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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Com-
mission 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
CELTRIX PHARMACEUTICALS, INC.
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(Name of Registrant as Specified in Its Charter)
CELTRIX PHARMACEUTICALS, INC.
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] 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:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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CELTRIX PHARMACEUTICALS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 10, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Celtrix Pharmaceuticals, Inc. (the "Company"), a Delaware corporation, will be
held at the Company's principal executive offices, located at 3055 Patrick Henry
Drive, Santa Clara, California, on Thursday, September 10, 1998, at 10:00 a.m.
local time, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve amendments to the 1991 Directors' Stock Option Plan to
increase the number of shares which are automatically granted to
non-employee directors (both initially and in subsequent grants) and
to amend the timing and vesting of such options.
3. To approve an amendment to the Company's 1991 Employee Stock
Purchase Plan to increase the number of shares of Common Stock
reserved for issuance thereunder by 250,000 shares to a total of
500,000 shares.
4. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31,
1998.
5. To transact such other business as may properly come before the
meeting and any adjournment(s) 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 July 24, 1998
are entitled to notice of and to vote at the Annual Meeting and any
adjournment(s) thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy card as promptly as possible in
the envelope enclosed for that purpose. Any stockholder attending the meeting
may vote in person even if such stockholder returned a proxy card.
FOR THE BOARD OF DIRECTORS
CRAIG W. JOHNSON, Secretary
Santa Clara, California
July 29, 1998
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested to
complete, sign and date the enclosed proxy card as promptly as possible and
return it in the envelope provided.
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CELTRIX PHARMACEUTICALS, INC.
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PROXY STATEMENT FOR 1998 ANNUAL
MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Celtrix Pharmaceuticals, Inc. ("Celtrix" or the "Company"), a Delaware
corporation, for use at the Annual Meeting of Stockholders scheduled to be held
September 10, 1998, at 10:00 a.m. local time, or at any adjournment(s) thereof,
for the purposes set forth in this Proxy Statement and in the accompanying
Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at the
Company's principal executive offices, located at 3055 Patrick Henry Drive,
Santa Clara, California 95054-1815. The Company's telephone number at that
location is (408) 988-2500.
These proxy solicitation materials were mailed on or about August 7,
1998 to all stockholders entitled to vote at the meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company
(Attention: Chief Financial Officer) a written notice of revocation or a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person.
VOTING AND SOLICITATION
Every stockholder voting for the election of directors may cumulate
such stockholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares held by
such stockholder, or distribute the stockholder's votes on the same principle
among as many candidates as the stockholder thinks fit, provided that votes
cannot be cast for more than four candidates. However, no stockholder shall be
entitled to cumulate votes unless the candidate's name has been placed in
nomination prior to the voting and the stockholder, or any other stockholder,
has given notice at the meeting prior to the voting of the intention to cumulate
the stockholder's votes. On all other matters, each share has one vote.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the Inspector of Elections (the "Inspector") with the assistance of
the Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. Except with respect to the election of directors where
cumulative voting is invoked and except in certain other specific circumstances,
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the affirmative vote of a majority of shares present in person or represented by
proxy at a duly held meeting at which a quorum is present is required under
Delaware law for approval of proposals presented to stockholders. In general,
Delaware law also provides that a quorum consists of a majority of the shares
entitled to vote and present in person or represented by proxy. The Inspector
will treat abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum and as negative votes for
purposes of determining the approval of any matter submitted to the stockholders
for a vote. Any proxy which is returned using the form of proxy enclosed and
which is not marked as to a particular item will be voted for the election of
directors, for approval of the amendments to the 1991 Directors' Stock Option
Plan, for approval of the amendments to the 1991 Employee Stock Purchase Plan,
for ratification of the appointment of the designated independent auditors and,
as the proxy holders deem advisable, on other matters that may come before the
meeting, as the case may be with respect to the item not marked. If a broker
indicates on the enclosed proxy or its substitute that it does not have
discretionary authority as to certain shares to vote on a particular matter
("broker non-votes"), those shares will not be considered as present with
respect to that matter. The Company believes that the tabulation procedures to
be followed by the Inspector are consistent with the general statutory
requirements in Delaware concerning voting of shares and determination of a
quorum.
The cost of soliciting proxies will be borne by the Company. The
Company may reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers and employees, without additional compensation, personally,
by telephone, electronic mail or facsimile.
RECORD DATE AND SHARE OWNERSHIP
Only stockholders of record at the close of business on July 24, 1998
are entitled to notice of and to vote at the meeting. As of July 24, 1998,
21,061,053 shares of the Company's Common Stock, $.01 par value per share, were
issued and outstanding.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting, four directors are to be elected to serve until
the next Annual Meeting and until their successors are elected and qualified at
such meeting. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's four nominees named below, all of
whom are currently directors of the Company. In the event that any nominee of
the Company is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. The proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will assure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. It is not expected that
any nominee listed below will be unable or will decline to serve as a director.
Assuming a quorum is present, the four nominees for director receiving the
greatest number of votes cast at the Annual Meeting will be elected. The term of
office of each person elected as a director will continue until the next Annual
Meeting of Stockholders or until his successor has been elected and qualified.
The nominees' names and ages as of July 24, 1998, and certain
information about them are set forth below:
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- -----
Henry E. Blair............................ 54 Chairman and Chief Executive Officer of Dyax 1995
Corporation; Co-Founder and Consultant,
Genzyme Corporation and Director of the
Company
Barry M. Sherman, M.D..................... 57 President and Chief Executive Officer of 1997
Anergen, Inc. and Director of the Company
Andreas Sommer, Ph.D...................... 56 Chief Executive Officer, President and 1994
Director of the Company
James E. Thomas........................... 38 Chairman of the Board of Directors of the 1993
Company; Managing Director of E.M. Warburg,
Pincus & Co., Inc.
Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his name above during the past five
years. There are no family relationships among the directors or executive
officers of the Company.
Mr. Blair has served as a director of Celtrix since January 1995. He
currently serves as Chairman and Chief Executive Officer of Dyax Corp. Mr. Blair
co-founded Genzyme Corporation in 1981 and served as the company's Senior Vice
President for Manufacturing,
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Research and Development until 1988. He continues to serve on Genzyme's Board of
Directors and as a consultant. Mr. Blair has founded and guided a variety of
other biotechnology companies since Genzyme's inception, such as Biotage
Incorporated, GelTex Pharmaceuticals and Biocode, Inc. He is also a director of
Genzyme Transgenic Corporation.
Dr. Sherman was elected to the Board of Directors of Celtrix in
December 1997. He currently serves as President and Chief Executive Officer and
a director of Anergen, Inc., and has been a Clinical Professor of Internal
Medicine at Stanford University since 1986. Previously, Dr. Sherman served as
Senior Vice President and Chief Medical Officer at Genentech, Inc. until March
1996. He is also a director of Chrysalis, Inc.
Dr. Sommer was appointed Chief Executive Officer and President of
Celtrix in April 1995 and has served as a director of Celtrix since May 1994.
Previously, Dr. Sommer served as Senior Vice President of Celtrix since July
1993 and as Vice President, Research of Celtrix since 1992, following the
Company's merger with BioGrowth, Inc. ("BioGrowth"). From 1989 to 1991, Dr.
Sommer served as Vice President, Research and Development of BioGrowth.
Mr. Thomas was elected Chairman of the Board of Celtrix in April 1995
and has served as a director of Celtrix since November 1993. He has been a
Managing Director of E.M. Warburg, Pincus & Co., Inc. ("Warburg") since January
1994 and has held various other positions at Warburg since 1989. He is also a
director of Anergen, Inc., Menley & James Laboratories, Inc., Xomed Surgical
Products, Inc., Transkaryotic Therapies, Inc., Oxford GlycoSciences PLC and
several privately-held companies.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of seven meetings
during the year ended March 31, 1998. The Board of Directors has an Audit
Committee and a Compensation Committee. It does not have a nominating committee
or a committee performing the functions of a nominating committee.
The Audit Committee of the Board of Directors currently consists of
directors Blair and Thomas, the chairman of the Audit Committee. The Audit
Committee held one meeting during fiscal 1998. The Audit Committee recommends
engagement of the Company's independent auditors, and is primarily responsible
for approving the services performed by the Company's independent auditors and
for reviewing and evaluating the Company's accounting principles and its system
of internal accounting controls.
The Compensation Committee of the Board of Directors currently consists
of directors Thomas and Blair, the chairman of the Compensation Committee. Dr.
Sommer attends Compensation Committee meetings in an unofficial capacity. The
Compensation Committee held seven meetings during fiscal 1998. The Compensation
Committee is responsible for setting and administering the policies for
executive compensation, the Company's 1991 Stock Option Plan and 1991 Employee
Stock Purchase Plan and short-term and long-term incentive programs.
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In fiscal 1998, no incumbent director attended fewer than 75% of the
aggregate number of meetings of the Board of Directors and meetings of the
committees of the Board of Directors on which he serves.
COMPENSATION OF DIRECTORS
Directors are reimbursed for out-of-pocket travel expenses associated
with their attendance at Board meetings. During fiscal 1998, independent
non-employee directors Blair and Sherman received a fee of $1,000 for each
meeting of the Board of Directors attended. In accordance with internal policies
at Warburg, director Thomas does not receive compensation for attending the
Company's Board meetings. Independent non-employee directors holding less than
2% of the Company's Common Stock participate in the Company's 1991 Directors'
Stock Option Plan (the "Directors' Plan"), pursuant to which such directors are
automatically granted options to purchase shares of Common Stock of the Company
on the terms and conditions set forth in the Directors' Plan. The Company's
stockholders are being asked to approve amendments to the Directors' Plan at the
Annual Meeting. See Proposal No. 2 below. Additionally, at the discretion of the
Board, non-employee directors may also receive option grants under the 1991
Stock Option Plan. During the year ended March 31, 1998, director Blair was
granted an option to purchase 3,333 shares of Common Stock of the Company under
the Directors' Plan at an exercise price of $2.563 per share; director Sherman
was granted an initial option to purchase 10,000 shares under the Directors'
Plan and an additional option to purchase 15,000 shares under the 1991 Stock
Option Plan, both at an exercise price of $2.25 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES LISTED
ABOVE.
PROPOSAL NO. 2
AMENDMENT TO THE 1991 DIRECTORS' STOCK OPTION PLAN
At the Annual Meeting, stockholders are being asked to approve amendments to
the 1991 Directors' Stock Option Plan (the "Directors' Plan") to increase the
number of shares granted to non-employee directors holding less than 2% of the
Company's Common Stock ("Eligible Directors") such that the initial stock option
granted upon first becoming a new director shall be increased from 10,000 shares
to 40,000 shares of Common Stock ("Initial Grant"), and thereafter such Eligible
Directors shall be granted a subsequent stock option ("Subsequent Grant") for
the purchase of 40,000 shares of Common Stock on January 1st of the fourth year
after the Initial Grant or after any Subsequent Grant, as the case may be. Prior
to such amendments, the Directors' Plan provided for Subsequent Grants in the
amount of 3,333 shares automatically granted on April 1st of each year after the
Initial Grant, so long as the director had been on the Board for a period of six
months or more. In addition, the vesting of the Directors' Plan options has been
amended such that each option granted thereunder, whether an Initial or
Subsequent Grant, shall vest at a rate of 1/4th of the total number of shares on
the first anniversary of the grant date and 1/48th per month thereafter.
Previously, under the Directors' Plan, the Initial Grants vested at a rate of
1/3rd per year on each of the 1st, 2nd and 3rd anniversaries of the grant
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date and each Subsequent Grant became fully vested on the third anniversary of
the Subsequent Grant date. The proposed amendments to the structure of
Subsequent Grants under the Directors' Plan will change a non-employee
director's accumulation of vested Company stock options (assuming such director
remains employed throughout the applicable periods) from having options to
purchase 3,333 shares vest each year to having 10,000 shares vest each year, and
from such options granted annually and vesting in three years to options granted
every four years in increments of 40,000 shares and vesting over four years. The
total number of shares of Common Stock reserved for issuance under the
Directors' Plan is not being changed by these proposed amendments to the Initial
and Subsequent Grants. The Board of Directors adopted these amendments in June
1998, subject to stockholder approval.
The stockholders are also being asked to consent to the amendment of
the Directors' Plan to limit the class of non-employee directors eligible to
participate in the plan by excluding those non-employee directors who own two
percent (2%) or more of the Company's outstanding Common Stock. The Board of
Directors, in approving the amendments for which stockholder approval is now
being sought, determined that, since the size of grants under the Directors'
Plan was being increased, it was inappropriate to allow non-employee directors
who might already own a substantial portion of the Company's securities to
benefit from such amendments. Currently, all non-employee directors, even those
owning two percent (2%) or more of the Company's outstanding Common Stock, are
eligible to participate in the Directors' Plan. However, director Thomas does
not participate in the Directors' Plan because of his affiliation with Warburg.
Assuming adoption of the proposed amendments described herein, the
first Subsequent Grant under the Directors' Plan will be made to those
non-employee directors who are Eligible Directors on September 10, 1998.
The Board of Directors believes that in order to attract and retain
high caliber directors and to provide them with adequate incentive through their
proprietary interest in the Company, it is necessary to amend the Directors'
Plan to increase the number of shares subject to the Initial and Subsequent
Grants and to make the other changes described above.
GENERAL
The Directors' Plan was adopted by the Board of Directors and approved
by Collagen Corporation as the sole stockholder in January 1991, and 50,000
shares of Common Stock were initially reserved for issuance thereunder. In 1992,
the number of shares reserved for issuance under the Directors' Plan was
increased by 150,000 shares, to a total of 200,000 reserved shares.
The Directors' Plan provides for the grant of nonstatutory stock
options to non-employee directors of the Company who hold less than 2% of the
Company's Capital Stock. It is designed to work automatically and not to require
administration; however, to the extent administration is necessary, it will be
provided by the Board of Directors.
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Through July 24, 1998, options to purchase an aggregate of 29,999
shares of Common Stock had been granted pursuant to the Directors' Plan, no
options had been exercised and options to purchase 29,999 shares remained
outstanding at a weighted average exercise price of $2.57 per share.
The Directors' Plan is not intended to comply with the provisions of
Section 401 of the Internal Revenue Code of 1986, as amended (the "Code") or
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or the rules thereunder.
SUMMARY OF THE DIRECTORS' PLAN
The following is a summary of the essential features of the Directors'
Plan, as amended by the Board of Directors. The summary, however, does not
purport to be a complete description of all the provisions of the Directors'
Plan. Any stockholder who wishes to obtain a copy of the actual plan document
may do so upon written request to the Company's Chief Financial Officer at the
Company's principal office.
Purpose
The purposes of the Directors' Plan are to attract and retain the best
available personnel for service as outside directors of the Company and to
encourage their continued service on the Board.
Administration
The Directors' Plan is designed to work automatically and not to
require administration. However, to the extent administration is necessary, it
will be provided by the Board of Directors. The interpretation and construction
of any provision of the Directors' Plan by the Board shall be final and
conclusive. Members of the Board receive no additional compensation for their
services in connection with the administration of the Directors' Plan.
Eligibility
After giving effect to the proposed amendments described above, the
Directors' Plan will provide for the automatic grant of nonstatutory stock
options to non-employee directors who hold less than two percent (2%) of the
Company's Capital Stock. Each such Eligible Director is automatically granted an
Initial Grant to purchase 40,000 shares of Common Stock on the date he or she
becomes a director and thereafter, a Subsequent Grant of 40,000 shares of Common
Stock on January 1st of the fourth year after the Initial Grant or any
Subsequent Grant, as the case may be. The Directors' Plan provides for neither a
maximum nor a minimum number of shares that may be granted to any one
non-employee director, but does provide for the number of shares that may be
included in any grant and the method of making grants.
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Terms of Options
Options granted under the Directors' Plan have a term of ten years.
Each option is evidenced by a stock option agreement between the Company and the
director to whom such option is granted and is subject to the following
additional terms and conditions:
(a) Exercise of the Option. After giving effect to the proposed
amendments described above, each Initial and Subsequent Grant will
become exercisable at the rate of 1/4th of such shares on the first
anniversary of the grant date of such option and 1/48th of the original
number of shares on each monthly anniversary of the grant date
thereafter, while the Eligible Director remains a director of the
Company. An optionee may exercise an option by giving written notice of
exercise to the Company, specifying the number of full shares of Common
Stock to be purchased and tendering payment to the Company. The
purchase price is payable by cash, check, an exchange of shares of the
Company's Common Stock or a combination thereof.
(b) Exercise Price. The per share exercise price for the Initial
and Subsequent Grants shall be 100% of the fair market value of the
Company's Common Stock on the date of grant. The fair market value
shall be determined by the Board in its discretion; provided, however,
that where the Common Stock is traded on the Nasdaq National Market (as
it is currently), the fair market value shall be the closing price on
the Nasdaq National Market on the date of grant.
(c) Termination of Status as a Director. The Directors' Plan
provides that if the optionee ceases to be a director of the Company,
the option may be exercised within 90 days after the date he or she
ceases to be a director as to all or part of the shares that the
optionee was entitled to exercise at the date of such termination.
(d) Disability. If an optionee is unable to continue his or her
service as a director of the Company as a result of his or her total
and permanent disability, options may be exercised within 6 months from
the date of such termination and may be exercised only to the extent
the option was exercisable on the date of termination.
(e) Death. If an optionee should die (i) while serving as a
director to the Company, the options may be exercised within 6 months
after the date of death to the extent the options would have been
exercisable 6 months after the date of death had the optionee continued
living and remained a director of the Company, or (ii) within 30 days
after ceasing to serve as a director of the Company, the options may be
exercised within 6 months after the date of death to the extent the
options would have been exercisable on the date of termination of
status as a director.
(f) Nontransferability of Options. An option is nontransferable by
the optionee, other than by will or the laws of descent or
distribution, and is exercisable during the optionee's lifetime only by
the optionee or, in the event of the optionee's death, by a
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person who acquires the right to exercise the option by bequest or
inheritance or by reason of the death of the optionee.
(g) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the Directors'
Plan as may be determined by the Board of Directors or its committee.
Adjustment Upon Changes in Capitalization, Sale or Merger
In the event any change is made in the Company's capitalization, such
as a stock split or dividend, that results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration
by the Company, an appropriate adjustment shall be made in the exercise price
and in the number of shares subject to each option. In the event of a proposed
sale of all or substantially all of the assets of the Company, or the merger
of the Company with or into another corporation, options outstanding under the
Directors' Plan shall be assumed or an equivalent option substituted by the
successor corporation, unless the successor corporation does not agree to such
assumption or substitution, in which case the Board shall provide for
optionees to have the right to exercise their options as to all shares subject
to such options, including shares as to which the options would not otherwise
be exercisable, for a period of 60 days from the date when the optionees are
notified of such action, after which such options terminate. In the event of a
proposed dissolution or liquidation of the Company, all outstanding options
automatically terminate immediately prior to the effective date of the
transaction.
Amendment and Termination of the Plan
The Board of Directors may amend the Directors' Plan from time to time
in such respect as the Board of Directors may deem advisable; provided, however,
that to the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act or with any other successor or applicable law or regulation, the
Company shall obtain stockholder approval of any Directors' Plan amendment in
such a manner and to such a degree as is required by the applicable law, rule or
regulation. The provisions in the Directors' Plan setting forth the number of
shares and other terms of the automatic grants may not be amended more than once
in a six-month period other than to comport with changes in the Code, ERISA or
the rules thereunder. However, no action by the Board of Directors or the
stockholders may alter or impair any option previously granted under the
Directors' Plan without the consent of the optionee. The Directors' Plan
terminates in 2001 (unless terminated at an earlier date by the Board of
Directors), provided that any options then outstanding under the Directors' Plan
remain outstanding until they expire by their terms.
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Federal Income Tax Aspects of the Directors' Plan
The following is a brief summary of the federal income tax consequences
of transactions under the Directors' Plan based on federal income tax laws in
effect on the Record Date. This summary is not intended to be exhaustive and
does not address all matters which may be relevant to a particular optionee
based on his or her specific circumstances. The summary addresses only current
federal income tax law and expressly does not discuss the income tax law of any
state, municipality or non-U.S. taxing jurisdiction or gift, estate or other tax
laws other than federal income tax law. The Company advises all optionees to
consult their own tax advisors concerning tax implications of option grants and
exercises and the disposition of stock acquired upon such exercises under the
Directors' Plan.
Options granted under the Directors' Plan are referred to as
nonstatutory stock options. An optionee will not recognize any taxable income
under federal tax laws at the time he or she is granted a nonstatutory option.
However, upon its exercise, under federal tax laws the optionee will recognize
ordinary income for tax purposes measured by the excess of the then fair market
value of the shares over the exercise price. The Company will be entitled to a
tax deduction in the amount and at the time that the optionee recognizes
ordinary income with respect to shares acquired upon exercise of a nonstatutory
stock option. Upon resale of such shares by the optionee, any difference between
the sale price and the optionee's tax basis (exercise price plus the income
recognized upon exercise) will be treated under federal tax laws as capital gain
or loss, and will qualify for long-term capital gain or loss treatment if the
shares have been held for more than one year.
REQUIRED VOTE
The amendments to the Directors' Plan to (i) the number of shares subject
to an Initial Grant shall be increased from 10,000 shares to 40,000 shares of
Common Stock; (ii) thereafter that the number of shares subject to each
Subsequent Grant shall be increased from 3,333 shares to 40,000 shares of Common
Stock; (iii) that each Subsequent Grant shall be granted on January 1st of the
fourth year after the Initial Grant or a Subsequent Grant, as the case may be,
instead of on April 1st of each year; (iv) that each option granted (whether an
Initial or Subsequent Grant) shall vest at a rate of 1/4th on the first
anniversary of the grant date and 1/48th per month thereafter, and (v) limiting
the class of non-employee directors eligible to participate in the Directors'
Plan to those who own less than 2% of the Company's outstanding Common Stock
require the affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present and entitled to vote at the meeting.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE
DIRECTORS' PLAN TO: (1) INCREASE THE NUMBER OF SHARES SUBJECT TO THE INITIAL
GRANT FROM 10,000 SHARES TO 40,000 SHARES OF COMMON STOCK; (2) INCREASE THE
NUMBER OF SHARES SUBJECT TO A SUBSEQUENT GRANT FROM 3,333 SHARES TO 40,000
SHARES OF COMMON STOCK; (3) AMEND THE TIMING OF THE SUBSEQUENT GRANTS FROM EVERY
YEAR TO EVERY FOURTH YEAR; (4) CHANGE THE VESTING OF THE INITIAL AND SUBSEQUENT
GRANTS TO BE 1/4TH AFTER THE FIRST YEAR, AND 1/48TH PER MONTH THEREAFTER, AND
(5) LIMIT THE CLASS OF NON-EMPLOYEE DIRECTORS ELIGIBLE TO PARTICIPATE IN THE
DIRECTORS' PLAN TO THOSE WHO OWN LESS THAN 2% OF THE COMPANY'S OUTSTANDING
COMMON STOCK. THESE AMENDMENTS REQUIRE THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
MAJORITY OF THE SHARES OF THE COMPANY'S COMMON STOCK PRESENT AND ENTITLED TO
VOTE AT THE MEETING. THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE
AGAINST THE PROPOSAL.
PROPOSAL NO. 3
AMENDMENT OF THE 1991 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, stockholders are being asked to approve an
amendment to the Company's 1991 Employee Stock Purchase Plan (the "Purchase
Plan") increasing the number of the shares of Common Stock reserved for issuance
thereunder by 250,000 shares, to a total of 500,000 shares. The Purchase Plan
provides for employee purchases of the Company's Common Stock through
accumulated payroll deductions and is intended to qualify under the provisions
of Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
GENERAL
The Purchase Plan was adopted by the Board of Directors and approved by
Collagen Corporation as the sole stockholder of the Company in January 1991. A
total of 50,000 shares of Common Stock were initially reserved for issuance
under the Purchase Plan. At the August 1995 Annual Meeting, the stockholders
approved an increase of the number of shares reserved for issuance by 200,000
shares to a total of 250,000 shares. In June 1998, the Board of Directors
approved, subject to stockholder approval, an increase in number of shares
reserved for issuance by an additional 250,000 shares to a total of 500,000
shares. The Purchase Plan is not a qualified deferred compensation plan under
Section 401 (a) of the Code, and is not subject to the provisions of ERISA.
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As of July 24, 1998, a total of 176,880 shares were issued to the
Company's employees and 73,120 shares remain available for issuance. As of July
24, 1998, approximately 83 employees were eligible to participate in the
Purchase Plan; of these, 30 were participating.
SUMMARY OF THE PURCHASE PLAN
The essential features of the Purchase Plan, as amended by the Board of
Directors, are outlined below. The summary, however, does not purport to be a
complete description of all the provisions of the Purchase Plan. Any stockholder
who wishes to obtain a copy of the actual plan document may do so upon written
request to the Company's Chief Financial Officer at the Company's principal
office.
Purpose
The purpose of the Purchase Plan is to provide employees of the Company
and its subsidiaries with an opportunity to purchase Common Stock of the Company
through payroll deductions. The Company believes the Purchase Plan furthers its
goal of encouraging equity ownership by Company employees as an incentive for
employees to maximize the success of the Company.
Administration
The Purchase Plan may be administered by the Board of Directors or a
committee appointed by the Board of Directors. All questions of interpretation
of the Purchase Plan are determined by the Board of Directors or its committee,
whose decisions are final and binding upon all participants. The Purchase Plan
is currently being administered by the Compensation Committee. No charges for
administrative or other costs may be made against the payroll deductions of a
participant in the Purchase Plan. Members of the Board of Directors receive no
additional compensation for their services in connection with the administration
of the Purchase Plan.
Eligibility
Any person who is employed by the Company (or any of its majority-owned
subsidiaries) for at least 20 hours per week and more than five months in a
calendar year is eligible to participate in the Purchase Plan after a period of
service with the Company as defined in the Purchase Plan, provided that the
employee has been continuously employed as an employee for three (3) months on
the first day of an offering period and subject to certain limitations imposed
by Section 423(b) of the Code. See "Purchase of Stock; Exercise of Option."
Offering Dates
In general, the Purchase Plan is implemented by a series of offering
periods with a new offering period commencing on January 1 of each year. In the
case of an individual who becomes an eligible employee after the first business
day of an offering period, but prior to the first business day of the last
calendar quarter of such offering period, the offering date shall be
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the first business day of the calendar quarter coinciding with or succeeding the
day on which the individual becomes an eligible employee. The Board of Directors
has the power to change the duration and/or frequency of the offering periods
with respect to future offerings without stockholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first offering period to be affected.
Participation in the Plan
Eligible employees may participate in the Plan by completing a
subscription agreement on the form provided by the Company and filing it with
the Company's Office of Human Resources prior to the applicable offering date,
unless a later time for filing the subscription agreement is set by the Board
for all eligible employees with respect to a given offering. The subscription
agreement authorizes payroll deductions of up to 10% of the participant's
eligible compensation on the date of the purchase.
Purchase Price
The purchase price per share at which shares are sold under the
Purchase Plan is 85% of the lower of the fair market value of the Common Stock
on either the first or last day of the offering period. The fair market value
shall be the closing price of the Common Stock on the Nasdaq National Market as
of such date.
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares is accumulated by payroll deductions
during the offering period. The deductions may be up to ten percent (10%) of a
participant's eligible compensation received on each pay day during the offering
period. Eligible compensation is defined in the Purchase Plan to mean all
regular straight time gross earnings, excluding payments for overtime, shift
premium, incentive compensation, bonuses, commissions and other compensation. A
participant may discontinue his or her participation in the Purchase Plan at any
time during the offering period prior to an exercise date, or may on one
occasion only during the offering period decrease the rate of his or her payroll
deductions by completing and filing a new subscription agreement. Payroll
deductions shall commence on the first payroll following the offering date and
shall end on the last payroll paid on or prior to the exercise date of the
offering to which the subscription agreement is applicable, unless sooner
terminated by the participant. See "Withdrawal" below. No interest accrues on
the payroll deductions of a participant in the Purchase Plan.
Purchase of Stock; Exercise of Option
By executing a subscription agreement to participate in the Purchase
Plan, the participant is entitled to have shares placed under option. The
maximum number of shares placed under option to a participant in an offering
period is the number determined by dividing $25,000 by the fair market value of
one share of the Company's Common Stock on the offering date. Within this limit,
the number of shares purchased by a participant will be determined by dividing
the amount of the participant's total payroll deductions accumulated during each
annual exercise
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period by the lower of (i) 85% of the fair market value of the Common Stock at
the beginning of the offering period, or (ii) 85% of the fair market value of
the Common Stock on the applicable exercise date (the last day of the offering
period). See "Payment of Purchase Price; Payroll Deductions" for additional
limitations on payroll deductions. Unless the participant's participation is
discontinued, each participant's option for the purchase of shares will be
exercised automatically at the end of each offering period at the applicable
price. See "Withdrawal" below. Notwithstanding the foregoing, no participant
shall be permitted to subscribe for shares under the Purchase Plan if
immediately after the grant of the option he or she would own 5% or more of the
voting power or value of all classes of stock of the Company or of a parent or
of any of its subsidiaries (including stock which may be purchased under the
Purchase Plan or pursuant to any other options), nor shall any participant be
granted an option which would permit the participant to buy pursuant to the
Purchase Plan more than $25,000 worth of stock (determined at the fair market
value of the shares at the time the option is granted) in any calendar year.
Furthermore, if the number of shares which would otherwise be placed under
option at the beginning of an offering period exceeds the number of shares then
available under the Purchase Plan, a pro rata allocation of the available shares
shall be made in as equitable a manner as is practicable.
Withdrawal
A participant may withdraw all but not less than all the Contributions
credited to his or her account under the Purchase Plan at any time prior to the
exercise date of an offering period by giving written notice to the Company. All
of the participant's contributions credited to his or her account will be paid
to him or her, without interest, promptly after receipt of his or her notice of
withdrawal and his or her option for the current period will be automatically
terminated, and no further contributions for the purchase of shares will be made
during the offering period.
Termination of Employment
Upon termination of the participant's continuous status as an employee
prior to the exercise date of an offering period for any reason, including
retirement or death, the contributions credited to his or her account will be
returned to him or her, without interest, or, in the case of his or her death,
to the person or persons entitled thereto, and his or her option will be
automatically terminated.
In the event an employee fails to remain in continuous status as an
employee of the Company for at least twenty (20) hours per week during the
offering period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Purchase Plan and the contributions
credited to his or her account will be returned to him or her, without interest,
and his or her option terminated.
Adjustment upon Changes in Capitalization
In the event any change, such as a stock split or stock dividend, is
made in the Company's capitalization which results in an increase or decrease in
the number of outstanding shares of Common Stock without receipt of
consideration by the Company, appropriate adjustments will
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be made in the shares subject to purchase and in the purchase price per share,
as well as in the number of shares available for issuance under the Purchase
Plan. In the event of the proposed dissolution or liquidation of the Company,
each option will terminate unless otherwise provided by the Board of Directors
or its committee.
In the event of a sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
option under the Purchase Plan shall be assumed or an equivalent option
substituted by the successor corporation, unless the Board or its committee
determines, in its sole discretion and in lieu of such assumption or
substitution, to shorten the offering period then in progress by setting a new
exercise date. If the Board or its committee chooses to shorten an offering
period and set a new exercise date, each participant in the Purchase Plan would
be given written notice 10 days prior to the new exercise date that his or her
option would be automatically exercised on the new exercise date unless such
participant withdrew from the Purchase Plan prior to such date.
Nontransferability
No rights or accumulated payroll deductions of a participant under the
Purchase Plan may be pledged, assigned or transferred for any reason and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
During his or her lifetime, a participant's option to purchase shares
under the Purchase Plan may be exercised only by him or her. A participant may,
however, file a written designation of a beneficiary who is to receive (i)
shares and cash, if any, from the participant's account under the Purchase Plan
in the event of such participant's death subsequent to the end of an offering
period but prior to delivery to him or her of such shares and cash, or (ii) any
cash from the participant's account in the event of such participant's death
prior to the end of the offering period then underway. If a participant is
married and his or her designated beneficiary is not his or her spouse, spousal
consent shall be required for such designation to be effective.
Reports
Individual accounts will be maintained for each participant in the
Purchase Plan. Each participant shall receive at least annually a report of such
participant's account setting forth the total amount of payroll deductions
accumulated, the per share purchase price and the number shares purchased and
the remaining cash balance, if any.
Amendment and Termination of the Plan
The Board of Directors may at any time amend or terminate the Purchase
Plan, except that such termination shall not affect options previously granted
nor may any amendment make any change in any option granted prior thereto which
adversely affects the rights of any participant. No amendment may be made to the
Purchase Plan without prior approval of the stockholders of the Company if such
amendment would increase the number of shares reserved under the Purchase Plan,
permit a new class of employees to participate in the Purchase Plan or
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make any other change to the Purchase Plan for which stockholder approval is
required to comply with Section 16 of the Exchange Act, Rule 16b-3 promulgated
thereunder or under Section 423 of the Code (or any successor rule thereto).
Federal Income Tax Aspects of the Employee Stock Purchase Plan
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify for the federal income tax treatment provided
to employee stock purchase plans and their participants under the provisions of
Sections 421 and 423 of the Code. Under these provisions, no income will be
taxable to a participant until the shares purchased under the Purchase Plan are
sold or otherwise disposed of. Upon sale or other disposition of the shares, the
participant will generally be subject to tax in an amount which depends upon how
long the participant has held the shares. If the shares are sold or otherwise
disposed of more than two years from the first day of the offering period and
one year from the date the shares are purchased, the participant will recognize
ordinary income measured as the lesser of (a) the excess of the fair market
value of the shares at the time of such sale or disposition over the purchase
price, or (b) an amount equal to 15% of the fair market value of the shares as
of the first day of the offering period. Any additional gain will be treated as
long-term capital gain. If the shares are sold or otherwise disposed of before
the expiration of either of these holding periods, the participant will
recognize ordinary income generally measured as the excess of the fair market
value of the shares on the date the shares are purchased over the purchase
price. Any additional gain or loss on such sale or disposition will be long-term
or short-term capital gain or loss, depending on whether or not the disposition
occurs more than one year after the date the shares are purchased. The Company
is not entitled to a deduction for amounts taxed as ordinary income or capital
gain to a participant except to the extent of ordinary income recognized by a
participant upon a sale or disposition of shares prior to the expiration of the
holding periods described above.
The foregoing is only a summary of the effect of federal income
taxation upon the participant and the Company with respect to shares purchased
under the Purchase Plan. This summary does not address any tax consequences to
the participant upon his or her death or as a result of the application of tax
laws of any state or foreign country in which the participant may reside.
Reference should be made to the applicable provisions of the Code and individual
participants are encouraged to consult their own tax advisors in connection with
any transaction involving the purchase of stock under the Purchase Plan or any
disposition thereof.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Common Stock
present or represented by proxy at the Annual Meeting is required to approve the
amendment to the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE AMENDMENT TO THE 1991 EMPLOYEE
STOCK PURCHASE PLAN INCREASING THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE
FOR ISSUANCE THEREUNDER
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BY 250,000 SHARES TO A TOTAL OF 500,000 SHARES. THE EFFECT OF AN ABSTENTION IS
THE SAME AS THAT OF A VOTE AGAINST THE PROPOSAL.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
In December 1997, the Board of Directors approved changing the
Company's fiscal year from March 31 to December 31, effective December 31, 1998.
The Board of Directors has selected Ernst & Young LLP, independent auditors, to
audit the financial statements of the Company for the fiscal year ending
December 31, 1998, and recommends that the stockholders vote for ratification of
such appointment. In the event the stockholders do not ratify such appointment,
the Board of Directors will reconsider its selection. Ernst & Young LLP has
audited the Company's financial statements since its incorporation (December
1990), and previously audited the financial statements of the Company as a
division of Collagen Corporation, and as a division of a former Collagen
subsidiary. Representatives of Ernst & Young LLP are expected to be present at
the meeting with the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1998. THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A
VOTE AGAINST THE PROPOSAL.
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COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the
Company's Common Stock as of July 24, 1998, as to (i) each person who is known
by the Company to beneficially own more than five percent of the Company's
Common Stock, (ii) each nominee for the Company's Board of Directors, (iii) each
of the executive officers named in the Summary Compensation Table on page 22 ,
and (iv) all current directors and executive officers as a group.
SHARES BENEFICIALLY OWNED (1)
---------------------------------
5% STOCKHOLDERS, DIRECTORS, NAMED EXECUTIVE OFFICERS, AND
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER PERCENT (2)
------------------------------------------------------------ --------------- -----------
Warburg, Pincus Investors, L.P. (3)........................ 4,330,330 19.5%
466 Lexington Avenue, Tenth Floor
New York, NY 10017
Genzyme Corporation........................................ 3,023,217 14.4%
One Kendall Square
Cambridge, MA 02139
Dawson-Samberg Capital Management, Inc.(4)................. 2,576,032 11.8%
354 Pequot Avenue
Southport, CT 06490
Biotechnology Development Fund, L.P.(5).................... 1,920,774 8.8%
575 High Street, Suite 201
Palo Alto, CA 94301
Henry E. Blair (6)......................................... 3,038,217 14.4%
One Kendall Square
Cambridge, MA 02139
Malcolm J. McKay, Ph.D.(7)................................. 47,017 *
David M. Rosen, Ph.D.(7)................................... 101,739 *
Barry M. Sherman, M.D. (8)................................. 3,000 *
Andreas Sommer, Ph.D. (7).................................. 287,111 1.4%
James E. Thomas (9)........................................ 4,330,330 19.5%
466 Lexington Avenue, Tenth Floor
New York, NY 10017
All directors and executive officers as a group
(7 persons) (10)........................................... 485,967 2.3%
- ---------------------
* Less than 1%.
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(1) Information with respect to beneficial ownership is based upon
information furnished by each director and officer or contained in
filings made with the Securities and Exchange Commission. Except as
indicated in the footnotes to this table, the stockholders named in the
table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) Percentage of ownership is based on 21,061,053 shares of Common Stock
outstanding on July 24, 1998. The number of shares of Common Stock
beneficially owned includes the shares issuable pursuant to stock
options that are exercisable within 60 days after July 24, 1998. Shares
issuable pursuant to warrants and stock options are deemed outstanding
for computing the percentage of the person holding such options but are
not outstanding for computing the percentage of any other person.
(3) Warburg, Pincus Investors, L.P. ("WPI") is a Delaware limited
partnership whose sole general partner is Warburg, Pincus & Co., a New
York general partnership ("WP"). E. M. Warburg, Pincus & Co., LLC, a
New York limited liability company ("EMW LLC"), manages WP. The members
of EMW LLC are substantially the same as the partners of WP. Lionel I.
Pincus is the managing partner of WP and the managing member of EMW LLC
and may be deemed to control both WP and EMW LLC. WP, as the sole
general partner of WPI, has a 20% interest in the profits of WPI. Mr.
James E. Thomas, Chairman of the Board of Directors of the Company, is
a Managing Director and member of EMW LLC and a general partner of WP.
As such, Mr. Thomas may be deemed to have an indirect pecuniary
interest (within the meaning of Rule 16a-1 under the Securities
Exchange Act of 1934) in an indeterminable portion of the shares
beneficially owned by WPI and WP. The number of shares beneficially
owned include a warrant for the purchase of 687,155 shares of Common
Stock at an exercise price of $9.00 which expires on November 17, 1998,
and a warrant for the purchase of 461,443 shares of Common Stock at an
exercise price of $2.68 which expires on April 1, 2000.
(4) Includes 2,184,456 shares held by Pequot Private Equity Fund, L.P. (of
which 728,152 shares are issuable upon exercise of a warrant at an
exercise price of $2.68 and which expires on April 1, 2000), 276,576
shares held by Pequot Offshore Private Equity Fund, Inc. (of which
92,192 shares are issuable upon exercise of a warrant at an exercise
price of $2.68 and which expires on April 1, 2000), and 115,000 shares
held by Pequot Scout Fund, L.P.
(5) Includes a warrant for the purchase of 615,258 shares of Common Stock
at an exercise price of $2.68 which expires on April 1, 2000. Also
includes an option to purchase 75,000 shares of Common Stock at an
exercise price of $2.438 per share which expires on April 1, 2000.
(6) 3,023,217 of the shares indicated as owned by Mr. Blair are owned
directly by Genzyme Corporation ("Genzyme") and are included because
Mr. Blair is a member of the Board of Directors of Genzyme. Mr. Blair
disclaims "beneficial ownership" of these shares within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934; therefore, the
shares are not reflected in the total number of shares held by officers
and directors. Also, includes 10,000 shares issuable upon exercise of
options exercisable within 60 days after July 24, 1998. See "Election
of Directors -- Nominees."
(7) As to each of Dr. McKay, Dr. Rosen and Dr. Sommer, includes 45,200,
98,835, and 265,650 shares, respectively, issuable upon exercise of
options exercisable within 60 days after July 24, 1998.
(8) Represents 3,000 shares issuable upon exercise of options exercisable
within 60 days after July 24, 1998.
(9) All of the shares indicated as owned by Mr. Thomas are owned directly
by Warburg, Pincus Investors ("WPI") and are included because Mr.
Thomas may be deemed to have an indirect pecuniary interest (within the
meaning of Rule 16a-1 under the Securities Exchange Act of 1934) in an
indeterminable portion of the shares beneficially owned by WPI and WP.
Mr. Thomas disclaims "beneficial ownership" of these shares, except to
extent of his pecuniary interest in such funds within the meaning of
Rule 13d-3
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under the Securities Exchange Act of 1934; therefore, the shares are not
reflected in the total number of shares held by officers and directors. See
"Election of Directors -- Nominees."
(10) Includes 454,785 shares issuable upon exercise of options held by
officers and directors exercisable within 60 days after July 24, 1998,
including shares issuable upon exercise of options held by the officers
and directors named in the foregoing table, but excludes such shares
for which beneficial ownership is disclaimed within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows the compensation received by the Chief
Executive Officer and the most highly compensated executive officers of the
Company earning over $100,000 for the fiscal year ended March 31, 1998, and the
compensation received by each such individual for the Company's two prior fiscal
years.
Long Term
Annual Compensation (1) Compensation
Awards (1)
---------------------------------- -------------------------
Fiscal Securities Underlying
Name and Principal Position Year Salary (2) Bonus Options/SARS Granted
- ------------------------------------- ------- ------------- -------------- -------------------------
Andreas Sommer 1998 $251,100 $56,250 (3) 170,000
Chief Executive Officer, President 1997 $212,925 $40,000 (4) --
and Director 1996 $188,116 147,500
Malcolm J. McKay (5) 1998 $144,242 $21,750 (3) 80,000
Vice President, Regulatory 1997 $78,587 $25,000 (4) 50,000
Affairs and Quality Assurance
David M. Rosen (6) 1998 $154,074 $23,250 (3) 100,000
Vice President, Research and 1997 $136,463 $25,000 (4) --
Development 1996 $123,719 76,250
- ----------------------
(1) Except as disclosed in the table, there was no other cash compensation,
long-term incentive plan or restricted stock award that required
disclosure.
(2) Includes amounts earned but deferred at the election of the executive,
such as salary deferrals under Celtrix's retirement savings plan ("the
401(k) Plan").
(3) Includes amounts earned as of March 31, 1998 related to achieving
certain corporate milestones during fiscal year 1998. The awards were
paid in April 1998.
(4) Includes amounts earned as of March 31, 1997 related to meeting certain
corporate milestones. The awards were paid in April 1997.
(5) Dr. McKay was hired by the Company in August 1996 as Vice President of
Regulatory Affairs and Quality Assurance.
(6) Dr. Rosen was appointed Senior Vice President of Research and
Development in April 1998.
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STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information for the named executive
officers with respect to grants of options to purchase Common Stock of the
Company made in the fiscal year ended March 31, 1998, and the potential
realizable value of such options.
Individual Grants
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation for
Percent of Total 10-Year Option
Number of Securities Options Granted Exercise Term (3)
Underlying Options to Employees Price Expiration ------------------------
Name Granted (1) in Fiscal Year Per Share Date 5% 10%
(2)
- ----------------- -------------------- ---------------- ---------- ---------- ---------- ----------
Andreas Sommer 100,000 10.3% $2.563 4/9/07 $161,213 $408,542
70,000 7.2% $2.063 2/18/08 $90,834 $230,190
Malcolm J. McKay 50,000 5.2% $2.563 4/9/07 $80,606 $204,271
30,000 3.1% $2.063 2/18/08 $38,929 $98,653
David M. Rosen 50,000 5.2% $2.563 4/9/07 $80,606 $204,271
50,000 5.2% $2.063 2/18/08 $64,881 $164,421
- -----------------------
(1) Consist of ISO's granted pursuant to the Company's 1991 Stock Option
Plan, of which 12% are exercisable six months from the grant date and
2% are exercisable per month thereafter. The maximum term of each
option granted is 10 years from the date of grant. The exercise price
is equal to the market value of the stock on the grant date.
(2) Based on an aggregate total of 970,450 options granted to employees in
fiscal year 1998.
(3) Potential realizable values are reported net of the option exercise
price but before taxes associated with exercise, if any. In accordance
with regulations of the Securities and Exchange Commission, these
amounts represent assumed rates of annual compounded stock price
appreciation of five percent and ten percent from the date the options
were granted over the full ten-year option term. Actual gains, if any,
on stock option exercises and Common Stock holdings are dependent on
the future performance of the Company's Common Stock, as well as
optionee's continued employment through the vesting period. There is no
assurance that the amounts reflected will be realized.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for the named executive
officers with respect to exercises, during the fiscal year ended March 31, 1998,
of options to purchase Common Stock of the Company, and the number and value of
unexercised options at fiscal year end.
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options
Shares Fiscal Year-End at Fiscal Year-End
Acquired Value (Exercisable/ (Exercisable/
Name On Exercise Realized Unexercisable) Unexercisable) (1)
- -------------------------- ------------------ -------------- ----------------------- ------------------------
Andreas Sommer 0 $0 217,950 / 227,050 $108,743 / $114,172
Malcolm J. McKay 0 $0 29,000 / 101,000 $9,500 / $44,250
David M. Rosen 0 $0 76,075 / 123,925 $41,648 / $64,650
- -----------------
(1) The fair market value of Celtrix's Common Stock as reported on the Nasdaq
National Market at the close of business on March 31, 1998 was $2.813 per
share. The value of unexercised-in-the-money options represents any
positive spread between the exercise price of the stock options and the
market value of Celtrix's Common Stock on March 31, 1998.
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, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
Compensation Committee Report on Executive Compensation and the Performance
Graph shall not be incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors
is responsible for setting and administering the policies for executive salaries
and short-term and long-term incentive programs. The Committee currently
consists of Henry E. Blair and James E. Thomas, non-employee directors of
Celtrix. Andreas Sommer, the Company's President and CEO, attends meetings of
the Compensation Committee in an unofficial capacity.
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Compensation Philosophy
The executive compensation program is designed to motivate and retain
executives of outstanding ability who contribute to the long-term success of the
Company and is based on the following guiding principles:
- Integrate executives' compensation with accomplishment of the
Company's strategic plan and business objectives.
- Provide a compensation package that is competitive with
comparable companies in the biotechnology industry.
- Assure that executives are focused on the enhancement of
stockholder value.
Compensation Program
Compensation for the Company's Chief Executive Officer ("CEO") and
other officers is based on individual performance as measured against clearly
defined corporate objectives. The Board of Directors approves corporate
objectives at the beginning of the fiscal year and reviews progress throughout
the year. The Compensation Committee determines executive compensation based on
the accomplishment of those objectives. Corporate objectives for fiscal 1998
were identified in the areas of product development, strategic corporate
alliances, and financing milestones. Executives' performance was measured
against these specific objectives.
The primary components of executives' compensation are (1) base salary,
(2) long-term equity incentives, and (3) cash bonus. The Committee's goal in
setting annual base salaries is to be at the median salary level for similar
positions in companies of comparable size, geographic location (San Francisco
Bay Area) and industry sector (biopharmaceuticals) within the biotechnology
industry. To determine these levels, the Committee refers to compensation survey
data from a select group of companies participating in the Radford Biotechnology
Salary Survey. All of these companies are also in the Nasdaq Pharmaceutical
Stocks Index used in the Company's Stock Price Performance Graph set forth in
the Proxy Statement. Each year, the list of companies participating in the
survey is reviewed, and additions or deletions are made to the select group of
companies based on the three criteria used (size, geographic location, industry
sector).
Stock option awards are intended to align the interests of the
executives with those of the stockholders and provide significant incentive to
meet the Company's long-term goals and enhance stockholder value. Stock options
are granted at fair market value and vest over a 50-month period. In determining
the size of the option grants, several factors are considered: size of previous
awards made to executives, competitive practices at similar companies within the
industry and perceived long-term contribution.
In addition to the award of stock options, the Compensation Committee
also awarded cash bonuses to the officers in April 1997 in recognition of each
individual's unique contribution with respect to attainment of certain Company
and individual milestones. When evaluating and
-25-
26
deciding on cash bonuses, the Compensation Committee gives consideration to the
individual's contribution towards the Company's success and for progress made
towards the development of pharmaceutical products. Accordingly, in March 1998,
the Compensation Committee approved cash bonuses to officers and certain senior
managers for their achievement of company objectives during fiscal 1998; the
bonuses were paid in April 1998.
Compensation of the Chief Executive Officer
The CEO's compensation is determined based on a number of factors,
including comparative salaries of CEOs of the select group of companies
identified above, the CEO's individual performance and the Company's performance
as measured against the stated objectives discussed above. Current base salary
for the CEO is in line with the median for similarly situated executives in
other companies of comparable size in the biotechnology industry. The CEO's
total compensation package includes stock option grants and cash bonus with the
goal of motivating leadership for long-term Company success and providing
significant reward upon achievement of Company objectives and enhancing
stockholder value. As with other executives, size of option grants is also based
on a review of competitive survey data.
Deductibility of Executive Compensation
The Committee has considered the impact of Section 162(m) of the
Internal Revenue Code adopted under the Omnibus Budget Reconciliation Act of
1993, which section disallows a deduction for any publicly-held corporation for
individual compensation exceeding $1 million in any taxable year for the CEO and
the four other most highly compensated executive officers, unless such
compensation meets the requirements for the "performance-based" exception to the
general rule. Since the cash compensation paid by the Company to each of its
executive officers is expected to be well below $1 million and the Committee
believes that options granted under the Option Plan will meet the requirements
for the "performance-based" exemption of Section 162(m), the Committee believes
that this section will not affect the tax deductions available to the Company.
It will be the Committee's policy to qualify, to the extent reasonable, the
executive officers' compensation for deductibility under applicable tax law.
From the members of the Compensation Committee of Celtrix:
COMPENSATION COMMITTEE
Henry E. Blair - Chairman
James E. Thomas
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-26-
27
Dr. Sommer, the Company's President and CEO, while not a member of the
Company's Compensation Committee, attends all meetings of the Compensation
Committee in an unofficial capacity. He does not vote on any matters on which
action is being taken by the Compensation Committee.
PERFORMANCE GRAPH
The following graph summarizes cumulative total stockholder return data
(assuming reinvestment of dividends) for the period commencing on March 31, 1993
and ending on March 31, 1998. The graph assumes that $100 was invested on March
31, 1993 (i) in the Common Stock of Celtrix Pharmaceuticals, Inc. at a price per
share of $6.88, (ii) in the Center for Research in Securities Prices Total
Return Index for the Nasdaq Stock Market (U.S. Companies) and (iii) in the
Nasdaq Pharmaceutical Stocks Index. The stock price performance shown on the
following graph is not necessarily indicative of future stock price performance.
28
- -------------------------------------------------------------------------------------------------------------------------------
3/31/93 4/30/93 5/31/93 6/30/93 7/31/93 8/31/93
- -------------------------------------------------------------------------------------------------------------------------------
Nasdaq Stock.................. 222.004 212.499 225.199 226.249 226.454 238.183
NASDAQ TOTAL.................. 100 95.7185456 101.439163 101.912128 102.004468 107.287707
Nasdaq Pharm. ................ 231.996 234.433 244.007 244.488 237.474 250.126
NASDAQ PHARM.................. 100 101.050449 105.190176 105.384576 102.361248 107.81479
Celtrix stock price........... $6.88 $8.00 $7.50 $7.75 $7.00 $7.25
CELTRIX....................... 100 116.363638 109.090909 112.727273 101.818182 105.454545
- -------------------------------------------------------------------------------------------------------------------------------
9/30/93 10/31/93 11/30/93 12/31/93 1/31/94 2/28/94 3/31/94
- -------------------------------------------------------------------------------------------------------------------------------
Nasdaq Stock.................. 245.252 250.761 243.242 250.01 257.603 255.225 235.343
NASDAQ TOTAL.................. 110.471883 112.95337 109.566494 112.615088 116.035297 114.964145 106.00845
Nasdaq Pharm. ................ 265.059 288.499 282.169 287.262 295.998 269.351 234.297
NASDAQ PHARM.................. 114.251539 124.355161 121.626666 123.821962 127.587545 110.101571 100.991827
Celtrix stock price........... $7.38 $9.75 $10.38 $11.00 $9.13 $7.00 $7.38
CELTRIX....................... 107.272727 141.818182 150.909091 160 132.727273 101.818182 107.272727
29
- --------------------------------------------------------------------------------------------------------------------
4/30/94 5/31/94 6/30/94 7/31/94 8/31/94 9/30/94
- --------------------------------------------------------------------------------------------------------------------
Nasdaq Stock........... 232.29 232.871 224.382 228.982 243.572 242.952
NASDAQ TOTAL........... 104.6332499 104.8949568 101.0711519 103.1431866 109.7151403 109.435866
Nasdaq Pharm........... 224.872 221.836 204.509 210.696 233.559 230.336
NASDAQ PHARM........... 96.9292574 95.62061415 88.1519509 90.81880722 100.6737185 99.28447042
Celtrix stock price.... $ 6.00 $ 6.88 $ 6.25 $ 6.00 $ 7.88 $ 7.13
CELTRIX................ 87.27272727 100 90.90909091 87.27272727 114.5454545 103.6363636
- ---------------------------------------------------------------------------------------------------------------------
10/31/94 11/30/94 12/31/94 1/31/95 2/28/95 3/31/95
- ---------------------------------------------------------------------------------------------------------------------
Nasdaq Stock........... 247.686 239.446 240.179 241.515 254.232 261.641
NASDAQ TOTAL........... 111.56826 107.8566152 108.1867894 108.7885804 114.5168556 117.8541828
Nasdaq Pharm........... 222.465 223.446 216.205 228.174 236.794 233.405
NASDAQ PHARM........... 95.89173951 96.31459163 93.19341713 98.3525578 102.0681391 100.6073381
Celtrix stock price.... $ 2.44 $ 3.00 $ 2.63 $ 2.75 $ 1.88 $ 1.50
CELTRIX................ 35.45454545 43.63636364 38.18181818 40 27.27272727 21.81818182
30
- ----------------------------------------------------------------------------------------------------------------------
4/28/95 5/31/95 6/30/95 7/31/95 8/31/95 9/30/95
- ----------------------------------------------------------------------------------------------------------------------
Nasdaq Stock.......... 270.035 277.104 299.106 320.672 327.276 341.659
NASDAQ TOTAL.......... 121.6351958 124.8193726 134.7300049 144.4442442 147.4189654 153.8976775
Nasdaq Pharm.......... 239.962 242.986 271.456 294.828 329.698 339.11
NASDAQ PHARM.......... 103.4336799 104.7371506 117.0089139 127.0832256 142.1136571 146.1706236
Celtrix stock price... $ 1.38 $ 1.62 $ 2.56 $ 2.50 $ 2.38 $ 2.44
CELTRIX............... 20.07272727 23.56363636 37.23636364 36.36363636 34.61818182 35.49090909
- ---------------------------------------------------------------------------------------------------------------------
10/31/95 11/30/95 12/31/95 1/31/96 2/29/96 3/31/96
- ---------------------------------------------------------------------------------------------------------------------
Nasdaq Stock.......... 339.711 347.658 345.795 347.384 360.647 361.794
NASDAQ TOTAL.......... 153.0202159 156.5998811 155.760707 156.4764599 162.4506766 162.9673339
Nasdaq Pharm.......... 326.433 342.812 395.456 429.353 421.538 411.597
NASDAQ PHARM.......... 140.7063053 147.7663408 170.4581113 185.0691391 181.7005466 177.4155589
Celtrix stock price... $ 2.00 $ 1.81 $ 2.56 $ 2.25 $ 2.44 $ 2.50
CELTRIX............... 29.09090909 26.32727273 37.23636364 32.72727273 35.49090909 36.36363636
31
- -----------------------------------------------------------------------------------------------------------------
4/30/96 5/31/96 6/30/96 7/31/96 8/31/96 9/30/96
- -----------------------------------------------------------------------------------------------------------------
Nasdaq Stock.................. 391.904 409.903 391.419 356.557 376.531 405.331
NASDAQ TOTAL.................. 176.530153 184.637664 176.311688 160.608367 169.605503 182.578242
Nasdaq Pharm.................. 432.851 447.508 399.817 356.293 382.113 408.6
NASDAQ PHARM.................. 186.576924 192.894705 172.337885 153.577217 164.706719 176.209935
Celtrix stock price........... $2.44 $3.38 $3.38 $2.38 $2.25 $2.44
CELTRIX....................... 35.4618162 49.0909091 49.0909091 34.5454545 32.7272727 35.4618182
- -----------------------------------------------------------------------------------------------------------------
10/31/96 11/30/96 12/31/96 1/31/97 2/28/97 3/31/97
- -----------------------------------------------------------------------------------------------------------------
Nasdaq Stock.................. 400.853 425.641 425.197 455.336 430.22 402.211
NASDAQ TOTAL.................. 180.561161 191.726728 191.526729 205.102611 193.790202 181.172862
Nasdaq Pharm.................. 390.351 384.786 396.609 429.835 432.718 376.676
NASDAQ PHARM.................. 168.257642 165.858894 170.955103 185.276901 186.519593 162.363144
Celtrix stock price........... $1.88 $2.06 $2.00 $3.50 $3.00 $2.44
CELTRIX....................... 27.2727273 30.0072727 29.0909091 50.9090909 43.6363636 35.4616182
32
- -----------------------------------------------------------------------------------------------------------------
4/30/97 5/30/97 6/30/97 7/31/97 8/29/97 9/30/97
- -----------------------------------------------------------------------------------------------------------------
Nasdaq Stock.................. 414.486 461.476 475.597 525.801 525.001 556.061
NASDAQ TOTAL.................. 186.702041 207.868327 214.229023 236.84303 236.482676 250.473415
(Divided by 3/31/93 x 100)
Nasdaq Pharm.................. 354.392 407.799 406.693 418.27 413.3 456.2
NASDAQ PHARM.................. 152.757806 175.778462 175.301729 180.291902 178.149623 196.641321
(Divided by 3/31/93 x 100)
Celtrix stock price........... $2.00 $3.00 $2.31 $2.38 $2.06 $2.63
CELTRIX....................... 29.0909091 43.6363636 33.6436364 34.5454545 30.0072727 38.1818182
(Divided by 3/31/93 X 100)
- -----------------------------------------------------------------------------------------------------------------
10/31/97 11/30/97 12/31/97 1/31/98 2/27/98 3/31/98
- -----------------------------------------------------------------------------------------------------------------
Nasdaq Stock.................. 527.276 529.917 521.608 538.166 588.713 610.43
NASDAQ TOTAL.................. 237.507432 238.697051 234.954325 242.412749 265.181258 274.963514
(Divided by 3/31/93 x 100)
Nasdaq Pharm.................. 432.979 419.508 409.572 405.797 419.031 450.596
NASDAQ PHARM.................. 186.632097 180.825531 176.542699 174.915516 180.619924 194.225763
(Divided by 3/31/93 x 100)
Celtrix stock price........... $2.13 $2.38 $1.81 $1.81 $2.88 $2.69
CELTRIX....................... 30.9090909 34.5454545 26.3709091 26.3709091 41.8181818 39.0981818
(Divided by 3/31/93 X 100)
-27-
33
TRANSACTIONS WITH MANAGEMENT AND OTHERS
In April 1997, Celtrix sold 5,721,876 shares of Common Stock in a
private placement at $2.438 per share, which resulted in net proceeds to the
Company of approximately $13.3 million. Additionally, the Company issued a
three-year warrant to purchase 2,860,934 shares of Celtrix Common Stock at
$2.682 per share, exercisable if the shares of stock are held for at least one
year. As of March 31, 1998, 2,758,391 shares of warrants are outstanding
(102,543 shares were canceled as a result of sale of stock prior to the required
holding period). Purchasers in the offering included the following holders of
more than 5% of the Company's outstanding Common Stock: Warburg Pincus
Investors, L.P., Dawson-Samberg Capital Management , Inc. (through the Pequot
Private Equity and Pequot Offshore Private Equity funds), and Biotechnology
Development Fund, L.P. In connection with the private placement, the Company
paid BioAsia LLC, an affiliate of the Biotechnology Development Fund, fees and
expenses of approximately $538,000 and granted BioAsia a nonstatutory stock
option pursuant to the 1991 Stock Option Plan for 75,000 shares of Common Stock
at an exercise price of $2.438 per share.
In January 1997, the Company entered into a two-year employment
agreement with Andreas Sommer which provides in pertinent part for annual
compensation of $215,000 as subsequently adjusted by the Compensation Committee,
and up to 18 months severance and forgiveness of the loan described in the next
paragraph, in the event of termination of employment under certain
circumstances.
In January 1992, the Company loaned Dr. Sommer $60,000 to pay income
taxes associated with Dr. Sommer's exercise of his options to purchase BioGrowth
Common Stock. The loan is secured by Dr. Sommer's Celtrix stock and bears
interest at the rate of 5.12% per annum, with a due date of January 1999. As of
July 24, 1998, the amount of indebtedness under such loan was $80,926 and the
maximum amount owed under such loan during the fiscal year ended March 31, 1998
was $79,864.
The Company has entered into separate indemnification agreements with
each of its directors and executive officers that may require the Company, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service as directors or officers, to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified, and to obtain directors' and officers' liability insurance
if available on reasonable terms.
The Company believes that the transactions set forth above are on terms
no less favorable to the Company than could have been obtained from unaffiliated
third parties. All future material transactions, including loans, between the
Company and its officers, directors, principal stockholders and affiliates will
be approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
-28-
34
SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and
greater-than-ten-percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of the copies of
such reports furnished to the Company and written representations from officers
and directors that no other reports were required, during the fiscal year ended
March 31, 1998, all Section 16(a) filing requirements applicable to its
officers, directors and greater-than-ten-percent stockholders were complied
with.
DEADLINE FOR RECEIPT OF
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 1999 Annual Meeting of
Stockholders must be received by the Company no later than December 26, 1998, in
order that they may be included in the proxy statement and form of proxy
relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
stockholders at the meeting. If any other matters properly come before the
meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the shares they represent as the Board of Directors may recommend.
FOR THE BOARD OF DIRECTORS
CRAIG W. JOHNSON, Secretary
Dated: July 29, 1998
-29-
35
CELTRIX PHARMACEUTICALS, INC.
1991 DIRECTORS' STOCK OPTION PLAN
(as amended by the Board of Directors effective May 11, 1992)
(as amended by the Board of Directors effective June 9, 1998)
1. Purposes of the Plan. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be "nonstatutory stock
options".
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Common Stock" shall mean the Common Stock of the Company.
(c) "Company" shall mean Celtrix Pharmaceuticals, Inc., a
Delaware corporation.
(d) "Continuous Status as a Director" shall mean the absence
of any interruption or termination of service as a Director.
(e) "Director" shall mean a member of the Board.
(f) "Employee" shall mean any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(h) "Option" shall mean a stock option granted pursuant to the
Plan.
(i) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(j) "Optionee" shall mean an Outside Director who receives an
Option.
-1-
36
(k) "Outside Director" shall mean a Director who is not an
Employee and who does not beneficially own two percent (2%) or more of the
outstanding Common Stock of the Company.
(l) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Internal Revenue Code of
1986, as amended (the "Code").
(m) "Plan" shall mean this 1991 Directors' Stock Option Plan.
(n) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(o) "Subsidiary" shall mean a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 200,000 Shares (the "Pool") of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. If Shares which were acquired upon
exercise of an Option are subsequently repurchased by the Company, such Shares
shall not in any event be returned to the Plan and shall not become available
for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the
Plan shall be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder
shall be automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically
granted an Option to purchase 40,000 Shares (the "First Option") on the date on
which the later of the following events occurs: (A) the effective date of this
Plan, as determined in accordance with Section 6 hereof, or (B) the date on
which such person first becomes a Director, whether through election by the
stockholders of the Company or
-2-
37
appointment by the Board of Directors to fill a vacancy.
(iii) After the First Option has been granted to an
Outside Director, such Outside Director shall thereafter be automatically
granted an Option to purchase an additional 40,000 Shares (a "Subsequent
Option") on January 1 on the fourth year after the grant of the First Option or
each Subsequent Option, as the case may be. In addition, a Subsequent Option
shall be automatically granted to each Outside Director who was a Director on
September 10, 1998.
(iv) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, in the event that a grant would cause the number of
Shares subject to outstanding Options plus the number of Shares previously
purchased upon exercise of Options to exceed the Pool, then each such automatic
grant shall be for that number of Shares determined by dividing the total number
of Shares remaining available for grant by the number of Outside Directors on
the automatic grant date. Any further grants shall then be deferred until such
time, if any, as additional Shares become available for grant under the Plan
through action of the stockholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
(v) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, any grant of an Option made before the Company has
obtained stockholder approval of the Plan in accordance with Section 17 hereof
shall be conditioned upon obtaining such stockholder approval of the Plan in
accordance with Section 17 hereof.
(vi) The terms of both the First and Subsequent
Options granted hereunder shall be as follows:
(A) the term shall be ten (10) years.
(B) the Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Section 9 hereof.
(C) the exercise price per Share shall be
100% of the fair market value per Share on the date of grant of the Option.
(D) the Option shall become exercisable in
installments cumulatively as to 1/4th of such Shares on the first anniversary of
the grant date and 1/48th of the original number of Shares on each monthly
anniversary of the grant date thereafter.
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information and in accordance with
Section 8(b) of the
-3-
38
Plan, the fair market value of the Common Stock; (ii) to determine the exercise
price per share of Options to be granted, which exercise price shall be
determined in accordance with Section 8(a) of the Plan; (iii) to interpret the
Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the
Plan; (v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted
hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the President or
his designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his estate shall be entitled to
exercise any option whatsoever. In making such determination, the Board of
Directors (excluding the Outside Director accused of such misconduct) shall act
fairly and shall give the Optionee an opportunity to appear and present evidence
on Optionee's behalf at a hearing before the Board or a committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate his directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
-4-
39
7. Term of Option. The term of each Option shall be ten (10) years from
the date of grant thereof.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be 100% of the fair
market value per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be
determined by the Board in its discretion; provided, however, that where there
is a public market for the Common Stock, the fair market value per Share shall
be the mean of the bid and asked prices of the Common Stock in the
over-the-counter market on the date of grant, as reported in the Wall Street
Journal (or, if not so reported, as otherwise reported by the Nasdaq) or, in the
event the Common Stock is traded on the Nasdaq System or listed on a stock
exchange, the fair market value per Share shall be the closing price on such
system or exchange on the date of grant of the Option, as reported in the Wall
Street Journal.
(c) Form of Consideration. The consideration to be paid for
the Shares to be issued upon exercise of an Option shall consist entirely of
cash, check, other Shares of Common Stock having a fair market value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised (which, if acquired by the Company, shall have
been held for at least six months), or any combination of such methods of
payment and/or any other consideration or method of payment as shall be
permitted under applicable corporate law.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be exercisable
until stockholder approval of the Plan in accordance with Section 17 hereof has
been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of
-5-
40
Shares so acquired shall be issued to the Optionee as soon as practicable after
exercise of the Option. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. If an Outside
Director ceases to serve as a Director, he may, but only within ninety (90) days
after the date he ceases to be a Director of the Company, exercise his Option to
the extent that he was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 4(b) has expired. To the extent that he was not
entitled to exercise an Option at the date of such termination, or if he does
not exercise such Option (which he was entitled to exercise) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event a Director is unable to continue his service as
a Director with the Company as a result of his total and permanent disability
(as defined in Section 22(e)(3) of the Internal Revenue Code), he may, but only
within six (6) months from the date of termination, exercise his Option to the
extent he was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 4(b) has expired. To the extent that he was not
entitled to exercise the Option at the date of termination, or if he does not
exercise such Option (which he was entitled to exercise) within the time
specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee:
(i) during the term of the Option who is, at the time
of his death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status a Director for six (6) months after the date of death. Notwithstanding
the foregoing, in no event may the Option be exercised after its term set forth
in Section 4(b) has expired.
(ii) within thirty (30) days after the termination of
Continuous Status as a Director, the Option may be exercised, at any time within
six (6) months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the
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extent of the right to exercise that had accrued at the date of termination.
Notwithstanding the foregoing, in no event may the option be exercised after its
term set forth in Section 4(b) has expired.
10. Nontransferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of such
proposed action. In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation refuses to
assume the Option or to substitute an equivalent Option, the Board shall, in
lieu of such assumption or substitution, provide that the Optionee shall have
the right to exercise the Option as to all of the Optioned Shares, including
Shares as to which the Option would not otherwise be exercisable, or that the
restrictions on unvested Shares shall be removed, as the case may be. If the
Board makes an Option fully exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Board shall notify the Optionee
that the Option shall be fully exercisable for a period of sixty (60) days from
the date of such notice, and the Option will terminate upon the expiration of
such period.
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12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, to the extent necessary and desirable to comply with
Rule 16b-3 under the Exchange Act (or any other applicable law or regulation),
the Company shall obtain approval of the shareholders of the Company to Plan
amendments to the extent and in the manner required by such law or regulation.
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and any other Sections of this Plan that affect the formula award terms
required to be specified in this Plan by Rule 16b-3) shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act, or the rules thereunder.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
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15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. Stockholder Approval.
(a) Continuance of the Plan shall be subject to approval by
the stockholders of the Company at or prior to the first annual meeting of
stockholders held subsequent to the granting of an Option hereunder. If such
stockholder approval is obtained at a duly held stockholders' meeting, it may be
obtained by the affirmative vote of the holders of a majority of the outstanding
shares of the Company present or represented and entitled to vote thereon. If
such stockholder approval is obtained by written consent, it may be obtained by
the written consent of the holders of a majority of the outstanding shares of
the Company.
(b) Any required approval of the stockholders of the Company
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
18. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports to stockholders, proxy statements and
other information provided to all stockholders of the Company.
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CELTRIX PHARMACEUTICALS, INC.
1991 EMPLOYEE STOCK PURCHASE PLAN
(amended as of May 10, 1991)
(amended as of November 11, 1993)
(amended as of January 26, 1995)
(amended as of June 9, 1998)
The following constitute the provisions of the Employee Stock Purchase
Plan of Celtrix Pharmaceuticals, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through payroll deduction. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock, $0.01 par
value, of the Company.
(d) "Company" shall mean Celtrix Pharmaceuticals Inc., a
Delaware corporation.
(e) "Compensation" shall mean all regular straight time gross
earnings excluding payments for overtime, shift premium, incentive compensation,
incentive payments, bonuses, commissions and other compensation.
(f) "Continuous Status As An Employee" shall mean the absence
of any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company, provided that such leave is for a
period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the
account of a participant pursuant to the Plan.
(h) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
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(i) "Employee" shall mean any person, including an officer,
who is customarily employed for at least twenty (20) hours per week and more
than five (5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(j) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(k) "Exercise Date" shall mean the last day of each Offering
Period of the Plan.
(l) "Offering Date" shall mean the first business day of each
Offering Period of the Plan, except that in the case of an individual who
becomes an eligible Employee after the first business day of an Offering Period
but prior to the first business day of the last calendar quarter of such
Offering Period, the term "Offering Date" shall mean the first business day of
the calendar quarter coinciding with or next succeeding the day on which that
individual becomes an eligible Employee.
Options granted after the first business day of an
offering Period will be subject to the same terms as the options granted on the
first business day of such Offering Period except that they will have a
different grant date (thus, potentially, a different exercise price) and,
because they expire at the same time as the options granted on the first
business day of such Offering Period, a shorter term.
(1) "Offering Period" shall mean a period of twelve (12)
months.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
(n) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who has been continuously employed as an
Employee for three (3) months as of the Offering Date of a given Offering Period
shall be eligible to participate in such Offering Period under the Plan,
provided that such person was not eligible to participate in such Offering
Period as of any prior Offering Date, and further, subject to the requirements
of Section 5(a) and the limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any subsidiary of the Company, or (ii)
which permits his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
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Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of fair market value of such stock (determined at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by a series of
Offering Periods, with a new Offering Period commencing on January 1 of each
year (or at such other time or times as may be determined by the Board of
Directors). The Plan shall continue until terminated in accordance with Sections
19 and 22 hereof. The Board of Directors of the Company shall have the power to
change the duration and/or the frequency of Offering Periods with respect to
future offerings without stockholder approval if such change is announced at
least fifteen (15) days prior to the scheduled beginning of the first Offering
Period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement on the form provided by the Company and
filing it with the Company's Human Resources prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than 1% and not more than 10%) to be paid
as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll
following the Offering Date and shall end on the last payroll paid on or prior
to the Exercise Date of the offering to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
(a) The participant shall elect to have payroll deductions
made on each payday during the Offering Period in an amount not less than one
percent (1%) and not more than ten percent (10%) of such participant's
Compensation on each such payday; provided that the aggregate of such payroll
deductions during the Offering Period shall not exceed ten percent (10%) of the
participant's aggregate Compensation during said Offering Period. All payroll
deductions made by a participant shall be credited to his or her account under
the Plan. A participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in
the Plan as provided in Section 10, or, on one occasion only during the Offering
Period, may decrease the rate of his or her Contributions during the Offering
Period by completing and filing with the Company a new subscription agreement
within the ten (10) day period immediately preceding the beginning of any
calendar quarter during the Offering Period. The change in rate shall be
effective as of the beginning of the calendar quarter following the date of
filing of the new subscription agreement.
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(c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) herein, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period which is scheduled to end during the current calendar year that
the aggregate of all payroll deductions accumulated with respect to such
Offering Period and any other Offering Period ending within the same calendar
year equal $21,250. Payroll deductions shall recommence at the rate provided in
such participant's subscription Agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period a number of
shares of the Company's Common Stock determined by dividing such Employee's
Contributions accumulated prior to such Exercise Date and retained in the
participant's account as of the Exercise Date by the lower of (i) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock
on the Offering Date, or (ii) eighty-five percent (85%) of the fair market value
of a share of the Company's Common Stock on the Exercise Date; provided however,
that the maximum number of shares an Employee may purchase during each Offering
Period shall be determined at the Offering Date by dividing $25,000 by the fair
market value of a share of the Company's Common Stock on the Offering Date, and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 12 hereof. The fair market value of a share of the
Company's Common Stock shall be determined as provided in Section 7(b) herein.
(b) The option price per share of the shares offered in a
given Offering Period shall be the lower of: (i) 85% of the fair market value of
a share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the immediately preceding trading date), as
reported by the National Association of Securities Dealers Automated Quotation
(Nasdaq) or, if such price is not reported, the mean of the bid and asked prices
per share of the Common Stock as reported by Nasdaq or, in the event the Common
Stock is listed on a stock exchange, the fair market value per share shall be
the closing price on such exchange on such date (or, in the event that the
Common Stock is not traded on such date, on the immediately preceding trading
date), as reported in The Wall Street Journal.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date of the Offering Period, and the
maximum number of full shares subject to option will be purchased for him or her
at the applicable option price with the accumulated Contributions in his or her
account. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on
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the Exercise Date. During his lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his or her option. Any cash remaining to the credit of a participant's account
under the Plan after a purchase by him or her of shares at the termination of
each Offering Period, or which is insufficient to purchase a full share of
Common Stock of the Company, shall be returned to said participant.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
the Exercise Date of the Offering Period by giving written notice to the
Company. All of the participant's Contributions credited to his or her account
will be paid to him or her promptly after receipt of his or her notice of
withdrawal and his or her option for the current period will be automatically
terminated, and no further Contributions for the purchase of shares will be made
during the offering Period.
(b) Upon termination of the participant's Continuous Status as
an Employee prior to the Exercise Date of the Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous
Status as an Employee of the Company for at least twenty (20) hours per week
during the Offering Period in which the employee is a participant, he or she
will be deemed to have elected to withdraw from the Plan and the Contributions
credited to his or her account will be returned to him or her and his or her
option terminated.
(d) A participant's withdrawal from an offering will not have
any effect upon his or her eligibility to participate in a succeeding offering
or in any similar plan which may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the Contributions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 500,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 18. If the total number of shares which would otherwise be subject to
options granted pursuant to Section 7(a) hereof on the Offering Date of an
Offering Period exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of
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the shares remaining available for option grant in as uniform a manner as shall
be practicable and as it shall determine to be equitable. Any amount remaining
in an employee's account not applied to the purchase of stock pursuant to this
Section 12(a) shall be refunded to the employee on or promptly after the
Exercise Date. In such event, the Company shall give written notice of such
reduction of the number of shares subject to the option to each Employee
affected thereby and shall similarly reduce the rate of Contributions, if
necessary.
(b) The participant will have no interest or voting right in
shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.
13. Administration. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act, pursuant to Rule 16b-3 promulgated
thereunder.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of the Offering Period but prior to delivery to him or her
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to the
Exercise Date of the Offering Period. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant (and his or her spouse, if any) at any time by written notice. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
15. Transferability. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may
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50
be assigned, transferred, pledged or otherwise disposed of in any way (other
than by will, the laws of descent and distribution or as provided in Section 14
hereof) by the participant. Any such attempt at assignment, transfer, pledge or
other disposition shall be without effect, except that the Company may treat
such act as an election to withdraw funds in accordance with Section 10.
16. Use of Funds. All Contributions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Contributions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees promptly following the Exercise Date, which statements will set forth
the amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, to shorten the Offering Period then in
progress by setting a new Exercise Date (the "New Exercise Date"). If the Board
shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
each participant in writing, at least ten (10) days prior to the New Exercise
Date, that the Exercise Date for his or her option has been changed to the New
Exercise Date and that his or her option will be exercised automatically on the
New Exercise Date, unless prior to such date he or she
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has withdrawn from the Offering Period as provided in Section 10. For purposes
of this paragraph, an option granted under the Plan shall be deemed to be
assumed if, following the sale of assets or merger, the option confers the right
to purchase, for each share of option stock subject to the option immediately
prior to the sale of assets or merger, the consideration (whether stock, cash or
other securities or property) received in the sale of assets or merger by
holders of Common Stock for each share of Common Stock held on the effective
date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
19. Amendment or Termination. The Board of Directors of the Company may
at any time terminate or amend the Plan. Except as provided in Section 18, no
such termination may affect options previously granted, nor may an amendment
make any change in any option theretofore granted which adversely affects the
rights of any participant. In addition, to the extent necessary to comply with
Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any
successor rule or provision or any applicable law or regulation), the Company
shall obtain stockholder approval in such a manner and to such a degree as so
required.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention
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52
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned applicable
provisions of law.
22. Term of Plan. The Plan became effective upon its adoption by the
Board of Directors in January 1991 and shall continue in effect for a term of
twenty (20) years unless sooner terminated under Section 19.
23. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
24. Severability. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision of the Plan or any action by the administrator of the
Plan fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the administrator of the Plan.
-9-
53
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CELTRIX PHARMACEUTICALS, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Celtrix Pharmaceuticals, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated July 29, 1998 and hereby appoints
Andreas Sommer and Donald D. Huffman or either of them, proxies and
attorneys-in-fact with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1998 Annual
Meeting of Stockholders of Celtrix Pharmaceuticals, Inc. to be held on
September 10, 1998, at 10:00 a.m., local time, at the Company's principal
executive offices, located at 3055 Patrick Henry Drive, Santa Clara, California
and at any adjournment(s) thereof, and to vote all shares of Common Stock which
the undersigned would be entitled to vote if then and there personally present,
on the matters set forth on the reverse side.
THE PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF DIRECTORS; (2) FOR
THE APPROVAL OF AMENDMENTS TO THE 1991 DIRECTORS' STOCK OPTION TO INCREASE THE
NUMBER OF SHARES AUTOMATICALLY GRANTED TO NON-EMPLOYEE DIRECTORS AND TO AMEND
THE TIMING AND VESTING OF SUCH OPTIONS; (3) FOR THE APPROVAL OF AN AMENDMENT TO
THE 1991 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED
THEREUNDER BY 250,000 SHARES TO A TOTAL OF 500,000 SHARES; (4) FOR RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS, AND (5) AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING AND ANY ADJOURNMENT(S) THEREOF.
CELTRIX PHARMACEUTICALS, INC.
P.O. BOX 11247
NEW YORK, N.Y. 10203-0247
(continued and to be dated and signed on the reverse side.)
54
Detach Proxy Card Here
1. ELECTION OF DIRECTORS:
FOR all nominees WITHHOLD authority to vote Exceptions*
listed below / / for all nominees listed below / / / /
Nominees: Henry E. Blair, Barry M. Sherman, M.D.; Andreas Sommer, Ph.D.;
James E. Thomas
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space in the space
provided below.)
*Exceptions _______________________________________________________________
2. PROPOSALS TO APPROVE AMENDMENTS TO THE 1991 DIRECTORS' STOCK OPTION PLAN TO
INCREASE THE NUMBER OF SHARES WHICH ARE AUTOMATICALLY GRANTED TO
NON-EMPLOYEE DIRECTORS (BOTH INITIALLY AND IN SUBSEQUENT GRANTS) AND TO AMEND
THE TIMING AND VESTING OF SUCH OPTIONS.
FOR / / AGAINST / / ABSTAIN / /
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1991 EMPLOYEE STOCK
PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE THEREUNDER BY 250,000 SHARES TO A TOTAL OF 500,000 SHARES.
FOR / / AGAINST / / ABSTAIN / /
4. PROPOSAL TO RATIFY APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY FOR FISCAL YEAR ENDING DECEMBER 31, 1998.
FOR / / AGAINST / / ABSTAIN / /
5. SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY
ADJOURNMENT(S) THEREOF.
Address Change and/or Comments / /
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
Dated: __________________________, 1998
_______________________________________
Signature
_______________________________________
Signature
Votes MUST be indicated
(X) in Black or Blue ink.
Sign, Date and Return the Proxy Card Promptly Listed Using the Enclosed
Envelope.