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
Commission Only(as permitted
by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Shaman Pharmaceuticals, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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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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SHAMAN PHARMACEUTICALS, INC.
213 East Grand Avenue
South San Francisco, California 94080
April 15, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
("Annual Meeting") of Shaman Pharmaceuticals, Inc. (the "Company"), which will
be held at 9:00 A.M. Pacific Time on Friday, May 15, 1998, at The Embassy
Suites, 250 Gateway Boulevard, South San Francisco, California 94080.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals:
(i) to elect two Class I directors to serve on the Board of Directors
for two years or until their successors are duly elected and
qualified;
(ii) to approve an amendment to the Company's 1992 Stock Option Plan
(the "Plan") to increase the maximum number of shares of the
Company's Common Stock authorized for issuance under the Plan by
an additional 500,000 shares;
(iii) to ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1998; and
(iv) to transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote IN FAVOR OF each
such proposal.
After reading the Proxy Statement, please mark, date, sign and return the
enclosed proxy card in the accompanying reply envelope no later than May 1,
1998. If you attend the Annual Meeting and vote by ballot, your proxy will be
automatically revoked and only your vote at the Annual Meeting will be counted.
YOUR SHARES CANNOT BE VOTED UNLESS YOU MARK, DATE, SIGN AND RETURN THE ENCLOSED
PROXY OR ATTEND THE ANNUAL MEETING AND VOTE IN PERSON.
A copy of the Company's 1997 Annual Report to Stockholders is also
enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Lisa A. Conte
Lisa A. Conte
President, Chief Executive Officer and
Chief Financial Officer
===============================================================================
IMPORTANT
Please mark, date, sign and return the enclosed proxy promptly in the
accompanying postage-paid return envelope so that, if you are unable to attend
the Annual Meeting, your shares may be voted.
===============================================================================
SHAMAN PHARMACEUTICALS, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 1998
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TO THE STOCKHOLDERS OF SHAMAN PHARMACEUTICALS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of Shaman Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), will be held at 9:00 A.M. Pacific Time on Friday, May 15, 1998, at
The Embassy Suites, 250 Gateway Boulevard, South San Francisco, California 94080
for the following purposes:
1. to elect two Class I directors to serve on the Board of Directors
for two years or until their successors are duly elected and
qualified;
2. to approve an amendment to the Company's 1992 Stock Option Plan (the
"Plan") to increase the maximum number of shares of the Company's
Common Stock authorized for issuance under the Plan by an additional
500,000 shares;
3. to ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1998; and
4. to transact such other business as may properly come before the
Annual Meeting and any adjournment or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for determining those stockholders entitled to notice of,
and to vote at, the Annual Meeting and any adjournment thereof is March 20,
1998. The stock transfer books will not be closed between the record date and
the date of the Annual Meeting. A list of the stockholders entitled to vote at
the Annual Meeting will be available for inspection at the Company's offices,
213 East Grand Avenue, South San Francisco, California 94080, for a period of 10
days prior to the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. Whether or not you plan to attend, please carefully read the
accompanying Proxy Statement, which describes the matters to be voted upon at
the Annual Meeting, and mark, date, sign and return the enclosed proxy card in
the reply envelope provided. Should you receive more than one proxy because your
shares are registered in different names and addresses, each proxy should be
returned to ensure that all your shares will be voted.
You may revoke your proxy at any time prior to the Annual Meeting. If you
attend the Annual Meeting and vote by ballot, your proxy vote will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the Annual
Meeting.
Sincerely,
/s/ Lisa A. Conte
Lisa A. Conte
President, Chief Executive Officer
and Chief Financial Officer
South San Francisco, California
April 15, 1998
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY. IF YOU DO NOT EXPECT TO ATTEND IN
PERSON, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE.
SHAMAN PHARMACEUTICALS, INC.
213 East Grand Avenue
South San Francisco, California 94080
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PROXY STATEMENT
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For the Annual Meeting of Stockholders
To Be Held on May 15, 1998
GENERAL INFORMATION FOR STOCKHOLDERS
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors (the "Board") of Shaman Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), for use at the 1998 Annual Meeting of Stockholders (the "Annual
Meeting") to be held at 9:00 A.M. Pacific Time on Friday, May 15, 1998, at The
Embassy Suites, 250 Gateway Boulevard, South San Francisco, California 94080,
and at any adjournment thereof.
This Proxy Statement and the accompanying form of Proxy are to be first
mailed to the stockholders entitled to vote at the Annual Meeting on or about
April 15, 1998.
Record Date And Voting
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy Statement. Stockholders of record at the close of business
on March 20, 1998 are entitled to notice of, and to vote at, the Annual Meeting.
As of the close of business on such date, there were 17,856,477 shares of the
Company's Common Stock, par value $0.001 per share (the "Common Stock"),
outstanding and entitled to vote, held by 764 stockholders of record. Also,
400,000* shares of the Company's Series A Preferred Stock (the "Preferred
Stock") were outstanding and entitled to vote, and held by one stockholder of
record. Each holder of Common Stock as of the record date is entitled to one
vote for each share of Common Stock held by such stockholder as of the record
date. Each stockholder holding Preferred Stock as of the record date is also
entitled to one vote for each share of Common Stock into which such Preferred
Stock is convertible as of the record date. As of the record date, one share of
Preferred Stock was convertible into one share of Common Stock. Stockholders may
not cumulate votes in the election of directors. Directors are determined by a
plurality vote. The other matters submitted for stockholder approval at this
Annual Meeting will be decided by the affirmative vote of a majority of shares
present in person or represented by proxy and entitled to vote on such matters.
If a choice as to the matters coming before the Annual Meeting has been
specified by a stockholder on the Proxy, the shares will be voted accordingly.
If no choice is specified, the shares will be voted IN FAVOR OF the election of
the two directors nominated by the Board unless the authority to vote for the
election of directors (or for any one or more nominees) is withheld and, if no
contrary instructions are given, the shares will be voted IN FAVOR OF the
approval of the other proposals described in the accompanying Notice of Annual
Meeting and in this Proxy Statement. All votes will be tabulated by the
inspector of election appointed for the meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker non-votes (i.e., the
submission of a Proxy by a broker or nominee specifically indicating the lack of
discretionary authority to vote on the matter). Abstentions and broker non-votes
are counted as present for purposes of determining the presence or absence of a
quorum for the transaction of business. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to
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* Currently convertible into an aggregate of 400,000 shares of Common Stock.
the stockholders and will have the same effect as negative votes, whereas
broker non-votes will not be counted for purposes of determining whether a
proposal has been approved.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate at the Annual Meeting may request reasonable assistance or
accommodation from the Company by contacting Investor Relations in writing at
213 East Grand Avenue, South San Francisco, California 94080 or by telephone at
(650) 952-7070. To provide the Company sufficient time to arrange for reasonable
assistance, please submit such requests by May 1, 1998.
Revocability of Proxies
Any stockholder giving a Proxy pursuant to this solicitation may revoke it
at any time prior to its exercise by filing with the Secretary of the Company at
its principal executive offices at 213 East Grand Avenue, South San Francisco,
California 94080, a written notice of such revocation or a duly executed Proxy
bearing a later date, or by attending the Annual Meeting and voting in person.
Solicitation
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of the Notice of Annual Meeting,
this Proxy Statement, the Proxy and any additional solicitation materials
furnished to stockholders. Copies of solicitation materials will be furnished to
brokerage houses, fiduciaries and custodians holding shares in their names that
are beneficially owned by others so that they may forward this solicitation
material to such beneficial owners. The Company has engaged Corporate Investor
Communications, Inc. ("CIC") to provide routine advice and services for Proxy
solicitation. CIC will receive approximately $5,000 from the Company for such
advice and services, plus reimbursement of costs incurred in forwarding the
solicitation materials to the beneficial owners of Common Stock. To assure that
a quorum will be present in person or by proxy at the Annual Meeting, it may be
necessary for CIC, certain officers, directors, employees or other agents of the
Company to solicit proxies by telephone, facsimile or other means or in person.
Except with respect to CIC, the Company will not compensate such individuals for
any such services. Except as described above, the Company does not presently
intend to solicit proxies other than by mail.
IMPORTANT
Please mark, date, sign and return the enclosed Proxy in the accompanying
postage-prepaid, return envelope no later than May 1, 1998 so that, if you are
unable to attend the Annual Meeting, your shares may be voted.
The Company's Annual Report to Stockholders for the year ended December
31, 1997 (the "Annual Report") has been mailed concurrently with the mailing of
the Notice of Annual Meeting and Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Annual Report is not considered
proxy soliciting material nor is it incorporated into this Proxy Statement.
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MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE - ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of two classes of directors, designated Class I and
Class II, each serving a term of two years, with such terms staggered so that
only one class of directors is elected at each annual meeting of stockholders of
the Company. At the Annual Meeting, two Class I directors will be elected to
serve for two years or until their successors shall have been duly elected and
qualified or until their death, resignation or removal. The Board has selected
two nominees, each of whom is a current director of the Company. Each person
nominated for election has agreed to serve if elected, and management has no
reason to believe that any nominee will be unavailable to serve. Unless
otherwise instructed, the Proxy holders will vote the Proxies received by them
IN FAVOR OF the nominees named below. The two candidates receiving the highest
number of affirmative votes of the shares entitled to vote at the Annual Meeting
will be elected. If any nominee is unable to or declines to serve as a director,
the Proxies may be voted for a substitute nominee designated by the current
Board. As of the date of this Proxy Statement, the Board is not aware of any
nominee who is unable or will decline to serve as a director.
Information with Respect to Directors
Set forth below is information regarding the nominees, as of March 20,1998:
Name of Nominees Position(s) with the Company Age Director Since
---------------- ---------------------------- --- --------------
Lisa A. Conte Director, President, Chief 38 1989
Executive Officer and
Chief Financial Officer
Adrian D.P. Bellamy Director 56 1997
Set forth below is information regarding the continuing directors, as of
March 20, 1998:
Name of Directors Position(s) with the Company Age Director Since
----------------- ---------------------------- --- --------------
G. Kirk Raab Chairman of the Board 62 1992
Herbert H. McDade, Jr. Director 70 1991
M. David Titus Director 40 1990
Business Experience of Director Nominees for Term Ending Upon the 2000 Annual
Meeting of Stockholders
Lisa A. Conte founded the Company in May 1989 and currently serves as the
Company's President, Chief Executive Officer and Chief Financial Officer, and as
Director. From 1987 to 1989, Ms. Conte was Vice President at Technology Funding,
Inc., a venture capital firm, where she was responsible for the analysis and
management of healthcare industry investments. From 1985 to 1987, she conducted
risk and strategy audits for venture capital portfolio companies at Strategic
Decisions Group, a management consulting firm. Ms. Conte received an A.B. in
Biochemistry from Dartmouth College, an M.S. in Physiology/Pharmacology from the
University of California, San Diego and an M.B.A. from The Amos Tuck School,
Dartmouth College.
Adrian D.P. Bellamy became a director of the Company in October 1997.
Since April 1995, Mr. Bellamy has served as Chairman and a director of each
of Airport Group International Holdings LLC and Gucci Group N.V. From
September 1983 to April 1995, Mr. Bellamy served as Chairman of the Board of
Directors and Chief Executive Officer of DFS Group Limited, a specialty
retailer. He received a B.A. in Communications and an
3
M.B.A. from the University of South Africa. Mr. Bellamy is a director of
The Body Shop, Inc., The Body Shop International PLC, The Gap, Inc., Paragon
Trade Brands, Inc. and Williams-Sonoma, Inc.
Business Experience of Continuing Directors for Term Ending Upon the 1999
Annual Meeting of Stockholders
G. Kirk Raab became a director of the Company in January 1992 and Chairman
of the Board in September 1995. Mr. Raab was President, Chief Executive Officer
and director of Genentech, Inc. ("Genentech") from February 1990 to July 1995
and President, Chief Operating Officer and director from February 1985 to
January 1990. Before joining Genentech, Mr. Raab was associated with Abbott
Laboratories, serving as President, Chief Operating Officer and director. Mr.
Raab holds a B.A. in Political Science from Colgate University, where he
currently serves as a trustee. Mr. Raab is also Chairman of the Board of
Connectics, Inc. and Oxford GlycoSciences (UK) Ltd., and a director of LXR
Biotechnology, Inc., Bridge Medical, Inc., Accumetrics, Inc., and Applied
Imaging Corporation.
Herbert H. McDade, Jr. became a director of the Company in October
1991. He has served as Chairman of the Board and Chief Executive Officer of
Chemex Pharmaceuticals, Inc. ("Chemex") since February 1989 and as Chief
Executive Officer from February 1989 through January 1996, when Chemex merged
with Access Pharmaceutical Corporation ("Access") and the combined entity
changed its name to Access. From October 1986 to January 1988, Mr. McDade
was Chairman, President and Chief Executive Officer of Armour
Pharmaceuticals, Inc., after previously serving as President, International
Health Care Division of the Revlon Health Care Group. Mr. McDade holds a
B.S. in Biology from the University of Notre Dame and a B.P.H. in Theology
and Philosophy from Laval University. He is Chairman of the Board of Access
and a director of Cytrx, Inc., Discovery Ltd. and several privately held
companies.
M. David Titus became a director of the Company in April 1990. Mr.
Titus is currently a General Partner of Windward Ventures Management, L.P., a
venture capital firm, which he founded in November 1997. Prior to founding
Windward Ventures Management, L.P., Mr. Titus was Managing Director of
Windward Ventures, a venture capital consulting and investment firm, which he
founded in 1993. From May 1986 to December 1992, he served in various
capacities at Technology Funding, Inc., a venture capital firm, including
Group Vice President, Technology Funding, Inc., and General Partner of
Technology Funding Limited. Prior to joining Technology Funding, Inc. in May
1986, Mr. Titus was a founder and Senior Vice President of the Technology
Division of Silicon Valley Bank. Mr. Titus earned a B.A. in Economics from
the University of California, Santa Barbara. He is a director of several
privately held companies.
Number of Directors; Relationships
The Company's Bylaws authorize the Board to fix the number of directors
serving on the Board, provided that such number shall not be less than five nor
more than nine. In October 1997, the Company increased the size of the Board
from five to six. The number of directors had been fixed at five since May 1996.
All directors hold office until the second annual meeting of stockholders
following the annual meeting of stockholders at which such director was elected,
or until their successors have been duly elected and qualified. Officers are
appointed to serve at the discretion of the Board.
There are no family relationships among executive officers or directors of
the Company.
Board Meetings and Committees
The Board held eight meetings during the 1997 fiscal year and acted by
written consent on two occasions. The Board has an Audit Committee and a
Compensation Committee, but not a standing Nominating Committee. All directors
who served on the Board of Directors throughout the 1997 fiscal year
participated in or attended at least 75% of the aggregate of (i) the total
number of meetings of the Board of Directors and (ii) the total number of
meetings held by all committees of the Board on which he served during the past
fiscal year. Mr. Bellamy had not been elected a director at the time of any such
actions.
4
The Audit Committee is primarily responsible for annually recommending
independent auditors for appointment by the Board, for reviewing the services
performed by the Company's independent auditors and reviewing reports submitted
by the independent auditors. The Audit Committee includes two directors, Messrs.
Titus and Raab. The Audit Committee held one meeting during the 1997 fiscal
year, at which Messrs. Titus and Raab were both in attendance.
The Compensation Committee, which is comprised of Messrs. McDade and
Young, reviews and approves the Company's general compensation policies and
practices, sets compensation levels for the Company's executive officers and
administers the Company's 1992 Stock Option Plan (the "Plan") and other employee
benefits programs. During the 1997 fiscal year, the Compensation Committee met
six times and acted by unanimous written consent on one occasion. Messrs. McDade
and Young attended all six such meetings. Mr. Titus, a member of the
Compensation Committee through April 1997, attended each of the two meetings
held prior to his resignation from the Compensation Committee. Mr. Young, whose
term as a director expires at the Annual Meeting, did not stand for re-election
in 1998.
Director Compensation
Each non-employee Board member receives an annual retainer fee of $10,000
provided the non-employee Board member attends at least 75% of the Board
meetings. In addition, non-employee Board members are reimbursed for reasonable
expenses incurred in connection with their attendance at such meetings.
Under the Automatic Option Grant Program in effect under the Plan, each
individual who first becomes a non-employee Board member, whether through
appointment by the Board or upon election by the stockholders, will
automatically receive, at the time of such initial appointment or election, an
option grant for 20,000 shares of Common Stock, provided such individual has not
previously been in the Company's employ. In addition, on the date of each Annual
Meeting of Stockholders, each individual who is to continue to serve as a
non-employee Board member will receive an automatic option grant for that number
of shares of Common Stock determined by dividing $50,000 by the average closing
selling price per share of Common Stock for the 30 trading days immediately
preceding the date of such Annual Meeting, but in no event shall such grant be
more than 7,500 shares nor fewer than 5,000 shares per non-employee Board
member, provided such individual has been a Board member for at least six
months. Each granted option will have an exercise price per share equal to the
fair market value per share of Common Stock on the grant date and will have a
maximum term of 10 years measured from such grant date. The option will become
exercisable for the option shares in a series of 24 successive equal monthly
installments upon the optionee's completion of each month of Board service over
the 24-month period measured from the grant date. The option will, however,
become immediately exercisable for all the option shares upon certain changes in
control or ownership of the Company. For further information concerning the
Automatic Option Grant Program, see "Proposal Two - Approval of Amendment to
1992 Stock Option Plan."
Mr. Bellamy received on October 28, 1997 an option grant for 20,000 shares
of Common Stock under the Automatic Option Grant Program upon his appointment to
the Board. The option has an exercise price of $6.813 per share, the fair market
value per share of the Common Stock on the date of his appointment.
Messrs. McDade, Raab, Titus and Young each received, on May 22, 1997, the
date of the 1997 Annual Meeting of Stockholders, an option grant for 7,500
shares of Common Stock under the Automatic Option Grant Program with an exercise
price per share of $5.375, the fair market value per share of Common Stock on
that date.
On May 1, 1997, the Company approved a consulting arrangement with Mr.
Titus, pursuant to which he would serve as a consultant on financing matters and
financial operations to the Company. Under this arrangement, Mr. Titus is paid a
monthly consulting fee of $6,000 starting in June 1997 and granted an option to
purchase up to 14,000 shares of Common Stock under the Discretionary Option
Grant Program. Such option has an exercise price of $5.375 per share, the fair
market value of the Company's Common Stock on May 22, 1997, the effective date
of the option grant, and is exercisable in full at any time prior to May 22,
2007.
Mr. Raab received, on January 30, 1997 an option grant for 100,000 shares
of Common Stock under the Discretionary Option Grant Program. The option has an
exercise price of $5.016 per share, the fair market value per share of the
Common Stock on that date.
5
In August 1995, the Company entered into a consulting arrangement (the
"Consulting Arrangement") with Mr. Raab, Chairman of the Board. As consideration
for the special consulting services Mr. Raab performs under the Consulting
Arrangement, Mr. Raab is paid an annual consulting fee of $100,000. In addition,
he was granted an option for 200,000 shares of Common Stock on August 21, 1995
with an exercise price per share of $5.50, the fair market value per share of
Common Stock on that date. The option was granted under the Discretionary Option
Grant Program in effect under the Plan, and the option will become exercisable
in a series of 48 successive equal monthly installments following the August 21,
1995 grant date as Mr. Raab continues to render services to the Company pursuant
to his Consulting Arrangement. The option will, however, become immediately
exercisable for all the option shares upon certain changes in control or
ownership of the Company. In addition, in connection with his services as a
director and as Chairman of the Board, Mr. Raab receives an annual retainer fee
of $60,000, payable after each Annual Meeting of Stockholders so long as Mr.
Raab continues to render services to the Company as Chairman of the Board.
No other compensation was paid or accrued for directors of the Company in
respect of their 1997 services as directors of or consultants to the Company.
Recommendation of the Board of Directors
The Board recommends that the stockholders vote IN FAVOR OF the election
of each of the above nominees to serve as directors of the Company until the
2000 annual meeting of stockholders or until their successors have been duly
elected and qualified or until their death, resignation or removal.
6
PROPOSAL TWO - APPROVAL OF
AMENDMENT TO 1992 STOCK OPTION PLAN
Introduction
The stockholders are being asked to vote on a proposal to approve an
amendment to the Company's 1992 Stock Option Plan (the "Plan") that the Board
adopted on January 29, 1998, subject to stockholder approval at the Annual
Meeting. The amendment will increase the maximum number of shares of the
Company's Common Stock authorized for issuance under the Plan by an additional
500,000 shares.
The proposed share increase will assure that a sufficient reserve of
Common Stock is available under the Plan to attract and retain the services of
employees, which is essential to the Company's long-term growth and success.
The affirmative vote of the holders of a majority of the Common Stock,
including all shares of Series A Preferred Stock on an as converted basis,
present in person or represented by Proxy at the Annual Meeting and entitled to
vote on this Proposal is required for approval of the proposed amendment to the
Plan.
The Plan was originally adopted by the Board of Directors on December 30,
1992 and became effective on January 26, 1993 as the successor to the 1990 Stock
Option Plan (the "Predecessor Plan"). All outstanding options under the
Predecessor Plan were incorporated into the Plan at that time, and no further
option grants are to be made under the Predecessor Plan. The Plan has
subsequently been amended on several occasions; all such amendments have been
approved by the stockholders.
The principal terms and provisions of the Plan as modified by the most
recent amendment are summarized below. The summary is not, however, intended to
be a complete description of all the terms of the Plan. A copy of the Plan will
be furnished without charge to any stockholder upon written request to the
attention of the Company's Investor Relations Department at 213 East Grand
Avenue, South San Francisco, California 94080.
Description of the Plan
Structure. The Plan is divided into two separate equity incentive
programs: (i) a Discretionary Option Grant Program under which key employees,
non-employee Board members and consultants may be granted options to purchase
shares of Common Stock and (ii) an Automatic Option Grant Program under which
eligible non-employee Board members will automatically receive option grants at
designated intervals over their period of Board service.
Options granted under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code or non-statutory options not intended to satisfy such
requirements. All grants under the Automatic Option Grant Program will be
non-statutory options.
Administration. The Discretionary Option Grant Program is administered by
the Compensation Committee of the Board (the "Compensation Committee" or the
"Plan Administrator"). Compensation Committee members are appointed by the Board
and may be removed by the Board at any time.
The Compensation Committee as Plan Administrator has full authority,
subject to the provisions of the Plan, to determine the eligible individuals who
are to receive option grants and/or stock appreciation rights under the Plan,
the type of option (incentive stock option or non-qualified stock option) or
stock appreciation right (tandem or limited) to be granted, the number of shares
to be covered by each granted option or right, the date or dates on which the
option or right is to become exercisable and the maximum term for which the
option or right is to remain outstanding.
7
All grants under the Automatic Option Grant Program will be made in strict
compliance with the express provisions of that program, and no administrative
discretion will be exercised by the Plan Administrator.
Eligibility. Key employees (including officers), non-employee Board
members, and consultants in the service of the Company are eligible to receive
option grants under the Discretionary Option Grant Program. Non-employee Board
members are also eligible to participate in the Automatic Option Grant Program.
As of March 20, 1998, approximately 111 employees (including eight
executive officers) and five non-employee Board members were eligible to
participate in the Discretionary Option Grant Program, and the five non-employee
Board members were also eligible to participate in the Automatic Option Grant
Program. At the Annual Meeting, all continuing non-employee Board members will
receive an option grant under the Automatic Option Grant Program.
Securities Subject to the Plan. The maximum number of shares of Common
Stock issuable over the term of the Plan may not exceed 4,216,660 shares,
including the 500,000-share increase for which stockholder approval is sought
under this Proposal. The issuable shares may be made available either from the
authorized but unissued shares of Common Stock or from shares of Common Stock
repurchased by the Company, including shares purchased on the open market.
As of March 20, 1998, approximately 535,581 shares of Common Stock had
been issued under the Plan, 2,747,937 shares of Common Stock were subject to
outstanding options and 933,142 shares of Common Stock were available for future
option grants, including the 500,000-share increase for which stockholder
approval is sought under this Proposal.
In no event may any one individual participating in the Plan be granted
stock options or separately exercisable stock appreciation rights for more than
750,000 shares of Common Stock over the term of the Plan, subject to adjustment
from time to time in the event of certain changes to the Company's capital
structure. For purposes of this limitation, any stock options or stock
appreciation rights granted prior to December 31, 1993 will not be taken into
account. Stockholder approval of this Proposal will constitute re-approval of
the foregoing share limitation.
Should an option expire or terminate for any reason prior to exercise in
full (including options cancelled in accordance with the cancellation-regrant
provisions described in the "Discretionary Option Grant Program--Cancellation
and Regrant of Options" section below), the shares subject to the portion of the
option not so exercised will be available for subsequent grant under the Plan.
In addition, unvested shares issued under the Plan and subsequently repurchased
by the Company at the option exercise price paid per share will be added back to
the share reserve and will accordingly be available for subsequent issuance
under the Plan. However, shares subject to any option surrendered or cancelled
in accordance with the stock appreciation right provisions of the Plan will not
be available for subsequent grants.
Discretionary Option Grant Program
Price and Exercisability. The option exercise price per share for
incentive stock option grants may not be less than the fair market value of the
Common Stock on the grant date. The exercise price per share for non-statutory
option grants may be less than, equal to or greater than such fair market value.
Options granted under the Discretionary Option Grant Program may either become
exercisable in periodic installments over the optionee's period of service or
may be immediately exercisable for all of the option shares, with such shares
subject to repurchase by the Company, at the exercise price paid per share, in
the event the optionee leaves the Company's service prior to vesting in those
shares. No granted option will have a term in excess of 10 years.
The exercise price may be paid in cash or in shares of Common Stock.
Options may also be exercised through a same-day sale program, pursuant to which
a designated brokerage firm effects the immediate sale of the shares purchased
under the option and pays over to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the exercise price
for the purchased shares plus all applicable withholding taxes. The Plan
Administrator may also assist any optionee (including an officer) in the
exercise of his or her
8
outstanding options by (a) authorizing a Company loan to the optionee or
(b) permitting the optionee to pay the exercise price in installments over a
period of years. The terms and conditions of any such loan or installment
payment will be established by the Plan Administrator in its sole discretion,
but in no event may the maximum credit extended to the optionee exceed the
aggregate exercise price payable for the purchased shares, plus any federal or
state income or employment taxes incurred in connection with the purchase.
Valuation. For purposes of establishing the exercise price and for all
other valuation purposes under the Plan, the fair market value per share of
Common Stock on any relevant date will be deemed equal to the closing selling
price per share on that date, as such price is reported on the Nasdaq National
Market. The closing price of the Common Stock on March 20, 1998 was $4.50 per
share.
Termination of Service. Any option held by the optionee at the time of
cessation of service will not remain exercisable beyond the limited post-service
period designated by the Plan Administrator at the time of the option grant.
Under no circumstances, however, may any option be exercised after the specified
expiration date of the option term. Each such option will normally, during such
limited period, be exercisable only to the extent of the number of shares of
Common Stock for which the option is exercisable at the time of the optionee's
cessation of service. The optionee will be deemed to continue in service for so
long as such individual performs services for the Company (or any parent or
subsidiary corporation), whether as an employee, a non-employee member of the
Board or an independent consultant or advisor.
The Plan Administrator has complete discretion to extend the period
following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
Stockholder Rights. No optionee is to have any stockholder rights with
respect to the option shares until the optionee has exercised the option and
paid the exercise price for the purchased shares. Options are generally not
assignable or transferable other than by will or the laws of inheritance and,
during the optionee's lifetime, the option may be exercised only by such
optionee. However, the Plan Administrator may allow non-statutory options to be
transferred or assigned during the optionee's lifetime to one or more members of
the optionee's immediate family or to a trust established exclusively for one or
more such family members, to the extent such transfer or assignment is in
furtherance of the optionee's estate plan.
Repurchase Rights. The shares of Common Stock acquired upon the exercise
of one or more options may be subject to repurchase by the Company, at the
original exercise price paid per share, upon the optionee's cessation of service
prior to vesting in those shares. The Plan Administrator has complete discretion
in establishing the vesting schedule to be in effect for any such unvested
shares and may cancel the Company's outstanding repurchase rights with respect
to those shares at any time, thereby accelerating the vesting of the shares
subject to the cancelled rights.
Acceleration of Options. In the event of any of the following
stockholder-approved transactions to which the Company is a party (a
"Corporate Transaction"):
(i) a merger or consolidation in which the Company
is not the surviving entity, except for a transaction the principal
purpose of which is to change the state of the Company's incorporation;
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company in complete
liquidation or dissolution of the Company; or
(iii) a reverse merger in which the Company is the surviving
entity but in which securities possessing more than 50% of the total
combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such
securities immediately prior to such merger;
9
each outstanding option will automatically accelerate so that each option will,
immediately prior to the specified effective date for a Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at that time subject to such option and may be exercised for all or any
portion of such shares as fully-vested shares. However, an outstanding option
will not so accelerate if and to the extent: (1) the option is to be assumed by
the successor corporation (or its parent corporation) in such Corporate
Transaction or (2) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of grant.
Immediately following the consummation of a Corporate Transaction, all
outstanding options under the Plan will terminate and cease to be exercisable,
except to the extent assumed by the successor corporation.
The Company's outstanding repurchase rights under the Plan will also
terminate, and the shares subject to such repurchase rights will become fully
vested, upon a Corporate Transaction, except to the extent (i) one or more of
such repurchase rights are to be assigned to the successor corporation (or its
parent company) or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase rights
are issued.
The Compensation Committee will have full power and authority, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options under the Discretionary Option Grant Program in the event of
a Change in Control (as described below) so that each such option will,
immediately prior to such Change in Control, become exercisable for all the
shares of Common Stock at that time subject to that option and may be exercised
for all or any portion of those shares as fully-vested shares. The Plan
Administrator will also have complete discretion in establishing the specific
terms and conditions upon which one or more of the Company's outstanding
repurchase rights under the Plan are to terminate in connection with a Change in
Control.
For all purposes under the Plan, a "Change in Control" will be deemed to
occur if:
(i) any person or related group of persons (other than the Company
or a person that directly or indirectly controls, is controlled by, or is
under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of securities possessing more than 50%
of the total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders; or
(ii) the composition of the Board changes over a period of 24
consecutive months or less such that a majority of the Board members
cease, by reason of one or more contested elections for Board membership,
to be comprised of individuals who either (a) have been Board members
continuously since the beginning of such period or (b) have been elected
or nominated for election as Board members during such period by at least
a majority of the Board members described in clause (a) who were still in
office at the time such election or nomination was approved by the Board.
Upon a Change in Control, all outstanding options will remain exercisable
until the expiration or sooner termination of the option term specified in the
instrument evidencing the option.
The acceleration of options in the event of a Corporate Transaction or
Change in Control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt or other efforts to
gain control of the Company.
Cancellation and Regrant of Options. The Plan Administrator has the
authority to effect the cancellation of any or all options outstanding under the
Plan and to grant in substitution therefor new options covering the same or
different numbers of shares of Common Stock but with an exercise price per share
based upon the fair market value of the Common Stock on the new grant date.
Stock Appreciation Rights. The Plan Administrator is authorized to issue
two types of stock appreciation rights in connection with option grants made
under the Discretionary Option Grant Program:
10
Tandem stock appreciation rights provide the holders with the right
to surrender their options for an appreciation distribution from the
Company equal in amount to the excess of (a) the fair market value of the
vested shares of Common Stock subject to the surrendered option over (b)
the aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.
Limited stock appreciation rights may be provided to one or more
officers of the Company as part of their option grants. Any option with
such a limited stock appreciation right will automatically be cancelled
upon the successful completion of a hostile tender offer for more than 50%
of the Company's outstanding voting securities. In return for the
cancelled option, the officer will be entitled to a cash distribution from
the Company in an amount per cancelled option share equal to the excess of
(a) the highest price per share of Common Stock paid in connection with
the tender offer over (b) the exercise price payable for such share.
Outstanding stock appreciation rights granted before January 26, 1993 to
certain officers and directors of the Company under the Predecessor Plan and
incorporated into the Plan allow such individuals to surrender the underlying
options to the Company for a cash distribution, calculated in the manner
indicated above, in the event a hostile tender offer for 25% or more of the
Company's outstanding voting securities is successfully completed or a change in
the majority of the Board of Directors is effected through one or more proxy
contests.
Automatic Option Grant Program
Under the Automatic Option Grant Program, each non-employee Board member
will automatically be granted, upon his or her initial election or appointment
to the Board, a stock option to purchase 20,000 shares of Common Stock, provided
such individual has not previously been in the Company's employ. In addition, on
the date of each Annual Stockholders' Meeting, each individual who is to
continue to serve as a non-employee Board member will automatically be granted a
stock option to purchase that number of shares of Common Stock determined by
dividing $50,000 by the average closing selling price of the Common Stock for
the 30 trading days immediately preceding the date of such Annual Meeting, but
in no event shall such grant be more than 7,500 shares nor fewer than 5,000
shares. However, no non-employee Board member will be eligible to receive such
annual automatic grant unless he or she has served on the Board for at least six
months. Stockholder approval of this Proposal will also constitute pre-approval
of each option granted on or after the date of the Annual Meeting pursuant to
the provisions of the Automatic Option Grant Program summarized below and the
subsequent exercise of that option in accordance with those provisions.
The option exercise price per share for each automatic grant will be equal
to the fair market value per share of Common Stock on the grant date and will be
payable in cash or shares of Common Stock. The options may also be exercised
through a same-day sale program, pursuant to which a designated brokerage firm
effects the immediate sale of the shares purchased under the option and pays
over to the Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the exercise price for the purchased shares.
Each automatic option grant will have a maximum term of 10 years and will
become exercisable for the option shares in a series of 24 successive equal
monthly installments over the optionee's period of continued Board service,
measured from the grant date. However, the option will become immediately
exercisable for all of the option shares upon a Corporate Transaction or Change
in Control. Each automatic option grant will be automatically cancelled upon the
successful completion of a hostile tender offer for more than 50% of the
Company's outstanding voting securities. In return, the optionee will be
entitled to a cash distribution from the Company in an amount per cancelled
option share equal to the excess of (a) the highest price per share of Common
Stock paid in connection with the tender offer over (b) the exercise price
payable for such share. Stockholder approval of this Proposal will constitute
approval of each option granted with such an automatic cancellation provision
right on or after the date of the Annual Meeting and the subsequent cancellation
of that option in accordance with such provision. No additional approval of the
Plan Administrator or the Board will be required at the time of the actual
option cancellation and cash distribution.
All automatic option grants held by the non-employee Board member at the
time of his or her cessation of Board service will remain exercisable for a
period of six months for any or all shares for which those options are
11
exercisable at the time of such cessation of Board service. However, should the
optionee die while holding one or more options, then those options will remain
exercisable for a 12-month period following the date of the optionee's death and
may be exercised, for any or all shares for which those options are exercisable
at the time of the optionee's cessation of Board service, by the personal
representative of the optionee's estate or by the persons to whom the options
are transferred by the optionee's will or by the laws of inheritance. In no
event may any such option be exercised after the expiration date of the 10-year
option term.
General Provisions
Amendment and Termination of the Plan. The Board of Directors may amend or
modify the Plan in any or all respects whatsoever. However, no such amendment
may adversely affect the rights of outstanding option holders without their
consent. In addition, certain amendments may require stockholder approval
pursuant to applicable law or regulation.
The Board of Directors may terminate the Plan at any time, and the Plan
will in all events terminate not later than December 31, 2002. Any options
outstanding at the time of such plan termination will continue to remain
outstanding and exercisable in accordance with the terms and provisions of the
instruments evidencing those grants. The Plan will, however, automatically
terminate on the date all shares available for issuance are issued as vested
shares or cancelled pursuant to the exercise, surrender or cash-out of
outstanding options under the Plan.
Tax Withholding. The Compensation Committee may, in its discretion and
upon such terms and conditions as it may deem appropriate, provide one or more
option holders under the Discretionary Option Grant Program with the election to
have the Company withhold, from the shares of Common Stock otherwise issuable
upon the exercise of their options, a portion of those shares with an aggregate
fair market value equal to the designated percentage (up to 100% as specified by
the option holder) of the federal, state and local income tax liability and
federal employment tax liability incurred by such option holder in connection
with the exercise of such option. Any election so made will be subject to the
approval of the Compensation Committee, and no shares will actually be withheld
in satisfaction of such taxes except to the extent approved by the Compensation
Committee. One or more option holders may also be granted the alternative right,
subject to Committee approval, to deliver previously-issued shares of Common
Stock in satisfaction of such tax liability.
Changes in Capitalization. In the event any change is made to the Common
Stock issuable under the Plan by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares, or other change in
corporate structure effected without the Company's receipt of consideration,
appropriate adjustments will be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
and price per share in effect under each outstanding option (including all
option grants incorporated from the Predecessor Plan), (iii) the maximum number
and/or class of securities for which any one individual may be granted stock
options and separately exercisable stock appreciation rights under the Plan
after December 31, 1993 and (iv) the number and/or class of securities for which
automatic option grants are subsequently to be made to each newly-elected or
continuing non-employee Board member.
Each outstanding option which is assumed or is otherwise to continue in
effect after a Corporate Transaction will be appropriately adjusted to apply and
pertain to the number and class of securities which would have been issued, in
connection with such Corporate Transaction, to the holder of such option had the
option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments will also be made to the exercise price payable per
share and to the number and class of securities subsequently available for
issuance under the Plan on both an aggregate and per participant basis.
Option grants under the Plan will not affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
Excess Grants. The Plan permits the grant of options to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan. Any options so granted cannot be exercised prior to stockholder
approval of an amendment sufficiently increasing the number of shares available
for issuance under the Plan.
12
Option Grants
The table below shows, as to each of the executive officers named in the
Summary Compensation Table below and the various other indicated persons and
groups, the following information with respect to stock option grants effected
during the period from January 1, 1997 through March 20, 1998: (i) the number of
shares of Common Stock subject to options granted under the Plan during that
period; and (ii) the weighted average exercise price payable per share under
such options.
----------------------------------------------------------------
Options Granted
(Number of Weighted Average
Name and Position Shares) Exercise Price ($)
----------------------------------------------------------------
Lisa A. Conte
President, Chief Executive
Officer and Chief Financial
Officer 295,000 $5.0156
----------------------------------------------------------------
Gerald M. Reaven, M.D.
Senior Vice President, Research -- --
----------------------------------------------------------------
Atul S. Khandwala, Ph.D.
Senior Vice President,
Development and Chief
Regulatory Officer -- --
----------------------------------------------------------------
Steven R. King, Ph.D.
Senior Vice President,
Ethnobotany and Conservation -- --
----------------------------------------------------------------
Gina D. Morhun
Vice President, Human
Resources and Senior
Director, Business Development -- --
----------------------------------------------------------------
All executive officers as a
group (8 persons) 520,000 $5.3959
----------------------------------------------------------------
All directors who are not
executive officers as a
group (5 persons) 164,000 $5.3312
----------------------------------------------------------------
All employees (103 persons)
and consultants as a group,
excluding executive officers 435,700 $5.4163
----------------------------------------------------------------
Federal Tax Consequences
Options granted under the Plan may be either incentive stock options which
satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
federal income tax treatment for the two types of options differs as described
below.
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. However, the difference between the fair market
value of the purchased shares and the exercise price is generally included as
alternative minimum taxable income for purposes of the alternative minimum tax.
The optionee will recognize taxable income in the year in which the purchased
shares are sold or otherwise made the subject of disposition. For federal tax
purposes, dispositions are divided into two categories: (i) qualifying and (ii)
disqualifying. The optionee will make a qualifying disposition of the purchased
shares if the sale or other disposition of such shares is made after the
optionee has held the shares for more than two years after the grant date of the
option and more than one year after the exercise date. If the optionee fails to
satisfy either of these two minimum holding periods prior to the sale or other
disposition of the purchased shares, then a disqualifying disposition will
result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then the excess of (a) the fair market value of those shares on
the exercise date over (b) the exercise price paid for the shares will be
taxable as ordinary income. Any additional gain recognized upon the disposition
will be a capital gain.
13
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the exercise date over (ii) the exercise price
paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition
of unvested shares of Common Stock under a non-statutory option.
These special provisions may be summarized as follows:
(i) If the shares acquired upon exercise of the non-statutory option
are subject to repurchase by the Company at the original exercise price in
the event of the optionee's termination of service prior to vesting in
such shares, then the optionee will not recognize any taxable income at
the time of exercise but will have to report as ordinary income, as and
when the Company's repurchase right lapses, an amount equal to the excess
of (a) the fair market value of the shares on the date the Company's
repurchase right lapses with respect to those shares over (b) the exercise
price paid for the shares.
(ii) The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of
exercise of the non-statutory option an amount equal to the excess of (a)
the fair market value of the purchased shares on the exercise date
(determined as if the shares were not subject to the Company's repurchase
right) over (b) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional
income as and when the Company's repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions of
incentive stock option shares or exercises of non-statutory options granted with
an exercise price equal to the fair market value of the option shares will
qualify as performance-based compensation for purposes of Code Section 162(m)
and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year of
the Company in which the ordinary income is recognized by the optionee.
Parachute Payments. If the exercisability of an option or stock
appreciation right is accelerated as a result of a change of control, all or a
portion of the value of the option or stock appreciation right at that time may
be a parachute payment for purposes of the excess parachute provisions of the
Internal Revenue Code. Those provisions generally provide that if parachute
payments equal or exceed three times an employee's average compensation for the
five tax years preceding the change of control, the Company loses its deduction
and the recipient is subject to a 20% excise tax for the amount of the parachute
payments in excess of one times such average compensation.
Note Forgiveness. If any promissory note delivered in payment of shares
acquired under the Plan is forgiven in whole or in part, the amount of such
forgiveness will be reportable by the participant as ordinary compensation
income. The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the participant in connection with
the acquisition of the shares and any note
14
forgiveness. The deduction will be allowed for the taxable year of the Company
in which the ordinary income is recognized by the participant.
Accounting Treatment
Option grants or stock issuances to employees and members of the Board of
Directors with exercise or issue prices less than the fair market value of the
shares on the grant or issue date will result in compensation expense to the
Company's earnings equal to the difference between the exercise or issue price
and the fair market value of the shares on the grant or issue date. Such charge
will be expensed by the Company over the period benefited (usually the vesting
period of the option). Option grants or stock issuances with exercise or issue
prices not less than the fair market value of the shares on the grant or issue
date will not result in any direct charge to the Company's earnings. However,
the fair value of those options is required to be disclosed in the notes to the
Company's financial statements, and the Company must also disclose, in pro-forma
disclosures in the Company's financial statements, the impact those options
would have upon the Company's reported earnings were the value of those options
at the time of grant treated as compensation expense. Whether or not granted at
a discount, the number of outstanding options may be a factor in determining the
Company's earnings per share on a fully-diluted basis.
Option grants or stock issuances to non-employees result in compensation
expense to the Company's earnings equal to the fair value of the options or
shares granted as of the grant or issue date. Such charge is also expensed over
the period benefited (usually the vesting period for options).
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to be charged
against the Company's earnings. Accordingly, at the end of each fiscal quarter,
the amount (if any) by which the fair market value of the shares of Common Stock
subject to such outstanding stock appreciation rights has increased from prior
quarter-end will be accrued as compensation expense, to the extent such fair
market value is in excess of the aggregate exercise price in effect for such
rights.
New Plan Benefits
No stock option grants have been made to date under the Plan on the basis
of the 500,000-share increase for which stockholder approval is sought under
this Proposal Two. However, on the date of the Annual Meeting, each of the
non-employee Board members will receive the automatic option grant for the
number of shares of Common Stock determined as described above (not to exceed
7,500 shares) at an exercise price equal to the fair market value per share of
Common Stock on that date.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the Plan as described in this Proposal Two. If such
stockholder approval is not obtained, then any options granted on the basis of
the 500,000-share increase which forms part of this Proposal will terminate
without becoming exercisable for any of the shares of Common Stock subject to
those options and no further option grants will be made on the basis of the
500,000-share increase which forms part of this Proposal. However, the Plan will
continue to remain in effect, and option grants may continue to be made pursuant
to the provisions of the Plan in effect prior to the amendment summarized in
this Proposal, until the available reserve of Common Stock as last approved by
the stockholders has been issued.
The Board believes that the amendment to the Plan is essential to the
Company's efforts in attracting and retaining the services of highly qualified
individuals who can contribute significantly to the Company's financial success.
Accordingly, the Board recommends that the stockholders vote IN FAVOR OF the
approval of the amendment to the Plan.
15
PROPOSAL THREE - RATIFICATION OF SELECTION
OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board has appointed
the firm of Ernst & Young LLP, independent auditors, to audit the financial
statements of the Company for the year ending December 31, 1998, and is asking
the stockholders to ratify this appointment.
In the event the stockholders fail to ratify the appointment, the Board
will reconsider its selection. Even if the selection is ratified, the Board in
its discretion may direct the appointment of a different independent auditing
firm at any time during the year if the Board feels that such a change would be
in the best interests of the Company and its stockholders. The affirmative vote
of the holders of a majority of the Common Stock, including all shares of
Preferred Stock on an as converted basis, present or represented by Proxy at the
Annual Meeting and entitled to vote is required to ratify the selection of Ernst
& Young LLP.
Ernst & Young LLP has audited the Company's financial statements annually
since November 1992. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting to respond to appropriate questions, and will be
given the opportunity to make a statement if he or she so desires.
Recommendation of the Board of Directors
The Board recommends that the stockholders vote IN FAVOR OF the
ratification of the selection of Ernst & Young LLP to serve as the Company's
independent auditors for the year ending December 31, 1998.
16
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Certain information about the Company's executive officers, as of March
20, 1998, is set forth below (information concerning the Class I and Class II
directors, including Lisa A. Conte, the Company's President, Chief Executive
Officer and Chief Financial Officer, is contained in Proposal One above):
Name Age Position
- ------------------------------------ -------- --------------------------------
Atul S. Khandwala, Ph.D. ........ 55 Senior Vice President,
Development and Chief
Regulatory Officer
Steven R. King, Ph.D. ........... 40 Senior Vice President,
Ethnobotany and Conservation
James E. Pennington, M.D. ....... 54 Senior Vice President,
Clinical Research and Chief
Medical Officer
Gerald M. Reaven, M.D. .......... 69 Senior Vice President, Research
J.D. Haldeman ................... 33 Vice President, Commercial
Development
Gina D. Morhun .................. 32 Vice President, Human Resources
and Senior Director, Business
Development
Laurie Peltier .................. 46 Vice President, Project
Coordination
Atul S. Khandwala, Ph.D. joined Shaman in March 1996 and currently
serves as Senior Vice President, Development and Chief Regulatory Officer.
From August 1995 to February 1996, Dr. Khandwala served as Vice President for
Ethical Product Development at Block Drug Company. Prior to joining Block
Drug Company, from 1986 to August 1995, Dr. Khandwala held various positions,
most recently Executive Vice President, with Chemex Pharmaceuticals, Inc.
From 1976 to 1986, Dr. Khandwala held various positions with Revlon Health
Care Group Research and Development Division. Dr. Khandwala received a B.Sc.
in Chemistry from Gujarat University in India and a Ph.D. in Pharmaceutical
Chemistry from the University of Wisconsin.
Steven R. King, Ph.D. joined Shaman in March 1990. He currently serves
as Senior Vice President, Ethnobotany and Conservation and is responsible for
coordinating the Company's Scientific Strategy Team. From 1989 to 1990, Dr.
King was the chief botanist for Latin America at Arlington, Virginia's Nature
Conservancy. He worked in 1988 as Research Associate for the Committee on
Managing Global Genetic Resources at the National Academy of Sciences, and
was a Doctoral Fellow from 1983 to 1988 at The New York Botanical Garden's
Institute of Economic Botany. Dr. King received a B.A. in Human Ecology from
the College of the Atlantic and M.S. and Ph.D. degrees in Biology from City
University of New York.
James E. Pennington, M.D. joined Shaman in September 1997 as Senior Vice
President, Clinical Research and Chief Medical Officer. Prior to joining the
Company, from September 1986 to September 1997, Dr. Pennington worked at Bayer
Corp., where he served as Vice President, Clinical Research from February 1994
to September 1997 and as Director, Clinical Research from September 1986 to
February 1994. Prior to joining Bayer Corp., Dr. Pennington worked at Harvard
Medical School, where he served on the Medical faculty from July 1975 to August
1986, with the academic title of Associate Professor of Medicine. Dr. Pennington
has published over 100 articles and was the editor of a textbook on respiratory
infections. Dr. Pennington received his B.A. and M.D. from the University of
Oregon.
Gerald M. Reaven, M.D. joined Shaman as a consultant in February 1995 and
became an employee in July 1995. He currently serves as Senior Vice President,
Research. Dr. Reaven came to Shaman from the Stanford University School of
Medicine where he served as a faculty member since 1960 and a Professor of
Medicine since 1970. Over the last 20 years, Dr. Reaven served as head of the
Division of Endocrinology and Metabolic Diseases, Division of Gerontology and
director of the General Clinical Research Center. Dr. Reaven also served as head
of the Division of Endocrinology, Gerontology and Metabolism at Stanford
University School of Medicine, and
17
Director of the Geriatric Research, Education and Clinical Center, at the Palo
Alto Veterans Affairs Medical Center. Dr. Reaven received his A.B., B.S. and
M.D. from the University of Chicago.
J.D. Haldeman joined Shaman in July 1997 as Vice President, Commercial
Development. Prior to joining the Company, from April 1988 to June 1997, Ms.
Haldeman served in various positions at Warner-Lambert/Parke-Davis
Pharmaceuticals ("Warner-Lambert"), most recently as Senior Director,
Cardiovascular Marketing from October 1995 to June 1997. Prior to that, she
served as Director, Customer Marketing--West Business Unit; Product Manager,
Epilepsy Team; Associate Product Manager, Global Cardiovascular Product
Planning; and Sales Specialist for Warner-Lambert. Ms. Haldeman received her
B.A. from Brigham Young University and her Masters of Management from the
J.L. Kellogg Graduate School of Management, Northwestern University.
Gina D. Morhun joined Shaman in October 1994 and currently serves as Vice
President, Human Resources and Senior Director, Business Development. Ms. Morhun
is responsible for Shaman's human resource functions and business development
functions. Prior to joining the Company, she served as Human Resource Manager at
Abaxis, Inc., a medical products company, from April to October 1994, and as
Manager of Compensation and Benefits at ASK Computers, Inc., a software company,
from November 1992 to April 1994. From June 1987 to November 1992, Ms. Morhun
served as Senior Technical Analyst, Actuarial Consultant and Underwriter of
three large international firms: Alexander & Alexander Consulting Group, The
Wyatt Company, and Metropolitan Life Insurance Company. Ms. Morhun received a
B.A. in Statistics from the University of California at Davis.
Laurie Peltier joined Shaman in June 1997 as Vice President, Project
Coordination. Prior to joining the Company, from June 1992 to May 1997, Ms.
Peltier served as Senior Director, Project Management at Amylin Pharmaceuticals,
Inc. Prior to that, she served as Director, Development at Quintiles Inc., a
contract research organization, from May 1990 to May 1992. Ms. Peltier served in
various positions in biostatics and clinical operations at Syntex Corporation
from May 1979 through April 1990. Ms. Peltier received a B.S. in Psychology from
the University of Michigan, Flint, an M.A. in Psychology and an M.S. in
Statistics from Northern Illinois University and an M.B.A. from Golden Gate
University.
Compensation Committee Report on Executive Compensation
As members of the Compensation Committee of the Board, it is our duty to
exercise the power and authority of the Board of Directors with respect to the
compensation levels to be in effect for the Company's executive officers. As
such, it is our responsibility to set the base salary of certain executive
officers and to administer the Company's 1992 Stock Option Plan under which
grants may be made to such officers and other key employees. In addition, we
approved special bonus awards for executive officers for the 1997 fiscal year.
For 1997, we established the compensation payable to Lisa A. Conte,
President, Chief Executive Officer and Chief Financial Officer, the Company's
highest-paid executive officer, and the Company's four other most highly-paid
executive officers. Ms. Conte reported to us the performance evaluations of each
executive officer, including herself, and the factors to be considered in
setting their compensation. We endorse those factors and include them as part of
our report.
General Compensation Policy. Under our supervision, the Company has
developed a compensation policy that is designed to attract and retain qualified
key executives critical to the Company's success and to provide such executives
with performance-based incentives tied to corporate milestones. It is our
objective to have a portion of each officer's compensation contingent upon the
Company's performance as well as upon the individual's contribution to the
success of the Company as measured by personal performance. Accordingly, each
executive officer's compensation package is normally comprised of three
elements: (i) base salary, which reflects individual performance and is
commensurate with salaries for comparable positions in other biotechnology
companies given the level of seniority and skills possessed by such officer,
(ii) long-term, stock-based incentive awards, which strengthen the mutuality of
interests between the executive officers and the Company's stockholders and
which may be tied to the Company's achievement of certain pre-established goals,
and (iii) bonus incentive plan, which tie to individual and Company performance.
18
Guidelines. Because the Company is in the pre-product commercialization
stage, the use of traditional performance standards (such as profitability and
return on equity) is not appropriate in evaluating the performance of its
executive officers. In particular, the unique nature of the biotechnology
industry, the relatively short period of time during which the Company's stock
has been publicly traded, the performance of the stock during this period, and
the absence of product revenues have made it impossible to tie performance
objectives to standard financial considerations. The primary guidelines which we
did consider in establishing the components of each executive officer's
compensation package for 1997 are summarized below. However, we may in our
discretion apply entirely different guidelines, particularly different measures
of performance, in setting executive compensation for future fiscal years.
Base Salary. Base compensation is initially established through
negotiation between the Company and the executive at the time the executive is
hired, and it is subject to periodic review or reconsideration, usually on an
annual basis. When establishing or reviewing the level of base compensation for
each executive officer, we consider numerous factors, including the
qualifications of the executive and his or her level of relevant experience,
strategic goals for which the executive has responsibility, specific
accomplishments of the executive during the last fiscal year and the
compensation levels in effect at companies in the Company's industry which
compete with the Company for business and executive talent.
For comparative compensation purposes, we have selected a peer group of
companies within the industry and estimated the salary levels in effect for
similar positions at those companies. We also relied on specific compensation
surveys, making our decisions as to the appropriate market level of base salary
for each executive officer on the basis of our understanding of the salary
levels in effect for similar positions at various peer group companies. In
selecting the peer group companies, we focused primarily on whether those
companies were actually competitive with the Company in seeking executive
talent, whether those companies had a management style and corporate culture
similar to the Company's and whether similar positions existed within their
corporate structure. For this reason, only nine of the peer group companies
surveyed for comparative compensation purposes were also included in the
Hambrecht & Quist Biotechnology Index which the Company has chosen as the
industry index for purposes of the Company's Stock Price Performance graph which
follows this report.
Base salaries are reviewed annually, and adjustments to each executive
officer's base salary are made to reflect individual performance and salary
increases effected by the peer group companies. A major objective, accordingly,
is to have base salary levels commensurate with those of comparable positions
with the peer group companies, given the level of seniority and skills possessed
by the executive officer in question and our assessment of such executive's
performance over the year.
We estimate (on the basis of 1997 surveys of executive compensation) that
the base salary levels in effect for the Company's executive officers for the
1997 fiscal year ranged from the 25th percentile to the 90th percentile of the
base salary levels in effect for executive officers in comparable positions with
peer group companies.
Incentive Compensation. The Committee awarded cash bonuses for the 1997
fiscal year in recognition of each individual's unique contribution with respect
to attainment of certain individual and Company milestones.
Stock-Based Incentive Compensation. In addition to establishing and
reviewing the base salary levels in effect for the executive officers, we also
have discretionary authority to award equity incentives in the form of stock
option grants to the executive officers as a way to more closely align the
interests of management with those of the Company's stockholders and to reward
officers for achieving certain defined personal and corporate performance
targets. Factors which we consider in determining whether to grant options and
the number of shares underlying each such grant include the executive's position
in the Company, his or her performance and responsibilities, the extent to which
he or she already holds an equity interest in the Company and the equity
incentives granted to employees with similar responsibilities at other
biotechnology companies. We have also established general guidelines for
maintaining the unvested option holdings of each executive officer at a targeted
level based upon his or her position with the Company, and option grants are
periodically made to maintain the targeted levels. These factors, however, are
used only as guidelines, and the relative weight given to each factor varies
from individual to individual as we deem appropriate under the circumstances.
19
For 1997, we approved total stock option grants under the Plan for 951,400
shares. Four of the executive officers of the Company received option grants in
calendar 1997. Each grant allows the executive officer to acquire shares of the
Company's Common Stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to 10 years). The options vest in
periodic installments over four or five year periods, contingent upon the
executive officer's continued employment with the Company. In all cases, the
options will provide a return to the executive officer only if he or she remains
with the Company and then only if the market price of the underlying shares
appreciates over the option term.
CEO Compensation. The annual base salary of Lisa A. Conte, the Company's
President, Chief Executive Officer and Chief Financial Officer, was increased
from $286,190 to $312,901 during the 1997 fiscal year based on our performance
review of Ms. Conte for 1997. This amount includes $61,214 and $27,287
attributable to child care costs and family travel, respectively. In setting Ms.
Conte's compensation, we considered the level of experience and unique
qualifications Ms. Conte has brought to Shaman as Chief Executive Officer, the
Company's goals for which Ms. Conte had responsibility and the degree to which
she helped the Company attain those goals. Among the Company's accomplishments
during 1997 which we felt Ms. Conte helped the Company achieve were the
continued clinical development of the Company's products in human trials, as
well as the expansion of the Company's focus in the field of metabolic diseases,
namely diabetes. Accordingly, Ms. Conte's base salary was raised by an amount
which we felt fairly represents her additional contributions to the Company's
continued growth and success. The salary adjustment brought the base salary of
Ms. Conte for the 1997 fiscal year to a salary level at the 60th percentile of
the salary levels in effect for chief executive officers at the peer group
companies. Bonuses totaling $91,689 were granted to Ms. Conte for 1997 because
of her contribution to achievement of the product development with Provir for
diarrhea in patients with AIDS and financing activities.
Deduction Limit for Executive Compensation. As a result of Section 162(m)
of the Internal Revenue Code, which was enacted into law in 1993, the Company
will not be allowed a federal income tax deduction for compensation paid to
certain executive officers, to the extent that compensation exceeds $1 million
per officer in any one year. This limitation will be in effect for each fiscal
year of the Company beginning after December 31, 1993 and will apply to all
compensation paid to the covered executive officers which is not considered to
be performance based. Compensation which qualifies as performance-based
compensation will not have to be taken into account for purposes of this
limitation. At the 1994 Annual Meeting of Stockholders, the Company obtained
stockholder approval for certain amendments to the 1992 Stock Option Plan which
were intended to assure that any compensation deemed paid in connection with the
exercise of stock options granted under the Plan with an exercise price equal to
the fair market value of the option shares on the grant date will qualify as
performance-based compensation.
We do not expect that the compensation to be paid to the Company's
executive officers for the 1998 fiscal year will exceed the $1 million limit per
officer. Accordingly, we have decided at this time not to take any other action
to limit or restructure the elements of cash compensation payable to the
Company's executive officers. We will reconsider this decision should the
individual compensation of any executive officer ever approach the $1 million
level.
Compensation Committee
Herbert H. McDade, Jr.
John A. Young
Compensation Committee Interlocks and Insider Participation
During the 1997 fiscal year, Herbert H. McDade and John A. Young served as
members of the Compensation Committee of the Board of Directors. No member of
the Compensation Committee was, at any time during the 1997 fiscal year or at
any earlier time, an officer or employee of the Company.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
20
Stock Performance Graph
The graph below depicts the Company's stock price as an index assuming
$100 invested on January 26, 1993 (the date of the Company's initial public
offering), along with the composite prices of companies listed in the Hambrecht
& Quist Biotechnology Index and Nasdaq Total U.S. Stock Market Index. This
information has been provided to the Company by Hambrecht & Quist. The
comparisons in the graph are required by regulations of the Securities and
Exchange Commission and are not intended to forecast or to be indicative of the
possible future performance of the Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN SINCE JANUARY 26, 1993**
Among Shaman Pharmaceuticals, Inc.,
the Hambrecht & Quist Biotechnology Index and
The Nasdaq Stock Market - U.S. Index
NASDAQ STOCK
MEASUREMENT PERIOD SHAMAN H&Q BIOTECHNOLOGY MARKET-U.S.
(FISCAL YEAR COVERED) PHARMACEUTICALS INDEX INDEX
1/26/93 100 100 100
MAR-93 71.67 72.27 97.54
JUN-93 86.67 81.17 99.41
SEP-93 90.00 81.86 107.79
DEC-93 78.33 94.40 109.91
MAR-94 65.00 76.98 105.29
JUN-94 51.67 77.57 100.37
SEP-94 47.50 93.26 108.68
DEC-94 26.67 89.67 107.44
MAR-95 25.83 93.13 117.13
JUN-95 33.33 104.75 133.98
SEP-95 40.83 126.59 150.11
DEC-95 44.17 152.54 151.94
MAR-96 45.83 145.79 159.03
JUN-96 57.50 136.24 172.01
SEP-96 45.83 144.73 178.13
DEC-96 39.17 140.75 186.88
MAR-97 34.17 135.11 176.75
JUN-97 39.58 142.19 209.15
SEP-97 45.00 153.52 244.53
DEC-97 32.91 142.47 229.33
- -------------------
** $100 invested on January 26, 1993 in stock or index, including reinvestment
of devidends.
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 Securites
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report on
Executive Compensation and the Comapany's Stock Performance Graph will not be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those Acts.
21
Compensation of Executive Officers
The following table sets forth the compensation earned, for services
rendered in all capacities to the Company, for each of the last three fiscal
years by (i) the Company's Chief Executive Officer and (ii) the four other
highest paid executive officers serving as such at the end of 1997 whose salary
and bonus for that fiscal year was in excess of $100,000. The individuals named
in the table will be hereinafter referred to as the "Named Officers." No other
executive officer who would otherwise have been included in such table on the
basis of 1997 salary and bonus resigned or terminated employment during the
year.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
--------------------------------- ------------
Awards
---------
----------------------------------------------
Other Securities
Name and Annual Underlying All Other
Principal Salary Compen- Options/ Compen-
Position(*) Year ($)(1) Bonus ($) sation($) SARS (#) sation($)
- ----------------- ---- ---------- --------- ---------- --------- ---------
Lisa A. Conte 1997 312,901(2) 91,689(3) -- 295,000 --
President, 1996 286,190(4) 53,000(5) -- 105,000 --
Chief 1995 247,644(6) 24,000 -- -- --
Executive
Officer and
Chief Financial
Officer
Gerald M.
Reaven, M.D. 1997 239,114 25,000(7) -- -- --
Senior Vice 1996 227,878 3,000 -- 5,000 --
President, 1995 100,088 -- 68,000(8) -- --
Research
Atul S.
Khandwala, Ph.D. 1997 226,031 20,000(7) -- -- 82,217(9)
Senior Vice 1996 187,563 3,000 51,200(8) 125,000 106,399(10)
President, 1995 -- -- 30,000(8) -- --
Development
and Chief
Medical Officer
Steven R. King,
Ph.D. 1997 176,202 40,000(7) -- -- --
Senior Vice 1996 171,822 3,000 -- 55,000 --
President, 1995 149,711 -- -- -- 20,000(11)
Ethnobotany
and Conservation
Gina D. Morhun 1997 109,128 40,000(7) -- -- --
Vice 1996 96,150 15,000(12 -- 55,000 --
President, 1995 77,983 -- -- 15,000 --
Human Resources
and Senior Director,
Business Development
- --------------------
(*) Does not include James E. Pennington, M.D., who joined the Company in
September 1997 as Senior Vice President, Clinical Research and Chief
Medical Officer. Dr. Pennington's annualized base salary for 1997 was
$255,000.
(1) Includes amounts deferred under the Company's Internal Revenue Code Section
401(k) Plan.
(2) Includes $61,214 and $27,287 attributable to child care costs and family
travel, respectively.
(3) Includes $75,000 to be paid in 1998 for achievement of milestones in 1997.
(4) Includes $49,646 and $16,858 attributable to child care costs and family
travel, respectively.
(5) Includes $50,000 paid in 1997 for achievement of milestones in 1996.
(6) Includes $27,597 attributable to child care costs.
(7) Represents bonus paid in 1998 for achievement of milestones in 1997.
(8) Represents fees received for consulting services.
(9) Includes $16,500 received as a housing subsidy, $1,164 for travel expenses
and $64,553 in indebtedness for which repayment was forgiven.
(10) Includes $13,445 received as a housing subsidy, $23,746 for moving and
relocation expenses, $1,562 for travel expenses and $67,646 in indebtedness
for which repayment was forgiven.
(11) Represents indebtedness for which repayment was forgiven.
(12) Represents bonus paid in 1997 for achievement of milestones in 1996.
22
Options and Stock Appreciation Rights
The following table contains information concerning the grant of stock
options under the Plan to the Named Officers during the 1997 fiscal year. Except
for the limited stock appreciation right described in footnote (2) below which
formed part of the option grant made to each Named Officer, no stock
appreciation rights were granted to such Named Officers during the 1997 fiscal
year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
for Option
Individual Grants Term (1)
---------------------------------------------- -------------------
% of Total
Number Options
of Granted
Securities to
Underlying Employees Exercise
Options/SARs in Fiscal Price Expiration
Name(*) Granted(#)(2) Year ($/Share)(3) Date 5% 10%
- ------------ ------------- --------- ----------- --------- ------ ----------
Lisa A. Conte 295,000 37.47% $5.0156 01/30/07 $930,514 $2,358,105
Gerald M. -- -- -- -- -- --
Reaven, M.D.
Atul S. -- -- -- -- -- --
Khandwala, Ph.D.
Steven R. -- -- -- -- -- --
King, Ph.D.
Gina D. Morhun -- -- -- -- -- --
- -----------------
(*) Does not include an option to purchase 125,000 shares of Common Stock at an
exercise price of $6.0625 per share granted to Dr. Pennington on September
16, 1997. The option will become exercisable for 12.5% of the option shares
upon the optionee's completion of six months of service, measured from the
grant date, and will become exercisable for the balance of the option
shares in 42 successive equal installments upon the optionee's completion
of each of the next 42 months of service thereafter.
(1) Potential realizable value is based on assumption that the market price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the 10-year option term. There can
be no assurance that the actual stock price appreciation over the 10-year
option term will be at the assumed 5% and 10% levels or at any other
defined level.
(2) Each option has a maximum term of 10 years, subject to earlier termination
in the event of the optionee's cessation of service with the Company.
However, each option will become immediately exercisable in full upon an
acquisition of the Company by merger or asset sale, unless the option is
assumed by the successor entity. Each option includes a limited stock
appreciation right which will result in the cancellation of that option, to
the extent exercisable for vested shares, upon the successful completion of
a hostile tender for securities possessing more than 50% of the combined
voting power of the Company's outstanding voting securities. In return for
the cancelled option, the optionee will receive a cash distribution per
cancelled option share equal to the excess of (i) the highest price paid
per share of the Company's Common Stock in such hostile tender offer over
(ii) the exercise price payable per share under the cancelled option.
(3) The exercise price may be paid in cash or in shares of Common Stock (valued
at fair market value on the exercise date) or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares and the federal
and state income tax liability incurred by the optionee in connection with
such exercise. The optionee may be permitted, subject to the approval of
the Plan Administrator, to apply a portion of the shares purchased under
the option (or to deliver existing shares of Common Stock) in satisfaction
of such tax liability.
23
Option Exercises and Holdings
The following table provides information with respect to the Named Officers
concerning the exercise of options during the last fiscal year and unexercised
options held as of the end of the fiscal year (as of December 31, 1997). No
stock appreciation rights were exercised during such fiscal year, and except for
the limited stock appreciation right described in Footnote (2) to the Option/SAR
Grants Table which forms part of each outstanding stock option, no stock
appreciation rights were outstanding at the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Value
Realized Value of Unexcercised
(Market In-the-Money Options
price at at FY-End (Market
Shares exercise No. of Securities price of shares at
Acquired date less Underlying Unexcersied FY-End less excercise
on exercise Options FY-End (#) price) ($)(1)
Name Exercise price) ------------------------- --------------------------
(#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
- ------------ ------- ----- ------------------------ --------------------------
Lisa A. -- -- 118,333 501,667 $359,980 $194,863
Conte
Gerald M. -- -- 203,889 11,111 $262,292 $14,583
Reaven, M.D.
Atul S. -- -- 60,200 64,800 0 0
Khandwala,
Ph.D.
Steven R. -- -- 93,868 60,589 $83,403 $21,750
King, Ph.D.
Gina D. -- -- 40,625 39,375 $19,466 $2,096
Morhun
- --------------
(1) Based on the fair market value of the Company's Common Stock on December
31, 1997 of $4.9375 per share, the Nasdaq National Market trading price at
the close of business that same day.
(2) Equal to the closing selling price of the purchased shares on the option
exercise date less the exercise price paid for such shares.
Employment Contracts and Change of Control Agreements
On August 21, 1997, the Company entered into a letter agreement with Dr.
James Pennington pursuant to which he would serve as Senior Vice President,
Clinical Research and Chief Medical Officer commencing September 1997. Pursuant
to the letter agreement, the Company agreed to pay Dr. Pennington an annual
salary of $255,000, payable semi-monthly, and a sign-on bonus of $60,000. In
addition, Dr. Pennington was granted, on September 16, 1997, an option to
purchase 125,000 shares of Common Stock at a purchase price of $6.0625 per
share. The option has a term of 10 years and becomes exercisable as follows:
12.5% of the option shares upon Dr. Pennington's completion of six months of
service, measured from the hire date, and the balance of the option shares in
42 successive equal monthly installments upon Dr. Pennington's completion of
each of the next 42 months of service thereafter. In the event that the Company
terminates Dr. Pennington's employment other than for cause, the Company is
obligated to pay Dr. Pennington salary and benefits for nine months, or, if
sooner, until Dr. Pennington obtains near full time employment or consulting of
at least 80% of his time.
On February 9, 1996, the Company entered into a letter agreement with Dr.
Atul Khandwala pursuant to which he would serve as Senior Vice President,
Development commencing March 1996. Pursuant to the letter agreement, the Company
agreed to pay Dr. Khandwala an annual salary of $225,000, payable semi-monthly.
In addition, Dr. Khandwala was granted an option to purchase 120,000 shares of
Common Stock at a purchase price of $6.875 per share. The option has a term of
ten years and becomes exercisable over a four-year period in a series of 48
successive equal monthly installments upon Dr. Khandwala's completion of each
month of service with the Company over the four-year period measured from March
1, 1996. In the event that the Company terminates Dr. Khandwala's employment for
any reason, the Company is obligated to pay Dr.
Khandwala salary and benefits for six months.
24
None of the Company's other executive officers have employment agreements
with the Company, and their employment may be terminated at any time at the
discretion of the Board of Directors. As administrator of the Plan, the
Compensation Committee has the authority to provide for accelerated vesting of
the shares of Common Stock subject to any outstanding options held by the Chief
Executive Officer and the Company's other executive officers or any unvested
shares actually held by those individuals under the Plan upon a change in
control of the Company effected through a successful tender offer for more than
50% of the Company's outstanding voting securities or through a change in the
majority of the Board as a result of one or more contested elections for Board
membership.
Certain Relationships and Related Transactions
See "Proposal One - Director Compensation" for a discussion of the
Company's consulting agreements with Mr. Raab, the Company's Chairman of the
Board and Mr. Titus, a Director of the Company.
The Company's Restated Certificate of Incorporation and Bylaws provide for
indemnification of directors, officers and other agents of the Company. Each of
the current directors and certain officers and agents of the Company have
entered into separate indemnification agreements with the Company.
25
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and persons who are the beneficial owners of
more than 10% of the Common Stock to file initial reports of ownership and
reports of changes in ownership of the Common Stock with the United States
Securities and Exchange Commission ("SEC"). Officers, directors and greater than
10% stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms furnished to the
Company and the written representations that no other reports were required, the
Company believes that, during the period from January 1, 1997 to December 31,
1997, all officers, directors and beneficial owners of more than 10% of the
Common Stock complied with all Section 16(a) requirements, except as described
herein. Each of Dr. Pennington, Ms. Haldeman and Ms. Peltier did not timely file
his or her Form 3, each of which untimely filings was subsequently corrected.
Mr. Titus did not timely file a Form 5 for the option granted on May 22, 1997,
which untimely filing was subsequently corrected.
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Common Stock as of February 28,
1998 by (i) all persons who are beneficial owners of five percent or more of the
Common Stock, (ii) each director and nominee for director, (iii) the Named
Officers in the Summary Compensation Table above and (iv) all current directors
and executive officers as a group. The number of shares beneficially owned by
each director or executive officer is determined under rules of the SEC and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Shares of Common Stock subject to options or warrants currently
exercisable or exercisable within 60 days of February 28, 1998 are deemed to be
beneficially owned by the person holding such option or warrant for computing
the percentage ownership of such person, but are not treated as outstanding for
computing the percentage of any other person. Except as otherwise indicated, the
Company believes that the beneficial owners of the Common Stock listed below,
based upon such information furnished by such owners, have sole investment power
with respect to such shares, subject to community property laws where
applicable.
26
Name and Address Number of Percent of Total Shares
Shares Outstanding (1)(2)
- ------------------------------------- --------------- ------------------------
T. Rowe Price Associates, Inc. (3) 1,500,000 8.40%
100 East Pratt Street
Baltimore, MD 21202
State of Wisconsin Investment Board 1,290,000 7.22%
Post Office Box 7842
Madison, WI 53707
Travelers Group Inc. (4)........... 1,215,562 6.80%
388 Greenwich Street
New York, NY 10013
Delphi Ventures (5)................ 993,571 5.56%
3000 Sand Hill Road
Building One, Suite 135
Menlo Park, CA 94025
Fletcher Asset Management, Inc. (6) 950,000 5.05%
c/o Midland Bank Trust
Corporation (Cayman) Limited
Post Office Box 1109, Mary Street
Grand Cayman, Cayman Islands
British West Indies
Lisa A. Conte (7).................. 595,633 3.31%
G. Kirk Raab (8)................... 185,769 1.03%
M. David Titus (9)................. 51,437 *
John A. Young (10)................. 42,437 *
Herbert H. McDade, Jr. (11)........ 32,437 *
Adrian D.P. Bellamy (12)........... 5,000 *
Gerald R. Reaven, M.D. (13)........ 215,500 1.19%
Steven R. King, Ph.D. (14) ........ 119,449 *
Atul S. Khandwala, Ph.D. (15)...... 68,400 *
Gina D. Morhun (16)................ 44,517 *
Current Officers and Directors as a
group (17)(13 persons)............. 1,394,641 7.44%
- -----------------------------------------
* Less than 1.0%
(1) Percentage of beneficial ownership is calculated assuming 17,856,477 shares
of Common Stock were outstanding as of February 28, 1998. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options or
warrants currently exercisable or convertible, or exercisable or
convertible within 60 days of February 28, 1998, are deemed outstanding for
computing the percentage of the person holding such option or warrant but
are not deemed outstanding for computing the percentage of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned.
(2) This table is based upon information supplied to the Company by executive
officers, directors and stockholders owning greater than five percent, as
set forth in filings required by the Securities and Exchange Commission or
as otherwise provided. The address of each officer and director identified
in this table is that of the Company's executive offices, 213 East Grand
Avenue, South San Francisco, CA 94080. Unless otherwise indicated in the
footnotes to this table and subject to applicable community property laws,
each of the stockholders named in this table has sole voting and investment
power with respect to the shares shown as beneficially owned by it, him or
her.
27
(3) These securities are owned by various individual and institutional
investors, including T. Rowe Price New Horizons Fund, Inc., which owns
1,000,000 shares, or 5.6% of the shares outstanding, for which T. Rowe
Price Associates, Inc. ("Price Associates") serves as investment advisor
with power to direct investments and/or sole power to vote the shares.
Although, for purposes of the reporting requirements of the Securities
Exchange Act of 1934, as amended, Price Associates is deemed to be a
beneficial owner of such securities, Price Associates expressly disclaims
that it is, in fact, a beneficial owner of such shares.
(4) Includes shares held by The Travelers Indemnity Company, Travelers Property
Casualty Corp., The Travelers Insurance Group Inc., PFS Services, Inc., and
Associated Madison Companies, Inc., each an entity affiliated with
Travelers Group Inc.
(5) Represents 931,934 shares, 3,304 shares, 58,006 shares and 327 shares held
by Delphi BioVentures, L.P., Delphi BioInvestments, L.P., Delphi
BioVentures II, L.P. and Delphi BioInvestments II, L.P. Delphi Management
Partners, L.P. and Delphi Management Partners II, L.P. are the General
Partners of Delphi BioVentures, L.P., Delphi BioInvestments, L.P., Delphi
BioVentures II, L.P. and Delphi BioInvestments II, L.P., and as such may be
deemed to be the beneficial holder of the shares held by such funds.
(6) Includes 400,000 shares issuable upon conversion of preferred stock
convertible within 60 days of February 28, 1998 and 550,000 shares issuable
upon exercise of warrants exercisable within 60 days of February 28, 1998.
(7) Includes 123,333 shares subject to options exercisable within 60 days of
February 28, 1998.
(8) Represents shares subject to options exercisable within 60 days of
February 28, 1998.
(9) Includes 46,437 shares subject to options exercisable within 60 days of
February 28, 1998.
(10) Represents shares subject to options exercisable within 60 days of
February 28, 1998.
(11) Represents shares subject to options exercisable within 60 days of
February 28, 1998.
(12) Represents shares subject to options exercisable within 60 days of
February 28, 1998.
(13) Includes 215,000 shares subject to options exercisable within 60 days of
February 28, 1998.
(14) Includes 104,191 shares subject to options exercisable within 60 days of
February 28, 1998.
(15) Includes 67,400 shares subject to options exercisable within 60 days of
February 28, 1998.
(16) Includes 44,167 shares subject to options exercisable within 60 days of
February 28, 1998.
(17) Includes shares held by family members associated with directors and
officers listed above. Also includes 900,233 shares which are currently
issuable upon the exercise of outstanding options.
To the Company's knowledge, each beneficial owner of more than 10% of the
capital stock filed all reports and reported all transactions on a timely basis
with the SEC, National Association of Securities Dealers, Inc. and the Company.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1999 Annual Meeting must be received by
the Company no later than December 17, 1998 in order that they may be included
in the proxy statement and form of proxy relating to that meeting.
ANNUAL REPORT
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1997 has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual
28
Meeting. The Annual Report is not incorporated into this Proxy Statement and is
not considered proxy soliciting material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission. A copy of this report may be obtained, without charge, by
writing to Investor Relations, Shaman Pharmaceuticals, Inc., 213 East Grand
Avenue, South San Francisco, California 94080.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
THE BOARD OF DIRECTORS
Dated: April 15, 1998
29
APPENDIX A
SHAMAN PHARMACEUTICALS, INC.
PROXY
Annual Meeting of Stockholders, May 15, 1998
This Proxy is Solicited on Behalf of the Board of Directors of
Shaman Pharmaceuticals, Inc.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held May 15, 1998 and the
Proxy Statement and appoints Lisa A. Conte and G. Kirk Raab, and each of them,
the Proxy of the undersigned, with full power of substitution, to vote all
shares of Common Stock or Preferred Stock of Shaman Pharmaceuticals, Inc. (the
"Company") which the undersigned is entitled to vote, either on his or her own
behalf or on behalf of any entity or entities, at the Annual Meeting of
Stockholders of the Company to be held at The Embassy Suites, 250 Gateway
Boulevard, South San Francisco, California, 94080 on Friday, May 15, 1998 at
9:00 A.M. Pacific Time (the "Annual Meeting"), and at any adjournment or
postponement thereof, with the same force and effect as the undersigned might or
could do if personally present thereat. The shares represented by this Proxy
shall be voted in the manner set forth on the reverse side.
1. To elect two Class I directors to serve on the Board of Directors for
two years or until their respective successors are duly elected and
qualified:
WITHHOLD
AUTHORITY
FOR TO VOTE
Lisa A. Conte ------ ---------
Adrian D.P. Bellamy ------ ---------
2. FOR AGAINST ABSTAIN To approve an amendment to the Company's
1992 Stock Option Plan to increase the
maximum number of shares of the Company's
Common Stock authorized for issuance under
the Plan by an additional 500,000 shares;
3. FOR AGAINST ABSTAIN To ratify the Board of Director's selection
of Ernst & Young LLP to serve as the
Company's independent auditors for the year
ending December 31, 1998; and
4. In accordance with the discretion of the
proxy holders, to act upon all matters
incident to the conduct of the meeting and
upon other matters as may properly come
before the meeting.
The Board of Directors recommends a vote IN FAVOR OF each of the directors
listed above and a vote IN FAVOR OF the other proposals. This Proxy, when
properly executed, will be voted as specified above. If no specification is
made, this Proxy will be voted IN FAVOR OF the election of the directors listed
above and IN FAVOR OF the other proposals.
Please print the name(s) appearing on each share certificate(s) over which
you have voting authority: _______________________________________________
(Print name(s) on certificate)
Please sign your name: _________________________ Date: _______________
(Authorized Signature(s))
APPENDIX B
SHAMAN PHARMACEUTICALS, INC.
1992 STOCK OPTION PLAN
(As Restated and Amended through January 29, 1998)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1992 Stock Option Plan ("Plan") is intended to promote the
interests of Shaman Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), by providing a method whereby eligible individuals may be offered
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company as an incentive for them to remain in the
service of the Company (or its parent or subsidiary corporations).
B. The Plan became effective on the date on which shares of the
Company's common stock were first registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is
hereby designated as the Effective Date of the Plan.
C. This Plan shall serve as the successor to the Company's 1990
Stock Option Plan (the "1990 Plan"), and no further option grants shall be made
under the 1990 Plan from and after the Effective Date of this Plan. All options
outstanding under the 1990 Plan on such Effective Date are hereby incorporated
into this Plan and shall accordingly be treated as outstanding options under
this Plan. However, each outstanding option so incorporated shall continue to be
governed solely by the express terms and conditions of the instrument evidencing
such grant, and no provision of this Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of the Company's common stock
thereunder or their exercise of any outstanding stock appreciation rights
thereunder.
D. For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Company:
Any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company shall be considered to be a parent of
the Company, provided each such corporation in the unbroken chain (other
than the Company) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
Each corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company shall be considered to be a
subsidiary of
1
the Company, provided each such corporation (other than the last
corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
II. STRUCTURE OF THE PLAN
A. Stock Programs. The Plan shall be divided into two separate
components: the Discretionary Option Grant Program specified in Article Two and
the Automatic Option Grant Program specified in Article Three. Under the
Discretionary Option Grant Program, eligible individuals may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
in accordance with the provisions of Article Two. Under the Automatic Option
Grant Program, certain non-employee members of the Company's Board of Directors
(the "Board") will at periodic intervals automatically receive special option
grants to purchase shares of Common Stock in accordance with the provisions of
Article Three.
B. General Provisions. Unless the context clearly indicates
otherwise, the provisions of Articles One and Four of the Plan shall apply to
both the Discretionary Option Grant Program and the Automatic Option Grant
Program and shall accordingly govern the interests of all individuals under
the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Discretionary Option Grant Program shall be administered by a
committee ("Committee") of two (2) or more non-employee Board members appointed
by the Board. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time.
B. The Committee as Plan Administrator shall have full power and
authority (subject to the express provisions of the Plan) to establish such
rules and regulations as it may deem appropriate for the proper administration
of the Discretionary Option Grant Program and to make such determinations under,
and issue such interpretations of, the provisions of such program and any
outstanding option grants as it may deem necessary or advisable. Decisions of
the Plan Administrator shall be final and binding on all parties who have an
interest in the Discretionary Option Grant Program or any outstanding option
thereunder.
C. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and the Committee as Plan Administrator shall exercise no discretionary
functions with respect to option grants made pursuant to that program.
2
IV. OPTION GRANTS
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two of the Plan shall be limited to the following:
following:
(i) officers and other key employees of the Company (or its
parent or subsidiary corporations) who render services which contribute to
the management, growth and financial success of the Company (or its parent
or subsidiary corporations);
(ii) non-employee members of the Board;
(iii) non-employee members of the board of directors of any parent
or subsidiary corporation; and
(iv) those consultants or other independent advisors who provide
valuable services to the Company ( or its parent or subsidiary
corporations).
B. The Plan Administrator shall have full authority to determine
the eligible individuals who are to receive option grants under the
Discretionary Option Grant Program, the number of shares to be covered by each
such grant, the status of the granted option as either an incentive stock option
("Incentive Option") which satisfies the requirements of Section 422 of the
Internal Revenue Code or a non-statutory option not intended to meet such
requirements, the time or times at which each granted option is to become
exercisable and the maximum term for which the option may remain outstanding.
V. STOCK SUBJECT TO THE PLAN
A. Shares of the Company's common stock (the "Common Stock") shall
be available for issuance under the Plan and shall be drawn from either the
Company's authorized but unissued shares of Common Stock or from reacquired
shares of Common Stock, including shares repurchased by the Company on the open
market. The maximum number of shares of Common Stock which may be issued over
the term of the Plan shall not exceed 4,216,6601* shares, subject to adjustment
from time to time in accordance with the provisions of this Section V. Such
authorized share reserve includes the number of shares which remained available
for issuance under the 1990 Plan as of the Effective Date, including the shares
subject to the outstanding options incorporated into this Plan and any other
shares available for future option grant under the 1990 Plan as of such
Effective Date. Such share reserve also includes (i) the increase of 107,166
shares authorized by the Board in May 1992 and subsequently approved by the
stockholders in August 1992, (ii) the increases of 250,000 shares and 176,166
shares authorized by the Board in November 1992 and December 1992, respectively,
and subsequently approved in the aggregate by the stockholders in
- -------------------
* Such share reserve gives effect to the 1-for-3 reverse stock split of the
Common Stock effected in connection with the reincorporation of the Company in
Delaware and the associated exchange of three (3) shares of the California
corporation's common stock for one (1) share of the Delaware corporation's
common stock on January 25, 1993.
3
December 1992, (iii) the increase of 1,000,000 shares authorized by the
Board in May 1993 and subsequently approved by the stockholders at the 1994
Annual Stockholders Meeting,(iv) the increase of 545,000 shares authorized by
the Board in February 1995 and approved by the stockholders at the 1995 Annual
Stockholders Meeting, (v) the increase of 450,000 shares authorized by the Board
in January 1996 and subsequently approved by the stockholders at the 1996 Annual
Stockholders Meeting, (vi) the increase of 700,000 shares authorized by the
Board in February 1997 and subsequently approved by the stockholders at the 1997
Annual Stockholders Meeting, and (vii) the increase of 500,000 shares authorized
by the Board on January 29, 1998, subject to stockholder approval at the 1998
Annual Stockholders Meeting.
B. To the extent one or more outstanding options under the 1990
Plan which have been incorporated into this Plan are subsequently exercised,
the number of shares issued with respect to each such option shall reduce, on
a share-for-share basis, the number of shares available for issuance under this
Plan. In no event may any one individual participating in the Plan be granted
stock options and separately exercisable stock appreciation rights for more than
750,000 shares of Common Stock under the Plan (including the 250,000-share
increase authorized by the Board in January 1996 and subsequently approved by
the stockholders at the 1996 Annual Stockholders Meeting and the additional
250,000-share increase authorized by the Board in February 1997 and subsequently
approved by the stockholders at the 1997 Annual Stockholders Meeting). For
purposes of this limitation, any stock options or stock appreciation rights
granted prior to December 31, 1993 shall not be taken into account.
C. Should one or more outstanding options under this Plan
(including outstanding options under the 1990 Plan incorporated into this Plan)
expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section IV of Article Two of the Plan), then the shares subject to the portion
of each option not so exercised shall be available for subsequent option grant
under the Plan. In addition, any unvested shares issued under the Plan and
subsequently repurchased by the Company at the original exercise price per share
pursuant to the Company's repurchase rights under the Plan shall be added back
to the number of shares of Common Stock reserved for issuance under the Plan
and shall accordingly be available for reissuance through one or more subsequent
option grants under the Plan. However, shares subject to any option or portion
thereof surrendered or cancelled in accordance with Section V of Article Two or
Section III of Article Three shall reduce on a share-for-share basis the number
of shares of Common Stock available for subsequent option grants under the Plan.
In addition, should the exercise price of an outstanding option under the Plan
(including any option incorporated from the 1990 Plan) be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Company in satisfaction of the withholding taxes incurred in
connection with the exercise of an outstanding option under the Plan, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is exercised, and not
by the net number of shares of Common Stock actually issued to the option
holder.
D. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange
4
of shares or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration, then appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the maximum number and/or class of securities for which any
one individual participating in the Plan may be granted stock options and
separately exercisable stock appreciation rights after December 31, 1993, (iii)
the number and/or class of securities for which automatic option grants are to
be subsequently made to each newly-elected or continuing Board member under the
Automatic Option Grant Program, (iv) the number and/or class of securities and
price per share in effect under each option outstanding under either the
Discretionary Option Grant or Automatic Option Grant Program under the Plan and
(v) the number and/or class of securities and price per share in effect under
each outstanding option incorporated into this Plan from the 1990 Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
5
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program
shall be authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Company or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. Option Price.
(1) The option price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The option price per share of the Common Stock
subject to an Incentive Option shall in no event be less than
one hundred percent (100%) of the fair market value of such
Common Stock on the grant date.
(ii) The option price per share of the Common Stock
subject to a non-statutory stock option shall be determined by
the Plan Administrator in its sole discretion and may be less
than, equal to or greater than the fair market value of such
Common Stock on the grant date.
(2) The option price shall become immediately due upon
exercise of the option and, subject to the provisions of Section VI of this
Article Two and the instrument evidencing the grant, shall be payable in one of
the following alternative forms specified below:
- full payment in cash or check drawn to
the Company's order;
- full payment in shares of Common Stock
held by the optionee for the requisite period necessary to
avoid a charge to the Company's earnings for financial
reporting purposes and valued at fair market value on the
Exercise Date (as such term is defined below);
- full payment in a combination of shares
of Common Stock of the Company held by the optionee for the
requisite period necessary to avoid a charge to the Company's
earnings for financial reporting purposes and
6
valued at fair market value on the Exercise Date and cash or
check drawn to the Company's order; or
- full payment through a broker-dealer sale
and remittance procedure pursuant to which the optionee
(I) shall provide irrevocable instructions to a Company-
designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to
cover the aggregate option price payable for the purchased
shares plus all applicable Federal and State income and
employment taxes required to be withheld by the Company in
connection with such purchase and (II) shall provide
directives to the Company to deliver the certificates for the
purchased shares directly to such brokerage firm in order to
complete the sale transaction.
For purposes of this subparagraph (2), the Exercise Date shall be
the date on which written notice of the option exercise is delivered to the
Company. Except to the extent the sale and remittance procedure is utilized in
connection with the exercise of the option, payment of the option price for the
purchased shares must accompany such notice.
(3) The fair market value per share of Common Stock shall be
determined in accordance with the following provisions:
- If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded on the Nasdaq
National Market, the fair market value shall be the closing selling price
per share on the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq National Market
or any successor system. If there is no reported closing selling price for
the Common Stock on the date in question, then the closing selling price
on the last preceding date for which such quotation exists shall be
determinative of fair market value.
- If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the fair market value shall
be the closing selling price per share on the date in question on the
exchange determined by the Plan Administrator to be the primary market for
the Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no reported sale of Common
Stock on such exchange on the date in question, then the fair market value
shall be the closing selling price on the exchange on the last preceding
date for which such quotation exists.
B. Term and Exercise of Options. Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years from the grant date.
7
C. Limited Transferability of Options. During the lifetime of the
optionee, Incentive Options shall be exercisable only by the optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the optionee's death. However, non-statutory options
may, in connection with the optionee's estate plan, be assigned in whole or in
part during the optionee's lifetime to one or more members of the optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
D. Termination of Service.
(1) The following provisions shall govern the exercise period
applicable to any outstanding options held by the optionee at the time of
cessation of Service or death.
- Should an optionee cease Service for any reason
(including death or permanent disability as defined in Section
22(e)(3) of the Internal Revenue Code) while holding one or
more outstanding options under this Article Two, then none of
those options shall (except to the extent otherwise provided
pursuant to subparagraph D.(3) below) remain exercisable
for more than a thirty-six (36)-month period (or such shorter
period determined by the Plan Administrator and set forth
in the instrument evidencing the grant) measured from the date
of such cessation of Service.
- Any option held by the optionee under this
Article Two and exercisable in whole or in part on the date
of his/her death may be subsequently exercised by the personal
representative of the optionee's estate or by the person or
persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of descent and
distribution. Any exercise, however, must occur prior to the
earlier of (i) the third anniversary of the date of the
optionee's death or (ii) the specified expiration date of the
option term. Upon the occurrence of the earlier event, the
option shall terminate and cease to be outstanding.
- Under no circumstances, however, shall any such
option be exercisable after the specified expiration date of
the option term.
- During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for
more than the number of shares (if any) in which the optionee
is vested at the time of his/her cessation of Service. Upon
the expiration of the limited post-Service exercise period or
(if earlier) upon the specified expiration date of the option
term, each such option shall terminate and cease to be
outstanding with respect to any vested shares for which the
option has
8
not otherwise been exercised. However, each outstanding option
shall immediately terminate and cease to be outstanding, at
the time of the optionee's cessation of Service, with respect
to any shares for which the option is not otherwise at that
time exercisable or in which the optionee is not otherwise
vested.
- Should (i) the optionee's Service be terminated
for misconduct (including, but not limited to, any act of
dishonesty, willful misconduct, fraud or embezzlement) or
(ii) the optionee make any unauthorized use or disclosure
of confidential information or trade secrets of the Company
or its parent or subsidiary corporations, then in any such
event all outstanding options held by the optionee under this
Article Two shall terminate immediately and cease to be
outstanding.
(2) The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the optionee
under this Article Two to be exercised, during the limited post-Service exercise
period applicable under subparagraph (1) above, not only with respect to the
number of vested shares of Common Stock for which each such option is
exercisable at the time of the optionee's cessation of Service but also with
respect to one or more subsequent installments in which the optionee would
otherwise have vested had he/she continued in Service.
(3) The Plan Administrator shall also have full power and
authority to extend the period of time for which the option is to remain
exercisable following the optionee's cessation of Service or death from the
limited period in effect under subparagraph (1) above to such greater period
of time as the Plan Administrator shall deem appropriate. In no event, however,
shall such option be exercisable after the specified expiration date of the
option term.
(4) For purposes of the foregoing provisions of this Section
I.D (and for all other purposes under the Discretionary Option Grant Program):
- The optionee shall (except to the extent otherwise
specifically provided in the applicable stock option or stock purchase
agreement) be deemed to remain in the Service of the Company for so long
as such individual renders services on a periodic basis to the Company (or
any parent or subsidiary corporation) in the capacity of an Employee, a
non-employee member of the Board or an independent consultant or advisor.
- The optionee shall be considered to be an Employee for so
long as he or she remains in the employ of the Company or one or more
parent or subsidiary corporations, subject to the control and direction of
the employer entity not only as to the work to be performed but also as to
the manner and method of performance.
9
E. Stockholder Rights.
An optionee shall have no stockholder rights with respect to
any shares covered by the option until such individual shall have exercised the
option and paid the option price for the purchased shares.
F. Repurchase Rights.
The shares of Common Stock acquired upon the exercise of any Article
Two option grant may be subject to repurchase by the Company in accordance with
the following provisions:
(a) The Plan Administrator shall have the discretion
to authorize the issuance of unvested shares of Common Stock
under this Article Two. Should the optionee cease Service while
holding such unvested shares, the Company shall have the right
to repurchase any or all of those unvested shares at the option
price paid per share. The terms and conditions upon which
such repurchase right shall be exercisable (including the
period and procedure for exercise and the appropriate vesting
schedule for the purchased shares) shall be established by the
Plan Administrator and set forth in the instrument evidencing
such repurchase right.
(b) All of the Company's outstanding repurchase
rights under this Article Two shall automatically terminate, and
all shares subject to such terminated rights shall immediately
vest in full, upon the occurrence of any Corporate Transaction
under Section III of this Article Two, except to the extent:
(i) any such repurchase right is expressly assigned to the
successor corporation (or parent thereof) in connection with the
Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator
at the time the repurchase right is issued.
(c) The Plan Administrator shall have the
discretionary authority, exercisable either before or after the
optionee's cessation of Service, to cancel the Company's
outstanding repurchase rights with respect to one or more shares
purchased or purchasable by the optionee under this
Discretionary Option Grant Program and thereby accelerate the
vesting of such shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees of the Company. Options which are
specifically designated as "non-statutory" options when issued under the Plan
shall not be subject to such terms and conditions.
10
A. Dollar Limitation. The aggregate fair market value (determined as
of the respective date or dates of grant) of the Common Stock for which one or
more options granted to any Employee after December 31, 1986 under this Plan (or
any other option plan of the Company or its parent or subsidiary corporations)
may for the first time become exercisable as incentive stock options under the
Federal tax laws during any one calendar year shall not exceed the sum of One
Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or
more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted. Should the number of shares of
Common Stock for which any Incentive Option first becomes exercisable in any
calendar year exceed the applicable One Hundred Thousand Dollar ($100,000)
limitation, then that option may nevertheless be exercised in that calendar year
for the excess number of shares as a non-statutory option under the Federal tax
laws.
B. 10% Stockholder. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Company or any one of its
parent or subsidiary corporations, then the option price per share shall not be
less than one hundred and ten percent (110%) of the fair market value per share
of Common Stock on the grant date, and the option term shall not exceed five (5)
years, measured from the grant date.
Except as modified by the preceding provisions of this Section II,
the provisions of Articles One, Two and Four of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any of the following stockholder-approved
transactions (a "Corporate Transaction") to which the Company is a party:
(i) a merger or consolidation in which the
Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the State of the
Company's incorporation,
(ii) the sale, transfer or other disposition
of all or substantially all of the assets of the Company in
complete liquidation or dissolution of the Company, or
(iii) any reverse merger in which the Company
is the surviving entity but in which securities possessing more
than fifty percent (50%) of the total combined voting power
of the Company's outstanding securities are transferred to person
or persons different from those who held such securities
immediately prior to such merger,
11
then each option which is at the time outstanding under this Article
Two shall automatically accelerate so that each such option shall, immediately
prior to the specified effective date for the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for all or any portion of
such shares. However, an outstanding option under this Article Two shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation or parent thereof, (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the option spread existing at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such option, or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
C. Each outstanding option under this Article Two which is assumed
in connection with the Corporate Transaction or is otherwise to continue in
effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issued to the option holder, in consummation of such Corporate
Transaction, had such person exercised the option immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to the option
price payable per share, provided the aggregate option price payable for such
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan on both an aggregate and per
participant basis following the consummation of the Corporate Transaction shall
be appropriately adjusted.
D. The grant of options under this Article Two shall in no way
affect the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
E. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option is outstanding, to provide for the automatic acceleration of one or more
outstanding options under this Article Two (and the termination of one or more
of the Company's outstanding repurchase rights under this Article Two) upon the
occurrence of the Change in Control. The Plan Administrator shall also have full
power and authority to condition any such option acceleration (and the
termination of any outstanding
12
repurchase rights) upon the subsequent termination of the optionee's Service
within a specified period following the Change in Control.
F. For purposes of this Section III, a Change in Control shall be
deemed to occur in the event:
(i) any person or related group of persons (other
than the Company or a person that directly or indirectly controls,
is controlled by, or is under common control with, the Company)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power
of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders; or
(ii) there is a change in the composition of the
Board over a period of twenty-four (24) consecutive months or
less such that a majority of the Board members ceases, by
reason of one or more proxy contests for the election of Board
members, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
G. Any options accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term.
H. The exercisability as incentive stock options under the Federal
tax laws of any options accelerated under this Section III in connection with a
Corporate Transaction or Change in Control shall remain subject to the dollar
limitation of Section II of this Article Two.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the 1990 Plan incorporated into this Plan) and to
grant in substitution new options under the Plan covering the same or different
numbers of shares of Common Stock but with an option price per share based on
the fair market value of the Common Stock on the date of the new grant.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more optionees may be
13
granted the right, exercisable upon such terms and conditions as the Plan
Administrator may establish, to surrender all or part of an unexercised option
under this Article Two in exchange for a distribution from the Company in an
amount equal to the excess of (i) the fair market value (on the option surrender
date) of the number of shares in which the optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (ii) the aggregate
option price payable for such vested shares.
B. No surrender of an option shall be effective hereunder unless it
is approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at fair market value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the optionee shall retain whatever rights the optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
D. One or more officers of the Company subject to the short-swing
profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under the Plan. Upon the occurrence of a
Hostile Take-Over effected at any time when the Company's outstanding Common
Stock is registered under Section 12(g) of the 1934 Act, each outstanding option
with such a limited stock appreciation right shall automatically be cancelled,
to the extent such option is at the time exercisable for fully-vested shares of
Common Stock. The optionee shall in return be entitled to a cash distribution
from the Company in an amount equal to the excess of (i) the Take-Over Price of
the vested shares of Common Stock at the time subject to the cancelled option
(or cancelled portion of such option) over (ii) the aggregate exercise price
payable for such shares. The cash distribution shall be made within five (5)
days following the consummation of the Hostile Take-Over. The Plan Administrator
shall pre-approve, at the time the limited right is granted, the subsequent
exercise of that right in accordance with the terms of the grant and the
provisions of this Section V.D. No additional approval of the Plan Administrator
or the Board shall be required at the time of the actual option cancellation and
cash distribution. The balance of the option (if any) shall continue to remain
outstanding and become exercisable in accordance with the terms of the
instrument evidencing such grant.
E. For purposes of Section V.D, the following definitions
shall be in effect:
A Hostile Take-Over shall be deemed to occur in the
event any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company)
acquires directly or indirectly beneficial ownership (within
the meaning
14
of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power
of the Company's outstanding securities pursuant to a tender
or exchange offer made directly to the Company's stockholders
which the Board does not recommend such stockholders to accept.
The Take-Over Price per share shall be deemed to be
equal to the greater of (a) the fair market value per share of
Common Stock on the option cancellation date, as determined
pursuant to the valuation provisions of Section I.A.(3) of
this Article Two, or (b) the highest reported price per share
of Common Stock paid in effecting such Hostile Take-Over.
However, if the cancelled option is an Incentive Option, the
Take-Over Price shall not exceed the clause (a) price per share.
F. The shares of Common Stock subject to any option surrendered or
cancelled for an appreciation distribution pursuant to this Section V shall not
be available for subsequent option grant under the Plan.
VI. LOANS OR INSTALLMENT PAYMENTS
The Plan Administrator may, in its discretion, assist any optionee
(including an optionee who is an officer or director of the Company) in the
exercise of one or more options granted to such optionee under this Article Two,
including the satisfaction of any Federal and State income and employment tax
obligations arising therefrom, by (i) authorizing the extension of a loan from
the Company to such optionee or (ii) permitting the optionee to pay the option
price for the purchased Common Stock in installments over a period of years. The
terms of any loan or installment method of payment (including the interest rate
and terms of repayment) will be upon such terms as the Plan Administrator
specifies in the applicable option agreement or otherwise deems appropriate
under the circumstances. Loans and installment payments may be granted with or
without security or collateral. However, the maximum credit available to the
optionee shall not exceed the sum of (i) the aggregate option price of the
purchased shares plus (ii) any Federal and State income and employment tax
liability incurred by the optionee in connection with the exercise of the
option.
15
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
The individuals eligible to receive automatic option grants pursuant
to the provisions of this Article Three program shall be limited to (i) those
individuals who are first elected or appointed as non-employee Board members on
or after the Effective Date of this Plan, whether through appointment by the
Board or election by the Company's stockholders, provided they have not
otherwise been in the prior employ of the Company (or any parent or subsidiary
corporation), and (ii) those individuals who are re-elected as non-employee
Board members at one or more Annual Stockholder Meetings held after the
Effective Date, whether or not such individuals are otherwise serving as
non-employee Board members on the Effective Date.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants shall be made under this Article Three
on the dates specified below. Stockholder approval of this February 14, 1997
restatement at the 1997 Annual Meeting shall constitute pre-approval of each
option granted under this Article Three on or after the date of that Annual
Meeting and the subsequent exercise of each such option in accordance with the
provisions of this Article Three.
(i) Each individual who first becomes a non-employee
Board member on or after the Effective Date of this Plan, whether
through election by the Company's stockholders or appointment by
the Board shall automatically be granted, at the time of such
initial election or appointment, a non-statutory stock option to
purchase 20,000 shares of Common Stock upon the terms and
conditions of this Article Three, provided such individual has not
otherwise been in the prior employ of the Company or any parent or
subsidiary corporation.
(ii) On the date of each Annual Stockholders Meeting
held after February 24, 1995, each individual who is to continue to
serve as a non-employee Board member and who has served in
such capacity for at least six (6) months shall automatically
be granted, whether or not such individual is standing for
re-election as a Board member at that Annual Meeting, a
non-statutory stock option to purchase, upon the terms and
conditions of this Article Three, that number of shares of Common
Stock determined by dividing $50,000 by the average closing
selling price per share of the Common Stock for the thirty (30)
trading days immediately preceding the date of such Annual Meeting.
In no event, however, shall the number of shares subject to such
option be greater than 7,500 or less than 5,000. There shall be no
limit on the number of such annual automatic option grants any one
non-employee Board member may receive over his/her continued period
of Board service.
16
The number of shares subject to the automatic option grants to be
made to each newly-elected or continuing non-employee Board member shall be
subject to periodic adjustment pursuant to the applicable provisions of Section
V.D of Article One.
B. Exercise Price. The exercise price per share of each
automatic option grant made under this Article Three shall be equal to one
hundred percent (100%) of the fair market value per share of Common Stock on
the automatic grant date.
C. Payment.
The exercise price shall be payable in one of the alternative
forms specified below:
(i) full payment in cash or check made payable
to the Company's order; or
(ii) full payment in shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Company's reported earnings and valued at fair market value on
the Exercise Date (as such term is defined below); or
(iii) full payment in a combination of shares of
Common Stock held for the requisite period necessary to avoid a
charge to the Company's reported earnings and valued at fair
market value o n the Exercise D ate and cash or check payable to
the Company's order; or
(iv) full payment through a sale and remittance
procedure pursuant to which the non-employee Board member (I)
shall provide irrevocable instructions to a Company-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares and
shall (II) concurrently provide directives to the Company to
deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale transaction.
For purposes of this subparagraph C, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the Company,
and the fair market value per share of Common Stock on any relevant date shall
be determined in accordance with the provisions of Section I.A.(3) of Article
Two. Except to the extent the sale and remittance procedure specified above is
utilized for the exercise of the option, payment of the option price for the
purchased shares must accompany the exercise notice.
D. Option Term. Each automatic grant under this Article Three
shall have a maximum term of ten (10) years measured from the automatic grant
date.
17
E. Exercisability. Each automatic grant shall become exercisable
for the option shares in a series of twenty-four (24) equal and successive
monthly installments over the optionee's period of service on the Board, with
the first such installment to become exercisable one (1) month after the
automatic grant date. The option shall not become exercisable for any additional
option shares following the optionee's cessation of Board service for any
reason.
F. Limited Transferability of Options. Options granted under the
Automatic Option Grant Program may, in connection with the optionee's estate
plan, be assigned in whole or in part during the optionee's lifetime to one or
more members of the optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
G. Effect of Termination of Board Membership.
1. Should the optionee cease to serve as a Board member for
any reason (other than death) while holding one or more automatic option grants
under this Article Three, then such optionee shall have a six (6)-month period
following the date of such cessation of Board membership in which to exercise
each such option for any or all of the shares of Common Stock for which the
option is exercisable at the time of such cessation of Board service. Each such
option shall immediately terminate and cease to be outstanding, at the time of
such cessation of Board service, with respect to any shares for which the option
is not otherwise at that time exercisable.
2. Should the optionee die while serving as a member of the
Board or within six (6) months after cessation of Board service, then each
outstanding automatic option grant held by the optionee at the time of death may
subsequently be exercised, for any or all of the shares of Common Stock for
which the option is exercisable at the time of the optionee's cessation of Board
service (less any option shares subsequently purchased by the optionee prior to
death), by the personal representative of the optionee's estate or by the person
or persons to whom the option is transferred pursuant to the optionee's will or
in accordance with the laws of descent and distribution. Any such exercise must
occur within twelve (12) months after the date of the optionee's death. However,
each such automatic option grant shall immediately terminate and cease to be
outstanding, at the time of the optionee's cessation of Board service, with
respect to any option shares for which it was not otherwise exercisable at that
time.
3. In no event shall any automatic option grant under this
Article Three remain exercisable after the specified expiration date of the ten
(10)-year option term. Upon the expiration of the applicable post-service
exercise under subparagraph 1 or 2 above or (if earlier) upon the expiration of
the ten (10)-year option term, the automatic option grant shall terminate and
cease to be outstanding for any unexercised shares for which the option was
exercisable at the time of the optionee's cessation of Board service.
18
H. Stockholder Rights. The holder of an automatic option grant
under this Article Three shall have none of the rights of a stockholder with
respect to any shares subject to such option until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
I. Remaining Terms. The remaining terms and conditions of
each automatic option grant shall be as set forth in the prototype
Non-statutory Stock Option Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any of the following stockholder-approved
transactions to which the Company is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the
Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the State of the
Company's incorporation,
(ii) the sale, transfer or disposition of all
or substantially all of the assets of the Company in liquidation
or dissolution of the Company, or
(iii) any reverse merger in which the Company
is the surviving entity but in which securities possessing more
than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities are transferred to person or
persons different from those who held such securities immediately
prior to such merger,
the exercisability of each automatic option grant at the time
outstanding under this Article Three shall automatically accelerate so that each
such option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable with respect to the total number
of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. Immediately following the
consummation of the Corporate Transaction, all automatic option grants under
this Article Three shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation or its parent company.
B. In connection with any Change in Control of the Company, the
exercisability of each automatic option grant at the time outstanding under this
Article Three shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Change in Control,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of
19
such shares at any time prior to the expiration or sooner termination of the
option term. For purposes of this Article Three, a Change in Control shall
be deemed to occur in the event:
(i) any person or related group of persons
(other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the
Company) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 of the Securities Exchange Act
of 1934, as amended) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer
made directly to the Company's stockholders; or
(ii) there is a change in the composition of
the Board over a period of twenty-four (24) consecutive months
or less such that a majority of the Board members ceases, by
reason of one or more proxy contests for the election of Board
members, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
C. Upon the occurrence of a Hostile Take-Over, each option
granted under this Article Three shall automatically be cancelled, and the
optionee shall in return be entitled to a cash distribution from the Company in
an amount equal to the excess of (i) the Take-Over Price of the shares of Common
Stock at the time subject to the cancelled option (whether or not the option is
otherwise at the time exercisable for such shares over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the consummation of the Hostile Take-Over.
Stockholder approval of the February 14, 1997 restatement of the Plan at the
1997 Annual Meeting shall constitute pre-approval of each option granted on
or after the date of that Annual Meeting with such an automatic cancellation
provision and the subsequent cancellation of that option in accordance with
such provision. No additional approval of the Plan Administrator or the Board
shall be required at the time of the actual option cancellation and cash
distribution.
D. For purposes of this Section III, the following definitions
shall be in effect:
A Hostile Take-Over shall be deemed to occur in the event any
person or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Company) directly or indirectly acquires beneficial ownership (within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept.
20
The Take-Over Price per share shall be deemed to be equal to
the greater of (a) the fair market value per share of Common Stock on the option
cancellation date, as determined pursuant to the valuation provisions of Section
I.A.(3) of Article Two, or (b) the highest reported price per share paid by the
tender offeror in effecting such Hostile Take-Over.
E. The shares of Common Stock subject to each option cancelled in
connection with the Hostile Take-Over shall not be available for subsequent
option grant under this Plan.
F. The automatic option grants outstanding under this Article
Three shall in no way affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
21
ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF THE PLAN AND AWARDS
The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall, without the consent of the
Company's stockholders, adversely affect rights and obligations with respect to
options at the time outstanding under the Plan. In addition, certain amendments
may require stockholder approval pursuant to applicable laws or regulations.
II. TAX WITHHOLDING
The Company's obligation to deliver shares or cash upon the exercise
of stock options or stock appreciation rights granted under the Plan shall be
subject to the satisfaction of all applicable Federal, State and local income
tax and employment tax withholding requirements.
The Plan Administrator may, in its discretion and in accordance with
the provisions of this Section II of Article Four and such supplemental rules as
the Plan Administrator may from time to time adopt (including the applicable
safe-harbor provisions of SEC Rule 16b-3), provide any or all holders of
non-statutory options under the Plan (other than the automatic grants made
pursuant to Article Three of the Plan) with the right to use shares of the
Company's Common Stock in satisfaction of all or part of the Federal, State and
local income tax and employment tax liabilities incurred by such holders in
connection with the exercise of their options (the "Taxes"). Such right may be
provided to any such option holder in either or both of the following formats:
1. Stock Withholding: The holder of the non-statutory
option may be provided with the election to have the Company
withhold, from the shares of Common Stock otherwise issuable
upon the exercise of such non-statutory option, a portion of
such shares with an aggregate fair market value equal to the
percentage of the applicable Taxes (not to exceed one hundred
percent (100%)) designated by the option holder.
2. Stock Delivery: The Plan Administrator may, in its
discretion, provide the holder of the non-statutory option with
the election to deliver, at the time the non-statutory option
is exercised, one or more shares of Common Stock already held by
such individual with an aggregate fair market value equal to the
percentage of the Taxes incurred in connection with such option
exercise (not to exceed one hundred percent (100%)) designated
by the option holder.
22
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan first became effective on the Effective Date and
serves as the successor to the Company's 1990 Stock Option Plan. No further
option grants shall be made under the 1990 Plan from and after the Effective
Date.
B. On May 26, 1993, the Board amended the Plan to increase the
number of shares issuable thereunder by 1,000,000 shares. The 1,000,000-share
increase was approved by the Company's stockholders at the 1994 Annual
Stockholders Meeting. On March 28, 1994, the Board further amended the Plan to
impose a limitation on the maximum number of shares for which any one individual
participating in the Plan may be granted stock options and separately
exercisable stock appreciation rights.
C. On February 24, 1995, the Board amended the Plan to increase
the number of shares of Common Stock issuable thereunder by 545,000 shares.
The 545,000-share increase was approved by the Company's stockholders at the
1995 Annual Stockholders Meeting.
D. On February 24, 1995, the Board further amended the Plan to
increase the number of shares of Common Stock for which automatic option grants
are to be made to continuing non-employee Board members on the date of each
Annual Stockholders Meeting held after February 24, 1995. The amendment was
approved by the Company's stockholders at the 1995 Annual Stockholders Meeting.
E. On August 21, 1995, the Board amended the Plan to extend the
eligibility provisions of the Discretionary Option Grant Program to all
non-employee Board members other than those at the time serving on the Committee
acting as the Plan Administrator. The amendment was approved by the Company's
stockholders at the 1996 Annual Stockholders Meeting.
F. In January 1996, the Board adopted an amendment to the Plan
which (i) increased the number of shares of Common Stock available for issuance
under the Plan by an additional 450,000 shares and (ii) increased the maximum
number of shares for which any one individual may be granted stock options
and separately exercisable stock appreciation rights over the remaining term of
the Plan by an additional 250,000 shares of Common Stock. The amendment was
approved by the Company's stockholders at the 1996 Annual Stockholders Meeting.
G. In February 1997, the Board adopted a series of amendments to
the Plan (the "1997 Amendments") which (i) increased the number of shares of
Common Stock available for issuance under the Plan by an additional 700,000
shares,(ii) increased the limit on the maximum number of shares of the Company's
common stock for which any one individual may be granted stock options and
separately exercisable stock appreciation rights under the Plan from 500,000
shares to 750,000 shares, (iii) rendered the non-employee Board members who
serve as Plan Administrator eligible to receive option grants under the
Discretionary Option Grant Program, (iv) allowed unvested shares issued
under the Plan and subsequently repurchased by the Company at
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the option exercise price paid per share to be reissued under the Plan,
(v)removed certain restrictions on the eligibility of non-employee Board members
to serve as Plan Administrator, and (vi) effected a series of additional
changes to the provisions of the Plan (including the stockholder approval
requirements, the transferability of non-statutory stock options and the
elimination of the six (6)-month holding period requirement as a condition
to the exercise of stock appreciation rights) in order to take advantage of
the recent amendments to Rule 16b-3 of the Securities and Exchange Commission
which exempts certain officer and director transactions under the Plan from the
short-swing liability provisions of the federal securities laws. The 1997
Amendments were approved by the stockholders at the 1997 Annual Stockholders
Meeting.
H. On January 29, 1998, the Board adopted an amendment to the
Plan which increased the number of shares of Common Stock available for
issuance under the Plan by an additional 500,000 shares. The amendment is
subject to stockholder approval at the 1998 Annual Stockholders Meeting.
If such stockholder approval is not obtained, then any options granted on the
basis of the 500,000-share increase will terminate without becoming exercisable
for any of the shares of Common Stock subject to those options, and no further
option grants or stock issuances will be made on the basis of such share
increase. However, the Plan will continue to remain in effect, and option
grants may continue to be made pursuant to the provisions of the Plan in
effect prior to this amendment, until the available reserve of Common Stock as
last approved by the stockholders has been issued.
I. Each option issued and outstanding under the 1990 Plan
immediately prior to the Effective Date shall be incorporated into this Plan and
treated as an outstanding option under this Plan, but each such option shall
continue to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder.
J. The sale and remittance procedure authorized for the
exercise of outstanding options under this Plan shall be available for all
options granted under this Plan on or after the Effective Date and for all
non-statutory options outstanding under the 1990 Plan and incorporated into
this Plan. The Plan Administrator may also allow such procedure to be utilized
in connection with one or more disqualifying dispositions of Incentive Option
shares effected after the Effective Date, whether such Incentive Options were
granted under this Plan or the 1990 Plan.
K. The option acceleration provisions of Section III of Article
Two relating to Corporate Transactions and Changes in Control may, in the
Plan Administrator's discretion, be extended to one or more stock options which
are outstanding under the 1990 Plan on the Effective Date of this Plan but which
do not otherwise provide for such acceleration.
L. The Plan shall terminate upon the earlier of (i) December
31, 2002 or (ii) the date on which all shares available for issuance under the
Plan shall have been issued or cancelled pursuant to the exercise, surrender
or cash-out of the options granted under the Plan. If the date of termination
is determined under clause (i) above, then all option grants outstanding on such
date
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shall thereafter continue to have force and effect in accordance with the
provisions of the instruments evidencing such grants.
M. Options to purchase shares of Common Stock may be granted
under the Plan which are in excess of the number of shares then available for
issuance under the Plan, provided each option granted is not to become
exercisable, in whole or in part, at any time prior to stockholder approval
of an amendment authorizing a sufficient increase in the number of shares
available for issuance under the Plan.
IV. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
V. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
thereunder and the issuance of stock upon the exercise or surrender of the
option grants made hereunder shall be subject to the Company's procurement of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the stock issued pursuant to
it.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Company in establishing the Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of the Plan
shall be construed so as to grant any individual the right to remain in the
employ or service of the Company (or any parent or subsidiary corporation) for
any period of specific duration, and the Company (or any parent or subsidiary
corporation retaining the services of such individual) may terminate such
individual's employment or service at any time and for any reason, with or
without cause.
VIII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any optionee.
B. The provisions of the Plan relating to the vesting and
termination of outstanding options shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State.
C. The provisions of the Plan shall inure to the benefit of, and
be binding upon, the Company and its successors or assigns, whether by Corporate
Transaction or otherwise, and the optionees, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
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