SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / 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 Section240.14a-12
ARENA 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)
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and 0-11.
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[ARENA PHARMACEUTICALS INC. LOGO]
ARENA PHARMACEUTICALS, INC.
Jack Lief
President, Chief Executive Officer 6166 Nancy Ridge Drive
and Director San Diego, CA 92121
Dear Arena Stockholder:
You are cordially invited to attend the 2001 Annual Meeting of the
Stockholders of Arena Pharmaceuticals, Inc. The Annual Meeting will be held on
Tuesday, May 8, 2001, at 10:00 am, San Diego local time, at the offices of Arena
located at 6166 Nancy Ridge Drive, San Diego, California 92121. I look forward
to meeting with as many of our stockholders as possible.
At the Annual Meeting, we will elect six directors and act upon the
selection of independent auditors and a proposal to approve the 2001 Arena
Employee Stock Purchase Plan. There will also be a report on the Company's
business, and you will have an opportunity to ask questions about your Company.
Whether or not you attend the Annual Meeting for your Company, it is
important that your shares be represented and voted at the meeting. Therefore, I
urge you to sign, date, and promptly return the enclosed Proxy either in the
enclosed envelope (no postage is required if mailed in the United States) or by
fax to (303) 986-2444, Attention Proxy Department. By returning the Proxy you
can help your Company avoid the expense of duplicating proxy solicitations and
possibly having to reschedule the Annual Meeting if a quorum is not present or
represented by proxy. If you decide to attend the Annual Meeting and wish to
change your proxy vote, you may do so simply by voting in person at the Annual
Meeting.
If you would like directions to the Company, please visit our web site at
www.arenapharm.com under Corporate Info, where you will find a "Directions"
section that has an easy to use map locator program.
On behalf of the employees of your Company and the Board of Directors, I
would like to express our appreciation for your continued interest in the
affairs of the Company.
Sincerely,
/s/ Jack Lief
Jack Lief
President, Chief Executive Officer and
Director
For further information about the Annual Meeting, please call (858) 453-7200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 8, 2001
ARENA PHARMACEUTICALS, INC.
6166 NANCY RIDGE DRIVE
SAN DIEGO, CALIFORNIA 92121
To the Stockholders of Arena Pharmaceuticals, Inc.:
The Annual Meeting of Stockholders of Arena Pharmaceuticals, Inc., a
Delaware corporation (the "Company") will be held on Tuesday, May 8, 2001 at
10:00 a.m. San Diego local time, at the Company's offices, located at 6166 Nancy
Ridge Drive, San Diego, California 92121, for the following purposes:
1. To elect directors to the Board of Directors to serve for the ensuing
year and until their successors are elected and qualified.
2. To ratify the Company's selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2001.
3. To vote on a proposal to approve the 2001 Arena Employee Stock Purchase
Plan with 1,000,000 shares of common stock available for grant
thereunder.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this notice.
Only stockholders of record at the close of business on March 15, 2001 are
entitled to notice of and to vote at the Annual Meeting and at any adjournment
or postponement thereof.
Whether or not you expect to attend in person, we urge you to sign, date,
and return the enclosed Proxy at your earliest convenience. This will ensure the
presence of a quorum at the meeting. PROMPTLY SIGNING, DATING, AND RETURNING THE
PROXY WILL SAVE YOUR COMPANY THE EXPENSE AND EXTRA WORK OF ADDITIONAL
SOLICITATION. An addressed envelope for which no postage is required if mailed
in the United States is enclosed for that purpose. You also may return the Proxy
by fax to (303) 986-2444, Attention Proxy Department. Sending in your Proxy will
not prevent you from voting your stock at the meeting if you desire to do so, as
your Proxy may be cancelled at your option.
By Order of the Board of Directors
/s/ Richard P. Burgoon, Jr.
Richard P. Burgoon, Jr.
Senior Vice President, Operations
General Counsel & Secretary
TABLE OF CONTENTS TO PROXY STATEMENT
Information Concerning Solicitation and Voting.............. 1
General................................................... 1
Record Date, Outstanding Shares and Voting................ 1
Revocability of Proxies................................... 2
Cost of Solicitation...................................... 2
Proposal 1--Election of Directors........................... 2
Nominees.................................................. 3
Business Experience of Directors.......................... 3
Committees of the Board of Directors...................... 4
Attendance at Meetings of the Board of Directors and
Committees Thereof...................................... 4
Proposal 2--Ratification of Independent Auditors............ 4
Proposal 3--Approval of the 2001 Arena Employee Stock
Purchase Plan............................................. 5
Participation in the Employee Plan........................ 5
Description of the Employee Plan.......................... 5
Federal Tax Information for the Employee Plan............. 7
Compensation and Other Information Concerning Officers,
Directors and Certain Stockholders........................ 9
Executive Officers........................................ 9
Director Compensation..................................... 10
Executive Compensation.................................... 10
Option/SAR Grants in Last Fiscal Year..................... 12
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year End Option/SAR Values....................... 13
Employment Agreements..................................... 13
Compensation Committee Report on Executive Compensation... 13
Performance Graph......................................... 15
Security Ownership of Certain Beneficial Owners and
Management.............................................. 17
Section 16(a) Beneficial Ownership Reporting Compliance... 18
Compensation Committee Interlocks and Insider
Participation........................................... 19
Certain Relationships and Related Transactions............ 19
Audit Committee Report...................................... 20
Audit Fees.................................................. 21
Financial Information Systems Design and Implementation
Fees...................................................... 21
All Other Fees.............................................. 21
Stockholder Proposals for the 2002 Annual Meeting........... 21
Annual Report............................................... 21
Annual Report on Form 10-K.................................. 21
Other Matters............................................... 22
Exhibit A--Charter of the Audit Committee of the Board of
Directors................................................. A-1
Exhibit B--2001 Arena Employee Stock Purchase Plan.......... B-1
ARENA PHARMACEUTICALS, INC.
6166 NANCY RIDGE DRIVE
SAN DIEGO, CA 92121
PROXY STATEMENT FOR ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD MAY 8, 2001 AT 10:00 AM SAN DIEGO LOCAL TIME
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of Arena
Pharmaceuticals, Inc., a Delaware Corporation (the "Company"), for use at the
2001 Annual Meeting of Stockholders to be held on Tuesday, May 8, 2001, at 10:00
am, San Diego local time, or at any adjournments or postponements thereof, for
the purposes set forth in this Proxy Statement and the accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at the Company's
offices, located at 6166 Nancy Ridge Drive, San Diego, California 92121.
This Proxy Statement, together with the Notice of Annual Meeting of
Stockholders, the form of Proxy and the Company's Annual Report to Stockholders,
are being mailed on or about March 29, 2001 to all stockholders of record at the
close of business on March 15, 2001 (the "Record Date").
RECORD DATE, OUTSTANDING SHARES AND VOTING
Only stockholders of record at the close of business on the Record Date will
be entitled to vote at the Annual Meeting and any adjournment or postponement
thereof. At the close of business on the Record Date, 22,696,913 shares of the
Company's common stock were outstanding.
Each holder of record of common stock on such date will be entitled to one
vote, for each share held, on all matters to be voted on at the Annual Meeting.
Cumulative voting is not permitted with respect to any proposal to be acted upon
at the Annual Meeting. Stockholders may vote in person or by proxy.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. The presence, in person or by proxy, of the
holders of a majority of outstanding shares of common stock entitled to vote at
the Annual Meeting is necessary to constitute a quorum.
Votes withheld from any nominee for election as director, abstentions and
broker "non-votes" will be counted as present for purposes of determining the
presence or absence of a quorum for the transaction of business. A "non-vote"
occurs when a nominee holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because, in respect of such
other proposal, the nominee does not have discretionary voting power and has not
received instructions from the beneficial owner.
Abstentions will be included in the number of shares present and voting on
each matter but will have the effect of a negative vote. Non-votes will not be
included in the number of shares present and voting on each matter and will have
the effect of reducing the number of affirmative votes required to achieve a
majority for such matter by reducing the total number of votes from which a
majority is calculated.
The election of directors by the stockholders will be determined by a
plurality of votes cast by stockholders entitled to vote, and votes withheld
will not be counted toward the achievement of a plurality. On all other matters
being submitted to the stockholders, the affirmative vote of a majority of the
shares, present in person or represented by proxy at the meeting and entitled to
vote, will be required for approval.
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Any proxy which is returned using the form of Proxy enclosed and is not
marked as to a particular item will be voted for the election of directors named
in the Proxy, for the confirmation of the selection of the designated
independent auditors, for the approval of the 2001 Arena Employee Stock Purchase
Plan with 1,000,000 shares of common stock reserved for issuance thereunder and,
as the proxy holders deem advisable, on other matters that may come before the
meeting, as the case may be. In the event that any nominee for director should
be unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as designated by the
present Board of Directors.
REVOCABILITY OF PROXIES
Any person giving a Proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing, with the
Secretary of the Company at 6166 Nancy Ridge Drive, San Diego, California 92121,
a written notice of revocation or a duly executed proxy bearing a later date, or
by attending the Annual Meeting and voting in person.
COST OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition,
the Company expects to reimburse brokerage firms and other persons representing
beneficial owners of common stock for their expenses in forwarding solicitation
material to such beneficial owners. The original solicitation of proxies by mail
may be supplemented by solicitation by certain of the Company's directors,
officers and regular employees, without additional compensation, in person or by
mail, telephone, facsimile, e-mail or telegram.
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named below are nominees for director to serve until the next
annual meeting of stockholders and until their successors have been elected and
qualified or until their early resignation or removal. The Company's bylaws
provide that the authorized number of directors shall be determined by a
resolution of the Board of Directors. The authorized number of directors is
currently six.
Each nominee listed below is currently a director of the Company. Directors
are elected by a plurality of votes present in person or by proxy and entitled
to vote at the Annual Meeting. Unless otherwise instructed, the proxy holders
will vote the Proxies received by them for the nominees named below. In the
event that any nominee of the Company is unavailable to serve as a director at
the time of the Annual Meeting, the Proxies will be voted for any substitute
nominee who shall be designated by the present Board of Directors. Management
has no reason to believe that any nominee will be unavailable to serve.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NOMINEE NAMED BELOW.
NOMINEES
The following table sets forth information regarding the nominees:
YEAR FIRST ELECTED
NAME POSITIONS AND OFFICES HELD DIRECTOR AGE
- ---- -------------------------- ------------------ --------
Jack Lief(1)...................... President, CEO and Director 1997 55
Dominic P. Behan, Ph.D............ Vice President, Research and Director 2000 37
Derek T. Chalmers, Ph.D........... Vice President, Research and Director 2000 37
John P. McAlister, III, Director
Ph.D.(2)(3)..................... 1997 52
Michael Steinmetz, Director
Ph.D.(1)(2)(3).................. 1999 53
Stefan Ryser, Ph.D.(1)(2)(3)...... Director 1999 41
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Stock Option Committee
BUSINESS EXPERIENCE OF DIRECTORS
Jack Lief is a co-founder of the Company and has served as a director,
President and Chief Executive Officer since April 1997. Mr. Lief is also
currently serving as a director, Chief Executive Officer and President of Aressa
Pharmaceuticals, Inc. and of BRL Screening, Inc., both of which are subsidiaries
of the Company. Mr. Lief also serves as a director of ChemNavigator.com.
ChemNavigator.com is a 34% owned affiliate of the Company. From 1995 until
April 1997, Mr. Lief served as an advisor and consultant to numerous
biopharmaceutical organizations. From 1989 to 1994, he served as Senior Vice
President, Corporate Development and Secretary of Cephalon, Inc. From 1983 to
1989, Mr. Lief served as Director of Business Development and Strategic Planning
for Alpha Therapeutic Corporation. Mr. Lief joined Abbott Laboratories in 1972
where he served until 1983, most recently as the head of International Marketing
Research. Mr. Lief holds a B.A. from Rutgers University and a M.S. in Psychology
(Experimental and Neurobiology) from Lehigh University.
Dominic P. Behan, Ph.D. is a co-founder of the Company and has served as
Vice President, Research since April 1997 and a director since April 2000. From
1993 to January 1997, Dr. Behan directed various research programs at Neurocrine
Biosciences. From 1990 until 1993, he was engaged in research at the Salk
Institute. Dr. Behan holds a Ph.D. in Biochemistry from Reading University,
England.
Derek T. Chalmers, Ph.D. is a co-founder of the Company and has served as
Vice President, Research since April 1997 and as a director since April 2000.
From 1994 to December 1996, Dr. Chalmers directed various research programs at
Neurocrine Biosciences. From 1990 until 1994, he was engaged in research at the
University of Michigan. Dr. Chalmers holds a Ph.D. in Neuroscience and
Neuropharmacology from the University of Glasgow, Scotland.
John P. McAlister, III, Ph.D. has served as a director since July 1997.
Dr. McAlister joined Tripos, Inc., a provider of discovery research software and
services to the life sciences industry, in 1982, and since 1988, has served as
President and Chief Executive Officer of Tripos. Dr. McAlister holds a Ph.D. in
Biochemistry and X-Ray Crystallography from the University of Wisconsin,
Madison. He currently also serves as a director of Tripos.
Michael Steinmetz, Ph.D. has served as a director since May 1999. Since
1997, he has served as General Partner for MPM Capital, a venture capital firm
focusing on investments in the biotechnology industry. Dr. Steinmetz is a
General Partner of the BioVentures funds. From 1991 to 1997, he served as Vice
President Preclinical Research and Development of various divisions of F.
Hoffmann-La Roche Ltd.
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Dr. Steinmetz holds a Ph.D. in Natural Sciences from the University of Munich,
Germany. He currently serves as Chairman at GPC Biotech and Coelacanth
Corporation. Dr. Steinmetz also currently serves as director of Acorda
Therapeutics, Atugen, Caliper Technologies Corp., Epigenomics, IDEA, MacroGenics
and Xcyte.
Stefan Ryser, Ph.D. has served as a director since January 1999. In
April 2000, Dr. Ryser became a Managing Director of Bear Sterns and founding
Managing Partner of Bear Stearns Health Innoventures Management LLC, a company
that manages venture capital investments in the health care industry. Dr. Ryser
also has been a founder as well as a member of the board of International
Biomedicine Management Partners Inc., a Swiss company that manages investments
in the biotechnology industry. Prior to his position with Bear Stearns Health
Innoventures fund, Dr. Ryser served as Chief Executive Officer of International
Biomedicine Management Partners Inc. since January of 1998. From January 1985 to
December 1997, Dr. Ryser held various positions at Hoffman-La Roche Inc., a
pharmaceutical company, in Basel, Switzerland, and in Nutley, New Jersey,
including Head of Global Research Staff and Scientific Assistant to the
President of Global Research and Development. Dr. Ryser holds a Ph.D. in
Molecular Biology from the University of Basel, Switzerland. He currently also
serves as a director of Genaissance Pharmaceuticals, Inc., Telik, Inc., and
Cytokinetics, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company established an Audit Committee, a Compensation Committee and a
Stock Option Committee during 2000. The Company does not have a nominating
committee or a committee that performs the functions of a nominating committee.
The Audit Committee reviews the financial information to be provided to
stockholders, monitors the integrity of the Company's internal controls and
monitors the independence and performance of the Company's independent auditors.
The Audit Committee currently consists of the outside directors, Dr. McAlister,
Dr. Ryser and Dr. Steinmetz. The Audit Committee held one meeting during the
fiscal year ended December 31, 2000.
The Compensation Committee reviews and approves the compensation and
benefits for directors and the executive officers, and makes recommendations to
the Board of Directors regarding these matters. The Compensation Committee
currently consists of Mr. Lief, Dr. Ryser and Dr. Steinmetz. The Compensation
Committee held two meetings during the fiscal year ended December 31, 2000.
The Stock Option Committee authorizes and approves stock option grants under
the Company's 2000 Equity Compensation Plan. The Stock Option Committee
currently consists of the outside directors, Dr. McAlister, Dr. Ryser and
Dr. Steinmetz. The Stock Option Committee held two meetings during the fiscal
year ended December 31, 2000.
ATTENDANCE AT MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES THEREOF
The Board of Directors held a total of four meetings during the fiscal year
ended December 31, 2000. Each incumbent director who served as a director
attended at least 75% of the aggregate of the total number of meetings of the
Board of Directors and the total number of meetings held by all committees of
the Board on which such director served during the periods in which he served.
PROPOSAL 2
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2001. Ernst & Young
LLP has audited the Company's financial
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statements since its inception in 1997. Neither the firm nor any of its members
has any relationship with the Company or any of its affiliates, except in the
firm's capacity as the Company's auditor.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's bylaws or
otherwise. The Board is submitting the selection of Ernst & Young LLP to the
stockholders for ratification as a matter of good corporate practice.
In the event that the stockholders fail to ratify the selection, the Audit
Committee and the Board will reconsider its selection. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the Company's and its
stockholders' best interest.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting, and will have the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of shares represented and
voting at the meeting will be required to ratify the selection of Ernst & Young
LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP TO SERVE AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2001.
PROPOSAL 3
APPROVAL OF THE 2001 ARENA EMPLOYEE
STOCK PURCHASE PLAN
This proposal is to approve a new employee stock purchase plan for the
Company and the reservation of 1,000,000 shares of common stock for issuance
thereunder. On March 15, 2001, the Board of Directors determined that it was in
the Company's best interest and in the best interest of the Company's
stockholders to adopt the 2001 Arena Employee Stock Purchase Plan (the "Employee
Plan") which is described below and attached to this Proxy Statement as
Exhibit B. At this time, the Board of Directors has adopted the Employee Plan
and reserved common stock for issuance thereunder, subject to stockholder
approval, in the amount of 1,000,000 shares.
PARTICIPATION IN THE EMPLOYEE PLAN
Participation in the Employee Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her determination as to
the level of payroll deductions. Accordingly, future purchases under the
Employee Plan are not determinable. Nonemployee directors are not eligible to
participate in the Employee Plan.
The essential terms of the Employee Plan are summarized as follows:
DESCRIPTION OF THE EMPLOYEE PLAN
GENERAL. The purpose of the Employee Plan is to provide employees with an
opportunity to purchase common stock of the Company through accumulated payroll
deductions.
ADMINISTRATION. The Employee Plan may be administered by the Board of
Directors or a committee appointed by the Board of Directors. All questions of
interpretation or application of the Employee Plan are determined by the Board
of Directors or its appointed committee, and its decisions are final, conclusive
and binding upon all participants.
ELIGIBILITY. Each employee of the Company or its subsidiaries (including
officers) whose customary employment with the Company is at least 20 hours per
week is eligible to participate in an Offering Period
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(as defined below); provided, however, that no employee shall be granted an
option under the Employee Plan (i) to the extent that, immediately after the
grant, such employee would own capital stock and/or hold outstanding options to
purchase such stock representing five percent or more of the voting power or
value of the stock of the Company, or (ii) to the extent that his or her rights
to purchase stock under all employee stock purchase plans of the Company accrue
at a rate which exceeds $25,000 worth of stock (determined at the fair market
value of the shares at the time such option is granted) for each calendar year.
Eligible employees become participants in the Employee Plan by filing with the
Company a subscription agreement authorizing payroll deductions prior to the
beginning of each Offering Period unless a later time for filing the
subscription agreement has been set by the Board. As of March 1, 2001,
approximately 122 employees, including ten executive officers, were eligible to
participate in the Employee Plan.
PARTICIPATION IN AN OFFERING. The Employee Plan is implemented by
consecutive overlapping offering periods lasting for 24 months (an "Offering
Period"), with a new Offering Period commencing on the first trading day on or
after January 1, April 1, July 1 and October 1 of each year. Common stock may be
purchased under the Employee Plan every three months (a "Purchase Period"),
unless the participant withdraws or terminates employment earlier. To the extent
the fair market value of the common stock on any exercise date in an Offering
Period is lower than the fair market value of the common stock on the first day
of the Offering Period, then all participants in such Offering Period will be
automatically withdrawn from such Offering Period immediately after the exercise
of their options on such exercise date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof. The Board of
Directors may change the duration of the Purchase Periods or the length or date
of commencement of an Offering Period. To participate in the Employee Plan, each
eligible employee must authorize payroll deductions pursuant to the Employee
Plan. Such payroll deductions may not exceed 15% of a participant's
compensation.
Once an employee becomes a participant in the Employee Plan, the employee
will automatically participate in each successive Offering Period until such
time as the employee withdraws from the Employee Plan or the employee's
employment with the Company terminates. At the beginning of each Offering
Period, each participant is automatically granted an option to purchase shares
of common stock. The option expires at the end of the Offering Period or upon
termination of employment, whichever is earlier, but is exercised at the end of
each Purchase Period to the extent of the payroll deductions accumulated during
such Purchase Period. The number of shares subject to the option may not exceed
625 shares of the common stock in each Purchase Period.
PURCHASE PRICE, SHARES PURCHASED. Shares of common stock may be purchased
under the Employee Plan at a price not less than 85% of the lesser of the fair
market value of the common stock on the (i) the first trading day of each
Offering Period or (ii) the last trading day of each Purchase Period. The "fair
market value" of the common stock on any relevant date will generally be the
closing price per share as quoted on The Nasdaq National Market (or the closing
bid, if no sales were reported) as reported in The Wall Street Journal. The
number of shares of common stock a participant purchases in each Purchase Period
is determined by dividing the total amount of payroll deductions withheld from
the participant's compensation during that Purchase Period by the Purchase
Price. On March 1, 2001, the closing price per share as reported on the Nasdaq
National Market was $23.00.
TERMINATION OF EMPLOYMENT. Termination of a participant's employment for
any reason, including disability or death, or the failure of the participant to
remain in the continuous scheduled employ of the Company for at least 20 hours
per week, cancels his or her option and participation in the Employee Plan
immediately. In such event, the payroll deductions credited to the participant's
account will be returned to him or her or, in the case of death, to the person
or persons entitled thereto as provided in the Employee Plan.
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ADJUSTMENT UPON CHANGE IN CAPITALIZATION. In the event that the Company's
common stock is changed by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other change in the capital structure
of the Company affected without the receipt of consideration, appropriate
proportional adjustments shall be made in the number and class of shares of
stock subject to the Employee Plan, the number and class of shares of stock
subject to options outstanding under the Employee Plan and the exercise price of
any such outstanding options. Any such adjustment shall be made by the Board of
Directors, whose determination shall be conclusive.
DISSOLUTION OR LIQUIDATION. In the event of a proposed dissolution or
liquidation, the Offering Period then in progress will be shortened and a new
exercise date will be set.
MERGER OR ASSET SALE. In the event of a merger of the Company with or into
another corporation or a sale of all or substantially all of the Company's
assets, each outstanding option may be assumed or substituted by the successor
corporation. If the successor corporation refuses to assume or substitute the
outstanding options, the Offering Period then in progress will be shortened and
a new exercise date will be set.
AMENDMENT AND TERMINATION OF THE PLAN. The Board of Directors may at any
time terminate or amend the Employee Plan. An Offering Period may be terminated
by the Board of Directors at the end of any Purchase Period if the Board
determines that termination of the Employee Plan is in the best interests of the
Company and its stockholders. No amendment shall be effective unless it is
approved by the holders of a majority of the votes cast at a duly held
stockholders' meeting, if such amendment would require stockholder approval in
order to comply with Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Employee Plan will terminate in March 2011.
WITHDRAWAL. Generally, a participant may withdraw from an Offering Period
at any time without affecting his or her eligibility to participate in future
Offering Periods. However, once a participant withdraws from a particular
offering, that participant may not participate again in the same offering.
FEDERAL TAX INFORMATION FOR THE EMPLOYEE PLAN
The Employee Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Employee Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period.
If the shares sold or disposed of have been held more than one year from the
date of transfer of the stock to the participant or more than two years from the
first day of the Offering Period, then the participant will recognize ordinary
income on the lesser of (i) 15% of the value of the shares as of the first day
of the Offering Period, or (ii) the excess of the value of the shares at the
time of such sale or disposition over the Employee Price. Any additional gain
will be treated as long-term capital gain.
If the shares are sold or disposed of have not been held for the respective
one or two year required holding periods, then the participant will recognize
ordinary income generally measured as the excess of the value of the shares on
the date the shares are purchased over the Employee Price. Any additional gain
or loss on such sale or disposition will be long-term or short-term capital gain
or loss, depending on the holding period. The Company is not entitled to a
deduction for amounts taxed to a participant except to the extent ordinary
income is recognized by participants upon a sale or disposition of shares prior
to the expiration of the holding periods described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Employee Plan. In addition, this summary does not discuss the tax
consequences of a participant's death or the income tax laws of any state or
foreign
7
country in which the participant may reside. Reference should be made to the
applicable provisions of the Code for more complete details.
The affirmative vote of the holders of a majority of shares represented and
voting at the meeting will be required to approve the Employee Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE EMPLOYEE PLAN DESCRIBED ABOVE, AND RESERVATION OF 1,000,000 SHARES OF
COMMON STOCK FOR ISSUANCE THEREUNDER.
8
COMPENSATION AND OTHER INFORMATION CONCERNING OFFICERS,
DIRECTORS AND CERTAIN STOCKHOLDERS
EXECUTIVE OFFICERS
The executive officers of the Company are appointed annually by the Board of
Directors and serve at the discretion of the Board of Directors. Set forth below
are the names and certain biographical information regarding the executive
officers of the Company.
NAME AGE POSITION
- ---- -------- --------
Jack Lief................................. 55 President and Chief Executive Officer
Dominic P. Behan, Ph.D.................... 37 Vice President, Research
Derek T. Chalmers, Ph.D................... 37 Vice President, Research
Robert Hoffman, CPA....................... 35 Vice President, Finance
Joyce H. Williams R.A.C................... 55 Vice President, Drug Development
Richard P. Burgoon, Jr.................... 39 Senior Vice President, Operations, General
Counsel and Secretary
Nigel R.A. Beeley, Ph.D................... 50 Vice President, Chief Chemical Officer
Elaine Alexander, M.D., Ph.D.............. 48 Vice President, Experimental and Clinical
Research
Louis J. Scotti........................... 45 Vice President, Business Development
Joseph F. Mooney.......................... 53 Chief Financial Officer
See "Proposal No. 1 Election of Directors" for biographical information
regarding Mr. Lief, Dr. Behan and Dr. Chalmers, who are also directors.
Robert Hoffman, CPA, has served as the Company's Vice President, Finance
since April 2000 and served as the Company's Controller from August 1997 until
April 2000. Mr. Hoffman also serves as the Chief Financial Officer of
ChemNavigator.com and as Vice President, Finance of BRL Screening, Inc. From
1994 to 1997, he served as Assistant Controller for Document Sciences
Corporation. Mr. Hoffman holds a B.B.A. from St. Bonaventure University in New
York and is licensed as a CPA in the state of California.
Joyce H. Williams, R.A.C., has served as the Company's Vice President, Drug
Development since February 1998. Ms. Williams began serving as Vice President,
Regulatory & Clinical Affairs of Aressa Pharmaceuticals, Inc. in October 2000.
From January 1997 to February 1998, Ms. Williams served as Regulatory Consultant
for ProFocus Regulatory Solutions. From 1995 to 1996, she served as Executive
Director, Regulatory Affairs at Advanced Sterilization Products, a division of
Johnson & Johnson. Ms. Williams has over 20 years of experience in regulatory
affairs with pharmaceutical and medical technology firms. Ms. Williams holds a
B.A. from Case Western Reserve University and an M.B.A. from Pepperdine
University. Ms. Williams has earned the designation Regulatory Affairs Certified
(R.A.C.).
Richard P. Burgoon, Jr. joined the Company in April 1998, most recently
serving as Senior Vice President, Operations, General Counsel and Secretary.
Mr. Burgoon is also currently serving as a director, Chief Operating Officer and
Secretary of Aressa Pharmaceuticals, Inc. and as director and Secretary of
ChemNavigator.com and as a director of BRL Screening, Inc. From 1997 to 1998,
Mr. Burgoon was an attorney for Reed, Smith, Shaw & McClay. From 1994 to 1997,
Mr. Burgoon served as Senior Director and Patent Counsel at Cephalon, Inc. From
1992 to 1994, he served as Intellectual Property Counsel to IDEC Pharmaceuticals
Corporation. From 1990 to 1992, he served as Staff Attorney at Beckman
Instruments, Inc. Mr. Burgoon holds B.S. and B.A. degrees from the University of
California, Irvine. He received his J.D. from the Franklin Pierce Law Center.
9
Nigel R.A. Beeley, Ph.D. has served as the Company's Vice President and
Chief Chemical Officer since March 1999. From 1994 to 1998 he was Senior
Director of Chemistry at Amylin Pharmaceuticals, Inc. and from 1988 to 1994 he
served as Head of Oncology-Chemistry for Celltech, Slough, UK. From 1980 to 1988
he held positions of increasing seniority in the cardiovascular group at
Synthelabo Recherche, Paris, France and from 1978 to 1980 he was a CNS Medicinal
Chemist for Reckitt and Coleman, Hull, UK. From 1976 to 1978 Dr. Beeley held a
Royal Society Overseas Research Fellow at ETH, Zurich, Switzerland. Dr. Beeley
has a BSc Honours (Class 1) degree in Chemistry from the University of
Liverpool, UK and a Ph.D. in Chemistry from the University of Manchester, UK.
Elaine Alexander, M.D., Ph.D. has served as the Company's Vice President,
Experimental and Clinical Research since May 1999. From 1998 to 1999, she served
as a consultant to biotechnology companies and the National Institutes of
Health. From 1993 to 1997, she served as Director of Experimental and
Exploratory Research for Cephalon, Inc. Dr. Alexander holds a Ph.D. and M.D.
from the University of California, Los Angeles.
Louis J. Scotti has served as the Company's Vice President, Business
Development since August 1999. From June 1998 until July 1999, Mr. Scotti served
as President and Chief Executive Officer for ProtoMed, Inc. From April 1996 to
June 1998, he served as Executive Director of Licensing for Ligand
Pharmaceuticals, Inc. From 1986 to 1995, he served in various positions at
Reed & Carnrick Pharmaceuticals, most recently as Vice President of Marketing
and Business Development. Mr. Scotti holds a B.S.E. in Biomedical Engineering
from the University of Pennsylvania.
Joseph F. Mooney joined the Company as Chief Financial Officer in
September 2000. Mr. Mooney also serves as a director and as Treasurer of BRL
Screening, Inc. From 1995 to 2000 he was a Managing Principal of Liquidity
Sources LLC. From 1987 to 1993 he was with Tucson Resources, Inc., a subsidiary
of Tucson Electric Power most recently as the Vice President, Securities and
Treasurer. Mr. Mooney holds an MBA from the Graduate School of Business at the
University of Chicago and an MSc from the London School of Economics and
Political Science, as well as degrees in pure mathematics from Boston College
and Brandeis University.
DIRECTOR COMPENSATION
Other than expenses in connection with attendance at meetings and other
customary expenses, the Company currently does not compensate any non-employee
members of the Board of Directors. Directors who are also employees do not
receive additional compensation for serving as directors.
Under the Company's 2000 Equity Compensation Plan, non-employee directors
will be eligible to receive option grants to purchase shares of Company common
stock, as determined by the Stock Option Committee. Non-employee directors will
also be eligible to receive direct stock issuances.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth certain information concerning the
compensation paid or accrued by the Company for services rendered to the Company
in all capacities for the fiscal years ended December 31,
10
2000 and December 31, 1999 by the Company's Chief Executive Officer and its four
other most highly paid executive officers (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- --------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) COMPENSATION OPTIONS/SARS # COMPENSATION
- --------------------------- -------- ---------- ------------ -------------- ------------
Jack Lief............................ 2000 $321,667 $ -- 300,000 $ --
President and Chief Executive 1999 197,600 -- 12,500 --(4)
Officer
Dominic P. Behan, Ph.D............... 2000 200,000 55,000(2) 200,000 --
Vice President, Research 1999 137,500 -- 12,500 2,404(3)
Derek T. Chalmers, Ph.D.............. 2000 200,000 55,000(2) 200,000 3,365(3)
Vice President, Research 1999 137,500 -- 12,500 4,807(3)
Richard P. Burgoon, Jr............... 2000 209,279 -- 100,000 23,653(3)
Senior Vice President, Operations & 1999 156,183 -- 22,500 2,981(3)(4)
General Counsel
Nigel R. Beeley, Ph.D................ 2000 175,000 -- 25,000 --
Vice President, Chief Chemical 1999 118,750 -- 25,000 --(4)
Officer
- ------------------------
(1) In accordance with the rules of the SEC, the compensation described in this
table does not include medical, group life insurance or other benefits
received by the Named Executive Officers which are available generally to
all salaried employees of the Company and certain perquisites and other
personal benefits received by the Named Executive Officers which do not
exceed the lesser of $50,000 or 10% of any such officer's salary and bonus
disclosed in this table. Amounts earned during the years 1999 and 2000 but
deferred at the election of the Named Executive Officer pursuant to the
Company's 401(k) plan are included in the Salary column.
(2) During the year 2000, each of Dr. Behan and Dr. Chalmers received an advance
on their salary in the amount of $80,000. Each of Dr. Behan and
Dr. Chalmers have offset their advances by $25,000 in the form of salary
reductions through December 31, 2000. This has resulted in a net advance of
$55,000 to each of Dr. Behan and Dr. Chalmers during 2000.
(3) After their annual anniversary hire date, each of the Company's employees
may elect to be paid for unused vacation time in the form of additional
salary. Dr. Behan elected to be paid in the form of additional salary for
one week of unused vacation time in the year ended December 31, 1999.
Dr. Chalmers elected to be paid in the form of additional salary for two
weeks and one week of unused vacation time in the years ended December 31,
1999 and December 31, 2000, respectively. Mr. Burgoon elected to be paid in
the form of additional salary for one week and six weeks of unused vacation
time in the years ended December 31, 1999 and December 31, 2000,
respectively.
(4) Pursuant to a four-year consulting agreement with ChemNavigator.com,
Mr. Lief was awarded 200,000 shares of common stock of ChemNavigator.com in
May 1999. The shares vest at a rate of 50,000 shares a year beginning in May
2000, provided that Mr. Lief remains employed by us. Pursuant to a four-year
consulting agreement with ChemNavigator.com, Mr. Burgoon was awarded 175,000
shares of common stock of ChemNavigator.com in May 1999. The shares vest at
a rate of 43,750 shares a year beginning in May 2000, provided that
Mr. Burgoon remains employed by us. Dr. Beeley was awarded 3,200 options to
purchase shares of common stock of ChemNavigator.com for consulting services
rendered in 1999. The options vest at the rate of 800 options per year
beginning in October 2000, provided he continues to provide services to
ChemNavigator.com.
11
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 2000 by the Company to the Named
Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS MARKET
UNDERLYING GRANTED TO EXERCISE PRICE ON
OPTIONS/SARS EMPLOYEES IN PRICE PER DATE OF EXPIRATION
NAME GRANTED (#) FISCAL YEAR SHARE GRANT DATE
- ---- ------------- ------------- --------- -------- ----------
Jack Lief................ 100,000 8.3% $ 0.60 $18.00 3/3/10
200,000 16.5 24.23 28.50 8/22/10
Dominic P. Behan, Ph.D... 100,000 8.3 0.60 18.00 3/3/10
100,000 8.3 24.23 28.50 8/22/10
Derek T. Chalmers,
Ph.D................... 100,000 8.3 0.60 18.00 3/3/10
100,000 8.3 24.23 28.50 8/22/10
Richard P. Burgoon, Jr... 50,000 4.1 0.60 18.00 3/3/10
50,000 4.1 24.23 28.50 8/22/10
Nigel R.A. Beeley,
Ph.D................... 6,250 * 0.60 18.00 3/1/10
18,750 1.6 0.60 18.00 4/4/10
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM (1)
-----------------------------------------
MARKET VALUE AT
DATE OF GRANT
0%
NAME 5% 10% APPRECIATION
- ---- ---------- ---------- ---------------
Jack Lief................ $2,872,010 $4,608,736 $ --
4,438,700 9,938,332 854,000
Dominic P. Behan, Ph.D... 2,872,010 4,608,736 --
2,219,350 4,969,166 427,000
Derek T. Chalmers,
Ph.D................... 2,872,010 4,608,736 --
2,219,350 4,969,166 427,000
Richard P. Burgoon, Jr... 1,436,005 2,304,368 --
1,109,675 2,484,583 213,500
Nigel R.A. Beeley,
Ph.D................... 179,501 288,046 --
538,502 864,138 --
- ------------------------------
* Less than one percent.
(1) The potential realizable value is based on the form of the option at its
time of grant (10 years). It is calculated by assuming that the stock price
on the date of grant appreciates at the indicated annual rate, compounded
annually for the entire term of the option, and the option is exercised and
sold on the last day of its term for the appreciated stock price. Pursuant
to SEC guidelines, for options granted prior to the Company's initial public
offering, the stock price on the date of grant is deemed to be equal to the
initial public offering price of $18.00 per share. The 5% and 10% assumed
rates of appreciation are mandated by the rules of the SEC and do not
represent the Company's estimate or projection of the future common stock
price.
The Company does not provide assurance to any executive officer or any other
holder of the Company's securities that the actual stock price appreciation
over the ten year option term will be at the assumed 5% and 10% levels or at
any other defined level. Unless the market price of the common stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the executive officers.
Pursuant to stock option agreements between the Company and its employees,
each of its employees are entitled to exercise their options prior to vesting.
If they exercise their options prior to vesting, they will receive restricted
shares which will vest in accordance with the normal vesting schedule set forth
in their stock option agreement and are subject to repurchase by the Company if
they cease to be employed by the Company.
12
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table shows for fiscal year ended December 31, 2000 certain
information regarding options exercised by, and held at year end by, the Named
Executive Officers:
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED IN-
NUMBER OF UNEXERCISED OPTIONS/SARS THE-MONEY OPTIONS/SARS
SHARES AT DECEMBER 31, 2000(2) AT DECEMBER 31, 2000 (3)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- --------------- ----------- ------------- ----------- -------------
Jack Lief..................... 162,500 $20,000 -- 200,000 $ -- $ --
Dominic P. Behan, Ph.D........ 50,000 20,000 6,250 206,250 93,125 1,583,125
Derek T. Chalmers, Ph.D....... 50,000 20,000 6,250 206,250 93,125 1,583,125
Richard P. Burgoon, Jr........ 53,750 45,250 -- 98,750 -- 726,375
Nigel R. A. Beeley, Ph.D...... 50,000 -- -- -- -- --
- ------------------------
(1) Value realized is based on the fair market value of the Company's common
stock on the date of exercise minus the exercise price without taking into
account any taxes that may be payable in connection with the transaction.
(2) Pursuant to stock option agreements between the Company and its employees
each of its employees are entitled to exercise their options prior to
vesting. Therefore, all of the exercisable options are vested, but have not
yet been exercised, and all of the unexercisable options may be exercised,
but have not yet vested and will only vest subject to the terms of the stock
option agreements.
(3) Fair market value of the Company's common stock at December 31, 2000
($15.50) minus the exercise price of the options.
EMPLOYMENT AGREEMENTS
Each Named Executive Officer serves at the discretion of the Board of
Directors. The Company does not have any written employment agreements or any
change-of-control plans or arrangements with any Named Executive Officer.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on its policies with respect to the compensation of executive
officers of the Company. The report is not deemed to be "soliciting material" or
to be "filed" with the SEC, or subject to the SEC's proxy rules or to the
liabilities of Section 18 of the Exchange Act, and the report shall not be
deemed incorporated by reference into any prior or subsequent filing by the
Company under the Securities Act of 1933, as amended, or the Exchange Act,
except to the extent that the Company specifically incorporates it by reference
into any such filing.
Decisions regarding compensation of the Company's executive officers
generally are made by the Compensation Committee of the Board of Directors. The
Committee is responsible for reviewing the executive salary and benefits
structure of the Company at least annually to insure its competitiveness within
the Company's industry. All decisions of the Compensation Committee regarding
the compensation of the Company's executive officers are reviewed by the Board
of Directors, except for decisions regarding grants under the Company's option
plans, which are made by the Stock Option Committee. During the fiscal year
ended December 31, 2000, Mr. Lief, Dr. Steinmetz and Dr. Ryser served as members
of the Compensation Committee.
13
GENERAL EXECUTIVE COMPENSATION POLICY
The Company's executive compensation policy is designed to attract to the
Company qualified individuals who have the potential as executive officers to
contribute to the long-term growth and success of the Company and thereby
enhance stockholder value, to motivate such executive officers to perform at the
highest of professional levels so as to maximize their contribution to the
Company and to retain such executive officers in the employ of the Company.
Accordingly, the Company's executive compensation policy is to offer the
Company's executive officers competitive compensation opportunities which are
tied to their contribution to the growth and success of the Company and their
personal performance. Each executive officer's compensation package is comprised
of two elements: (i) salary, which reflects individual performance and is
designed primarily to be competitive with compensation levels in the industry,
and (ii) periodic stock option grants, which strengthen the mutuality of
interests between the executive officer and the Company's stockholders.
As a general matter, the salary for each executive officer is initially
established through negotiation at the time the officer is hired, taking into
account such officer's qualifications, experience, prior salary, and competitive
salary information. Year-to-year adjustments to each executive officer's salary
are based upon personal performance for the year, changes in the general level
of salaries of persons in comparable positions within the industry, and the
average merit salary increase for such year for all employees of the Company
established by the Compensation Committee, as well as other factors the
Compensation Committee judges to be pertinent during an assessment period. In
making salary decisions, the Committee exercises its judgment to determine the
appropriate weight to be given to each of these factors.
The Board believes that stock options provide the Company's executive
officers with the opportunity to purchase and maintain an equity interest in the
Company and to share in the appreciation of the value of the Company's common
stock. The Board believes that stock options directly motivate an executive to
maximize long-term stockholder value. The options also utilize vesting periods
(generally four years) that encourage key executives to continue in the employ
of the Company. The Board considers the grant of each option subjectively,
considering factors such as the individual performance of the executive officer
and the anticipated contribution of the executive officer to the attainment of
the Company's long-term strategic performance goals. Stock options granted in
prior years are also taken into consideration.
IMPLEMENTATION OF EXECUTIVE COMPENSATION POLICY
The following summary describes the manner in which the Compensation
Committee's executive compensation policy was implemented with respect to the
fiscal year ended December 31, 2000. Also summarized below are some of the more
important factors which were considered in establishing the components of each
executive officer's compensation package for the 2000 fiscal year. Additional
factors were also taken into account, and the Compensation Committee may, in its
discretion, apply entirely different factors, particularly different measures of
performance, in setting executive compensation for future fiscal years, but it
is expected that all compensation decisions will be designed to further the
general executive compensation policy set forth above.
SALARY. Each year, the Chief Executive Officer recommends to the
Compensation Committee new salary levels for the Company's executive officers.
In formulating such recommendations, the Chief Executive Officer considers
industry, peer group and national surveys of compensation, as well as the past
and expected future contributions of the individual executive officers. The
Compensation Committee then reviews the recommendations in light of its
assessment of each officer's past performance and its expectation as to future
contributions, and arrives at new salary levels for each of the executive
officers, including the Chief Executive Officer. These new salary levels are
then recommended by the Compensation Committee to the Board of Directors for
approval.
STOCK OPTION GRANTS. During 2000, all grants of stock options by the
Company to its executive officers were made pursuant to its Amended and Restated
1998 Equity Compensation Plan and its 2000 Equity
14
Compensation Plan. During 2000, the Compensation Committee approved the grant of
stock options to all of its executive officers in respect of their performance
during the fiscal year ending December 31, 2000. In determining the number of
shares of common stock covered by each of these grants, the Compensation
Committee considered the same factors which it generally considers in
determining the salaries of executive officers. These grants were also designed
to further the Company's general executive compensation policy.
CEO COMPENSATION
In setting the compensation payable to Mr. Lief, the Compensation Committee
has sought to be competitive with other companies in the industry, while at the
same time tying a significant portion of such compensation to the Company's
performance.
Mr. Lief's salary for the fiscal year ended December 31, 2000, was
established based upon the Compensation Committee's evaluation of the Company's
performance and Mr. Lief's personal performance, as well as its objective of
having Mr. Lief's salary remain competitive with salaries being paid to
similarly situated chief executive officers. Accordingly, his 2000 salary was
set by the Compensation Committee at $450,000.
The other component of Mr. Lief's compensation in respect of the fiscal year
ended December 31, 2000, was entirely dependent upon Mr. Lief's performance
during such year, which was in turn tied directly to the Company's performance.
The Compensation Committee determined to award Mr. Lief stock options to
purchase 300,000 shares of common stock. This award reflected the Compensation
Committee's assessment of his favorable performance, which included his
satisfaction of the performance goals established by the Compensation Committee
at the beginning of the fiscal year ended December 31, 2000, as well as the
corporate performance of the Company during such year. In particular, the
Compensation Committee considered the completion of an Initial Public Offering
("IPO") by the Company, the continued management performance and success of the
members of the Executive Committee reporting to Mr. Lief, scientific progress
made by the Company, the progress made in the Company's business development
activities, as well as the Company's success in securing capital, prior to the
IPO, sufficient to assist it in furthering its strategic performance objectives.
200,000 stock options were granted at exercise prices equal to 85% of the fair
market value of the common stock on the date of grant and are subject to
vesting. An additional 100,000 stock options were granted to Mr. Lief prior to
the IPO with an exercise price of $0.60 per share.
Submitted by the Members of the Compensation Committee
Jack Lief
Stefan Ryser, Ph.D.
Michael Steinmetz, Ph.D.
PERFORMANCE GRAPH
The following is a line graph comparing the cumulative total return to
stockholders (change in stock price plus reinvested dividends) of the Company's
common stock from July 28, 2000 (the date of the Company's initial public
offering) through December 31, 2000 to the cumulative total return over such
period to: the Center for Research in Securities Prices ("CRSP") Total Return
Index for the Nasdaq Stock Market (U.S. Companies) (the "Nasdaq Composite
Index") and the CRSP Total Return Index for the Nasdaq Pharmaceutical Stocks
(the "Nasdaq Pharmaceutical Index"). In establishing the starting point on the
line graph, we used the closing price of the Company's common stock on July 28,
2000 of $25.00 as required by SEC guidelines.
The graph assumes the investment of $100 and the reinvestment of dividends,
although dividends have not been declared on the Company's common stock, and is
based on the returns of the component
15
companies weighted according to their market capitalizations as of the end of
each monthly period for which returns are indicated. The performance shown is
not necessarily indicative of future price performance. The information
contained in the Performance Graph is not deemed to be "soliciting material" or
to be "filed" with the SEC, or subject to the SEC's proxy rules or to the
liabilities of Section 18 of the Exchange Act, and shall not be deemed
incorporated by reference into any prior or subsequent filing by the Company
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference into any such
filing.
Comparison of Cumulative Total Return on Investment
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NASDAQ NASDAQ PHARMACEUTICALS
ARENA Stock Market Stocks SIC 2830 2839
PHARMACEUTICALS, INC. (US Companies) US & Foreign
7/28/00 $100.00 $100.00 $100.00
7/31/00 $95.00 $102.90 $100.00
8/31/00 $185.00 $115.10 $119.00
9/29/00 $172.00 $100.10 $118.00
10/31/00 $139.80 $91.80 $106.00
11/30/00 $78.00 $70.80 $94.00
12/31/00 $62.00 $67.10 $98.00
Notes: A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends. B. The indexes are reweighted daily, using
the market capitalization on the previous trading day C. The Nasdaq
Pharmaceutical Index includes all companies listed on the Nasdaq Stock Market
under the SIC Code 283. A copy of the list of companies which comprise the
Nasdaq Pharmaceutical Index may be obtained upon request by contacting Arena
Pharmaceuticals, Investor Relations, 6166 Nancy Ridge Drive, San Diego,
California 92121.
16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's common stock as of
March 1, 2001 by:
- Each person, group or entity who is the beneficial owner of 5% or more of
the Company's common stock
- Each director and nominee for director
- The Named Executive Officers; and
- All current directors and executive officers as a group
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED(11) PERCENTAGE OF TOTAL
- ------------------------------------ ----------------------------- -------------------
MPM Asset Management(1)............................. 4,012,149 17.7%
International BM Biomedicine Holdings, Inc.(2)...... 1,932,665 8.5%
Tripos, Inc.(3)..................................... 2,015,840 8.9%
TCW Asset Management Company(4)..................... 1,539,313 6.8%
Jack Lief(5)**...................................... 715,500 3.1%
Dominic P. Behan, Ph.D.(6)**........................ 457,500 2.0%
Derek T. Chalmers, Ph.D.(7)**....................... 452,500 2.0%
Richard P. Burgoon, Jr.(8)**........................ 153,000 *
Nigel R. A. Beeley, Ph.D.(9)**...................... 50,000 *
Michael Steinmetz, Ph.D.(1)......................... 4,023,091 17.7%
Stefan Ryser, Ph.D**................................ 2,000 *
John P. McAlister, III, Ph.D.(3).................... 2,017,840 8.9%
All directors and executive officers as a group (13
persons)(10)...................................... 8,101,431 34.4%
- ------------------------
* Less than one percent
** The address for each of these stockholders and beneficial owners is 6166
Nancy Ridge Drive, San Diego, California, 92121.
(1) Reflects 3,473,112 shares held of record by BB BioVentures, LP, 497,310
shares held of record by MPM BioVentures Parallel Fund, LP, 41,727 shares
held of record by the MPM Asset Management Investors 1999 LLC and 10,942
shares which Dr. Steinmetz owns directly. Dr. Steinmetz is the Managing
Director if MPM Asset Management LLC, which is the fund manager of each of
BB BioVentures, MPM BioVentures Parallel Fund and MPM Asset Management
Investors. The address of MPM Asset Management and Dr. Steinmetz is One
Cambridge Center, 9th Floor, Cambridge, Massachusetts 02421. MPM Asset
Management disclaims beneficial ownership of shares which Dr. Steinmetz owns
directly. Dr. Steinmetz disclaims beneficial ownership of shares in which he
does not have a pecuniary interest. Dr. Steinmetz is the holder of record of
50,000 shares of ChemNavigator.com's Series A preferred stock, 13,296 shares
of its Series B preferred stock and holds a warrant to purchase 3,324 shares
of the common stock of ChemNavigator.com.
(2) Reflects shares owned by International BM Biomedicine Holdings, Inc. The
address for International BM Biomedicine Holdings is House of Commerce,
Aeschenplatz 7, P.O. Box 136, CH-4010, Basel, Switzerland.
(3) Dr. McAlister is the President, Chief Executive Officer and director of
Tripos, Inc. Dr. McAlister owns 2,000 shares directly. The address for
Tripos, Inc. and Dr. McAlister is 1699 South Hanley Road, St. Louis,
Missouri 63144. Dr. McAlister disclaims beneficial ownership of shares in
which he does not have a pecuniary interest.
17
(4) TCW Asset Management Company has informed us that it owns 1,539,313 shares
which are held for the benefit of its clients and affiliated advisors. Based
upon Schedule 13G dated December 21, 2000, The TCW Group, Inc. and Robert
Day share voting and dispositive power with respect to these shares. The
address for TCW Asset Management Company, The TCW Group, Inc. and Robert Day
is 865 South Figueroa Street, Los Angeles, California 90017.
(5) Includes 300,000 shares issuable upon the exercise of stock options.
Includes 118,750 shares that were issued to Mr. Lief upon the exercise of
unvested stock options. Shares issued upon the exercise of unvested stock
options will vest over the four-year term of the underlying stock option
agreement, subject to repurchase by the Company if Mr. Lief leaves the
Company's employ. Mr. Lief also owns 200,000 shares of the common stock of
ChemNavigator.com, subject to repurchase by ChemNavigator.com if Mr. Lief is
no longer employed by the Company.
(6) Includes 212,500 shares issuable upon the exercise of stock options.
Includes 12,500 shares that were issued to Dr. Behan upon the exercise of
unvested stock options. Shares issued upon the exercise of unvested stock
options will vest over the four-year term of the underlying stock option
agreement, subject to repurchase by the Company if Dr. Behan is no longer
employed by the Company.
(7) Includes 212,500 shares issuable upon the exercise of stock options.
Includes 12,500 shares that were issued to Dr. Chalmers upon the exercise of
unvested stock options. Shares issued upon the exercise of unvested stock
options will vest over the four-year term of the underlying stock option
agreement, subject to repurchase by the Company if Dr. Chalmers is no longer
employed by the Company.
(8) Includes 98,750 shares issuable upon the exercise of stock options. Includes
31,875 shares that were issued to Mr. Burgoon upon the exercise of unvested
stock options. Shares issued upon the exercise of unvested stock options
will vest over the four-year term of the underlying stock option agreement,
subject to repurchase by the Company if Mr. Burgoon is no longer employed by
the Company. Mr. Burgoon also owns 175,000 shares of the common stock of
ChemNavigator.com subject to repurchase by ChemNavigator.com if Mr. Burgoon
is no longer employed by the Company.
(9) Includes 35,938 shares that were issued to Dr. Beeley upon the exercise of
unvested stock options. Shares issued upon the exercise of unvested stock
options will vest over the four-year term of the underlying stock option
agreement, subject to repurchase by the Company if Dr. Beeley is no longer
employed by the Company.
(10) Includes 878,750 shares issuable upon the exercise of stock options.
(11) This table is based on information supplied by officers, directors and
principal stockholder and Schedules 13D and 13G filed with the SEC. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, the Company believes that the stockholders
named in this table have sole voting and investment power with respect to
the shares indicated as beneficially owned. Applicable percentages are based
on 22,696,913 shares outstanding on March 1, 2001, adjusted as required by
the rules promulgated by the SEC. Includes shares issuable pursuant to
options and other rights to purchase shares of the Company's common stock
exercisable within 60 days of March 1, 2001.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
directors and executive officers, and ten percent stockholders to file reports
of ownership of equity securities of the Company and changes in such ownership
with the SEC and the NASDAQ and to furnish copies of such reports to the
Company.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 2000, all
Section 16(a) filing requirements applicable to its officers, directors and
greater
18
than ten percent beneficial owners were complied with except that John P.
McAlister, III, filed an amendment to a Form 4 which reported his indirect
holdings that were inadvertently omitted from the Form 4 initally filed.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Jack Lief, Michael Steinmetz, Ph. D.
and Stefan Ryser, Ph. D. No executive officer of the Company serves as a member
of the board of directors or compensation committee of any other entity that has
one or more executive officers serving as members of the Company's board of
directors or Compensation Committee.
Mr. Lief, who is a member of the Company's Compensation Committee, is also
the Company's Chief Executive Officer and serves as a director of
ChemNavigator.com and as the President and Chief Executive Officer and a
director of Aressa Pharmaceuticals, Inc. and BRL Screening, Inc. Mr. Lief has
entered into a four-year service agreement with ChemNavigator.com in which he
agrees to provide up to 200 hours of service per year. As compensation for his
services he has received 200,000 shares of common stock of ChemNavigator.com,
which vest over a period of four years, subject to Mr. Lief remaining in the
Company's employ. ChemNavigator.com is a 34% owned affiliate of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. McAlister, a member of the Company's Board of Directors, is also the
Chief Executive Officer and President of Tripos, Inc. Tripos is the beneficial
owner of approximately 8.9% of the Company's common stock. The Company has
entered into a drug research collaboration agreement and a software license
agreement with Tripos, and the Company may enter into additional agreements with
Tripos for the joint development of drug candidates using CART-activated
receptors and Tripos' chemical library. The Company will share expenses and any
proceeds resulting from the collaboration with Tripos and will pay Tripos a fee
for services they provide outside of the collaboration.
Dr. Steinmetz, a member of the Company's Board of Directors, is also a
Managing Director for MPM Asset Management. MPM Asset Management is the
beneficial owner of approximately 17.7% of the Company's common stock. In
January 2000, entities controlled by MPM Asset Management purchased 1,141,033
shares of the Company's Series E preferred stock for an aggregate purchase price
of $4,564,132. In March 2000, entities controlled by MPM Asset Management
purchased 865,385 shares of the Company's Series F preferred stock for an
aggregate purchase price of $4,500,002. Dr. Steinmetz is the holder of record of
50,000 shares of ChemNavigator.com's Series A preferred stock, 13,296 shares of
its Series B preferred stock and holds a warrant to purchase 3,324 shares of the
common stock of ChemNavigator.com for which he paid an aggregate purchase price
of $80,315.
International BM Biomedicine Holdings is the beneficial owner of
approximately 8.5% of the Company's common stock. In January 2000, International
BM Biomedicine Holdings purchased 500,000 shares of the Company's Series E
preferred stock for an aggregate purchase price of $2,000,000.
Dr. Michael E. Lewis, one of the Company's co-founders, served as a director
of the Company until April of 2000. Dr. Lewis is a principal in BioDiligence
Partners, Inc. The Company paid BioDiligence Partners, Inc. $150,000 during
2000, for consulting services rendered.
Mr. Lief, the Company's President and Chief Executive Officer, is also the
President, Chief Executive Officer of Aressa Pharmaceuticals, Inc. and BRL
Screening, Inc. and a member of the Board of Directors of Aressa
Pharmaceuticals, Inc., ChemNavigator.com and BRL Screening, Inc.
Mr. Burgoon, the Company's Senior Vice President, Operations, General
Counsel and Secretary, is also the Secretary of Aressa Pharmaceuticals, Inc. and
ChemNavigator.com, and is a member of the Board of Directors of Aressa
Pharmaceuticals, Inc., ChemNavigator.com and of BRL Screening, Inc. Mr. Burgoon
has entered into a four-year service agreement with ChemNavigator.com in which
he agrees
19
to provide up to 200 hours of service per year. As compensation for his services
he has received 175,000 shares of common stock of ChemNavigator.com, which vest
over a period of four years, subject to Mr. Burgoon remaining in the Company's
employ.
Mr. Hoffman, the Company's Vice President, Finance, is also the Vice
President, Finance of BRL Screening, Inc. Mr. Hoffman has entered into a
four-year service agreement with ChemNavigator.com in which he agrees to provide
up to 200 hours of service per year. As compensation for his services he has
received 100,000 shares of common stock of ChemNavigator.com, which vest over a
period of four years, subject to Mr. Hoffman remaining in the Company's employ.
In April 2000, Mr. Scotti, the Company's Vice President, Business
Development, purchased 10,000 shares of the Company's Series G preferred stock
for an aggregate purchase price of $73,000.
Dr. Beeley, the Company's Vice President, Chief Chemical Officer has
provided consulting services to ChemNavigator.com and has received 3,200 options
to purchase shares of common stock of ChemNavigator.com as compensation for
services rendered. The options vest over a period of four years, provided he
continues to provide services to ChemNavigator.com.
The Company also subleases office space to ChemNavigator.com at a fair
market rate. The estimated total annual rent under the lease for the year 2001
is $67,104. The amount of the rent under the lease is varies depending upon the
number of employees of ChemNavigator.com occupying space in the Company's
facility. The Company believes that all of the transactions described above were
made and are on terms no less favorable to the Company than those that could be
obtained from independent third parties in arms-length negotiations.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors has furnished the following
report on its activities with respect to its oversight responsibilities during
the year 2000. The report is not deemed to be "soliciting material," or to be
"filed" with the SEC or subject to the SEC's proxy rules or to the liabilities
of Section 18 of the Exchange Act, and the report shall not be deemed
incorporated by reference into any prior or subsequent filing by the Company
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference into any such
filing.
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. The Company's Board of Directors has adopted a
written charter for the Audit Committee which is attached to this Proxy
Statement as Exhibit A. The Audit Committee of the Board of Directors is
composed of three non-employee directors who are independent as defined in the
applicable listing standards of the National Association of Securities Dealers.
The Committee held one meeting during 2000.
In fulfilling its responsibilities, the Committee recommended to the Board
of Directors the selection of the Company's independent auditors. The Committee
discussed with the independent auditors the overall scope and specific plans for
their audit. The Committee also discussed the Company's financial statements and
the adequacy of the Company's internal controls. During the Committee meetings,
the Committee met with the independent auditors, without management present, to
discuss the results of their audits, their evaluations of the Company's internal
controls and the overall quality of the Company's financial reporting. The
meetings also were designed to facilitate any private communication with the
Committee desired by the independent auditors.
The Committee monitored the independence and performance of the Company's
independent auditors. The Committee discussed with the independent auditors the
matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU Section380), as modified or supplemented. The Committee
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), as
20
modified or supplemented, and discussed with the independent auditors the
independent auditors' independence. The Committee determined that the provision
of professional services, other than audit and review services by the Company's
independent auditors is compatible with maintaining their independence.
The Audit Committee reviewed and discussed the audited financial statements
with management. The Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's annual report on
Form 10-K for filing with the SEC, based on the review and discussions referred
to above.
John P. McAlister, III, Ph.D.
Michael Steinmetz, Ph.D.
Stefan Ryser, Ph.D.
AUDIT FEES
The aggregate fees billed to the Company for professional services rendered
for the audit of the Company's financial statements for the year ending
December 31, 2000 and the reviews of the financial statements included in the
Company's Forms 10-Q during the year 2000 were $53,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
No fees were billed to the Company for professional services rendered for
design and implementation of the Company's accounting and computer systems by
the Company's principal independent auditors during the year 2000.
ALL OTHER FEES
The aggregate amount of fees billed to the Company for professional
services, other than audit and review of the Company's financial statements, and
design and implementation of the Company's accounting and computer systems,
rendered by the Company's principal independent auditors during the year 2000
was $267,000. This amount included services in connection with the Company's IPO
in July 2000.
STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING
To be considered for inclusion in next year's proxy statement, stockholder
proposals must be in writing and be received at the Company's Headquarters no
later than the close of business on November 29, 2001.
Notices of intention to present proposals at the 2002 annual meeting should
be addressed to General Counsel, Arena Pharmaceuticals, Inc., 6166 Nancy Ridge
Drive, San Diego, California 92121. The Company reserves the right to reject,
rule out of order, or take appropriate action with respect to any proposal that
does not comply with these and any other applicable requirements.
ANNUAL REPORT
A copy of the Company's Annual Report for the 2000 fiscal year has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and vote at the Annual Meeting. The Annual Report is not incorporated
into this Proxy Statement and is not considered proxy solicitation material.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS,
SCHEDULES AND LIST OF EXHIBITS. THE COMPANY WILL FURNISH A COPY OF ANY EXHIBIT
TO SUCH REPORT UPON WRITTEN REQUEST AND PAYMENT OF THE
21
COMPANY'S REASONABLE EXPENSES IN FURNISHING SUCH EXHIBIT. REQUESTS SHOULD BE
SENT TO INVESTOR RELATIONS, ARENA PHARMACEUTICALS, INC., 6166 NANCY RIDGE DRIVE,
SAN DIEGO, CALIFORNIA 92121.
OTHER MATTERS
The Board of Directors knows of no other business that will be presented for
consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying Proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
Dated: March 29, 2000
By Order of the Board of Directors
/s/ Richard P. Burgoon, Jr.
Richard P. Burgoon, Jr.
Senior Vice President, Operations,
General Counsel & Secretary
22
EXHIBIT A
ARENA PHARMACEUTICALS, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
- Review financial information to be provided to stockholders and others.
- Monitor the integrity of the Company's financial reporting processing and
systems of internal controls.
- Monitor the independence and performance of the Company's independent
auditors.
- Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the Company. The Audit Committee may
retain, at the Company's expense, special legal, accounting or other consultants
or experts it deems necessary in the performance of its duties.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
The Audit Committee shall be comprised of at least three directors, each of
whom shall be independent, as determined by the Board of Directors and in
accordance with the applicable provisions of the Marketplace Rules of the
National Association of Securities Dealers, Inc. applicable to the Nasdaq Stock
Market, subject to such exceptions as may be permitted under such Rules. Audit
Committee members also shall satisfy the qualification requirements of the
Nasdaq Stock Market for Audit Committee membership, subject to such exceptions
as may be permitted under such Rules.
The Board of Directors shall appoint the members of the Audit Committee. If
the Chairman of the Audit Committee is not designated or present, the members of
the Committee may designate a Chairman by majority vote of the Committee
membership.
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Audit Committee should meet privately
in executive session at least annually with management, the independent auditors
and as a committee to discuss any matters that the Audit Committee or each of
these groups believe should be discussed.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
REVIEW PROCEDURES
In fulfilling its responsibilities, the Audit Committee is expected to
perform the following procedures:
1. Review and reassess the Charter of the Audit Committee at least annually
and recommend to the Board of Directors, as appropriate, amendments to
the Charter.
2. Review the Company's annual audited financial statements prior to filing
or distribution. In conducting its review, the Audit Committee should
discuss the following matters with management and the independent
auditors:
a. The independent auditors' audit of the financial statements and its
report thereon.
b. Any significant changes required in the independent auditors' audit
plan.
A-1
c. Any significant difficulties encountered during the course of the
audit (including any restriction on the scope of work or access to
required information).
d. Any significant disagreement among management and the independent
auditors in connection with preparation of the financial statements.
e. Other matters related to the conduct of the audit which are
communicated to the Audit Committee under generally accepted auditing
standards.
3. In consultation with the management and the independent auditors,
discuss the integrity of the Company's financial reporting processes and
controls. Review significant findings prepared by the independent
auditors together with management's responses.
4. Discuss significant financial risk exposures and the steps management
has taken to monitor, control and report such exposures.
5. Review the Company's quarterly financial results prior to the release of
earnings and the Company's quarterly financial statements prior to filing
or distribution. Discuss any significant changes to the Company's
accounting principles and any items communicated by the independent
auditors in accordance with Statement on Auditing Standards No. 61 (see
Item 11) or other significant findings based upon the auditors' review
procedures. As deemed appropriate, the Audit Committee shall review these
matters with financial management and the independent auditors. The
Chairman of the Committee or such other committee member as designated by
the Chairman of the Committee may represent the entire Audit Committee
for purposes of this review.
6. Meet with the independent auditors and management in separate executive
sessions to discuss any matters that the Audit Committee or these groups
believe should be discussed privately with the Audit Committee.
DUTIES RELATING TO THE INDEPENDENT AUDITORS
The independent auditors are ultimately accountable to the Audit Committee
and the Board of Directors, as representatives of the stockholders. Accordingly,
the Audit Committee is expected to perform the following activities with, or as
they relate to, the independent auditors:
7. Review the independence and performance of the auditors and annually
recommend to the Board of Directors the appointment of the independent
auditors or approve any discharge of auditors when circumstances warrant.
8. Approve the fees and other significant compensation to be paid to the
independent auditors.
9. Review and approve requests for significant management consulting
engagements to be performed by the independent auditors' firm and be
advised of any other significant study undertaken at the request of
management that is beyond the scope of the audit engagement letter.
10. On an annual basis, the Committee should review, and discuss with the
independent auditors, all significant relationships the independent
auditors have with the Company that could impair the auditors'
independence. This review should include, without limitation, the
following:
a. Receiving a formal written statement from the independent auditor
delineating all relationships between the auditor and the Company,
consistent with Independence Standards Board Statement No. 1.
b. Actively engaging in a dialog with the independent auditor with
respect to any disclosed relationships or services that my have an
impact on the objectively and independence of the independent
auditor.
A-2
11. Review the independent auditors audit plan. This review should include a
discussion of scope, staffing, locations, reliance upon management and
general audit approach.
12. Prior to releasing the year-end earnings, discuss, out of the presence
of management, the results of the audit with the independent auditors.
The discussion should include the matters set forth in item 2, as well as
the following:
a. The adequacy of the Company's internal controls, including
computerized information system controls and security.
b. Any related significant findings and recommendations of the
independent auditor together with management's responses to them.
c. The independent auditor's judgment about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting. Without limiting the foregoing, the Audit
Committee is expected to inquire as the independent auditors' views
about whether management's choices of accounting principles appear
reasonable from the perspective of income, asset and liability
recognition, and whether those principles are common practices or are
minority practices.
OTHER AUDIT COMMITTEE RESPONSIBILITIES
13. Recommend to the Board of Directors whether the Company's audited
financial statements should be included in the Company's Annual Report on
Form 10-K for filing with the Securities and Exchange Commission.
14. Annually prepare a report to stockholders as required by the Securities
and Exchange Commission. The report should be included in the Company's
proxy statement relating to the annual meeting of stockholders.
15. Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Committee or the Board deems necessary
or appropriate.
16. Maintain minutes of meetings and periodically report to the Board of
Directors on its activities.
17. Periodically perform self-assessment of audit committee performance.
18. Discuss and address with the independent auditors any significant issues
relative to overall board responsibility that, in the judgment of the
independent auditors, have been communicated to management but have not
been adequately resolved.
A-3
EXHIBIT B
2001 ARENA EMPLOYEE STOCK PURCHASE PLAN
B-1
[ARENA PHARMACEUTICALS, INC. LOGO]
ARENA PHARMACEUTICALS, INC.
2001 ARENA EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the 2001 Arena Employee Stock
Purchase Plan.
1. PURPOSE. The purpose of the Plan is to provide employees of Arena
Pharmaceuticals, Inc. (the "Company") and its Designated Subsidiaries with an
opportunity to purchase Common Stock of the Company through accumulated payroll
deductions. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of
1986, as amended. The provisions of the Plan, accordingly, shall be construed so
as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
References to specific sections of the Code shall be taken to be references
to corresponding sections of any successor statute.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean Arena Pharmaceuticals, Inc., or any successor
by merger or otherwise, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base gross earnings, commissions,
overtime, shift premium, incentive compensation, incentive payments, and
bonuses before giving effect to any compensation reductions made in
connection with plans described in section 401(k) or 125 of the Code, but
exclusive of payments for any other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
designated by the Board from time to time in its sole discretion as eligible
to participate in the Plan. For purposes of the Plan, BRL Screening, Inc.
shall be deemed to have been designated by the Board as a Designated
Subsidiary.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is
on sick leave or other leave of absence approved by the Company. Where the
period of leave exceeds 90 days and the individual's right to reemployment
is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such
leave.
(h) "Enrollment Date" shall mean the first Trading Day of each Offering
Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
Period.
B-2
(j) "Fair Market Value" shall mean, as of any date, the value of Common
Stock determined as follows:
(1) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day on the date of such determination,
as reported in THE WALL STREET JOURNAL or such other source as the Board
deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in THE WALL
STREET JOURNAL or such other source as the Board deems reliable; or
(3) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the Board.
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan
may be exercised, commencing on the first Trading Day on or after
January 1, April 1, July 1, and October 1 of each year and terminating on
the last Trading Day in the periods ending twenty-four months later. The
first Offering Period shall be the period commencing July 1, 2001 and
terminating on the last Trading Day on or before June 30, 2003. The duration
and timing of Offering Periods may be changed pursuant to Section 4 of this
Plan.
(l) "Plan" shall mean this 2001 Arena Employee Stock Purchase Plan.
(m) "Purchase Period" shall mean the approximately three (3) month
period commencing on the next Trading Day following the preceding Exercise
Date and ending with the next Exercise Date, except that the first Purchase
Period of any Offering Period shall commence on the Enrollment Date and end
with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a share
of Common Stock on the Enrollment Date or on the Exercise Date, whichever is
lower; provided however, that the Purchase Price may be adjusted by the
Board pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock covered
by each option under the Plan that have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges and
the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the
B-3
capital stock of the Company or of any parent or subsidiary corporation, or
(ii) to the extent that his or her rights to purchase stock under all
employee stock purchase plans of the Company and any parent or subsidiary
corporation accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares
at the time such option is granted) for each calendar year in which such
option is outstanding at any time.
4. OFFERING PERIODS.
(a) PLAN IMPLEMENTATION. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the
first Trading Day on or after January 1, April 1, July 1, and October 1 of
each year, or on such other date as the Board (or its committee appointed
pursuant to Section 14) shall determine, and continuing thereafter until
terminated in accordance with Section 20 hereof. The first Offering Period
shall begin on July 1, 2001 and, except as may be otherwise provided for in
Section 4(c), shall end on the last Trading Day on or before June 30, 2003.
The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced prior to the
scheduled beginning of the first Offering Period to be affected thereafter.
(b) OFFERING PERIOD DURATION. Each Offering Period shall be for a period
of approximately twenty-four (24) months during which an option granted
pursuant to the Plan may be exercised.
(c) AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, stock exchange rules, or
Nasdaq Stock Market rules, if the Fair Market Value of the Common Stock on
any Exercise Date in an Offering Period is lower than the Fair Market Value
of the Common Stock on the Enrollment Date of such Offering Period, then all
participants in such Offering Period shall be automatically withdrawn from
such Offering Period immediately after the exercise of their option on such
Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.
(d) CHANGES BY BOARD. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without stockholder approval if such change is
announced prior to the scheduled beginning of the first Offering Period to
be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the
form of EXHIBIT A attached to this Plan and filing it with the Company's
payroll office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during
the Offering Period in an amount not exceeding fifteen percent (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
B-4
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or
filing with the Company's payroll office a new subscription agreement
authorizing a change in payroll deduction rate. The Board may, in its
discretion, limit the number of participation rate changes during any
Offering Period. The change in rate shall be effective with the first full
payroll period following five (5) business days after the Company's receipt
of the new subscription agreement unless the Company elects to process a
given change in participation more quickly. A participant's subscription
agreement shall remain in effect for successive Offering Periods unless
terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during
a Purchase Period. Payroll deductions shall recommence at the rate provided
in such participant's subscription agreement at the beginning of the first
Purchase Period that is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise
upon the exercise of the option or the disposition of the Common Stock. At
any time, the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to
make available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than Six
Hundred Twenty Five (625) shares of the Company's Common Stock (subject to any
adjustment pursuant to Section 19), and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
The Board may, for future Offering Periods, increase or decrease, in its
absolute discretion, the maximum number of shares of the Company's Common Stock
an Employee may purchase during each Purchase Period of such Offering Period.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to the option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or
her account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase
a full share shall be retained in the participant's account for the
subsequent Purchase Period or Offering Period, subject to earlier withdrawal
by the participant as provided in Section 10 hereof. Any other monies left
over in a participant's account after the Exercise Date shall be returned to
the participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
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(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under
the Plan on the Enrollment Date of the applicable Offering Period, or
(ii) the number of shares available for sale under the Plan on such Exercise
Date, the Board may in its sole discretion (x) provide that the Company
shall make a pro rata allocation of the shares of Common Stock available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as
uniform a manner as shall be practicable and as it shall determine in its
sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Exercise Date, and continue all Offering
Periods then in effect, or (y) provide that the Company shall make a pro
rata allocation of the shares available for purchase on such Enrollment Date
or Exercise Date, as applicable, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and terminate any or all Offering Periods then in effect
pursuant to Section 20 hereof. The Company may make pro rata allocations of
the shares available on the Enrollment Date of any applicable Offering
Period pursuant to the preceding sentence, notwithstanding any authorization
of additional shares for issuance under the Plan by the Company's
stockholders subsequent to such Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on which a
purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his
or her option under the Plan at any time by giving written notice to the
Company's payroll office in the form of EXHIBIT B attached to this Plan. All
of the participant's payroll deductions credited to his or her account shall
be paid to such participant promptly after receipt of notice of withdrawal
and such participant's option for the Offering Period shall be automatically
terminated, and no further payroll deductions for the purchase of shares
shall be made for such Offering Period. If a participant withdraws from an
Offering Period, payroll deductions shall not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company's
payroll office a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan
that may hereafter be adopted by the Company or in succeeding Offering
Periods that commence after the termination of the Offering Period from
which the participant withdraws.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the Company
as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be One Million (1,000,000) shares.
(b) The participant shall have no interest or voting rights in shares
covered by his or her option until such option has been exercised.
B-6
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant
and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file with the Company's payroll office a written
designation of a beneficiary who is to receive any shares and cash from the
participant's account under the Plan in the event of such participant's
death subsequent to an Exercise Date on which the option is exercised but
prior to delivery to such participant of such shares and cash. In addition,
a participant may file with the Company's payroll office a written
designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's
death prior to the exercise of the option. If a participant is married and
the designated beneficiary is not the spouse, spousal consent shall be
required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is
living at the time of such participant's death, the Company shall deliver
such shares and/or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may
deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 15 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds from
an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered
by each option under the Plan which have not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of shares of Common Stock
effected without
B-7
receipt of consideration by the Company; provided, however, that conversion
of any convertible securities of the Company shall not be deemed to have
been "effected without receipt of consideration". Such adjustment shall be
made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of a proposed dissolution
or liquidation of the Company, the Offering Period then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution
or liquidation. The Board shall notify each participant in writing, at least
ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date
and that the participant's option shall be exercised automatically on the
New Exercise Date, unless prior to such date the participant has withdrawn
from the Offering Period as provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed
or an equivalent option substituted by the successor corporation or a parent
or subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase
Periods then in progress shall be shortened by setting a new Exercise Date
(the "New Exercise Date") and any Offering Periods then in progress shall
end on the New Exercise Date. The New Exercise Date shall be before the date
of the Company's proposed sale or merger. The Board shall notify each
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date
the participant has withdrawn from the Offering Period as provided in
Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or
the Plan is in the best interests of the Company and its stockholders.
Except as provided in Section 19 and this Section 20 hereof, no amendment
may make any change in any option theretofore granted which adversely
affects the rights of any participant. To the extent necessary to comply
with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or Nasdaq stock market rule or stock
exchange rule), the Company shall obtain stockholder approval in such a
manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee appointed pursuant to Section 14) shall be entitled
to change the Offering Periods, limit the frequency and/or number of changes
in the amount withheld during an Offering Period, establish the exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the
B-8
participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of the
Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequences
including, but not limited to:
(1) altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
(2) shortening any Offering Period so that the Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of the Nasdaq Stock Market or any stock exchange upon which the shares may then
be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of an
option, the Company may require the person exercising such option to represent
and warrant at the time of any such exercise that the shares are being purchased
only for investment and without any present intention to sell or distribute such
shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the stockholders of
the Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 20 hereof.
24. MISCELLANEOUS.
(a) ADMINISTRATIVE COSTS. The Company shall pay the administrative
expenses associated with the operation of the Plan (other than brokerage
commissions resulting from sales of Common Stock directed by Employees).
(b) NO EMPLOYMENT RIGHTS. Participation in the Plan shall not give an
Employee any right to continue in the employment of the Company, and shall
not affect the right of the Company to terminate the Employee's employment
at any time, with or without cause.
(c) REPURCHASE OF STOCK. The Company shall not be required to purchase
or repurchase from any Employee any of the shares of Common Stock that the
Employee acquires under the Plan.
(d) INTERNAL REVENUE CODE AND ERISA CONSIDERATIONS. The Plan is intended
to constitute an "employee stock purchase plan" within the meaning of
section 423 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. The provisions of the Plan, accordingly, shall be
construed so as to comply with the requirements of that section of the Code
or any successor provision, and the regulations thereunder. The Plan is not
intended and shall not be construed as
B-9
constituting an "employee benefit plan," within the meaning of section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended.
(e) HEADINGS, CAPTIONS, GENDER. The headings and captions herein are for
convenience of reference only and shall not be considered as part of the
text. The masculine shall include the feminine, and vice versa.
(f) SEVERABILITY OF PROVISIONS, PREVAILING LAW. The provisions of the
Plan shall be deemed severable. In the event any such provision is
determined to be unlawful or unenforceable by a court of competent
jurisdiction or by reason of a change in an applicable statute, the Plan
shall continue to exist as though such provision had never been included
therein (or, in the case of a change in an applicable statute, had been
deleted as of the date of such change). The Plan shall be governed by the
laws of the State of California to the extent such laws are not in conflict
with, or superseded by, federal law.
[END OF PLAN]
B-10
[ARENA PHARMACEUTICALS, INC. LOGO]
ARENA PHARMACEUTICALS, INC.
EXHIBIT A
2001 ARENA EMPLOYEE STOCK PURCHASE PLAN
*SUBSCRIPTION AGREEMENT*
________ Original Application Enrollment Date: ________________
________ Change in Payroll Deduction Rate
________ Change of Beneficiary(ies)
1. hereby elects to participate in the 2001 Arena Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
% of my Compensation on each payday (from 1 to 15%) during the
Offering Period in accordance with the Employee Stock Purchase Plan. (PLEASE
NOTE that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that if I do not withdraw from an Offering Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
---------------------------------------------;
---------------------------------------------.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the Offering
Period during which I purchased such shares) or one year after the Exercise
Date, I will be treated for federal income tax purposes as having received
ordinary income at the time of such disposition in an amount equal to the
excess of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I hereby agree
to notify the Company in writing immediately upon any disposition of my
shares and I will make adequate provision for Federal, state or other tax
withholding obligations, if any, which arise upon the disposition of the
Common Stock. The Company may, but will not be obligated to, withhold from
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that
B-11
I will be treated for federal income tax purposes as having received income
only at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2) 15%
of the fair market value of the shares on the first day of the Offering
Period. The remainder of the gain, if any, recognized on such disposition
will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan.
The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
------------------------ ---------------------------- ----------------------------
(First) (Middle) (Last)
--------------------------------------------------------
Relationship to Employee
ADDRESS:
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
Employee's Social ------------------------------------------------------------
Security Number:
Employee's Address: ------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE
OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
----------------------------------------------------
--------------------------------------------------------
Signature of Employee
--------------------------------------------------------
Spouse's Signature (If beneficiary under item 8 is OTHER than spouse)
B-12
[ARENA PHARMACEUTICALS, INC. LOGO]
ARENA PHARMACEUTICALS, INC.
EXHIBIT B
2001 ARENA EMPLOYEE STOCK PURCHASE PLAN
*NOTICE OF WITHDRAWAL*
The undersigned participant in the Offering Period of the 2001 Arena
Employee Stock Purchase Plan that began on ____________, 20______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
Signature:
- ------------------------------------------------------------
Date:
- ------------------------------------------------------------
B-13
ARENA PHARMACEUTICALS, INC.
6166 Nancy Ridge Drive
San Diego, California 92121
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE 2001 ANNUAL
MEETING OF STOCKHOLDERS
The undersigned stockholder of ARENA PHARMACEUTICALS, INC., a
Delaware corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders, Proxy Statement each dated March 29, 2001 and the
Annual Report to Stockholders, and hereby appoints Jack Lief and Richard P.
Burgoon, Jr., the President and the Secretary, respectively, of Arena
Pharmaceuticals, Inc. (the "Company"), or each of them, as proxies and
attorneys-in-fact, with all powers of substitution, to represent and vote, as
set forth below, the shares of Common Stock of the Company held of record by
the undersigned at the close of business on March 15, 2001, at the 2001
Annual Meeting of Stockholders of the Company, which is being held at the
offices of the Company at 6166 Nancy Ridge Drive, San Diego, California
92121, on Tuesday, May 8, 2001, at 10:00 am, San Diego local time, and at any
adjournments or postponements of such meeting, with all powers which the
undersigned would possess if personally present at such meeting or at any
such postponement or adjournment, and, in their discretion, to vote such
shares upon any other business that may properly come before the meeting or
any adjournments or postponements thereof.
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THE PROXY WILL BE VOTED "FOR"
PROPOSAL NOS. 1, 2 AND 3 AND WILL BE VOTED BY THE PROXYHOLDERS AT THEIR
DISCRETION UPON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL
MEETING OR ANY ADJOURNMENT OR POSTPONEMENTS THEREOF.
ARENA PHARMACEUTCIALS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3 BELOW.
1. ELECTION OF DIRECTORS
For [ ] Withhold [ ] For All Except [ ]
______________________
Nominees Excepted
Nominees: Jack Lief, Dominic P. Behan, Ph.D., Derek T. Chalmers, Ph.D., John
P. McAlister, III, Ph.D., Michael Steinmetz, Ph.D., and Stefan Ryser, Ph.D.
(INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"FOR ALL NOMINEES LISTED BELOW EXCEPT" and write that nominee's name in the
space to the right thereof.)
2. Ratification of Selection of Ernst & Young LLP as Independent Auditors
For [ ] Against [ ] Abstain [ ]
3. Proposal to Approve 2001 Arena Employee Stock Purchase Plan with
1,000,000 shares of common stock reserved for issuance thereunder
For [ ] Against [ ] Abstain [ ]
Check here if you plan to attend the annual meeting [ ]
Dated _________________________________________________________________________
_______________________________________________________________________________
Signature
NOTE: This Proxy should be marked, dated and signed by the stockholder(s)
exactly as his or her name appears hereon. If shares are held by joint
tenants or as community property, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full
title as such.
Please return in the envelope provided or fax to (303) 986-2444, Attention:
Proxy Department
CONTROL NUMBER
PLEASE VOTE, SIGN, DATE AND RETURN
THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.