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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
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[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Amylin Pharmaceuticals, Inc.
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PRELIMINARY COPY
AMYLIN PHARMACEUTICALS, INC.
9373 Towne Centre Drive
San Diego, CA 92121
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 24, 2001
To The Stockholders of Amylin Pharmaceuticals, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of AMYLIN
PHARMACEUTICALS, INC., a Delaware corporation (the "Company"), will be held on
Thursday, May 24, 2001 at 10:00 a.m. local time at the Company's facilities
located at 4690 Executive Drive, San Diego, California 92121 for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Company's Non-Employee Directors' Stock Option Plan, as
amended, to change the number and vesting schedule of options granted to
Non-Employee Directors.
3. To approve the Company's 2001 Employee Stock Purchase Plan.
4. To approve the Company's Directors' Deferred Compensation Plan.
5. To approve an amendment to the Company's Certificate of Incorporation to
increase the authorized number of shares of Common Stock from
100,000,000 to 200,000,000 shares.
6. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 2001.
7. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 2, 2001 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
[SIGNATURE]
Joseph C. Cook, Jr.
Chairman of the Board of Directors and
Chief Executive Officer
San Diego, California
April 23, 2001
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY 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. EVEN IF YOU HAVE
GIVEN YOUR PROXY, 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.
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AMYLIN PHARMACEUTICALS, INC.
9373 TOWNE CENTRE DRIVE
SAN DIEGO, CA 92121
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
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MAY 24, 2001
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of Amylin Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held on
Thursday, May 24, 2001 at 10:00 a.m. local time (the "Annual Meeting"), or at
any adjournment or postponement thereof, for the purposes set forth herein and
in the accompanying Notice of Annual Meeting. The Annual Meeting will be held at
the Company's facilities located at 4690 Executive Drive, San Diego, California
92121. The Company intends to mail this proxy statement and accompanying proxy
card on or about April 23, 2001, to all stockholders entitled to vote at the
Annual Meeting.
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 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 or, at the Company's request, Corporate Investor Communications, Inc.
("CIC"), a professional proxy solicitor. No additional compensation will be paid
to directors, officers or other regular employees for such services, but CIC
will be paid its customary fee, estimated to be about $4,000, if it renders
solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April 2,
2001 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 2, 2001 the Company had outstanding and entitled to
vote 63,497,913 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Except for Proposal 5, Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether a matter has been approved. With respect to Proposal 5, abstentions and
broker non-votes will have the same effect as negative votes.
VOTING VIA THE INTERNET OR BY TELEPHONE
Stockholders may grant a proxy to vote their shares by means of the
telephone or on the Internet. The law of Delaware, under which the Company is
incorporated, specifically permits electronically transmitted proxies,
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provided that each such proxy contains or is submitted with information from
which the inspectors of election can determine that such proxy was authorized by
the stockholder.
PLEASE REFER TO YOUR PROXY CARD TO DETERMINE IF YOU ARE ELIGIBLE TO VOTE
EITHER BY TELEPHONE OR VIA THE INTERNET.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 9373 Towne
Centre Drive, San Diego, California 92121, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2002 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 24, 2001. Unless a stockholder who wishes to bring a
matter before the stockholders at the Company's 2002 annual meeting of
stockholders notifies the Company of such matter prior to March 9,
2002,management will have discretionary authority to vote all shares for which
it has proxies in opposition to such matter. Stockholders are also advised to
review the Company's Bylaws, which contain additional requirements with respect
to advance notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
There are seven nominees for the seven Board positions presently authorized
in the Company's Bylaws. Each director to be elected will hold office until the
next annual meeting of stockholders and until a successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee listed below is currently a director of the Company, each of whom has
been elected by the stockholders.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote. The candidates receiving the highest
number of affirmative votes of the shares entitled to be voted will be elected
directors of the Company. Shares represented by executed proxies will be voted,
if authority to do so is not withheld, for the election of the seven nominees
named 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 management may propose. Each person nominated for
election has agreed to serve if elected and management has no reason to believe
that any nominee will be unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
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NOMINEES
The names of the nominees and certain information about them are set forth
below:
PRINCIPAL OCCUPATION
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
Joseph C. Cook, Jr. ...................... 59 Chairman of the Board and Chief Executive
Officer
James C. Blair, Ph.D.(1)(3)............... 61 General Partner, Domain Associates, L.L.C.
Vaughn D. Bryson(1)(3).................... 63 President, Life Science Advisors
Ginger L. Graham(2)(3).................... 45 Group Chairman, Guidant Corporation
Howard E. Greene, Jr.(2)(3)............... 58 Member, Board of Directors
Vaughn M. Kailian(2)(3)................... 56 President and Chief Executive Officer of
COR Therapeutics, Inc.
Jay S. Skyler, M.D.(3).................... 54 Professor of Medicine, Pediatrics and
Psychology, University of Miami
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(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Nominating Committee
Mr. Cook has been our Chairman of the Board and Chief Executive Officer
since March 1998. Mr. Cook previously served as a member of our Board, and a
consultant to us since 1994. Mr. Cook is a founder and serves as Chairman of the
Board of Microbia, Inc., a privately held biotechnology company. Mr. Cook is
also an officer of Mountain Ventures, Inc., a member, with Mr. Bryson, of Life
Science Advisors, LLC and Cambrian Associates, LLC and a founder of Clinical
Products, Inc. Mr. Cook retired as a Group Vice President of Eli Lilly & Company
in 1993 after more than 28 years of service. Mr. Cook received a B.S. in
Engineering from the University of Tennessee.
Dr. Blair has served as a director since December 1988 and serves on the
Compensation and Nominating Committees. He has been a managing member of Domain
Associates, L.L.C., a venture capital investment firm, since 1985. Domain
Associates manages Domain Partners II, L.P., Domain Partners III, L.P., Domain
Partners IV, L.P. and Domain Partners V, L.P. and is an advisor to 3i
Biosciences Trust Plc. From 1969 to 1985, Dr. Blair was an officer of three
investment banking and venture capital firms. Dr. Blair is a director of Aurora
Biosciences, Inc. and Vista Medical Technologies, Inc. Dr. Blair received a
B.S.E. from Princeton University and the M.S.E. and Ph.D. degrees from the
University of Pennsylvania in electrical engineering.
Mr. Bryson has served as a director since July 1999 and serves on the
Compensation and Nominating Committees. Mr. Bryson was a thirty-two year
employee of Eli Lilly & Company and served as its President and Chief Executive
Officer from 1991 to 1993. He was Executive Vice President from 1986 until 1991,
and served as a member of Eli Lilly's board of directors from 1984 until his
retirement in 1993. Mr. Bryson was Vice Chairman of Vector Securities
International from April 1994 to 1996. Mr. Bryson is President and, with Mr.
Cook, a member of Life Science Advisors, LLC. He also serves as a director for
the following publicly traded companies: Ariad Pharmaceuticals, Chiron
Corporation, Artherogenics, Inc. and Quintiles Transnational Corp. Mr. Bryson
received a B.S. in Pharmacy from the University of North Carolina and completed
the Sloan Program at the Stanford University Graduate School of Business.
Ms. Graham has served as a director since November 1995 and serves on the
Audit and Nominating Committees. Since February 2000, Ms. Graham has served as
Group Chairman, Office of the President for Guidant Corporation, a medical
device company which includes Advanced Cardiovascular Systems ("ACS") and
Devices for Vascular Intervention. From 1995 to 2000, Ms. Graham served as
President of the Vascular Intervention Group of Guidant Corporation. She has
also served as President and Chief Executive Officer of ACS since January 1993.
Prior to joining ACS, she held various positions with Eli Lilly & Company from
1979 to 1992, including sales, marketing and strategic planning positions. She
serves as Chairman of the Board and sits on the Executive Committee for the
California Healthcare Institute, on the Advisory Board of the
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California Institute for Federal Policy Research and on the Board of Directors
of CDR Therapeutics, Inc. She is also a member of the Committee 200. Ms. Graham
received an M.B.A. from Harvard University.
Mr. Greene is a co-founder of Amylin and has served as a director since our
inception in September 1987. Mr. Greene serves on the Audit and Nominating
Committees. Mr. Greene is an entrepreneur who has participated in the founding
and/or management of eleven medical technology companies over a 22 year period,
including three as Chief Executive Officer. From September 1987 to July 1996 Mr.
Greene served as our Chief Executive Officer. He was a full time employee of
Amylin from September 1989 until September 1996, and a half-time employee and
Chairman of the Executive Committee until March 1998. From October 1986 until
July 1993, Mr. Greene was a founding general partner of Biovest Partners, a seed
venture capital firm. He was Chief Executive Officer of Hybritech from March
1979 until its acquisition by Eli Lilly & Company in March 1986, and he was
co-inventor of Hybritech's patented monoclonal antibody assay technology. Prior
to joining Hybritech, he was an executive with the medical diagnostics division
of Baxter Healthcare Corporation from 1974 to 1979 and a consultant with
McKinsey & Company from 1967 to 1974. He is Chairman of the Board of Epimmune,
Inc., and a director of Biosite Diagnostics, Inc. and The International
Biotechnology Trust plc, a British Investment company. Mr. Greene received an
M.B.A. from Harvard University.
Mr. Kailian has served as a director since November 1995 and serves on the
Audit and Nominating Committees Mr. Kailian has served as President and Chief
Executive Officer and as a director of COR Therapeutics, Inc. since March 1990.
From 1967 to 1990, Mr. Kailian was employed by Marion Merrell Dow, Inc., a
pharmaceutical company, and its predecessor companies, in various general
management, product development, marketing and sales positions. Among the
positions held by Mr. Kailian were President and General Manager, Merrell Dow
USA and Corporate Vice President of Global Commercial Development, Marion
Merrell Dow, Inc. Mr. Kailian is also a director of the Biotechnology Industry
Organization and the California Healthcare Institute and is a director and
serves on the compensation committee of Axys Pharmaceuticals, Inc. Mr. Kailian
holds a B.A. from Tufts University.
Dr. Skyler has served as a director since August 1999 and serves on the
Nominating Committee. He is Professor of Medicine, Pediatrics, and Psychology
and Co-Director of the Medicine Research Center at the University of Miami in
Florida. He is also Director of the Operations Coordinating Center for the
National Institute of Diabetes & Digestive & Kidney Diseases Diabetes Prevention
Trial in Type 1 Diabetes. Dr. Skyler has served as President of the American
Diabetes Association, and as Vice President of the International Diabetes
Federation. Dr. Skyler is a member of the Florida Governor's Diabetes Advisory
Council, and serves on the editorial board of diabetes and general medicine
journals. Dr. Skyler serves on the Board of Directors of Minimed, Inc. He
received his M.D. from Jefferson Medical College, and completed postdoctoral
studies at Duke University Medical Center.
BACKGROUND OF EXECUTIVES NOT DESCRIBED ABOVE
The names of and certain information regarding the Company's executives as
of March 31, 2000 are set forth below:
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
Daniel M. Bradbury........................ 39 Executive Vice President
Julia R. Brown............................ 54 Executive Vice President
Martin R. Brown........................... 54 Senior Vice President of Operations
Joann L. Data, M.D., Ph.D. ............... 56 Senior Vice President of Regulatory
Affairs and Quality Assurance
Orville G. Kolterman, M.D. ............... 53 Senior Vice President of Clinical Affairs
Alain D. Baron, M.D., Ph.D. .............. 47 Vice President of Clinical Research
Nancy K. Dahl............................. 44 Vice President and General Counsel
Mark G. Foletta........................... 40 Vice President of Finance, Chief Financial
Officer and Secretary
Andrew A. Young, M.D., Ph.D. ............. 47 Vice President of Research
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Mr. Bradbury, one of our executive officers, has served as Executive Vice
President since June 2000. He previously served as Senior Vice President of
Corporate Development from April 1998 to June 2000 and as Vice President of
Marketing from June 1995 to April 1998. From July 1994 to May 1995, Mr. Bradbury
held the position of Director of Marketing, Amylin Europe Limited. Prior to
joining the Company, Mr. Bradbury was employed by SmithKline Beecham
Pharmaceuticals from September 1984 to July 1994, where he held a number of
positions, most recently as Associate Director, Anti-Infectives in the Worldwide
Strategic Product Development Division. Mr. Bradbury holds a B.Pharm. (Hons.)
from Nottingham University and a Diploma in Management Studies from Harrow and
Ealing Colleges of Higher Education and is a member of the Royal Pharmaceutical
Society of Great Britain.
Ms. Brown, one of our executive officers, joined Amylin as Executive Vice
President in June 2000. Prior to joining Amylin, Ms. Brown was Executive Vice
President of Dura Pharmaceuticals. Ms. Brown also spent over 25 years with Eli
Lilly. With Eli Lilly, she held progressively more senior sales and marketing
roles in the pharmaceutical division. She served as Vice President of Worldwide
Marketing for Hybritech, and as Vice President of IVAC Corporation and General
Manager of its Vital Signs Division. Ms. Brown is a member of the board of
directors of Oridigm Corporation. She is a graduate of Louisiana Tech University
where she studied microbiology and biochemistry.
Mr. Brown, one of our executive officers, has served as Senior Vice
President of Operations since March 2000. Mr. Brown previously served as Vice
President of Operations from October 1998 to March 2000, and as Senior Director,
Information Technology from May 1994 to October 1998. Prior to joining the
Company, from 1989 to 1993, Mr. Brown was Director, Information Systems, Europe,
based in London, England for Eli Lilly. From 1988 to 1989, Mr. Brown was
Director, Information Systems for the Medial Devices and Diagnostics Division of
Eli Lilly; he served as Director, Information Systems of IVAC Corporation, one
of the seven companies in that division, from 1983 to 1988. Mr. Brown received a
B.S. in Commerce and Engineering and an M.B.A. in Operations Research from
Drexel University.
Dr. Data, one of our executive officers, has served as Senior Vice
President of Regulatory Affairs and Quality Assurance since August 1999. Dr.
Data previously served as Executive Vice President, Product Development and
Regulatory for CoCensys. Before that, Dr. Data held several positions at The
Upjohn Company, the most recent of which was Corporate Vice President for
Pharmaceutical Regulatory Affairs and Project Management. Previously, she held a
number of positions at Hoffman-La Roche, including Vice President of Clinical
Research and Development. Dr. Data has been an adjunct assistant professor in
medicine and pharmacology at Duke University Medical Center since 1982 and at
Cornell Medical Center since 1986. She earned her M.D. from Washington
University School of Medicine and her Ph.D. in Pharmacology from Vanderbilt
University.
Dr. Kolterman, one of our executive officers, has served as Senior Vice
President of Clinical Affairs since February 1997. Dr. Kolterman previously
served as Vice President, Medical Affairs from July 1993 to February 1997 and
Director, Medical Affairs from May 1992 to July 1993. From 1983 to May 1992, he
was Program Director of the General Clinical Research Center and Medical
Director of the Diabetes Center, at the University of California, San Diego
Medical Center. Since 1989 he has been Adjunct Professor of Medicine at UCSD.
From 1978 to 1983, he was Assistant Professor of Medicine in the Endocrinology
and Metabolism Division at the University of Colorado School of Medicine,
Denver. He was a member of the Diabetes Control and Complications Trial Study
Group at the time of its completion in 1993 and presently serves as a member of
the Epidemiology of Diabetes Intervention and Complications Study. He is also a
past-President of the California Affiliate of the American Diabetes Association.
Dr. Kolterman earned an M.D. from Stanford University School of Medicine.
Dr. Baron has served as Vice President of Clinical Research since December
1999. Dr. Baron previously worked for the Indiana University School of Medicine
in Indianapolis, where he served as Professor of Medicine and Director, Division
of Endocrinology and Metabolism. Prior to this position at Indiana, Dr. Baron
held academic and clinical positions in the Division of Endocrinology and
Metabolism at University of California, San Diego, and the Veterans
Administration Medical Center in San Diego. He is the recipient of several
prestigious awards for his research in diabetes and vascular disease, including
the 1996 Outstanding
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Clinical Investigator Award from the American Federation for Medical Research,
several from the American Diabetes Association, and is a current National
Institutes of Health ("NIH") MERIT award recipient. Dr. Baron is currently
Principal Investigator for several diabetes studies, including the Early
Diabetes Intervention Program study sponsored by the NIH and Bayer
Pharmaceuticals. He earned his M.D. from the Medical College of Georgia,
Augusta, and completed postdoctoral studies at the University of California, San
Diego.
Ms. Dahl, one of our executive officers, has served as Vice President and
General Counsel since January 1999. Ms. Dahl previously served as Vice President
and Associate General Counsel from November 1998 to December 1998. From December
1996 to November 1998, Ms. Dahl held the position of Associate General Counsel,
and from May 1993 to December 1996, she served as Senior Attorney. Prior to
joining the Company from 1989 to 1993, she was an attorney in private practice
with the law firm of Lyon & Lyon. From 1987 to 1989, Ms. Dahl was in private
practice with the law firm of Brobeck, Phleger & Harrison. From 1986 to 1987,
she served as a judicial clerk to the Honorable David R. Thompson of the U.S.
Court of Appeals for the Ninth Circuit. Ms. Dahl received a J.D. degree from the
University of Oregon and a B.S. degree in zoology from the University of
Wisconsin.
Mr. Foletta, one of our executive officers, has served as Vice President of
Finance and Chief Financial Officer since March 2000. Mr. Foletta previously
served as Principal, Triton Group Management, Inc. from 1997 to 2000. From 1986
to 1997, Mr. Foletta held a number of management positions with Intermark, Inc.
and Triton Group Ltd., the most recent of which was Senior Vice President, Chief
Financial Officer and Corporate Secretary. From 1982 to 1986, Mr. Foletta was
with Ernst & Young, most recently serving as an Audit Manager. Mr. Foletta
earned his B.A. in Business Economics from the University of California, Santa
Barbara in 1982 and received his California CPA accreditation in 1985.
Dr. Young has served as Vice President of Research since October 1998 and
as Vice President of Physiology since January 1994. From 1989 to 1993 he held a
number of positions in our Physiology Department, most recently as Principal
Scientist and Senior Director of Physiology. Prior to joining Amylin in 1989,
Dr. Young was a lecturer in the Department of Physiology at the University of
Auckland, New Zealand and a part-time general medical practitioner. From 1984 to
1987, Dr. Young was a Clinical Research Scientist at the National Institutes of
Health in Phoenix, Arizona, where he studied insulin resistance and diabetes. He
received his M.B., Ch.B. (M.D.) and his Ph.D. in Physiology from the University
of Auckland, New Zealand.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 2000 the Board held six meetings.
The Board has an Audit Committee, a Compensation Committee and a Nominating
Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained;
oversees the independence of the independent auditors; evaluates the independent
auditors' performance; and receives and considers the independent auditors'
comments as to controls, adequacy of staff and management performance and
procedures in connection with audit and financial controls. During 2000, the
Audit Committee was composed of three non-employee directors: Ms. Graham, Mr.
Greene and Mr. Kailian. It met one time during such fiscal year. As of the date
of this proxy statement, all members of the Company's Audit Committee are
independent (as independence is defined in Rule 4200(a)(15) of the NASD listing
standards). The Audit Committee has adopted a written Audit Committee Charter
that is attached hereto as Appendix A.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is currently composed of two outside
directors: Dr. Blair and Mr. Bryson. During the 2000 fiscal year, Mr. James C.
Gaither, a former director, also served on the Compensation Committee through
June 1, 2000. Mr. Gaither did not stand for re-election in 2001 and
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therefore stepped down from the Compensation Committee at the time of last
year's Annual Meeting. The Compensation Committee met three times during such
fiscal year.
The Board has delegated to the Company's Chief Executive Officer the
authority to grant stock options under the Company's 1991 Stock Option Plan, as
amended, and the Company's 2001 Equity Incentive Plan to employees of the
Company that are not executive officers, directors or 10% stockholders of the
Company, provided such grants are in accordance with guidelines that have been
approved in advance by the Board.
The Nominating Committee was first formed in February 2001. It develops and
maintains lists of the functional needs of directors, and interviews, evaluates,
nominates and recommends individuals for membership on the Company's Board. No
procedure has been established for the consideration of nominees recommended by
stockholders. The Nominating Committee is composed of six non-employee
directors: Ms. Graham and Messrs. Bryson, Greene and Kailian and Drs. Blair and
Skyler.
During the fiscal year ended December 31, 2000, all directors except Ms.
Graham, who attended 5 out of 7 of the meetings of the Board and of the
committees on which she served, attended at least 75% of the aggregate of the
meetings of the Board and of the committees on which they served, held during
the period for which they were a director or committee member, respectively.
PROPOSAL 2
APPROVAL OF NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN, AS AMENDED
In February 1994, the Board adopted, and the stockholders subsequently
approved, the Company's Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). As a result of a series of amendments approved by the
stockholders, as of April 2000, there were 450,000 shares of Common Stock
reserved for issuance under the Directors' Plan. As of March 2, 2001 options
(net of canceled or expired options) covering an aggregate of 319,657 shares of
the Company's Common Stock had been granted under the Directors' Plan. The
Directors' Plan currently provides that upon a non-employee director's election
to the Board, he will receive an initial nonstatutory stock option to purchase
twenty thousand (20,000) shares of the Company's Common Stock (an "Initial
Grant"). This Initial Grant will have an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant and vests over a period
of four years, with one-quarter of such option becoming exercisable one year
following the date of grant and the remainder becoming exercisable in equal
daily increments over a three-year period. The Directors' Plan also currently
provides, as more fully set forth below, that subsequent to a person's Initial
Grant, each person who is a non-employee director of the Company immediately
following each annual meeting of stockholders of the Company occurring on an
even year (i.e. 1996, 1998, 2000) shall be granted an option to purchase ten
thousand (10,000) shares of Common Stock of the Company, which option shall vest
in equal monthly installments over the course of two years (the "Even Year
Grant").
In February 2001, the Board approved an amendment to the Directors' Plan
that eliminates the Even Year Grant and instead provides generally that
immediately after the 2001 Annual Meeting each non-employee director elected at
such meeting will be granted an option to purchase 3,000 shares of the Company's
Common Stock and thereafter, at each successive annual meeting of stockholders,
each non-employee director elected at such meeting will be granted an option to
purchase 8,000 shares of the Company's Common Stock, with each such option
vesting in equal monthly installments over 12 months and having an exercise
price equal to the fair market value of the Company's Common Stock on the date
of grant.
Stockholders are requested in this Proposal 2 to approve the Directors'
Plan, as amended. 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 will be required to approve the Directors' Plan, as amended. 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 towards a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
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The essential features of the Directors' Plan, as amended, are outlined
below:
GENERAL
The Directors' Plan provides for the automatic grant of nonstatutory stock
options. Options granted under the Directors' Plan are not intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Code. See
"Federal Income Tax Information" for a discussion of the tax treatment of
nonstatutory stock options.
PURPOSE
The Board adopted the Directors' Plan to provide a means by which
non-employee directors of the Company may be given an opportunity to purchase
stock in the Company, to assist in retaining the services of such persons, to
secure and retain the services of persons capable of filling such positions and
to provide incentives for such persons to exert maximum efforts for the success
of the Company. Six of the seven nominees for director of the Company are
eligible to participate in the Directors' Plan.
ADMINISTRATION
The Board administers the Directors' Plan. The Board has the power to
construe and interpret the Directors' Plan but not to determine the persons to
whom or the dates on which options 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 or the other terms of the option.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to
non-employee directors of the Company. A "non-employee director" is defined in
the Directors' Plan as a director of the Company who is not otherwise an
employee of the Company or any affiliate.
STOCK SUBJECT TO THE DIRECTORS' PLAN
An aggregate of 450,000 shares of Common Stock is reserved for issuance
under the Directors' Plan. If options granted under the Directors' Plan expire
or otherwise terminate without being exercised, the shares of Common Stock not
acquired pursuant to such options again becomes available for issuance under the
Directors' Plan. If the Company reacquires unvested stock issued under the
Directors' Plan, the reacquired stock will again become available for reissuance
under the Directors' Plan.
TERMS OF OPTIONS
The following is a description of the terms of options under the Directors'
Plan, as amended. Individual option grants may not be more restrictive as to the
terms described below.
Automatic Initial Grants. Currently, each person who was, and is,
subsequent to May 29, 1997, elected by the Board or shareholders of the Company
to serve as a non-employee director of the Company and who had not served as a
member of the Board at any time during the two-year period immediately preceding
such election, was, and shall be granted, effective as of the later of December
8, 1999 and the date of such election, an option to purchase twenty thousand
(20,000) shares of Common Stock of the Company on the terms and conditions set
forth in the Directors' Plan. These options become exercisable over a period of
four years, with one-quarter of such options becoming exercisable one year
following the date of grant and remainder becoming exercisable in equal daily
increments over a three-year period.
Automatic Periodic Grants. Currently, commencing with the 1996 Annual
Meeting of Stockholders, each person who was, and is, immediately following each
annual meeting of stockholders of the Company that occurs in an even year (i.e.
1996, 1998, 2000, 2002, etc.) (hereinafter, an "Even Year Annual Meeting"), a
non-employee director of the Company was, and shall be granted, effective as of
the date of such Even Year
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Annual Meeting, an option to purchase ten thousand (10,000) shares of Common
Stock of the Company on the terms and conditions set forth in the Directors'
Plan. These options become exercisable in equal daily installments over a period
of two years.
The amendment that stockholders are being asked to approve in this Proposal
2 would change the number and vesting schedule for periodic options granted to
each non-employee director after his/her initial election to the Board. Subject
to stockholder approval of this Proposal 2, non-employee directors will no
longer receive an Even Year Grant immediately after every Even Year Annual
Meeting on the terms described in the preceding paragraph. Rather, each person
who is a non-employee director of the Company immediately after the 2001 Annual
Meeting will be granted an option to purchase three thousand (3,000) shares of
Common Stock of the Company, which option shall vest in even monthly
installments over the course of the following 12 months. At each annual meeting
of the Company beginning in 2002 and each year thereafter, each person who is a
non-employee director of the Company immediately after each successive annual
meeting of stockholders will be granted an option to purchase eight thousand
(8,000) shares of Common Stock of the Company which option shall vest in equal
monthly installments over the course of the following 12 months.
Exercise Price; Payment. The exercise price of options may not be less than
100% of the fair market value of the stock subject to the option on the date of
the grant. As of April 2, 2001, the closing price of the Company's Common Stock
as reported on the Nasdaq National Market System was $9.00 per share. The
exercise price of options granted under the Directors' Plan must be paid either
in cash at the time the option is exercised or by delivery of other Common Stock
of the Company that has been held for the requisite holding period necessary to
avoid a charge to the Company's earnings and valued at the fair market value on
the date of exercise, or by a combination of such methods.
Option Exercise. Options granted under the Directors' Plan become
exercisable in cumulative increments as set out in the Directors' Plan during
the optionholder's service as a director of the Company. The Board has the power
to accelerate the time during which an option may vest or be exercised. Options
granted under the Directors' Plan permit exercise prior to vesting, subject to a
repurchase right in favor of the Company.
Term. The term of options under the Directors' Plan is 10 years. An
optionholder has no right to designate a beneficiary who may exercise the option
following the optionholder's death.
RESTRICTIONS ON TRANSFER
The optionholder may not transfer an option otherwise than by will or by
the laws of descent and distribution. During the lifetime of the optionholder,
an option may be exercised only by the optionholder or his guardian or legal
representative.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company, such as
a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of Common Stock subject to the Directors'
Plan and outstanding options. In that event, the Directors' Plan will be
appropriately adjusted as to the class and the maximum number of shares of
Common Stock subject to the Directors' Plan, and outstanding options will be
adjusted as to the class, number of shares and price per share of Common Stock
subject to such options.
EFFECT OF CERTAIN CORPORATE EVENTS
The Directors' Plan provides generally that, in the event of a dissolution,
liquidation, specified types of merger, or other corporate reorganization, to
the extent permitted by law, the time during which such options may be exercised
shall be accelerated and the options terminated if not exercised prior to such
event.
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DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Directors' Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Directors' Plan will terminate on February 8, 2004.
The Board may also amend the Directors' Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within 12 months before or after its adoption by the
Board if the amendment would (i) increase the number of shares reserved for
issuance upon exercise of options; or (ii) change any other provision of the
Directors' Plan in any other way if such modification requires stockholder
approval in order to comply with Rule 16b-3 of the Securities and Exchange Act
of 1934 or Section 162(m) of the Code. The Board may submit any other amendment
to the Directors' Plan for stockholder approval.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. Slightly different rules may
apply to optionholders who acquire stock subject to certain repurchase options
or who are subject to Section 16(b) of the Exchange Act.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Directors' Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionholder or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionholder 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. If the optionholder becomes an employee, the
Company is required to withhold from regular wages or supplemental wage payments
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 optionholder. Slightly different rules may apply to
optionholders who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
Upon disposition of the stock, the optionholder 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 (or vesting of the stock). Such gain or loss will be
long-term or short-term depending on whether the stock was held for more than
one year.
NEW PLAN BENEFITS
As of March 2, 2001, options to purchase 319,657 shares of the Company's
Common Stock have been granted under the Directors' Plan (net of canceled or
expired options). Subject to stockholder approval of this Proposal 2, each of
the six non-employee directors to be elected at this year's Annual Meeting will,
effective as of the date of the Annual Meeting, automatically be granted an
option to purchase three thousand (3,000) shares of Common Stock. In 2000, each
of the Company's seven non-employee directors elected to the Board at the annual
meeting received an Even Year Grant of ten thousand (10,000) shares having an
exercise price of $10.25 per share.
PROPOSAL 3
APPROVAL OF THE 2001 EMPLOYEE STOCK PURCHASE PLAN
In March 2001, the Board adopted the Company's 2001 Employee Stock Purchase
Plan (the "2001 Purchase Plan"), subject to stockholder approval. There are
400,000 shares of Common Stock reserved for issuance under the 2001 Purchase
Plan.
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The 2001 Purchase Plan is intended to replace the Company's existing
Employee Stock Purchase Plan that was implemented in 1991 (the "1991 Purchase
Plan"). The 1991 Purchase Plan will expire in October 2001. The final offering
under the 1991 Purchase Plan will terminate on January 31, 2002 and the first
offering under the 2001 Purchase Plan is scheduled to commence on February 1,
2002. As of March 2, 2001, 71,250 shares of Common Stock remained available for
issuance pursuant to the 1991 Purchase Plan. Any shares remaining in the 1991
Purchase Plan following the final purchase under that plan on January 31, 2002
shall then expire and will no longer be available for issuance.
Stockholders are requested in this Proposal 3 to approve the 2001 Purchase
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 will be
required to approve the 2001 Purchase Plan. 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 towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the 2001 Purchase Plan, as amended, are outlined
below:
PURPOSE
The purpose of the 2001 Purchase Plan is to provide a means by which
employees of the Company (and any parent or subsidiary of the Company designated
by the Board to participate in the 2001 Purchase Plan) may be given an
opportunity to purchase Common Stock of the Company through payroll deductions,
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. As of March 31, 2001,
approximately all of the Company's approximately 167 employees are eligible to
participate in the 2001 Purchase Plan.
The rights to purchase Common Stock granted under the 2001 Purchase Plan
are intended to qualify as options issued under an "employee stock purchase
plan" as that term is defined in Section 423(b) of the Internal Revenue Code of
1986, as amended (the "Code").
ADMINISTRATION
The Board administers the 2001 Purchase Plan and has the final power to
construe and interpret both the 2001 Purchase Plan and the rights granted under
it. The Board has the power, subject to the provisions of the 2001 Purchase
Plan, to determine when and how rights to purchase Common Stock of the Company
will be granted, the provisions of each offering of such rights (which need not
be identical), and whether employees of any parent or subsidiary of the Company
will be eligible to participate in the 2001 Purchase Plan.
The Board has the power to delegate administration of the 2001 Purchase
Plan to a committee. The Board has delegated administration of the 2001 Purchase
Plan to the Compensation Committee of the Board. As used herein with respect to
the 2001 Purchase Plan, the "Board" refers to the Compensation Committee and to
the Board.
OFFERINGS
The 2001 Purchase Plan is implemented by offerings of rights to all
eligible employees from time to time by the Board. Generally, each offering is
24 months long and is divided into four shorter "purchase periods" each
approximately six months in length.
ELIGIBILITY
Any person who is customarily employed more than 20 hours per week and five
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated by the Board) on the first day of
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an offering is eligible to participate in that offering. Officers of the Company
who are "highly compensated" as defined in the Code are eligible to participate
in the offerings.
However, no employee is eligible to participate in the 2001 Purchase Plan
if, immediately after the grant of purchase rights, the employee would own,
directly or indirectly, stock possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company or of any parent or
subsidiary of the Company (including any stock which such employee may purchase
under all outstanding rights and options). In addition, no employee may purchase
more than $25,000 worth of Common Stock (determined at the fair market value of
the shares at the time such rights are granted in accordance with the Code)
under all employee stock purchase plans of the Company and its affiliates in any
calendar year.
PARTICIPATION IN THE PLAN
Eligible employees enroll in the 2001 Purchase Plan by delivering to the
Company, prior to the date selected by the Board as the offering date for the
offering, an agreement authorizing payroll deductions of up to 15% of such
employees' total compensation during the offering.
PURCHASE PRICE
The purchase price per share at which shares of Common Stock are sold in an
offering under the 2001 Purchase Plan is the lower of (i) 85% of the fair market
value of a share of Common Stock on first day of the offering or (ii) 85% of the
fair market value of a share of Common Stock on the last day of the purchase
period.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering. At any time during the offering, a participant may begin,
increase, reduce or terminate his or her payroll deductions as the Board
provides in the offering. All payroll deductions made for a participant are
credited to his or her account under the 2001 Purchase Plan and deposited with
the general funds of the Company. A participant may not make additional payments
into such account.
PURCHASE OF STOCK
By executing an agreement to participate in the 2001 Purchase Plan, the
employee is entitled to purchase shares under the 2001 Purchase Plan. In
connection with offerings made under the 2001 Purchase Plan, the Board specifies
a maximum number of shares of Common Stock an employee may be granted the right
to purchase and the maximum aggregate number of shares of Common Stock that may
be purchased pursuant to such offering by all participants. If the aggregate
number of shares to be purchased upon exercise of rights granted in the offering
would exceed the maximum aggregate number of shares of Common Stock available,
the Board would make a pro rata allocation of available shares in a uniform and
equitable manner. Unless the employee's participation is discontinued, his or
her right to purchase shares is exercised automatically at the end of the
purchase period at the applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the 2001 Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions and by delivering to
the Company a notice of withdrawal. The 2001 Purchase Plan provides that a
participant may withdraw from an offering at any time, unless the offering
provides otherwise.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
shares of Common Stock on the employee's behalf during such offering, and such
employee's interest in the offering will be automatically terminated. The
employee is not entitled to again participate in
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that offering. However, an employee's withdrawal from an offering will not have
any effect upon such employee's eligibility to participate in subsequent
offerings under the 2001 Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the 2001 Purchase Plan
terminate immediately upon cessation of an employee's employment for any reason,
and the Company will distribute to such employee all of his or her accumulated
payroll deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the 2001 Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 2001 Purchase Plan at any time. The
Board also may amend the 2001 Purchase Plan at any time. Any amendment of the
2001 Purchase Plan must be approved by the stockholders within 12 months of its
adoption by the Board if the amendment would (i) increase the number of shares
of Common Stock reserved for issuance under the 2001 Purchase Plan, (ii) modify
the requirements relating to eligibility for participation in the 2001 Purchase
Plan, or (iii) modify any other provision of the 2001 Purchase Plan in a manner
that would materially increase the benefits accruing to participants under the
2001 Purchase Plan, if such approval is required in order to comply with the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended.
Rights granted before amendment or termination of the 2001 Purchase Plan
will not be altered or impaired by any amendment or termination of the 2001
Purchase Plan without consent of the employee to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger of
the Company, the surviving corporation either will assume the rights under the
2001 Purchase Plan or substitute similar rights, or the exercise date of any
ongoing offering will be accelerated such that the outstanding rights may be
exercised immediately prior to, or concurrent with, any such event.
STOCK SUBJECT TO 2001 PURCHASE PLAN
Subject to this Proposal 3, an aggregate of 400,000 shares of Common Stock
is reserved for issuance under the 2001 Purchase Plan. If rights granted under
the 2001 Purchase Plan expire, lapse or otherwise terminate without being
exercised, the shares of Common Stock not purchased under such granted rights
again becomes available for issuance under the 2001 Purchase Plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the 2001 Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
of Common Stock as if such amounts were actually received. Other than this, no
income will be taxable to a participant until disposition of the acquired
shares, and the method of taxation will depend upon the holding period of the
acquired shares.
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (ii) the excess
of the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the
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offering period) will be treated as ordinary income. Any further gain or any
loss will be taxed as a long-term capital gain or loss. Such capital gains
currently are generally subject to lower tax rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition. The balance of any gain will be treated
as capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be short-term or long-term,
depending on how long the stock has been held.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the 2001 Purchase Plan. The Company is
entitled to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness and the satisfaction
of tax reporting obligations).
PROPOSAL 4
APPROVAL OF THE COMPANY'S DIRECTORS' DEFERRED COMPENSATION PLAN
In August 1997, the Company adopted a Non-Employee Directors' Deferred
Compensation Plan (the "Directors' Deferral Plan") that permits participating
non-employee directors to elect, on an annual basis, to defer all or a portion
of their cash compensation in a deferred stock account pursuant to which the
deferred fees are credited in the form of phantom shares of the Company's Common
Stock, based on the market price of the stock at the time the fees are earned.
Deferred amounts are, therefore, valued according to fluctuations in the fair
market value of the Company's Common Stock. When a participant ceases serving as
a director, the participant will be entitled to receive the value of his or her
account in cash and/or in the form of the Company's Common Stock, either in a
single lump sum payment or in equal annual installments, as determined by the
Company in its sole discretion. All non-employee directors have deferred all of
their cash compensation since the inception of the Directors' Deferral Plan.
In October 1999, the Board amended the Directors' Deferral Plan and, among
other things, restricted the number of shares of the Company's Common Stock
issuable under the life of the plan to be no more than the lower of: (i) one
percent (1%) of the Company's outstanding Common Stock on the effective date of
the plan; (ii) one percent (1%) of the outstanding voting power of the Company's
outstanding securities on the effective date of the plan; or (iii) twenty-five
thousand (25,000) shares of the Company's Common Stock, or such other applicable
limitation that would cause the plan to require stockholder approval.
In February 2001, the Board again amended the Directors' Deferral Plan and
reserved an aggregate of seventy-five thousand (75,000) shares of the Company's
Common Stock for issuance pursuant to its terms, subject to stockholder
approval.
Since the inception of the Directors' Deferral Plan, the Company has made
aggregate payments of $3,056 in cash and 13,283 shares of the Company's Common
Stock to former non-employee directors of the Company under the terms of the
Directors' Deferral Plan. Accordingly, of the seventy-five thousand (75,000)
total shares reserved under the Directors' Deferral Plan, only 61,717 shares
will be available for future issuance if Proposal 4 is approved.
Stockholders are requested in this Proposal 4 to approve the Directors'
Deferral Plan, which will provide the Company with greater flexibility to pay
distributions under the Directors' Deferred Plan either in cash or in shares of
the Company's Common Stock. 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 will be required to approve the Directors' Deferral Plan. 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 towards a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
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The essential features of the Directors' Deferral Plan, as amended, are
outlined below:
PURPOSE
The purpose of the Directors' Deferral Plan is to provide deferred
compensation benefits to non-employee directors of the Company. The Directors'
Deferral Plan provides benefits derived from contributions by the Company of a
non-employee director's compensation as to which he or she has elected to defer
payment and other discretionary contributions made by the Company. It is
intended that the Directors' Deferral Plan constitute an unfunded deferred
compensation arrangement for purposes of United States federal income tax laws.
ADMINISTRATION
The Directors' Deferral Plan is administered by the President and Chief
Executive Officer of the Company (the "Administrator"). The Administrator
exercises all administrative powers and duties under the Directors' Deferral
Plan in accordance with the terms and purposes of the Directors' Deferral Plan,
including the determination of the amount of benefits due to each non-employee
director or his or her beneficiary.
The Administrator may adopt rules and regulations not inconsistent with the
provisions of the Directors' Deferral Plan as deemed necessary or appropriate
for the proper administration of the Directors' Deferral Plan and shall have the
authority, in the Administrator's sole discretion, to interpret and construe any
provision of the Directors' Deferral Plan.
ELIGIBILITY; PARTICIPATION
Only non-employee directors of the Company may participate in the
Directors' Deferral Plan. A non-employee director is defined in the Directors'
Deferral Plan as a director who either (i) is not a current employee or officer
of the Company or its parent or subsidiary, does not receive compensation
(directly or indirectly) from the Company or its parent or subsidiary for
services rendered as a consultant or in any capacity other than as a director
(except for an amount as to which disclosure would not be required under Item
404(a) of Regulation S-K promulgated pursuant to the Securities Act of 1933, as
amended ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended.
In order to participate in the Directors' Deferral Plan, a non-employee
director must enter into a deferred compensation agreement indicating the amount
of compensation that the director wishes to defer pursuant to the terms of the
plan. A participating non-employee director must either enter into a deferred
compensation agreement with the Company within thirty (30) days after the date
he or she becomes eligible, or at the beginning of any year following the year
in which he or she became eligible to participate in the Directors' Deferral
Plan. Each year thereafter, each participating director must enter into a new
deferred compensation agreement prior to the beginning of such year (or such
earlier date established by the Company).
DEFERRAL OF COMPENSATION
All fees received by a participating director for his or her services as a
director, including, but not limited to, retainers and meeting attendance fees,
may be deferred pursuant to the Deferred Compensation Plan.
All deferred compensation is held in an account maintained by the Company
and all amounts therein represent participation rights ("Participation Rights")
in the Deferred Compensation Plan. The amounts held in the account are converted
into that number of Participation Rights that equal the amount of such deferred
compensation divided by the fair market value of the Common Stock of the Company
as of the date such deferred compensation was entitled to be received. In the
event any dividends or distributions are made with respect to the Common Stock
of the Company, the Company allocates an amount to each non-employee director's
account that is equal to the amount of such dividends or distributions that
would have been made
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with respect to the Participation Rights allocated to an account as if the
Participation Rights were shares of Common Stock of the Company. Such
dividend/distribution allocations are also converted into that number of whole
and/or fractional Participation Rights that equal the amount of such allocation
divided by the fair market value of the Common Stock of the Company as of the
date such dividends or distributions are made with respect to the Common Stock
of the Company to the Company's stockholders of record.
STOCK SUBJECT TO DEFERRED COMPENSATION PLAN
An aggregate of seventy-five thousand (75,000) shares of Common Stock has
been authorized for issuance pursuant to the Deferred Compensation Plan, subject
to adjustment to appropriately reflect any merger, consolidation,
reorganization, stock dividend, stock split, change in corporate structure or
other similar transactions not involving the receipt of consideration by the
Company. However, unless the Deferred Compensation Plan is approved by the
stockholders, the aggregate number of shares of the Company's Common Stock
distributable to the Company's non-employee directors may not exceed the lesser
of one percent (1%) of the Company's outstanding Common Stock on August 25,
1997; one percent (1%) of the outstanding voting power of the Company's
outstanding securities on August 25, 1997; or twenty-five thousand (25,000)
shares of the Company's Common Stock, or such other applicable limitation that
would cause the Deferred Compensation Plan to require stockholder approval.
BENEFITS
All benefits and amounts payable under the Deferred Compensation Plan are
subject to the claims of the general creditors of the Company. No trust has been
established to hold any assets which may be set aside by the Company to pay the
benefits under the Deferred Compensation Plan and the Company has no obligation
to set aside any amounts to pay such benefits. All Benefits under the Deferred
Compensation Plan, to the extent accrued, shall be fully vested at all times.
Retirement Benefits. When a non-employee director ceases serving as a
director and providing services to the Company in any other capacity, he or she
is generally entitled to receive the value of his or her account determined as
of the last day of the month that coincides with or next follows the date of the
meeting of the Board that coincides with or next precedes the date of the
distribution, which shall be paid out by the Company in cash and/or in the form
of the Company's Common Stock, either in a single lump sum payment or in equal
annual installments (in terms of the number of Participation Rights allocated to
such director's account), as determined by the Company in its sole discretion.
If the Company determines that the distribution of a non-employee
director's account shall be in installment payments, the number of installment
payments shall be the lesser of: (i) ten (10); or (ii) two (2) times the number
of years for which such director entered into a deferred compensation agreement
with the Company under the Deferred Compensation Plan. The value of an
installment shall be determined by multiplying the number of Participation
Rights to be paid out in such installment by the fair market value of one share
of the Company's Common Stock on the last trading day immediately preceding such
installment payment.
Death Benefits. In the event a non-employee director dies prior to
receiving all of his or her benefits, his or her remaining benefits shall be
paid by the Company in cash and/or in the form of the Company's Common Stock, as
determined by the Company in its sole discretion, to the non-employee director's
beneficiary in a lump sum payment as soon as administratively feasible.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a sale, merger, reorganization, consolidation or other
similar transaction involving the Company, no non-employee director
participating in the Deferred Compensation Plan will be considered to have
ceased serving as a director for purposes of the Deferred Compensation Plan, nor
will he or she be entitled to receive benefits until he or she actually ceases
serving as director of the Company or any acquiring or successor company or
entity, and otherwise ceases to provide services to the Company, unless payment
of benefits are otherwise directed to be paid. Notwithstanding the foregoing,
generally, in the event of dissolution,
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liquidation or specified type of merger of the Company, a non-employee director
shall be entitled to receive benefits immediately prior to the effective date of
such corporate event. Such transactions may not, without the written consent of
the non-employee director, eliminate or reduce any benefit of such director
under the Deferred Compensation Plan to which, as of the date of such
transaction, he or she would be entitled had he or she ceased serving as a
director immediately prior to such date.
TERMINATION AND AMENDMENT
A participating director may not terminate his or her Deferred Compensation
Agreement for any year on or after the first day of such year. However, a
participating director shall cease to be eligible to participate in the Deferred
Compensation Plan as of the date he or she ceases serving as a director.
The Company has reserved the right to amend or terminate the Deferred
Compensation Plan at any time, subject to certain exceptions regarding the
payment of benefits for previously deferred compensation. No termination of the
Deferred Compensation Plan or any amendments thereto which affect benefits under
the Deferred Compensation Plan may, without the written consent of the affected
non-employee director, eliminate or reduce any benefit of such director under
the Deferred Compensation Plan to which, as of the date of such termination or
amendment, he or she would be entitled had he or she ceased serving as a
director immediately prior to such date.
In the event of any amendment of the Deferred Compensation Plan which
affects the amount of benefits payable under the Deferred Compensation Plan,
non-employee directors shall be entitled to receive the greater of the benefit
provided under the Deferred Compensation Plan, as amended, or the benefit
otherwise entitled with respect to such previously deferred compensation.
Upon termination of the Deferred Compensation Plan, all Deferred
Compensation Agreements terminate immediately and all non-employee directors'
full compensation on a non-deferred basis will be restored. Each and every
non-employee director will receive payment of the value of his or her account as
if he or she had ceased serving as a director on the date of the Deferred
Compensation Plan's termination.
FEDERAL INCOME TAX INFORMATION
To avoid federal income taxation for participants prior to the time of
payment, deferrals and earnings, if any, must be treated for tax purposes as
owned by the Company. Participants in the Directors' Deferral Plan have no
preferred claim on or beneficial ownership interest in any assets of the Company
prior to the time actual payments of benefits are paid, and all rights of the
Participants to benefits are mere unsecured contractual rights against the
Company.
Participants in the Directors' Deferral Plan will be taxed at ordinary
income tax rates on distributions from the Directors' Deferral Plan. There are
no federal income tax consequences to the Company or the participants at the
time of deferral. The Company will be entitled to a federal income tax deduction
at the same time that a participant is subject to income tax on a distribution
from the Directors' Deferral Plan.
Other Tax Consequences. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of contributions to and
distributions from the Directors' Deferral Plan; tax consequences may vary
depending on the particular circumstances at hand. In addition, administrative
and judicial interpretations of the application of the federal income taxes are
subject to change. Furthermore, no information is given with respect to state or
local taxes that may be applicable. Participants in the Directors' Deferral Plan
who are residents of or are employed in a country other than the United States
may be subject to taxation in accordance with the tax laws of that particular
country in addition to or in lieu of United States federal income taxes.
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PROPOSAL 5
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board has adopted, subject to stockholder approval, an amendment to the
Company's Amended and Restated Certificate of Incorporation to increase the
Company's authorized number of shares of Common Stock from 100,000,000 shares to
200,000,000 shares.
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common Stock
of the Company, except for effects incidental to increasing the number of shares
of the Company's Common Stock outstanding, such as dilution of the earnings per
share and voting rights of current holders of Common Stock. If the amendment is
adopted, it will become effective upon filing of a Certificate of Amendment of
the Company's Amended and Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware.
In addition to the 63,469,176 shares of Common Stock outstanding at March
2, 2001, the Board has reserved 10,132,209 shares for issuance upon exercise of
options and rights granted under the Company's stock option, stock purchase and
salary deferral plans, including an aggregate of 461,717 shares subject to
stockholder approval under Proposals 3 and 4 herein, and up to approximately
1,585,950 shares of Common Stock which may be issued upon exercise of warrants,
1,530,950 of which are held by Johnson & Johnson.
Although at present the Board of Directors has no other plans to issue the
additional shares of Common Stock, it desires to have such shares available to
provide additional flexibility to use its capital stock for business and
financial purposes in the future. The additional shares may be used, without
further stockholder approval in certain circumstances, for various purposes
including, without limitation, raising capital, providing equity incentives to
employees, officers or directors, establishing strategic relationships with
other companies and expanding the Company's business or product lines through
the acquisition of other businesses or products.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board could adopt a "poison pill" that would, under certain circumstances
related to an acquisition of shares not approved by the Board, give certain
holders the right to acquire additional shares of Common Stock at a low price,
or the Board could strategically sell shares of Common Stock in a private
transaction. This proposal to increase the authorized Common Stock has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company). However, stockholders should be aware that approval of
this proposal could facilitate future efforts by the Company to deter or prevent
changes in control of the Company.
The affirmative vote of the holders of a majority of the shares of the
Common Stock, will be required to approve this amendment to the Company's
Amended and Restated Certificate of Incorporation. As a result, abstentions and
broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 5.
PROPOSAL 6
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2001 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception in 1987.
Representatives of Ernst & Young
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LLP 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 Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
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 Annual Meeting will
be required to ratify the selection of Ernst & Young LLP. 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 towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
Audit Fees. During the fiscal year ended December 31, 2000, the aggregate
fees billed by Ernst & Young LLP for the audit of the Company's financial
statements for such fiscal year and for the reviews of the Company's interim
financial statements was $65,705.
Financial Information Systems Design and Implementation Fees. During the
fiscal year ended December 31, 2000, Ernst & Young LLP did not provide any
information technology consulting services for the Company.
All Other Fees. During fiscal year ended December 31, 2000, the aggregate
fees billed by Ernst & Young LLP for professional services other than audit and
information technology consulting fees was $212,169.
The Audit Committee has determined the rendering of the other non-audit
services by Ernst & Young LLP is compatible with maintaining the auditor's
independence.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 6.
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 2, 2001 by: (i) each nominee for
director; (ii) each of the executive officers named in the Summary Compensation
Table; (iii) all executive officers and directors of the Company as a group; and
(iv) all those known by the Company to be beneficial owners of more than five
percent of its Common Stock.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, each of the stockholders named in this
table has sole voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on 63,469,176 shares
outstanding on March 2, 2001 adjusted as required by rules promulgated by the
Securities and Exchange Commission (the "Commission"). Except as shown otherwise
in the table, the address of each stockholder listed is in care of the Company
at 9373 Towne Centre Drive, San Diego, California 92121.
BENEFICIAL OWNERSHIP
--------------------------------------------
SHARES ISSUABLE
PURSUANT TO OPTIONS
AND WARRANTS
EXERCISABLE WITHIN
NUMBER 60 DAYS OF PERCENT
BENEFICIAL OWNER(1) OF SHARES MARCH 2, 2001 OF TOTAL
------------------- ---------- -------------------- --------
Allen Andersson(2)....................................... 10,653,794 -- 16.3
62 Sparhawk Lane
North Conway, NH 03860
Domain Partners IV, L.P.(3).............................. 4,338,691 -- 6.8
One Palmer Square
Princeton, NJ 08542
Funds Managed by Capital Research & Management
Group(4)............................................... 3,922,933 -- 6.2
333 South Hope Street
Los Angeles CA 90071
James C. Blair(3)(5)..................................... 4,311,875 20,000 6.8
Daniel M. Bradbury(6).................................... 398,265 184,020 *
Martin R. Brown(7)....................................... 263,740 149,197 *
Vaughn D. Bryson(8)...................................... 90,513 10,000 *
Joseph C. Cook, Jr.(9)................................... 2,100,340 1,013,869 3.3
Nancy K. Dahl(10)........................................ 219,563 217,231 *
Ginger L. Graham(11)..................................... 100,000 60,000 *
Howard E. Greene, Jr.(12)................................ 2,168,088 20,000 3.4
Vaughn M. Kailian(13).................................... 60,000 60,000 *
Orville G. Kolterman(14)................................. 449,393 418,722 *
Jay S. Skyler(15)........................................ 42,585 30,585 *
All executive officers and directors as a group (14
persons)............................................... 10,336,697 2,302,259 15.7
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission. Includes shares issuable pursuant to options and
other rights to purchase the Company's shares exercisable within 60 days of
March 2, 2001. As of March 2, Mr. Bryson held 11,740 shares of unvested
Common Stock that are subject to a repurchase right in favor of the
Company.
(2) This amount includes 2,602,779 shares held by Susan Riecken, Mr.
Andersson's spouse.
(3) Includes 4,115,046 shares held by Domain Partners IV, L.P., 99,159 shares
held by DP IV Associates, L.P., 10,000 shares held by Domain Associates,
L.L.C. and 114,486 shares held by One Palmer Square Associates IV, L.L.C.
Dr. Blair is a general partner of One Palmer Square Associates II, L.P.,
and the
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managing member of One Palmer Square Associates IV, LLC. One Palmer Square
Associates II, L.P. is the general partner of Domain Partners II. One
Palmer Square Associates IV, LLC is the general partner of Domain Partners
IV, L.P. and DP IV Associates, L.P. Dr. Blair disclaims beneficial
ownership of the 4,338,691 shares held by the Domain Partners' entities
except to the extent of his pecuniary interest in such shares.
(4) Includes 3,000,000 shares held of record by Rescueboat & Co., as Custodian
for The Growth Fund of America, Inc., and 922,933 shares held of record by
Clipperbay & Co., as Custodian for SMALLCAP World Fund, Inc.
(5) Includes 5,425 unvested stock options exercisable pursuant to early
exercise provisions.
(6) Includes 81,520 unvested stock options exercisable pursuant to early
exercise provisions.
(7) Includes 23,365 unvested stock options exercisable pursuant to early
exercise provisions.
(8) Includes 80,513 shares held by the Vaughn D. Bryson Irrevocable Trust, U-A
1/14/99 and 5,425 unvested stock options exercisable pursuant to an early
exercise provision.
(9) Includes 130,752 shares owned by Farview Management, L.P. to which Mr. Cook
shares voting and dispositive power with his wife and 207,667 unvested
stock options exercisable pursuant to early exercise provisions.
(10) Includes 36,179 unvested stock options exercisable pursuant to early
exercise provisions.
(11) Includes 5,425 unvested stock options exercisable pursuant to early
exercise provisions.
(12) Includes 70,769 shares held by The Greene Children's Trust, of which Mr.
Greene is a trustee and with respect to which he shares voting and
dispositive power with his wife, Arlene Greene, 2,077,319 shares held in
The Greene Family Trust, of which Mr. Greene is a trustee and with respect
to which he also shares voting and dispositive power with his wife and
5,425 unvested stock options exercisable pursuant to early exercise
provisions.
(13) Includes 5,425 unvested stock options exercisable pursuant to early
exercise provisions.
(14) Includes 4,050 shares owned by Dr. Kolterman's daughter and stepson and
50,164 unvested stock options exercisable pursuant to early exercise
provisions.
(15) Includes 5,425 unvested stock options exercisable pursuant to early
exercise provisions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation 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 and written representations that no other
reports were required, during the fiscal year ended December 31, 2000, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
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EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Prior to April 2001, each non-employee director of the Company received a
$1,000 attendance fee for each meeting of the Board such director attended,
subject to the Directors' Deferral Plan described in Proposal 4, above. In
February 2001, the Board approved a revised compensation arrangement pursuant to
which non-employee directors shall receive an annual retainer of $10,000 payable
in equal quarterly installments. In 2000, $27,800 was deferred into the
Directors' Deferral Plan and payments with a total value of $119,551, which
included 13,283 shares of the Company's Common Stock, were paid to one former
director under the Directors' Deferral Plan. The members of the Board of
Directors are also eligible for reimbursement for their expenses incurred in
connection with attendance at Board meetings in accordance with Company policy.
Each non-employee director of the Company also receives stock option grants
under the Directors' Plan, as described in Proposal 2, above. During the last
fiscal year, the Company granted options covering an aggregate of seventy
thousand (70,000) shares to seven non-employee directors of the Company, at an
exercise price per share of $10.25, which was equal to the fair market value of
such Common Stock on the date of grant. As of March 2, 2001, 57,657 options had
been exercised under the Directors' Plan.
In August 1997, the Company adopted the Directors' Deferral Plan described
in Proposal 4 above that permits participating non-employee directors to elect,
on an annual basis, to defer all or a portion of their cash compensation as
directors in a deferred stock account pursuant to which the fees are credited in
the form of phantom shares of the Company's Common Stock, based on the market
price of the stock at the time the fees are earned. Deferred amounts are,
therefore, valued according to fluctuations in the fair market value of the
Company's Common Stock. When a participant ceases serving as a director, the
participant will be entitled to receive the value of his or her account in cash
and/or in the form of the Company's Common Stock, either in a single lump sum
payment or in equal annual installments, as determined by the Company in its
sole discretion. All non-employee directors chose to defer all of their cash
compensation for the period January 1, 2000 through December 31, 2000.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years December 31, 1998, 1999 and
2000, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at December 31, 2000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION AWARDS
----------------------------------------------- ------------------- ALL OTHER
NAME AND OTHER ANNUAL SHARES UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($) OPTIONS (#) ($)(2)
------------------ ---- ---------- --------- --------------- ----------------- ------------
Joseph C. Cook, Jr. .... 2000 $460,625 $ -- $122,225(3) 165,000 $ 5,000
CEO and Chairman of 1999 375,000 -- 190,951(3) 206,800 17,405
the Board of Directors 1998 234,053 -- 92,472(3) 765,000(4) 1,248
Daniel M. Bradbury...... 2000 287,527 102,100 -- 95,000 5,250
Executive Vice
President 1999 189,625 -- -- 77,000 8,466
1998 174,863 26,648 -- 157,000 5,000
Orville G. Kolterman.... 2000 252,194 125,100 -- 65,000 5,250
Senior Vice President 1999 233,300 -- -- 53,000 10,337
of Clinical Affairs 1998 232,535 36,323 -- 150,700 4,294
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LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION AWARDS
----------------------------------------------- ------------------- ALL OTHER
NAME AND OTHER ANNUAL SHARES UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($) OPTIONS (#) ($)(2)
------------------ ---- ---------- --------- --------------- ----------------- ------------
Martin R. Brown......... 2000.. $239,400 $ 99,350 $ 67,000 $ 5,250
Senior Vice President 1999 184,500 -- -- 66,800 8,280
of Operations 1998 150,969 15,300 -- 100,695 5,000
Nancy K. Dahl........... 2000 228,462 89,950 45,000 4,745
Vice President and 1999 167,075 -- -- 50,600 6,086
General Counsel 1998 154,452 14,229 -- 104,650 4,640
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(1) As permitted by rules promulgated by the SEC, no amounts are shown for 2000,
or with respect to certain "perquisites," where such amounts do not exceed
the lesser of 10% of salary plus bonus or $50,000.
(2) Except as noted below, consists of matching contributions made by the
Company in Common Stock under its 401(k) plan and represents the fair market
value of the Company's Common Stock on the calculation date multiplied by
the number of shares. With respect to 1999, the amount also includes
distributions to employees from the Phantom Stock Salary Deferral Plan,
based on the fair market value of the Company's Common Stock as of May 31,
1999 ($1.313 per share) multiplied by the number of shares of Common Stock
distributed and the cash refund generated. For or in 1999, the All Other
Compensation amounts are apportioned as follows:
FAIR MARKET VALUE
OF SHARES CASH
COMMON STOCK DISTRIBUTED UNDER DISTRIBUTION
VALUE OF 401K DISTRIBUTED PHANTOM STOCK FROM PHANTOM
MATCHING UNDER PHANTOM SALARY DEFERRAL STOCK SALARY
CONTRIBUTIONS STOCK SALARY PLAN, AS OF DEFERRAL
NAME ($) DEFERRAL PLAN(#) MARCH 2, 2000 PLAN($)
---- ------------- ---------------- ----------------- ------------
Joseph C. Cook, Jr. .......... $5,004 2,685 $3,525 $8,876
Orville G. Kolterman.......... 4,781 1,203 1,580 3,976
Daniel M. Bradbury............ 4,795 795 1,044 2,627
Martin R. Brown............... 5,006 709 931 2,343
Nancy K. Dahl................. 5,004 234 307 775
(3) Represents expenses paid by the Company or reimbursed to Mr. Cook for
certain living expenses, associated travel expenses and tax gross-ups
related thereto, in accordance with Mr. Cook's employment agreement with the
Company.
(4) Includes options to purchase 12,676 shares that were later cancelled.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1991 Stock
Option Plan (the "1991 Option Plan") and its 2001 Equity Incentive Plan (the
"2001 Incentive Plan"). As of March 2, 2001, options to purchase a total of
5,202,459 shares were outstanding under the 1991 Option Plan and options to
purchase 4,440 shares remained available for grant thereunder and options to
purchase a total of 452,380 shares were outstanding under the 2001 Incentive
Plan and options to purchase 3,547,620 shares remained available for grant
thereunder.
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The following tables show for the fiscal year ended December 31, 2000,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(5)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------------
NAME GRANTED(#) FISCAL YEAR(4) ($/SH) DATE 5%($) 10%($)
---- ------------ -------------- ----------- ---------- ------------- -------------
Joseph C. Cook, Jr. .... 150,000(1) 7.91% $14.28 2/22/2010 $1,347,187 $3,414,035
15,000(2) * 9.63 11/17/2010 90,797 230,097
Orville G. Kolterman.... 50,000(1) 2.63 14.28 2/22/2010 449,062 1,138,011
15,000(2) * 9.63 11/17/2010 90,797 230,097
Daniel M. Bradbury...... 90,000(1) 4.74 14.28 2/22/2010 808,312 2,048,421
5,000(2) * 9.63 11/17/2010 30,266 76,699
Martin R. Brown......... 50,000(1) 2.63 14.28 2/22/2010 449,062 1,138,012
7,000(3) * 9.88 10/04/2010 43,472 110,167
10,000(2) * 9.63 11/17/2010 60,531 153,398
Nancy K. Dahl........... 40,000(1) 2.11 14.28 2/22/2010 359,250 910,409
5,000(2) * 9.63 11/17/2010 30,266 76,629
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* Less than 1%.
(1) Such options generally vest according to the following schedule: 25% vest
one year from the date of grant and the remainder vest daily over the
following three years.
(2) Such options generally vest according to the following schedule: (a) 33
1/3% vested on January 24, 2001, (b) 33 1/3% vest daily over two years from
date of grant commencing as of November 17, 2000 and (c) the remaining
33 1/3% will vest upon the earlier of the issuance of an approvable letter
by the FDA for SYMLIN or November 17, 2002.
(3) Such option was fully vested as of the date it was granted.
(4) Based on options to purchase 1,893,040 shares of Common Stock granted to
employees, including Named Executive Officers, under the 1991 Option Plan
and the 2001 Equity Plan during the fiscal year ended December 31, 2000.
(5) Calculated on the assumption that the market value of the underlying stock
increases at the stated values, compounded annually. The total appreciation
of the options over their 10-year terms at 5% and 10% is 63% and 159%
respectively.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION/SAR
VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES ACQUIRED VALUE AT FY-END (#) AT FY-END ($)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- ------- -------- --------------- ---------------------
Joseph C. Cook, Jr. ....... 30,000 $190,320 643,690/368,634 $2,404,215/$1,192,606
Orville G. Kolterman....... 10,050 85,505 344,840/105,205 1,506,186/254,123
Daniel M. Bradbury......... 136,975 778,293 93,770/142,250 292,998/322,242
Martin R. Brown............ 49,596 565,936 106,433/63,566 513,728/18,653
Nancy K. Dahl.............. -- -- 162,754/73,245 938,176/198,410
EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL AGREEMENTS
From 1994 to 1998, Joseph C. Cook, Jr. served as a consultant to the
Company under various consulting agreements. In June 1995, the Company and Mr.
Cook entered into a consulting agreement (the "Consulting Agreement"), which
became effective in September 1995. Pursuant to the Consulting Agreement, Mr.
Cook agreed to provide certain consulting services, including assistance in
implementing the Company's business
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strategy. As part of Mr. Cook's compensation as a consultant, to date Mr. Cook
has been granted nonqualified stock options under the Company's Option Plan to
purchase an aggregate of 270,000 shares of Common Stock. In connection with an
earlier consulting agreement between the Company and Mr. Cook, in January 1995,
the Company also entered into a phantom stock unit agreement with Farview
Management Co., L.P. ("Farview"), a consulting firm of which Mr. Cook is a
general partner (the "Phantom Stock Agreement"). Pursuant to the agreement,
Farview received 9,000 phantom stock units, representing the right to receive
cash or shares of the Company's Common Stock ("Phantom Stock Units"). The
Phantom Stock Agreement provides that on the date Mr. Cook ceases to be a
consultant to or director of the Company (the "Termination Date"), the Company
will pay Farview the fair market value of the Phantom Stock Units in cash or
shares of the Company's Common Stock, at the election of the Company. The fair
market value of each Phantom Stock Unit is to be determined based on the closing
price of a share of the Company's Common Stock as quoted on the Nasdaq National
Market on the last trading day prior to the Termination Date.
In addition, in February 1998, Mr. Cook was granted an option to purchase
15,000 shares of Common Stock, including options to purchase 12,676 shares that
have been cancelled. Pursuant to the Consulting Agreement, as amended, Mr.
Cook's consulting fees and the vesting of his options were determined based on
hours of service performed. Mr. Cook was also reimbursed for any reasonable
travel, living and business expenses incurred in connection with the performance
of his consulting services.
In March 1998, Mr. Cook accepted a position as Chairman of the Board and
Chief Executive Officer of the Company. In connection with his appointment, Mr.
Cook entered into an agreement with the Company pursuant to which his annual
salary was set at $375,000. Under the terms of his agreement, Mr. Cook is
eligible to receive an annual merit bonus of up to $250,000, payable upon the
achievement of goals and milestones to be set by the Compensation Committee. In
addition, Mr. Cook's agreement provides that the Company will reimburse Mr. Cook
or pay for certain living expenses, associated travel expenses and tax gross-up
payments related thereto. Mr. Cook was also granted an option to purchase an
aggregate of 500,000 shares of the Company's Common Stock under the Company's
Option Plan at an exercise price of $2.656 per share. The option vests as
follows: 200,000 of the option shares will vest in equal monthly installments
over the twelve months following Mr. Cook's employment start date; and the
remaining 300,000 option shares will vest in equal monthly installments over the
following thirty-six months. In addition, Mr. Cook's agreement provides that
vesting of the option will be accelerated in full upon a change in control of
the Company in accordance with the Company's standard vesting acceleration
provisions.
In accordance with the provisions of Mr. Cook's employment agreement, his
Consulting Agreement with the Company was terminated as of the day prior to the
date he commenced employment with the Company. Mr. Cook's employment agreement
also provides that the portion of the outstanding options granted to Mr. Cook in
connection with the Consulting Agreement which were vested as of his employment
start date will remain outstanding and exercisable in accordance with their
terms for so long as Mr. Cook remains employed by the Company and for twelve
months thereafter, or for such longer period as is provided under the terms of
those options.
In December 1996, Daniel M. Bradbury entered into an agreement with the
Company pursuant to which the Company made an interest-free loan to Mr. Bradbury
in the principal amount of $36,000 to assist Mr. Bradbury with relocation
expenses. The loan was amended in April 2000, and under its terms the principal
amount became due and repayable on the earlier of (a) the 45th day after
termination of Mr. Bradbury's employment with the Company, (b) the sale of the
property securing the loan or (c) December 10, 2000. The terms of the loan
agreement restricted Mr. Bradbury's ability to sell Common Stock of the Company
and to make withdrawals of, or take loans against, his contributed funds under
the Company's 401(k) plan. The loan was paid in full pursuant to its terms on
December 10, 2000.
In February 1998, the Company adopted a Supplemental Incentive Bonus
Program (the "Supplemental Bonus Program") for certain employees. Under the
Supplemental Bonus Program, each of the employees specifically designated by the
Compensation Committee to participate in the program was eligible to receive a
cash bonus equal to 50% of his or her base salary on March 1, 2000, less
applicable payroll taxes and benefit
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contributions (the "Supplemental Bonus"), if he or she met the following
criteria: (i) the employee must be continuously employed by the Company or an
affiliate of the Company on a full-time basis through March 1, 2000 (the "Bonus
Date"); and (ii) the employee must retain a performance rating of "good" or
better from March 1, 1998 through the Bonus Date. In addition, in the event of a
change in control of the Company prior to March 1, 2000, participating employees
may also have been eligible to receive a portion of such bonus under specified
circumstances. The Named Executive Officers designated by the Compensation
Committee as eligible to participate in the Supplemental Incentive Bonus Program
were Messrs. Bradbury and Brown, Ms. Dahl and Dr. Kolterman, each of whom
received his or her respective Supplemental Bonus in March 2000.
In February 2001, the Company adopted the Change in Control Employee
Severance Benefit Plan (the "Severance Plan"). The Severance Plan provides
certain designated employees of the Company or certain affiliates, if any, who
hold the position of Vice President, or any position senior to Vice President,
with certain benefits in the event that within 90 days prior to, or within 13
months following, the effective date of certain specified change of control
transactions such employee ceases employment with the Company without cause or
under certain specified circumstances. An eligible employee will receive
continuation of salary for 18 months (24 months in the case of the President or
Chief Executive Officer of the Company) in normal regular monthly installments
and any bonus such employee would otherwise have received under the Company's
annual cash bonus plan then in effect; provided, however, an employee is only
entitled to such benefits if he or she does not have a separate individual
agreement with the Company regarding change of control or severance benefits
(other than any agreement regarding equity incentive plans or arrangements,
which shall not be superceded by this Severance Plan). As of March 2, 2001, no
eligible employees had separate agreements with the Company regarding change of
control or severance benefits that supersede the Severance Plan.
EMPLOYEE BENEFIT PLANS
In addition to the Severance Plan and the Supplemental Bonus Program
described under the caption "Employment, Severance and Change of Control
Agreements," the 401(k) Plan described under the caption "Report of the
Compensation Committee of the Board of Directors on Executive
Compensation -- 401(k) Matching Contribution," and the 2001 Employee Stock 2001
Purchase Plan described in Proposal 3 above, the Company maintains the following
employee benefit plans.
2001 EQUITY INCENTIVE PLAN
In December 2000, the Board adopted the Company's 2001 Equity Incentive
Plan (the "2001 Incentive Plan"), which was subsequently approved by the
stockholders.
The 2001 Incentive Plan was adopted to continue to provide equity
incentives to the Company's employees and consultants. The need for a new equity
incentive plan was prompted because the Company's 1991 Stock Option Plan (the
"1991 Option Plan") expires in 2001 and because no shares remained available for
grant under the 1991 Option Plan as of December 22, 2000. Moreover, the new 2001
Incentive Plan provides for a broader range of equity incentives than the 1991
Option Plan. More specifically, the 2001 Incentive Plan provides greater
flexibility in granting awards by allowing the Company to grant incentive stock
options, nonstatutory stock options, stock bonuses, and rights to acquire
restricted stock (collectively "awards"). As of March 2, 2001, 452,380 awards
had been granted under the 2001 Incentive Plan.
The Board adopted the 2001 Incentive Plan to provide a means by which
employees, directors and consultants of the Company and its affiliates may be
given an opportunity to purchase stock in the Company, to assist in retaining
the services of such persons, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons to
exert maximum efforts for the success of the Company and its affiliates. All of
the approximately 162 employees, and the directors and consultants of the
Company and its affiliates are eligible for awards under the 2001 Incentive
Plan. Incentive stock options granted under the 2001 Incentive Plan are intended
to qualify as "incentive stock options" within the meaning
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of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Nonstatutory stock options granted under the 2001 Incentive Plan are not
intended to qualify as incentive stock options under the Code.
The Board administers the 2001 Incentive Plan. Subject to the provisions of
the 2001 Incentive Plan, the Board has the power to construe and interpret the
2001 Incentive Plan and to determine the persons to whom and the dates on which
awards will be granted, the number of shares of Common Stock subject to each
award, the time or times during the term of each award within which all or a
portion of such award may be exercised, the exercise price, the type of
consideration and other terms of the award.
An aggregate of 4,000,000 shares of Common Stock currently is reserved for
issuance under the Incentive Plan. However, the share reserve under the 2001
Incentive Plan, determined at any time, will be automatically increased without
any further action by the Board or stockholders by an amount equal to the number
of shares of Common Stock subject to any outstanding option under the Company's
1991 Option Plan that expires or is terminated or canceled following the date
that the 2001 Incentive Plan was approved by the Board, which cannot exceed a
total increase of 5,275,689 shares. Additionally, the shares of the Company's
Common Stock subject to such expired, terminated or cancelled options, shall be
subtracted from the then current share reserve under the 1991 Option Plan as
they are added to the share reserve under the 2001 Incentive Plan. If awards
granted under the 2001 Incentive Plan expire or otherwise terminate without
being exercised, the shares of Common Stock not acquired pursuant to such awards
again become available for issuance under the 2001 Incentive Plan. If the
Company reacquires unvested stock issued under the 2001 Incentive Plan, the
reacquired stock will again become available for reissuance under the 2001
Incentive Plan for awards other than incentive stock options. The exercise price
of incentive stock options may not be less than 100% of the fair market value of
the stock subject to the option on the date of the grant and, in some cases, may
not be less than 110% of such fair market value. The exercise price of
nonstatutory options may not be less than 85% of the fair market value of the
stock on the date of grant and, in some cases, may not be less than 110% of such
fair market value. Options granted under the 2001 Incentive Plan may become
exercisable ("vest") in cumulative increments as determined by the Board.
In addition, it is expected that the options granted to officers under the
2001 Incentive Plan will include certain change in control provisions. Pursuant
to these provisions, if, within 90 days prior to, or within 13 months following
the effective date of certain specified change in control transactions, an
officer ceases employment with the Company without cause (as defined therein) or
under certain other specified circumstances, then generally the vesting and
exercisability of the options an officer holds that were issued under the 2001
Incentive Plan shall accelerate in full or any reacquisition or repurchase right
of the Company acquired pursuant to any early exercise of such options, if
permitted, shall lapse in full.
No more than an aggregate of 1,000,000 shares of stock may be awarded as
stock bonuses under the terms of the 2001 Incentive Plan. A stock bonus may be
awarded in consideration for past services actually rendered to the Company or
an affiliate of the Company without any additional payment by the recipient of
such award.
1991 STOCK OPTION PLAN
The Company adopted the 1991 Option Plan in October 1991. The 1991 Option
Plan has been amended several times, most recently in October 1999. The purpose
of the 1991 Option Plan is to assist the Company in attracting the services of
new officers, employees and consultants and retaining the services of current
officers, employees and consultants. The 1991 Option Plan provides a means by
which selected officers, employees and consultants of the Company and its
affiliates are given an opportunity to purchase stock in the Company. The 1991
Option Plan provides for the grant of both incentive and nonqualified stock
options. Incentive stock options are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Code. Nonqualified stock
options granted under the 1991 Option Plan are intended not to qualify as
incentive stock options under the Code. The maximum number of shares of Common
Stock that may be issued under the 1991 Option Plan is 7,800,000. As of March 2,
2001, options to purchase a total of 5,202,459 shares of Common Stock were
outstanding under the 1991 Option Plan and 4,400 shares remained available for
future
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grant. As of March 2, 2001, approximately [162] of the Company's employees were
eligible to participate in the 1991 Option Plan.
Under the 1991 Option Plan , the Board or Compensation Committee may
provide for the grant of stock options to eligible employees. The Board or
Compensation Committee determines certain provisions of each option granted,
including the number of shares to be granted to each person and the time such
option may be exercised. The exercise price of incentive stock options may not
be less than the fair market value of the Common Stock on the date of the option
grant. The exercise price of nonqualified stock options may not be less than 50%
of the fair market value of the Common Stock on the date of grant. Such options
generally vest according to the following schedule: 25% vest one year from the
date of grant and the remainder vest daily over the following three years.
However, in October 1998 the Company granted certain options that vest according
to the following alternative schedule: 25% vest six months from the date of
grant and the remainder vest daily over the following 18 months, and from time
to time the Company has utilized alternative vesting schedules. Certain options
granted under the 1991 Option Plan also are immediately exercisable but are
subject to the Company's right to repurchase unvested shares on termination of
employment.
Substantially all of the options granted under the 1991 Option Plan provide
generally that the shares subject to those options shall immediately vest in
full in the event of a change in control of the Company. For those options under
the 1991 Option Plan, generally a "change in control" is defined as: (i) any
merger, acquisition, consolidation, reorganization or other similar transaction
pursuant to which the shareholders of the Company immediately prior to such
merger, consolidation, reorganization or other similar transaction do not,
immediately thereafter, own more than 50% of the outstanding voting securities
of the resulting entity or (ii) any liquidation or dissolution of the Company or
any sale of all or substantially all of the assets of the Company.
1991 EMPLOYEE STOCK PURCHASE PLAN
In November 1991, the Company adopted the Employee Stock Purchase Plan (the
"1991 Purchase Plan") which has been amended from time to time. The purpose of
the 1991 Purchase Plan is to provide a means by which employees of the Company
may be given an opportunity to purchase Common Stock of the Company through
payroll deductions, to assist the Company in retaining the services of its
employees and to secure and retain the services of new employees. As of March 2,
2001, approximately all of the Company's approximately 167 employees are
eligible to participate in the 1991 Purchase Plan. The rights to purchase Common
Stock granted under the 1991 Purchase Plan are intended to qualify as options
issued under an "employee stock purchase plan" as that term is defined in
Section 423(b) of the Internal Code of 1986, as amended.
The 1991 Purchase Plan is implemented by the Board by offering rights to
purchase Common Stock to employees from time to time. Each offering is no more
than 27 months long. Under the 1991 Purchase Plan, any employee who is
customarily employed at least 20 hours per week and five months per calendar
year may participate in the 1991 Purchase Plan by authorizing payroll deductions
of up to 15% of such employees total compensation during the purchase period.
The purchase price per share is the lower of 85% of the fair market value on the
first day of the offering or on the exercise date. A participating employee may
withdraw at any time. Upon withdrawal, the Company will distribute to the
employee his or her accumulated payroll deductions without interest, less
accumulated deductions previously applied to the purchase of shares of Common
Stock on employees behalf. In addition, rights granted pursuant to an offering
terminate immediately upon cessation of an employees employment for any reason,
and the Company will distribute to such employee all of his or her accumulated
payroll deductions, without interest.
The 1991 Purchase Plan is expected to be replaced by the 2001 Purchase Plan
described in Proposal 3, above. The final offering under the 1991 Purchase Plan
will terminate on January 31, 2002 and the first offering under the 2001
Purchase Plan is scheduled to commence on February 1, 2002. As of March 2, 2001,
71,250 shares of Common Stock remained available for issuance pursuant to the
1991 Purchase Plan. Any shares remaining in the 1991 Purchase Plan following the
final purchase under that plan on January 31, 2002 shall then expire and will no
longer be available for issuance.
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DEFERRED COMPENSATION PLAN
In February 2001, the Board approved the Amylin Pharmaceuticals, Inc. 2001
Deferred Compensation Plan (the "DC Plan"), which is an unfunded plan designed
for the purpose of the providing deferred compensation to a select group of the
Company's management and highly compensated executives.
Eligibility to participate in the DC Plan is generally limited to employees
and non-employee directors as well as consultants who were former employees of
the Company who fall within a "select group of management or highly compensated
employees" for purposes of the Employee Retirement Income Security Act of 1974
("ERISA"). As of March 2, 2001 the Company had not paid any amounts under the DC
Plan nor had it withheld any compensation from DC Plan participants for such
purpose. Participant's deferral amounts are credited with the investment returns
of mutual funds designated by the participants. [M. Brown to confirm]
Participant's receiving distributions will be taxed at ordinary income tax
rates in the year of distribution. The Company will be entitled to a deduction
at the time when, and in the amount that, the participant recognizes ordinary
income.
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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors (the "Committee") is
composed of directors who are not employees of the Company. The Committee is
responsible for establishing and administering the Company's executive
compensation arrangements.
COMPENSATION OBJECTIVES AND IMPLEMENTATION
The objectives of the Company's executive compensation arrangements are to
attract and retain the services of key management and to align the interests of
its executives with those of the Company's stockholders. The Committee endeavors
to accomplish these by:
- Establishing compensation arrangements that are adequate to attract and
retain the services of key management personnel and that deliver
compensation commensurate with the Company's performance, as measured
against the achievement of operating, financial and strategic objectives
and taking into account competitive compensation practices in the
industry.
- Providing significant equity-based incentives for executives to ensure
that they are motivated over the long term to respond to the Company's
business challenges and opportunities as owners rather than solely as
employees.
- Rewarding executives if stockholders receive an above-average return on
their investment over the long term.
COMPENSATION MIX AND MEASUREMENT
A significant portion of the Company's annual executive compensation
program is determined on the basis of corporate performance. The Company's
executive compensation mix generally consists of a salary which in the
Committee's opinion is adequate under the circumstances to retain the services
of the executive, a cash bonus based on Company and individual performance and
stock options that are intended to provide long-term incentives tied to
increases in the value of the Company's Common Stock.
Salary. Salary is targeted at competitive levels within the biotechnology
industry. For the purpose of establishing these levels, the Company compares
itself to a selected group of biotechnology companies in stages of development
similar to that of the Company. The companies included in the survey are not
necessarily the same as the companies included in the market indices included in
the performance graph in this Proxy Statement.
Although the compensation (salary and bonus) surveys referred to above and
the market indices included in the performance graph are broad and include
companies in related industries, the surveys and indices were created for
different purposes and accordingly are not comparable.
For fiscal 2000, the Committee established target total compensation levels
applicable to each executive officer based on data generated in the surveys. The
Committee made its target salary determinations subjectively after considering
the competitive nature of the biotechnology industry and the Company's need to
attract and retain talented executive officers.
The Committee then considers the level of responsibility, experience and
contributions of each executive officer and sets each officer's salary taking
into account the target compensation, recent corporate performance (based on the
factors discussed above) and the Committee's evaluation of individual
performance. For fiscal 2000, the salary of each executive officer was generally
at or near the median target total compensation levels determined through the
surveys.
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(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as amended, or the Exchange
Act, whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
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Annual Cash Bonus. The Committee, as frequently as circumstances warrant,
evaluates the Company's corporate performance based on achievement of
established strategic, scientific and financial goals. In 1997, the Company
implemented a cash bonus program for officers and full-time non-officer
employees based on corporate and individual performance. The Company did not pay
an annual cash bonus for corporate and individual performance for 1998, 1999 or
2000. However, in 2000 the Company did pay cash bonuses to selected executives
under the terms of an employee retention bonus plan.
Beginning in 2001, the Company's annual cash bonus program has been revised
to provide greater bonus differentiation based on individual performance.
Corporate performance, however, remains the primary determinant for the bonus
and all officers as well as all non-officer employees remain eligible. The
corporate objectives for the year 2001 have been established and approved by the
Board.
Long-Term Incentives. Long-term incentives are provided to executives
through the Company's equity incentive program, which consists primarily of its
1991 Option Plan, 2001 Incentive Plan, 2001 Purchase Plan and 1991 Purchase
Plan. Grants under both the 1991 Option Plan and the 2001 Incentive Plan have a
term of 10 years and are generally tied to the market valuation of the Company's
Common Stock, thereby providing an additional incentive for executives to build
stockholder value. In addition, grants are generally subject to vesting over
four years, with vesting tied to continued employment. Executives receive value
from this plan only if strategic goals are achieved and the Company's Common
Stock appreciates accordingly. This component is intended to retain and motivate
executives to improve long-term stock market performance. Additional long-term
incentives are provided through the Company's 1991 Purchase Plan and the new
2001 Purchase Plan in which all eligible employees may participate up to 15% of
their annual compensation.
Option grant levels to executive officers are subjectively determined by
the Committee after considering stock option grant data taken from the
compensation surveys referred to above, as well as the level of responsibility,
experience and contributions of each executive officer. Generally, the Committee
expects to grant options to executive officers annually as part of the
performance review process for each officer. In determining the size of
individual grants, the Committee also considers the number of shares subject to
options previously granted to each executive officer, including the number of
such shares that have vested and that remain unvested.
401(k) Matching Contribution. In 1997, the Board of Directors approved a
401(k) matching contribution for all 401(k) plan participants. The match is
equal to 50% of a participant's contributions to the plan each year up to a
maximum of 3% of a participant's salary. The match is made in the form of Common
Stock of the Company. Matching contributions are subject to a vesting schedule
based on years of service with the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
Joseph C. Cook, Jr. has been the Company's Chairman and Chief Executive
Officer since March 1998. Under the terms of his employment agreement, Mr. Cook
is eligible to receive an annual merit bonus of up to $250,000, payable upon
achievement of goals and milestones set by the Committee. In addition, under the
terms of his employment agreement, the Company agreed to reimburse Mr. Cook or
pay for certain living expenses, associated travel expenses and tax gross-up
payments related thereto. Based on Mr. Cook's performance in 1999, including the
completion of planned Phase 3 clinical trials for SYMLIN, the closing of two
rounds of financing and the recruitment of additional management and scientific
personnel, effective March 1, 2000, Mr. Cook's salary was increased to $475,000.
In February 2000, Mr. Cook was granted options to purchase 150,000 shares of
Common Stock with a vesting commencement date of February 22, 2000 and in
November 2000, he was granted options to purchase 15,000 shares of Common Stock
with a vesting commencement date of November 17, 2000. As of March 30, 2001, the
Compensation Committee has not made a determination regarding a possible salary
change or cash bonus based on Mr. Cook's 2000 performance.
COMPENSATION COMMITTEE
James C. Blair
Vaughn D. Bryson
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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee reviews the Company's financial reporting process on
behalf of the Board and operates under a written charter approved by the Board
(attached as Appendix A). Management has the primary responsibility for the
financial statements and the reporting process, including the system of internal
controls.
In the context, the Committee has met and held discussions with management
and the independent auditors. Management represented to the Committee that the
Company's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Committee has reviewed and
discussed the consolidated financial statements with management and the
independent auditors. The Committee discussed with the independent auditors
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication With Audit Committees).
In addition, the Committee has discussed with the independent auditors, the
auditor's independence from the Company and its management, including the
matters in the written disclosures required by the Independence Standards Board
Standard No. 1 (Independence Discussion With Audit Committees).
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
meets with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, the evaluations of the
Company's internal controls, and the overall quality of the Company's financial
reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board, and the Board has approved, that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, for filing with the Securities and Exchange Commission.
The Committee and the Board also have recommended, subject to stockholder
approval, the selection of the Company's independent auditors.
THE AUDIT COMMITTEE:
Ginger L. Graham
Howard E. Greene, Jr.
Vaughn M. Kailian
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PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph compares total stockholder returns of the Company for
the past 5 years to two indices: the Nasdaq CRSP Total Return Index for the
Nasdaq Stock Market (U.S. companies) (the "Nasdaq US") and the Nasdaq
Pharmaceutical Index (the "Nasdaq-Pharmaceutical"). The total return for the
Company's stock and for each index assumes the reinvestment of dividends,
although dividends have never been declared on the Company's stock, and is based
on the returns of the component companies weighted according to their
capitalizations as of the end of each monthly period. The Nasdaq-US tracks the
aggregate price performance of equity securities of U.S. companies traded on the
Nasdaq National Market System (the "NMS"). The Nasdaq-Pharmaceutical tracks the
aggregate price performance of equity securities of pharmaceutical companies
traded on the NMS. During the period indicated, the Company's Common Stock was
traded on the NMS and was a component of both the Nasdaq-US and the
Nasdaq-Pharmaceutical, except that from February 1, 1999 through February 9,
2000, the Company's Common Stock was traded on the Nasdaq SmallCap Market. The
Company's Common Stock was relisted on the NMS on February 10, 2000.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ON INVESTMENT FOR PREVIOUS 5 YEARS, 1996 - 2000(2)
AMYLIN
PHARMACEUTICALS, NASDAQ STOCK
INC. MARKET (U.S.) NASDAQ PHARMACEUTICAL
---------------- ------------- ---------------------
12/95 100.00 100.00 100.00
03/96 103.95 104.68 104.05
06/96 113.16 113.21 101.00
09/96 119.74 117.25 103.40
12/96 136.84 123.03 100.31
03/97 127.63 116.35 95.17
06/97 144.74 137.67 102.79
09/97 88.82 160.95 115.36
12/97 57.24 150.68 103.66
03/98 28.95 176.35 113.81
06/98 39.80 181.20 105.20
09/98 33.55 163.49 99.34
12/98 5.26 212.46 131.95
03/99 11.18 238.27 144.72
06/99 11.84 260.65 147.42
09/99 50.00 267.14 169.59
12/99 87.83 394.82 248.01
03/00 142.77 443.17 304.39
06/00 159.87 385.31 337.89
09/00 113.16 354.54 371.66
12/00 82.89 237.37 308.49
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(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as amended, or the Exchange
Act, whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
(2) Shows the cumulative total return on investment, including reinvestment of
dividends, assuming an investment of $100 in each of the Company, the
Nasdaq-US and the Nasdaq-Pharmaceutical on December 31, 1995.
CERTAIN TRANSACTIONS
The Company has entered into certain transactions with its directors, as
described under the caption "Executive Compensation -- Compensation of
Directors." The Company has also entered into certain agreements with its
current Chief Executive Officer and Chairman of the Board, as described under
the caption "Executive Compensation -- Employment Agreements."
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The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and officers.
In addition, the Company's Certificate of Incorporation provides that to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, for acts or omissions that
the director believes to be contrary to the best interests of the Company or its
stockholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Company or its stockholders when the director was aware
or should have been aware of a risk of serious injury to the Company or its
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company, and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
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 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
[Facsimile Signature]
Joseph C. Cook, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
April 23, 2001
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended December 31, 2000 is available
without charge upon written request to: Investor Relations, Amylin
Pharmaceuticals, Inc., 9373 Towne Centre Drive, San Diego, California 92121.
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APPENDIX A
AMYLIN PHARMACEUTICALS, INC.
AUDIT COMMITTEE CHARTER
AS AMENDED ON MARCH 21, 2001
The Board of Directors of Amylin Pharmaceuticals, Inc, ("the Board"), upon
recommendation of the Audit Committee of the Board, has adopted this Audit
Committee Charter to define certain of the functions, responsibilities and
authorities of the Audit Committee.
ROLE AND INDEPENDENCE
The Audit Committee (the "Committee") assists the Board in fulfilling its
responsibility for oversight of (i) the quality and integrity of the accounting
and reporting practices of the Company and (ii) the quality and integrity of the
Company's system of internal controls. The Board shall appoint three of its
members to serve as the Committee. Its membership shall comply with applicable
law and regulatory standards and shall include persons knowledgeable in
financial and accounting matters and at least one member having accounting or
related financial management expertise. Each member shall be free of any
relationship that, in the opinion of the Board, would interfere with his or her
individual exercise of independent judgement. Additionally, each person shall
meet the director independence requirements established by the Securities and
Exchange Commission and the listing requirements of the NASDAQ, however, the
Board may determine that it is in the best interest of the Company and its
stockholders that not more than one member of the Committee may be appointed who
is not independent of management within the meaning of these standards.
Notwithstanding the foregoing, currently serving employees or officers of the
Company, or their immediate family members, shall not serve as members of the
Committee. The Committee is expected to maintain free and open communication
with the independent accountants and management of the Company. In discharging
this oversight role, the Committee is empowered to investigate any matter
brought to its attention, with full power to retain outside counsel or other
experts for this purpose.
The Board shall appoint one member of the Committee as Chairperson who will
be responsible for leadership of the Committee, including preparing the agenda,
presiding over meetings, making Committee assignments and reporting to the
Board. The Chairperson will also maintain regular liaison with the CEO, CFO, the
lead partner of the independent accounting firm and, if applicable, the director
of internal audit.
MEETINGS
The Committee is to meet at least once annually and as many additional
times as the deemed necessary. The Committee is to meet in separate executive
sessions with the independent accountants at least once each year and at other
times when considered appropriate.
RESPONSIBILITIES
Specifically, the Committee shall have the following functions:
- Reviewing this Charter at least annually and recommending any changes to
the Board.
- Evaluate, together with the Board, the performance of the independent
accountants and to recommend to the Board the independent accountants to
be selected or retained to audit the financial statements of the Company,
which firm is ultimately accountable to the Audit Committee and the
Board, as representatives of the Company's stockholders.
- Overseeing the independent accountants relationship by reviewing the
nature of the audit process, receiving and reviewing audit reports, and
providing full access to the Committee to (and the Board) to report on
any and all appropriate matters.
A-1
39
- Reviewing the independence of the independent accountants, including
consideration of their annual written affirmation of independence
consistent with Independence Standards Board Standard 1, review of any
other material engagements of the independent accountants with the
Company that may impact the objectivity and independence of the
independent accountants, and such other matters as the Committee may
determine to be appropriate.
- Providing guidance and oversight to any internal audit activities of the
Company including reviewing the plans and results of such activities.
- Reviewing the audited financial statements of the Company and discussing
them with management and the independent accountants.
- Discussing with management and the independent accountants the Company's
quarterly financial information and any matters identified though
procedures performed by the independent accountants for interim financial
statements. This discussion may be held with the Committee or its
Chairperson and shall occur prior to the filing of the Form 10-Q with the
Securities and Exchange Commission.
- The Committee shall receive and discuss with management and the
independent accountants the reports required to be delivered to the
Committee on behalf of the Board pursuant to applicable auditing
standards.
- The Committee shall assess on behalf of the Board the quality and
adequacy of the Company's internal control environment.
- The Committee shall report to the Board periodically on activities within
its areas of responsibility and shall issue annually a report to be
included in the proxy statement for submission to shareholders.
- The Committee shall oversee or conduct special investigations or other
activities consistent with this Charter, the Company's By-laws and
governing law as the Committee or the Board deems necessary or
appropriate.
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40
PROXY
AMYLIN PHARMACEUTICALS,INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 24,2001
The undersigned hereby appoints Joseph C. Cook, Jr. and Nancy K. Dahl,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Amylin Pharmaceuticals,
Inc. (the "Company") which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Company's headquarters,
located at [Executive Drive], San Diego, California, 92122, on Thursday, May 24,
2001, at [ ] a.m., local time, and at any and all continuations, adjournments or
postponements thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2,3,4,5 AND 6 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT.IF SPECIFIC INSTRUCTIONS ARE
INDICATED,THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(Continued on other side)
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*FOLD AND DETACH HERE *
41
(Continued from other side)
Please mark [X]
your votes as
indicated in
this example.
FOR
all nominees WITHHOLD
listed below AUTHORITY
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES (except as marked to vote for
FOR DIRECTOR LISTED BELOW. to the contrary below). all nominees
PROPOSAL 1: To elect directors to hold office [ ] [ ]
until the next Annual Meeting of
Stockholders and until their
successors are elected.
Nominees: James C. Blair
Vaughn D. Bryson
Joseph C. Cook, Jr.
Ginger L. Graham
Howard E. Greene, Jr.
Vaughn M. Kailian
Jay S. Skyler
To withold authority to vote for any nominee(s), write such nominee(s)' name(s)
below:
- ----------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2. FOR AGAINST ABSTAIN
PROPOSAL 2: To approve the Company's Non-Employee Directors' Stock [ ] [ ] [ ]
Option Plan, as amended, to change the number and vesting schedule
of options granted to Non-Employee Directors.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3. FOR AGAINST ABSTAIN
PROPOSAL 3: To approve the Company's 2001 Employee Stock Purchase Plan. [ ] [ ] [ ]
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 4. FOR AGAINST ABSTAIN
PROPOSAL 4: To approve the Company's Directors' Deferred Compensation Plan. [ ] [ ] [ ]
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 5.
PROPOSAL 5: To approve an amendment to the Company's Certificate of FOR AGAINST ABSTAIN
Incorporation to increase the authorized number of shares [ ] [ ] [ ]
of Common Stock from 100,000,000 to 200,000,000 shares.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 6. FOR AGAINST ABSTAIN
PROPOSAL 6: To ratify the selection of Ernst & Young LLP as independent auditors [ ] [ ] [ ]
of the Company for its fiscal year ending December 31, 2001.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE
ENCLOSED RETURN ENVELOPE WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES.
Name of Stockholder____________Signature(s)_________________Dated_________, 2001
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
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*FOLD AND DETACH HERE *