SCHEDULE 14A
(Rule 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
---------------
NPS PHARMACEUTICALS, INC.
(Name of Registrant as Specified in Its Charter)
---------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Not
Applicable
(2) Aggregate number of securities to which transaction applies: Not
Applicable
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined):
Not Applicable
(4) Proposed maximum aggregate value of transaction: Not Applicable
(5) Total fee paid: Not Applicable
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: Not Applicable
(2) Form, Schedule or Registration Statement No.: Not Applicable
(3) Filing Party: Not Applicable
(4) Date Filed: Not Applicable
NPS PHARMACEUTICALS, INC.
420 Chipeta Way
Salt Lake City, Utah 84108-1256
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 21, 2000 at 3:00 p.m. (Mountain time)
at the
Marriott Hotel
75 S. West Temple
Salt Lake City, Utah 84111
----------------
TO THE STOCKHOLDERS OF NPS PHARMACEUTICALS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of NPS
Pharmaceuticals, Inc., a Delaware corporation, will be held on Wednesday, June
21, 2000, at 3:00 p.m., local time, at the Marriott Hotel, 75 S. West Temple,
Salt Lake City, Utah for the following purposes:
1. To elect eleven members to the Board of Directors.
2. To approve an increase of 2,000,000 shares of common stock for
issuance under the Company's 1998 Stock Option Plan.
3. To ratify the selection of KPMG LLP as independent auditors of the
Company for its fiscal year ending December 31, 2000.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on May 2, 2000, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting of Stockholders and at any adjournment thereof.
By Order of the Board of Directors
James U. Jensen
Secretary
Salt Lake City, Utah
May 15, 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN,
AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN ORDER TO
ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS
POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT
PURPOSE. YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK, OR
OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
NPS PHARMACEUTICALS, INC.
420 Chipeta Way
Salt Lake City, Utah 84108-1256
----------------
PROXY STATEMENT
for the
Annual Meeting of Stockholders
(June 21, 2000)
----------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board of Directors" or the "Board") of NPS Pharmaceuticals, Inc., a Delaware
corporation ("NPS" or the "Company"), for use at the Annual Meeting of
Stockholders to be held on June 21, 2000, at 3:00 p.m., local time, and at any
adjournment or postponement thereof (the "Annual Meeting"), for the purposes
set forth herein and in the accompanying Notice of Annual Meeting. The Annual
Meeting will be held at the Marriott Hotel, 75 S. West Temple, Salt Lake City,
Utah.
Solicitation
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing, and mailing of this Proxy Statement, the proxy
card, and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries, and custodians holding in their names shares of NPS common stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of common stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram, or
personal solicitation by directors, officers, or other regular employees of the
Company. No additional compensation will be paid to directors, officers, or
other regular employees for such services.
The Company intends to mail this Proxy Statement and accompanying proxy card
on or about May 15, 2000, to all stockholders entitled to vote at the Annual
Meeting.
Voting Rights and Outstanding Shares
May 2, 2000 is the record date for determining those holders of NPS common
stock and exchangeable shares of NPS Allelix Inc., a subsidiary of the Company
("Exchangeable Shares") entitled to notice of and to vote at the Annual
Meeting. On the record date, the Company had outstanding and entitled to vote
23,841,887 shares of common stock which includes 1,687,279 Exchangeable Shares.
Each holder of the Company's common stock is entitled to one vote for each
share held as of the record date on all matters to be voted upon at the Annual
Meeting and CIBC Mellon Trust Company (the "Trustee"), the holder of the
company's Special Voting Share is entitled to one vote for each Exchangeable
Share of NPS Allelix Inc. outstanding as of the record date, other than
Exchangeable Shares owned by the Company and its affiliates. Holders of common
stock and the Special Voting Share are collectively referred to as
"Stockholders." Votes cast with respect to Exchangeable Shares will be voted
through the Special Voting Share by the Trustee as directed by the holders of
Exchangeable Shares, except votes cast at the Annual Meeting with respect to
Exchangeable Shares whose holders request to vote directly in person as proxy
for the Trustee, or who request that a proxy be given by the Trustee to a
designated agent or other representative of the management of the Company to
exercise such votes.
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All votes will be tabulated by the Inspector of Elections appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions, and broker non-votes. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders, and will
have the same effect as negative votes. Broker non-votes are counted toward a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
Revocability of Proxies
Any stockholder 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 the Company's headquarters, 420 Chipeta Way,
Salt Lake City, Utah 84108-1256, a written notice of revocation or a duly
executed proxy bearing a later date, or it may be revoked by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will not,
by itself, revoke a proxy. Holders of Exchangeable Shares who wish to direct
the Trustee to cast the votes attached to the Special Voting Share on their
behalf should follow carefully the instructions provided by the Trustee, which
accompany this Proxy Statement. The procedure for instructing the Trustee
differs in certain respects from the procedure for delivering a proxy,
including the place for depositing the instructions and manner for revoking the
proxy.
Stockholder Proposals for 2001
Proposals of stockholders that are intended to be presented at the Company's
2001 annual meeting of stockholders and considered for inclusion in the proxy
statement relating to such meeting must be received by the Company not later
than January 16, 2000. In order to be timely, stockholder proposals and
director nominations intended to be presented at the Company's 2001 annual
meeting, but not included in the proxy statement for the meeting, must be
received by the Company no earlier than March 23, 2001 and no later than April
22, 2001.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and the
Amended and Restated Bylaws provide that directors are to be elected at the
Annual Meeting to serve for a term of one year and until their respective
successors are duly elected and qualified or until their respective death,
resignation, or removal. Vacancies on the Board resulting from death,
resignation, disqualification, removal, or other causes and any newly created
directorships resulting from any increase in the number of directors shall be
filled by the affirmative vote of a majority of the directors then in office,
unless the Board of Directors determines by resolution that any such vacancy
shall be filled by the stockholders. A director elected by the Board to fill a
vacancy (including a vacancy created by an increase in the Board of Directors)
serves for the remainder of the full term of the director for which the vacancy
was created or occurred and until such director's successor is elected and
qualified.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the Annual Meeting. Shares
represented by executed proxies will be voted, if authority to do so is not
withheld, for the election of the eleven nominees below. In the event that any
nominee 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 the Board may propose.
Pursuant to the Company's Amended and Restated Certificate of Incorporation
and the Amended and Restated Bylaws, the number of directors which constitute
the whole Board of Directors is to be fixed by one or more resolutions adopted
by the Board. Messers Evans, Rygiel, and Stiller were each formerly members of
the board of directors of Allelix Biopharmaceuticals Inc. The Agreement and
Plan of Merger between the Company and Allelix Biopharmaceuticals Inc. required
that upon closing, three members of the board of
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Allelix Biopharmaceuticals Inc. were to be appointed to the NPS Board of
Directors. In September 1999, the Board of Directors adopted a resolution to
increase the number of directors to eleven, contingent on closing the
acquisition of Allelix Biopharmaceuticals Inc. In December 1999, the Company
closed on the acquisition of Allelix Biopharmaceuticals Inc. and three board
members of Allelix Biopharmaceuticals Inc. were appointed to the Company's
Board. There is no further obligation on the Company's part to appoint,
nominate, or cause to be elected the former Allelix Biopharmaceuticals Inc.
board members. Each of the eleven nominees is currently a director of the
Company, and each nominee has agreed to serve if elected. The Board has no
reason to believe that any nominee will be unable to serve. If and when elected
at the Annual Meeting, each of the nominees will serve until the 2001 Annual
Meeting of Stockholders and until such elected nominee's successor is duly
elected and qualified, or until such elected nominee's earlier death,
resignation, or removal.
Set forth below, in alphabetical order, is biographical information for each
person nominated to serve on the Company's Board of Directors.
NOMINEES FOR ELECTION
Santo J. Costa, J.D.
Mr. Costa, 54, has served as a director since 1995 and serves as a member of
the Compensation Committee. Mr. Costa has been Vice Chairman since November
1999 and a director since April 1994 of Quintiles Transnational Corporation, a
publicly held global contract research organization. From April 1994 to
November 1999 he served as President and Chief Operating Officer for Quintiles.
From July 1993 to April 1994, he ran his own consulting firm, Santo J. Costa
and Associates. From 1986 to 1993, he was employed by Glaxo, Inc., a worldwide
pharmaceutical company, where he served as Senior Vice President,
Administration and General Counsel and was a member of that company's Board of
Directors. From 1977 to 1986 he was employed by Merrell Dow Pharmaceuticals
(now part of Hoechst Marion Roussel) where he served as U.S. Area Counsel, and
from 1971 to 1977 as Food & Drug Counsel for Norwich/Eaton Pharmaceuticals.
Mr. Costa received his B.S. in Pharmacy and his J.D. from St. John's
University.
John R. Evans, M.D.
Dr. Evans, 70, has served as a director since the closing of the merger with
Allelix Biopharmaceuticals Inc. in December 1999. Previously, Dr. Evans was
Chairman of the Board of Allelix Biopharmaceuticals Inc. and its predecessor
since 1983. From 1979 to 1983, Dr. Evans served as a Director of the
Population, Health and Nutrition Department of the World Bank in Washington.
From 1972 to 1978 he served as President of the University of Toronto.
Currently, Dr. Evans is Chairman of the Canada Foundation for Innovation and
serves as Chairman of the Board for both Alcer Aluminum Limited in Montreal and
Torstar Corporation in Toronto. He is a director of the Walter-Duncan Gordon
Charitable Foundation and a member of the Board of Directors of MDS Inc., a
global health and life sciences company listed on the New York Stock Exchange
and the Toronto Stock Exchanges, and GlycoDesign, Inc. Dr. Evans received his
undergraduate medical training at the University of Toronto and engaged in
specialty training in internal medicine and cardiology in London, England,
Boston, and Toronto.
James G. Groninger
Mr. Groninger, 55, has served as a director since 1988 and serves as a
member of the Audit and Compensation Committees. Mr. Groninger founded in
January 1995 and is President of The Bay South Company, a Richmond, Virginia-
based provider of financial advisory and investment banking services. From 1988
through 1994, he served as a Managing Director, Investment Banking Division, of
PaineWebber Incorporated. Currently he serves on the Board of Directors of
Cygne Designs, Inc., a manufacturer of apparel; Layton Bioscience, a privately-
owned biotechnology company; and powerize.com, a privately owned internet
business search engine corporation. Mr. Groninger received a B.S. in Industrial
Administration from Yale University and an M.B.A. from Harvard Business School.
3
Hunter Jackson, Ph.D.
Dr. Jackson, 50, has been Chief Executive Officer and Chairman of the Board
since founding the Company in 1986 and serves as a member of the Nominating
Committee. He was appointed to the additional position of President in January
1994. Prior to founding the Company, he was an Associate Professor in the
Department of Anatomy at the University of Utah School of Medicine. Dr. Jackson
received a B.A. in English from the University of Illinois and a Ph.D. in
Psychobiology from Yale University. He received postdoctoral training in the
Department of Neurosurgery, University of Virginia Medical School.
James U. Jensen, J.D.
Mr. Jensen, 55, has been Vice President, Corporate Development and Legal
Affairs, since 1991. He has been Secretary and a director of the Company since
1987. From 1986 to 1991 he was a partner in the law firm of Woodbury, Jensen,
Kesler & Swinton, P.C. (or its predecessor firm) concentrating on technology
transfer and corporate finance. From 1985 until 1986, he served as Chief
Financial Officer of Cericor, a software company, and from 1983 to 1985, as its
outside general counsel. From 1980 to 1983 he served as General Counsel and
Secretary of Dictaphone Corporation, a subsidiary of Pitney Bowes Inc. He
serves as a director of Wasatch Funds, Inc., a registered investment company;
and of InterWest Home Medical, Inc., a public home use medical equipment
distributor. Mr. Jensen received a B.A. in English/Linguistics from the
University of Utah and a J.D. and an M.B.A. from Columbia University.
Joseph Klein, III
Mr. Klein, 39, was appointed to the Board of Directors of the Company in
1998 and serves as a member of the Compensation Committee. Currently, Mr. Klein
is Vice President, Strategy for Medical Manager Corporation, a physician office
management information systems vendor. From 1998 to 1999, Mr. Klein was a
Health Care Investment Analyst with the Kaufmann Fund, Inc. From 1995 to 1998,
Mr. Klein was a Portfolio Manager and Chairman of the Investment Advisory
Committee of T. Rowe Price Health Sciences Fund, Inc. From 1990 to 1998, Mr.
Klein was Vice President and Health Care Investment Analyst for T. Rowe Price
Associates, Inc., an investment management firm. Mr. Klein serves as a director
of Guilford Pharmaceuticals, a public biotech company; and Synbiotics
Corporation, a public veterinary diagnostic products company. Mr. Klein
received an M.B.A. with a concentration on finance and investments from
Stanford Graduate School of Business and a B.A. in economics from Yale
University.
Donald E. Kuhla, Ph.D.
Dr. Kuhla, 58, has been a director of the Company since 1991, and serves as
a member of the Audit and Nominating Committee. Since 1998, Dr. Kuhla has been
President and Chief Operating Officer of Albany Molecular Research, Inc., a
chemical contract research organization, where he has also been a director
since 1995. From 1994 through 1998 Dr. Kuhla was Vice President of Plexus
Ventures, Inc., a biotechnology investment and consulting firm. From 1990 to
1994, Dr. Kuhla held senior management positions with two venture capital
backed, biotechnology start-up companies. His early career was spent in
research and development and operations management positions with Pfizer Inc.
and Rorer Group, Inc., his last position at Rorer being Senior Vice President
of Operations. Dr. Kuhla received a B.A. in Chemistry from New York University
and a Ph.D. in Organic Chemistry from Ohio State University.
Thomas N. Parks, Ph.D.
Dr. Parks, 49, has been a director of the Company since its founding in
1986, and serves as a member of the Audit and Nominating Committees. Dr. Parks
also serves as a scientific consultant to NPS. He is currently the George and
Lorna Winder Professor of Neuroscience and Chairman of the Department of
Neurobiology and Anatomy at the University of Utah Medical School. Dr. Parks
joined the faculty at the University of Utah Medical School in 1978 as an
assistant professor. Dr. Parks received a B.S. in Biology from the University
of
4
California at Irvine and a Ph.D. in Psychobiology from Yale University. He was
a postdoctoral fellow in Development Neurology at the University of Virginia
Medical School.
Edward K. Rygiel
Mr. Rygiel, 60, has served as a director since the closing of the merger
with Allelix Biopharmaceuticals Inc. in December 1999. Previously, Mr. Rygiel
served on the Board of Allelix Biopharmaceuticals Inc. since 1995. Since
January 2000, Mr. Rygiel has been Executive Vice President of MDS Inc., a
global health and life sciences company listed on the New York and the Toronto
Stock Exchanges, and since 1995 he has been President and Chief Executive
Officer of MDS Capital Corp., a subsidiary of MDS Inc. From 1995 to 2000, Mr.
Rygiel was Senior Vice President, Strategic Investments, of MDS Inc. and
President and Chief Executive Officer of MDS Capital Corp. Prior to joining
MDS, he was a consultant specializing in business and corporate development
both in his own practice and before that with Urwick, Currie and Partners. From
1990 to 1999, Mr. Rygiel was Chairman of Drug Royalty Inc., a Toronto Stock
Exchange listed company. Mr. Rygiel currently is a member of the following
Boards of Directors: Hemosol, Inc., a Toronto Stock Exchange listed company;
MDS Protoeomics, Inc.; MDS Pharmacologies; and Nordion International Inc., all
of which are subsidiaries of MDS Inc. Mr. Rygiel earned a B.A. in Science from
the University of Toronto, School of Chemical Engineering.
Calvin R. Stiller, MD
Dr. Stiller, 59, has served as a director since the closing of the merger
with Allelix Biopharmaceuticals Inc. in December 1999. Previously, Mr. Stiller
served on the Board of Allelix Biopharmaceuticals Inc. since 1999. Since 1996,
Mr. Stiller has served as Chairman and Chief Executive Officer of Canadian
Medical Discoveries Fund. Dr. Stiller served as the Chief of the Multi-Organ
Transplant Service at the University Hospital in London, Ontario from 1984
through 1996. He is a full professor of medicine at the University of Western
Ontario. Dr. Stiller is the Chairman of the Ontario Research and Development
Challenge Fund and sits as a director of Drug Royalty Corp. Inc., and CPL
Trust, a public company listed on the Toronto Stock Exchange. He is also on the
Board of Genetic Diseases Network, Arthritis Network, and Transplantation
Technologies Inc. Dr. Stiller obtained his medical degree from the University
of Saskatchewan. Following graduation, he returned to the University of Western
Ontario and University Hospital to become a professor at the Department of
Medicine and co-director of Immunology at the John P. Robarts Research
Institute.
Peter G. Tombros
Mr. Tombros, 58, was appointed to the Board of Directors of the Company in
1998 and serves as Chairman of the Compensation Committee and a member of the
Nominating Committee. Since 1994, Mr. Tombros has served as President, Chief
Executive Officer, and a Director of Enzon, Inc., a public biopharmaceutical
company that develops, manufactures, and markets enhanced therapeutics. Prior
to joining Enzon, Mr. Tombros spent 25 years with Pfizer, Inc., a research
based, global healthcare company. Mr. Tombros served as Vice President of
Pfizer, Inc. in the following areas: Executive Vice President of Pfizer
Pharmaceuticals, a division of Pfizer, Inc., Corporate Strategic Planning, and
Investor Relations. Currently, Mr. Tombros serves on the Board of Directors of
the following: Enzon, Inc.; ALPHARMA Inc., a Norwegian company specializing in
the areas of animal health, pharmaceuticals, and fine chemicals; the New Jersey
Technology Council; the Biotechnology Council of New Jersey; and the American
Foundation for Pharmaceutical Education. He is also on the Board of Trustees of
Cancer Care and the National Cancer Care Foundation. Mr. Tombros received a
B.S. and M.S. from Pennsylvania State University and an MBA from the Wharton
Graduate School of Business.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE
5
Board Committees and Meetings
The Board has standing Audit, Compensation, and Nominating Committees each
with a formal, written charter.
The Audit Committee's functions include: meeting with the Company's
independent auditors at least annually to review the results of the annual
audit and discuss the financial results for the year as reported in the
Company's financial statements; recommending to the Board of Directors the
independent auditors to be retained for the ensuing year; and receiving and
considering the auditors' comments as to controls, adequacy of staff and
management performance and procedures in connection with audit and financial
controls. During 1999, the Audit Committee was composed of three non-employee
directors, Mr. Groninger, Dr. Kuhla, and Dr. Parks. The Audit Committee met two
times during the fiscal year ended December 31, 1999.
The Compensation Committee's functions include: establishing, reviewing, and
overseeing salaries, incentive compensation, and other forms of compensation
paid to officers and employees of the Company; administering the Company's
incentive compensation and benefit plans, including the 1998 Stock Option Plan,
1994 Employee Stock Purchase Plan, the 1994 Equity Incentive Plan, and the 1987
Stock Option Plan; and performing such other functions regarding compensation
as the Board of Directors may delegate. The Compensation Committee reviews the
performance of the Company's officers, particularly the CEO and submits the
Report of the Compensation Committee set out below. During 1999, the
Compensation Committee was composed of non-employee directors, Mr. Tombros, Mr.
Costa, Mr. Groninger, and Mr. Klein. The Compensation Committee met two times
during the fiscal year ended December 31, 1999.
The Nominating Committee's functions include: evaluating Director
performance on at least an annual basis; providing information and materials
relating to the nomination of directors; interviewing, nominating, and
recommending individuals for membership on the Company's Board of Directors and
its committees; and performing such other functions as the Board of Directors
may delegate. The Nominating Committee will consider nominees for directors
nominated by stockholders upon submission in writing to the Secretary of the
Company of the names of such nominees, together with their qualifications for
service as a director of the Company. In order for any nominees for directors
nominated by stockholders to be considered by the Nominating Committee, such
nominations must be submitted no later than December 1st of the year preceding
the Annual Meeting. The Nominating Committee did not formally meet during the
fiscal year ended December 31, 1999. During 1999, the members of the Nominating
Committee were Dr. Kuhla, Dr. Jackson, Dr. Parks, and Mr. Tombros.
During the fiscal year ended December 31, 1999, the Board of Directors held
five meetings. Each Board member standing for reelection attended 75% or more
of the aggregate of the meetings held by the Board and by the respective
committees on which such Board member served during the period for which he was
a director or a member of such committee.
PROPOSAL 2
INCREASE IN SHARES ISSUABLE UNDER THE 1998 STOCK OPTION PLAN
In March 1998, the Board of Directors adopted, and the stockholders
subsequently approved, the company's 1998 Stock Option Plan (the "1998 Option
Plan"). In May 2000, the Board of Directors adopted a resolution, subject to
stockholder approval, amending the Company's 1998 Option Plan. The amendment
increases by 2,000,000 the number of shares authorized for issuance under the
1998 Option Plan from 1,000,000 shares to 3,000,000 shares.
Stockholders are requested in this Proposal 2 to approve the amendment to
the 1998 Option Plan. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting is required to approve this Proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
6
1998 Stock Option Plan--Summary
A summary of the principal features of the 1998 Option Plan follows and is
qualified in its entirety by reference to the full text of the 1998 Option Plan
that was filed electronically with this Proxy Statement with the Securities and
Exchange Commission, such text is not included in the printed version of this
Proxy. A copy of the 1998 Option Plan can be obtained from the Company upon
request.
In March 1998, the Board adopted the 1998 Option Plan, which was
subsequently approved by the stockholders on May 20, 1998. One million shares
were originally authorized for issuance under the 1998 Option Plan. The
purposes of the 1998 Option Plan are to attract and retain qualified personnel,
to provide additional incentives to employees, officers, directors, and
consultants of the Company, and its affiliates, and to promote the success of
the Company's business. Under the 1998 Option Plan, the Company may grant NSOs
to employees, officers, directors, and consultants of the Company, and its
affiliates, and may grant ISOs to employees of the Company, and its affiliates.
As of December 31, 1999, options to purchase a total of 4,005 shares of common
stock had been exercised for cash and services under the 1998 Option Plan at a
weighted average exercise price of $6.67 per share. As of December 31, 1999,
there were outstanding options to purchase 727,327 shares of common stock with
exercise prices ranging from $6.625 to $7.1875 per share, and a weighted
average exercise price per share of $6.56. A balance of 268,668 shares remain
available for futre option grants under the 1998 Option Plan.
The 1998 Option Plan provides for the grant of incentive stock options
("ISOs") and nonstatutory stock options ("NSOs"). ISOs granted under the 1998
Option Plan are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). NSOs granted under the 1998 Option Plan are intended not to qualify as
incentive stock options under the Code. See "Federal Income Tax Information"
for a discussion of the tax treatment of the various awards included in the
1998 Option Plan.
Purpose
The 1998 Option Plan was adopted to provide a means by which employees
(including officers), directors, and consultants to the Company and its
affiliates may be given an opportunity to benefit from increases in the value
of the stock of the Company, to secure and retain the services of persons
holding or capable of filling such positions, and to provide incentives for
such persons to exert maximum efforts on behalf of the Company and thereby
promote the long-term interest of the Company, including the growth in value of
the Company's equity and enhancement of long-term stockholder value.
Administration
The 1998 Option Plan is administered by the Board. The Board has the power
to construe and interpret the 1998 Option Plan and, subject to the provisions
of the 1998 Option Plan, to determine the persons to whom and the dates on
which options will be granted, what type of option will be granted, the number
of shares to be subject to each option, the time or times during the term of
each option within which all or a portion of such option may be exercised, the
exercise price, the type of consideration, and other terms of the option. The
Board is authorized to delegate administration of the 1998 Option Plan to a
committee or committees composed of one or more members of the Board and has
delegated such administration to the Compensation Committee (the "Committee").
The Committee has the powers to administer the 1998 Option Plan subject to such
limitations as the Board provides. As used herein with respect to the 1998
Option Plan, where appropriate, the term "Board" refers to the Compensation
Committee.
In order to maximize the Company's ability to recognize a business expense
deduction under Section 162(m) of the Code in connection with compensation
recognized by "covered employees" (defined in Section 162(m) as the chief
executive officer and other four most highly compensated officers), the
regulations under Section 162(m) require that the directors who serve as
members of the Committee responsible for administering
7
the 1998 Option Plan with respect to these covered employees must be "outside
directors." The 1998 Option Plan provides that in the discretion of the Board,
a committee may consist solely of two or more "outside directors," in
accordance with Code Section 162(m), or solely of two or more "non-employee
directors," in accordance with Rule 16b-3. The Committee composition as
described above currently consists of three outside, non-employee directors.
Eligibility
ISOs may be granted under the 1998 Option Plan to employees (including
officers) of the Company and any affiliates. Employees (including officers),
directors, and consultants of the Company are all eligible to receive NSO
awards under the 1998 Option Plan.
ISOs granted to a 10% shareholder (i.e. an employee who, at the time of the
grant, owns or is deemed to own, stock possessing more than 10% of the total
combined voting power of the Company or any affiliate of the Company) must have
an exercise price at least 110% of the fair market value of the stock subject
to the option on the date of grant, and the term of the option does not exceed
five years from the date of grant. For ISOs granted under the 1998 Option Plan,
the aggregate fair market value determined at the time of grant of the shares
of Common Stock with respect to which such options are exercisable for the
first time by an optionee during any calendar year (under all such plans of the
Company and its affiliates), may not exceed $100,000.
In order to ensure that the Company will be able to deduct for tax purposes
the compensation attributable to the exercise of options granted under the 1998
Option Plan, the Company has included in the 1998 Option Plan a provision
limiting the maximum number of shares of Common Stock that may be covered by
stock options issued under the 1998 Option Plan to one individual for any
consecutive three calendar years to 750,000.
Stock Subject to the Plan
The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the 1998 Option Plan is 1,000,000 shares. Approval of
Proposal 2 will increase this amount to 3,000,000 shares. Any shares of stock
granted under the 1998 Option Plan that are forfeited because of the failure to
meet an option grant contingency or condition shall again be available for
delivery pursuant to new grants. To the extent any shares of stock covered by a
grant are not delivered to an optionee because the award is forfeited or
canceled, or the shares of stock are not delivered because the award is settled
in cash, such shares shall not be deemed to have been delivered for purposes of
determining the maximum number of shares of stock available for delivery under
the 1998 Option Plan. If the exercise price of any option granted under the
1998 Option Plan is satisfied by tendering shares of stock of the Company, only
the number of shares of stock issued net of the shares of stock tendered shall
be deemed delivered for purposes of determining the maximum number of shares of
stock available for delivery under the 1998 Option Plan. Shares of stock
delivered under the 1998 Option Plan in settlement, assumption, or substitution
of outstanding awards (or obligations to grant future awards) under the plans
or arrangements of another entity shall not reduce the maximum number of shares
of stock available for delivery under the 1998 Option Plan, to the extent that
such settlement, assumption, or substitution is a result of the Company or an
affiliate acquiring another entity (or an interest in another entity). In
conjunction with the Allelix Biopharmaceuticals acquisition, the Company agreed
to deliver up to 407,055 shares, at weighted average exercise prices of $9.24
per share, of NPS common stock in settlement of outstanding awards under
Allelix Biopharmaceuticals stock option plans.
Terms of the Options
The following is a description of the permissible terms of options under the
1998 Option Plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
8
Exercise Price, Payment. The exercise price of ISOs and NSOs under the 1998
Option Plan may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant, and in some cases with
respect to ISOs (see "Eligibility" above) may not be less than 110% of such
fair market value.
The exercise price of options granted under the 1998 Option Plan may be paid
either:
(1) in cash at the time the option is exercised;
(2) by delivery of other Common Stock of the Company or a combination of
cash and already owned Common Stock;
(3) through surrender of shares of Common Stock available for exercise
under the Option;
(4) pursuant to a deferred payment arrangement;
(5) pursuant to a broker-assisted exercise same-day sales program;
(6) in any other form of legal consideration acceptable to the Board; or
(7) any combination of the above.
Exercise Price, No Repricing. Except for certain adjustments due to
corporate transactions (see "Adjustment Provisions" and "Effect of Certain
Corporate Events" below), the exercise price for any stock option (ISOs and
NSOs) under the 1998 Option Plan may not be decreased after the grant of such
stock option, and a stock option may not be surrendered as consideration in
exchange for the grant of a new stock option with a lower exercise price.
Option Exercise. Options granted under the 1998 Option Plan may become
exercisable ("vest") in cumulative increments as determined by the Board. The
Board has the power to accelerate the time during which an option may be
exercised, and options granted may contain provisions for accelerated vesting
upon specified events or conditions. In addition, options granted under the
1998 Option Plan may permit exercise prior to vesting, but in such event, the
optionee may be required to enter into an early exercise stock purchase
agreement that allows the Company to repurchase shares not yet vested at their
exercise price should the optionee leave the employ of the Company before
vesting.
Term. The maximum term of ISOs and NSOs under the 1998 Option Plan is ten
years, except that in certain cases (see "Eligibility") the maximum term of
ISOs is five years. ISO status terminates three months after termination of the
optionee's employment with the Company or association as director or affiliate
of the Company, unless (a) such termination is due to such person's permanent
and total disability (as defined in the Code), in which case the option may,
but need not, provide that it may be exercised at any time within one year of
such termination; (b) the optionee dies while serving, or within in a three-
month period of having served the Company or any affiliate of the Company, in
which case the option may, but need not, be exercisable (to the extent that the
option was exercisable at the time of the optionee's death) within twelve
months of the optionee's death by the person or persons to whom the rights to
such option pass by will or by the laws of descent and distribution; or (c) the
option by its terms specifically provide otherwise. Individual options by their
terms may provide for exercise within a longer period of time following
termination of employment or the consulting relationship.
Adjustment Provisions. If there is any change in the Common Stock subject to
the 1998 Option Plan or subject to any award granted under the 1998 Option Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the 1998 Option Plan and awards outstanding thereunder
may be appropriately adjusted as to the type of security and the maximum number
of shares subject to such plan, the maximum number of shares which may be
granted to an employee during any calendar year, and the type of security,
number of shares and price per share of stock subject to such outstanding
awards in order to preserve (or prevent enlargement of) the benefits or
potential benefits intended at the time of the grant.
9
Effect of Certain Corporate Events. The 1998 Option Plan provides that, in
the event of a dissolution or liquidation of the Company, specified type of
merger or other corporate reorganization, to the extent permitted by law, any
surviving corporation will be required to either assume awards outstanding
under the 1998 Option Plan or substitute similar awards for those outstanding
under the 1998 Option Plan, or such outstanding awards will continue in full
force and effect. In the event that any surviving corporation declines to
assume or continue awards outstanding under the 1998 Option Plan, or to
substitute similar awards, then the time during which such awards may be
exercised may be accelerated and the awards terminated if not exercised during
such time. The acceleration of an award in the event of an acquisition or
similar corporate event may be viewed as an anti-takeover provision, which may
have the effect of discouraging a proposal to acquire or otherwise obtain
control of the Company.
Duration, Amendment, and Termination. The Board may suspend or terminate the
1998 Option Plan without stockholder approval or ratification at any time or
from time to time. The Board may also amend the 1998 Option Plan at any time or
from time to time. However, no such amendment will be effective unless
necessary in order for the 1998 Option Plan to satisfy or continue to satisfy
Sections 422 and/or 162(m) of the Code, if applicable, Rule 16b-3, and/or
Nasdaq or other securities exchange listing requirements, or if such amendment
would increase the number of shares issuable under the 1998 Option Plan or
decrease the minimum stock option exercise price set forth in the 1998 Option
Plan or permit repricing outstanding options. The Board may submit any other
amendment to the 1998 Option Plan for stockholder approval, including, but not
limited to, amendments intended to satisfy the requirements of Section 162(m)
of the Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
Restriction on Transfer. Except as otherwise provided by the Board, awards
under the 1998 Option Plan are not transferable other than as designated by the
participant by will or by the laws of descent and distribution. In general,
ISOs may not be transferred by the optionee otherwise than by will or by the
laws of descent and distribution and, during the lifetime of the optionee, may
be exercised only by the optionee. NSOs may not be transferred except when
transfer to a family member or related trust or partnership is authorized by
express provision of the option grant agreement, by will or by the laws of
descent and distribution or pursuant to a domestic relations order satisfying
the requirements of Rule 16b-3 and, during the lifetime of the optionee, may be
exercised only by the optionee, a valid family member, or a transferee pursuant
to a domestic relations order.
Federal Income Tax Information
Incentive Stock Options. ISOs under the 1998 Option Plan are intended to be
eligible for the favorable federal income tax treatment accorded "incentive
stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an ISO. However, the exercise
of an ISO may increase the optionee's alternative minimum tax liability, if
any.
If an optionee holds stock acquired through exercise of an ISO for at least
two years from the date on which the option is granted and at least one year
from the date of exercise of the option, any gain or loss on a disposition of
such stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain or any loss upon the disqualifying disposition will
be a capital gain or loss which will be long-term or short-term depending on
whether the stock was held for more than one year. Long-term capital gains
currently are generally subject to lower tax rates than ordinary income. The
capital gains rate for capital assets held for eighteen months or more for
federal income tax purposes is currently 20% while the maximum rate for capital
assets held for one year and less than eighteen months is
10
28%. The maximum ordinary income rate is effectively 39.6% at the present time.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition
occurs.
Nonstatutory Stock Options. NSOs granted under the 1998 Option Plan
generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of an NSO. Upon exercise of an NSO, the optionee normally will
recognize taxable ordinary income equal to the excess of the stock's fair
market value on the date of exercise over the option exercise price. Generally,
with respect to employees, the Company is required to withhold from regular
wages or supplemental wages an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, the provisions of Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company
will generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the optionee. Upon disposition of the stock, the
optionee will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of the option. Such gain or loss
will be long or short-term depending on whether the stock was held for more
than one year. Slightly different rules may apply to optionees who acquire
stock subject to certain repurchase options or who are subject to Section 16(b)
of the Exchange Act.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain employees in a taxable year to the extent that compensation exceeds
$1,000,000 for a covered employee. It is possible that compensation
attributable to awards under the 1998 Option Plan, when combined with all other
types of compensation received by a covered employee from the Company, may
cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options will qualify as performance-based
compensation, provided that: (a) the stock award plan contains a per-employee
limitation on the number of shares for which stock options may be granted
during a specified period; (b) the per-employee limitation is approved by the
stockholders; (c) the award is granted by a compensation committee comprised
solely of "outside directors;" and (d) the exercise price of the award is no
less than the fair market value of the stock on the date of grant.
11
Plan Benefits
The following table presents certain information with respect to options
granted under the 1998 Option Plan for the fiscal year ended December 31, 1999
for (a) the Company's Chief Executive Officer and its four other most highly
compensated executive officers who received grants under the 1998 Option Plan;
(b) all executive officers as a group; and (c) all non-executive officer
employees as a group.
1998 STOCK OPTION PLAN BENEFITS
Stock
Options
Name and Principal Position Granted(#)
--------------------------- ----------
Hunter Jackson, Ph.D., Chief Executive Officer, President and
Chairman of the Board............................................. 40,000
James U. Jensen, J.D., Vice President, Corporate Development and
Legal Affairs and Secretary....................................... 20,000
Thomas B. Marriott, Ph.D. Vice President, Development Research..... 20,000
Robert K. Merrell , Vice President, Finance, Chief Financial
Officer, and Treasurer............................................ 24,000
Edward F. Nemeth, Ph.D., Vice President, and Chief Scientific
Officer........................................................... 20,000
All Executive Officers as a Group.................................. 164,000
All Non-Executive Officer Employees as a Group..................... 176,522
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 2000, and has further directed
that management submit the selection of independent public auditors for
ratification by the stockholders at the Annual Meeting. KPMG has audited the
Company's financial statements since the Company's inception in 1986.
Representatives of KPMG are expected to be present at the Annual Meeting, will
have an opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions.
Stockholder ratification of the selection of KPMG as the Company's
independent auditors is not required by the Company's Bylaws or otherwise.
However, the Board is submitting the selection of KPMG to the stockholders for
ratification as a matter of good corporate practice. If the stockholders fail
to ratify the selection, the Board will reconsider whether or not to retain
that firm. Even if the selection is ratified, the Board in its discretion may
direct the appointment of a different independent accounting firm at any time
if the Board determines that such a change would be in the best interests of
the Company and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3
12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of NPS common stock as of April 24, 2000 by: (a) all those known by the Company
to be beneficial owners of more than five percent of the Company's common
stock; (b) each director and nominee for director; (c) each of the executive
officers named in the Summary Compensation Table; and (d) all executive
officers and directors of the Company as a group.
Amount of
Name and Address of Beneficial Owner (unless otherwise Beneficial Percent of
noted) Ownership Total(1)
------------------------------------------------------ ---------- ----------
T. Rowe Price Associates, Inc.(2)....................... 2,393,200 9.87%
100 E. Pratt Street
Baltimore, MD 21202
Wellington Management Company, LLP(3)................... 1,813,079 7.48%
75 State Street
Boston, MA 02109
Invesco................................................. 1,300,000 5.36%
7800 E. Union
Denver, CO 80287
Hunter Jackson, Ph.D.(4)................................ 615,825 2.51%
Calvin R. Stiller(5).................................... 467,177 1.93%
Thomas N. Parks, Ph.D.(6)............................... 359,340 1.48%
Edward F. Nemeth, Ph.D.(7).............................. 242,656 *
John R. Evans(8)........................................ 143,031 *
James U. Jensen, J.D.(9)................................ 122,769 *
Thomas B. Marriott, Ph.D.(10)........................... 135,519 *
Edward K. Rygiel(11).................................... 111,268 *
Joseph Klein, III(12)................................... 104,180 *
James G. Groninger(13).................................. 85,552 *
Donald E. Kuhla, Ph.D.(14).............................. 60,340 *
Robert K. Merrell(15)................................... 67,800 *
Peter Tombros(16)....................................... 14,900 *
Santo J. Costa, J.D.(17)................................ 4,840 *
All directors and executive officers as a group(18)..... 2,630,903 10.47%
- --------
*Means less than 1%.
The above table is based upon information supplied by officers, directors,
and principal stockholders and Schedules 13D and 13G filed with the Commission.
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities.
Except as set forth herein, the address of the persons set forth above is
the address of the Company appearing elsewhere in this Proxy Statement.
13
(1) The number of shares of common stock issued and outstanding on April 24,
2000 was 24,241,663 shares, which amount includes 2,097,555 exchangeable
shares. The calculation of percentage ownership for each listed beneficial
owner is based upon the number of shares of common stock issued and
outstanding at April 24, 2000, plus shares of common stock subject to
options held by such person at April 24, 2000 and exercisable within 60
days thereafter. The persons and entities named in the table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them, except as noted below.
(2) These securities are owned by various individual and institutional
investors including T. Rowe Price New Horizons Fund, Inc. which owns
1,400,000 shares, which represents 5.78% of the shares outstanding, for
which T. Rowe Price Associates, Inc. serves as investment adviser with
power to direct investments and/or sole power to vote the securities. For
purposes of the reporting requirements of the Securities Exchange Act of
1934, T. Rowe Price Associates is deemed to be a beneficial owner of such
securities; however, T. Rowe Price Associates expressly disclaims that it
is, in fact, the beneficial owner of such securities.
(3) Wellington Management Company, LLP, a registered investment adviser, is
deemed to have beneficial ownership of 1,813,079 shares of NPS common
stock. Such shares are owned of record by clients of Wellington
Management, including *Wellington Trust Company, NA, a bank as defined in
Section 3(a)(6) of the Act which is deemed to have beneficial ownership of
915,024 shares of NPS common stock which represents 3.77% of shares
outstanding. Wellington Management shares voting power with respect to
1,652,551 of such shares and dispositive power with respect to all of such
shares.
(4) Includes 111,783 shares held in a trust and 2 shares held by Dr. Jackson's
children, of which he disclaims beneficial ownership. Also includes
271,600 shares subject to options exercisable within 60 days of April 24,
2000.
(5) Includes 467,177 shares held by Canadian Medical Discoveries Fund, of
which he disclaims beneficial ownership.
(6) Includes 10,000 shares held in a trust of which Dr. Parks disclaims
beneficial ownership. Also includes 18,840 shares subject to options
exercisable within 60 days of April 24, 2000.
(7) Includes 200,800 shares subject to options exercisable within 60 days of
April 24, 2000.
(8) Includes 14,182 shares subject to options exercisable within 60 days of
April 24, 2000.
(9) Includes 2,000 shares held by a limited liability company of which Mr.
Jensen disclaims beneficial ownership. Also includes 75,000 shares subject
to options exercisable within 60 days of April 24, 2000.
(10) Includes 3,241 shares held by spouse, 721 shares held by children, of
which Mr. Marriott disclaims beneficial ownership. Also includes 118,800
shares subject to options exercisable within 60 days of April 24, 2000.
(11) Includes 111,268 shares held by NeuroScience Partners, L.P.; MDS Health
Ventures (TC) Inc.; and MDS Health Ventures (PC) Inc.; of which Mr. Rygiel
disclaims beneficial ownership.
(12) Includes 9,780 shares subject to options exercisable within 60 days of
April 24, 2000.
(13) Includes 10,000 shares owned by spouse, and 7,450 shares owned by
children, of which Mr. Groninger disclaims beneficial ownership. Also
includes 10,020 shares subject to options exercisable within 60 days of
April 24, 2000.
(14) Includes 12,840 shares subject to options exercisable within 60 days of
April 24, 2000.
(15) Includes 63,800 shares subject to options exercisable within 60 days of
April 24, 2000.
(16) Includes 6,900 shares subject to options exercisable within 60 days of
April 24, 2000.
(17) Includes 3,840 shares subject to options exercisable within 60 days of
April 24, 2000.
(18) Includes 17 people. An aggregate of 802,565 shares are subject to options
exercisable within 60 days of April 24, 2000.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the Company's common
stock, to file with the Commission reports of ownership
14
and changes in ownership of NPS common stock. Officers, directors, and greater
than 10% stockholders are required by the Commission to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company or written representations that no other
reports were required, during the fiscal year ended December 31, 1999, the
Company believes that all reporting persons complied with all Section 16(a)
filing requirements except that: John Evans, Edward Rygiel, Calvin Stiller, Jim
Howard-Tripp, and Paul VanDamme filed late Form 3s; Mr. Groninger who filed an
amended Form 4 failed to report one common stock purchase transaction in a
timely filed Form 4; Dr. Jackson who filed an amended Form 4 failed to report
one common stock sale transaction in a timely filed Form 4 ; Mr. Merrell who
filed amended Form 4s failed to report two common stock sale transactions on
timely filed Form 4s; and Mr. Klein who filed a late Form 4 failed to report
one common stock purchase on a Form 4.
EXECUTIVE COMPENSATION
Compensation of Directors
The Company's directors do not currently receive any cash compensation for
service on the Board or any Committee thereof. Outside directors are reimbursed
for out-of-pocket expenses in connection with attendance at Board and Committee
meetings. Directors are eligible to receive stock options and stock bonuses
under the stock plans described below.
1994 Non-Employee Directors' Stock Option Plan
In January 1994, the Board adopted, and the stockholders subsequently
approved, the 1994 Non-Employee Directors' Stock Option Plan (Directors' Plan).
An amendment to increase from 90,000 to 160,000 the number of shares available
for grant under the Directors' Plan was approved by the stockholders in July
1996. In May 1999 a subsequent amendment was approved by stockholders to
increase the number of shares available for issuance from 160,000 to 260,000.
Under the Directors' Plan, non-employee directors of the Company are eligible
to receive options. Options granted under the Directors' Plan are automatic and
non-discretionary and do not qualify for tax treatment as ISOs. Pursuant to the
terms of the Directors' Plan, each person who is elected for the first time to
be an outside director of the Company and who is not otherwise employed by the
Company or an affiliate of the Company (a "Non-Employee Director") will
automatically be granted an option to purchase 15,000 shares of common stock
(subject to adjustment as provided in the Directors' Plan) upon the date of his
or her election to the Board. On December 1 of each year, each person who is
then a Non-Employee Director and has been a Non-Employee Director for at least
three months will automatically be granted an option to purchase 3,000 shares
of common stock (subject to adjustment as provided in the Directors' Plan)
pursuant to the Directors' Plan.
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date such option was granted. Options granted
under the Directors' Plan vest at a rate of 28% of the shares subject to the
option one year after date of grant and 3% of the shares become exercisable
each month thereafter, so long as the optionee has, during the entire period
prior to such vesting date, continuously served as a Non-Employee Director or
in other continuous affiliation as provided under the Directors' Plan. If the
optionee's service as a non-employee director terminates for any reason other
than death, the option will remain exercisable for twelve months after the date
of termination, or until the option's expiration date, if earlier. If the
optionee dies, the option will remain exercisable for eighteen months following
the date of death or until the expiration date of the option, whichever is
earlier. The exercise price of options granted under the Directors' Plan is
100% of the fair market value of the common stock on the date of grant. Options
granted under the Directors' Plan are generally non-transferable. Unless
otherwise terminated by the Board, the Directors' Plan automatically terminates
in January 2004.
15
As of December 31, 1999, options to purchase a total of 22,290 shares of
common stock had been exercised under the Directors' Plan at an exercise price
of $3.00 per share. As of that date, options to purchase 165,180 shares of
common stock with exercise prices from $3.00 to $10.25 per share and a weighted
average exercise price per share of $7.62 were outstanding. A balance of 72,530
shares remains available for future grants under the Directors' Plans. Prior to
the adoption of the Directors' Plan, the Company granted options to directors
under the 1987 Stock Option Plan.
Non-Employee Directors' Stock Bonus Program
In December 1994, the Board adopted the Non-Employee Directors' Stock Bonus
Program under the 1994 Equity Incentive Plan (Stock Bonus Program). Under the
Stock Bonus Program, non-employee directors are eligible to receive grants of
shares of common stock for attendance at Board and Committee meetings. The
Stock Bonus Program provides each Non-Employee Director of the Company with a
non-discretionary award of 200 shares of common stock for each Board meeting
attended and 200 shares of common stock per year for serving on a Board
Committee. A total of 8,200 shares were granted under the Stock Bonus Program
for Board activities in 1999.
The right to receive awards under the Stock Bonus Program is generally non-
transferable. The stock awards are usually made in January for Board activities
during the previous year. Non-Employee Directors entitled to stock bonus awards
shall not possess any rights of a stockholder of the Company until such shares
are delivered to the Non-Employee Director. Unless otherwise terminated by the
Board, the Stock Bonus Program terminates in January 2004.
Compensation of Executive Officers
The following table shows for the fiscal years ended December 31, 1999,
December 31, 1998 and December 31, 1997, certain compensation awarded, paid to,
or earned by, the Company's Chief Executive Officer and its other four most
highly compensated executive officers (the "Named Executive Officers"):
Summary Compensation Table
Long-Term
Annual Compensation Compensation
---------------------------- ------------
Stock
Options
Name and Principal Position Year Salary ($) Other ($)(1) Granted (#)
--------------------------- ---- ---------- ------------ ------------
Hunter Jackson, Ph.D. ............... 1999 275,619 4,800 40,000
Chief Executive Officer, President 1998 264,231 60,000
and 1997 235,846 40,000
Chairman of the Board
James U. Jensen, J.D. ............... 1999 182,758 4,800 20,000
Vice President, Corporate 1998 173,539 30,000
Development 1997 167,783 20,000
and Legal Affairs and Secretary
Thomas B. Marriott, Ph.D. ........... 1999 189,757 4,800 20,000
Vice President, Development Research 1998 182,846 30,000
1997 177,868 20,000
Robert K. Merrell.................... 1999 155,272 4,800 24,000
Vice President, Finance, Chief 1998 149,569 30,000
Financial 1997 135,893 20,000
Officer, and Treasurer
Edward F. Nemeth, Ph.D. ............. 1999 173,758 2,621 20,000
Vice President, and Chief Scientific 1998 165,754 30,000
Officer 1997 159,832 20,000
- --------
(1) 401(k) Company Match
16
1987 Stock Option Plan
The 1987 Stock Option Plan (1987 Plan) was adopted in June 1987. The
purposes of the 1987 Plan were to attract and retain qualified personnel, to
provide additional incentives to employees, officers, advisors, directors, and
consultants of the Company, and to promote the success of the Company's
business. No options have been granted under the 1987 Plan since December 1993,
and the Company will not make any future grants under the 1987 Plan. As of
December 31, 1999, options to purchase a total of 983,979 shares of common
stock had been exercised for cash and services under the 1987 Plan at a
weighted average exercise price of $0.86 per share. As of December 31, 1999,
options to purchase a total of 325,713 shares of common stock were outstanding,
with exercise prices ranging from $0.67 to $2.00 per share and a weighted
average exercise price per share of $1.55.
Options granted under the 1987 Plan generally became exercisable at a rate
of one-third of the shares subject to the option on the first anniversary of
the option grant and one-third of the remaining shares subject to the option on
each of the second and third anniversary of the option grant. The maximum term
of a stock option under the 1987 Plan was ten years; however, if the optionee
at the time of grant had voting power over more than ten percent of the
Company's outstanding capital stock (a "10% Holder"), the maximum term of any
ISO granted under the 1987 Plan was five years. The aggregate fair market value
of the stock with respect to which ISOs are exercisable for the first time by
an optionee in any calendar year may not exceed $100,000. The exercise prices
of ISOs granted under the 1987 Plan were at least equal to 100%, 110% with
respect to 10% Holders, of the fair market value of the stock subject to the
option on the date of grant. Although no minimum exercise price of NSOs was
required under the 1987 Plan, the exercise price of NSOs previously granted
under the 1987 Plan generally has been at least equal to the fair market value
of the stock subject to the option on the date of the grant. Any option that is
exercisable at the time of grant and which expires no sooner than three years
from the grant date is subject to an option exercise price equal to the fair
market value of the option on the grant date.
1994 Equity Incentive Plan
In January 1994, the Board adopted the 1994 Equity Incentive Plan (1994
Plan), which was subsequently approved by the stockholders in February 1994.
Under the 1994 Plan, 1,702,503 shares have been authorized for issuance. The
purposes of the 1994 Plan are to attract and retain qualified personnel, to
provide additional incentives to employees, officers, directors, and
consultants of the Company and its affiliates and to promote the success of the
Company's business. Under the 1994 Plan, the Company may grant NSOs to
employees, officers, directors, and consultants to the Company and its
affiliates and may grant ISOs to employees of the Company and its affiliates.
As of December 31, 1999, options to purchase a total of 232,838 shares of
common stock had been exercised for cash and services under the 1994 Plan at a
weighted average exercise price of $5.53 per share. As of December 31, 1999,
options to purchase 1,195,641 shares of common stock with exercise prices
ranging from $3.00 to $16.625 per share, and a weighted average exercise price
per share of $8.90 were outstanding. A balance of 274,024 shares remains
available for future grants under the 1994 Plan.
Options granted under the 1994 Plan prior to December 1, 1997, generally
become exercisable at a rate of 28% of the shares subject to the option at the
end of the first year and 3% of the shares subject to the option at the end of
each calendar month thereafter. Options granted under the 1994 Plan after
December 1, 1997 generally become exercisable at a rate of 28% of the shares
subject to the option at the end of the first year and 2% of the shares subject
to the options at the end of each calendar month thereafter. The maximum term
of a stock option under the 1994 Plan is ten years; however, if the optionee
who is granted an ISO at the time of grant is a 10% Holder, the maximum term of
any ISO granted under the 1994 Plan is five years. If an optionee terminates
his or her service to the Company, the optionee may exercise only those option
shares vested as of the date of termination and must effect such exercise
within three months of termination of service for any reason other than death
or disability, one year after termination due to disability, and eighteen
months after
17
termination due to death. The aggregate fair market value with respect to which
ISOs are exercisable for the first time by an optionee in any calendar year may
not exceed $100,000. The exercise price of ISOs granted under the 1994 Plan
must be at least 100%, 110% with respect to 10% Holders, of the fair market
value of the common stock of the Company on the date of grant. The exercise
price of NSOs granted under the 1994 Plan is the fair market value of the
Company's common stock on the date of grant or such other exercise price as is
set by the Board at the date of grant. Payment of the exercise price may be
made in cash or by shares of NPS common stock valued at the fair market value
of such shares on the date of exercise or in any other form acceptable to the
Board. The 1994 Plan also allows the Company to grant stock bonuses, reload
options, rights to purchase restricted stock, and stock appreciation rights.
The 1994 Plan may be amended at any time by the Board, although certain
amendments require stockholder approval. The 1994 Plan will terminate in
January 2004, unless earlier terminated by the Board.
1994 Employee Stock Purchase Plan
In January 1994, the Board adopted the 1994 Employee Stock Purchase Plan
(ESPP) which was subsequently approved by the stockholders in February 1994.
There were a total of 90,000 shares reserved for issuance under the ESPP.
Pursuant to Board and stockholder approval this amount was increased to 160,000
shares in 1996 and to 260,000 in 1999. As of March 31, 2000, a total of 159,737
shares of common stock had been purchased under the ESPP at prices from $2.76
to $9.1375 per share. During 1999, under the ESPP, executive officers as a
group purchased 7,020 shares at an average purchase price of $5.84 per share
and all employees (excluding executive officers) as a group purchased 31,017
shares at an average exercise price of $5.84 per share.
The purpose of the ESPP is to assist the company in retaining the services
of its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company. The ESPP provides a means by which employees of the Company and
its affiliates may purchase common stock of the company at a discount through
accumulated payroll deductions. The rights to purchase common stock granted
under the ESPP are intended to qualify as options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code. The
ESPP is implemented by offerings of rights to eligible employees. Eligible
participants in the ESPP include all employees, including executive officers
who work at least 20 hours per week and are customarily employed by the Company
or an affiliate of the Company for at least five months per calendar year.
Generally, each offering is of 24 months' duration with purchases occurring
every six months. Participants may authorize payroll deductions of up to 15% of
their base compensation for the purchase of common stock under the ESPP. The
ESPP will terminate in January 2004.
The following table sets forth each grant of options to purchase common
stock made during the year ended December 31, 1999 to each of the Named
Executive Officers. Grants of options to each of the Named Executive Officers
were made under the 1998 Option Plan:
OPTION GRANTS IN 1999
Potential Realizable
Value at Assumed
Annual Rates of Stock
Securities % of Total Price Appreciation for
Underlying Options Exercise or Option Term(2)
Options Granted in Base Price Expiration -----------------------
Name Granted Fiscal Year Per Share Date(1) 10%
- ---- ---------- ----------- ----------- ---------- 5% -----------
Hunter Jackson.......... 40,000 9.56% $4.50 12/08/09 $ 113,201 $ 286,874
James U. Jensen......... 20,000 4.78% $4.50 12/08/09 $ 56,601 $ 143,437
Thomas B. Marriott...... 20,000 4.78% $4.50 12/08/09 $ 56,601 $ 143,437
Robert K. Merrell....... 24,000 5.73% $4.50 12/08/09 $ 67,921 $ 172,124
Edward F. Nemeth........ 20,000 4.78% $4.50 12/08/09 $ 56,601 $ 143,437
18
- --------
(1) These options have a ten-year term, subject to earlier termination upon
death, disability, or termination of employment.
(2) The potential realizable value is calculated based on the term of the
option at its time of grant (ten 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 that the
option is exercised and sold on the last day of its term for the
appreciated stock price. No gain to the optionee is possible unless the
stock price increases over the option term, which will benefit all
stockholders.
The following table sets forth information for fiscal year ended December
31, 1999 with respect to (a) the exercise of stock options by the Named
Executive Officers in 1999; (b) the number of unexercised options held by the
Named Executive Officers as of December 31, 1999; and (c) the value of
unexercised in-the-money options as of December 31, 1999.
OPTION EXERCISES IN 1999 AND YEAR-END VALUE TABLE
Shares Number of Unexercised Value of In-the-Money
Acquired Options Options(2)
On Value ------------------------- -------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ----------- ----------- ------------- ----------- -------------
Hunter Jackson.......... 0 $ 0 242,400 107,600 $1,577,875 $630,250
James U. Jensen......... 0 $ 0 66,200 53,800 $ 211,750 $315,125
Thomas B. Marriott...... 3,000 $ 14,280 114,200 53,800 $ 673,750 $315,125
Robert K. Merrell....... 27,000 $204,195 73,200 57,800 $ 307,270 $346,125
Edward F. Nemeth........ 0 $ 0 186,200 53,800 $1,373,350 $315,125
- --------
(1) Value realized is based on the fair market value of NPS common stock on the
date of exercise (the closing sales price reported on the Nasdaq National
Market on such date) minus the exercise price, and does not necessarily
indicate that the optionee sold such stock.
(2) Represents the difference between the option exercise price and the closing
price of NPS common stock as reported on the Nasdaq National Market on
December 31, 1999 ($12.25) times the corresponding number of shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Kuhla, a director of the Company since 1991, was a Vice President of
Plexus Ventures, Inc. from February 1994 through June 1998. The Company had a
consulting agreement with Plexus through December 31, 1995, whereunder Plexus
assisted the Company with its effort to establish a collaboration for the
Company's hyperparathyroidism program. Plexus may earn an additional $400,000
in fees as payments are received from Amgen Inc. The Company also granted
Plexus an option to purchase 20,000 shares of NPS common stock at $10.50 per
share with vesting contingent upon milestone payments from Amgen, of which
Dr. Kuhla has a one-third interest.
The Company has also entered into a Consultant Services Agreement with Dr.
Kuhla, effective November 1, 1996, whereunder Dr. Kuhla will provide scientific
consulting services to the Company. In return for such consultant services Dr.
Kuhla is paid with shares of NPS common stock. In fiscal year 1999, Dr. Kuhla
received no shares of NPS common stock.
The Company's policy is to enter into agreements with each of its directors
and executive officers providing for the indemnification of such persons to the
fullest extent permitted by law for any liability they may incur by reason of
their service as officers and/or directors to the Company. The Company has
entered into indemnity agreements with each of its directors and executive
officers.
Dr. Evans, a director of the Company since December 1999, is a director of
MDS, Inc. In addition, Mr. Rygiel, a director of the Company since December
1999 is Executive Vice President of MDS, Inc. In February
19
2000, NPS Allelix Corp., a subsidiary of the Company entered into a
Pharmaceutical Services Agreement with MDS, Inc. for clinical laboratory
services related to the clinical trial with ALX1-11. In March 2000, NPS Allelix
also entered into a Clinical Laboratory Analysis Agreement with Harris
Laboratories, a subsidiary of MDS, Inc. Under the agreements, NPS Allelix
expects to pay to MDS approximately $1.8 million over the next three years for
services rendered under the agreements.
Mr. Costa, a director of the Company since 1995 is Vice Chairman of
Quintiles Transnational Corporation. In 1999, NPS Allelix entered into an
agreement with Quintiles Canada, Inc., a subsidiary of Quintiles Transnational
Corporation under which Quintiles will provide certain contract research
services with respect to the clinical trials of ALX1-11. Under the terms of the
Agreement, NPS Allelix expects to pay approximately $7.3 million to Quintiles
over the next three years for services rendered under the agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Tombros, Mr. Costa, Mr. Groninger, and Mr. Klein served on the
Compensation Committee for fiscal year 1999. No officer or employee of the
Company sits on the Compensation Committee. No member of the Compensation
Committee has at any time been an officer or employee of the Company. Mr.
Groninger is a brother-in-law of Dr. Jackson, the Company's Chief Executive
Officer, President and Chairman of the Board. Mr. Groninger has abstained from
participating in the determination of the compensation package for Dr. Jackson.
Effective May 2000, Mr. Groninger no longer served on the Compensation
Committee.
Mr. Costa, a director of the Company since 1995 is Vice Chairman of
Quintiles Transnational Corporation. NPS Allelix entered into an agreement with
Quintiles Canada, Inc., a subsidiary of Quintiles Transnational Corporation
under which Quintiles will provide certain contract research services with
respect to clinical trials of ALX1-11. Under the terms of the Agreement, NPS
Allelix expects to pay approximately $7.3 million to Quintiles over the next
three years for services rendered under the agreement.
REPORT OF THE COMPENSATION COMMITTEE(1)
for 1999
The Compensation Committee (the "Committee") evaluates the performance of
management and determines compensation policies and levels. The Committee
consisted of four directors, each of whom is an independent, non-employee
director. Committee members for 1999 were Peter Tombros, Santo Costa, James
Groninger, and Joseph Klein. Mr. Groninger is a brother-in-law of Dr. Jackson,
the Company's Chief Executive Officer, President, and Chairman of the Board.
Mr. Groninger abstains from participating in the determination of the
compensation package for Dr. Jackson.
The full Board of Directors reviews the Committee's recommendations
regarding compensation of executive officers. The Committee is also responsible
for setting and administering the Committee's policies governing employee
compensation and administering the Company's stock purchase and stock option
plans. The Committee met twice in 1999.
Compensation Policy
The Committee's policy for executive compensation is based on the same
principles used by the Company to set and evaluate employee compensation
generally. The Company utilizes programs designed to attract, retain, and
motivate highly talented and team oriented employees at all levels. Total
compensation is intended to be fair and competitive for each employee at all
levels, including executive employees. Compensation programs are designed to
minimize focus on individual compensation differences and which lessen the
frequency of negotiation over individual employee compensation. Individuals are
held accountable for their performance, but attainment of corporate objectives
is deemed a collective effort. The Committee supports management's view and
intention that this allows greater and more productive focus on individual
performance and the attainment of corporate objectives.
Compensation is based on the level of job responsibility, individual
performance, and Company performance. Compensation also reflects the value of
the job in the marketplace.
20
Compensation at all levels includes regular cash compensation and long-term
incentive compensation. The Company has rarely granted bonuses for individual
executives. In 1998 stock option awards were made to vest in part for seven
members of senior management (but not for other employees) upon accomplishment
of certain corporate objectives. On March 6, 2000 the Board determined that one
of two contingent vesting events had been realized by completing the Company's
merger with Allelix Biopharmaceuticals Inc. on December 23, 1999 and on May 4,
2000 the Committee determined that the second of two contingent vesting events
had been realized by signing an important corporate collaboration on March 20,
2000. Stock option awards made on December 8, 1999 returned to the Company's
customary practice of options vesting over time, usually three or four years.
Salaries
Base salaries represent the fixed component of the Company's employee
compensation package generally, and the executive compensation package, in
particular. Generally, salary compensation is determined by evaluating the
compensation of executives in similar positions in peer biotechnology and
pharmaceutical companies, the level of experience of the particular executive
officer, and the executive officer's specific responsibilities. The Committee
also evaluates the achievement of Company objectives in determining base
salaries for the executive officers. The Committee utilizes the advice of
compensation consultants engaged by the Company and reviews the result of an
annual compensation survey of biotechnology companies, generally, and
biotech/biopharmaceutical companies similarly situated in particular.
The Committee also receives the recommendation of the Company's CEO
concerning salary for each executive as part of a general company-wide salary
assessment performed by Company management.
The Committee intends that base salaries accomplish the Company's
compensation, philosophy and policies. Bonuses have not been a routine part of
cash compensation and no bonuses were granted in or for 1999.
Long-Term Incentives
The Company seeks to encourage the long-term retention of employees by
equity purchase programs and equity-based compensation. All employees are
eligible to participate in the Company's Employee Stock Purchase Plan, and
participating employees receive the price discount allowed by applicable laws
and regulations. Additionally, all employees are eligible to participate in the
Company's 401(k) retirement plan. Beginning in 1999, the Company contributed to
each employee's 401(k) account at the rate of 50% of the employee's direct
contribution up to a maximum contribution by the Company of the lessor of 3% of
the employee's salary, or $4,800.
Potentially, the most valuable long-term incentive compensation is the
granting of stock options. The granting of stock options at all levels of the
Company is an integral part of the Company's compensation philosophy and
policy. The Committee believes that options vesting over a period of years
align the interests of the employees with the long-term interests of the
Company and its stockholders. Stock option grants have been made, historically,
during the first part of December. The grants made to Company executives in
December 1998 were described above. In December 1999, the Committee approved,
and the full Board ratified the granting of stock options during the first part
of December 1999 to all employees, including Company executives. Executives
received grants vesting over four years and generally in the same amounts as
for prior years. Customarily, the grants to all Vice Presidents have been in
the same amounts with variations based on subjective factors and upon the
recommendation of the CEO. This practice was followed again in 1999.
Allelix Biopharmaceuticals Inc.
The Committee took no action in 1999 relating to the acquisition of Allelix
Biopharmaceuticals Inc. ("Allelix") which was effective on December 23, 1999.
The Committee acknowledged that all Allelix employees received full vesting as
a result of the transaction, and that historically options have been granted at
Allelix during the spring of each year. The Committee acknowledged that
compensation programs of the two entities will need to be harmonized and that
certain adjustments will be made. Management has advised the Committee to
expect that most of these adjustments will be made at the Company's Allelix
subsidiary.
21
Reduction in Force
The Committee reviewed and approved management's severance payment
arrangements for the forty employees (35% of the work force) of the Company who
were separated from the Company on September 30, 1999, effective with signing
the Allelix merger agreement. Severance compensation was adopted and employee
stock option vesting and final exercise dates were extended in furtherance of
the compensation philosophy and policies described above.
CEO Evaluation
The CEO completed a written self evaluation and delivered a copy to each
member of the Committee. In addition, each member of the Committee
independently evaluated the performance of the CEO. The Committee then met to
discuss the CEO's self evaluation, each Committee member's evaluation and
prepare a consolidated final evaluation. The Committee Chairman reported the
results of the evaluation to the outside directors and the CEO at the December
1999 Board meeting.
CEO Compensation
The Chief Executive Officer was a founder of the Company in 1986 and has
served in that capacity since then. His compensation package has historically
been below that of other chief executive officers in comparable companies in
the industry. In order to determine the appropriate salary increase and stock
option grant for the Chief Executive Officer, the Compensation Committee
considered the salaries of other chief executive officers in the biotechnology
industry, the results of the formal evaluation of the CEO, and the CEO and
Company accomplishments in 1999. Significant progress was made in several areas
and the Company met or exceeded most of its performance goals. In the
Committee's review of CEO compensation, the following developments were
considered: Dr. Jackson's overall leadership of the Company as President, CEO,
and Chairman of the Board; the overall status and progress of the Company's
strategic partnerships; the continued progress of NPS compounds in the
discovery and in the clinic, and the Company's efforts to manage cash through
implementation of a reduction in force. In December 1999, the Committee
recommended an increase in compensation for the CEO for 2000. The CEO and the
Board then implemented this increase to the annual rate of $316,000 effective
March 1, 2000.
Policy Regarding Deductibility
We are required to disclose our policy regarding qualifying executive
compensation for deductibility under Section 162(m) of the Code, which provides
that, for purposes of regular income tax and the alternative minimum tax, the
allowable deduction for compensation paid or accrued with respect to a covered
employee of a publicly-held corporation is limited to no more than $1 million
per year. We do not anticipate that compensation payable to any executive
officer will exceed $1 million for fiscal year 1998. The Committee will
continue to evaluate the advisability of qualifying the deductibility of such
compensation in the future.
Compensation Committee
Peter Tombros, Chairman
Santo J. Costa
James G. Groninger
Joseph Klein, III
March 2000
22
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG NPS PHARMACEUTICALS, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE NASDAQ PHARMACEUTICALS INDEX
*$100 Invested on 12/31/94 in stock or index, including reinvestment of
dividends.
Fiscal year ending December 31.
- --------
(1) The "Compensation Committee Report" and the "Performance Measurement
Comparison" chart are not "soliciting material," are not deemed filed with
the Commission and are not to be incorporated by reference in any filing of
the Company under the Securities Act or the Exchange Act, whether made
before or after the date hereof and irrespective of any general
incorporation language in such filing.
23
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
James U. Jensen
Secretary
May 15, 2000
A copy of the Company's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1999 is available without charge upon written request to:
NPS Pharmaceuticals, Inc.
Attn: Investor Relations
420 Chipeta Way
Salt Lake City, Utah 84108
24
NPS PHARMACEUTICALS, INC.
ANNUAL MEETING OF STOCKHOLDERS
JUNE 21, 2000
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned constitutes and appoints Hunter Jackson and James U. Jensen
(with full power to act alone), the attorneys and proxies of the undersigned,
with power of substitution to each, to vote all shares of common stock of NPS
Pharmaceuticals, Inc., registered in the name provided herein which the
undersigned is entitled to vote, at the 2000 Annual Meeting of Stockholders.
This meeting will be held at the Marriott Hotel located at 75 South West
Temple, Salt Lake City, Utah on June 21, 2000 at 3:00 p.m., local time. This
Proxy is given in accordance with the following instructions, and carries
discretionary authority related to any and all other matters that may come
before the meeting and any adjournments and postponements thereof.
1. To elect eleven (11) directors as set forth in the Proxy Statement:
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as indicated to the contrary below) to vote for all nominees listed below:
Santo J. Costa, John R. Evans, James G. Groninger, Hunter Jackson, James U.
Jensen, Joseph Klein III, Donald E. Kuhla, Thomas N. Parks, Edward Rygiel,
Calvin Stiller, and Peter G. Tombros
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below)
- --------------------------------------------------------------------------------
2. To approve an increase of 2,000,000 shares of common stock for issuance
under the Company's 1998 Stock Option Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To ratify the appointment of KPMG LLP as independent auditors for the
Company for the 2000 fiscal year:
[_] FOR [_] AGAINST [_] ABSTAIN
This Proxy when properly executed will be voted as directed above. If no
direction is made, this Proxy will be voted FOR the election of the eleven (11)
directors; FOR the approval of an increase of 2,000,000 shares of common stock
for issuance the 1998 Stock Option Plan; and to ratify the board's appointment
of KPMG LLP as NPS's independent auditors for the 2000 fiscal year.
Dated ________________________________________
______________________________________________
______________________________________________
Please sign here
Do you plan to attend the Annual
Meeting? [_] Yes [_] No
Please date this Proxy and sign your name
exactly as it appears hereon. Joint owners
should each sign. When signing as an agent,
attorney, administrator, executor, guardian,
or trustee, please indicate your title as
such. If executed by a corporation, the Proxy
should be signed in the corporate name by a
duly authorized officer who should indicate
his title.
Please date, sign, and mail this proxy card
in the enclosed envelope.
NPS PHARMACEUTICALS, INC.
1998 STOCK OPTION PLAN
(Amended by the Board of Directors on May 1, 2000
Approved by the Shareholders on ____________)
1. GENERAL.
1.1 Purpose. The 1998 Stock Option Plan has been established by
the Company to provide a means by which employees, directors,
and consultants of the Company and its Affiliates may be given
the opportunity to benefit from increases in value of NPS
stock through the granting of Options. NPS seeks to (a) retain
the services of present employees, directors, and consultants;
(b) secure and retain the services of new employees,
directors, and consultants; and (c) provide incentives for
such persons to exert maximum efforts for the success of the
Company and thereby promote the long-term interest of the
Company, including the growth in value of the Company's equity
and enhancement of long-term stockholder return.
1.2 Types of Options. The Company intends that the Options issued
under the Plan shall, in the discretion of the Board or any
Board Committee (see paragraph 3.2), be either Incentive Stock
Options or Nonstatutory Stock Options (defined below).
1.3 Definitions. Unless otherwise defined, capitalized terms shall
have the meaning set forth in Section 2.
2. DEFINITIONS.
2.1 Affiliate means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing,
as those terms are defined in Sections 424(e) and (f)
respectively, of the Code.
2.2 Board means the Board of Directors of the Company.
2.3 Code means the Internal Revenue Code of 1986, as amended.
2.4 Committee means a Committee appointed by the Board in
accordance with paragraph 3.2 herein.
2.5 Company means NPS Pharmaceuticals, Inc., a Delaware
corporation.
2.6 Consultant means any person (including an advisor) engaged by
the Company or an Affiliate to render consulting services
under arrangements intended to compensate such person for such
services. The term "Consultant" shall not include a Director
who is paid only a director's fee by the Company or who is not
compensated by the Company for services as a Director.
2.7 Continuous Status as an Employee, Director, or Consultant
means the employment or relationship as an Employee, Director,
or Consultant is not interrupted or terminated by the Company
or any Affiliate. The Board, in its sole discretion, may
determine whether
1
Continuous Status as an Employee, Director, or Consultant
shall be considered interrupted in the case of:
2.7.1 any leave of absence approved by the Board, including
sick leave, military leave, or any other personal
leave; provided, however, that for purposes of
Incentive Stock Options, any such leave may not
exceed 90 days unless reemployment upon the
expiration of such leave is guaranteed by contract
(including certain Company policies) or statute; or
2.7.2 transfers between locations of the Company or between
the Company, Affiliates or its successor.
2.8 Day of Determination means the date of the occurrence of an
event that requires the determination of the Fair Market Value
of an award made hereunder.
2.9 Director means a member of the Board.
2.10 Disability means total and permanent disability as defined in
Section 22(e)(3) of the Code.
2.11 Employee means any person, including Officers and Directors,
employed by the Company or any Affiliate. Neither service as a
Director nor payment of a director's fee by the Company shall
be sufficient to constitute "employment" by the Company.
2.12 Exchange Act means the Securities Exchange Act of 1934, as
amended.
2.13 Fair Market Value means, as of any date, the value of the
common stock of the Company as determined as follows:
2.13.1 If the common stock is listed on any established
stock exchange or a national market system, including
without limitation, the National Market System of the
National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, the Fair
Market Value of a share of common stock shall be the
closing price for such stock on the Day of
Determination as quoted on such system as reported in
the Wall Street Journal or such other source as the
Board deems reliable. In the event the Day of
Determination falls on a date that the Nasdaq system
is closed, then the Fair Market Value shall be the
closing sales price for such stock on the last market
trading day prior to the Day of Determination as
quoted on such system as reported in the Wall Street
Journal or such other source as the Board deems
reliable.
2.13.2 If the common stock is quoted on Nasdaq (but not on
the National Market System thereof) or is regularly
quoted by a recognized securities dealer but selling
prices are not reported, the Fair Market Value of a
share of common stock shall be the mean between the
bid and asked prices for the common stock on the last
market trading day prior to the day of determination,
as reported in the Wall Street Journal or such other
source as the Board deems reliable;
2.13.3 In the absence of an established market for the
common stock, the Fair Market Value shall be
determined in good faith by the Board.
2.14 Incentive Stock Option (or "ISO") means an Option intended to
qualify as an incentive stock option within the meaning of
Section 422 of the Code and the regulations promulgated
thereunder.
2
2.15 Non-Employee Director means a Director who is considered to be
a "Non-Employee Director" in accordance with Rule 16b-3(b)(3),
or any other applicable rules, regulations or interpretations
of the Securities and Exchange Commission.
2.16 Nonstatutory Stock Option (or "NSO") means an Option not
intended to qualify or not eligible to qualify as an ISO or an
ISO which, subsequent to its date of grant, no longer
qualifies as an ISO under Section 422 of the Code.
2.17 Officer means a person who is an officer of the Company within
the meaning of Section 16a-1(f) of the Exchange Act and the
rules and regulations promulgated thereunder.
2.18 Option means a stock option granted pursuant to the Plan.
2.19 Option Agreement means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an
individual Option grant.
2.20 Optionee means an Employee, Director, or Consultant who holds
an outstanding Option.
2.21 Outside Director means a Director who is considered to be an
"Outside Director" in accordance with Section 162(m) of the
Code, or any other applicable Code sections, regulations, or
interpretations of the IRS.
2.22 Plan means this 1998 Stock Option Plan.
2.23 Rule 16b-3 means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the Plan.
2.24 Securities Act means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
3.1 Powers and Authority. The Plan shall be administered by or
under the direction of the Board unless and until the Board
delegates administration to a Committee, as provided in
paragraph 3.2. The Board shall have the power subject to and
within the limitations of the express provisions of the Plan:
3.1.1 To determine from time to time: (a) which of the
persons eligible under the Plan shall be granted
Options; (b) when and how Options shall be granted;
(c) whether an Option shall be intended to qualify as
an ISO; (d) the provisions of each Option granted
(which need not be identical) including the time or
times when a person shall be permitted to receive
stock pursuant to the exercise of such Option; (e)
whether a person shall be permitted to exercise such
Option; and (f) the number of shares with respect to
which Options shall be granted to each such person.
3.1.2 To construe and interpret the Plan and Options
granted under it, and to establish, amend, and revoke
rules and regulations for its administration. The
Board, in the exercise of this power, may correct any
defect, omission, or inconsistency in the Plan or in
any Option Agreement, in a manner and to the extent
it shall deem necessary or expedient to make the Plan
fully effective.
3.1.3 To amend the Plan as provided in Section 12.
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3.1.4 Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient
to promote the best interests of the Company.
3.2 Delegation. The Board may delegate administration of the Plan
to a Board committee composed of not fewer than two members
(the "Committee"). All members of the Committee shall be
Outside Directors or Non-Employee Directors, to the extent
necessary to comply with the applicable provisions of Rule
16b-3 and Section 162(m). If administration is delegated to a
Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed
by the Board (and references in this Plan to the Board shall
in such event, be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board
may abolish the Committee at any time and revest in the Board
the administration of the Plan.
3.3 Director Status. Any requirement that an administrator of the
Plan be a Non-Employee Director or an Outside Director shall
not apply if the Board or the Committee expressly declares
that such requirement shall not apply.
4. SHARES SUBJECT TO THE PLAN.
4.1 Available Shares. Subject to the provisions of Section 11, the
number of shares that may be issued pursuant to Options
granted hereunder shall not exceed in the aggregate three
million (3,000,000) shares of the Company's common stock.
4.2 Forfeited or Canceled Shares. Any shares of stock for which an
Option has been granted under the Plan that are forfeited
because of the failure to meet an Option grant contingency or
condition shall again be available for delivery pursuant to
new grants under the Plan. To the extent any shares of stock
covered by an Option are not delivered to an Optionee or
beneficiary because the award is forfeited or canceled, or the
shares of stock are not delivered because the award is settled
in cash, such shares shall not be deemed to have been
delivered for purposes of determining the maximum number of
shares of stock available for delivery under the Plan.
4.3 Payment with Shares. If the exercise price of any Option
granted under the Plan is satisfied by tendering shares of
stock to the Company (by either actual delivery or by
attestation), only the number of shares of stock issued net of
the shares of stock tendered shall be deemed delivered for
purposes of determining the maximum number of shares of stock
available for delivery under the Plan.
4.4 Plan Limits. Shares of stock delivered under the Plan in
settlement, assumption, or substitution of outstanding awards
(or obligations to grant future awards) under the plans or
arrangements of another entity shall not reduce the maximum
number of shares of stock available for delivery under the
Plan, to the extent that such settlement, assumption, or
substitution is a result of the Company or Affiliate acquiring
another entity (or an interest in another entity). Subject to
the provisions of Section 11, the maximum number of shares
that may be covered by grants to any one individual shall be
750,000 shares during any three consecutive calendar years.
5. ELIGIBILITY.
5.1 Option Type. ISOs may be granted only to Employees. NSOs may
be granted to Employees, Directors, or Consultants.
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5.2 Section 16 Compliance. No Officer or Director shall be
eligible for the benefits of the Plan unless at the time
discretion is exercised in the selection of an Officer or
Director as a person to whom Options may be granted, or in the
determination of the number of shares which may be covered by
Options granted to the Officer or Director, the Plan otherwise
complies with the requirements of Rule 16b-3. This paragraph
5.2 shall not apply if the Board or Committee expressly
declares that it shall not apply.
6. OPTION PROVISIONS. Each Option shall be in such form and shall contain
such terms and conditions as the Board shall deem appropriate. The
provisions of separate Options need not be identical, but each Option
shall include (through incorporation of provisions hereof by reference
in the Option or otherwise) the substance of each of the following
provisions:
6.1 Term. No Option shall be exercisable after the expiration of
ten years from the date it was granted.
6.2 Price. The exercise price of each Option shall be not less
than 100% of the Fair Market Value of the stock subject to the
Option on the date the Option is granted.
6.3 Consideration. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by
applicable statutes and regulations:
6.3.1 in cash; or
6.3.2 by delivery of already-owned shares of common stock
of the Company or a combination of cash and
already-owned shares of common stock of the Company;
or
6.3.3 through surrender of shares of common stock available
for exercise under the Option, valued at their Fair
Market Value on the date of exercise and owned free
and clear of any liens, claims, encumbrances, or
security interests; or
6.3.4 according to a deferred payment or other arrangement
(which may include, without limiting the generality
of the foregoing, the use of other common stock of
the Company) with the person to whom the Option is
granted or to whom the Option is transferred pursuant
to paragraph 6.4; or
6.3.5 pursuant to a broker assisted exercise same-day sales
program; or
6.3.6 as required in the discretion of the Board or the
Committee, either at the time of the grant or
exercise of the Option; or
6.3.7 any combination of 6.3.1 through 6.3.6 above.
In the case of any deferred payment arrangement, interest
shall be payable at least annually and shall be charged at the
minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any
amounts other than amounts stated to be interest under the
deferred payment arrangement.
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6.4 Transferability.
6.4.1 Incentive Stock Options. In order for an Option to
qualify for treatment as an ISO, it may not be
transferable except by will or by the laws of descent
and distribution. In the event an Optionee transfers
such Option, such transfer shall constitute a
disqualifying event and the Option shall no longer
qualify as an ISO but shall be considered a NSO under
the terms of this Plan.
6.4.2 Nonstatutory Stock Option. The Board or Committee
may, in its discretion, authorize all or a portion of
the NSOs to be granted to an Optionee to be on terms
that permit transfer by such Optionee to (a) the
spouse, children, or grandchildren of the Optionee
("Immediate Family Members"), (b) a trust or trusts
for the exclusive benefit of such Immediate Family
Members, or (c) a partnership in which such Immediate
Family Members are the only partners, provided that
(i) there may be no consideration for any such
transfer, (ii) the Option Agreement pursuant to which
such Options are granted must expressly provide for
transferability in a manner consistent with this
Section, (iii) subsequent transfers of transferred
Options shall be prohibited except those occurring by
will or the laws of descent and distribution, and
(iv) the Options shall continue to be subject to all
the terms and conditions that applied prior to
transfer in the same manner and to the same extent as
non-transferred Options, including paragraphs 6.5
through 6.9. The Options shall be exercisable by the
transferee only to the extent, and for the periods
specified in such sections. The Company expressly
disclaims any obligation to provide notice to a
transferee of the termination of the Option.
6.4.3 Unless transfer by an Optionee is specifically
provided for in an Option Agreement, a NSO shall not
be transferable except by will or by the laws of
descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security
Act, or the rules thereunder (a "QDRO"), and shall be
exercisable during the lifetime of the person to whom
the NSO is granted only by such person or any
transferee pursuant to a QDRO.
6.5 Vesting. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments
(which may, but need not, be equal). The Option Agreement may
provide that from time to time during each of such installment
periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period,
and may be exercised with respect to some or all of the shares
allotted to such period and/or any prior period as to which
the Option became vested but was not fully exercised. The
Option may be subject to such other terms and conditions on
the time or times when it may be exercised (which may be based
on performance criteria) as the Board may deem appropriate.
The provisions of this paragraph 6.5 are subject to any Option
provisions governing the minimum number of shares as to which
an Option may be exercised.
6.6 Securities Law Compliance. The Company may require any
Optionee, or any person to whom an Option is transferred under
paragraph 6.4, as a condition of exercising any such Option,
(a) to give written assurances satisfactory to the Company as
to the Optionee's knowledge and experience in financial and
business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable
and experienced in financial and business matters, and that he
or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising
the Option; and (b) to give written assurances satisfactory to
the Company stating that such
6
person is acquiring the stock subject to the Option for such
person's own account and not with any present intention of
selling or otherwise distributing the stock. These
requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the Option has been registered
under a then currently effective registration statement under
the Securities Act, or (ii) as to any particular requirement,
a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the
then applicable securities laws.
6.7 Termination of Employment or Relationship as an Employee,
Director, or Consultant. In the event an Optionee's Continuous
Status as an Employee, Director, or Consultant terminates
(other than upon the Optionee's death or Disability), the
Optionee may exercise his or her Option, but only within such
period of time as is determined by the Board, and only to the
extent that the Optionee was entitled to exercise at the date
of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement).
In the case of an ISO, the Board shall determine such period
of time (in no event to exceed three months from the date of
termination) when the Option is granted. If, at the date of
termination, the Optionee is not entitled to exercise his or
her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option
within the time specified in the Option Agreement, the Option
shall terminate, and the shares covered by such Option shall
revert to the Plan.
6.8 Disability of Optionee. In the event an Optionee's Continuous
Status as an Employee, Director, or Consultant terminates as a
result of the Optionee's Disability, the Optionee may exercise
his or her Option, but only within twelve months from the date
of such termination (or such shorter period specified in the
Option Agreement), and only to the extent that the Optionee
was entitled to exercise at the date of such termination (but
in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). If, at the date
of termination, the Optionee is not entitled to exercise his
or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option
within the time specified herein, the Option shall terminate,
and the shares covered by such Option shall revert to the
Plan.
6.9 Death of Optionee. In the event of the death of an Optionee,
the Option may be exercised, at any time within eighteen
months following the date of death (or such shorter period
specified in the Option Agreement, but in no event later than
the expiration of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled
to exercise the Option at the date of death. If, at the time
of death, the Optionee was not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion
of the Option shall revert to the Plan. If, after death, the
Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance, or by
assignment as provided herein, does not exercise the Option
within the time specified herein, the Option shall terminate,
and the shares covered by such Option shall revert to the
Plan.
6.10 Early Exercise. The Option Agreement may, but need not,
include a provision whereby the Optionee may elect at any time
while an Employee, Director, or Consultant to exercise the
Option as to any part or all of the shares subject to the
Option prior to the full vesting of the Option. Any nonvested
shares so purchased may be subject to a repurchase right in
favor of the Company or to any other restriction the Board
determines to be appropriate.
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6.11 Withholding. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state, or
local tax withholding obligation relating to the exercise of
such Option by any of the following means or by a combination
of such means:
6.11.1 cash payment; or
6.11.2 authorizing the Company to withhold shares from the
shares of the common stock otherwise issuable to the
participant as a result of the exercise of the
Option; or
6.11.3 delivering to the Company owned and unencumbered
shares of the common stock of the Company.
7. NO REPRICING, CANCELLATION, OR RE-GRANT OF OPTIONS. Except for certain
adjustments due to corporate transactions described in Section 11, the
exercise price for any outstanding Option granted under the Plan may
not be decreased after the Day of Determination for such Option grant
nor may an outstanding Option granted under the Plan be surrendered to
the Company as consideration in exchange for the grant of a new Option
with a lower exercise price.
8. COVENANTS OF THE COMPANY.
8.1 Stock Availability. During the terms of the Option granted
under the Plan, the Company shall keep available at all times
the number of shares of stock required to satisfy such grants
up to the number of shares of stock authorized under the Plan.
8.2 Authority. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to issue and sell
shares of stock acquired under the grants, provided, however,
that this undertaking shall not require the Company to
register under the Securities Act either the Plan or any stock
issued or issuable pursuant to any such Option. If, after
reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency, the authority which
counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall
be relieved from any liability for failure to issue and sell
stock under such Options unless and until such authority is
obtained.
9. USE OF PROCEEDS FROM STOCK. Proceeds from the exercise of Options under
the Plan shall constitute general funds of the Company.
10. MISCELLANEOUS.
10.1 Acceleration. The Board or the Committee shall have the power
to accelerate the time at which an Option may first be
exercised or the time during which an Option or any part
thereof will vest, notwithstanding the provisions in the
Option Agreement stating the time at which it may first be
exercised or the time during which it will vest.
10.2 Ownership Rights. Neither an Optionee nor any person to whom
an Option is transferred under paragraph 6.4 shall be deemed
to be the holder of, or to have any of the rights of a holder
with respect to any shares subject to such Option unless and
until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.
10.3 Employment Rights. Nothing in the Plan or any instrument
executed pursuant thereto shall confer upon any Employee,
Director, Consultant, Optionee, or other holder of Options any
right to continue in the employ of the Company or any
Affiliate (or to continue acting as a
8
Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment or
relationship as a Director or Consultant of any Employee,
Director, Consultant, or Optionee with or without cause.
10.4 ISO Value Limit. To the extent that the aggregate Fair Market
Value (determined at the time of grant) of stock with respect
to which ISOs granted after 1998 are exercisable for the first
time by any Optionee during any calendar year under all plans
of the Company and its Affiliates exceeds $100,000, the
Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as
NSOs.
11. ADJUSTMENTS UPON CHANGES IN STOCK AND CORPORATE TRANSACTIONS.
11.1 Stock Adjustments. If any change is made in the stock subject
to the Plan, or subject to any Option (through merger,
consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split,
liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan
and outstanding Options will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan and
the class(es) and number of shares and price per share of
stock subject to outstanding Options.
11.2 Corporate Transactions. In the event of: (a) a dissolution or
liquidation or sale of all or substantially all of the assets
of the Company; (b) a merger or consolidation in which the
Company is not the surviving corporation; or (c) a reverse
merger in which the Company is the surviving corporation but
the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of
securities, cash, or otherwise, then, the Board in its sole
discretion and to the extent permitted by applicable law may
direct as to all or any of the Option(s) outstanding under the
Plan that: (i) any surviving corporation shall assume such
Options or shall substitute similar Options; (ii) such Options
shall continue in full force and effect; or (iii) the duration
of time during which such Options become vested or may be
exercised shall be accelerated and any outstanding unexercised
rights under any such Options terminated, if not exercised
prior to such event.
12. AMENDMENT OF THE PLAN.
12.1 Amendments. The Board at any time, and from time to time, may
amend the Plan. However, as provided in Section 11, no
amendment shall be effective unless approved by the
stockholders of the Company within twelve months before or
after the adoption of the amendment, where the amendment will:
12.1.1 Increase the number of shares reserved for Options
under the Plan;
12.1.2 Modify the requirements as to eligibility for
participation in the Plan to the extent such
modification requires stockholder approval in order
for the Plan to satisfy the requirements of Sections
162(m) and 422 of the Code;
12.1.3 Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan
to satisfy the requirements of Section 422 of the
Code or to comply with the requirements of Rule 16b-3
or Nasdaq or other applicable securities exchange
listing requirements;
12.1.4 Decrease the minimum exercise price set forth in
paragraph 6.2; or
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12.1.5 Remove the limitation provided in Section 7.
12.2 Compliance. It is expressly contemplated that the Board may
amend the Plan in any respect the Board deems necessary or
advisable to provide under the provisions of the Code and the
regulations promulgated thereunder relating to ISOs and/or to
bring the Plan and/or ISOs granted under it into compliance
therewith.
12.3 Consent. Rights and obligations under any Option granted
before amendment of the Plan shall not be altered or impaired
by any amendment of the Plan unless (a) the Company requests
the consent of the person to whom the Option was granted and
(b) such person consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
13.1 Termination. The Board may suspend or terminate the Plan at
any time. Unless sooner terminated, the Plan shall terminate
on midnight, May 31, 2008. No Options may be granted under the
Plan while the Plan is suspended or after it is terminated.
13.2 Rights and Obligations. Any Options granted while the Plan is
in effect shall not be altered or impaired by suspension or
termination of the Plan, except with the consent of the holder
of the Options.
14. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined
by the Board, but no Options granted under the Plan shall be
exercisable unless and until the Plan has been approved by the
stockholders of the Company.
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