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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
DEPOTECH CORPORATION
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
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[LOGO]
DEPOTECH CORPORATION
10450 Science Center Drive
San Diego, California 92121
April 6, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of DepoTech Corporation, which will be held at the Company's executive offices,
10450 Science Center Drive, San Diego, California on May 13, 1998 at 9:00 a.m.
PDT.
Details of the business to be conducted at the Annual Meeting are given
in the attached Notice of Annual Meeting of Shareholders and Proxy Statement.
We are considering several important proposals at this year's Annual
Meeting, and we request that you read, sign, date, and return the enclosed proxy
materials as soon as possible in the accompanying reply envelope. Your vote is
very important. If you are able to attend the Annual Meeting and wish to change
your proxy vote, you may do so simply by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ FRED A. MIDDLETON
----------------------------------------
Fred A. Middleton
Chief Executive Officer
Chairman of the Board
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are
requested to complete, sign and date the enclosed proxy as promptly as possible
and return it in the enclosed envelope. No postage need be affixed if mailed in
the United States.
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DEPOTECH CORPORATION
10450 Science Center Drive
San Diego, California 92121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
May 13, 1998
The Annual Meeting of Shareholders of DepoTech Corporation ("DepoTech"
or the "Company") will be held at the Company's executive offices, 10450 Science
Center Drive, San Diego, California on Wednesday, May 13, 1998 at 9:00 a.m. PDT
for the following purposes:
1. To elect a Board of Directors. Management has nominated the
following persons for election at the meeting: Roger C.
Davisson, George W. Dunbar, Jr., Stephen B. Howell, M.D., John
P. Longenecker, Ph.D., Fred A. Middleton, Peter Preuss and
Pieter J. Strijkert, Ph.D.
2. To approve amendments to the Company's 1995 Stock Option/Stock
Issuance Plan to (i) increase the number of shares of common
stock authorized for issuance thereunder by an additional
620,000 shares and (ii) impose a limit on the maximum number
of shares of common stock for which any one participant in
such Plan may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances in the
aggregate over the term of the Plan.
3. To approve amendments to the Company's 1995 Employee Stock
Purchase Plan to increase the number of shares authorized for
issuance under the Plan by 75,000 shares.
4. To ratify the appointment of Ernst & Young LLP as the
Company's independent public auditors for the fiscal year
ending December 31, 1998.
5. To transact any other business which may properly come before
the meeting or any adjournment(s) thereof.
Shareholders of record at the close of business on March 20, 1998 will
be entitled to vote at the Annual Meeting. A list of shareholders entitled to
vote at the Meeting will be available for inspection at the offices of the
Company. Whether or not you plan to attend the meeting in person, please sign,
date and return the enclosed proxy in the reply envelope provided. If you attend
the Meeting and vote by ballot, your proxy will be revoked automatically and
only your vote at the meeting will be counted. The prompt return of your proxy
will assist us in preparing for the Meeting.
By Order of the Board of Directors
/s/ FAYE H. RUSSELL
-----------------------------------
Dated: April 6, 1998 Faye H. Russell
Secretary
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DEPOTECH CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1998
These proxy materials and the enclosed proxy card are being mailed in
connection with the solicitation of proxies by the Board of Directors of
DepoTech Corporation, a California company ("DepoTech" or the "Company"), for
the Annual Meeting of Shareholders to be held at 9:00 a.m. PDT on May 13, 1998
and at any adjournment or postponement of the Annual Meeting. These proxy
materials were first mailed to shareholders of record beginning on approximately
April 6, 1998.
The mailing address of the principal executive office of the Company is
10450 Science Center Drive, San Diego, California 92121.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
If the enclosed form of proxy is properly signed and returned, the
shares represented thereby will be voted at the Annual Meeting in accordance
with the instructions specified thereon. If the proxy does not specify how the
shares represented thereby are to be voted, the proxy will be voted FOR the
election of the director proposed by the Board unless the authority to vote for
the election of such director is withheld and, if no contrary instructions are
given, the proxy will be voted FOR the approval of Proposals 2, 3 and 4
described in the accompanying Notice and Proxy Statement. You may revoke or
change your Proxy at any time before the Annual Meeting by filing with the Chief
Financial Officer of the Company at the Company's principal executive offices at
10450 Science Center Drive, San Diego, CA 92121, a notice of revocation or
another signed Proxy with a later date. You may also revoke your Proxy by
attending the Annual Meeting and voting in person.
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders. Copies
of solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
telephone, telegram or other means by directors, officers or employees of the
Company. No additional compensation will be paid to these individuals for any
such services. In addition, the Company has contracted with Innisfree M & A
Incorporated ("Innisfree"), a proxy solicitation firm to solicit proxies on
behalf of the Board of Directors. The anticipated cost of the proxy solicitation
by Innisfree is approximately $6,000. Except as described above, the Company
does not presently intend to solicit proxies other than by mail.
The record date for determining those shareholders who are entitled to
notice of, and to vote at, the Meeting has been fixed as March 20, 1998. At the
close of business on the record date, the Company had 14,357,354 outstanding
shares of common stock, no par value (the "Common Stock"). No shares of the
Company's preferred stock, no par value, were outstanding. Each shareholder is
entitled to one vote on matters brought before the Meeting for each
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share of Common Stock held on March 20, 1998. Article VIII of the Company's
Fourth Restated Articles of Incorporation provides that no cumulative voting
will be available in the election of directors once the Company is a "listed
corporation" within the meaning of California Corporations Code Section
301.5(d). The Company currently qualifies as a "listed corporation," and
therefore cumulative voting is not available in the election of directors.
At the record date, directors and executive officers of the Company may
be deemed to be beneficial owners of an aggregate of 2,050,710 shares of the
Common Stock (not including shares of the Common Stock issuable upon exercise of
outstanding stock options and warrants) constituting approximately 14% of the
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
Such directors and executive officers have indicated to the Company that each
such person intends to vote or direct the vote of all shares of Common Stock
held or owned by such persons, or over which such person has voting control, in
favor of all of the Proposals. The approval of the Proposals is not assured. See
"Ownership of Securities."
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named below are nominees for director to serve until the
next annual meeting of shareholders and until their successors have been elected
and qualified. The Company's Bylaws provide that the authorized number of
directors shall be determined by resolution of the Board of Directors or by the
shareholders at the annual meeting of shareholders within the range of five to
nine. The authorized number of directors is currently eight. The Board of
Directors has selected seven nominees, all of whom are currently directors of
the Company. Each person nominated for election has agreed to serve if elected,
and management has no reason to believe that any nominee will be unavailable to
serve. Unless otherwise instructed, the proxyholders will vote the proxies
received by them for the nominees named below. The proxies received by the
proxyholders cannot be voted for more than seven directors and, unless otherwise
instructed, the proxyholders will vote such proxies for the nominees named
below. The seven candidates receiving the highest number of affirmative votes of
the shares entitled to vote at the Annual Meeting will be elected directors of
the Company.
If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the Meeting, the persons named in the enclosed
proxy will exercise discretionary authority to vote for substitutes. The Board
of Directors is not aware of any circumstances that would render any nominee
unavailable for election.
Nominations of persons for election to the board of directors of the
corporation may be made at a meeting of shareholders by or at the direction of
the board of directors or by any shareholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the following
notice procedures. Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely notice in
writing to the secretary of the corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not less than one hundred twenty (120) calendar days
in advance of the date specified in the corporation's proxy statement released
to shareholders in connection with the previous year's annual meeting of
shareholders. Such shareholder's notice shall set forth (i) as to each person,
if any, whom the shareholder proposes to nominate for election or re-election as
a director: (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the corporation which are beneficially owned by such
person, (D) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nominations are to be made by the shareholder
and (E) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
shareholder giving notice, (A) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (B) the name and address, as they appear on the
corporation's books, of the shareholder proposing such business, (C) the class
and number of shares of the corporation which are beneficially owned by the
shareholder, (D) any material interest of the shareholder in such business and
(E) any other information that is required to be provided by the shareholder
pursuant to Regulation 14A under the Exchange Act, in his capacity as a
proponent to a
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shareholder proposal. At the request of the board of directors, any person
nominated by a shareholder for election as a director shall furnish to the
Secretary of the corporation that information required to be set forth in the
shareholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the above procedures. The chairman of the meeting shall, if
the facts warrant, determine and declare at the meeting that a nomination was
not made in accordance with the procedures prescribed by these Bylaws, and if he
should so determine, he shall so declare at the meeting, and the defective
nomination shall be disregarded.
The following schedule sets forth certain information concerning the
nominees for election as directors.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE NOMINEES LISTED HEREIN.
FIRST YEAR
ELECTED
NAME DIRECTOR AGE POSITION
- ------------------------------------ -------------------- -------- -----------------------------------------
Fred A. Middleton (1)............... 1990 48 Chairman of the Board and Chief Executive
Officer
John P. Longenecker, Ph.D. (1)...... 1998 50 President and Chief Operating Officer
Roger C. Davisson (2)............... 1993 54 Director
George W. Dunbar, Jr. (2)........... 1996 51 Director
Stephen B. Howell, M.D. (1)(3)...... 1989 53 Co-founder, Director and Senior Medical
Advisor
Peter Preuss (3)(4)................. 1992 55 Director
Pieter J. Strijkert, Ph.D. (4)...... 1996 62 Director
- ----------------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Nominating Committee.
(4) Member of Compensation Committee.
BUSINESS EXPERIENCE OF DIRECTORS
Fred A. Middleton is a founder of DepoTech and has served as Chairman
of the Board and a director of the Company since August 1990. In February 1998,
Mr. Middleton was appointed Chief Executive Officer and a member of the
Executive Committee of the Company. He previously served as Chief Executive
Officer of the Company from August 1990 through June 1993. Mr. Middleton has
been active in developing biomedical companies since 1978 and has been general
partner of Sanderling Ventures, a venture capital firm specializing in the
development of early stage biomedical companies, since 1987. Sanderling Ventures
is a principal shareholder of the Company. From May 1984 through July 1986, he
served as Managing General Partner of Morgan Stanley Ventures, L.P., a venture
capital firm which funded research and development programs at leading
technology companies. Prior to that, Mr. Middleton served as Chief Financial
Officer, Vice President of Finance and Corporate Development, and President of
Genentech Development Corporation, for Genentech, Inc. Mr. Middleton received
his B.S. in chemistry from Massachusetts Institute of Technology and an M.B.A.
from the Harvard Graduate School of Business Administration. Currently, he is a
director of two other publicly held biomedical companies, Regeneron
Pharmaceuticals, Inc. and Vical, Inc., as well as several privately held
biomedical companies.
John P. Longenecker, Ph.D. has served as Chief Operating Officer and
was promoted to President, a member of the Executive Committee and a director of
the Company in February 1998. He has served as Senior Vice President, Research,
Development and Operations and Chief Operating Officer since May 1997, and as
Vice President, Research and Development since November 1992. Prior to joining
the Company, Dr. Longenecker served in a number of management and technical
positions with Scios, Inc. (formerly California Biotechnology, Inc.), a
biotechnology company, from 1982 through 1992, including Vice President and
Director of Development from August 1986 through
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October 1992. In this position Dr. Longenecker was responsible for
pharmaceutical research and development, including a novel drug delivery group,
preclinical studies, process development, manufacturing and quality control. Dr.
Longenecker received a B.S. in chemistry from Purdue University and a Ph.D. in
biochemistry from the Australian National University and served as a
postdoctoral fellow at Stanford University.
Roger C. Davisson has served as a director of the Company since January
1993. Since September 1980, Mr. Davisson has been a general partner of Brentwood
Venture Capital, an investment firm that manages private investment funds
specializing in healthcare and information technology. Mr. Davisson received a
B.S. in engineering and an M.S. in engineering science from the California
Institute of Technology and an M.B.A. from Stanford Graduate School of Business.
Currently, he is a director of several privately held companies.
George W. Dunbar, Jr. has served as a director of the Company since May
1996. He has served as President, Chief Executive Officer and a director of
Metra Biosystems, Inc. ("Metra") since July 1991. Prior to joining Metra, he was
the Vice President of Licensing and Business Development of The Ares-Serono
Group, an international pharmaceutical company, from 1988 until 1991, where he
established a licensing and acquisition group for its health care divisions.
From 1974 until 1987, he held various senior management positions with Amersham
International ("Amersham"), a health care and life sciences company, where he
most recently served as Vice President for its Life Sciences business in North
America. Mr. Dunbar also served as Amersham's General Manager of Pacific Rim
markets and Eastern Regional operations and, prior to that, he managed the
international marketing of Amersham's medical and industrial radioisotopes. Mr.
Dunbar holds a B.S. in electrical engineering and an M.B.A. from Auburn
University.
Stephen B. Howell, M.D. is a co-founder of the Company and has served
as a director of the Company since December 1989. Dr. Howell also served as Vice
President, Medical Affairs, from October 1989 to May 1995, and currently serves
as Senior Medical Advisor of the Company. In February 1998, Dr. Howell was
appointed Medical Director and a member of the Executive Committee of the
Company. Dr. Howell is a Professor of Medicine in the Department of Medicine and
the Cancer Center at the University of California, San Diego where he has been
since 1977. Dr. Howell is Associate Director for Transnational Research of the
UCSD Cancer Center, and Director of the Center's Pharmacology Program. Dr.
Howell is a member of the National Research Council of the American Cancer
Society. Dr. Howell received an A.B. degree in biology from the University of
Chicago and an M.D. magna cum laude from Harvard Medical School. Dr. Howell also
holds an honorary M.D. from the University of Goteborg, Sweden. He completed his
residency at the Massachusetts General Hospital and the University of
California, San Francisco, research training at the National Institutes of
Health, and medical oncology specialty training at the Dana Farber Cancer
Institute. Dr. Howell currently serves on the board of Access Pharmaceuticals
Inc., a publicly held company, and is a director of one privately held company.
Peter Preuss has served as a director of the Company since December
1992. Since 1985, Mr. Preuss has been a private investor. He was founder and
Chief Executive Officer of Integrated Software Systems Corporation (ISSCO), a
leading computer graphic software developer, from 1970 to its sale in 1986. Mr.
Preuss received a B.S. equivalent from the Technical University of Hanover,
Germany and an M.S. in Mathematics from the University of California, San Diego.
Mr. Preuss is a Regent of the University of California and has served a term on
the advisory committee to the Director of the National Institutes of Health. He
is president of The Preuss Foundation for Brain Tumor Research and is a
recipient of the Distinguished Service Award from the American Association of
Neurosurgeons. Mr. Preuss currently serves on a number of boards of
not-for-profit institutions as well as Network Computing Devices, a publicly
held company, and several privately held companies.
Pieter J. Strijkert, Ph.D. has served as a director of the Company
since June 1996. He has served as a member of the Board of Management for Royal
Gist-Brocades NV, a biomedical products company ("Royal-Gist Brocades"), since
June 1995. From July 1993 until June 1995, Dr. Strijkert served as an advisor to
that same group. Prior to that, Dr. Strijkert served as a member of the Board of
Management of Royal Gist-Brocades from May 1985 through June 1993 and served in
other capacities with Royal Gist-Brocades from 1979 through 1985, including Head
of the Biotechnology Group and Associate Director of Research and Development
and Manager of the Microbiology Group Research and Development. Dr. Strijkert
received a Ph.D. in microbiology and a bachelor's degree in biology from the
State University of Utrecht. Dr. Strijkert is a member of the board of directors
of Chiron Corporation and several privately held companies.
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All Directors currently are elected annually and hold office until the
next annual meeting of the shareholders and their successors are duly elected
and qualified. Officers serve at the discretion of the Board of Directors.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors held seven meetings and acted by
unanimous written consent five times during the fiscal year ended December 31,
1997. Each of the directors nominated for reelection attended at least 75% of
the aggregate of (i) the total meetings of the Board (held during the period for
which he has been a director) and (ii) the total number of meetings held by all
committees of the board on which he served (held during the period for which he
served on such committee).
The Company has a standing Executive Committee currently comprised of
Mr. Middleton, Dr. Longenecker and Dr. Howell, which was constituted in February
1998. The Executive Committee was formed for the purpose of corporate management
following the resignation of Mr. Erickson, the Company's former President and
Chief Executive Officer. The Company has a standing Compensation Committee
currently composed of Mr. Preuss and Dr. Strijkert. The Compensation Committee
met six times in fiscal 1997. The Compensation Committee reviews and acts on
matters relating to compensation levels and benefit plans for executive officers
and key employees of the Company, including salary and stock options. The
Committee is also responsible for granting stock awards, stock options and stock
appreciation rights and other awards to be made under the Company's existing
incentive compensation plans. The Company has a standing Audit Committee
currently composed of Mr. Davisson and Mr. Dunbar. The Audit Committee met three
times in fiscal 1997. The Audit Committee assists in selecting the independent
auditors, designating services they are to perform and maintaining effective
communication with those auditors. The Company also has a standing Nominating
Committee currently composed of Dr. Howell and Mr. Preuss. The Nominating
Committee did not meet in fiscal 1997. The Nominating Committee recommends
nominees to the Company's Board of Directors.
DIRECTOR COMPENSATION
The Company presently pays its outside Directors $1,500 per Board
meeting attended in person and $500 per Board meeting attended via
teleconference facilities, and reimburses its directors for out-of-pocket
expenses incurred in attending each meeting and performing other duties as a
director. No additional payments are made with respect to attendance at
committee meetings. Under the automatic option grant program under the Company's
1995 Stock Option/Stock Issuance Plan, each newly-elected eligible non-employee
director elected to the Board is automatically granted a nonstatutory option to
purchase 20,000 shares of Common Stock. Each continuing Board member will
automatically be granted a nonstatutory option to purchase an additional 20,000
shares upon re-election at the fifth Annual Meeting following such Board
member's initial automatic grant. Each grant under the automatic option grant
program will have an exercise price per share equal to the fair market value per
share of the Company's common stock on the grant date, and will have a maximum
term of 10 years, subject to earlier termination should optionee cease to serve
as a Board of Directors member.
The options granted under the automatic grant program to directors will
become exercisable in 60 equal monthly installments with the first installment
becoming exercisable one month following the grant date and each successive
installment vesting one calendar month from the prior vesting date. No option is
exercisable for any additional option shares following the optionee's cessation
of Board service for any reason. Please see the description of the automatic
grant program under Proposal Two for further information concerning the
remaining terms and provisions of these automatic option grants.
Board members Messrs. Middleton, Davisson, Dunbar and Preuss and Drs.
Howell and Strijkert each received an automatic option grant on May 14, 1997 for
20,000 shares of the Company's Common Stock. The exercise price per share in
effect under each such option is $14.00, the fair market value per share of
Common Stock on the grant date. In February and March 1998, in connection with
their appointments as Chief Executive Officer and Medical Director,
respectively, and also their appointments to the Executive Committee, Mr.
Middleton and Dr. Howell each were granted options to purchase an aggregate of
100,000 shares of the Company's common stock at a weighted average exercise
price of $4.24 per share. The shares vest in 12 equal monthly installments. In
connection with his promotion to President and Director and appointment to the
Executive Committee, Dr. Longenecker received options to purchase an aggregate
of 100,000 shares of the Company's common stock at a weighted average exercise
price of $4.24 per share,
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vesting in 48 monthly installments. Options totaling 30,000 shares each are
subject to shareholder approval of an increase to the number of shares
authorized in the 1995 Stock Option/Stock Issuance Plan to 620,000 shares.
Further, in February 1998, Dr. Longenecker received options to purchase 30,000
shares of the Company's common stock at $4.375 per share as part of an overall
employee retention program. The options vest over two years with 25% of the
shares vesting at the end of six months and the balance vesting in equal monthly
increments over the remaining 18 months. In December 1996, and as a result of
certain tax consequences in Dr. Strijkert's tax domicile, the Compensation
Committee cancelled an option to purchase 20,000 shares of Common Stock granted
to Dr. Strijkert in June 1996. On January 2, 1997, the Compensation Committee
granted to Dr. Strijkert a new option to purchase 20,000 shares of Common Stock.
Dr. Howell, a director of the Company, entered into a consulting
agreement with the Company in November 1993 for a period of four years. The
consulting agreement was subsequently amended in May 1995 and effective as of
November 1, 1997, the term of the consulting agreement has been extended through
June 30, 1999. Pursuant to the amended agreement, the Company pays $40,000 per
year to Dr. Howell for consulting services, including acting as Senior Medical
Advisor to the Company's Board of Directors. As compensation for Dr. Howell's
role as Medical Director on the Executive Committee effective March 1998, he
will receive $11,500 per month for one year. In addition, over a two-month
period ended March 1998, Dr. Howell received $32,610 per month for his full-time
consulting services. The amended agreement provides for continued payments to
Dr. Howell for a period of 12 months in the event the Company terminates the
agreement. In addition, Dr. Howell was granted 2,850 options in fiscal 1997 for
his service to the Company in fiscal 1996.
PROPOSAL 2
APPROVAL OF AMENDMENTS TO THE COMPANY'S
1995 STOCK OPTION/STOCK ISSUANCE PLAN
GENERAL
The shareholders are being asked to vote on proposed amendments to the
Company's 1995 Stock Option/Stock Issuance Plan (the "Plan"), which amendments
were approved by the Compensation Committee in February, 1998, subject to
shareholder approval. The effect of the amendments will be to increase the
number of shares authorized for issuance under the Plan by 620,000 shares and
impose a 1,000,000 share limitation on the maximum number of shares for which a
participant in the Plan may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuance over the term of the Plan.
As of March 20, 1998, 1,955,489 shares of Common Stock are subject to
outstanding options, and as of April 6, 1998, no additional shares are available
for issuance under the Plan. The Board of Directors believes the Company's stock
option programs have created significant incentives for its employees, officers
and directors to increase shareholder value. The Board of Directors considers it
critical to the future success of the Company to continue to grant stock options
on a basis comparable to those granted by other companies with which it competes
in attracting, retaining and motivating highly qualified employees, including
key executives. The terms and provisions of the Plan, assuming shareholder
approval of the 620,000 share increase, are summarized below. This summary,
however, does not purport to be a complete description of the Plan. Copies of
the actual plan document may be obtained by any shareholder upon written request
to the Secretary of the Company at the corporate offices in San Diego,
California. The affirmative vote of a majority of the total votes cast on such
amendments is required for approval of the amendments to the Plan. For this
purpose, broker non-votes will be disregarded and abstentions will be treated as
negative votes. The Plan, as amended, will become effective immediately upon
approval by the shareholders at the Annual Meeting.
SUMMARY OF STOCK OPTION/STOCK ISSUANCE PLAN
The Plan serves as the successor equity incentive program to the
Company's 1991 Stock Option Plan, the 1994 Stock Option Plan and the 1995 Stock
Option Plan (collectively, the "Prior Plans"). The Plan was adopted by the Board
and the shareholders as of June 1995, effective September 28, 1995, and amended
during 1996 and 1997. All outstanding stock options and unvested share issuances
under the Prior Plans have been incorporated into the Plan but continue to be
governed by the terms and conditions of the specific instruments evidencing
those options and issuances.
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As of March 20, 1998, 1,955,489 shares of Common Stock are subject to
outstanding options, and as of April 6, 1998 no shares are available for
issuance under the Plan. The total number of shares authorized, as well as
shares subject to outstanding options, will be appropriately adjusted in the
event of certain changes to the Company's capital structure, such as stock
dividends, stock splits or other recapitalizations. As of March 2, 1998, 6
executive officers, 4 non-employee Board members and approximately 117 other
employees were eligible to participate in the Plan, and the 4 non-employee Board
members were also eligible to participate in the automatic option grant program.
In October 1997, the Company also implemented the Supplemental Stock
Option Plan, pursuant to which 141,000 shares have been reserved for issuance to
employees of the Company who are not officers or Board members. The provisions
of such supplemental plan are substantially the same as those in effect under
the Discretionary Option Grant Program under the Plan as described below. As of
March 20, 1998, no shares have been granted under the supplemental plan.
The Plan is divided into three separate programs: (i) the discretionary
option grant program under which eligible individuals in the Company's employ or
service (including officers and other employees, non-employee Board members and
independent consultants) may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, (ii) the automatic option
grant program under which options grants will automatically be made at periodic
intervals to eligible non-employee Board members to purchase shares of Common
Stock at an exercise price equal to 100% of their fair market value on the grant
date; and (iii) the stock issuance program under which such eligible individuals
may, in the Plan Administrator's discretion, be issued shares of Common Stock
directly, through the purchase of such shares at a price not less than 85% of
their fair market value at the time of issuance or as compensation for services
rendered. The discretionary option grant program and the stock issuance program
will be administered by committees of the Board of Directors or by a committee
appointed by the Board (the "Plan Administrator"). The administration of the
automatic option grant program will be self-executing in accordance with the
express provisions of such program. The Plan Administrator will have complete
discretion to determine which eligible individuals are to receive option grants
or stock issuances, the number of shares subject to each such grant or issuance,
the status of any granted option as either an incentive option (which
potentially qualify for certain favorable treatment under federal tax law) or a
nonstatutory option, the vesting schedule to be in effect for the option grant
or stock issuance and the maximum term for which any granted option is to remain
outstanding.
In no event may any one individual participating in the Plan be granted
stock options separately exercisable stock appreciation rights or direct stock
issuances for more than 1,000,000 shares over the term of the Plan.
Under the automatic option grant program, each newly-elected eligible
non-employee director elected to the Board is automatically granted a
nonstatutory option to purchase 20,000 shares of Common Stock. Each continuing
Board member will automatically be granted a nonstatutory option to purchase an
additional 20,000 shares upon re-election at the fifth Annual Meeting following
such Board member's initial automatic grant. The options granted under the
automatic grant program to directors will become exercisable in 60 equal monthly
installments with the first installment becoming exercisable one month following
the grant date and each successive installment vesting one calendar month from
the prior vesting date. No option is exercisable for any additional option
shares following the optionee's cessation of Board service for any reason.
Stockholder approval of the Proposal will also constitute pre-approval
of each option granted on or after the date of the 1998 Annual Meeting pursuant
to the provisions of the Automatic Option Grant Program and the subsequent
exercise of that option in accordance with such provisions.
The exercise price for each incentive stock option or for any option
granted under the automatic option grant program must be at least 100% of the
fair market value of the stock on the date of the option grant. The exercise
price for each nonstatutory option or for any share issuance under the Plan must
be at least 85% of the fair market value of the shares on the date of the option
grant or stock issuance except that the option exercise price may be reduced
below 85% if the optionee makes a payment to the Company in connection with the
option grant equal to such reduction (including payments to be made pursuant to
a salary reduction agreement). The fair market value per share of Common Stock
on any relevant date under the Plan will be the closing selling price per share
on that date on the Nasdaq National Market. On March 20, 1998, the closing
selling price of the Common Stock was $5.375 per share. The purchase price for
any shares may be paid in cash, by delivery of shares of Common Stock or through
a same-day sale program
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pursuant to which the purchased shares will be sold immediately and a portion of
the sale proceeds applied to the payment of the purchase price. The Plan
Administrator may also permit a participant (other than a non-employee director
receiving automatic option grants) to deliver a promissory note in payment of
the purchase price and any tax liability incurred in connection with the
purchase.
Options granted under the discretionary option grant program may be
immediately exercisable for all the option shares, on either a vested or
unvested basis, or may become exercisable for shares in one or more installments
over the participant's period of service. Shares issued under the stock issuance
program may either be fully vested or subject to a vesting schedule tied to
future service. All unvested shares will be subject to repurchase by the
Company, at the original purchase price paid for such shares, upon the
participant's cessation of service prior to vesting in the shares. The Committee
will have full discretionary authority to accelerate the exercisability of any
outstanding discretionary option grant or the vesting of any issued shares.
Each option granted under the Plan will have a maximum term of 10 years
and will be subject to earlier termination in the event of the optionee's
cessation of service. The participant will have no shareholder rights with
respect to the shares subject to his or her outstanding options until such
options are exercised and the purchase price is paid for the shares. The
participant will, however, have full shareholder rights with respect to any
shares issued under the Plan.
Participants subject to federal or state tax withholding in connection
with any issuance of shares under the Plan may be permitted to apply a portion
of the shares issuable upon the exercise of their outstanding options to the
satisfaction of the federal and state withholding taxes incurred in connection
with such exercise. Alternatively, such participants may be permitted to deliver
existing shares of Common Stock in satisfaction of such tax liability. In either
case, the Company will pay cash to the appropriate government authority equal to
the fair market value of the stock as a deposit of taxes withheld.
Directors of the Company receiving automatic option grants will have a
special stock appreciation right in connection with their options under which
the outstanding options can be surrendered for cancellation upon a hostile
take-over of the Company in return for a cash distribution from the Company,
based on the excess of the price per share paid by the acquiring entity in
effecting the take-over above the option exercise price. Stockholder approval of
this Proposal will also constitute pre-approval of each option granted with such
a stock appreciation right on or after the date of the 1998 Annual Meeting and
the subsequent exercise of that right in accordance with the foregoing
provisions. Officers may be granted similar rights at the discretion of the Plan
Administrator. The Committee may grant other stock appreciation rights with
respect to discretionary option grants. The other stock appreciation rights
would provide the holders with the right to receive an appreciation distribution
from the Company equal to the excess of (i) the fair market value (on the date
such right is exercised) of the shares of Common Stock in which the optionee is
at the time vested under the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution would be able to
be made, at the Plan Administrator's discretion, in shares of Common Stock
valued at fair market value on the exercise date, in cash or in a combination of
cash and Common Stock.
In the event the Company is acquired, whether by merger, asset sale or
change in control each outstanding option which is not to be assumed by the
successor corporation or replaced with a comparable option to purchase the
capital stock of the successor corporation will automatically accelerate in
full, and all unvested shares will automatically vest, except to the extent the
repurchase rights applicable to these shares are assigned to the successor
corporation. The Committee can apply this acceleration to options outstanding
under the Prior Plans.
To the extent outstanding options terminate prior to exercise, the
shares subject to those options will be available for subsequent grant. In
addition, the Committee may effect cancellation/regrant programs pursuant to
which outstanding options under the discretionary option grant program
(including options incorporated from the Prior Plans) are cancelled and new
options are granted for the same or different number of option shares at an
exercise price per share not less than 85% of the fair market value of the
Common Stock on the new grant date. See "--Outstanding Option Grants Under the
Plan".
The Board may amend or modify the Plan at any time. Shareholder
approval of amendments of the Plan will be required when the Board makes the
amendments conditional on such approval or when such approval is required by law
or regulation. The Plan will terminate September 28, 2005 unless sooner
terminated by the Board.
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OUTSTANDING OPTION GRANTS UNDER THE PLAN
The table below shows, as to the Company's executive officers named in
the Summary Compensation Table of the Executive Compensation and Other
Information section of this Proxy Statement and the various indicated
individuals and groups, the number of shares of Common Stock subject to options
granted under the Plan between the September 28, 1995 effective date of the Plan
and March 25, 1998, together with the weighted average exercise price per share.
The number of shares and weighted average exercise price calculations include
all options granted during the indicated period and subsequently regranted at a
lower exercise price per share pursuant to the option cancellation/regrant
program described below. No direct stock issuances have been made to date under
the Plan.
WEIGHTED
OPTIONS AVERAGE
GRANTED EXERCISE
(#) PRICE
------- -------
FRED A. MIDDLETON (1).......................................................... 120,000 $ 5.86
Chief Executive Officer and Chairman of the Board
EDWARD L. ERICKSON (1)......................................................... 250,000 14.41
Former Director, President, and Chief Executive Officer
JOHN P. LONGENECKER, PH.D. (1)................................................. 245,843 10.70
President and Chief Operating Officer
DAVID B. THOMAS................................................................ 119,956 11.86
Senior Vice President, Quality Assurance and Regulatory Affairs
WILLIAMS S. ETTOUATI, D. PHARM................................................. 76,282 12.71
Vice President, Marketing and Business Development
SHELDON A. SCHAFFER, PH.D. (2)................................................. 94,000 14.00
Vice President, Pharmaceutical Development
ROGER C. DAVISSON.............................................................. 20,000 14.00
Director and Nominee
GEORGE W. DUNBAR, JR........................................................... 40,000 18.75
Director and Nominee
STEPHEN B. HOWELL, M.D......................................................... 127,225 6.63
Director and Nominee
PETER PREUSS................................................................... 20,000 14.00
Director and Nominee
PIETER J. STRIJKERT, PH.D. (3)................................................. 40,000 14.94
Director and Nominee
All current non-employee directors as a group (4 persons) (1).................. 120,000 15.89
All current executive officers as a group (6 persons) (1)...................... 736,567 9.80
All employees who are not executive officers as a group (117 persons) (4)...... 939,665 9.54
- -------------------------
(1) Mr. Middleton was appointed Chief Executive Officer and Dr. Longenecker
was promoted to President and Chief Operating Officer following the
acceptance of Mr. Erickson's resignation, effective February 2, 1998.
Excludes options for 280,556 shares granted to Mr. Erickson but
subsequently cancelled in connection with his resignation and available
for grant under the Plan. "All current executive officers as a group"
does not include shares granted to Mr. Erickson, Dr. Kim and Dr.
Paradiso who resigned in early 1998.
(2) Net of options cancelled in connection with his change in status from
consultant to officer.
(3) In December 1996, and as a result of certain tax consequences in Dr.
Strijkert's tax domicile, the Compensation Committee cancelled an
option to purchase 20,000 shares of Common Stock granted to Dr.
Strijkert in June
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1996. On January 2, 1997, the Compensation Committee granted to Dr.
Strijkert a new option to purchase 20,000 shares of Common Stock.
(4) Includes 197,604 options granted to employees who are not executive
officers which were originally granted in 1995, 1996 and 1997. In
February 1998, the Board of Directors approved an employee retention
program, an element of which was a cancellation/regrant program for all
employees. The cancellation/regrant program excludes all officers and
directors. Participation in the cancellation/regrant program is at the
election of each individual employee. The program involves the
cancellation of outstanding options with exercise prices of $7.00 per
share or greater, in exchange for the grant of options exercisable into
one-half the number of shares with an exercise price of $4.375, the
fair market value of the Company's common stock on the February 25,
1998 grant date. The new option will become exercisable beginning April
1, 1998 with 6.25% vesting on that date and the remaining shares
vesting in 45 equal monthly installments.
NEW PLAN BENEFITS
On February 25, 1998, in connection with their appointment to the
Executive Committee, the Board of Directors granted options to purchase 30,000
shares of Common Stock of the Company to each of the following: Fred A.
Middleton, John P. Longenecker, Ph.D. and Stephen B. Howell, M.D. at an exercise
price of $3.72 per share. These options will not become exercisable unless the
shareholders approve the 620,000 share increase to the Plan at the 1998 Annual
Meeting.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For Federal tax purposes, dispositions are
divided into two categories: qualifying and disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two (2) years after the option grant date and
more than one (1) year after the exercise date. If either of these two holding
periods is not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the option exercise date over (ii) the
exercise price paid for the shares. If the optionee makes a qualifying
disposition, the Company will not be entitled to any income tax deduction.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an
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amount equal to the excess of (i) the fair market value of the purchased shares
on the exercise date over (ii) the exercise price paid for such shares. If the
Section 83(b) election is made, the optionee will not recognize any additional
income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
such distribution for the taxable year in which the ordinary income is
recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
ACCOUNTING TREATMENT
Under current accounting principles, neither the grant nor the exercise
of options granted under the Plan with exercise prices equal to the fair market
value of the option shares on the grant date will result in a direct charge to
the Company's reported earnings. However, the Company must disclose, in
footnotes and pro-forma statements to the Company's financial statements, the
impact those options would have upon the Company's reported earnings were the
value of those options at the time of grant treated as a compensation expense.
In addition, the number of outstanding options under the Plan may be a factor in
determining the Company's diluted earnings per share.
RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of the
Company's common stock present or represented and entitled to vote at the 1998
Annual Meeting is required for approval of the amendment to the Option Plan. If
such approval is obtained, the amendment will become effective immediately, and
all options granted on the basis of the 620,000-share increase under the amended
Option Plan will remain outstanding and become exercisable in accordance with
their terms. Should such shareholder approval not be obtained then all stock
options granted on the basis of such 620,000-share increase will terminate
without ever becoming exercisable for those excess shares, and no further stock
options, stock appreciation rights or direct stock issuances will be granted on
the basis of such 620,000- share increase. As of April 6, 1998, no shares are
available for issuance under the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF AMENDMENTS TO THE COMPANY'S 1995 STOCK OPTION/STOCK ISSUANCE PLAN.
THE BOARD BELIEVES IT IS IMPORTANT TO THE COMPANY'S FUTURE SUCCESS TO
BE ABLE TO OFFER STOCK OPTIONS FOR RECRUITMENT AND RETENTION OF KEY
MANAGEMENT, SCIENTIFIC AND OTHER EMPLOYEES. IN ORDER TO REMAIN
COMPETITIVE WITH OTHER EMPLOYERS IN THE INDUSTRY THE COMPANY HAS
PROPOSED THE FOREGOING AMENDMENTS TO THE PLAN.
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PROPOSAL 3
APPROVAL OF AMENDMENTS TO THE COMPANY'S
1995 EMPLOYEE STOCK PURCHASE PLAN
The Company's shareholders are being asked to vote on a proposal to
approve an amendment to the Company's 1995 Employee Stock Purchase Plan (the
"Purchase Plan") which amendment was approved by the Compensation Committee on
February 25, 1998, subject to shareholder approval. The effect of the Amendment
will be to increase the number of shares authorized for issuance under the
Purchase Plan by 75,000 shares. As of March 2, 1998 132,731 shares have been
issued under the plan and 117,269 shares are available for future issuance
before the proposed increase.
The affirmative vote of a majority of the outstanding shares of the
Company's voting Common Stock is required for approval of the amendments to the
Purchase Plan. The Purchase Plan, as amended, will become effective immediately
upon approval by the shareholders at the Annual Meeting.
The Purchase Plan is intended to provide eligible employees of the
Company with the opportunity to acquire a proprietary interest in the Company
through participation in a payroll-deduction-based employee stock purchase
program designed to operate in compliance with Section 423 of the Internal
Revenue Code. The Purchase Plan was initially adopted by the Board of Directors
and the shareholders in 1995.
The following is a summary of the principal features of the Purchase
Plan. The summary, however, does not purport to be a complete description of all
the provisions of the Purchase Plan. Any shareholder of the Company who wishes
to obtain a copy of the actual plan document may do so upon written request to
the Corporate Secretary at the Company's principal executive offices in San
Diego, California.
SHARE RESERVE
As of March 2, 1998, 132,731 shares had been issued under the Purchase
Plan and 192,269 shares will be available for future issuance (assuming
shareholder approval of the 75,000-share increase).
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the class and maximum number of securities issuable under
the Purchase Plan, including the class and maximum number of securities issuable
per participant on any one purchase date, and (ii) the class and maximum number
of securities subject to each outstanding purchase right and the purchase price
payable per share thereunder.
ADMINISTRATION
The Purchase Plan is administered by the Compensation Committee of the
Board of Directors. Such committee, as Plan Administrator, has full authority to
adopt such rules and procedures as it may deem necessary for proper plan
administration and to interpret the provisions of the Purchase Plan. All costs
and expenses incurred in plan administration are paid by the Company without
charge to participants.
OFFERING PERIODS
Shares are issued through a series of successive offering periods, each
of twelve (12) months duration. The initial offering period, however, was longer
and ran from the effective date of the Purchase Plan to December 31, 1997. The
current offering period began on January 1, 1998 and will end on December 31,
1998. Each participant will be granted a separate purchase right to purchase
shares of Common Stock for each offering period in which he or she participates
which will be automatically exercised in successive six-month installments on
the last business day of June and December during the offering period.
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ELIGIBILITY
Any individual who customarily works for more than 20 hours per week
for more than five months per calendar year in the employ of the Company or an
affiliate of the corporation as defined in the Purchase Plan and in Internal
Revenue Code Section 424 will be eligible to participate in one or more offering
periods. An eligible employee may only join an offering period on the start date
of that period. As of March 2, 1998, approximately 119 employees, including 5
executive officers, were eligible to participate in the Purchase Plan.
PURCHASE PROVISIONS
Each participant may authorize period payroll deductions in any
multiple of 1% of his or her cash earnings, up to a maximum of 15%. A
participant may not increase his or her rate of payroll deduction for an
offering period after the start of that period, but he or she may decrease the
rate once per offering period. Participants may end their participation at any
time during the offering period, except during the last five days of that
period.
On the last business day of each offering period, the accumulated
payroll deductions of each participant will automatically be applied to the
purchase of whole shares of Common Stock at the purchase price in effect for
that period. However, no purchase right granted to a participant may permit such
individual to purchase Common Stock at a rate greater than $25,000 worth of such
Common Stock (valued at the time such purchase right is granted) for each
calendar year the purchase right remains outstanding at any time.
PURCHASE PRICE
The purchase price per share at which Common Stock will be purchased on
the participant's behalf for each offering period will be equal to 85% of the
lower of (i) the fair market value per share on the date the participant first
joins the option period in effect under the Purchase Plan, or (ii) the fair
market value per share of Common Stock on the last business day of the purchase
period. However, for each participant whose entry date is other than the first
day of the option period, the amount determined under clause (i) shall not be
less than 85% of the fair market value of the Common Stock on the first day of
such option period.
VALUATION
The fair market value per share of Common Stock on any relevant date
will be deemed equal to the closing price per share on such date on the Nasdaq
National Market. If there is no quoted selling price on that day, then the
closing selling price for the next preceding day for which there does exist such
a quotation will be used. On March 2, 1998, the fair market value per share
determined on such basis was $4.125.
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following limitations:
- No purchase right may be granted to any individual who owns stock
(including stock purchasable under any outstanding options or purchase
rights) possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company or any of its affiliates.
- No purchase right granted to a participant may permit such individual
to purchase Common Stock at a rate greater than $25,000 worth of such
Common Stock (valued at the time such purchase right is granted) for
each calendar year the purchase right remains outstanding at any time.
TERMINATION OF PURCHASE RIGHTS
A participant's purchase right will immediately terminate upon such
participant's loss of eligible employee status, and his or her accumulated
payroll deductions for the offering period in which the purchase right
terminates will be promptly refunded. A participant may withdraw from an
offering period at any time and may elect to have his or her accumulated payroll
deductions for the offering period in which such withdrawal occurs either
refunded or held for the purchase of shares at the end of the purchase period.
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SHAREHOLDER RIGHTS
No participant will have any shareholder rights with respect to the
shares of Common Stock covered by his or her purchase right until the shares are
actually purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
ASSIGNABILITY
No purchase right will be assignable or transferable and will be
exercisable only by the participant.
ACQUISITION
Should the Company be acquired by merger or asset sale during an
offering period, all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of such acquisition. The purchase price
will be equal to 85% of the lower of (i) the fair market value per share of
Common Stock on the participant's entry date into the option period or (ii) the
fair market value per share of Common Stock immediately prior to such
acquisition. The limitation on the maximum number of shares purchasable in the
aggregate on any one purchase date shall not apply to the share purchases
effected in connection with such acquisition.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earliest to occur of (i) June
30, 2005, (ii) the date on which all available shares are issued or (iii) the
date on which all outstanding purchase rights are exercised in connection with
an acquisition of the Company.
The Board of Directors may at any time alter, suspend or discontinue
the Purchase Plan. However, the Board of Directors may not, without shareholder
approval, (i) materially increase the number of shares issuable under the
Purchase Plan, except in connection with certain changes in the Company's
capital structure, (ii) alter the purchase price formula so as to reduce the
purchase price or (iii) materially modify the requirements for eligibility to
participate in the Purchase Plan.
PLAN BENEFITS
The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table of the Executive Compensation and Other
Information section of the Proxy Statement and the various indicated groups, the
following information with respect to transactions under the Purchase Plan
effected during the period from the September 28, 1995 effective date of the
Purchase Plan to March 2, 1998: (i) the number of shares of Common Stock
purchased under the Purchase Plan during that period and (ii) the weighted
average purchase price paid per share of Common Stock in connection with such
purchases.
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WEIGHTED
NUMBER AVERAGE
OF SHARES PURCHASE
(#) PRICE
------- ------
FRED A. MIDDLETON (1)...................................................... -- --
Chairman of the Board and Chief Executive Officer
EDWARD L. ERICKSON (1)..................................................... -- --
Former Director, President, and Chief Executive Officer
JOHN P. LONGENECKER, PH.D. (1)............................................. -- --
President and Chief Operating Officer
DAVID B. THOMAS............................................................ -- --
Senior Vice President, Quality Assurance and Regulatory Affairs
WILLIAMS S. ETTOUATI, D. PHARM............................................. 1,753 $ 5.13
Vice President, Marketing and Business Development
SHELDON A. SCHAFFER, PH.D.................................................. 1,089 $ 3.03
Vice President, Pharmaceutical Development
All current executive officers as a group (3 persons) (1).................. 3,912 $ 5.93
All employees who are not executive officers as a group (126 persons)...... 124,273 $ 6.95
(1) Mr. Middleton was appointed as Chief Executive Officer and Dr.
Longenecker was promoted to President and Chief Operating Officer
following the acceptance of Mr. Erickson's resignation, effective
February 2, 1998. "All current executive officers as a group" does not
include shares purchased by Mr. Erickson, Dr. Kim and Dr. Paradiso who
resigned in early 1998.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, in connection with the grant or
the exercise of an outstanding purchase right. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the Purchase Plan or in the event the participant should die while still
owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two years after the start date of the offering period in which such
shares were acquired or within one year after the actual purchase date of those
shares, then the participant will recognize ordinary income in the year of sale
or disposition equal to the amount by which the fair market value of the shares
on the purchase date exceeded the purchase price paid for those shares, and the
Company will be entitled to an income tax deduction, for the taxable year in
which such sale or disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than
two years after the start date of the offering period in which such shares were
acquired and more than one year after the actual purchase date of those shares,
then the participant will recognize ordinary income in the year of sale or
disposition equal to the lesser of (i) the amount by which the fair market value
of the shares on the sale or disposition date exceeded the purchase price paid
for those shares or (ii) 15% of the fair market value of the shares on the start
date of the offering period, and any additional gain upon the disposition will
be taxed as a long-term capital gain. The Company will not be entitled to any
income tax deduction with respect to such sale or disposition.
If the participant still owns the purchased shares at the time of
death, the lesser of (i) the amount by which the fair market value of the shares
on the date of death exceeds the purchase price or (ii) 15% of the fair market
value of the shares on his or her entry date into the offering period in which
those shares were acquired will constitute ordinary income in the year of death.
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SHAREHOLDER APPROVAL
The affirmative vote of a majority of the Company's voting stock
present or represented and entitled to vote at the Annual Meeting is required
for approval of the amendment to the Purchase Plan. Should such shareholder
approval not be obtained, then the Purchase Plan will soon have issued all the
shares currently authorized and under the terms of the plan it will then expire.
Thereafter, no purchase rights would be granted and no stock issuances would be
made under the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE PURCHASE PLAN. THE BOARD BELIEVES THAT IT IS IN THE BEST
INTERESTS OF THE COMPANY TO CONTINUE A PROGRAM OF STOCK OWNERSHIP FOR THE
COMPANY'S EMPLOYEES IN ORDER TO PROVIDE THEM WITH A MEANINGFUL OPPORTUNITY TO
ACQUIRE AN OWNERSHIP INTEREST IN THE COMPANY AND THEREBY ENCOURAGE SUCH
INDIVIDUALS TO REMAIN IN THE COMPANY'S SERVICE AND MORE CLOSELY ALIGN THEIR
INTERESTS WITH THOSE OF THE SHAREHOLDERS.
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PROPOSAL 4
APPROVAL OF
SELECTION OF INDEPENDENT AUDITORS
The Company is asking the shareholders to ratify the selection of Ernst
& Young LLP as the Company's independent public auditors for the year ending
December 31, 1998. In the event that the shareholders fail to ratify the
appointment, the Board of Directors will reconsider its selection. Even if the
selection is ratified, the Board of Directors, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors feels that such a change would be in the
Company's and the shareholders' best interest.
A representative of Ernst & Young LLP is expected to be present at the
meeting to respond to your questions and will have the opportunity to make a
statement if they desire to do so.
The affirmative vote of the holders of a majority of shares represented
and voting at the Annual Meeting will be required to ratify the selection of
Ernst & Young LLP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION AND APPROVAL OF THE SELECTION OF ERNST & YOUNG LLP
AS THE COMPANY'S INDEPENDENT AUDITORS.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Annual Meeting other than the matters set forth in this Proxy
Statement. Should any other matter requiring a vote of the shareholders arise,
the persons named as proxies on the enclosed proxy card will vote the shares
represented thereby in accordance with their best judgment in the interest of
the Company. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed proxy card.
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OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Common Stock as of March 2, 1998 by
(i) all persons who are beneficial owners of more than 5% of its outstanding
Common Stock, (ii) each director and nominee for director, (iii) the Named
Executive Officers and (iv) all current directors and executive officers as a
group. Unless otherwise indicated, each of the shareholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable.
SHARES BENEFICIALLY OWNED (1)
-----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
------------------------------------ --------- -------
Franklin Resources, Inc (2).................................... 2,206,480 15.4%
901 Mariners Island Blvd., 6th Floor
San Mateo, California 94404
Sanderling Ventures (3)........................................ 1,262,753 8.8%
2730 Sand Hill Road, Suite 200
Menlo Park, California 94025
Ross Financial Corp (4)...................................... 1,235,000 8.6%
P.O. Box 31363-SMB
Mirco Commerce Center
Cayman Islands B.W.I.
Fred A. Middleton (5).......................................... 1,334,126 9.3%
John P. Longenecker Ph.D. (6).................................. 159,461 1.1%
Roger C. Davisson (7).......................................... 35,030 *
George W. Dunbar, Jr. (8)...................................... 13,250 *
Stephen B. Howell, M.D. (9).................................... 549,612 3.8%
Peter Preuss (10).............................................. 171,858 1.2%
Pieter J. Strijkert, Ph.D. (11)................................ 9,917 *
Edward L. Erickson (12)........................................ 284,444 2.0%
David B. Thomas (13)........................................... 76,676 *
Williams S. Ettouati, D. Pharm. (14)........................... 43,206 *
Sheldon A. Schaffer, Ph.D. (15)................................ 25,214 *
All current directors and executive officers
as a group (11 persons) (16)................................... 2,458,623 16.7%
* Less than 1%
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(1) Share ownership in each case includes shares issuable upon exercise of
certain outstanding options and warrants as described in the footnotes
below. Percentage of ownership is calculated pursuant to SEC Rule
13d-3(d)(1). The address for those individuals for whom an address is
not otherwise indicated is 10450 Science Center Drive, San Diego,
California 92121.
(2) Information reported in the table is based on disclosures made in the
Schedule 13G filed initially on October 10, 1997 and subsequently
amended on January 29, 1998, by Franklin Resources, Inc., Charles B.
Johnson, Rupert H. Johnson, Jr., and Franklin Advisers, Inc.
(3) Includes 724,936 shares and 7,500 shares issuable upon exercise of
warrants within 60 days of March 2, 1998 held by Sanderling Ventures
Partners II, L.P., 117,181 shares held by Sanderling Biomedical, L.P.
and 408,731 shares and 4,405 shares issuable upon exercise of warrants
within 60 days of March 2, 1998 held by Sanderling Ventures Limited,
L.P. Mr. Middleton, Chief Executive Officer, a director of the Company,
is a general partner of Sanderling Ventures. Mr. Middleton disclaims
beneficial ownership of these shares other than to the extent of his
individual partnership interest, but exercises shared voting and
investment power with respect to all such shares.
(4) Information reported in the table is based on disclosures made in the
Schedule 13D filed initially on September 22, 1997 and subsequently
amended on September 26, 1997 and December 30, 1997, by Kenneth B.
Dart, Ross Financial Corporation, and STS Inc.
(5) Includes 724,936 shares and 7,500 shares issuable upon exercise of
warrants within 60 days of March 2, 1998 held by Sanderling Ventures
Partners II, L.P., 117,181 shares held by Sanderling Biomedical, L.P.
and 408,731 shares and 4,405 shares issuable upon exercise of warrants
within 60 days of March 2, 1998 held by Sanderling Ventures Limited,
L.P. Mr. Middleton, Chief Executive Officer and a director of the
Company, is a general partner of Sanderling Ventures. Mr. Middleton
disclaims beneficial ownership of these shares other than to the extent
of his individual partnership interest, but exercises shared voting and
investment power with respect to all such shares. Also includes 58,373
shares and 13,000 shares issuable upon exercise of stock options
beneficially held by Mr. Middleton and exercisable within 60 days of
March 2, 1998.
(6) Includes 92,691 shares issuable upon exercise of stock options
exercisable within 60 days of March 2, 1998.
(7) Includes 20,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 2, 1998.
(8) Includes 13,250 shares issuable upon exercise of stock options
exercisable within 60 days of March 2, 1998.
(9) Includes 44,740 shares issuable upon exercise of stock options
exercisable within 60 days of March 2, 1998. Dr. Howell is a trustee of
the Howell Family Trust and two trusts for the benefit of his children.
(10) Includes 4,761 shares issuable upon exercise of warrants and 65,000
shares issuable upon exercise of stock options exercisable within 60
days of March 2, 1998.
(11) Includes 9,917 shares issuable upon exercise of stock options
exercisable within 60 days of March 2, 1998.
(12) Includes 94,444 shares issuable upon exercise of stock options
exercisable within 60 days of March 2, 1998. Mr. Erickson resigned from
his positions as President, Chief Executive Officer and Director of the
Company effective February 2, 1998.
(13) Includes 40,510 shares issuable upon exercise of stock options
exercisable within 60 days of March 2, 1998.
(14) Includes 41,453 shares issuable upon exercise of stock options
exercisable within 60 days of March 2, 1998.
(15) Includes 24,125 shares issuable upon exercise of stock options
exercisable within 60 days of March 2, 1998.
(16) Includes 2,041,068 shares and 400,889 and 16,666 shares issuable upon
exercise of stock options and warrants, respectively, exercisable
within 60 days of March 2, 1998.
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EXECUTIVE OFFICERS
The executive officers of the Company as of March 2, 1998, are as
follows:
NAME Age Position
- ---- --- --------
Fred A. Middleton................... 48 Chief Executive Officer and Chairman of the Board
John P. Longenecker, Ph.D........... 50 President and Chief Operating Officer,
David B. Thomas..................... 58 Senior Vice President, Quality Assurance and
Regulatory Affairs
Williams S. Ettouati, D. Pharm...... 38 Vice President, Marketing and Business Development
Dana S. McGowan, C.P.A.............. 39 Vice President, Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
Sheldon A. Schaffer, Ph.D........... 54 Vice President, Pharmaceutical Development
Fred A. Middleton and John P. Longenecker, Ph.D. are being nominated to
serve on the Company's Board of Directors. See "Proposal 1 - Election of
Directors" for a discussion of their respective business experience.
David B. Thomas has served as Senior Vice President, Quality Assurance
and Regulatory Affairs, of the Company since August 1996 and as Vice President,
Quality Assurance and Regulatory Affairs, of the Company from June 1993 until
August 1996. Prior to joining the Company, Mr. Thomas served as Vice President
of Gen-Probe Incorporated, a diagnostics company, from February 1993 to June
1993. Prior to that, Mr. Thomas served as a Vice President, Regulatory Affairs
and Quality Assurance of Ares-Serono from September 1990 through February 1993.
Prior to that, Mr. Thomas served as Vice President, Regulatory Affairs, for C.R.
Bard, Inc., a medical device company, from April 1987 through February 1990. Mr.
Thomas also served as Vice President, Regulatory Affairs/Product Assurance of
the Hospital Products Group of Pfizer, Inc., a pharmaceutical company, from
April 1985 through March 1987 and held senior scientific positions at the
Biometric Research Institute, Inc. and at the National Institutes of Health. He
has been responsible for the clinical development and regulatory approvals of a
number of new pharmaceuticals including LAAM and has obtained approvals for new
delivery modes and controlled release formulations for more than 15 drugs. Mr.
Thomas received a B.A. in anthropology (with a minor in mathematics) from San
Francisco State University and an M.A. in anthropology as part of an
interdisciplinary program in human biology from University of California, Los
Angeles where he was a National Science Foundation Fellow at the Brain Research
Institute. Mr. Thomas currently serves as chairman and a director of a privately
held company.
Williams S. Ettouati, D.Pharm. has served as Vice President, Marketing
and Business Development, of the Company since August 1996, and as Executive
Director of Strategic Marketing of the Company from July 1995 to August 1996.
Prior to joining the Company, Dr. Ettouati served as a consultant to the Company
from May 1995 to July 1995. Dr. Ettouati served as Director, New Product
Planning at Dura Pharmaceuticals, Inc. from November 1993 to April 1995. From
January 1990 to August 1993, Dr. Ettouati served as Senior Product Manager and
Product Manager for Syntex International. Dr. Ettouati served as a post doctoral
fellow at University of California, Santa Barbara ("UCSB"). Dr. Ettouati
received a Diplome de Bachelier in mathematics and biology from Academie de
Paris, an M.A. in biology from UCSB and a Diplome d'Etat de Docteur en pharmacie
from Universite Rene Descartes, Paris V.
Dana S. McGowan, C.P.A. has served as Vice President, Finance and
Administration since July 1997, as Assistant Secretary since September 1996, and
as Chief Financial Officer and Treasurer since June 1994. Previously, Ms.
McGowan served as Director of Finance and Administration of the Company from
January 1994 through May 1994. Prior to joining the Company, Ms. McGowan served
as Director, Accounting and Finance at Alliance Pharmaceutical Corp., a
biotechnology company, from May 1993 to December 1993. Previously, Ms. McGowan
held various financial positions, including Associate Director and Controller at
Cytel Corporation, a biotechnology company, from June 1988 to May 1993. She has
held various financial positions with Science Applications International
Corporation, a technical services company. Ms. McGowan received a B.S. in
Business Administration from San Diego State University.
Sheldon A. Schaffer, Ph.D. has served as Vice President, Pharmaceutical
Development since January 1997. Dr. Schaffer previously served as a consultant
to the Company from May 1996 until January 1997. Prior to joining the Company,
Dr. Schaffer was an independent consultant to various pharmaceutical companies
from May 1995 to April 1996. From March 1989 to April 1995, Dr. Schaffer served
as Vice President of Pharmaceutical Development and then as Vice President of
Business Development at Cholestech Corporation, a publicly traded medical
products company. Previously Dr. Schaffer served as Director,
Inflammation/Atherosclerosis Research at Ciba-Geigy Corporation, a
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24
pharmaceutical company, and held senior scientific positions at the Medical
Research Division of American Cyanamid Co., a pharmaceutical company. Dr.
Schaffer received his B.S. in chemistry from the University of California,
Berkeley and a Ph.D. in chemistry from the University of Illinois, and served as
a postdoctoral and teaching fellow at Harvard Medical School.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company to the Named Executive Officers for services rendered in all capacities
to the Company for the years ended December 31, 1995, 1996 and 1997:
Summary Compensation Table
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------------------------------
NAME AND OTHER SECURITIES
PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS(#) COMPENSATION(1)
- -------------------------------- ------- -------- ---------- ------------ --------------- ---------------
EDWARD L. ERICKSON (2) 1997 $275,000 $ -0- $ -0- 230,000 $ 65
Former President, 1996 250,000 42,750(3) -0- 8,550(6) 52
Chief Executive Officer 1995 194,250 49,138(4) 27,000(5) 11,450(7) 51
and Director
JOHN P. LONGENECKER, PH.D. 1997 $215,000 $ -0- $ -0- 25,000 $ 56
President, Chief Operating 1996 200,000 40,000(3) -0- 83,892(6) 52
Officer and Director 1995 178,500 24,098(4) 14,667(5) 16,950(7) 46
DAVID B. THOMAS 1997 $177,000 $17,700 $ -0- 78,000 $ 46
Senior Vice President, Quality 1996 156,976 21,277(3) -0- 5,006(6) 41
Assurance and Regulatory 1995 136,500 18,428(4) 10,800(5) 6,950(7) 35
Affairs
WILLIAMS S. ETTOUATI, 1997 $165,000 $25,000 $ -0- 7,500 $ 43
D.PHARM. (8) 1996 126,277 15,663(3) -0- 35,675(6) 33
Vice President, Marketing 1995 57,500 8,913 -0- 38,106(7) 15
and Business Development
SHELDON A. SCHAFFER, PH.D. (9) 1997 $158,125 $40,000(10) $ -0- 58,000 $ 41
Vice President, Pharmaceutical
Development
(1) Consists of the dollar value of insurance premiums paid by the Company
with respect to term life insurance for the benefit of the Named
Executive Officers.
(2) Mr. Erickson resigned from the Company effective February 2, 1998.
(3) Consists of amounts earned in 1996 and paid in 1997 upon the filing by
the Company of a New Drug Application for DepoCyt.
(4) Consists of amounts earned in 1995 and paid in 1996.
(5) Consists of forgiveness of a portion of a loan made to cover relocation
expenses.
(6) Includes options granted in 1997 for performance during 1996. Vesting
is contingent on the filing by the Company of a New Drug Application
for DepoCyt.
(7) Includes options granted in 1996 for performance during 1995.
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25
(8) Dr. Ettouati was hired in July 1995. Prior to that time, Dr. Ettouati
served as a consultant to the Company for a period of two months and
amounts paid under that consulting arrangement are not included above.
(9) Dr. Schaffer was hired in January 1997. Prior to that time, Dr.
Schaffer served as a consultant to the Company for a period of eight
months and amounts paid under that consulting arrangement are not
included above.
(10) Consists of a signing bonus to cover relocation expenses.
STOCK OPTIONS
The following table sets forth information concerning stock option
grants made to each of the Named Executive Officers for the year ended December
31, 1997. All grants were made under the Plan. The Company granted no stock
appreciation rights ("SARs") to Named Executive Officers during 1997.
Option/SAR Grants in Last Fiscal Year
===============================================================================================================================
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (3)
- -------------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SAR
Underlying Granted Exercise or
Options/SAR to Employees Base Price Expiration
Name Granted(1) in Fiscal Year ($/Sh)(2) Date 5% ($) 10% ($)
- ---------------------------------- ------------------- --------------- ------------ ---------- ----------- ---------
Edward L. Erickson 8,550 1.07 18.625 2/26/07 100,148 253,794
230,000 28.74 14.00 5/14/07 2,025,041 5,131,851
John P. Longenecker, Ph.D. 8,892 1.11 18.625 2/26/07 104,153 263,945
25,000 3.12 14.75 4/28/07 231,905 587,693
David B. Thomas 5,006 0.63 18.625 2/26/07 58,636 148,595
78,000 9.74 13.625 6/30/07 668,358 1,693,750
Williams S. Ettouati D. Pharm. 5,676 0.71 18.625 2/26/07 66,484 168,483
7,500 0.94 14.75 7/2/07 69,571 176,308
Sheldon A. Schaffer, Ph.D. 58,000 7.25 18.00 1/16/07 656,565 1,663,867
===============================================================================================================================
(1) All of the options were granted under the Plan and vest over periods
ranging from two to five years on a monthly basis. Options granted to
Mr. Erickson in 1997 were subsequently cancelled in connection with his
resignation. In the event of any Corporate Transaction (defined below),
the exercisability of each option grant at the time outstanding under
the Plan which is not assumed or otherwise continued in the event of
such Corporate Transaction shall automatically accelerate so that each
such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to
the total number of shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares. For
purposes of the Plan, a Corporate Transaction means (i) a merger or
consolidation in which the Corporation is not the surviving entity
(except for a transaction the principal purpose of which is to change
the state of incorporation), (ii) the sale, transfer or disposition of
all or substantially all of the assets of the Corporation, or (iii) any
reverse merger in which the Corporation is the surviving entity but in
which the holders of securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's
outstanding securities (as measured immediately prior to such merger)
transfer ownership of those securities to a person or persons not
otherwise part of the transferor group. In addition, the
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26
Compensation Committee of the Board of Directors may accelerate the
vesting of the option in the event (i) there is a change in the
composition of the Board of Directors over a period of two years or
less such that those individuals serving as Board members at the
beginning of the period cease to represent a majority of the Board or
(ii) change of ownership of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a hostile tender offer. The grant dates for the above
options are as follows:
Name Options Granted (#) Grant Date
---- ------------------- ----------
Edward L. Erickson 8,550 2/26/97
230,000 5/14/97
John P. Longenecker, Ph.D. 8,892 2/26/97
25,000 4/28/97
David B. Thomas 5,006 2/26/97
78,000 6/30/97
Williams S. Ettouati, D.Pharm. 5,676 2/26/97
7,500 7/2/97
Sheldon A. Schaffer, Ph.D. 58,000 1/16/97
(2) The exercise price per share of options granted represented the fair
market value of the underlying shares of Common Stock on the dates the
respective options were granted as determined by the Board of
Directors. The exercise price may be paid in cash or in shares of
Common Stock valued at fair market value on the exercise date or a
combination of cash or shares or any other form of consideration
approved by the Board of Directors. The fair market value of shares of
Common Stock will be determined in accordance with certain provisions
of the Plan based on the closing selling price per share of a share of
Common Stock on the date in question on the primary exchange on which
the Company's common stock is listed or reported. If shares of the
Common Stock are not listed or admitted to trading on any stock
exchange nor traded on the Nasdaq National Market, then the fair market
value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
(3) There can be no assurance provided to any executive officer or any
other holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% or
10% levels or at any other defined level. Unless the market price of
the Common Stock does in fact appreciate over the option term, no value
will be realized from the option grants made to the executive officers
with an exercise price equal to the fair market value of the option
shares on the grant debt.
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning option exercises
during 1997 by the Named Executive Officers and the value of unexercised options
held by each of the Named Executive Officers as of December 31, 1997.
No SARs were exercised during 1997 or outstanding as of December 31, 1997.
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Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
===================================================================================================================================
Number of Securities
Underlying Value of Unexercised
Unexercised Options/SARS in-the-Money
at Options/SARs
December 31, 1997 (#) at December 31, 1997(2)
---------------------------------------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------------
Edward L. Erickson 14,000 $207,875 230,622 244,378 $611,806 $83,507
John P. Longenecker, Ph.D. -0- -0- 82,391 61,681 63,465 281
David B. Thomas 10,000 145,000 29,075 79,715 25,629 19,592
Williams S. Ettouati, D.Pharm. -0- -0- 34,066 47,216 -0- -0-
Sheldon A. Schaffer, Ph.D. -0- -0- 19,292 44,708 -0- -0-
===================================================================================================================================
(1) "Value realized" is calculated on the basis of the fair market value of
the Company's Common Stock on the date of exercise minus the exercise
price and does not necessarily indicate that the optionee sold such
stock.
(2) "Value" is defined as fair market price of the Company's Common Stock
at fiscal year-end ($3.5625) less exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1997, the Compensation Committee of
the Company's Board of Directors established the levels of compensation for the
Company's executive officers. The members of the Company's Compensation
Committee during the year ended December 31, 1997 were Messrs. Preuss and
Middleton and Dr. Strijkert. Mr. Erickson, the Company's President and Chief
Executive Officer at the time, participated in the deliberations of the
Compensation Committee regarding executive compensation that occurred during
1997, but did not take part in the deliberations regarding his own compensation.
As of February 2, 1998, the members of the Compensation Committee were Mr.
Preuss and Dr. Strijkert.
EMPLOYMENT ARRANGEMENTS
In February 1998, Mr. Middleton was appointed Chief Executive Officer
and a member of the Executive Committee of the Company in addition to his role
as Chairman of the Board. Mr. Middleton currently spends approximately one-half
time on Company duties. Mr. Middleton currently receives no salary or other cash
compensation from the Company other than directors' fees. In return for these
services and in lieu of receiving a cash salary from the Company, in February
and March 1998, the Board approved the granting of stock options to purchase an
aggregate of 100,000 shares of the Company's common stock at a weighted average
exercise price of $4.24 per share. The shares vest in 12 equal monthly
installments. Of this amount, options totaling 30,000 shares are subject to
shareholder approval of an increase to the number of shares authorized in the
Plan to 620,000 shares. In addition, the Company issued a warrant to purchase
100,000 shares of the Company's common stock to various entities managed by
Sanderling Ventures, exercisable at $4.375 per share. The warrant has a three
year term and is not exercisable for 90 days.
In June 1997, Mr. Thomas, Senior Vice President, Quality Assurance and
Regulatory Affairs, entered into an Employment Agreement with the Company. Under
the Employment Agreement, Mr. Thomas' base salary will be subject to the normal
review of, and changes to, salaries of all Senior Management Committee members,
effective January 1 of each year of employment. In addition, during the term of
employment, Mr. Thomas will be eligible for bonus consideration based on
individual and Company performance. Further, upon the receipt of an approvable
letter for DepoCyt from the United States Food and Drug Administration, the
Company will recommend to the Board acceleration of a portion of Mr. Thomas'
bonus. The Employment Agreement continues through December 31, 1999.
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28
Should Mr. Thomas continue employment with the Company through such date, Mr.
Thomas and the Company may elect to enter into a consulting agreement for an
initial one-year term. In the event that a Consulting Agreement is executed,
vesting in stock option grants awarded during the term of employment will
continue until the termination of the Consulting Agreement. The terms of the
Consulting Agreement provide for a monthly retainer.
The Compensation Committee of the Board of Directors, as Plan
Administrator of the Plan, has the authority to provide for accelerated vesting
of the shares of Common Stock subject to any outstanding options held by the
Chief Executive Officer or any other executive officer or any unvested share
issuances actually held by such individual, in connection with certain changes
in control of the Company or the subsequent termination of the officer's
employment following the change in control event.
See also "Proposal 1 - Election of Directors - Director Compensation."
The Company does not have any existing employment agreements with any
other Named Executive Officer. Notwithstanding anything to the contrary set
forth in any of the Company's previous filings under the Securities Act of 1933,
as amended, or the Exchange Act, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
report and the Performance Graph on page 21 shall not be incorporated by
reference into any such filings.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee presents this report regarding compensation
for the Company's executive officers and the Chief Executive Officer of the
Company.
General Compensation Policy. The Company's primary objective is to
maximize the value of the Company's shares over time. Accomplishing
this objective requires achieving specific Company milestones and
developing and ultimately marketing superior products that provide
cost-effective solutions for the medical community. The overall goal of
the Compensation Committee is to develop compensation practices that
will allow the Company to attract and retain the people needed to
create, develop, manufacture and market such products.
The Company compensates its executive officers with a combination of
salary and incentives designed to focus and balance their efforts on
maximizing both the near-term and long-term financial performance of
the Company. In addition, the Company's compensation structure rewards
individual performance that furthers Company goals. Elements of each
officer's compensation include the following:
- Base Salary
- Annual Incentives
- Long-term Incentives
- Benefits
Each officer's compensation package is designed to provide an
appropriately weighted mix of these elements which cumulatively
provides a level of compensation roughly equivalent to that paid by
companies of similar size and complexity in similar industries.
Base Salary and increases in base salary are determined by individual
performance and the salary levels in effect for companies of similar
size and complexity in similar industries. The Compensation Committee
attempts to keep the base salaries of the Company's officers at a level
broadly in line with the median of the salaries of officers in
comparative companies. The Compensation Committee relies primarily on
survey data on base salary from a compensation study performed by
Watson Wyatt in 1995 and updated with other published studies. These
studies included data on competitive practices among peer group
companies, early-stage high growth technology companies and
biotechnology published survey data. In addition, the Compensation
Committee also evaluates individual experience and performance and
specific issues particular to the Company, such as success in raising
capital, creation of shareholder value and achievement of specific
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Company milestones. Certain of the companies contained in the survey on
which this Compensation Committee relied are included in the indices
used to compare shareholder returns in the Stock Performance Graph.
Annual Incentives are paid in accordance with an annual Incentive
Compensation Plan. Bonus awards are set at a level competitive among
peer group companies, early-stage high growth technology companies and
biotechnology published survey data. Potential cash incentive
compensation paid under this plan is set as a significant percentage of
each officers' base salary. All of the incentive compensation is
directly tied to performance and is at risk. Each officer earns
incentive compensation based upon a mix of Company performance and
personal performance. Company performance is measured by achievement of
specific Company milestones. Compensation for personal performance
under this plan is awarded by the Compensation Committee based upon
both an objective and subjective evaluation of the performance of each
officer. No incentive compensation is paid for Company performance or
personal performance unless specific Company and individual goals are
achieved during the fiscal year. In 1997, incentive compensation earned
by officers ranged from approximately 0% to 15% of base salary.
Long-Term Incentive compensation in the form of stock options is
expected to be the largest element of total compensation over time.
Grants of stock options are designed to align the long-term interests
of each officer with the long-term interests of the Company and its
shareholders. Stock options provide each officer with a significant
incentive to manage the Company from the perspective of an owner with
an equity stake in the business. The size of the option grant to each
officer is based on the officer's current and expected future
contributions to the business and vesting position. Awards of stock
options are designed to have an expected aggregate exercise value over
time equal to a multiple of salary which will create a significant
opportunity for stock ownership, motivation to remain with the Company
and incentive to increase shareholder value.
Benefits offered to the Company's officers serve as a safety net of
protection against the financial catastrophes that can result from
illness, disability or death. Benefits offered to the Company's
officers are substantially the same as those offered to all the
Company's regular employees.
CEO Compensation. In setting compensation payable to the Company's
Chief Executive Officer, Mr. Erickson, during 1997 we sought to be
competitive with companies of similar size and complexity in similar
industries. Mr. Erickson's incentive compensation under the Company's
annual Incentive Compensation Plan was entirely dependent upon the
Company's performance and our evaluation of his personal contribution
to the Company's performance. Mr. Erickson resigned effective February
2, 1998. No incentive compensation was earned by Mr. Erickson in 1997.
We conclude our report with the acknowledgement that no member of the
Compensation Committee is a current officer or employee of DepoTech or any of
its subsidiaries.
COMPENSATION COMMITTEE
Peter Preuss, Chairman
Pieter J. Strijkert, Ph.D.
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PERFORMANCE GRAPH
The following graph compares total shareholder returns since the
Company became a reporting company under the Exchange Act to the Nasdaq CRSP
Total Return Index ("Nasdaq Broad Index") for the Nasdaq Stock Market (U.S.
Companies) and the Nasdaq CRSP Pharmaceutical Index ("Nasdaq Pharmaceutical
Index"). The total return for each of the Company's Common Stock, the Nasdaq
Broad Index and the Nasdaq Pharmaceutical Index assumes the reinvestment of
dividends, although dividends have not been declared on the Company's Common
Stock. The Nasdaq Pharmaceutical Index is made up of all companies with the
standard industrial classification (SIC) Code 283 (category description
"Drugs"). The companies comprising the Nasdaq Pharmaceutical Index are available
upon written request to Investor Relations at the Company's executive offices.
The shareholder return shown on the graph below is not necessarily indicative of
future performance and the Company will not make or endorse any predictions as
to future shareholder returns.
COMPARISON OF TOTAL CUMULATIVE RETURN ON INVESTMENT (1)
09/29/95 12/95 3/96 6/96 9/96 12/96 3/97 6/97 9/97 12/97
-------- ----- ---- ---- ---- ----- ---- ---- ---- -----
(DOLLARS)
DEPOTECH CORPORATION.... 100 160 204 210 144 136 127 114 113 30
NASDAQ STOCK MARKET-US.. 100 101 106 115 119 125 118 138 163 153
NASDAQ PHARMACEUTICAL... 100 117 121 118 121 117 111 120 135 121
(1) The total cumulative return on investment (change in stock price plus
reinvested dividends) assumes $100 invested on September 29, 1995 in
each of DepoTech's Common Stock (at the initial public offering price
of $12.00 per share), the Nasdaq Broad Index and the Nasdaq
Pharmaceutical Index.
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31
CERTAIN TRANSACTIONS
Mr. Thomas, Senior Vice President, Quality Assurance and Regulatory
Affairs, is a director and shareholder of Sierra Scientific Software, Inc.
("Sierra"). Sierra entered into a Software License Agreement dated June 30, 1993
with DepoTech pursuant to which Sierra provides DepoTech with certain scientific
software and other software development services. Sierra earned an aggregate of
approximately $204,725 in fiscal 1997. Mr. Thomas is a party to an employment
agreement with the Company. See "Executive Officers--Employment Arrangements."
Holders of 3,401,072 shares of Common Stock or their permitted
transferees (the "Holders") are entitled to certain rights with respect to the
registration of such shares under the Securities Act (taking into account the
exercise of outstanding options). Under the terms of agreements between the
Company and such Holders, if the Company proposes to register any of its
securities under the Securities Act for its own account, such Holders are
entitled to notice of such registration and are entitled to include shares of
such Common Stock therein, provided, among other conditions, that the
underwriters of any such offering have the right to limit the number of shares
included in such registration. In addition, Holders of at least 30% of
approximately 3,401,072 shares of Common Stock with demand registration rights
may require the Company to prepare and file a registration statement under the
Securities Act with respect to the shares entitled to demand registration
rights, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations. The Company is not
obligated to effect more than one of these shareholder-initiated registrations
nor to effect such a registration within 90 days following an offering of the
Company's securities. The Holders of approximately 3,401,072 shares of Common
Stock may also request the Company to register such shares on Form S-3 provided
the shares registered have an aggregate market value of at least $500,000.
Generally, the Company is required to bear the expense of all such
registrations. The registration rights of the Holders expire in October 2000.
Officers and directors of the Company are indemnified pursuant to
certain provisions of the California General Corporation Law and the Company's
charter documents to the fullest extent permitted under California law.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the Nasdaq National Market System. Officers,
directors and greater than 10% beneficial owners are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company or written representations from certain reporting persons that no Forms
5 were required, the Company believes that, during the 1997 fiscal year, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were satisfied.
ANNUAL REPORT
A copy of the Annual Report of the Company for the 1997 Fiscal Year has
been mailed concurrently with this Proxy Statement to all stockholders entitled
to notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material.
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FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission on or about March 31, 1998. Stockholders may obtain a copy
of this report, without charge, by writing to Dana S. McGowan, Chief Financial
Officer and Vice President, Finance of the Company, at the Company's principal
executive offices located at 10450 Science Center Drive, San Diego, California
92121.
SHAREHOLDER PROPOSALS
Under the present rules of the SEC, the deadline for shareholders to
submit proposals to be considered for inclusion in the Company's Proxy Statement
for next year's Annual Meeting of Shareholders is expected to be December 7,
1998 (120 days prior to April 6, 1999). Such proposals may be included in next
year's Proxy Statement if they comply with certain rules and regulations
promulgated by the SEC and the procedure set forth in the Bylaws of the Company,
which requires notice to be delivered or mailed and received at the Company's
executive offices not less than 120 days prior to the date specified above.
By Order of the Board of Directors
Dated: April 6, 1998 Faye H. Russell
Secretary
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33
DEPOTECH CORPORATION
1995 STOCK OPTION/STOCK ISSUANCE PLAN
AMENDED AND RESTATED AS OF FEBRUARY 26, 1997
FURTHER AMENDED AS OF MAY 13, 1998
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan ("Plan") is intended
to promote the interests of DepoTech Corporation, a California corporation (the
"Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations), (ii) Directors and (iii) consultants and other
independent contractors who provide valuable services to the Corporation (or its
parent or subsidiary corporations) with the opportunity to acquire or increase
their proprietary interest in the Corporation as an incentive for them to remain
in the service of the Corporation (or its parent or subsidiary corporations).
II. GENERAL
A. Effective Date. The Plan shall become effective on the first
date on which shares of the Corporation's common stock are registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). Such date is hereby designated as the "Effective Date" of this Plan.
B. Predecessor Plans. This Plan shall serve as the successor to
the Corporation's 1991 Stock Option Plan, 1994 Stock Option Plan and 1995 Stock
Option Plan (together, the "Predecessor Plans"), and no further option grants or
share issuances shall be made under the Predecessor Plans from and after the
Effective Date. Each outstanding option or share issuances under the Predecessor
Plans immediately prior to the Effective Date are hereby incorporated into this
Plan and shall accordingly be treated as outstanding options or share issuances
under this Plan. However, each such option or share issuance shall continue to
be governed solely by the terms and conditions of the instrument evidencing such
grant or issuance, and, except as otherwise expressly provided herein, no
provision of this Plan shall affect or otherwise modify the rights or
obligations of the holders of such incorporated options or shares with respect
to their acquisition of shares of the Corporation's common stock or otherwise
modify the rights or obligations of the holders of such options or shares.
34
C. Definitions. For purposes of this Plan, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:
Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered to be a PARENT of the Corporation, provided each such
corporation in the unbroken chain (other than the Corporation) owns, at
the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a SUBSIDIARY of the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
D. No Limitation on Corporate Action. Neither the grant of
options nor the issuance of any shares pursuant to this Plan shall in any way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
E. No Rights as Shareholder. The holder of an option grant under
this Plan shall have none of the rights of a shareholder with respect to any
shares subject to such option until such individual shall have exercised the
option, paid the exercise price for the purchased shares and been issued a stock
certificate for such shares.
III. STRUCTURE OF THE PLAN
A. Components of Plan. The Plan shall be divided into three
separate components: the Discretionary Option Grant Program specified in Article
Two; the Automatic Option Grant Program specified in Article Three; and the
Stock Issuance Program specified in Article Four. Under the Discretionary Option
Grant Program, eligible individuals may be granted options to purchase shares of
the Corporation's common stock at not less than 85% of the Fair Market Value of
such shares on the grant date. Under the Automatic Option Grant Program,
non-employee Directors will automatically be granted options to purchase Common
Stock of the Corporation at 100% of the Fair Market Value on the grant date.
Under the Stock Issuance Program, eligible individuals may be allowed to
purchase shares of the Corporation's common stock at discounts from the Fair
Market Value of such shares of up to 15%. Such shares may be issued as
fully-vested shares or as shares to vest over time.
B. Application of Certain Articles. The provisions of Articles
One and Five of the Plan, except as otherwise expressly provided, shall apply to
the Discretionary Option Grant Program, the Automatic Option Grant
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35
Program and the Stock Issuance Program, and shall accordingly govern the
interests of all individuals in the Plan.
IV. ADMINISTRATION OF THE PLAN
A. Plan Administrator. The committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 insiders (the "Primary Committee") shall have sole and exclusive authority to
administer the Plan with respect to Section 16 Insiders.
B. Committees. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a committee of two (2) or more Board members appointed by
the Board to administer the Discretionary Option Grant Program and Stock
Issuance Program with respect to eligible persons other than Section 16 insiders
(the "Secondary Committee"), or the Board may retain the power to administer
those programs with respect to all such persons. The members of the Secondary
Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of Committees. Members of the Primary Committee or any
Secondary Committee shall serve for such period of time as the Board may
determine and may be removed by the Board at any time. The Board may also at any
time terminate the functions of any Secondary Committee and assume all powers
and authority previously delegated to such committee.
D. Service as Committee Members. Service on the Primary Committee
or the Secondary Committee shall constitute service as a Board member, and
members of each such committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on such
committee. No member of the Primary Committee or the Secondary Committee shall
be liable for any act or omission made in good faith with respect to the Plan or
any option grants or stock issuances under the Plan.
E. Authority. Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and authority
(subject to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the
Discretionary Option Grant Program and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, such programs and any
outstanding option grants or stock issuances as it may deem necessary or
advisable. Decisions of each Plan Administrator shall be final and binding on
all parties who have an interest in the Discretionary Option Grant Program and
Stock Issuance Program or any outstanding option or stock issuance thereunder.
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Each Plan Administrator shall have full authority to
determine, (i) with respect to the option grants made under the Discretionary
Option Grant Program, which eligible individuals are to receive option grants,
the number of shares to be covered by each such grant, whether the granted
option is to be an incentive stock option ("Incentive Option") which satisfies
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code") or a non-statutory option not intended to meet
such requirements, the time or times at which and the circumstances under which
each granted option is to become exercisable and the maximum term for which the
option may remain outstanding and (ii) with respect to stock issuances under the
Stock Issuance Program, the number of shares to be issued to each Participant,
the vesting schedule and conditions to vesting (if any) to be applicable to the
issued shares, and the consideration to be paid by the individual for such
shares. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
F. Restriction on Discretion. The administration of the Automatic
Option Grant Program under Article Three shall be self executing in accordance
with the terms and conditions thereof and the Plan Administrator shall not
exercise any discretionary functions in respect to matters governed by Article
Three.
V. OPTION GRANTS AND STOCK ISSUANCES
A. Eligible Persons. The persons eligible to receive stock
issuances under the Stock Issuance Program ("Participant") and/or option grants
pursuant to the Discretionary Option Grant Program ("Optionee") are as follows:
(i) officers and other key employees of the
Corporation (or its parent or subsidiary corporations) who render services which
contribute to the management, growth or financial success of the Corporation (or
its parent or subsidiary corporations);
(ii) non-employee members of the Board of Directors;
and
(iii) those consultants or other independent
contractors who provide valuable services to the Corporation (or its parent or
subsidiary corporations).
B. Eligible individuals under Automatic Option Grant Program. The
individuals who shall be eligible to participate in the Automatic Option Grant
Program shall be limited to non-employee Board members who are elected to the
Board at or after the annual meeting of shareholders held in 1997 and who, at
the time of such election, have previously served on the Board for a minimum of
six months.
C. Limitation on Issuances. Notwithstanding any other provision
of this Plan, no individual shall be granted stock options, separately
exercisable stock appreciation rights or direct stock issuances for more than
one million (1,000,000) shares of Common Stock hereunder.
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VI. STOCK SUBJECT TO THE PLAN
A. Shares Available. Shares of the Corporation's Common Stock
shall be available for issuance under the Plan and shall be drawn from either
the Corporation's authorized but unissued shares of Common Stock or from
reacquired shares of Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 3,370,000 shares,
subject to adjustment from time to time in accordance with the provisions of
this Section VI.
B. Additional Available Shares. Should one or more outstanding
options under this Plan (including outstanding options under the Predecessor
Plans incorporated into this Plan) expire or terminate for any reason prior to
exercise in full (including any option cancelled in accordance with the
cancellation-regrant provisions of Section III of Article Two of the Plan), then
the shares subject to the option not so exercised shall be available for
subsequent option grant or share issuance under this Plan. Shares subject to any
option or portion thereof surrendered or cancelled in accordance with Section
I.D of Article Five and all share issuances under the Plan, whether or not such
shares are subsequently repurchased by the Corporation pursuant to repurchase
rights, shall reduce on a share-for-share basis the number of shares of Common
Stock available for subsequent option grant or stock issuance under the Plan. In
addition, should the exercise price of an outstanding option under the Plan be
paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an outstanding
option under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised.
C. Adjustments. In the event any change is made to the Common
Stock issuable under the Plan by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares, conversion or other
change affecting the outstanding Common Stock, or any class of Common Stock as a
class, without the Corporation's receipt of consideration, then appropriate
adjustments shall be made to (i) the number and/or class of shares issuable
under the Plan, (ii) the number and/or class of shares and price per share in
effect under each outstanding option under this Plan (including outstanding
options incorporated into this Plan from the Predecessor Plans). Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
D. Additional Possible Restrictions. Common Stock issuable under
the Discretionary Option Grant Program or the Stock Issuance Program may be
subject to such restrictions on transfer, repurchase rights or such other
restrictions as determined by the Plan Administrator.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted to employees of the Corporation (or its parent or
subsidiary corporations) pursuant to this Article Two shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non-statutory options. Individuals
who are not employees of the Corporation or its parent or subsidiary
corporations may only be granted non-statutory options. Each granted option
shall be evidenced by one or more instruments in a form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. Option Price.
(i) In General. The option price per share shall be
fixed by the Plan Administrator. In no event, however, shall the option price
for any share be less than eighty-five percent (85%) of the Fair Market Value of
that share on the date of the option grant, provided that the Plan Administrator
may fix the exercise price at less than 85% if the optionee makes a payment to
the Company (including payment made by means of a salary reduction agreement)
equal to the excess of the Fair Market Value of the Common Stock on the option
grant date over such exercise price.
(ii) 10% Shareholder. If any individual to whom an
option is granted is the owner of stock (as determined under Section 424(d) of
the Internal Revenue Code) possessing 10% or more of the total combined voting
power of all classes of stock of the Corporation (or any one of its parent or
subsidiary corporations), then the option price per share shall not be less than
one hundred and ten percent (110%) of the Fair Market Value per share of Common
Stock on the grant date.
(iii) How Payable. The option price shall become
immediately due upon exercise of the option and, subject to the provisions of
Article Five, Section III and the instrument evidencing the grant, shall be
payable in one of the following alternative forms specified below:
- full payment in cash or check drawn to the
Corporation's order;
- full payment in shares of Common Stock held for
at least six (6) months and valued at Fair Market Value on the Exercise
Date (as such term is defined below);
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- full payment in a combination of shares of Common
Stock held for at least six (6) months and valued at Fair Market Value
on the Exercise Date and cash or check; or
- full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (I) shall provide
irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased shares plus all applicable Federal and State income and
employment taxes required to be withheld by the Corporation in
connection with such purchase and (II) shall provide written directives
to the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
For purposes of this subparagraph (iii), the Exercise Date shall
be the date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.
B. Term and Exercise of Options. Each option granted under this
Article Two shall have such term as may be fixed by the Plan Administrator, be
exercisable at such time or times and during such period, and on such
conditions, as is determined by the Plan Administrator and set forth in the
stock option agreement evidencing the grant. No such option, however, shall have
a maximum term in excess of ten (10) years from the grant date and no option
granted to a 10% shareholder shall have a maximum term in excess of five (5)
years from the grant date.
C. Termination of Service.
(i) Except to the extent otherwise provided pursuant to
Section V of this Article Two, the following provisions shall govern the
exercise period applicable to any outstanding options under this Article Two
which are held by the Optionee at the time of his or her cessation of Service or
death.
- Should an Optionee's Service terminate for any
reason (including death or permanent disability as defined in Section
22(e)(3) of the Internal Revenue Code) while the holder of one or more
outstanding options under the Plan, then none of those options shall
(except to the extent otherwise provided pursuant to Section V of this
Article Two) remain exercisable beyond the later of (i) the limited
post-Service period designated by the Plan Administrator at the time of
the option grant and set forth in the option agreement; or (ii) (A)
ninety (90) days from the date of termination if termination was caused
by other than the death or disability (as defined in Section 22(e)(3) of
the Internal Revenue Code) of such
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Optionee or (B) twelve (12) months from the date of termination if
termination was caused by death or disability of Optionee.
- Any option granted to an Optionee under this
Article Two and exercisable in whole or in part on the date of the
Optionee's death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution, provided and only
if such exercise occurs prior to the earlier of (i) the first
anniversary of the date of the Optionee's death or (ii) the specified
expiration date of the option term. Upon the occurrence of the earlier
event, the option shall terminate and cease to be exercisable.
- Notwithstanding the above, under no circumstances
will any option be exercisable after the specified expiration date of
the option term.
- During the limited post-Service period of
exercisability, the option may not be exercised for more than the number
of shares for which the option was exercisable on the date the
Optionee's Service terminates. Upon the expiration of such limited
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be exercisable.
(ii) The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited period of
exercisability provided under subparagraph (1) above, not only with respect to
the number of shares for which each such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
subsequent installments of purchasable shares for which the option would
otherwise have become exercisable had such cessation of Service not occurred.
(iii) For purposes of the foregoing provisions of this Section
I.C of Article Two (and for all other purposes under the Plan):
- The Optionee shall (except to the extent
otherwise specifically provided in the applicable option or issuance
agreement) be deemed to remain in the SERVICE of the Corporation for so
long as such individual renders services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity of
an employee, a nonemployee member of the Board or an independent
consultant or advisor.
- The Optionee shall be considered to be an
EMPLOYEE for so long as he or she remains in the employ of the
Corporation or one or more parent or subsidiary corporations, subject to
the control and direction of
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the employer entity not only as to the work to be performed but also as
to the manner and method of performance.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may be assigned in whole or in part during the Optionee's lifetime. The assigned
portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option immediately
prior to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to
all Incentive Options granted under this Article Two. Options which are
specifically designated as "non-statutory" options when issued under the Plan
shall not be subject to such terms and conditions.
A. Eligibility. Incentive Options may only be granted to
individuals who are employees of the Corporation.
B. Option Price. The option price per share of any share of
Common Stock subject to an Incentive Option shall in no event be less than one
hundred percent (100%) of the Fair Market Value of such share of Common Stock on
the grant date.
C. Dollar Limitation. The aggregate Fair Market Value (determined
as of the respective date or dates of grant) of the Common Stock for which one
or more Incentive Options granted to any employee after December 31, 1986, under
this Plan (or any other option plan of the Corporation or its parent or
subsidiary corporations) may for the first time become exercisable as Incentive
Options under the Federal tax laws during any one calendar year shall not exceed
the sum of One Hundred Thousand Dollars ($100,000). To the extent the employee
holds two or
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more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
Incentive Options under the Federal tax laws shall be applied on the basis of
the order in which such options are granted.
D. Application of Certain Articles. Except as modified by the
preceding provisions of this Section II, the provisions of Articles One, Two and
Five of the Plan shall apply to all Incentive Options granted hereunder. Any
option designated as an Incentive Option but which fails to meet any requirement
of this Section II or of the Internal Revenue Code for qualification as an
Incentive Option shall nevertheless be a valid and outstanding option under the
Plan and shall be treated as a non-statutory option.
III. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected Optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the Predecessor Plans incorporated into this Plan) and
to grant in substitution new options under this Article Two covering the same or
different numbers of shares of Common Stock but having an option price for each
share which is not less than (i) eighty-five percent (85%) of the Fair Market
Value of such share on the new grant date or (ii) one hundred percent (100%) of
such Fair Market Value in the case of an Incentive Option.
IV. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
IV, one or more Optionees under the Discretionary Option Grant Program may be
granted the right, exercisable upon such terms and conditions as the Plan
Administrator may establish, to surrender all or part of an unexercised option
under this Article Two in exchange for a distribution from the Corporation in an
amount equal to the excess of (i) the Fair Market Value (on the option surrender
date) of the number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (ii) the aggregate
option price payable for such vested shares.
B. No surrender of an option shall be effective hereunder unless
it is approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall accordingly become entitled under
this Section IV may be made in shares of any class of Common Stock valued at
Fair Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time
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prior to the later of (i) five (5) business days after the receipt of the
rejection notice or (ii) the last day on which the option is otherwise
exercisable in accordance with the terms of the instrument evidencing such
option, but in no event may such rights be exercised after the specified
expiration date for the option.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over (as defined in Section II.B of Article Five)
effected at any time when the Corporation's outstanding Common Stock is
registered under Section 12(g) of the 1934 Act, each outstanding option with
such a limited stock appreciation right in effect for at least six (6) months
shall automatically be cancelled, to the extent such option is at the time
exercisable for fully-vested shares of Common Stock. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject to the cancelled option (or cancelled portion of such
option) over (ii) the aggregate exercise price payable for such shares. The cash
distribution payable upon such cancellation shall be made within five (5) days
following the consummation of the Hostile Take-Over. Neither the approval of the
Plan Administrator nor the consent of the Board shall be required in connection
with such option cancellation and cash distribution. The balance of the option
(if any) shall continue to remain outstanding and exercisable in accordance with
the terms of the instrument evidencing such grant.
E. The shares of Common Stock subject to any option surrendered
or cancelled for an appreciation distribution pursuant to this Section IV shall
NOT be available for subsequent option grant under the Plan.
V. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority to
extend the period of time for which any option granted under this Article Two is
to remain exercisable following the Optionee's cessation of Service or death
from the limited period in effect under Section I.C.(i) of this Article Two to
such greater period of time as the Plan Administrator shall deem appropriate;
provided, however, that in no event shall such option be exercisable after the
specified expiration date of the option term.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant of Options. Each non-employee Board member who is
elected to the Board at or after the annual shareholder meeting held in 1997
shall automatically be granted nonstatutory options to purchase 20,000 shares of
Common Stock at the first such election in
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which such non-employee Board member is eligible to receive an Automatic Option
Grant. Each continuing eligible non-employee Board member shall receive an
additional grant of nonstatutory options to purchase 20,000 shares of Common
Stock on the fifth anniversary of the date on which such person was last granted
an option under this Article Three. The number of shares granted pursuant to
this Automatic Grant Program shall be subject to periodic adjustment pursuant to
the applicable provisions of Section VI.C of Article One.
B. Exercise Price. The exercise price per share of each automatic
option grant made under this Article Three shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the grant date.
C. Payment. The exercise price shall be payable in one of the
alternative forms specified below:
(i) full payment in cash or check drawn to the
Corporation's order;
(ii) full payment in shares of Common Stock held for
at least six (6) months and valued at Fair Market Value on the Exercise
Date (as such term is defined below);
(iii) full payment in a combination of shares of Common
Stock held for at least six (6) months and valued at Fair Market Value
on the Exercise Date and cash or check; or
(iv) full payment through a broker-dealer sale and
remittance procedure pursuant to which the non-employee Board member (A)
shall provide irrevocable written instructions to a designated brokerage
firm to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate option price payable for
the purchased shares plus all applicable Federal and state income taxes
required to be withheld by the Corporation in connection with such
purchase and (B) shall provide written directives to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
For purposes of this Section I.C. of Article Three, the
Exercise Date shall be the date on which written notice of the option exercise
is delivered to the Corporation, and the Fair Market Value per share of Common
Stock on any relevant date shall be determined in accordance with the provisions
of Section II.A of Article Five. Except to the extent the sale and remittance
procedure is utilized in connection with the exercise of the option, payment of
the option price for the purchased shares must accompany such notice.
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D. Option Term. Each automatic grant under this Article Three
shall have a term of ten (10) years measured from the automatic grant date.
E. Exercisability. Each option granted pursuant to this automatic
option grant program shall become exercisable in a series of sixty (60) equal
monthly installments during the optionee's period of service on the Board, with
the first such installment to become exercisable one month after the automatic
grant date. No option shall become exercisable for any additional option shares
following the optionee's cessation of Board service for any reason.
F. Effect of Termination of Board Membership. Should the optionee
cease to serve as a Board member for any reason (other than death) while holding
one or more automatic option grants under this Article Three, such optionee
shall have a six (6) month period following the date of such cessation of Board
membership in which to exercise each such option for any or all of the shares of
Common Stock for which the option was exercisable at the time of such cessation
of Board service. Each such option shall immediately terminate and cease to be
outstanding at the time of such cessation of Board service with respect to any
shares for which the option is not then exercisable.
Should the optionee die while serving as a member of the Board
or within six (6) months after cessation of Board service, then each outstanding
automatic option grant held by the optionee at the time of death may
subsequently be exercised, for any or all of the shares of Common Stock for
which the option is exercisable at the time of the optionee's cessation of Board
service (less any option shares subsequently purchased by the optionee prior to
death), by the personal representative of the optionee's estate or by the person
or persons to whom the option is transferred pursuant to the optionee's will or
in accordance with the laws of descent and distribution. Any such exercise must
occur within twelve (12) months after the date of the optionee's death. However,
each such automatic option grant shall immediately terminate and cease to be
outstanding, at the time of the optionee's cessation of Board service, with
respect to any option shares for which it is not otherwise at such time
exercisable.
In no event shall any automatic grant under this Article Three
remain exercisable after the specified expiration date of the ten (10)-year
option term. Upon the expiration of the applicable exercise period in accordance
with this paragraph G or (if earlier) upon the expiration of the ten (10) year
option term, the automatic grant shall terminate and cease to be outstanding for
any unexercised shares for which the option was exercisable at the time of the
optionee's cessation of Board service.
II. LIMITED STOCK APPRECIATION RIGHT.
A. Upon the occurrence of a Hostile Take-Over (as defined in
Section II.B of Article Five), each non-employee Board member holding an
automatic option grant which has been outstanding under this Article Three for a
period of at least six (6) months shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile Take-Over) to
surrender such option in return for a cash distribution from the Corporation in
an amount equal
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to the excess of (i) the Take-Over Price of the shares of Common Stock at the
time subject to the surrendered option (whether or not the option is otherwise
at the time exercisable for such shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date. Neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection with
such option surrender and cash distribution.
B. The shares of Common Stock subject to each option surrendered
in connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under this Plan.
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate purchases without any intervening stock
option grants. The issued shares shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") that complies with the terms and conditions of
this Article Four.
A. Consideration. Shares of Common Stock shall be issued under
the Plan for one or more of the following items of consideration, which the Plan
Administrator may deem appropriate in each individual instance:
(i) cash or cash equivalents (such as a personal check or
bank draft) paid to the Corporation;
(ii) in common stock of the Corporation valued at Fair
Market Value on the date of issuance;
(iii) a promissory note payable to the Corporation's order in
one or more installments, which may be subject to cancellation in whole or in
part upon terms and conditions established by the Plan Administrator;
(iv) past services rendered to the Corporation or any parent
or subsidiary corporation;
(v) any combination of the above approved by the Plan
Administrator.
Shares may, in the absolute discretion of the Plan
Administrator, be issued for consideration with a value less than one-hundred
percent (100%) of the Fair Market Value of
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such shares, but in no event less than eighty-five percent (85%) of such Fair
Market Value. Notwithstanding the foregoing, in the case of 10% shareholders,
Shares must be issued at one hundred percent (100%) of Fair Market Value of such
shares.
B. Vesting Provisions.
1. Shares of Common Stock issued under this Article Four
may, in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service (as such term is defined in Section
I.C.(iii) of Article Two); provided, that such vesting must be at a rate of at
least 20% per year over no more than five years from the date such shares are
issued. The elements of the vesting schedule applicable to any unvested shares
of Common Stock issued under the Plan, namely:
(i) the Service period to be completed by the Participant or
the performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to
vest,
(iii) the interval or intervals (if any) which are to lapse
between installments,
(iv) any conditions or contingencies to vesting, and
(v) the effect which death, disability or other events
designated by the Plan Administrator are to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to him or her under this Article
Four, whether or not his or her interest in those shares is vested. Accordingly,
the Participant shall have the right to vote such shares and to receive any
regular cash dividends paid on such shares. Any new, additional or different
shares of stock or other property (including money paid other than as a regular
cash dividend) which the Participant may have the right to receive with respect
to his or her unvested shares by reason of any stock dividend, stock split,
reclassification of Common Stock or other similar change in the Corporation's
capital structure or by reason of any Corporate Transaction under Section I of
Article Five shall be issued, subject to (i) the same vesting requirements
applicable to his or her unvested shares and (ii) such escrow arrangements as
the Plan Administrator shall deem appropriate.
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3. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock under this Article Four,
then those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further shareholder rights with
respect to those shares. The Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the principal
balance of any outstanding purchase-money note of the Participant to the extent
attributable to such surrendered shares. The surrendered shares may, at the Plan
Administrator's discretion, be retained by the Corporation as Treasury Shares or
may be retired to authorized but unissued share status.
4. The Plan Administrator may in its discretion elect to
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the non-completion of the vesting schedule applicable to such shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Escrow Arrangements and Legends. Unvested shares under this
Article Four may, in the Plan Administrator's discretion, be held in escrow by
the Corporation until the Participant's interest in such shares vests or may be
issued directly to the Participant with restrictive legends on the certificates
evidencing such unvested shares. To the extent an escrow arrangement is
utilized, the unvested shares and any securities or other assets issued with
respect to such shares (other than regular cash dividends) shall be delivered in
escrow to the Corporation to be held until the Participant's interest in such
shares (or other securities or assets) vests. Alternatively, if the unvested
shares are issued directly to the Participant, the restrictive legend on the
certificates for such shares shall read substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND TO
(II) CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED
HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN
THE CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE
TERMS AND CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET
FORTH IN A STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND
THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) DATED
__________, 19__, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE CORPORATION."
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B. Limited Transferability. The Participant shall have no right
to transfer any unvested shares of Common Stock issued to him or her under this
Article Four. For purposes of this restriction, the term "transfer" shall
include (without limitation) any sale, pledge, assignment, encumbrance, gift, or
other disposition of such shares, whether voluntary or involuntary. Upon any
such attempted transfer, the unvested shares shall immediately be cancelled, and
neither the Participant nor the proposed transferee shall have any rights with
respect to those shares. However, the Participant shall have the right to make a
gift of unvested shares acquired under the Plan to his or her spouse or issue,
including adopted children, or to a trust established for such spouse or issue,
provided the donee of such shares delivers to the Corporation a written
agreement to be bound by all the provisions of the Plan and the Issuance
Agreement applicable to the gifted shares.
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ARTICLE FIVE
MISCELLANEOUS
I. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Assumption of Options. Each outstanding option which is
assumed in connection with a Corporate Transaction (as defined below) or is
otherwise to continue in effect following a Corporate Transaction shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would be issuable, in
consummation of such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to
the option price payable per share, provided the aggregate option price payable
for such securities shall remain the same. Appropriate adjustments shall also be
made to the class and number of securities available for issuance under the Plan
following the consummation of such Corporate Transaction.
B. Acceleration of Options. In the event of any Corporate
Transaction the exercisability of each option grant at the time outstanding
under this Plan which is not continued under paragraph A above shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. Upon the consummation of the Corporate Transaction, all option grants
under this Plan shall terminate and cease to be outstanding. The Plan
Administrator may, in its discretion, extend the provisions of this paragraph B
to options outstanding under the Predecessor Plans.
C. Corporate Transaction. A Corporate Transaction means:
(i) a merger or consolidation in which the Corporation is
not the surviving entity, except for a transaction the principal purpose of
which is to change the State of the Corporation's incorporation,
(ii) the sale, transfer or disposition of all or
substantially all of the assets of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which the holders of securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities (as measured immediately prior to such merger) transfer
ownership of those securities to person or persons not otherwise part of the
transferor group.
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D. Change in Control. Except as otherwise provided by the Plan
Administrator in agreements governing the grant of discretionary option grants
or stock issuances, in connection with any Change in Control of the Corporation,
the exercisability of each option grant at the time outstanding under this Plan
shall automatically accelerate so that each such option shall, immediately prior
to the specified effective date for the Change in Control, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. Similarly, all unvested shares issued under the Plan shall automatically
vest immediately prior to the effective date of the Change in Control. For
purposes of this Article Five, a Change in Control shall be deemed to occur in
the event:
(i) a Hostile Take-Over (as defined below)
(ii) there is a change in the composition of the Board
over a period of twenty-four (24) consecutive months or less such that a
majority of the Board members (rounded up to the next whole number)
cease, by reason of one or more proxy contests for the election of Board
members, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by
at least a majority of the Board members described in clause (A) who
were still in office at the time such election or nomination was
approved by the Board.
The provisions of this paragraph D shall apply to option grants and/or stock
issuances under the Predecessor Plans only to the extent expressly extended
thereto by the Plan Administrator.
II. CERTAIN DEFINITIONS
A. Fair Market Value. The FAIR MARKET VALUE of a share of Common
Stock shall be determined in accordance with the following provisions:
- If shares of the Class of Common Stock to be valued are not at
the time listed or admitted to trading on any national stock exchange
but is traded on the Nasdaq National Market, the fair market value shall
be the closing selling price per share of a share of that class on the
date in question, as such price is reported by the National Association
of Securities Dealers through the Nasdaq National Market or any
successor system. If there is no reported closing selling price for the
series on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be
determinative of fair market value.
- If shares of the class of common stock to be valued are at the
time listed or admitted to trading on any national stock exchange, then
the fair market value of a share of that class shall be the closing
selling price per share on
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the date in question on the stock exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no reported sale of a share of the class on such
exchange on the date in question, then the fair market value shall be
the closing selling price on the exchange on the last preceding date for
which such quotation exists.
- If shares of the series of common stock to be valued at the
time are neither listed nor admitted to trading on any stock exchange
nor traded on the Nasdaq National Market, then the fair market value
shall be determined by the Plan Administrator after taking into account
such factors as the Plan Administrator shall deem appropriate, which may
include independent professional appraisals.
B. Hostile Take-Over. A HOSTILE TAKE-OVER shall be deemed to
occur in the event (i) any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's shareholders which the Board does not recommend such
shareholders to accept.
C. Take-Over Price. The TAKE-OVER PRICE per share shall be deemed
to be equal to the greater of (a) the fair market value per share on the option
surrender date, as determined pursuant to the valuation provisions of Section
II.A of this Article Five, or (b) the highest reported price per share paid by
the tender offeror in effecting such Hostile Take-Over.
III. LOANS OR GUARANTEE OF LOANS
A. Loans or Guarantees. The Plan Administrator may, in its
discretion, assist any Optionee or Participant (including an Optionee or
Participant who is an officer of the Corporation) in the exercise of one or more
options granted to such Optionee under the Article Two Discretionary Option
Grant Program or the purchase of one or more shares issued to such Participant
under the Article Four Stock Issuance Program, including the satisfaction of any
Federal and State income and employment tax obligations arising therefrom by (i)
authorizing the extension of a loan from the Corporation to such Optionee or
Participant or (ii) permitting the Optionee or Participant to pay the option
price or purchase price for the purchased Common Stock in installments over a
period of years. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) will be upon such terms as
the Plan Administrator specifies in the applicable option or issuance agreement
or otherwise deems appropriate under the circumstances. Loans and installment
payments may be granted with or without security or collateral (other than to
individuals who are consultants or independent contractors, in which event the
loan must be adequately secured by collateral other than the purchased shares).
However, the maximum credit available to the Optionee or Participant may
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not exceed the option or purchase price of the acquired shares (less the par
value of such shares) plus any Federal and State income and employment tax
liability incurred by the Optionee or Participant in connection with the
acquisition of such shares.
B. Discretion of Plan Administrator. The Plan Administrator may,
in its absolute discretion, determine that one or more loans extended under this
financial assistance program shall be subject to forgiveness by the Corporation
in whole or in part upon such terms and conditions as the Plan Administrator may
deem appropriate.
IV. TAX WITHHOLDING
A. Withholding. The Company's obligation to deliver shares or
cash upon the exercise of stock options or stock appreciation rights granted
under the Discretionary Option Grant Program or the Automatic Option Grant
Program or upon direct issuance under the Stock Issuance Program shall be
subject to the satisfaction of all applicable Federal, State and local income
and employment tax withholding requirements.
B. Withholding of Shares Otherwise Issuable. The Plan
Administrator may, in its discretion and upon such terms and conditions as it
may deem appropriate (including the applicable safe-harbor provisions of SEC
Rule 16b-3), provide any or all holders of outstanding option grants under the
Discretionary Option Grant Program with the election to have the Company
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such options, a portion of such shares with an aggregate fair market value
equal to the designated percentage (up to 100% as specified by the optionee) of
the Federal and State income taxes ("Taxes") incurred in connection with the
acquisition of such shares. In lieu of such direct withholding, one or more
option holders may also be granted the right to deliver shares of Common Stock
to the Company in satisfaction of such Taxes. The withheld or delivered shares
shall be valued at the fair market value on the applicable determination date
for such Taxes or such other date required by the applicable safe-harbor
provisions of SEC Rule 16b-3.
V. AMENDMENT OF THE PLAN AND AWARDS
A. Amendment. Except as herein provided, the Board has complete
and exclusive power and authority to amend or modify the Plan (or any component
thereof) in any or all respects whatsoever. No amendment or modification may
adversely affect the rights and obligations of an Optionee with respect to
options at the time outstanding under the Plan, nor adversely affect the rights
of any Participant with respect to Common Stock issued under the Plan prior to
such action, unless the Optionee or Participant consents to such amendment or
modification. In addition, certain amendments may require shareholder approval
if so determined by the Board or pursuant to applicable laws or regulations.
B. Limitation on Amendment of Options. Notwithstanding Article
Five, Section V.A, neither the provisions of the Automatic Option Grant Program
nor the options outstanding under Article Three may be amended at intervals more
frequently than once every six
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(6) months, other than to the extent necessary to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act or any rules
thereunder.
C. Escrow Prior to Shareholder Approval. (i) Options to purchase
shares of Common Stock may be granted under the Discretionary Option Grant
Program and (ii) shares of Common Stock may be issued under the Stock Issuance
Program, which are in both instances in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under the Discretionary Option Grant Program or the Stock Issuance
Program are held in escrow until shareholder approval is obtained for a
sufficient increase in the number of shares available for issuance under the
Plan. If such shareholder approval is not obtained within twelve (12) months
after the date the first such excess option grants or excess share issuances are
made, then (I) any unexercised excess options shall terminate and cease to be
exercisable and (II) the Corporation shall promptly refund the purchase price
paid for any excess shares actually issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow.
VI. EFFECTIVE DATE AND TERM OF PLAN
A. Effective Date. This Plan, as successor to the Company's
Predecessor Plans, shall become effective as of the Effective Date, and no
further option grants shall be made under the Predecessor Plans after such
Effective Date. If shareholder approval of this Plan is not obtained within
twelve (12) months after the date this Plan is adopted by the Board, then each
option granted under this Plan from and after the Effective Date shall terminate
without ever becoming exercisable for the option shares and all shares issued
hereunder shall be repurchased by the Corporation at the purchase price paid,
together with interest (at the applicable Short Term Federal Rate). However, in
the event such shareholder approval is not obtained, the Predecessor Plans shall
continue in effect in accordance with the terms and provisions last approved by
the Corporation's shareholders, and all outstanding options and unvested stock
issuances under the Predecessor Plans shall remain in full force and effect in
accordance with the instruments evidencing such options and issuances.
B. Predecessor Plans. Each outstanding option and share issuance
under the Predecessor Plans immediately prior to the Effective Date of this Plan
are hereby incorporated into this Plan and shall accordingly be treated as an
outstanding option or share issuance under this Plan. However, each such option
or share issuance shall continue to be governed solely by the terms and
conditions of the instrument evidencing such grant or issuance, and except as
otherwise expressly provided in this Plan, no provision of this Plan shall
affect or otherwise modify the rights or obligations of the holders of such
options or shares with respect to their acquisition of shares of Common Stock,
or otherwise modify the rights or obligations of the holders of such options or
shares.
C. Applicability of Certain Procedures to Predecessor Plans. The
sale and remittance procedure authorized for the exercise of outstanding options
under this Plan shall be available for all options granted under this Plan on or
after the Effective Date and for all non-
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statutory options outstanding under the Predecessor Plans and incorporated into
this Plan. The Plan Administrator may also allow such procedure to be utilized
in connection with one or more disqualifying dispositions of Incentive Option
shares effected after the Effective Date, whether such Incentive Options were
granted under this Plan or the Predecessor Plans.
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D. Termination. The Plan shall terminate upon the earlier of (i)
the tenth anniversary of the Effective Date or (ii) the date on which all shares
available for issuance under the Plan shall have been issued or cancelled
pursuant to the exercise, surrender or cash-out of the options granted under the
Discretionary Option Grant Program or the issuance of shares (whether vested or
unvested) under the Stock Issuance Program. If the date of termination is
determined under clause (i) above, then all option grants and unvested stock
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
grants or issuances.
VII. USE OF PROCEEDS
Cash proceeds received by the Company from the sale of shares
under the Plan shall be used for general corporate purposes.
VIII. REGULATORY APPROVALS
A. Regulatory Approvals. The implementation of the Plan, the
granting of any option under the Discretionary Option Grant Program, the
issuance of any shares under the Stock Issuance Program, and the issuance of
Common Stock upon the exercise or surrender of the option grants made hereunder
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it, and the Common Stock issued pursuant to it.
B. Federal and State Securities Laws. No shares of Common Stock
or other assets shall be issued or delivered under this Plan unless and until
there shall have been compliance with all applicable requirements of Federal and
State securities laws, including the filing and effectiveness of the Form S-8
registration statement for the shares of Common Stock issuable under the Plan,
and all applicable listing requirements of any securities exchange on which
stock of the same class is then listed.
IX. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan,
nor any action taken by the Plan Administrator hereunder, nor any provision of
the Plan shall be construed so as to grant any individual the right to remain in
the employ or service of the Corporation (or any parent or subsidiary
corporation) for any period of specific duration, and the Corporation (or any
parent or subsidiary corporation retaining the services of such individual) may
terminate such individual's employment or service at any time and for any
reason, with or without cause.
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X. MISCELLANEOUS PROVISIONS
A. Successors. The provisions of the Plan shall inure to the
benefit of, and be binding upon, the Corporation and its successors or assigns,
whether by Corporate Transaction or otherwise, and the Participants and
Optionees, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
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DEPOTECH CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
AMENDED AS OF MAY 13, 1998
I. PURPOSE
This DepoTech Corporation 1995 Employee Stock Purchase Plan (the
"Plan") is intended to provide Qualifying Employees (as defined below) with the
opportunity to acquire a proprietary interest in the Company by accumulating
amounts for the Qualifying Employee's Account (as defined below) through payroll
deductions and the periodic application of such amounts to the purchase of
shares of the Company's Common Stock.
II. DEFINITIONS
For purposes of plan administration, the following terms shall
have the meanings indicated:
Act shall mean the Securities Act of 1933 (as amended).
Account means the total amount held for the benefit of a
Participant hereunder which Account will be increased by any payroll deductions
from the Participant and will be decreased by amounts applied to the purchase of
shares or refunded to or for the benefit of the Participant hereunder.
Board means the Company's Board of Directors.
Code means the Internal Revenue Code of 1986, as amended from
time to time.
Common Stock means shares of the Company's Common Stock.
Company means DepoTech Corporation, a California corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of DepoTech Corporation which adopts or assumes the Plan.
Corporate Affiliate means any company which is a parent or
subsidiary corporation of the Company (as determined in accordance with Code
Section 424), including any parent or subsidiary corporation which becomes such
after the Effective Date.
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Effective Date means the first day of the term of this Plan as
set forth in Article XI.A, which term is scheduled to commence upon the
effective date of the Form S-8 Registration Statement covering the shares of
Common Stock issuable under the Plan. However, for any Corporate Affiliate which
becomes a Participating Company in the Plan after the first day of the initial
Option Period, a subsequent Effective Date shall be designated with respect to
participation by its Qualifying Employees.
Entry Date means the date on which a Participant first joins the
Option Period in effect under the Plan.
Option Period shall mean the periods described in Section IV of
this Plan.
Participant means any Qualifying Employee of a Participating
Company who has enrolled and is actively participating in the Plan.
Participating Company means the Company and any Corporate
Affiliate designated from time to time by the Board.
Purchase Period means each six-month period, beginning on the
first business day of each January and each July, and ending on the last
business day of June and December, respectively, except that the first Purchase
Period of the initial Option Period under this Plan shall be a period of more
than six-months, commencing on the Effective Date and ending on the last
business day of June 1996.
Qualifying Employee means any person who is engaged, on a
regularly-scheduled basis of more than twenty (20) hours per week and more than
five (5) months per calendar year, in the rendition of personal services to the
Company, or any Participating Company in exchange for amounts which constitute
wages under Section 3121(a) of the Code, provided that no person who owns
(within the meaning of Code Section 424(d)) or holds outstanding options or
other rights to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Corporate Affiliates shall be a Qualifying Employees.
Regular Compensation means the basic earnings paid to a
Participant by Participating Companies plus (i) any pre-tax contributions made
by the Participant to any Code Section 401(k) salary deferral plan or any Code
Section 125 cafeteria benefit program (now existing or hereafter established),
(ii) commissions, and (iii) bonuses payable pursuant to any formal bonus plan
which has been approved and adopted by the Board. Regular Compensation shall not
include (I) overtime payments, profit-sharing distributions and other
incentive-type payments or (II) contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the Participant's behalf under any
employee benefit or welfare plan (now existing or hereafter established).
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Service means the period during which an individual remains a
Qualifying Employee and all periods of Service shall be measured from such
individual's most recent date of hire by the Company or such Corporate
Affiliate.
III. ADMINISTRATION
The Plan shall be administered by a committee comprised of two
(2) or more non-employee Board members appointed from time to time by the Board
(the "Plan Administrator"). The Plan Administrator shall have full authority to
administer the Plan, including authority to interpret and construe any provision
of the Plan. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan.
IV. OPTION PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive Option Periods during the term of the Plan
until the maximum number of shares of Common Stock available for issuance under
the Plan shall have been issued.
B. The initial Option Period will begin on the Effective Date and
will end on the last business day in December 1997. Subsequent Option Periods
will extend for a period of one year commencing on the first business day of
January in each year and ending on the last business day of December.
C. Each Participant will have purchase rights as set forth in
Article VII for each Option Period, the purchase price for which shall be
collected through payroll deductions and which purchase rights shall be
exercised in successive installments for each Purchase Period within the Option
Period.
D. The acquisition of Common Stock through participation in the
Plan for any Option Period shall neither limit nor require the acquisition of
Common Stock by the Participant in any subsequent Option Period.
V. ELIGIBILITY AND PARTICIPATION
A. Each Qualifying Employee shall be eligible to participate in
an Option Period under the Plan in accordance with the following provisions:
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- All Qualifying Employees on the first day of any Option Period
may enter that Option Period by enrolling in accordance with Section V.C
below.
- A Qualifying Employee who was not eligible to enter an Option
Period on the first day of the Option Period may enter that Option
Period on the first day of the next Purchase Period by enrolling in
accordance with Section V.C below.
B. A Qualifying Employee who does not enroll for an Option Period
on the first date such Qualifying Employee is permitted to enroll hereunder may
not subsequently enroll in that Option Period.
C. To enroll in the Plan, a Qualifying Employee must complete the
enrollment forms prescribed by the Plan Administrator and file such forms with
the Plan Administrator (or its designate) on or before the date such Qualifying
Employee is first permitted to enter the Option Period.
D. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Regular Compensation paid to the Participant during
each Purchase Period of the Option Period, up to a maximum of fifteen percent
(15%) of Regular Compensation. The deduction rate so authorized shall continue
in effect for the remainder of the Option Period, except to the extent such rate
is changed in accordance with the following guidelines:
- The Participant may, at any time during a Purchase Period,
reduce the rate of payroll deduction. Such reduction shall become
effective as soon as possible after filing of the requisite reduction
form with the Plan Administrator (or its designate), but the Participant
may not effect more than one such reduction during the same Purchase
Period.
- The Participant may, prior to the commencement of any new
Purchase Period within the Option Period, increase or decrease the rate
of payroll deduction for the new Purchase Period by filing the
appropriate form with the Plan Administrator (or its designate). The new
rate shall become effective as of the first day of the next Purchase
Period.
Payroll deductions will automatically cease upon the termination
of the Participant's purchase right in accordance with the applicable provisions
of Section VII below.
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VI. STOCK SUBJECT TO PLAN
A. The maximum number of shares of Common Stock which may be
issued under the Plan shall be 325,000 shares of Common Stock (subject to
adjustment under Section VI.B below).
B. In the event any change is made to the Company's outstanding
Common Stock by reason of any stock dividend, stock split, combination of shares
or other change affecting such outstanding Common Stock as a class without
receipt of consideration, then appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of shares issuable over the
term of the Plan, (ii) the class and maximum number of shares purchasable per
Participant during any one Option Period and (iii) the class and number of
shares and the price per share in effect under each purchase right at the time
outstanding under the Plan. Such adjustments shall be designed to preclude the
dilution or enlargement of rights and benefits under the Plan.
VII. PURCHASE RIGHTS
Each Participant in a particular Option Period shall have the
right to purchase shares of Common Stock at the close of each Purchase Period
during such Option Period on the terms and conditions set forth below (the
"Purchase Rights"). Each Participant shall execute a purchase agreement
embodying such terms and conditions and such other provisions (not inconsistent
with the Plan) as the Plan Administrator may require.
Purchase Price. The Purchase Rights shall be exercised at the end
of each Purchase Period at a purchase price equal to eighty-five percent (85%)
of the lower of (i) the fair market value per share of the Common Stock on the
Participant's Entry Date or (ii) the fair market value per share of the Common
Stock on the last business day of the Purchase Period. However, for each
Participant whose Entry Date is other than the first day of the Option Period,
the amount determined under clause (i) shall not be less than 85% of the fair
market value of the Common Stock on the first day of such Option Period.
Valuation. For purposes of determining the fair market value per
share of Common Stock on any relevant date, the following procedures shall be in
effect:
- If fair market value is to be determined on a day on which the
Common Stock being actively traded through the Nasdaq National
Market or any national securities exchange, then the fair market
value shall be the closing selling price on that date, as
officially quoted on the Nasdaq National Market or national
securities exchange, or if there is no
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quoted selling price for such date, then the closing selling
price on the next preceding day for which there does exist such a
quotation.
- If fair market value is to be determined prior to such Section
12(g) registration of the Common Stock, then the fair market
value of the Common Stock on such date shall be determined by the
Plan Administrator after taking into account such factors as the
Plan Administrator deems appropriate.
Number of Purchasable Shares. The number of shares purchasable by
a Participant each Purchase Period shall be the number of whole shares obtained
by dividing the amount in Participant's Account at the end of such Purchase
Period by the purchase price in effect for the Purchase Period. Notwithstanding
the above, no Participant shall have the right to purchase shares of Common
Stock to the extent that, immediately after the grant, such Participant would
own (within the meaning of Code Section 424(d)), or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any of its Corporate Affiliates.
Payment. Payment for the Common Stock purchased under the Plan
shall be effected by means of the Participant's authorized payroll deductions.
Such deductions shall begin with the first full pay period following the
Effective Date following the Participant's Entry Date into the Option Period and
shall (unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of the Option Period. The
amounts so collected shall be credited to the Participant's Account under the
Plan, but no interest shall be paid on the balance from time to time outstanding
in such Account. The amounts collected from a Participant may be commingled with
the general assets of the Company and may be used for general corporate
purposes.
Termination of Purchase Right. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last five
(5) business days of the Purchase Period, terminate his/her outstanding purchase
right under the Plan by filing the prescribed notification form with the Plan
Administrator (or its designate). No further payroll deductions shall be
collected from the Participant with respect to the terminated purchase right,
and any payroll deductions collected for the current Purchase Period shall, at
the Participant's election, be immediately refunded or held for the purchase of
shares on the end of the Purchase Period. If no such election is made, then such
funds shall be refunded as soon as possible after the close of such Purchase
Period.
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(ii) After the termination of purchase rights for an Option
Period, the Participant may not subsequently rejoin that Option Period.
In order to resume participation in any subsequent Option Period, such
individual must re-enroll in the Plan for that Option Period.
(iii) If a Participant ceases to be a Qualifying Employee for
any reason whatsoever during an Option Period then all payroll
deductions shall terminate and all funds held in the Participant's
Account will be promptly paid to the Participant or the Participant's
legal representative. No further purchases of shares hereunder shall
occur after the Participant has ceased to be a Qualifying Employee.
Stock Purchase. Subject to the limitations set forth herein,
funds held in a Participant's Account at the end of a Purchase Period (and which
are not required to be refunded hereunder) shall be applied to the purchase of
whole shares of Common Stock for the Participant on the last business day of the
Purchase Period at the purchase price in effect for such Purchase Period. Any
payroll deductions not applied to such purchase because they are not sufficient
to purchase a whole share shall be held for the purchase of Common Stock in the
next Purchase Period. Any payroll deductions not applied to the purchase of
Common Stock for any other reason shall be promptly refunded to the Participant.
Proration of Purchase Rights. If the total number of shares of
Common Stock which would otherwise be purchased hereunder on any date exceed the
number of shares then available for issuance under the Plan, the Plan
Administrator shall make a pro-rata allocation of the available shares to
Participants on a uniform and nondiscriminatory basis.
Rights as Shareholder. A Participant shall have no shareholder
rights with respect to the shares subject to his/her outstanding purchase right
until the shares are actually purchased on the Participant's behalf in
accordance with the applicable provisions of the Plan. No adjustments shall be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
A Participant shall be entitled to receive, as soon as
practicable after purchase hereunder, a stock certificate for the number of
shares purchased for the Participant. Such certificate may, upon the
Participant's request, be issued in the names of the Participant and his/her
spouse as community property or as joint tenants with right of survivorship.
Assignability. No purchase right granted under the Plan shall be
assignable or transferable by the Participant other than by will or by the laws
of descent and distribution following the Participant's death, and during the
Participant's lifetime the purchase right shall be exercisable only by the
Participant.
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Change in Ownership. Should the Company or its shareholders enter
into an agreement to dispose of all or substantially all of the assets or
outstanding capital stock of the Company by means of:
(i) a sale, merger or other reorganization in which the Company
will not be the surviving corporation (other than a reorganization effected
primarily to change the State in which the Company is incorporated), or
(ii) a reverse merger in which the Company is the surviving
corporation but in which more than 50% of the Company's outstanding voting stock
is transferred to holders different from those who held the stock immediately
prior to the reverse merger,
then all outstanding purchase rights under the Plan shall
automatically be exercised immediately prior to the consummation of such sale,
merger, reorganization or reverse merger by applying the amounts in each
Participant's Account to the purchase of whole shares of Common Stock at
eighty-five percent (85%) of the lower of (i) the fair market value of the
Common Stock on the Participant's Entry Date into the Option Period in which
such transaction occurs or (ii) the fair market value of the Common Stock
immediately prior to the consummation of such transaction. However, the
applicable share limitations of Articles VII and VIII shall continue to apply to
any such purchase, and the clause (i) amount above shall not, for any
Participant whose Entry Date for the Option Period is other than the start date
of such Option Period, be less than the fair market value of the Common Stock on
such start date.
The Company shall use its best efforts to provide at least ten
(10)-days advance written notice of the occurrence of any such sale, merger,
reorganization or reverse merger, and Participants shall, following the receipt
of such notice, have the right to terminate their outstanding purchase rights in
accordance with the applicable provisions of this Article VII.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (I) rights to purchase Common
Stock accrued under any other purchase right outstanding under this Plan and
(II) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Company or its Corporate Affiliates,
would otherwise permit such Participant to purchase more than $25,000 worth of
stock of the Company or any Corporate Affiliate (determined on the basis of the
fair
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market value of such stock on the date or dates such rights are granted to the
Participant) for each calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the right
to acquire Common Stock pursuant to each purchase right outstanding under the
Plan shall accrue as follows:
(i) The right to acquire Common Stock under each such purchase
right shall accrue in a series of successive semi-annual installments as
and when the purchase right first becomes exercisable for each
semi-annual installment on the last business day of each Purchase Period
for which the right remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire $25,000 worth of
Common Stock (determined on the basis of the fair market value on the
date or dates of grant) pursuant to one or more purchase rights held by
the Participant during such calendar year.
(iii) If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular Purchase Period,
then the payroll deductions which the Participant made during that
Purchase Period with respect to such purchase right shall be promptly
refunded.
C. In the event there is any conflict between the provisions of
this Article VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article VIII shall be controlling.
IX. STATUS OF PLAN UNDER FEDERAL TAX LAWS
The Plan is designed to qualify as an employee stock purchase
plan under Code Section 423.
X. AMENDMENT AND TERMINATION
A. The Board may alter, amend, suspend or discontinue the Plan
following the close of any Purchase Period. However, the Board may not, without
the approval of the Company's shareholders:
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(i) materially increase the number of shares issuable under
the Plan or the maximum number of shares which may be purchased per
Participant during any one Option Period under the Plan, except that the
Plan Administrator shall have the authority, exercisable without such
shareholder approval, to effect adjustments to the extent necessary to
reflect changes in the Company's capital structure pursuant to Section
VI.B;
(ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares issuable under the Plan; or
(iii) materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility to participate in the Plan.
B. The Company shall have the right, exercisable in the sole
discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following the close of any Purchase Period.
Should the Company elect to exercise such right, then the Plan shall terminate
in its entirety. No further purchase rights shall thereafter be granted or
exercised, and no further payroll deductions shall thereafter be collected,
under the Plan.
XI. GENERAL PROVISIONS
A. The term of this Plan shall commence on the effective date of
the Registration Statement on Form S-8 covering the Common Stock issuable under
the Plan, provided that the term shall not commence, and no shares of Common
Stock shall be issued hereunder, until (i) the Plan shall have been approved by
the shareholders; (ii) the Company shall have complied with all applicable
requirements, all applicable listing requirements of any securities exchange on
which shares of the Common Stock are listed and all other applicable
requirements established by law or regulation and the Plan Administrator shall
have determined to commence granting Purchase Rights hereunder. In the event
shareholder approval is not obtained, or Company compliance with the Act is not
effected, within twelve (12) months after the date on which the Plan is adopted
by the Board, the Plan shall terminate and have no further force or effect.
B. The Plan shall terminate on June 30, 2005.
C. All costs and expenses incurred in the administration of the
Plan shall be paid by the Company.
D. Neither the action of the Company in establishing the Plan,
nor any action taken under the Plan by the Board or the Plan Administrator, nor
any provision of the
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Plan itself shall be construed so as to grant any person the right to remain in
the employ of the Company or any Corporate Affiliate for any period, and such
person's employment may be terminated at any time, with or without cause.
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DEPOTECH CORPORATION PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Fred A. Middleton and Dana S. McGowan
jointly and severally, as proxies, with full power of substitution, to vote all
shares of stock which the undersigned is entitled to vote at the Annual Meeting
of Shareholders of DepoTech Corporation to be held on Wednesday, May 13, 1998,
or at any postponements or adjournments thereof, as specified below, and to vote
in his discretion on such other business as may properly come before the Meeting
and any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4
1. Election of Directors:
Nominees: Roger C. Davisson, George W. Dunbar, Jr., Stephen B. Howell,
M.D., John P. Longenecker, Ph.D., Fred A. Middleton, Peter Preuss and
Pieter J. Strijkert, Ph.D.
[ ] Vote FOR all nominees above [ ] Vote WITHHELD from all nominees
(except as withheld in the
space below)
Instruction: To withhold authority to vote for any individual nominee,
check the box "Vote FOR" and write the nominee's name on the line below.
- -------------------------
2. Approval of amendments to the Company's 1995 Stock Option/Stock Issuance
Plan.
[ ] Vote FOR [ ] Vote AGAINST [ ] ABSTAIN
3. Approval of amendments to the Company's 1995 Employee Stock Purchase Plan.
[ ] Vote FOR [ ] Vote AGAINST [ ] ABSTAIN
4. Ratification and approval of the selection of Ernst & Young LLP as
independent accountants for the fiscal year ending December 31, 1997.
[ ] Vote FOR [ ] Vote AGAINST [ ] ABSTAIN
(Please sign and date on reverse side)
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UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND 4 AND WILL BE VOTED BY THE PROXY/HOLDER AT HIS
DISCRETION AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE MEETING OR ANY
ADJOURNMENTS THEREOF. TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS JUST SIGN BELOW, NO BOXES NEED BE CHECKED.
Dated: _______________________________, 19_____
-----------------------------------------------
Signature of Shareholder
-----------------------------------------------
Printed Name of Shareholder
-----------------------------------------------
Title (if appropriate)
Please sign exactly as name appears hereon. If
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such, and, if signing for a corporation, give your title. When
shares are in the names of more than one person, each should sign.
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING. [ ]
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