and to perform other activities determined by our Board of Directors.All current members of the Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 4200(a)(15) of the Nasdaq listing standards). The Nominating and Corporate Governance Committee met two timesas a full Committee one time during the 20042006 fiscal year. The Nominating
stock.
10
MEETINGS OF THE BOARD OF DIRECTORS
Molinoff. The Board of DirectorsNew Products Committee met nine times (either in person or by conference call) and acted by unanimous written consent two timeson three occasions during the 2004 fiscal year. All directors attended at least 75% of the aggregate meetings of the Board and of the committees on which they served, held during the period for which they were a director or committee member, respectively.
year 2006.
Historically, we have not adopted a formal process for stockholder communications with the Board. Nevertheless, every effort has been made
11
In December 2005, the Board of Directors documented the governance practices we follow by adopting Corporate Governance Guidelines to assure that the Board will have the necessary authority and practices in place to review and evaluate our business operations as needed and to make decisions that are independent of the Company’s management. The following isguidelines are also intended to align the reportinterests of directors and management with those of our Audit Committeestockholders. The Corporate Governance Guidelines set forth the practices the Board intends to follow with respect to our audited financial statements for the fiscal year ended December 31, 2004.
board composition and selection, board meetings and involvement of senior management, Chief Executive Officer performance evaluation and succession planning, and board committees and compensation. The purpose of the Audit Committee is to assistCorporate Governance Guidelines were adopted by the Board in its general oversight of our financial reporting, internal controls and audit functions. The Audit Committee Charter describes in greater detailto, among other things, reflect changes to the full responsibilities of the Committee and can be found on our website at www.cypressbio.com. The Audit Committee is comprised solely of independent directors as defined by theNasdaq listing standards of National Association of Securities Dealers, Inc.
The Audit Committee has reviewed and discussed the financial statements with management and Ernst & Young LLP, our independent auditors. Management is responsible for the preparation, presentation and integrity of our financial statements; accounting and financial reporting principles; establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)); establishing and maintaining internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness of internal control over financial reporting; and evaluating any change in internal control over financial reporting that has materially affected, or is reasonably likelySEC rules adopted to materially affect, internal control over financial reporting. Ernst & Young LLP is responsible for performing an independent audit of the financial statements and expressing an opinion on the conformity of those financial statements with U.S. generally accepted accounting principles, as well as expressing an opinion on (i) management’s assessment of the effectiveness of internal control over financial reporting and (ii) the effectiveness of internal control over financial reporting.
During the course of 2004, management completed the documentation, testing and evaluation of our system of internal control over financial reporting in response to the requirements set forth in Section 404implement provisions of the Sarbanes-Oxley Act of 2002 and related regulations.2002. The Audit Committee was kept apprised of the progress of the evaluation and provided oversight and advice to management during the process. In connection with this oversight, the Committee received periodic updates provided by management and Ernst & Young LLP at each regularly scheduled Committee meetings. The Committee also held a number of special meetings to discuss issues as they arose. At the conclusion of the process, management provided the Committee with and the Committee reviewed a report on the effectiveness of the Company’s internal control over financial reporting. The Committee also reviewed the report of management contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed with the SEC,Corporate Governance Guidelines, as well as the individual reports of Ernst & Young LLP, Independent Registered Public Accounting Firm, included in the Company’s Annual Report on Form 10-K related to its (i) auditcharters for each committee of the financial statements, and (ii) management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting. The Committee continues to oversee the Company’s efforts related to its internal control over financial reporting and management’s preparations for the evaluation in fiscal 2005. Our Audit Committee believes that management maintains an effective system of internal controls that results in fairly presented financial statements.
Our Audit Committee has reviewed and discussed our audited financial statements with management and Ernst & Young LLP, our independent registered public accounting firm. Our Audit Committee has also discussed with Ernst & Young LLP the matters required to be discussed by Statement of Auditing Standards No. 61, Communication with Audit Committees, which includes, among other items, matters related to the conduct of the audit of our financial statements. Our Audit Committee has also received written disclosures and the letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1, which relates to the auditor’s independence from us and our related entities, and has discussed with Ernst & Young LLP their independence from us.
* This report is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether before or after the date hereof and irrespective of any general incorporation language in any such filing.
12
Based on the review and discussions referred to above, our Audit Committee recommended to our Board of Directors that our audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004.
Audit CommitteeDaniel Petree (chairman)Jack H. VaughnSamuel D. AndersonApril 11, 2005
13
PROPOSAL 2
which sets forth the terms by whichE&Y will perform audit services for the Company. That agreement is subject to alternative dispute resolution procedures and an exclusion of punitive damages. The following table represents aggregate fees billed to us for the fiscal years ended December 31, 20032005 and December 31, 2004,2006, by E&Y.
Fiscal Year Ended | ||||||||
2005 | 2006 | |||||||
Audit Fees (1) | $ | 213,000 | $ | 202,500 | ||||
Audit-Related Fees (2) | — | — | ||||||
Tax Fees (3) | 36,350 | 23,200 | ||||||
All Other Fees (4) | — | — | ||||||
Total Fees | $ | 249,350 | $ | 225,700 |
(1) | Audit Fees consist of fees for professional services rendered for audit of the Company’s annual financial statements and review of the interim financial statements included in quarterly reports, review of procedures related to the adoption of FAS 123R and services that are normally provided by Ernst & Young LLP in connection with regulatory filings. In 2005 and 2006, Audit Fees also include fees for professional services rendered for audits of (1) management’s assessment of the effectiveness of internal control over financial reporting and (2) the effectiveness of internal control over financial reporting. | |
(2) | Audit-Related Fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” There were no Audit-Related Fees for 2005 or 2006. | |
(3) | Tax Fees consist of fees for professional services rendered for assistance with federal and state tax compliance and tax planning. All of the fees in 2005 and 2006 were related to tax compliance. | |
(4) | All Other Fees consist of fees for services other than the services reported above. There were no Other Fees in 2005 or 2006. |
|
| Fiscal Year Ended |
| ||||
|
| 2003 |
| 2004 |
| ||
Audit Fees(1) |
| $ | 126,912 |
| $ | 274,231 |
|
Audit-Related Fees(2) |
| — |
| — |
| ||
Tax Fees(3) |
| 19,509 |
| $ | 44,587 |
| |
All Other Fees(4) |
| — |
| $ | 61,471 |
| |
Total Fees |
| $ | 146,421 |
| $ | 380,289 |
|
(1) Audit Fees consist of fees for professional services rendered for audit of the Company’s annual financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by Ernst & Young LLP in connection with regulatory filings. In 2004, Audit Fees also include fees for professional services rendered for audits of (1) management’s assessment of the effectiveness of internal control over financial reporting and (2) the effectiveness of internal control over financial reporting. This category also includes fees primarily related to our follow-on offering of common stock that we completed in April 2004.
(2) Audit-Related Fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”
(3) Tax Fees consist of fees for professional services rendered for assistance with federal and state tax compliance and tax planning. All of the fees in 2004 were related to tax compliance.
14
(4) All Other Fees consist of fees for services other than the services reported above. These services include fees related to an Internal Revenue Code Section 382 study, which is also considered to be tax compliance, but because it was individually large, we have broken it out separately.
All fees described above were approved by the Audit Committee.
15
Beneficial Ownership (1) | ||||||||
Beneficial Owner | Number of Shares | Percent of Total | ||||||
Wellington Management Co. LLP (2) 75 State Street Boston, MA 02109 | 3,056,600 | 9.5 | % | |||||
Goldman Sachs & Co. (3) 85 Broad Street New York, NY 10004 | 1,768,004 | 5.5 | % | |||||
Maverick Capital Ltd. (4) 300 Crescent Court, 18th floor Dallas, Texas 75201 | 2,144,525 | 6.6 | % | |||||
JPMorgan Chase & Co. (5) 270 Park Ave. New York, NY 10017 | 1,772,931 | 5.5 | % | |||||
R. Michael Gendreau (6) | 164,602 | * | ||||||
Denise Wheeler (7) | 119,099 | * | ||||||
Sabrina Martucci Johnson (8) | 186,894 | * | ||||||
Jay D. Kranzler (9) | 1,886,395 | 5.6 | % | |||||
Samuel D. Anderson (10) | 118,374 | * | ||||||
Jon W. McGarity (11) | 63,306 | * | ||||||
Jean-Pierre Millon (12) | 63,306 | * | ||||||
Perry Molinoff (13) | 63,306 | * | ||||||
Daniel H. Petree (14) | 63,306 | * | ||||||
Jack H. Vaughn (15) | 68,982 | * | ||||||
Roger L. Hawley (16) | 3,068 | * | ||||||
Tina S. Nova (17) | 3,794 | * | ||||||
All executive officers and directors as a group (12 persons)(18) | 2,804,432 | 8.1 | % |
* | Less than one percent of the outstanding shares of our common stock. | |
(1) | This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission (the “SEC”). Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 32,295,131 shares outstanding on April 1, 2007, adjusted as required by rules promulgated by the SEC. | |
(2) | Number of shares beneficially owned represents 3,056,600 shares of our common stock beneficially owned by Wellington Management Company LLP, in its capacity as investment advisor, on behalf of other persons known to have the rights to receive and to direct the receipt of dividends for such shares, and the rights to receive and to direct the receipt of proceeds from the sale of such shares. | |
(3) | The number of shares beneficially owned represents 1,768,004 shares of our common stock beneficially owned by Goldman, Sachs & Co., a wholly owned subsidiary of Goldman Sachs Group, Inc. | |
(4) | Number of shares beneficially owned represents 2.144,525 shares of our common stock beneficially owned by Maverick Capital Ltd.. | |
(5) | Includes 1,772,931 shares of our common stock beneficially owned by JPMorgan Chase & Co. |
|
| Beneficial Ownership(1) |
| ||
Beneficial Owner |
| Number of Shares |
| Percent of Total |
|
JPMorgan Chase & Co.(2) |
| 2,614,215 |
| 8.6 | % |
|
|
|
|
|
|
ProQuest Investments(3) |
| 1,999,782 |
| 6.5 | % |
|
|
|
|
|
|
Gilder, Gagnon, Howe & Corporation LLC(4) |
| 1,919,619 |
| 6.3 | % |
|
|
|
|
|
|
Barclays Global Fund Advisors(5) |
| 1,841,770 |
| 6.1 | % |
|
|
|
|
|
|
Federated Investors(6) |
| 1,511,900 |
| 5.0 | % |
|
|
|
|
|
|
R. Michael Gendreau(7) |
| 133,721 |
|
| * |
Sabrina Martucci Johnson(8) |
| 82,014 |
|
| * |
Jay D. Kranzler(9) |
| 1,134,467 |
| 3.6 | % |
Denise Woolard(10) |
| 29,773 |
|
| * |
Samuel D. Anderson(11) |
| 72,482 |
|
| * |
Jon W. McGarity(12) |
| 35,135 |
|
| * |
Jean-Pierre Millon(13) |
| 35,135 |
|
| * |
Perry Molinoff(14) |
| 20,492 |
|
| * |
Daniel H. Petree(15) |
| 28,295 |
|
| * |
Gary D. Tollefson(16) |
| 20,492 |
|
| * |
Jack H. Vaughn(17) |
| 43,016 |
|
| * |
All executive officers and directors as a group (11persons)(18) |
| 1,635,021 |
| 5.1 | % |
* Less than one percent.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Name Amount of Board Service Committee Service Samuel D. Anderson $ 16,000 $ 14,000 Jon McGarity $ 12,000 $ 8,250 Jean Pierre Millon $ 12,000 $ 8,250 Perry Molinoff $ 4,000 $ 875 Daniel Petree $ 8,000 $ 8,000 Gary Tollefson $ 4,000 $ 1,750 Jack H. Vaughn $ 12,000 $ 13,250 Annual Compensation Long-Term Compensation Name and Principal Position Fiscal Base Bonus($) Shares All Other Jay D. Kranzler 2004 $ 495,185 — — $ 47,609 (1) Chief Executive Officer and Chairman of the 2003 470,421 $ 500,000 842,365 30,096 (2) Board 2002 438,102 — 331,990 12,674 (3) R. Michael Gendreau 2004 $ 229,725 — — $ 13,000 (4) Vice President, Development and Chief 2003 211,458 $ 100,000 47,452 12,000 (5) Medical Officer 2002 194,940 — 116,951 11,000 (6) Denise Woolard 2004 $ 203,798 $ 56,250 100,000 $ 8,298 (7) Vice President of Business and Legal Affairs 2003 — — — — 2002 — — — — Sabrina Martucci Johnson 2004 $ 183,780 — — $ 13,000 (8) Chief Financial Officer and Vice President 2003 165,000 $ 104,000 26,490 12,000 (9) 2002 141,040 — 98,375 11,000 (10) Individual Grants Potential Realizable Name Shares % of Total Exercise Expira- 5% ($) 10% ($) Jay D. Kranzler — — — — — — R. Michael Gendreau — — — — — — Denise Woolard 100,000 (3) 57 % $ 11.80 2/04/2014 $ 742,096 $ 1,880,616 Sabrina Martucci Johnson — — — — — Number of Shares Value of Unexercised In-the- Name Shares Value Exercisable Unexercisable Exercisable Unexercisable Jay D. Kranzler 286,770 $ 3,000,681 837,788 579,582 $ 9,147,602 $ 5,953,940 R. Michael Gendreau 132,133 $ 1,450,401 49,981 50,665 555,060 567,988 Denise Woolard 0 0 22,655 77,345 51,200 174,800 Sabrina Martucci Johnson 26,814 $ 268,536 72,235 39,566 781,237 435,141 us, each as is defined in the agreements. Internal Revenue Code. Section 162(m) of the Code limits us to a deduction for federal income tax purposes of no more than $1 million of compensation paid to certain executive officers in a taxable year. Compensation above $1 million may be deducted if it is “performance-based compensation” within the meaning of the Code. Each of our directors may receive stock option grants under the 2000 Equity Incentive Plan, as amended. In March 2003, our Compensation Committee (1)This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission (the “(6) Includes 65,357 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Dr. Gendreau. (7) Represents 119,099 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mrs. Wheeler. (8) Includes 185,994 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mrs. Johnson. (9) Includes 1,629,671 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007. Also includes 78,400 shares of our common stock held by our 401(k) plan for which Dr. Kranzler, as trustee of the 401(k) plan, has voting rights to such shares and 193,324 shares of our common stock held by the Kranzler Living Trust, for which Dr. Kranzler is a trustee. (10) Includes 114,762 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007. Such shares are held by the Samuel D. Anderson Trust, for which Mr. Anderson is the sole trustee. Mr. Anderson is not standing for re-election to the Board. (11) Represents 63,306 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. McGarity. (12) Represents 63,306 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. Millon. (13) Represents 63,306 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. Molinoff. (14) Represents 63,306 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. Petree. (15) Includes 68,982 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. Vaughn. Mr. Vaughn is not standing for re-election to the Board. (16) Represents 3,068 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. Hawley. Mr. Hawley was granted these options in connection with his appointment to the Board on April 26, 2007. (17) Includes 3,068 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Dr. Nova. Dr. Nova was granted these options in connection with her appointment to the Board on April 26, 2007. (18) Number of shares beneficially owned includes 2,443,225 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by our directors and executive officers as a group. SEC”). Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 30,376,025 shares outstanding on February 1, 2005, adjusted as required by rules promulgated by the SEC.16(2)Number of shares beneficially owned represents 2,614,215 shares of our common stock beneficially owned by JPMorgan Chase & Co. on behalf of other persons known to have the rights to receive and to direct the receipt of dividends for such shares, and the rights to receive and to direct the receipt of proceeds from the sale of such shares.(3)Includes (i) 371,338 shares of our common stock and warrants to purchase 192,718 shares of our common stock held by ProQuest Investments L.P., (ii) 4,813 shares of our common stock and warrants to purchase 2,498 shares of our common stock held by ProQuest Companion Fund, L.P., (iii) 918,276 shares of our common stock and warrants to purchase 476,574 shares of our common stock held by ProQuest Investments II, L.P., and (iv) 22,096 shares of our common stock and warrants to purchase 11,469 shares of our common stock held by ProQuest Investments II Advisors Fund, L.P. ProQuest Associates LLC, a Delaware limited liability company, is General Partner of ProQuest Investments, L.P., a Delaware limited partnership and ProQuest Companion Fund L.P., a Delaware limited partnership. ProQuest Associates II LLC, a Delaware limited liability company, is General Partner of ProQuest Investments II, L.P., a Delaware limited partnership and ProQuest Investments II Advisors Fund, L.P., a Delaware limited partnership.(4)Number of shares beneficially owned represents (i) 1,872,670 shares of our common stock held in customer accounts over which partners and/or employees of Gilder, Gagnon, Howe & Corporation LLC (“GGH”) have discretionary authority to dispose of or direct the disposition of the shares, (ii) 2,478 shares of our common stock held in accounts owned by the partners of GGH and their families and (iii) 44,471 shares held in the account of GGH’s profit-sharing plan.(5)Barclays Global Investors, NA. and Barclays Global Fund Advisors are funds affiliated with Barclays Global Investors, LTD. Includes 1,250,568 shares of our common stock held by Barclays Global Investors, NA. and 591,202 shares of our common stock held by Barclays Global Fund Advisors.(6)Federated Investors, Inc. is the parent holding company of Federated Equity Management Company of Pennsylvania and Federated Investment Management Corp., which act as investment advisers to registered investment companies and separate accounts that own shares of common stock in Cypress.(7)Includes 60,915 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005 by Dr. Gendreau.(8)Includes 81,114 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005 by Ms. Johnson.(9)Includes 921,966 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005. Also includes 71,001 shares of our common stock held by our 401(k) plan for which Dr. Kranzler, as trustee of the 401(k) plan, has voting rights to such shares and 141,500 shares of our common stock held by the Kranzler Living Trust, for which Dr. Kranzler is a trustee.(10)Represents 29,773 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Ms. Woolard.(11)Includes 69,982 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005. Such shares are held by the Samuel D. Anderson Trust, for which Mr. Anderson is the sole trustee.(12)Represents 35,135 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Mr. McGarity.(13)Represents 35,135 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Mr. Millon.(14)Represents 20,492 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Mr. Molinoff.17(15)Represents 28,295 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Mr. Petree.(16)Represents 20,492 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Dr. Tollefson.(17)Includes 40,016 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005 by Mr. Vaughn.(18)Number of shares beneficially owned includes 1,343,313 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005 by our directors and executive officers as a group.2004,2006, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with, except that four reports were filed lateone Form 4 for a transaction by Mr. Vaughn and one report was filed late by Mr. Anderson.COMPENSATION OF DIRECTORSEach of our directors may receive stock option grants underwith the 1996 Equity Incentive Plan and the 2000 Equity Incentive Plan, as amended. In March 2003, our Board of Directors adopted resolutions providing for quarterly payments of $4,000 to each of our non-employee directors for such person’s service as a director, which includes participation by such person in the quarterly scheduled Board meetings. Our Board of Directors also approved: (1) the payment of an annual retainer of $3,000 to each of our non-employee directors for such person’s service on a committee of the Board; provided that such committee member must attend at least 75% of the applicable committee meetings in any calendar year in order to receive such compensation and (2) the payment of an additional $5,000 to any non-employee director who serves as chair of a committee of the Board; provided that such person must attend at least 75% of the applicable committee meetings in any calendar year in order to receive such compensation, and such meeting must be in addition to the one additional meeting per quarter included as part of the Board quarterly compensation.On February 8, 2005, the Compensation Committee approved an amendment to the current compensation payable to the members of the Board. The amendment provides that a member of the Board will receive payment for attendance at any special meetings of either the Board or a Committee of the Board. Compensation for attendance as a Board member at special meetings of the Board or of Committees of the Board shall be set at $1,000 per such meeting or telephone meeting lasting more than 1 hour and up to one-half ofSEC one day in duration, and $2,000 per such meeting or telephone meeting lasting more than one-half of one day in duration. Board members who travel to attend special meetings as Board members shall also be compensated in an amount equal to $500 for travel time of up to one-half of one day and $1,000 for travel time of more than one-half of one day. Special meetings are defined as Board meetings or Committee meetings periodically scheduled between standard quarterly Board and Committee meetings. In addition, such special meeting must be called by the Chairman of the Board or Chairman of the Committee and must be designated in advance as a special meeting in order to qualify for the special meeting compensation.During the fiscal year ended December 31, 2004, each of our non-employee directors received cash compensation for his service as a director and/or member of a committee of the Board as follows:18late.
CompensationDirectors whoalso our employees do not receive any fee for their service as directors. All of our directors are reimbursed for their out-of-pocket travel and accommodation expenses incurred in connection with their servicefollows:NAME AGE POSITION Jay D. Kranzler, M.D., Ph.D. 49 Chief Executive Officer and Chairman of the Board of Directors Sabrina Martucci Johnson 41 Chief Financial Officer, Executive Vice President and Chief Business Officer R. Michael Gendreau, M.D., Ph.D. 51 Vice President of Clinical Development and Chief Medical Officer Denise Wheeler 37 Vice President of Legal Affairs our directors.In March 2003, our Board of Directors adopted resolutions providing for (1) an increase in the number of shares of our common stock granted pursuant to the automatic yearly option grants for each non-employee director from 5,000 to 13,000 shares and (2) an initial grant of an option to purchase 32,000 shares of our common stock to each non-employee director upon his or her initial election or appointment to the Board. In March 2004, Mr. Millon and Mr. McGarity each received an option to purchase 32,000 shares of our common stock upon his respective appointment to our Board. In June 2004, Mr. Petree received an option to purchase 32,000 shares of our common stock upon his appointment to our Board. In September 2004, Dr. Molinoff and Dr. Tollefson each received an option to purchase 32,000 shares of our common stock upon his respective appointment to our Board.In April 2001, our Board of Directors adopted a resolution providing that the vesting of all existing and future automatic yearly stock options held or acquired by non-employee directors will accelerate upon a change in control of Cypress, which may include the sale of all or substantially all of our assets, specified types of merger, or other corporate reorganizations. In addition, in March 2003, our directors approved the acceleration of vesting of all future stock options granted to directors (in addition to any automatic annual grants) upon a change in control of Cypress.In May 2004, our Board of Directors adopted the Cypress Bioscience, Inc. Severance Benefit Plan, or the severance plan, to provide severance benefits to certain eligible officers and our outside directors. Severance benefits under the severance plan are awarded on a sliding scale based on the number of years of continuous service an eligible individual has completed with us as of the date of service termination. All of our current directors are currently eligible to receive severance benefits under the severance plan. To receive severance benefits, an individual must (i) experience a covered termination, (ii) have provided service to us for at least one year on the date of such termination and (iii) execute a general waiver and release of claims. The severance plan supplements and provides benefits in addition to all other employment agreements, policies or practices previously maintained by Cypress. Severance benefits provided to outside directors include only accelerated vesting of options and restricted stock ranging from 25% to 100% of an individual’s unvested shares on the date of service termination.19COMPENSATION OF EXECUTIVE OFFICERSSummary of CompensationThe following table shows for the fiscal years ended December 31, 2004, 2003 and 2002, compensation awarded or paid to, or earned by, our Chief Executive Officer and our three other most highly compensated executive officers, for whom salary and bonus for services rendered to us wasVice-Chairman in excess of $100,000 (collectively, the “Named Executive Officers”):Summary Compensation Table
Year
Salary($)
Underlying
Options(#)
Compensation
($)(1) Includes $24,609 paid by us on behalf ofDecember 1995. In April 1998, Dr. Kranzler for life insurance and disability insurance premiums during 2004, $10,000 paid for estate planning and $13,000 in contributions made by us on behalf of Dr. Kranzler under our 401(k) plan during 2004.(2) Includes $18,096 paid by us on behalf of Dr. Kranzler for life insurance and disability insurance premiums during 2003, and $12,000 in contributions made by us on behalf of Dr. Kranzler under our 401(k) plan during 2003.(3) Includes $1,674 paid by us on behalf of Dr. Kranzler for life insurance premiums during 2002, and $11,000 in contributions made by us on behalf of Dr. Kranzler under our 401(k) plan during 2002(4) Represents $13,000 in contributions made by us on behalf of Dr. Gendreau under our 401(k) plan during 2004.(5) Represents $12,000 in contributions made by us on behalf of Dr. Gendreau under our 401(k) plan during 2003.(6) Represents $11,000 in contributions made by us on behalf of Dr. Gendreau under our 401(k) plan during 2002.(7) Ms. Woolard joined us on February 4, 2004. Represents $8,298 in contributions made by us on behalf of Ms. Woolard under our 401(k) plan during 2004.20(8) Represents $13,000 in contributions made by us on behalf of Ms. Johnson under our 401(k) plan during 2004.(9) Represents $12,000 in contributions made by us on behalf of Ms. Johnson under our 401(k) plan during 2003.(10) Represents $11,000 in contributions made by us on behalf of Ms. Johnson under our 401(k) plan during 2002.On January 15, 2004, Dr. Kranzler, Dr. Gendreau and Ms. Johnson were issued bonuses for performance in 2003 of $500,000, $100,000 and $104,000, respectively, all of which became payable upon the execution of our collaboration agreement with Forest Laboratories. In January 2005, Ms. Woolard was issued a bonus in the amount of $56,250,appointed as provided for under her employment agreement and the other officers are eligible to receive bonuses for the year 2004 as provided under the Bonus Plan.Stock Option Grants And Exercises in Last Fiscal YearWe grant options to our executive officers under our 1996 Plan and our 2000 Plan. As of December 31, 2004, options to purchase a total of 371,156 shares were outstanding under the 1996 Plan and options to purchase 16,873 shares remained available for grant under the 1996 Plan. As of December 31, 2004, options to purchase a total of 2,479,867 shares were outstanding under the 2000 Plan and options to purchase 3,538,907 shares remained available for grant under the 2000 Plan. The number of shares available for issuance under the 2000 Plan is calculated such that the total number of shares reserved for issuance under both the 1996 Plan and the 2000 Plan, in the aggregate, is increased quarterly so that the number equals 21.1% of the number of shares of our common stock issued and outstanding.The following table sets forth certain information regarding options granted to the Named Executive Officers during the fiscal year ended December 31, 2004:OPTION GRANTS IN LAST FISCAL YEAR
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Term(2)
Underlying
Options
Granted (#)
Options
Granted to
Employees
in Fiscal
Year(%)(1)
Price
($/Share)
tion
Date(1) Based upon options to purchase a total of 174,363 shares of our common stock granted to employees in 2004.(2) The potential realizable value is based upon the assumption that the fair market value of the common stock appreciates at the annual rate shown (compounded annually) from the date of the grant until the end of the option term. Actual realizable value, if any, on stock option exercises is dependent on the future performance of the common stock and overall market conditions, as well as the option holder’s continued employment through the vesting period.21(3) Such options vest ratably and daily over a four-year period beginning on the date of grant.Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option ValuesThe following table provides information concerning option exercises by the Named Executive Officers during the year ended December 31, 2004 and the number and value of unexercised options held by the Named Executive Officers at December 31, 2004. The value realized on option exercises is calculated based on the fair market value per share of common stock on the date of exercise less the applicable exercise price.The value of unexercised in-the-money options held at December 31, 2004 represents the total gain which the option holder would realize if he exercised all of the in-the-money options held at December 31, 2004, and is determined by multiplying the number of shares of common stock underlying the options by the difference between $14.06, which was the closing price per share of our common stock on the Nasdaq National Market on December 31, 2004, and the applicable per share option exercise price. An option is in-the-money if the fair market value of the underlying shares exceeds the exercise price of the option.
Underlying Unexercised
Options at Fiscal Year End
(#)
Money Options at Fiscal
Year End ($)(1)
Acquired on
Exercise
Realized
($)Employment, Severance and Change of Control AgreementsIn August 2003, we entered into an amended and restated employment agreement with Jay D. Kranzler, M.D., Ph.D., our Chairman of the Board of Directors andBoard. From January 1989 until August 1995, Dr. Kranzler served as President, Chief Executive Officer which superseded the employment agreement entered into with him in December 1995. The initial termand a director of the amended and restated agreement expires in August 2006, subject to automatic renewal for two one year periods following August 2006. The amended and restated agreement provides for an annual base salary, which may be adjusted periodically in the sole discretion of the Board of Directors. As of April 1, 2005, Dr. Kranzler’s current salary is set at $508,551. In addition to his base salary,Cytel Corporation, a publicly held biotechnology company. Dr. Kranzler is eligible for (i)currently a special cash bonuslecturer at The Rady School of $500,000, payableBusiness of the University of California-San Diego, where he serves as Executive in a lump sum, upon the announcement of a strategic transaction for the development and commercialization of milnacipran approved by the Board of Directors (such bonus was paid onResidence. Before joining Cytel, from 1985 to January 15, 2004), and (ii) an annual bonus equal to an amount up to 66 2/3% of his base salary within ninety days after the end of each fiscal year. The annual bonus amount, if any, shall be based on Dr. Kranzler’s performance as evaluated by the Board of Directors in its sole discretion. Pursuant to the amended and restated agreement,1989, Dr. Kranzler was also granted an option to purchase 500,000 shares of common stock underemployed by McKinsey & Company, a management-consulting firm, as a consultant specializing in the 2000 Equity Incentive Plan. In addition, we are required to providepharmaceutical industry. Dr. Kranzler has an M.D. with $2 milliona concentration in psychiatry and a Ph.D. in pharmacology from Yale University. He graduated summa cum laude from Yeshiva University.life insurance coverage. The amendedMarketing from March 2001 to April 2002. Mrs. Johnson joined us in August of 1998 and restated agreement is terminable by Dr. Kranzler at any time upon 30 days’ prior written notice. In the event that Dr. Kranzler is terminated without cause, Dr. Kranzler terminates his employment for good reason (as set forthheld various positions from 1998 through 2000, including Product Director, Executive Director of Marketing and Sales, and Vice President of Marketing and Sales. From 1993 to 1998, Mrs. Johnson held marketing and sales positions with Advanced Tissue Sciences and Clonetics. Mrs. Johnson began her career in the agreement)biotechnology industry in 1990 as a research scientist with Baxter Healthcare, Hyland Division. Mrs. Johnson has an MBA from the American Graduate School of International Management (Thunderbird), or his agreement expiresa MSc. in Biochemical Engineering from the University of London and hea BSc. in biomedical engineering from Tulane University.not rehired,currently serving as the Vice President of Clinical Development and Chief Medical Officer. Dr. KranzlerGendreau joined us in 1994 and held various positions from 1994 through 1996, including Executive Director of Scientific Affairs. From 1991 to 1994, Dr. Gendreau was Vice President of Research and Development and Chief Medical Officer for MicroProbe Corporation, a developer and manufacturer of DNA probe-based diagnostic equipment. Dr. Gendreau has a B.S. in chemistry from Ohio University and an M.D./Ph.D. in medicine and pharmacology from the Ohio State University.entitled to severance payments equal to eighteen monthsour Vice President of his base salary, with twelve months of the base salary payable in a lump sum within ten days following the termination date, and the remaining six months of base salary payable ratably over the six months following the termination date; provided that the entire eighteen months of base salary is payable in a lump sum if the termination occurs following a change in control. In addition, in the event that Dr. Kranzler is terminated without cause or terminates his employment for good reason, Dr. Kranzler will also be entitled to (i) accelerated vesting of all of his outstanding stock options, and (ii) continued coverage under group life, health, accident, disability and hospitalization insurance at the levels in effect for Dr. Kranzler at the termination date for a period of two years. In the event that Dr. Kranzler dies, we are required to pay Dr. Kranzler’s legal representatives payments equal to twelve months of his22base salary reduced by any amounts paid or to be paid by the insurance coverage that we provide for the benefit of Dr. Kranzler, including life insurance. In the event that Dr. Kranzler becomes disabled (as set forth in the agreement) and we elect to terminate his employment, Dr. Kranzler is entitled to receive his base salary until disability insurance payments commence, subject to maximum payments by us equal to twelve months of his base salary. In addition, all of Dr. Kranzler’s outstanding options will immediately vest upon his death or disability. In the event that any amounts paid to Dr. Kranzler constitute excess parachute payments under Section 280G of the Internal Revenue Code of 1986 (the “Code”), we will pay to Dr. Kranzler an amount equal to any excise taxes payable by him with respect to such payments, up to a total of $250,000.In February 2004, we entered into an employment agreement with Denise Woolard,Legal Affairs. Mrs. Wheeler was appointed as our Vice President of Business and Legal Affairs and Corporate Secretary in February 2004 and in August 2006, assumed a part time role as our Vice President of Legal Affairs, Corporate Secretary. The initial termPrior to joining us, from September 1997 until January 2004, Mrs. Wheeler worked as a corporate attorney at the law firm of Cooley Godward LLP. Mrs. Wheeler has a B.A. from Old Dominion University and a J.D. from the University of San Diego, School of Law.agreement expiresmaterial factors underlying the decisions which resulted in February 2006, subjectthe compensation provided to automatic renewal for one year periods following February 2006. Pursuant to the agreement, Ms. Woolard’s base salary is currently set at $231,075 per year. For 2004, Ms. Woolard is entitled to receive a minimum cash bonus equal to 25% of her then-effective base salary, which was paid in February 2005. For future years, in addition to her base salary, Ms. Woolard is eligible to receive a cash bonus based on her performance during each fiscal year, as evaluated by our Chief Executive Officer and the board in their discretion. Pursuantour other named executive officers for 2006.• Compensation should be related to the value created for stockholders; • Compensation programs should support our short-term and long-term strategic goals and our objectives; • Compensation programs should reflect and promote our values and reward individuals for outstanding contributions to our success; and • Short-term and long-term compensation programs play a critical role in attracting and retaining well-qualified executives. • maintained a practice of reviewing the performance and determining the total compensation earned, paid or awarded to our Chief Executive Officer independent of input from him; • reviewed on an annual basis the compensation for executives at similar companies that are located in San Diego, as well as those located across the United States (as covered in a compensation survey of the San Diego biotechnology industry, such as the information provided by the Biotech Education Development Coalition, or in industry-wide surveys, such as those provided by the BioWorld Executive Compensation Report); • reviewed on an annual basis the performance of our other named executive officers and other key employees with assistance from our Chief Executive Officer, and determined what we believe to be appropriate total compensation based on competitive levels as measured against our peer group; and • maintained the practice of holding executive sessions without management present at Compensation Committee meetings. • base salary; • annual cash bonuses; and • long term incentives. Ms. Woolardand are described under the heading “Employment, Bonus And Severance Agreements.”alsoset at $529,406.100,000374,582 shares of common stock underat an exercise price of $5.78 per share to Dr. Kranzler on January 2, 2006. These options vest over four years and were granted to ensure the retention of the services of Dr. Kranzler.2000 Plan. The agreement is terminable by Ms. Woolard at any time upon 30 days’ prior written notice. In addition,Chief Executive Officer and our Vice President of Legal Affairs. These agreements are described in more detail elsewhere in the event that Ms. Woolard isproxy, including the Section titled “Employment, Bonus And Severance Agreements.” These agreements provide for severance compensation to be paid if the executives are terminated without cause, Ms. Woolard terminates her employment for good reason (as set forth in the agreement), or her agreement expires and is not renewed after February 2006, Ms. Woolard is entitled to a severance payment equal to an amount that may range from six months of her base salary to twelve months of her base salary depending on her date of termination, payable in a lump sum. In addition, if Ms. Woolard is terminated without cause or terminates her employment for good reason, Ms. Woolard will also be entitled to (i) up to 12 months’ accelerated vesting of her outstanding stock options, in each case depending on her date of termination, and (ii) continued coverage under group health insurance at the levels in effect for Ms. Woolard at the termination date for a period of 12 months. If Ms. Woolard is terminated without cause within one month before or within 13 months after a change in control, she is entitled to (i) severance payments equal to twelve months of her base salary, payable in a lump sum, (ii) accelerated vesting of all of her outstanding stock options and (iii) continued coverage under group health insurance at the levels in effect for Ms. Woolard at the termination date for a period of 12 months.Pursuant to resolutions approved by our Board of Directors in April 2001 and March 2003, uponcertain conditions, such as a change in control of Cypress, which includes the sale of allCompany or substantially all of our assets, specified types of merger, or other corporate reorganizations, all options to purchase our common stock helda termination without cause by our directors and officers will immediately vest.Ms. WoolardMrs. Johnson, Mrs. Wheeler, all of our outside directors (other than Mr. Hawley and Ms. JohnsonDr. Nova, who became directors on April 26, 2007) and one other key employee are currently eligible to receive severance benefits under the severance plan. To receive severance benefits, an individual must (i) experience a covered termination, (ii) have provided service to us for at least one year on the date of such termination and (iii) execute a general waiver and release of claims. The severance plan supplements and provides benefits in addition to all other employment agreements, policies or practices previously maintained by Cypress. Covered terminations for officers include a termination without cause or a resignation for good reason. Covered terminations for outside directors include selected board service terminations. All severance benefits provided to officers under the severance plan include a cash payment ranging from three to twelve months of base salary, health benefit continuation coverage ranging from three to twelve months and accelerated vesting of options and restricted stock ranging from 25% to 100% of an individual’s unvested shares on the date of service termination. Officers receive the maximum severance benefits on a covered termination in connection with a change in control of Cypress. Severance benefits provided to outside directors include only accelerated vesting of options and restricted stock ranging from 25% to 100% of an individual’s unvested shares on the date of service termination.On February 8, 2005, Outside directors also receive the maximum severance benefit in connection with a change in control of Cypress.Compensation Committee adopted a Bonus Plan for our officers to provide our officers an outcome-based annual cash incentive. Pursuantexecutives under the various programs discussed above were made with regard to the Bonus Plan, our officers are eligible to receive cash bonuses up to between 25% to 66 2/3%provisions of base salary, depending on the applicable participant’s position, for the year ended December 31, 2004 and the year ending December 31, 2005. The bonuses are contingent upon our achievement of certain corporate goals related to clinical developmentSection 162(m) of the Company’s current product,23milnacipran, new product opportunities and an increase in stockholder value. Our Compensation Committee established these corporate goals and the timelines for their achievement at a meeting held on February 8, 2005. Individual awards will be pro rated for a partial year of service. Awards based on the applicable participants’ base salaries for the year ended December 31, 2004, if any, will be paid upon achievement of the corporate goals we established. Awards, if any, based on the applicable participants’ base salaries for the year ending December 31, 2005 will be paid upon the earlier of (1) achievement of all the corporate goals established by the Compensation Committee or (2) January 31, 2006 with respect to the corporate goals established by the Compensation Committee and achieved by that date. These awards are only payable if the participant continues to be employed on the date of payment.24REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORSON EXECUTIVE COMPENSATION*The Compensation Committee of our Board of Directors is currently composed of Mr. Anderson, Mr. McGarity, Dr. Molinoff and Mr. Vaughn, directors who are not our employees. The Compensation Committee is responsible for establishing and administering our executive compensation arrangements.Compensation PhilosophyWe believe that a competitive, goal-oriented compensation policy is critically important to the creation of value for stockholders. To that end, we have created an incentive compensation program intended to reward outstanding individual performance. The goals of the compensation program are to align compensation with business objectives and performance to enable us to attract and retain the highest quality executive officers and other key employees, reward them for our progress and motivate them to enhance long-term stockholder value. Our compensation program is intended to implement the following principles:• Compensation should be related to the value created for stockholders;• Compensation programs should support the short-term and long-term strategic goals and our objectives;• Compensation programs should reflect and promote our values and reward individuals for outstanding contributions to our success; and• Short-term and long-term compensation programs play a critical role in attracting and retaining well-qualified executives.While compensation opportunities are based in part upon individual contribution, the actual amounts earned by executives in variable compensation programs are also based upon how we perform. The executive compensation for the Chief Executive Officer and all other executives is based upon three components, each of which is intended to serve our compensation principles.Base SalaryBase salary is targeted at the competitive median for similar companies in the biotechnology industry. For the purpose of establishing these levels, the Compensation Committee compares our compensation structure from time to time with companies that are located in San Diego, as well as those located across the United States, as covered in a compensation survey of the San Diego biotechnology industry, such as the information provided by the Biotech Education Development Coalition, or in industry wide surveys, such as those provided by the BioWorld Executive Compensation Report.Based upon its reviews of industry data, the Compensation Committee determined that the base salaries of the Chief Executive Officer and all other executive officers were appropriate and necessary to attract individuals of such high caliber within the biotechnology industry. The Compensation Committee reviews the salaries of the Chief Executive Officer and other executive officers each year and such salaries may be increased based upon (i) the individual’s performance and contribution, (ii) our performance and (iii) increases in median competitive pay levels.Annual IncentivesOn February 8, 2005, we adopted a Bonus Plan for the officers of the Company. The Bonus Plan was adopted to provide an outcome-based annual cash incentive to the officers of the Company. Pursuant to the Bonus Plan, our chief executive officer is eligible to receive cash bonuses up to 66 2/3% of his base salary, for the year ended December 31, 2004 and the year ending December 31, 2005. The bonuses are contingent upon the Company’s* The material in this report is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.25achievement of certain corporate goals related to clinical development of the Company’s current product, milnacipran, new product opportunities and an increase in stockholder value. We established these corporate goals and the timelines for their achievement at a meeting held on February 8, 2005. Awards based on Dr. Kranzler’s base salary for the year ended December 31, 2004, if any, will be paid upon achievement of the corporate goals we established. Awards, if any, based on Dr. Kranzler’s base salary for the year ending December 31, 2005 will be paid upon the earlier of (1) achievement of all the corporate goals established by the Compensation Committee or (2) January 31, 2006 with respect to the corporate goals established by the Compensation Committee and achieved by that date. These awards are only payable if Dr. Kranzler continues to be employed on the date of payment.Long-Term IncentivesLong-term incentive compensation is provided through grants of options to purchase shares of our common stock to the Chief Executive Officer, other executive officers and other employees. The stock options are intended to retain and motivate all employees to improve our long-term performance. It is common in the biotechnology industry to grant stock options to all employees. Stock options have been granted to all of our full-time employees. Executives and other employees receive value from these grants only if our common stock appreciates over the long-term. The Compensation Committee believes the amount and value of such grants are based upon levels similar to other companies in the biotechnology industry. Generally, stock options are granted with an exercise price equal to prevailing market value. The stock options generally vest in increments over a period of years. At our meeting on February 8, 2005, in keeping with similar companies in the biotechnology industry, we granted options to purchase common stock to each of our officers, including Dr. Kranzler, in amounts equal to 25% of the historical option grants made to our officers.Compensation of the Chief Executive OfficerWe meet each year to evaluate the performance of the Chief Executive Officer, the results of which are used to determine his compensation. Dr. Kranzler, our Chief Executive Officer, was instrumental in our achieving significant goals in 2004. During 2004, we completed a public offering of shares of our common stock, resulting in gross proceeds to us of approximately $80 million. Under Dr. Kranzler’s leadership, we completed enrollment in our first Phase III clinical trial evaluating milnacipran as a treatment for fibromyalgia syndrome, and in conjunction with Forest Laboratories, commenced the second Phase III trial. Additionally, Dr. Kranzler was instrumental in identifying new target development opportunities for the Company, both in terms of specific indications that represent unmet medial needs, as well as potential product candidates for those indications. Dr. Kranzler’s base salary for 2004 was set at $495,185. Additionally, Dr. Kranzler is eligible to receive a bonus for 2004 upon achievement of the remaining corporate goals we established for the year.We granted an option to purchase 459,584 shares of common stock at an exercise price of $13.30 per share to Dr. Kranzler, our Chief Executive Officer on February 8, 2005. This grant was equal to 25% of the historical option grants Dr. Kranzler has received. The options vest over four years and were granted to ensure the retention of the services of Dr. Kranzler.Limitation on Deduction of Compensation Paid to Certain Executive OfficersThe statute containing this law and the applicable Treasury regulations offer a number of transitional exceptions to this deduction limit for pre-existing compensation plans, arrangements and binding contracts. As a result,
ON EXECUTIVE COMPENSATION*Committee believesCommittee: Mr. Anderson (Chairman), Mr. McGarity and Mr. Vaughn. Due to the decision of Mr. Anderson and Mr. Vaughn not to stand for re-election as members of the Board, and their resignations effective immediately prior to the 2007 Annual Meeting of Stockholders, we anticipate that at the present time itof the 2007 Annual Meeting of Stockholders one director will comprise the Compensation Committee. The Compensation Committee is quite unlikelyresponsible for establishing and administering our executive compensation arrangements. The Compensation Committee of our Board of Directors has reviewed and discussed the foregoing Compensation Discussion and Analysis, which is required by Item 402(b) of Regulation S-K, with management. Based on our review and discussions with management, we recommend to the Board of Directors that the compensation paid to any executive officerCompensation Discussion and Analysis be included in a taxablethis Proxy Statement and in our Annual Report on Form 10-K for the fiscal year which is subject to the deduction limit will exceed $1 million. Therefore,ended December 31, 2006.* The material in this report is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. has not yet established a policy for determining which forms of incentive compensation awarded to our executive officers shall be designed to qualify as “performance-based compensation.”26Compensation Committee
Samuel Anderson (Chair)
Jon W. McGarityPerry Molinoff
Jack Vaughn27
COMPENSATION OF DIRECTORSInterlocksadopted resolutions providing for quarterly payments of $4,000 to each of our non-employee directors for such person’s service as a director, which includes participation by such person in the quarterly scheduled Board meetings. Our Board of Directors also approved: (1) the payment of an annual retainer of $3,000 to each of our non-employee directors for such person’s service on a committee of the Board; provided that such committee member must attend at least 75% of the applicable committee meetings in any calendar year in order to receive such compensation and Insider Participation
There
Special | ||||||||||||||||
Board | Committee | Option | ||||||||||||||
Name | Service | Service(1) | Awards(2) | Total | ||||||||||||
Samuel D. Anderson | $ | 16,000 | $ | 12,000 | $ | 52,160 | $ | 80,160 | ||||||||
Jon McGarity | $ | 16,000 | $ | 22,000 | $ | 52,160 | $ | 90,160 | ||||||||
Jean Pierre Millon | $ | 16,000 | $ | 19,000 | $ | 52,160 | $ | 87,160 | ||||||||
Perry Molinoff | $ | 16,000 | $ | 6,000 | $ | 52,160 | $ | 74,160 | ||||||||
Daniel H. Petree | $ | 16,000 | $ | 14,000 | $ | 52,160 | $ | 82,160 | ||||||||
Gary Tollefson | $ | 16,000 | $ | 3,000 | $ | 52,160 | $ | 71,160 | �� | |||||||
Jack H. Vaughn | $ | 16,000 | $ | 10,000 | $ | 52,160 | $ | 78,160 |
(1) | Includes amounts paid for special meetings outside the quarterly meeting and meetings that included only the chairman of various committees. | |
(2) | Reflects compensation expense for financial reporting purposes under SFAS 123R for the year ended December 31, 2006. |
Name | Number of Options | |||
Samuel D. Anderson(1) | 109,456 | |||
Jon McGarity | 58,000 | |||
Jean Pierre Millon | 58,000 | |||
Perry Molinoff | 58,000 | |||
Daniel Petree | 58,000 | |||
Gary Tollefson(2) | 58,000 | |||
Jack H. Vaughn(1) | 63,676 |
(1) | Mr. Anderson and Mr. Vaughn are not standing for re-election to the Board. | |
(2) | Dr. Tollefson resigned from the Board in February 2007. |
28
PERFORMANCE MEASUREMENT COMPARISON*
The following graph compares our cumulative total stockholder return onpurchase 13,000 shares of our common stock for his respective service on our Board. On April 26, 2007, Mr. Hawley and Dr. Nova each received an option to purchase 32,000 shares of our common stock in connection with their appointment to the periods indicatedBoard.
All Other | ||||||||||||||||||||||||
Stock Option | Compensation | |||||||||||||||||||||||
Name and Principal Position | Year | Base Salary ($) | Bonus($) | Awards($)(1) | ($) | Total ($) | ||||||||||||||||||
Jay D. Kranzler Chief Executive Officer and Chairman of the Board | 2006 | $ | 529,406 | — | $ | 2,443,948 | $ | 41,939 | (2) | $ | 3,015,293 | |||||||||||||
R. Michael Gendreau Vice President, Development and Chief Medical Officer | 2006 | $ | 286,275 | — | $ | 253,802 | $ | 15,000 | (3) | $ | 555,077 | |||||||||||||
Sabrina Martucci Johnson Chief Business Officer, Chief Financial Officer and Executive Vice President | 2006 | $ | 247,818 | — | $ | 264,195 | $ | 15,000 | (4) | $ | 527,013 | |||||||||||||
Denise Wheeler Vice President of Legal Affairs | 2006 | $ | 193,400 | (5) | — | $ | 340,962 | $ | 15,000 | (6) | $ | 549,362 |
(1) | These amounts reflect the dollar amount recognized for financial statement reporting purposes for the year ended December 31, 2006 in accordance with FAS 123(R) for awards pursuant to our 2000 Equity Incentive Plan. Assumptions used in the calculation of this amount for years ended December 31, 2004, 2005 and 2006 are included in footnote 3 to our audited financial statements for the year ended December 31, 2006 in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2007. In addition, in January 2007, the Compensation Committee granted the following options awards: for Dr. Kranzler, options to purchase 516,137 shares of common stock; for Dr. Gendreau, options to purchase 49,633 shares of common stock; for Mrs. Johnson, options to purchase 56,140 shares of common stock; and for Mrs. Wheeler, options to purchase 46,060 shares of common stock. Each of these options has an exercise price of $7.75 per share. These options vest ratably and daily over four years and expire ten years from the date of grant. | |
(2) | Includes $16,939 paid by us on behalf of Dr. Kranzler for life insurance and disability insurance premiums during 2006, $15,000 in contributions made by us on behalf of Dr. Kranzler under our 401(k) plan during 2006 and $10,000 paid for estate planning for the years 2005 and 2006. | |
(3) | Represents $15,000 in contributions made by us on behalf of Dr. Gendreau under our 401(k) plan during 2006. | |
(4) | Represents $15,000 in contributions made by us on behalf of Mrs. Johnson under our 401(k) plan during 2006. | |
(5) | Mrs. Wheeler was out during a portion of the year on maternity leave with unpaid leave. In addition, in August 2006, Mrs. Wheeler assumed part time status. | |
(6) | Represents $15,000 in contributions made by us on behalf of Mrs. Wheeler under our 401(k) plan during 2006. |
All Other | ||||||||||||||||||||||||
Option | ||||||||||||||||||||||||
Awards: | ||||||||||||||||||||||||
Number of | Closing | |||||||||||||||||||||||
Securities | Exercise or | Price on | Grant Date Fair | |||||||||||||||||||||
Approval | Underlying | Base Price | Grant | Value of Option | ||||||||||||||||||||
Name | Grant date(1) | date | Options(2) | of Options | Date(3) | Awards(4) | ||||||||||||||||||
Jay D. Kranzler | 01/03/2006 | 10/27/2005 | 374,582 | $ | 5.78 | $ | 6.19 | $ | 1,552,380 | |||||||||||||||
R. Michael Gendreau | 01/03/2006 | 10/27/2005 | 40,000 | $ | 5.78 | $ | 6.19 | $ | 165,772 | |||||||||||||||
Sabrina Martucci Johnson | 01/03/2006 | 10/27/2005 | 40,000 | $ | 5.78 | $ | 6.19 | $ | 165,772 | |||||||||||||||
Sabrina Martucci Johnson | 02/01/2006 | 01/31/2006 | 73,060 | $ | 6.06 | $ | 6.16 | $ | 322,158 | |||||||||||||||
Denise Wheeler | 01/03/2006 | 10/27/2005 | 30,000 | $ | 5.78 | $ | 6.19 | $ | 124,329 |
(1) | All options, other than the second award to Mrs. Johnson, were made in connection with our annual officer grants, which are typically approved by the Compensation Committee in the fall and awarded on the first business day of each year. The award to Mrs. Johnson that was approved on January 31, 2006 was made in connection with her promotion. | |
(2) | The options vest ratably and daily over a four-year period beginning on the date of grant. | |
(3) | Under our option plan the fair market value is determined as the closing price on the date prior to the grant date. | |
(4) | Reflects the grant date fair value of the stock options as calculated in accordance with SFAS 123R using a Black Scholes option valuation model. Assumptions used in the calculation of this amount are included in footnote 3 to our audited financial statements for the year ended December 31, 2006 in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2007 regarding weighted-average assumptions underlying valuation of equity awards. |
Number of Shares | Number of Shares | |||||||||||||||
Underlying | Underlying | |||||||||||||||
Unexercised | Unexercised | |||||||||||||||
Options – | Options – | Option Exercise | Option | |||||||||||||
Name | Exercisable | Unexercisable | Price | Expiration Date | ||||||||||||
Jay Kranzler | 297,691 | — | $ | 3.25 | 04/29/12 | |||||||||||
327,249 | 15,116 | $ | 2.51 | 03/27/13 | ||||||||||||
423,682 | 76,318 | $ | 4.53 | 08/11/13 | ||||||||||||
217,366 | 242,218 | $ | 13.30 | 02/08/15 | ||||||||||||
186,264 | 188,318 | $ | 5.78 | 01/02/16 | ||||||||||||
Sabrina Johnson | 1,760 | — | $ | 1.41 | 03/20/11 | |||||||||||
35,100 | — | $ | 3.10 | 01/27/12 | ||||||||||||
25,000 | — | $ | 3.65 | 04/18/12 | ||||||||||||
37,375 | — | $ | 3.25 | 04/29/12 | ||||||||||||
11,396 | 1,170 | $ | 2.51 | 03/27/13 | ||||||||||||
17,683 | 19,705 | $ | 13.30 | 02/08/15 | ||||||||||||
19,890 | 20,110 | $ | 5.78 | 01/02/16 | ||||||||||||
16,652 | 56,408 | $ | 6.06 | 02/01/16 |
Number of Shares | Number of Shares | |||||||||||||||
Underlying | Underlying | |||||||||||||||
Unexercised | Unexercised | |||||||||||||||
Options – | Options – | Option Exercise | Option | |||||||||||||
Name | Exercisable | Unexercisable | Price | Expiration Date | ||||||||||||
Michael Gendreau | 14,066 | — | $ | 2.60 | 02/12/12 | |||||||||||
51,551 | — | $ | 3.25 | 04/29/12 | ||||||||||||
32,934 | 2,095 | $ | 2.51 | 03/27/13 | ||||||||||||
29,359 | 32,717 | $ | 13.30 | 02/08/15 | ||||||||||||
19,890 | 20,110 | $ | 5.78 | 01/02/16 | ||||||||||||
Denise Wheeler | 72,621 | 27,379 | $ | 11.80 | 02/04/14 | |||||||||||
11,824 | 13,176 | $ | 13.30 | 02/08/15 | ||||||||||||
14,917 | 15,083 | $ | 5.78 | 01/02/16 |
Number of Shares | Value Realized | |||||||
Name | Acquired on Exercise | on Exercise | ||||||
Jay Kranzler | 160,260 | (1) | $ | 509,627 | (1) | |||
Jay Kranzler | 24,679 | $ | 118,092 | |||||
Sabrina Johnson | — | — | ||||||
Michael Gendreau | — | — | ||||||
Denise Wheeler | — | — |
(1) | Stock swap whereby 70,536 shares of Common Stock of Cypress were surrendered to purchase 160,260 options of our common stock at $2.50 per share. |
Life / | ||||||||||||||||||||||||||||
Base | Healthcare | disability | Accrued | Parachute | ||||||||||||||||||||||||
Name | salary(1) | Options(2) | benefits(3) | insurance | vacation | payment | Total | |||||||||||||||||||||
Jay Kranzler | $ | 794,110 | $ | 2,896,412 | $ | 25,704 | $ | 33,878 | $ | 47,034 | $ | 250,000 | (4) | $ | 4,047,138 | |||||||||||||
R. Michael Gendreau | $ | 286,275 | $ | 304,762 | $ | 17,943 | — | $ | 31,013 | — | $ | 639,993 | ||||||||||||||||
Sabrina Johnson | $ | 250,000 | $ | 540,434 | $ | 14,280 | — | — | — | $ | 804,714 | |||||||||||||||||
Denise Wheeler (5) | $ | 150,343 | $ | 308,735 | $ | 13,159 | — | $ | 5,949 | — | $ | 478,186 |
(1) | For Dr. Kranzler, the amount reflects 18 months of base salary, for all the other named executive officers, the amount reflects 12 months of base salary. | |
(2) | We valued stock options using the closing price of our common stock on the Nasdaq Global Market on December 29, 2006, which was $7.75 per share, utilizing the same assumptions that we utilize under SFAS 123R for our financial reporting. | |
(3) | For Dr. Kranzler, the amount reflects 2 years of healthcare benefits, for all the other named executive officers, the amount reflects 12 months of healthcare benefits. |
(4) | Under Dr. Kranzler’s employment agreement, we pay an amount equal to any excise taxes payable by him with respect to such event and we assumed the entire payment would be required. | |
(5) | Mrs. Wheeler is part time and her payments reflect such status. |
Legend
Symbol |
| CRSP Total Returns Index for: |
| 12/1999 |
| 12/2000 |
| 12/2001 |
| 12/2002 |
| 12/2003 |
| 12/2004 |
|
| Cypress Bioscience, Inc. |
| 100.0 |
| 32.8 |
| 28.4 |
| 18.6 |
| 103.7 |
| 97.0 |
| |
| Nasdaq Stock Market (US Companies) |
| 100.0 |
| 60.8 |
| 47.8 |
| 33.1 |
| 49.4 |
| 53.8 |
| |
| Nasdaq Pharmaceuticals Stocks |
| 100.0 |
| 124.7 |
| 106.3 |
| 68.7 |
| 100.7 |
| 107.2 |
| |
|
| SIC 2880 – 2889 US & Foreign |
|
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|
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Notes:
A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
B. The indexes2007 Bonus Plan are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval,as follows, with any such bonus to be calculated based on annual base salaries as of the fiscal year – end, is not a trading day,earlier of the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/1999.
Prepared by CRSP (www.crsp.uchicago.edu), Center for Research in Security Prices, Graduate School of Business, The University of Chicago. Used with permission. All rights reserved.
* The material in this section is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
29
Officer | Target Bonus | |
Jay D. Kranzler | 66 2/3% x annual base salary | |
Sabrina Martucci Johnson | 35% x annual base salary | |
R. Michael Gendreau | 25% x annual base salary | |
Denise Wheeler | 25% x annual base salary (prorated to reflect part-time status) |
Certain TransactionsCERTAIN TRANSACTIONS
On March 25, 2004, we entered into consulting agreements (the “2004 Consulting Agreements”) with our prior directors, Drs. Martin B. Keller, Lawrence J. Kessel and Charles B. Nemeroff (the “Consultants”) in connection with their resignations from our Board of Directors to assume roles as our consultants. The 2004 Consulting Agreements superseded the consulting agreements previously entered into with these individuals in 2003. Under the terms of the 2004 Consulting Agreements, each of the Consultants agreed to provide us with consulting services for a period of two years, with Drs. Keller and Nemeroff continuing to serve on our Scientific Advisory Board and Dr. Kessel serving as an independent consultant. Under the 2004 Consulting Agreements, we are required to pay each Consultant a fee of $50,000 per year for services rendered up to and including two days per fiscal quarter. In addition, we may request each Consultant to perform additional services at the rate of $5,000 per day. Payment of the consulting fees are made on a quarterly basis, provided that each Consultant has the right, by providing notice to us at any time during the last two weeks of any fiscal quarter, to receive payment of his consulting fees in the form of fully vested stock options. If a Consultant elects to receive payment in stock options, the quarterly grant will cover the number of shares that results from dividing the then accrued but unpaid fees earned by such Consultant in the applicable fiscal quarter by the closing share price of our common stock as reported on The Nasdaq National Market for the last trading day of such fiscal quarter. Such option grants will be made pursuant to the terms of our 2000 Plan. The exercise price of such option grants will be equal to the closing sales price of our common stock on The Nasdaq National Market for the last trading day of such fiscal quarter. In addition, pursuant to the 2004 Consulting Agreements, all unvested shares held by each Consultant under his outstanding option grants shall vest in equal monthly installments over a period of two years from the effective date of the agreements. If we terminate a 2004 Consulting Agreement without cause, or there is a corporate transaction (as defined in our 2000 Plan), then (i) we are required to pay the affected Consultant, within 30 days of such event, all remaining consideration such Consultant would have received during the remainder of the term of the agreement, (ii) all of the Consultant’s remaining unvested option shares will immediately vest in full, and (iii) the Consultant will be allowed to exercise such option grants through the second anniversary of the effective date of such Consultant’s agreement.
payment.
30
Householding of Proxy Materials
By Order of the Board of Directors | ||||
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Denise L. | ||||
Vice President of | ||||
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| Corporate Secretary |
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June 6, 200511, 2007
ê Please Detach and Mail in the Envelope Providedê
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Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. Executors, administrators, trustees, guardians and attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name and have a duly authorized officer sign, stating title. If signer is a partnership, please sign in partnership name by authorized person. |
Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. Executors, administrators, trustees, guardians and attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name and have a duly authorized officer sign, stating title. If signer is a partnership, please sign in partnership name by authorized person.