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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 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
[X] Definitive Proxy Statement by Rule 14a-6(e)( 2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MYCOGEN CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
MYCOGEN CORPORATION
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
MYCOGEN CORPORATION
November 13, 1996
To the Stockholders of MYCOGEN CORPORATION:
You are cordially invited to attend the Annual Meeting of the Stockholders
of Mycogen Corporation, to be held on Thursday, December 12, 1996, at 10:00 a.m.
at Mycogen Corporation's headquarters located at 5501 Oberlin Drive, San Diego,
California 92121-1718.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting and Proxy Statement.
If you do not plan to attend the Annual Meeting, please sign, date, and
return the enclosed proxy promptly in the accompanying reply envelope. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you may
do so automatically by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
/s/ Jerry Caulder
San Diego, California Jerry Caulder
Chairman and Chief Executive Officer
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 (to which no postage need be affixed if mailed in the
United States).
MYCOGEN CORPORATION
November 13, 1996
To the Stockholders of MYCOGEN CORPORATION:
You are cordially invited to attend the Annual Meeting of the Stockholders
of Mycogen Corporation, to be held on Thursday, December 12, 1996, at 10:00 a.m.
at Mycogen Corporation's headquarters located at 5501 Oberlin Drive, San Diego,
California 92121-1718.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting and Proxy Statement.
If you do not plan to attend the Annual Meeting, please sign, date, and
return the enclosed proxy promptly in the accompanying reply envelope. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you may
do so automatically by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
/s/ Jerry Caulder
San Diego, California Jerry Caulder
Chairman and Chief Executive Officer
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 (to which no postage need be affixed if mailed in the
United States).
MYCOGEN CORPORATION
5501 OBERLIN DRIVE
SAN DIEGO, CALIFORNIA 92121-1718
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PROXY STATEMENT
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FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
DECEMBER 12, 1996
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the "Board
of Directors" or the "Board") of Mycogen Corporation, a California corporation
(the "Company"), for use at the Annual Meeting of stockholders to be held on
December 12, 1996 (the "Annual Meeting"). The Annual Meeting will be held at
10:00 a.m. at the headquarters of Mycogen Corporation, 5501 Oberlin Drive, San
Diego, California 92121-1718. Stockholders of record on October 28, 1996, will
be entitled to notice of and to vote at the Annual Meeting.
This proxy statement (the "Proxy Statement") and accompanying proxy (the
"Proxy") were first mailed to stockholders on or about November 13, 1996.
VOTING
On October 28, 1996, the record date for determination of stockholders entitled
to vote at the Annual Meeting, there were 30,712,636 shares of the Company's
common stock ("Common Stock") outstanding. Each stockholder is entitled to one
vote for each share of Common Stock held by such stockholder. Abstentions and
broker non-votes are counted as present for the purpose of determining the
presence of a quorum for the transaction of business at the Annual Meeting. In
the election of directors, the nine (9) candidates receiving the highest number
of affirmative votes will be elected. Proposals 2 and 3 each require (i) the
affirmative vote of a majority of the shares present and entitled to vote and
(ii) the affirmative vote of a majority of the required quorum for approval.
Thus, abstentions and broker non-votes can have the effect of preventing
approval of a proposal where the number of affirmative votes, though a majority
of the votes cast, do not constitute a majority of the required quorum.
REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time before its
exercise. It may be revoked by filing with the Secretary of the Company at the
Company's principal executive office, 5501 Oberlin Drive, San Diego, California
92121-1718, 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.
SOLICITATION
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 soliciting material furnished to stockholders. Copies of
solicitation material 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 of
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram or other means by directors, officers, employees or agents
of the Company. No additional compensation will be paid to these individuals
for any such services. Except as described above, the Company does not
presently intend to solicit proxies other than by mail.
FISCAL YEAR
All references herein to a particular year refer to the Company's fiscal year
which ends or ended August 31 of the year indicated.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The persons named below are nominees for director to serve until the next
Annual Meeting 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 stockholders at the
Annual Meeting. The authorized number of directors is currently between 5 and
9. The Board of Directors has selected nine (9) 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 proxy
holders will vote the proxies received by them for the nominees named below.
The nine (9) 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.
NOMINEES
The following table sets forth information regarding the nominees for directors
to the Board:
YEAR FIRST ELECTED
NAME POSITIONS AND OFFICES HELD DIRECTOR
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Thomas J. Cable Director 1983
Jerry D. Caulder, Ph.D. Chairman, Chief Executive Officer and Director 1984
Perry J. Gehring, Ph.D. Director 1996
John L. Hagaman Director 1996
David H. Rammler, Ph.D. Director 1983
William C. Schmidt Director 1996
A. John Speziale, Ph.D. Director 1986
G. William Tolbert Director 1996
W. Wayne Withers, Esq. Director 1996
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BUSINESS EXPERIENCE OF DIRECTORS
Mr. Cable, 57, has served as a director of the Company since September, 1983.
Mr. Cable was founder of the venture capital firm of Cable & Howse Ventures,
Inc. and has served as principal with that firm since 1982. Mr. Cable is a
director of Endosonics Corporation, a medical products company; Fischer Imaging
Corporation, a medical X-ray equipment company and Ostex International, a
medical products company.
Dr. Caulder, 54, joined the Company in September, 1984, as President, Chief
Executive Officer and a director, and has served as Chairman of the Board since
July, 1989. Dr. Caulder currently serves as Chairman and Chief Executive
Officer of the Company. Prior to joining the Company, Dr. Caulder spent over 15
years with Monsanto Company ("Monsanto"). While at Monsanto, Dr. Caulder
managed various aspects of both the international and domestic business of
Monsanto Agricultural Products Company ("APC") serving as Director, Product
Development Worldwide; Director, Market Research Worldwide and Director, Latin
America. His last position at Monsanto was as Director of New Business and
Commercial Development for biotechnology. Dr. Caulder is a director of Cilcorp
Inc., an energy company.
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Dr. Gehring, 60, has served as a director of the Company since February, 1996.
Dr. Gehring is Vice President - Research and Development for DowElanco, a joint
venture between Eli Lilly and Company and The Dow Chemical Company, and has
served in that position since 1989. Dr. Gehring is also Vice President -
Research and Development for DowElanco B.V. Prior to working at DowElanco, Dr.
Gehring held various positions at The Dow Chemical Company including Vice
President of Global Agricultural Products Research and Development (1981 -
1989); Director of Health and Environmental Science, U.S.A. (1978 - 1981) and
Director of the Toxicology Research Laboratory (1973 - 1978).
Mr. Hagaman, 57, has served as a director of the Company since February, 1996.
Mr. Hagaman is President and Chief Executive Officer of DowElanco and a member
of the Management Board of The Dow Chemical Company. Mr. Hagaman is also
President and Chief Executive Officer of DowElanco B.V., and President of
DowElanco China Ltd. and DowElanco International Ltd. Prior to working at
DowElanco, Mr. Hagaman held various positions at The Dow Chemical Company
including President and General Manager of Global Agricultural Products (1985 -
1989); Vice President of Dow Chemical U.S.A. and General Manager of North
American Agricultural Products (1985 - 1989); Product Director for Commercial
Products in the Global Agricultural Products Department (1983 - 1985); Vice
President Dow Pacific (1982 - 1983); General Manager of the Korea Region (1980 -
1982) and Executive Vice President and General Manager of Korea Pacific Chemical
Corporation (1978-1980). Mr. Hagaman is a director of DowElanco Chile S.A.,
DowElanco China Ltd. and DowElanco International Ltd., all of which are
privately held companies.
Dr. Rammler, 67, a founder of the Company, served as the Chairman of the Board
from the Company's inception until July, 1989. Dr. Rammler is a general partner
of Vanguard Associates, a venture capital firm, and has served in that position
since 1981. Dr. Rammler is a director of Endosonics Corporation, a medical
products company and a director of several privately held companies.
Mr. Schmidt, 58, has served as a director of the Company since June, 1996. Mr.
Schmidt is Vice President and Chief Financial Officer of DowElanco. Mr. Schmidt
is also President of DowElanco (Barbados) Limited, Vice President of DowElanco
B.V. and Treasurer of DowElanco China Ltd. and DowElanco International Ltd.
Prior to working for DowElanco, Mr. Schmidt held various positions at The Dow
Chemical Company including Assistant Controller (1986 - 1989), Controller for
Dow U.S.A. (1978 - 1986) and Controller for the Pacific Area (1973 - 1978). Mr.
Schmidt is a director of DowElanco International Ltd., DERe Insurance Company
and Dintec Agrichemicals, all of which are privately held companies.
Dr. Speziale, 79, has served as a director of the Company since February, 1986.
Dr. Speziale has been a principal in A. John Speziale Associates, a chemistry
and agricultural consulting firm, since 1980. Prior to that time, Dr. Speziale
worked for 32 years with Monsanto serving in various research positions,
including Research Director of APC (1963-1979). Dr. Speziale is a director of
EO Systems, Inc., a privately held waste management company.
Mr. Tolbert, 45, has served as a director of the Company since February, 1996.
Mr. Tolbert is Director of Global Business Development for DowElanco. Prior to
joining DowElanco, Mr. Tolbert held various positions at Eli Lilly and Company
including Global Director of Elanco Ag Chem Business Planning, Licensing and
Acquisition (1986 - 1989); Global Manager of Agricultural Licensing and
Acquisition in Elanco Products Company (1984 - 1986); Manager of Professional
Recruitment (1983 - 1984) and Manager of Strategic Planning for Elanco Products
(1981 - 1983).
Mr. Withers, 56, has served as a director of the Company since June, 1996. Mr.
Withers is Senior Vice President, Secretary and General Counsel of Emerson
Electric Co. Prior to joining Emerson Electric Co., Mr. Withers was employed by
the Monsanto Company as Vice President and General Counsel, Monsanto
Agricultural Company (1986 - 1989) and Assistant General Counsel (1980 - 1986).
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of six meetings during the
fiscal year ended August 31, 1996. The Company has an Audit Committee and a
Compensation Committee of the Board of Directors. The Company does not have a
Nominating Committee or a committee that performs the functions of a Nominating
Committee. The Audit Committee was established in 1987 and is primarily
responsible for reviewing the financial reporting process and the Company's
internal accounting controls, and approving the services performed by, and the
independence of, the Company's auditors. The Audit Committee currently consists
of Thomas J. Cable and William C. Schmidt. The Audit Committee held one meeting
during the fiscal year ended August 31, 1996. The Compensation Committee was
established in 1985 and reviews and approves the
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Company's compensation policy. The Compensation Committee currently consists of
Thomas J. Cable, John L. Hagaman and W. Wayne Withers. The Compensation
Committee held a total of three meetings during the fiscal year ended August 31,
1996.
All nominees for the Board of Directors attended 75% or more of the aggregate
meetings of the Board of Directors and the Board Committees on which they served
in 1996, except Dr. Rammler, who, due to family emergencies, was unable to
attend two Board meetings and one Compensation Committee meeting. The Company's
Chief Executive Officer telephoned Dr. Rammler after such meetings and discussed
with him the contents of the meetings.
DIRECTOR COMPENSATION
Non-employee members of the Board of Directors are each paid an annual retainer
fee of $12,000, plus reimbursement of all out-of-pocket costs incurred in
connection with their attendance at Board of Directors, Audit Committee or
Compensation Committee meetings. Messrs. Gehring, Hagaman, Schmidt and Tolbert,
have each waived their right to receive the annual retainer fee. Under the
current Company's 1992 Stock Option Plan (together with the Company's
predecessor 1983 Stock Option Plan, collectively the "Stock Option Plan"), prior
to any amendment that may be approved as set forth in Proposal 2, each non-
employee Director automatically receives an option grant for 5,000 shares of
Common Stock on the date of each Annual Stockholders' Meeting at which such non-
employee member was re-elected to the Board of Directors. Accordingly, on
December 14, 1995, the date of the 1995 Annual Stockholders Meeting, Messrs.
Cable, Rammler and Speziale each received an automatic option grant for 5,000
shares with an exercise price of $13.75 per share.
Each individual who first becomes a non-employee Director, whether through
election by the stockholders or appointment by the Board of Directors, will
automatically be granted, at the time of such initial election or appointment, a
non-statutory stock option to purchase 20,000 shares of Common Stock. Each
automatic grant will have an exercise price per share equal to the fair market
value of the Common Stock on the grant date. Accordingly, (i) on February 19,
1996, the date the Board elected Mr. Hagaman a director of the Company, he
received an automatic grant of 20,000 shares with an exercise price of $19.25
per share; (ii) on February 20, 1996, the date the Board elected Dr. Gehring and
Mr. Tolbert directors of the Company, each received an automatic grant of 20,000
shares with an exercise price of $18.625 per share and (iii) on June 20, 1996,
the date the Board elected Mr. Schmidt and Mr. Withers directors of the Company,
each received an automatic grant of 20,000 shares with an exercise price of
$17.25 per share. Any stock options granted to Dr. Gehring, Mr. Tolbert, Mr.
Schmidt and Mr. Hagaman will be received for the benefit of DowElanco.
The options granted to the non-employee member of the Board of Directors will
become exercisable over the optionee's period of service on the Board of
Directors in three equal annual installments, beginning one year after the grant
date. However, the option will immediately become exercisable for all of the
option shares should the Company be acquired by merger or asset sale or through
a hostile take-over effected through a tender offer for more than 50% of the
outstanding Common Stock or a proxy contest for Board membership. The option
will have a maximum term of 10 years measured from the grant date, subject to
earlier termination upon the optionee's cessation of service on the Board of
Directors. Upon the successful completion of a hostile tender offer for more
than 50% of the Company's outstanding Common Stock, the non-employee member of
the Board will have a 30-day period in which to surrender each of his or her
automatic option grants to the Company for a cash distribution based upon the
tender offer price of the shares of Common Stock subject to each surrendered
option.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the nominees listed herein.
4
PROPOSAL NO. 2
APPROVAL OF AN AMENDMENT TO
THE COMPANY'S 1992 STOCK OPTION PLAN
In October 1996, the Board of Directors adopted, subject to stockholder
approval at the Annual Meeting, an amendment to the Stock Option Plan to effect
the following changes: (i) increase the number of shares issuable under the
Stock Option Plan by 2,000,000 shares; (ii) impose a limitation on the maximum
number of shares for which any one participant may be granted stock options and
separately exercisable stock appreciation rights per calendar year; (iii) render
the non-employee Board members eligible to receive options under the
discretionary grant program in effect under the Stock Option Plan; (iv) increase
the number of shares for which options can be granted on an annual basis to
certain non-employee Board members upon their re-election to the Board at each
Annual Stockholder's Meeting and (v) effect a number of additional changes to
the administrative provisions and stockholder approval requirements of the Stock
Option Plan to take advantage of recent amendments authorized by the Securities
and Exchange Commission (the "SEC") to the short-swing trading exemptions
available for transactions effected under the Stock Option Plan by the Company's
executive officers and Board members.
As of September 30, 1996, options covering an aggregate of 4,554,637 shares of
the Common Stock were outstanding 1,634,213 shares of Common Stock had been
issued under the Stock Option Plan, and 1,377,869 shares of Common Stock
remained available for option grant, assuming stockholder approval of the
2,000,000-share increase which forms part of this Proposal.
PLAN STRUCTURE
The Stock Option Plan is divided into two separate components: the
Discretionary Grant Program and the Automatic Grant Program. Under the
Discretionary Grant Program, options may be issued to key employees (including
officers), non-employee Board members, consultants and other independent
contractors of the Company or its subsidiaries (which shall include corporate
subsidiaries or entities owned 50% or more by the Company) who contribute to the
management, growth and financial success of the Company or its subsidiaries.
Under the Automatic Grant Program, a special one-time option grant will be made
to each individual who first joins the Board of Directors as a non-employee
Director on or after the effective date of the Stock Option Plan and subsequent
annual automatic option grants will be made to each individual who continues to
serve as a non-employee Director of the Company.
As of September 30, 1996, eight executive officers and approximately 800 other
employees were eligible to participate in the Discretionary Grant Program.
Eight non-employee Board members were eligible to participate in the Automatic
Grant Program, and such individuals will also be eligible to participate in the
Discretionary Grant Program if this Proposal is approved.
Effective retroactive to January 1, 1996, no one participant in the Stock
Option Plan may receive stock option grants and separately exercisable stock
appreciation rights for more than 200,000 shares of Common Stock in the
aggregate per calendar year.
PLAN ADMINISTRATION
The Discretionary Grant Program is administered by a committee of two or more
Board members (the "Committee") appointed by the Board of Directors. The
Committee has the sole and exclusive authority, subject to the provisions of the
Stock Option Plan, to determine the eligible individuals who are to receive
options under the Discretionary Grant Program, the number of shares to be
covered by each granted option, the date or dates on which the option is to
become exercisable and the maximum term for which the option is to remain
outstanding. The Committee also has the authority to determine whether the
granted option is to be an incentive stock option ("Incentive Option") under the
Federal tax laws and to establish rules and regulations for proper plan
administration.
ISSUABLE SHARES
The aggregate number of shares available for issuance over the term of the
Stock Option Plan may not exceed 7,566,719 shares of Common Stock, subject to
adjustment from time to time in the event of certain changes to the Company's
capital
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structure. The authorized share reserve includes (i) the aggregate number of
shares currently available for issuance under the Stock Option Plan, including
the shares subject to outstanding options, plus (ii) the proposed additional
increase of 2,000,000 shares of Common Stock. As of September 30, 1996,
1,634,213 shares have been issued under the Stock Option Plan.
Should any option under the Stock Option Plan expire or terminate prior to
exercise or surrender in full, the shares subject to the portion of the option
not so exercised or surrendered will be available for subsequent option grants.
Shares subject to any option surrendered in accordance with the option surrender
provisions of the Stock Option Plan will reduce on a share-for share basis, the
number of shares available for subsequent option grants. Unvested shares
repurchased by the Company at the original option price paid per share pursuant
to its repurchase rights under the Stock Option Plan will be added back to share
reserve and will accordingly be available for future option grants.
OPTION PRICE AND EXERCISABILITY
The exercise price of options issued under the Discretionary Grant Program may
not be less than 85% of the fair market value of the Common Stock on the grant
date, and the maximum period during which any option may remain outstanding may
not exceed 10 years.
Options issued under the Discretionary Grant Program may either be immediately
exercisable for the full number of shares purchasable thereunder or may become
exercisable in cumulative increments over a period of months or years as
determined by the Committee.
The option price may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date. Outstanding options may also be
exercised through a same-day sale program, pursuant to which a designated
brokerage firm is to effect an immediate sale of the shares purchased under the
option and pay over to the Company, out of the sales proceeds available on the
settlement date, sufficient funds to cover the option price for the purchased
shares, plus all applicable withholding taxes.
The Committee may also assist any optionee (including an officer) in the
exercise of outstanding options under the Discretionary Grant Program by
authorizing a loan from the Company or permitting the optionee to pay the option
price in installments over a period of years. The terms and conditions of any
such loan or installment payment will be established by the Committee in its
sole discretion, but in no event may the maximum credit extended to the optionee
exceed the aggregate option price payable for the purchased shares, plus any
Federal, State or local income taxes or Federal employment taxes incurred by the
optionee in connection with the option exercise.
VALUATION
For purposes of establishing the option price and for all other valuation
purposes under the Stock Option Plan, the fair market value per share of Common
Stock on any relevant date will be the closing selling price per share on such
date, as reported on the Nasdaq National Market System ("NMS"). If there is no
reported selling price for such date, then the closing selling price for the
last previous date for which such quotation exists will be determinative of fair
market value. On September 30, 1996, the fair market value per share of Common
Stock was $14.25 on the basis of the closing selling price on that date.
STOCKHOLDER RIGHTS AND ASSIGNABILITY OF OPTIONS
No optionee is to have any stockholder rights with respect to the option shares
until such individual has exercised the option, paid the option price and been
issued a stock certificate for the purchased shares. Options are not assignable
or transferable other than by will or by the laws of inheritance, and, during
the optionee's lifetime, the option may be exercised only by the optionee.
REPURCHASE RIGHTS
Any unvested shares of Common Stock issued under the Stock Option Plan will be
subject to repurchase by the Company, at the original exercise price paid per
share, upon the optionee's cessation of service prior to vesting in such shares.
The Committee will have complete discretion in establishing the vesting schedule
for any such unvested shares and will have full authority to cancel the
Company's outstanding repurchase rights with respect to one or more unvested
shares
6
held by the optionee and may exercise this discretion at any time, whether
before or after the optionee's service actually ceases.
ACCELERATION OF OPTIONS
Corporate Transaction
In the event of any of the following stockholder-approved transactions to which
the Company is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the surviving
entity (except for a transaction the principal purpose of which is to
change the State of the Company's incorporation);
(ii) the sale, transfer or other disposition of all or substantially all of
the assets of the Company in complete liquidation or dissolution of
the Company; or
(iii) a reverse merger in which the Company is the surviving entity but in
which the holders of securities possessing more than 50% of the
combined voting power of the Company's outstanding securities (as
determined immediately prior to such merger) transfer their ownership
of those securities to person or persons not otherwise part of the
transferor group,
each outstanding option under the Discretionary Grant Program will
automatically become exercisable for all of the option shares and may be
exercised for all or any portion of such fully-vested shares. However, an
outstanding option under the Discretionary Grant Program will not be so
accelerated if and to the extent: (i) such option is either to be assumed by the
successor corporation (or its parent corporation) in such Corporate Transaction
or is otherwise to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation, (ii) such option is to be
replaced by a cash incentive program of the successor corporation which
preserves the option spread existing at the time of the Corporate Transaction
and provides for pay-out in accordance with the same vesting schedule in effect
for the option or (iii) the acceleration of such option is subject to other
limitations imposed by the Committee at the time of grant. The Committee will,
however, have full power and authority to grant options under the Discretionary
Grant Program, which are to automatically accelerate in whole or in part
immediately prior to the Corporate Transaction, whether or not those options are
otherwise to be assumed or replaced in connection with the consummation of such
Corporate Transaction.
The Company's outstanding repurchase rights under the Stock Option Plan will
also terminate, and the shares subject to such terminated rights will become
fully vested, upon the Corporate Transaction, except to the extent (i) one or
more of such repurchase rights are expressly assigned to the successor
corporation (or its parent company) or (ii) such termination and accelerated
vesting are precluded by other limitations imposed by the Committee at the time
the repurchase rights are issued.
Upon the consummation of the Corporate Transaction, all outstanding options
under the Stock Option Plan will terminate and cease to be exercisable, except
to the extent assumed by the successor corporation.
Change in Control
The Committee will have full power and authority, exercisable either at the
time the option is granted or at any time while the option remains outstanding,
to provide for the automatic acceleration of one or more options under the
Discretionary Option Grant Program so that each such option may, immediately
prior to a Change in Control, be exercised for any or all of the shares of
Common Stock at the time subject to such option. The Committee will have
complete discretion in establishing the specific terms and conditions upon which
one or more outstanding options are to accelerate in connection with the Change
in Control or upon which any of the Company's outstanding repurchase rights
under the Stock Option Plan are to terminate. Accordingly, the Committee may in
its discretion condition such accelerated vesting (and the termination of any
outstanding repurchase rights) upon the termination of the optionee's service
within a specified period following the Change in Control.
A Change in Control will be deemed to occur under the Stock Option Plan in the
event:
(i) any person or related group of persons (other than the Company or any
affiliate) acquires beneficial ownership of securities possessing more
than 50% of the combined voting power of
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the Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders which the Board of
Directors does not recommend such stockholders to accept; or
(ii) there is a change in the composition of the Board over a period of 24
consecutive months or less such that a majority of the Board members
ceases by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B)
have been elected or nominated for election as Board members during
such period by at least a majority of the members of the Board
described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
The acceleration of options in the event of a Corporate Transaction or Change
in Control may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company. The acceleration of options also could have the effect
of discouraging a Change in Control of the Company and in management, even
though such Changes in Control could be favored by a majority of stockholders.
STOCK APPRECIATION RIGHTS
At the Committee's discretion, options may be granted with stock appreciation
rights. Two types of stock appreciation rights are authorized for issuance
under the Stock Option Plan: (i) tandem rights which require the option holder
to elect between the exercise of the underlying option for shares of Common
Stock and the surrender of such option for an appreciation distribution from the
Company and (ii) limited rights which will become exercisable upon the
occurrence of a Hostile Take-Over (as defined below).
Tandem stock appreciation rights provide the holders with the right to receive
an appreciation distribution from the Company equal in amount 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 may, at the Committee's discretion, be made 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.
One or more officers of the Company subject to the short-swing profit
restrictions of the Federal securities laws may, at the Committee's discretion,
be granted limited stock appreciation rights as part of any stock option grants
made to such officers under the Stock Option Plan. Any option with such a
limited stock appreciation right may, at the officer's election, be surrendered
to the Company upon the occurrence of a Hostile Take-Over, to the extent the
option is at such time exercisable for vested shares (including any shares which
vest in connection with such Hostile Take-Over). In return, the optionee will
be entitled to a cash distribution from the Company in an amount equal to the
excess of (i) the Take-Over Price (as defined below) of the vested shares of
Common Stock at the time subject to the surrendered option (or the surrendered
portion) over (ii) the aggregate exercise price payable for such shares. The
balance of the option (if any) will continue to remain outstanding and
exercisable in accordance with the agreement evidencing such grant.
For purposes of such limited stock appreciation right, the following
definitions will be in effect under the Stock Option Plan:
Hostile Take-Over: the acquisition by any person or related group of
persons (other than the Company or its affiliates) of securities possessing
more than 50% of the combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the
Company's stockholders which the Board of Directors does not recommend such
stockholders to accept.
Take-Over Price: the greater of (A) the fair market value of the shares
subject to the surrendered option, measured on the option surrender date in
accordance with the valuation provisions of the Stock Option Plan described
above, or (B) the highest reported price per share paid by the acquiring
entity in effecting the Hostile Take-Over.
8
TERMINATION OF SERVICE
Outstanding options under the Discretionary Grant Program will terminate, with
respect to any shares for which such options are exercisable at the time of the
optionee's cessation of service with the Company, within a specified period
(generally not in excess of 12 months) following such cessation of service,
unless the Committee determines that such exercise period should be further
extended for one or more additional months or years. Under no circumstances,
however, may any such option remain exercisable after the specified expiration
date of the option term. To the extent the option is not exercisable for one or
more shares at the time of the optionee's cessation of service, the option will
immediately terminate and cease to be outstanding with respect to those shares.
Should the optionee die while holding one or more exercisable options, then
those options may subsequently be exercised by the personal representative of
the optionee's estate or by the persons to whom such options are transferred by
the optionee's will or by the laws of inheritance. Should the optionee's service
be terminated for misconduct, all outstanding options held by the optionee will
be terminated immediately and cease to be outstanding.
During the applicable exercise period following the optionee's cessation of
service, the option may not be exercised for more than the number of option
shares for which the option is exercisable at the time of such cessation of
service. However, the Committee will have the discretionary authority to
accelerate in whole or in part the vesting of any outstanding options held by
the optionee and may exercise this discretion at any time while the option
remains outstanding.
For purposes of the Stock Option Plan, the optionee will be deemed to be in the
service of the Company for so long as such individual renders periodic services
to the Company or any subsidiary, whether as an employee, Board member or
independent consultant.
CANCELLATION AND NEW GRANT OF OPTIONS
The Committee has the authority to effect the cancellation of outstanding
options under the Discretionary Grant Program and to grant replacement options
covering the same or different numbers of shares of Common Stock but having an
option price per share not less than 85% of the fair market value of the Common
Stock on the new grant date.
SPECIAL TAX WITHHOLDING ELECTION
The Committee may, in its discretion and upon such terms and conditions as it
may deem appropriate, provide one or more option holders under the Discretionary
Grant Program with the election to have the Company withhold, from the shares of
Common Stock otherwise issuable upon the exercise of their options, a portion of
such shares with an aggregate fair market value equal to the designated
percentage (up to 100% as specified by the option holder) of the Federal, State
and local income tax liability and Federal employment tax liability incurred by
such option holder in connection with the exercise of such option. Any election
so made will be subject to the approval of the Committee, and no shares will
actually be withheld in satisfaction of such taxes except to the extent approved
by the Committee. One or more option holders may also be granted the
alternative right, subject to Committee approval, to deliver previously-issued
shares of Common Stock in satisfaction of such tax liability.
AUTOMATIC GRANT PROGRAM
Under the Automatic Grant Program, each individual who first becomes a non-
employee Board member, whether through election by the stockholders or
appointment by the Board, will automatically be granted, at the time of such
initial election or appointment, a non-statutory stock option to purchase 20,000
shares of Common Stock, provided such individual has not otherwise been in the
prior employ of the Company. In addition, on the date of each Annual
Stockholders' Meeting, each individual re-elected to serve as a non-employee
member of the Board will automatically be granted a stock option to purchase
7,500 shares of Common Stock; provided such individual is not an officer or
other executive of DowElanco. For non-employee Board members who are officers
or other executives of DowElanco, the number of shares of Common Stock subject
to such annual option grants will be limited to 5,000 shares. There will be no
limit on the number of such 7,500-share option grants or 5,000-share option
grants, whichever is applicable, any one non-employee Board member may receive
over his or her period of Board service, and non-employee Board members who have
previously served in the Company's employ will be fully eligible for one or more
annual option grants.
9
Each such option grant will be subject to the following terms and conditions:
(i) The option price per share will be equal to 100% of the fair market
value per share of Common Stock on the grant date;
(ii) Each option is to have a maximum term of ten years measured from the
grant date;
(iii) Each automatic grant will become exercisable in a series of three
equal annual installments over the optionee's period of service on the
Board, with the first such installment to become exercisable one year
after the automatic grant date;
(iv) The option will remain exercisable for a six-month period following
the optionee's cessation of Board service for any reason other than
death. Should the optionee die while holding the automatic grant, then
such option will remain exercisable for a twelve month period
following such optionee's death and may be exercised by the personal
representative of the optionee's estate or the person to whom the
grant is transferred by the optionee's will or the laws of
inheritance. In no event, however, may the option be exercised after
the expiration date of the option term. During the applicable exercise
period, the option may not be exercised for more than the number of
shares (if any) for which it is exercisable at the time of the
optionee's cessation of Board service. To the extent the option is not
exercisable for one or more option shares at the time of the
optionee's cessation of service on the Board, the option will
immediately terminate and cease to be outstanding with respect to
those shares;
(v) The option will become immediately exercisable for all of the shares
at the time subject to such option in the event of a Corporate
Transaction. Upon the consummation of the Corporate Transaction, each
automatic option grant will terminate and cease to be outstanding,
except to the extent assumed by the successor entity;
(vi) The option will become immediately exercisable for all of the shares
at the time subject to such option in the event of a Change in
Control. Except as otherwise provided in paragraph (vii) below, the
accelerated option will continue to remain outstanding until the
expiration or sooner termination of the option term;
(vii) Upon the occurrence of a Hostile Take-Over, the non-employee Board
member will have a thirty-day period in which he or she may elect to
surrender the automatic option grant to the Company. In return for the
surrendered option, the non-employee Board member will be entitled to
a cash distribution from the Company in an amount equal to the excess
of (i) the Take-Over Price of the shares of Common Stock at the time
subject to the 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; and
(viii) The remaining terms and conditions of the option will in general
conform to the terms described above for option grants made under the
Discretionary Grant Program and will be incorporated into the option
agreement evidencing the automatic grant.
CHANGES IN CAPITALIZATION
In the event any change is made to the Common Stock issuable under the Stock
Option Plan 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 maximum number and/or class of securities issuable under
the Stock Option Plan, (ii) the maximum number of shares for which any one
participant may be granted stock options and separately exercisable stock
appreciation rights per calendar year, (iii) the number and/or class of
securities and price per share in effect under each outstanding option
(including all discretionary and automatic option grants under the Stock Option
Plan) and (iv) the number and/or class of securities per non-employee member of
the Board of Directors for which the special option grants will subsequently be
made under the Automatic Grant Program.
10
Each outstanding option which is assumed or is otherwise to continue in effect
after a Corporate Transaction will be appropriately adjusted to apply and
pertain to the number and class of securities which would have been issuable, in
connection with 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. Appropriate adjustments will also be made to the
option price payable per share and to number and class of securities available
for issuance under the Stock Option Plan.
Option grants under the Stock Option Plan will not affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
AMENDMENT AND TERMINATION OF THE STOCK OPTION PLAN
The Board of Directors may amend or modify the Stock Option Plan in any or all
respects whatsoever, subject, however, to any required stockholder approval
under applicable law or regulation. No such amendment, however, may adversely
affect the rights of outstanding option holders without their consent.
The Board may terminate the Stock Option Plan at any time, and the Stock Option
Plan will in all events terminate no later than December 31, 2002. Any options
outstanding at the time of such plan termination will continue to remain
outstanding and exercisable in accordance with the terms and provisions of the
instruments evidencing those grants. The Stock Option Plan will, however,
automatically terminate on the date all shares available for issuance under the
Stock Option Plan are issued or canceled pursuant to the exercise, surrender or
cash-out of outstanding options under the Stock Option Plan.
FEDERAL TAX CONSEQUENCES
Options granted under the Stock Option Plan may be either Incentive Options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which do not 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
disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or disposition is made more than
two years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to sale or disposition, then a disqualifying disposition of the
purchased shares 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 option 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 option price paid for the shares will be taxable as ordinary income.
Any additional gain recognized upon the disposition will be capital gain.
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 date the option was exercised over (ii) the option price
paid for such shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon the
grant of a non-statutory option. The optionee will in general recognize ordinary
income, in the year in which the option is exercised, equal to the excess of the
fair market value of the purchased shares on the exercise date over the option
price paid for such shares, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a non-statutory option, if the purchased shares are subject
to repurchase by the Company. These special provisions may be summarized as
follows:
11
(a) If the shares acquired upon exercise of the non-statutory
option are subject to repurchase by the Company at the original option
price in the event the optionee should terminate service prior to
vesting in the shares, 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 Company's repurchase right lapses with respect to those
shares over (ii) the option price paid for such shares.
(b) The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of
exercise an amount equal to the excess of (i) the fair market value of
the purchased shares on the exercise date (determined as if the shares
were not subject to the Company's repurchase right) over (ii) the
option price paid for such shares. If the Section 83(b) election is
made, the optionee will not recognize any additional income as and
when the Company's repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which ordinary income is recognized by the
optionee in connection with the acquisition of the option shares.
Surrender Rights. An optionee who surrenders an outstanding option for a cash
or stock distribution from the Company will recognize ordinary income in the
year of surrender equal to the amount of the appreciation distribution. The
Company will be entitled to a corresponding business expense deduction for such
appreciation distribution. The deduction will be allowed in the taxable year of
the Company in which the ordinary income is recognized by the optionee.
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions of
incentive stock option shares or exercises of non-statutory options granted with
an exercise price equal to the fair market value of the option shares at the
time of grant will qualify as performance-based compensation for purposes of
Internal Revenue Code Section 162(m) and will not have to be taken into account
for purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those options
will remain deductible by the Company without limitation under Internal Revenue
Code Section 162(m).
ACCOUNTING TREATMENT
The grant of options with an exercise price less than the fair market value of
the option shares on the grant date will result in a compensation expense equal
to the discount at the time of grant, and the Company will have to amortize that
expense against the Company's reported earnings over the vesting period in
effect for the option shares. Option grants with an exercise price equal to the
fair market value of the option shares at the time of grant will generally not
result in any charge to the Company's earnings, but the Company must disclose,
in 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 compensation expense. Whether or not
granted at a discount, the number of outstanding options is a factor in
determining the Company's earnings per share.
Should one or more optionees be granted stock appreciation rights which have no
conditions upon exercisability other than a service or employment requirement,
then such rights will result in compensation expense to the Company's earnings.
12
OUTSTANDING GRANTS
For each of the executive officers named in the Summary Compensation Table and
the various indicated groups, the table below shows (i) the number of shares of
Common Stock subject to options granted under the Stock Option Plan during the
period from September 1, 1995, to September 30, 1996, and (ii) the weighted
average exercise price payable per share under such options.
Number of Weighted Average Exercise Price
Name and Position Option Shares of Granted Options
- ----------------------------------------------------------------------------------------------------
Jerry D. Caulder 175,000 $13.813
Chief Executive Officer
Carlton J. Eibl 200,000 $13.813
President, Chief Operating Officer and
Secretary
Andrew C. Barnes 100,000 $13.813
Executive Vice President
James W. Hopkins 50,000 $13.813
Resigned as of July, 1996 from the
position of Vice President
Leo Kim 100,000 $13.813
Executive Vice President, Chief
Technical Officer
Michael W. Sund 50,000 $13.813
Vice President
James A. Baumker 50,000 $13.813
Vice President and Chief Financial
Officer
Naomi D. Whitacre 50,000 $13.813
Vice President
Michael J. Muston 40,000 $ 16.25
Vice President
All current executive officers as a 765,000 $13.940
group (8 persons)
All current directors (other than 115,000 $17.620
executive officers) as a group (8
persons)
All employees, including current 836,500 $15.567
officers who are not executive
officers, as a group (185 persons)
- ----------------------------------------------------------------------------------------------------
NEW PLAN BENEFITS
No stock options or stock appreciation rights will be granted under the Stock
Option Plan on the basis of the 2,000,000-share increase which forms part of
this Proposal. If this Proposal is approved, Messrs. Cable, Rammler and Speziale
will each receive an automatic grant for 7,500 shares upon their re-election to
the Board at the Annual Meeting. The other non-employee Board members re-elected
at the Annual Meeting will receive a 5,000-share grant.
13
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendment to the Stock Option Plan. If such
approval is not obtained, then any options granted on the basis of the
2,000,000-share increase which forms part of this Proposal will terminate
without ever becoming exercisable for those shares, and no further option grants
will be made on the basis of that increase. The automatic option grants to be
made to eligible non-employee Board members re-elected at the Annual Meeting
will remain at 5,000 shares per individual. In addition, the non-employee Board
members will not become eligible to participate in the Discretionary Grant
Program, and the Stock Option Plan will terminate once the available reserve of
Common Stock, as last approved by the stockholders, is issued.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the approval
of the amendment to the Stock Option Plan. The Board believes that it is in the
best interests of the Company to maintain a comprehensive equity incentive
program for the Company's officers, employees, non-employee Board members and
consultants which will encourage such individuals to remain in the Company's
service and more closely align their interests with those of the stockholders.
14
PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT AUDITORS
The Company is asking the stockholders to ratify the selection of Ernst & Young
LLP as the Company's independent auditors for the year ending August 31, 1997.
The affirmative vote of the holders of a majority of the shares represented and
voting at the Annual Meeting will be required to ratify the selection of Ernst &
Young LLP.
In the event the stockholders 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 auditing firm at any time during the year if the Board of Directors
feels that such a change would be in the Company's and its stockholders' best
interests.
Representatives of Ernst & Young LLP are expected to be at the Annual Meeting,
will have the opportunity to make a statement, if they desire to do so, and will
be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of Ernst & Young LLP to serve as the Company's
independent auditors for the year ending August 31, 1997.
15
ADDITIONAL INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership of
Common Stock as of September 30, 1996, for each person known to the Company to
be the beneficial owner of more than 5% of Common Stock. Unless otherwise
indicated, each of the stockholders listed below has sole voting and investment
power with respect to the shares beneficially owned.
NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OWNED/1/
------------------------------------------------------------------------------------------------
DowElanco/2,3/ 14,614,102 47.6%
9330 Zionsville Road
Indianapolis, IN 46268-1054
Pioneer Hi-Bred International, Inc. 3,000,000 9.8%
700 Capital Square
400 Locust Street
Des Moines, IA 50309
The State of Wisconsin Investment Board 1,808,800 5.9%
PO Box 7842
Madison, WI 53707
1 Percentage of beneficial ownership is calculated pursuant to SEC Rule 13d-
3(d)(1).
2 Mr. Hagaman (President and Chief Executive Officer of DowElanco), Mr. Schmidt
(Vice President and Chief Financial Officer of DowElanco), Dr. Gehring (Vice
President of Research and Development of DowElanco) and Mr. Tolbert (Director
of Global Business Development of DowElanco) are members of the Board of
Directors.
3 The Dow Chemical Company owns 60% of DowElanco and Eli Lilly and Company owns
40% of DowElanco.
EXECUTIVE OFFICERS
Name Age Position Held With the Company
- ---------------------------------------------------------------------------------------------------
Andrew C. Barnes 43 Executive Vice President
James A. Baumker 45 Vice President and Chief Financial Officer
Jerry D. Caulder, Ph.D. 54 Chairman, Chief Executive Officer and Director
Carlton J. Eibl 36 President, Chief Operating Officer and Secretary
Leo Kim, Ph.D. 54 Executive Vice President and Chief Technical Officer
Michael J. Muston 40 Vice President
Michael W. Sund 53 Vice President
Naomi D. Whitacre 48 Vice President
- ----------------------------------------------------------------------------------------------------
16
RESPONSIBILITIES AND BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
Mr. Barnes, a founder of the Company, currently serves as Executive Vice
President responsible for the Company's crop protection business unit, Mycogen
Crop Protection, Inc., which includes the Company's biopesticide division and
Soilserv, Inc. Prior to joining the Company, Mr. Barnes served as President of
Zymogenetics Corporation, a genetic engineering company, and managed that
company's initial growth and financing. Mr. Barnes began his career as a project
and process engineer with G.D. Searle & Co. and then served as a biotechnology
licensing associate for Stanford University's Office of Technology Licensing.
Mr. Baumker joined the Company in August of 1987 as Controller of the Company
and currently serves as Vice President and Chief Financial Officer. From June,
1995, to September, 1995, Mr. Baumker served as the Company's Chief Accounting
Officer. Prior to joining the Company, Mr. Baumker served as Project Manager,
Latin America, for Monsanto Agricultural Company (1983-1987) and Accounting
Manager, Asia Pacific, for Monsanto International (1978-1982).
Dr. Caulder is being considered for the position of director of the Company.
See "Election of Directors--Business Experience of Directors" for a discussion
of Dr. Caulder's business experience.
Mr. Eibl joined the Company in December of 1992 and currently serves as
President, Chief Operating Officer and Secretary, and is responsible for
overseeing the Company's operations and resources. From December, 1992, to
September, 1995, Mr. Eibl served as Executive Vice President and Secretary of
the Company. Prior to joining the Company, Mr. Eibl was employed as a corporate
attorney with the law firms of, respectively, Brobeck, Phleger & Harrison in San
Diego from 1989 through 1992 and Paul Weiss Rifkind Wharton & Garrison in New
York from 1985 through 1989.
Dr. Kim joined the Company in September of 1986 and currently serves as
Executive Vice President and Chief Technical Officer. Prior to joining the
Company, Dr. Kim was employed by Shell Oil Company for 18 years in a variety of
positions, including Principal Scientist involved in agricultural biotechnology,
Research and Development Director-Biomedical, Research and Development Director-
Interferon and Manager Biological Chemistry in Shell's Agricultural Research
Center.
Mr. Muston joined the Company in July of 1996, and currently serves as Vice
President responsible for the Company's North American seed business unit,
Agrigenetics, Inc., doing business as Mycogen Seeds ("Mycogen Seeds"). Prior to
joining the Company, Mr. Muston was employed at DowElanco between 1989 - 1996
where he held various positions including General Manager - Western Agriculture,
Global Business Operations Manager - Herbicides and Global Third Party
Manufacturing Manager. Mr. Muston also was employed by Elanco from 1978 - 1989
in various positions.
Mr. Sund joined the Company in January of 1993 and currently serves as Vice
President responsible for communications and investor relations. Prior to
joining the Company, Mr. Sund was President of Mike Sund Public Relations, Inc.
(1986-1992) and Director of Public Relations, Joan B. Kroc Foundation (1984-
1986).
Ms. Whitacre joined the Company in January of 1993 and currently serves as Vice
President responsible for overseeing the Company's facilities and Human
Resources department. Prior to joining the Company, Ms. Whitacre served as
Assistant Vice President at Glendale Federal Bank (1990-1993) and Human
Resources Manager at Wavetek Corporation (1985-1990).
17
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer, each of the other
four most highly compensated executive officers of the Company and one highly
compensated former executive officer of the Company for services rendered in all
capacities to the Company and its subsidiaries for the fiscal years ended August
31, 1994, 1995 and 1996.
Long-Term
Annual Compensation/1/ Compensation Awards
------------------------------------------------------------------------------------------
Securities
Restricted Underlying All Other
Name and Stock Options/ Compensation
Award(s)/2/ SAR(S)/3/
Principal Position Year Salary Bonus
($) ($) ($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Jerry Caulder 1996 $ 297,500 $ 100,000 $ 276,260 175,000 $ 2,238/5/
Chief Executive Officer 1995 $ 285,000 -- $ 116,880 100,000 $ 2,000/5/
1995 -- -- 260,000/4/ --
1994 $ 285,000 $ 27,594 -- -- $ 2,000/5/
Carlton J. Eibl 1996 $ 200,417 $ 75,000 $ 138,130 200,000 $ 2,000/5/
President, Chief Operating 1995 $ 150,000 -- $ 58,440 150,000 $ 2,000/5/
Officer and Secretary 1995 -- -- 80,000/4/ --
1994 $ 150,000 -- -- -- $ 2,000/5/
Andrew C. Barnes 1996 $ 173,333 $ 50,000 $ 138,130 100,000 $ 2,000/5/
Executive Vice President 1995 $ 165,000 -- $ 58,440 50,000 $ 2,000/5/
1995 -- -- 160,000/4/ --
1994 $ 165,000 -- -- -- $ 2,000/5/
James W. Hopkins 1996 $ 141,782 -- $ 69,065 50,000 $287,000/6/
(resigned as of July 1996 1995 $ 136,290 -- $ 29,220 50,000 $ 2,000/5/
from the position of 1995 -- -- 30,000/4/ --
Vice President)
Leo Kim 1996 $ 173,333 $ 50,000 $ 138,130 100,000 $ 2,000/5/
Executive Vice President 1995 $ 165,000 -- $ 58,440 50,000 $ 1,430/5/
Chief Technical Officer 1995 -- -- 135,000/4/ --
1994 $ 165,000 -- -- -- $ 2,000/5/
Michael W. Sund 1996 $ 120,000 -- $ 69,065 50,000 $ 2,000/5/
Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
18
/1/ Columns (e) and (h) of the Summary Compensation table shown in Item
402(a)(3) of Regulation S-K are omitted because there have been no
contributions to the executive officers made by the Company which are
required to be shown in such columns.
/2/ Restricted Stock holdings at the end of the 1996 fiscal year were as
follows:
Name # of Shares Value
------------------------------------------
Jerry D. Caulder 30,000 $478,140
Andrew C. Barnes 15,000 $239,070
Carlton J. Eibl 15,000 $239,070
Leo Kim 15,000 $239,070
Michael W. Sund 7,000 $111,566
------------------------------------------
For grants issued prior to fiscal year 1996, the shares of restricted stock
will vest upon the named officers' completion of three (3) years of
service, measured from the award date. For grants issued in 1996, the
shares of restricted stock will vest annually over three (3) years of
service, measured from the award date. However, in the event the Company is
acquired by merger or asset sale or there is a hostile take-over of the
Company by tender offer for 25% or more of the outstanding Common Stock or
a proxy contest for Board membership, then each restricted stock award
which has been outstanding for at least six (6) months will immediately
vest in full.
/3/ Two option grants are shown in year 1995 because the chart is based on a
fiscal year beginning September 1 and ending August 31. Previously, the
Company's fiscal year began January 1 and ended December 31 and options
were granted only once during such period. Therefore, year 1995 includes
option grants occurring in 1994 and 1995, and year 1994 shows no option
grants.
/4/ These options were granted on December 21, 1994, pursuant to an option
cancellation/regrant program for all full-time employees of the Company.
Under the program, each named officer exchanged his outstanding options
with exercise prices in excess of $8.50 for new options for the same number
of shares with an exercise price of $8.50 per share, the fair market value
of the Common Stock on the date of the new grant. Each option granted to an
executive officer is immediately exercisable for all the option shares, but
any shares purchased under the option will be subject to repurchase by the
Company, at the original exercise price paid per share, upon the optionee's
cessation of service prior to vesting in those shares. The shares subject
to each December 21, 1994 grant will vest in 36 successive equal monthly
installments upon the optionee's completion of each month of service over
the 36-month period measured from the date of the new grant.
/5/ These figures reflect contributions made by the Company on behalf of the
named executive officer under the Company's 401(k) Plan.
/6/ This figure includes a $2,000 contribution made by the Company under its
401(k) Plan, plus a $285,000 severance payment made to Mr. Hopkins, who, on
July 24, 1996, terminated his employment with the Company.
19
Stock Options and Stock Appreciation Rights
The following table contains information concerning the grant of stock options
and stock appreciation rights ("SARs") under the Stock Option Plan to the named
executive officers:
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
-------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Number of
Securities Securities
Underlying Underlying
Options/ Options/SAR s
SARs Granted to Exercise or
Granted/1/ Employees in Base Price/2/ Expiration 5%/3/ 10%/3/
Name (#) Fiscal Year ($/Share) Date ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
Jerry D. Caulder 175,000/4/ 15.1% $13.813 12-13-05 $1,520,211 $3,852,514
Andrew C. Barnes 100,000/4/ 8.6% $13.813 12-13-05 $ 868,692 $2,201,436
Carlton J. Eibl 200,000/4/ 17.3% $13.813 12-13-05 $1,737,384 $4,402,873
James W. Hopkins 50,000/4/ 4.3% $13.813 12-13-05 $ 434,436 $1,100,718
(resigned as of July, 1996)
Leo Kim 100,000/4/ 8.6% $13.813 12-13-05 $ 868,692 $2,201,436
Michael W. Sund 50,000/4/ 4.3% $13.813 12-13-05 $ 434,346 $1,100,718
- ----------------------------------------------------------------------------------------------------------------------------------
/1/ The Compensation Committee, as Plan Administrator, may grant two types of
stock appreciation rights in connection with option grants made under the
Stock Option Plan: (i) tandem rights which require the holder to elect
between the exercise of the underlying option for shares of Common Stock
and the surrender of such option for a distribution from the Company,
payable in cash or shares of Common Stock, based upon the appreciated value
of the option shares and (ii) limited rights which provide the optionee
with a 30-day period following the successful completion of a hostile
tender offer for 25% or more of the outstanding Common Stock in which to
surrender the option to the Company for a cash distribution equal to the
excess of the tender offer price per share of the vested shares of Common
Stock subject to the surrendered option over the option exercise price
otherwise payable for such shares. To date, the Plan Administrator has not
granted any tandem stock appreciation rights to the Company's executive
officers, but each of their options does include a limited stock
appreciation right. The shares subject to each option will immediately vest
in the event the Company is acquired by a merger or asset sale, unless the
Company's repurchase rights with respect to those shares are transferred to
the acquiring entity. Each option has a maximum term of 10 years, subject
to earlier termination in the event of the optionee's cessation of service
with the Company.
/2/ The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. If shares of
Common Stock are used to pay the option price, the option holder surrenders
to the Company a sufficient number of fully paid shares of Common Stock,
valued at the fair market value on the exercise date, to fully pay the
option price on the options being exercised. The Company may also finance
the option exercise by loaning the optionee sufficient funds to pay the
exercise price for the purchased shares and the Federal and State tax
liability incurred in connection with such exercise.
20
The optionee may be permitted, subject to the approval of the Plan
Administrator, to apply a portion of the shares purchased under the option
(or to deliver existing shares of Common Stock) in satisfaction of such tax
liability. The Plan Administrator also has the authority to reprice
outstanding options through the cancellation of those options and the grant
of replacement options with an exercise price equal to the lower fair
market value of the option shares on the regrant date.
/3/ There is 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% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the executive officers.
/4/ These options were granted on December 13, 1995. Each option granted to an
executive officer is immediately exercisable for all the option shares, but
any shares purchased under the option will be subject to repurchase by the
Company, at the original exercise price paid per share, upon the optionee's
cessation of service prior to vesting in those shares. The shares subject
to each December 13, 1995 grant will vest on December 31, 1998.
21
Option/SAR Exercises and Holdings
The following table provides information, with respect to the named
executive officers, concerning the exercise of options and/or SARs held as of
the end of the 1996 fiscal year:
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-the-Money Options/SARs at
at August 31, 1996 August 31, 1996
-------------------------------------------------------------------------
Shares Acquired Value
Name on Exercise Realized Exercisable/1/ Unexercisable Exercisable Unexercisable
(#) ($) (#) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
Jerry D. Caulder __ __ 632,000 __ $4,082,961 __
Andrew C. Barnes __ __ 387,000 __ $2,541,626 __
Carlton J. Eibl __ __ 430,000 __ $2,173,240 __
James W. Hopkins __ __ 130,000 __ $ 713,790 __
(resigned as of July 1996)
Leo Kim 52,500 $511,875 232,500 __ $1,210,535 __
Michael W. Sund __ __ 18,999 68,001 $ 141,903 $241,303
- ----------------------------------------------------------------------------------------------------------------------------------
/1/ The exercisable options are immediately exercisable for all of the option
shares, but any shares purchased under the option will be subject to
repurchase by the Company at the option exercise price upon optionee's
termination of employment prior to vesting of those shares. As of August
31, 1996, the number of unvested shares held by each named executive
officer is as follows: Dr. Caulder 357,222; Mr. Barnes 204,445; Mr. Eibl
335,555; Dr. Kim 193,334 and Mr. Sund 68,001.
Security Ownership of Directors and Management as of September 30, 1996
The following table provides information, as of September 30, 1996, with
respect to the Directors and named executive officers, concerning the amount and
nature of beneficial ownership of Common Stock.
Amount and Nature of
Title of Class Name of Beneficial Owner Beneficial Ownership Percent of Class +
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock Andrew C. Barnes 458,047/1/ 1.5%
Common Stock Thomas J. Cable 36,665/2/ *
Common Stock Jerry D. Caulder, Ph.D. 681,636/3/ 2.2%
Common Stock Carlton J. Eibl 452,691/4/ 1.5%
Common Stock Perry J. Gehring, Ph.D. __/5/ __
Common Stock John L. Hagaman __/6/ __
Common Stock James W. Hopkins (resigned as of July 1996) 137,768/7/ *
Common Stock Leo Kim 247,500/8/ *
Common Stock David H. Rammler, Ph.D. 139,959/9/ *
Common Stock William C. Schmidt __/10/ __
Common Stock A. John Speziale, Ph.D. 39,999/11/ *
Common Stock Michael W. Sund 30,066/12/ *
Common Stock G. William Tolbert __/13/ __
Common Stock Wayne W. Withers 300 *
Common Stock Directors and executive officers as a group 2,407,064/14/ 7.3%
- ------------------------------------------------------------------------------------------------------------------------------
22
______________________________
* Less than 1%.
+ Percentage of beneficial ownership is calculated pursuant to SEC Rule 13d-
3(d)(1).
/1/ This figure includes 71,047 shares held by the Andrew C. Barnes Family
Trust and 387,000 shares of Common Stock issuable upon exercise of options
held by Mr. Barnes, which are currently exercisable or will become
exercisable within sixty days of September 30, 1996.
/2/ This figure includes 36,665 shares of Common Stock issuable upon exercise
of options held by Mr. Cable, which are currently exercisable or will
become exercisable within sixty days of September 30, 1996.
/3/ This figure includes 32,968 shares held by the Jerry D. Caulder Family
Trust and 632,000 shares of Common Stock issuable upon exercise of options
held by Dr. Caulder, which are currently exercisable or will become
exercisable within sixty days of September 30, 1996.
/4/ This figure includes 430,000 shares of Common Stock issuable upon exercise
of options held by Mr. Eibl, which are currently exercisable or will become
exercisable within sixty days of September 30, 1996.
/5/ This figure does not include 14,614,102 shares of Common Stock owned by
DowElanco. Dr. Gehring is a Vice President of DowElanco. See "Certain
Relationships and Related Transactions."
/6/ This figure does not include 14,614,102 shares of Common Stock owned by
DowElanco. Mr. Hagaman is the President and Chief Executive Officer of
DowElanco. See "Certain Relationships and Related Transactions."
/7/ This figure includes 130,000 shares of Common Stock issuable upon exercise
of options held by Mr. Hopkins, which are currently exercisable or will
become exercisable within sixty days of September 30, 1996.
/8/ This figure includes 232,500 shares of Common Stock issuable upon exercise
of options held by Dr. Kim, which are currently exercisable or will become
exercisable within sixty days of September 30, 1996.
/9/ This figure includes 36,665 shares of Common Stock issuable upon exercise
of options held by Dr. Rammler, which are currently exercisable or will
become exercisable within sixty days of September 30, 1996.
/10/ This figure does not include 14,614,102 shares of Common Stock owned by
DowElanco. Mr. Schmidt is a Vice President and the Chief Financial Officer
of DowElanco. See "Certain Relationships and Related Transactions."
/11/ This figure includes 36,665 shares of Common Stock issuable upon exercise
of options held by Dr. Speziale, which are currently exercisable or will
become exercisable within sixty days of September 30, 1996.
/12/ This figure includes 20,666 shares of Common Stock issuable upon exercise
of options held by Mr. Sund, which are currently exercisable or will become
exercisable within sixty (60) days of September 30, 1996.
/13/ This figure does not include 14,614,102 shares of Common Stock owned by
DowElanco. Mr. Tolbert is a Director of DowElanco. See "Certain
Relationships and Related Transactions."
/14/ This figure includes 2,104,297 shares of Common Stock which are currently
exercisable or will become exercisable within sixty (60) days of September
30, 1996, issuable upon options held by all directors and executive
officers as a group.
23
Employment Contracts, Termination of Employment Agreements and Change of
Control Arrangements
In January, 1996, the Company entered into employment/severance agreements
("Employment Agreements") with the following named executive officers: Messrs.
Caulder, Eibl, Barnes, Kim and Sund. The Employment Agreements provide that
upon involuntary termination of the named executive officer's employment
(whether or not effected in connection with a Change of Control of the Company)
the named executive officer is entitled to certain severance benefits including
immediate vesting of the executive officer's restricted stock and stock options.
Dr. Caulder, under his Employment Agreement, is entitled to, if his
involuntary termination is prior to January 1, 1999, (i) a lump sum payment
equal to five times the sum of his average annual rate of base salary and bonus
paid by the Company, in each case for services rendered in the five immediately
preceding calendar years and (ii) health care coverage for a five year period.
If Dr. Caulder's involuntary termination occurs after January 1, 1999, he will
be entitled to (i) a lump sum payment equal to three times the sum of his
average annual rate of base salary and the average bonus paid by the Company, in
each case for services rendered in the three immediately preceding calendar
years and (ii) health care coverage for a three year period.
Mr. Eibl, under his Employment Agreement, will be entitled to, if his
involuntary termination is prior to January 1, 1999, (i) a lump sum payment
equal to four times the sum of his average annual rate of base salary and the
average bonus paid by the Company, in each case for services rendered in the
four immediately preceding calendar years and (ii) health care coverage for a
four year period. If Mr. Eibl's involuntary termination occurs after January 1,
1999, he will be entitled to (i) a lump sum payment equal to three times the
sum of his average annual rate of base salary and the average bonus paid by the
Company, in each case for services rendered in the three immediately preceding
calendar years and (ii) health care coverage for a three year period.
Dr. Kim and Mr. Barnes, under their Employment Agreements, will each be
entitled to (i) a lump sum payment equal to three times the sum of their average
annual rate of base salary and the average bonus paid by the Company, in each
case for services rendered in the two immediately preceding calendar years and
(ii) health care coverage for a two year period. If Dr. Kim's and/or Mr. Barnes'
involuntary termination occurs after January 1, 1999, they will be entitled to
(i) a lump sum payment equal to two times the sum of their average annual rate
of base salary and the average bonus paid by the Company, in each case for
services rendered in the two immediately preceding calendar years and (ii)
health care coverage for a two year period.
Mr. Sund, under his Employment Agreement, is entitled to, if his
involuntary termination is prior to January 1, 1999, (i) a lump sum payment
equal to two times the sum of his annual rate of base salary and average bonus
paid by the Company, in each case for services rendered in the two immediately
preceding calendar years and (ii) health care coverage for a two year period. If
Mr. Sund's involuntary termination occurs after January 1, 1999, he will be
entitled to (i) a lump sum payment equal to his average annual rate of base
salary and the average bonus paid by the Company, in each case for services
rendered for the immediately preceding two calendar years and (ii) health care
coverage for a one year period.
The severance benefits provided by the Employment Agreements will not be
granted if the officer is terminated for one or more alleged acts of fraud,
embezzlement, misappropriation of proprietary information or any other
verifiable misconduct adversely affecting the business reputation of the Company
in a material manner. The Employment Agreements are for an initial period of one
year but will automatically be extended for additional one year periods upon
each anniversary of the Employment Agreement unless the Company notifies the
executive officer three months prior to any anniversary date, that the
Employment Agreement will terminate.
One executive officer of the Company, Mr. Hopkins, who had entered into an
employment/severance agreement with the Company in January, 1996, resigned in
fiscal year 1996. Mr. Hopkins received $285,000 as total severance with the
Company consisting of (i) $85,063 paid on August 29, 1996, and $199,937 to be
paid in equal quarterly payments beginning January 1, 1997. As an additional
part of his severance with the Company, Mr. Hopkins received medical, dental and
life insurance coverage for two years following his resignation. Mr. Hopkins'
restricted stock and stock options vested upon his resignation.
As indicated in footnote (1) to the table under the heading "Stock Options
and Stock Appreciation Rights," the shares subject to option grants made to date
under the Stock Option Plan will immediately vest upon a merger in which the
Company is not the surviving entity, a sale of substantially all of the
Company's assets in liquidation or dissolution of the Company or a reverse
merger in which the Company is the surviving entity but in which 50% or more of
the Company's
24
outstanding voting stock is transferred to person or persons different from
those who held such stock immediately prior to the merger, unless the Company's
repurchase rights with respect to those shares are transferred to the successor
entity.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was at any time during the 1996
fiscal year or at any other time an officer or employee of the Company.
No executive officer of the Company served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
The following Compensation Committee Report on Executive Compensation and
the Performance Graph should not be considered to be part of this Proxy
Statement and any current or future cross references to this Proxy Statement in
filings with the SEC under either the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, shall not include the Compensation
Committee Report on Executive Compensation, or the Performance Graph reproduced
below.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the report delivered by the Compensation Committee of the
Board of Directors with respect to the principal factors considered by such
Committee in determining the compensation of the Company's executive officers.
This report comments on the factors considered in determining compensation paid
to the executive officers in fiscal year 1996 and in setting compensation for
fiscal year 1997. Messrs. Cable, Rammler and Speziale served on the Compensation
Committee from September 1, 1995 to August 31, 1996. Messrs. Gehring, Hagaman
and Tolbert served on the Compensation Committee from February 20, 1996 to
August 31, 1996. Messrs. Schmidt and Withers served on the Compensation
Committee from June 20, 1996 to August 31, 1996. Beginning September 1, 1996,
the Compensation Committee consists of Messrs. Cable, Hagaman and Withers.
As members of the Compensation Committee of the Board of Directors, it is
our duty to set the base salary of the Company's executive officers and to
administer the Stock Option Plan under which grants may be made to such officers
and other key employees. In addition, we approve the individual bonus programs
for the executive officers each fiscal year.
GENERAL COMPENSATION POLICY. Our fundamental policy is to provide
competitive compensation to the Company's executive officers based upon their
contribution to the success of the Company in achieving its corporate objectives
and enhancing stockholder value.
In the 1996 fiscal year, the Company completed and presented to the
Compensation Committee an extensive analysis of executive compensation pay
practices within the seed and biotechnology industries. The study included a
review of compensation paid to executives of 21 agricultural seed companies and
over 250 biotechnology companies located in the United States. The compensation
information was compiled from three independent salary surveys targeted at a
group of competitor companies having one or more of the following attributes:
related industry, similar revenue size, technology orientation and comparable
employee headcount. Six of the Company's competitors identified in the
"Performance Graph" included in this Proxy Statement - Biosys, Inc.; Calgene,
Inc.; DeKalb Genetics Corporation; Ecogen, Inc.; Ecoscience Corporation and DNA
Plant Technology Corporation, Inc. - were represented in these surveys. The
Compensation Committee supported the methodology used in the study, namely
evaluating compensation for executives in relation to competitor organizations
and developing a weighted market average for each of the executives. The
Compensation Committee will use this information to make changes to the total
cash compensation program to be determined when the Company becomes profitable.
It is our objective to have a substantial portion of each officer's
compensation contingent upon the Company's performance as well as upon his or
her own level of performance. Accordingly, each executive officer's compensation
package is comprised of three elements: (i) base salary which reflects
individual performance and is designed primarily to be competitive with salary
levels in the industry, (ii) annual variable performance awards, if awarded, are
payable in cash and tied to the achievement by the Company of its corporate
objectives and (iii) long-term stock-based incentive awards that strengthen
mutual interests between the executive officers and the Company's stockholders.
As an officer's level of responsibility increases, it is our intent to have a
greater portion of his or her total compensation be dependent upon Company
performance and stock price appreciation rather than base salary.
The total cash compensation paid to the Company's executive officers in
fiscal year 1996 placed approximately in the 30th to 40th percentile of
executive compensation paid to executive officers in companies included in the
compensation
25
analysis described above. Long-term incentive compensation (stock options and
restricted stock) awarded to the Company's executive officers in fiscal year
1996 placed approximately in the 65th to 75th percentile. Base salary for the
Company's executive officers for fiscal year 1996 was generally in the 45th to
50th percentile range of executive compensation of competitor companies.
FACTORS. Executive compensation is based primarily on the Company's
achievement of corporate objectives established at the start of the fiscal year.
For fiscal year 1996, the corporate objectives were to achieve profitability in
1996, to position the Company for continued future profitability and to continue
the Company's growth in terms of technological and product developments, market
acceptance of the Company's products, sales and earnings per share growth and
broadened participation in the crop protection and seed industries through
strategic transactions. These same corporate objectives remain in place for
fiscal year 1997. In the future, we may, in our discretion, apply entirely
different factors, particularly different measures of corporate growth and
financial performance, in setting executive compensation.
. BASE SALARY. The base salary for each executive officer is set on the
basis of the level of responsibility of the executive officers and the
salary levels in effect for comparable positions with the Company's
principal competitors. Under the incentive program described below,
executive officers' salaries were frozen at the 1993 levels through the end
of fiscal year 1995.
. ANNUAL INCENTIVE COMPENSATION PROGRAM. In February 1996, the Company
implemented a strategic alliance with DowElanco, which, together with other
strategic alliances completed by the Company within the past two fiscal
years, has resulted in the Company dramatically improving its cash
position, boosting its product development efforts, expanding and upgrading
the Company's seeds business and expanding distribution into new geographic
markets. This progress has resulted in significant appreciation of the
Company's stock value in fiscal year 1996 as compared to fiscal year 1995.
With reference to this progress, cash bonuses were paid in March, 1996, to
the Company's executive officers who had served as executive officers
during the past two fiscal years.
. LONG-TERM INCENTIVE COMPENSATION. On December 13, 1995, the Compensation
Committee approved an additional stock option grant to each executive
officer and an award of shares of restricted stock under the Company's
Restricted Stock Issuance Plan. These grants and awards were made in
accordance with the belief that long-term incentive awards are designed to
align the interest of each executive officer with those of the stockholders
and provide each individual with a significant incentive to manage the
Company from the perspective of an owner with an equity stake in the
business.
The number of shares subject to each option grant and restricted stock
award was based on the officer's level of responsibilities, relative position in
the Company and contribution to the Company's corporate objectives discussed
above. With respect to the stock option grants, the options vest in one lump sum
on December 13, 1998, rather than in three equal annual installments, which
historically has been the vesting period for stock options. The three-year lump
sum vesting intends to provide an incentive for the executive group to remain
intact and to try to aggressively build shareholder value over that time frame.
Each stock option has a maximum term of ten years from the grant date. Each
stock option grant allows the executive officer to acquire shares of the
Company's Common Stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to 10 years). Accordingly, the option
will provide a return to the executive officer only if the market price of the
shares appreciates over the option term. Each restricted stock award gives the
executive officer a fixed number of shares vesting one-third annually over a
three-year period rather than vesting in one lump sum at the end of three years,
which historically has been the vesting period for such awards. Accordingly, the
restricted stock awards provide the officers with a significant incentive to
manage the Company from the perspective of an owner with an interest in the
appreciation of the market prices of the shares.
CEO COMPENSATION. In setting the compensation payable to the Company's
Chief Executive Officer, Dr. Caulder, we have sought to be competitive with
other companies in the industry, while at the same time tying a significant
percentage of such compensation to Company performance and stock price
appreciation. The Company's Chief Executive Officer total cash compensation was
analyzed as part of the extensive study presented to the Compensation Committee
cited above and places approximately in the 30th percentile of chief executive
compensation of competitor companies. Base salary for the Company's Chief
Executive Officer for fiscal year 1996 was in the 45th - 50th percentile range.
With respect to Dr. Caulder's base salary, it is our intent to provide him
with a level of stability and certainty each year and not have this particular
component of compensation affected to any significant degree by Company
performance factors. Pursuant to the incentive program implemented in July 1993,
Dr. Caulder's base salary was frozen through fiscal year 1995
26
at the 1993 level. Dr. Caulder's base salary was not increased for fiscal year
1996. Along with certain other executive officers of the Company, Dr. Caulder
received a cash bonus in March, 1996.
The option grant and restricted stock award made to Dr. Caulder during the
1996 fiscal year was intended to place a significant portion of his total
compensation for the year at risk, since the options will have no value unless
there is appreciation in the value of the Company's Common Stock over the option
term and since the restricted stock value depends, upon vesting, on the market
value of the Company's Stock. As indicated, it is our objective to have an
increasing percentage of Dr. Caulder's total compensation each year tied to the
attainment of the Company's corporate objectives and stock price appreciation on
his option shares and restricted stock.
As a result of Section 162(m) of the Internal Revenue Code, which was
enacted into law in 1993, the Company will not be allowed a Federal income tax
deduction for compensation paid to certain officers, to the extent that
compensation exceeds $1 million per officer in any one year. This limitation is
in effect for all taxable years of the Company beginning after December 31,
1993, and will apply to all compensation which is not considered to be
performance-based. Compensation which does qualify as performance-based
compensation will not have to be taken into account for purposes of this
limitation. At the Annual Meeting, the stockholders will be asked to approve an
amendment to the Stock Option Plan which imposes a limitation on the maximum
number of shares of Common Stock for which any one participant may be granted
stock options per calendar year. If the amendment is approved, then any
compensation deemed paid in connection with options granted under the Stock
Option Plan at an exercise price equal to the fair market value of the option
shares at the time of grant will qualify as performance-based compensation.
The cash compensation paid to the Company's executive officers during the
1996 fiscal year did not exceed the $1 million limit per officer, nor is the
cash compensation to be paid to the Company's executive officers for the 1997
fiscal year expected to reach that level. It is very unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limitation, and therefore, the
Committee has decided not to take any action at this time to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Committee will reconsider this should the individual compensation
of any executive officer ever approach the $1 million dollar level.
Compensation Committee
Thomas J. Cable
Perry J. Gehring
John L. Hagaman
David H. Rammler
William C. Schmidt
A. John Speziale
G. William Tolbert
W. Wayne Withers
27
PERFORMANCE GRAPH
The following graph compares total stockholder returns of the Company over
the last five fiscal years to the weighted average return of stocks of companies
included in the NMS Index and in a peer group index of companies identified by
the Company. The total return for each of the Company's Common Stock, the NMS
Index and the selected peer group index assumes the reinvestment of dividends,
although dividends have not been declared on the Company's Common Stock and is
based on the returns of the component companies weighted according to their
market capitalizations as of the end of each monthly period for which returns
are indicated. The NMS Index tracks the aggregate price performance of equity
securities of companies traded on the NMS. The Company's Common Stock is traded
on the NMS. The selected peer group index consists of the following agricultural
biotechnology companies, which are the only agricultural, crop-protection
biotechnology companies known to the Company to have their shares traded on NMS:
Calgene, Inc.; DeKalb Genetics Corporation; Ecogen, Inc.; Ringer Corporation;
Biosys, Inc., DNA Plant Technology Corporation, Inc. and Ecoscience Corporation.
Last year there were two other companies in the Company's selected peer group,
Agridyne and Crop Genetics, both of which were acquired by other companies since
last year. The stockholder 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 stockholder returns.
MYCOGEN NASDAQ PEER
DATE CORPORATION NMS INDEX
- --------------------------------------------------------------------
8/30/91 100 100 100
9/30/91 113 100 112
10/31/91 119 104 110
11/29/91 101 100 98
12/31/91 114 112 101
1/31/92 117 119 127
2/28/92 106 122 127
3/31/92 116 116 113
4/30/92 111 111 103
5/29/92 109 112 113
6/30/92 109 108 95
7/31/92 102 112 100
8/31/92 100 108 92
9/30/92 98 112 93
10/30/92 96 117 95
11/30/92 96 126 109
12/31/92 106 131 118
1/29/93 113 135 106
2/26/93 100 130 96
3/31/93 92 133 89
4/30/93 94 128 90
5/28/93 94 135 96
6/30/93 100 136 101
7/30/93 96 136 88
8/31/93 100 143 89
9/30/93 96 147 98
10/29/93 77 146 98
12/31/93 77 150 92
1/31/94 88 155 99
2/28/94 83 153 99
3/31/94 70 144 90
4/29/94 85 147 81
5/31/94 79 142 95
6/30/94 81 137 85
7/29/94 75 140 77
8/31/94 79 149 82
9/30/94 75 149 70
10/31/94 75 151 65
11/30/94 75 146 57
12/30/94 63 147 55
1/31/95 86 148 54
2/28/95 70 155 56
3/31/95 74 160 53
4/28/95 70 165 53
5/31/95 63 169 49
6/30/95 62 183 53
7/31/95 65 197 51
8/31/95 77 201 50
9/29/95 104 205 25
10/31/95 101 204 47
11/30/95 99 209 43
12/29/95 128 208 43
1/31/96 123 209 55
2/29/96 147 217 55
3/29/96 130 217 56
4/30/96 130 235 59
5/31/96 138 246 61
6/28/96 113 235 60
7/31/96 116 214 61
8/30/96 120 226 60
PAGE 1
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Lubrizol Corporation
On December 1, 1992, the Company and the Lubrizol Corporation ("Lubrizol"),
a beneficial owner of the Company during a portion of fiscal year 1996,
consummated a series of transactions that resulted in: (i) the formation and
capitalization of a partnership which was owned by the Company and by Lubrizol
and which later was reorganized into Mycogen Seeds and (ii) the issuance and
sale to Lubrizol of 2,294,590 shares of the Company's Common Stock and 3,940
shares of the Company's Series A Preferred Stock.
On December 31, 1993, the Company acquired a portion of Lubrizol's interest
in Mycogen Seeds for $7 million in cash and 2 million shares of the Company's
Common Stock. In January of 1996, Lubrizol exercised its option to exchange its
remaining ownership interest in Mycogen Seeds, pursuant to its rights under its
investment agreement with the Company, for 1,538,008 shares of the Company's
Common Stock and converted all of its 3,158 shares of the Company 's Series A
Preferred Stock into 1,815,274 shares of the Company's Common Stock. Lubrizol
then sold all of its shares of the Company's Common Stock to DowElanco on
February 20, 1996. Dr. George R. Hill, Senior Vice President of Lubrizol, and
Mr. Kenneth H. Hopping, Vice President and Secretary of Lubrizol, were members
of the Board of Directors during a portion of the Company's fiscal year 1996,
but upon completion of this sale, resigned from the Board of Directors.
In December of 1992, Lubrizol and Mycogen Seeds entered into an agreement
(the "R&D Agreement") whereby Lubrizol had agreed to provide Mycogen Seeds with
funding from the beginning of 1993 through 1998 for research and development
projects related to planting seeds that yield plants capable of producing
special oils with certain desired characteristics. Under the R&D Agreement, as
amended in 1995, Lubrizol was obligated to provide a minimum of $4.6 Million of
funding to the Company through 1998. In exchange for the funding, Mycogen Seeds
had granted to Lubrizol an exclusive, perpetual, worldwide and royalty-free
license to planting seeds developed or acquired by Mycogen Seeds that yield
plants capable of producing certain special oils. Under commercial contracts
between a subsidiary of Lubrizol and Mycogen Seeds, Mycogen Seeds had been the
exclusive supplier of such planting seeds to a subsidiary of Lubrizol and had
managed the production of crops from such seeds.
In January of 1996, Mycogen Seeds reacquired certain rights in oil seed
technology under the R&D Agreement from Lubrizol and one of its subsidiaries for
$8 million. In September of 1996, Mycogen Seeds and AC Humko acquired the
balance of the rights in oil seed technology held by Lubrizol and one of its
subsidiaries under the R&D Agreement, along with other assets constituting the
specialty oil business of the Lubrizol subsidiary. Thereafter, the R&D Agreement
and the commercial contracts with Lubrizol's subsidiary were terminated.
DowElanco
On February 19, 1996, the Company issued 4.5 million shares of Common Stock
to DowElanco in exchange for one of its subsidiaries, United AgriSeeds, Inc.,
and $26.4 million in cash. In connection with this transaction, the Company and
DowElanco entered into a five year, royalty-free, cross-licensing agreement for
the use of certain current and future biological tools for genetic modification
of plants and other organisms. In April of 1996, the Company and DowElanco
Canada, Inc., a wholly owned subsidiary of DowElanco, signed a letter of intent
for a collaboration to investigate and develop high value added traits in canola
and conduct a joint canola breeding program. In October 1996, DowElanco and
Mycogen Seeds entered into a Sublease Agreement and Supplemental Services
Agreement whereby the Company's employees will be using DowElanco facilities in
Indianapolis, Indiana. Messrs. Gehring, Hagaman, Tolbert and Schmidt are all
officers of DowElanco and current members of the Board of Directors.
Pioneer Hi-Bred International, Inc.
On December 13, 1995, Pioneer Hi-Bred International, Inc. ("Pioneer")
purchased 3 million shares of the Company's Common Stock for $30 million.
Concurrent with the purchase, the Company entered into a collaboration agreement
with Pioneer whereby Pioneer will provide $21 million in research and
development funding to the Company and will also devote extensive research and
development staff and resources to the joint development program. The Company
had previously licensed gene promoter technology to Pioneer in 1994 in exchange
for an up-front license payment, and license maintenance fees of $10,000 per
year until January 15, 2004, unless the license is terminated earlier. On August
30, 1996, the Company entered into two additional gene promoter licenses for an
up-front license fee of $400,000 for each license.
29
Transactions with Executive Officers
On September 13, 1996, the Company made a $200,000 loan to Mr. Eibl, which
accrues interest at 6.64% and is due and payable in five years. Mr. Eibl used a
portion of the loan proceeds to purchase shares of Common Stock.
STOCKHOLDER PROPOSALS FOR 1996 PROXY STATEMENT
Stockholder proposals that are intended to be presented at the Company's
annual meeting of stockholders to be held in 1997 must be received by the
Company no later than July 16, 1997, in order to be included in the proxy
statement and related proxy materials.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO INVESTOR RELATIONS, MYCOGEN
CORPORATION, 5501 OBERLIN DRIVE, SAN DIEGO, CALIFORNIA 92121.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 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 Nasdaq. Officers, directors and greater than 10%
stockholders are required by SEC regulation 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, the Company believes that, during the period from September 1, 1995 to
August 31, 1996, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% beneficial owners were satisfied,
except (i) in July of 1996, The Dow Chemical Company and its wholly-owned
subsidiary, Rofan Services, Inc., were one day late in filing their Form 4's,
because of a delay caused by an overnight courier and (ii) Mr. Barnes was
several months late in filing his Form 5 after he purchased shares under the
Company's Employee Stock Purchase Plan due to a clerical error.
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented
for consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
Dated: November 13, 1996 By Order of the Board of Directors
/s/ Carlton J. Eibl
CARLTON J. EIBL as Secretary
30
DRAFT OF AMENDED AND RESTATED 1992 STOCK OPTION PLAN
FOR PROPOSAL NO. 2 TO MYCOGEN CORPORATION'S 1996 PROXY
MYCOGEN CORPORATION
1992 STOCK OPTION PLAN
AS AMENDED AND RESTATED EFFECTIVE OCTOBER ___, 1996
---------------------------------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSES OF THE PLAN
A. This 1992 Stock Option Plan (the "Plan") is intended to promote
the interests of Mycogen Corporation, a Delaware corporation (the "Company"), by
providing a method whereby (i) key employees (including officers and directors)
of the Company (or its parent or subsidiaries) who are primarily responsible for
the management, growth and financial success of the Company (or its parent or
subsidiaries), (ii) the non-employee members of the Company's Board of Directors
and (iii) consultants and other independent contractors who provide valuable
services to the Company (or its parent or subsidiaries) may be offered the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company as an incentive for them to remain in the
service of the Company (or its parent or subsidiaries).
B. The Plan initially became effective immediately upon approval by the
Company's stockholders at the 1992 Special Stockholders Meeting on October 27,
1992. Such date is hereby designated as the Effective Date of the Plan. This
October 1996 restatement of the Plan shall become effective immediately upon
adoption by the Board of Directors, subject, however, to stockholder approval at
the 1996 Annual Meeting. The Plan shall be administered in compliance with the
applicable requirements of SEC Rule 16b-3, as in effect from time to time.
November 1, 1996.
C. This Plan shall serve as the successor to the Mycogen Corporation
1983 Stock Option Plan (the "1983 Plan"), and no further option grants shall be
made under the 1983 Plan from and after the Effective Date of this Plan. All
options outstanding under the 1983 Plan on such Effective Date are hereby
incorporated into this Plan and shall accordingly be treated as outstanding
options under this Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the express terms and conditions of the
instrument evidencing such grant, and no provision of this Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of the
2.
Company's common stock thereunder or their exercise of any outstanding stock
appreciation rights thereunder.
D. For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiaries of the Company:
Any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company shall be considered to be a PARENT
corporation of the Company, provided each such corporation in the unbroken
chain (other than the Company) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
Each corporation, partnership or other entity (other than the
Company) in an unbroken chain of corporations, partnerships or other
entities beginning with the Company shall be considered to be a SUBSIDIARY
of the Company, provided each such corporation, partnership or other entity
(other than the last corporation, partnership or other entity) in the
unbroken chain owns, at the time of the determination, stock or other
ownership interests possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock or other ownership interests
in one of the other corporations, partnerships or other entities in such
chain.
II. STRUCTURE OF THE PLAN
A. Stock Programs. The Plan shall be divided into two separate
--------------
components: the Discretionary Option Grant Program specified in Article Two and
the Automatic Option Grant Program specified in Article Three. Under the
Discretionary Option Grant Program, key employees (including officers), non-
employee Board members, consultants and other independent contractors of the
company or its subsidiaries who contribute to the management, growth and
financial success of the Company or its subsidiaries, may, at the discretion of
the Plan Administrator, be granted options to purchase shares of Common Stock in
accordance with the provisions of Article Two. Under the Automatic Option Grant
Program, certain non-employee members of the Company's Board of Directors (the
"Board") will automatically receive special option grants to purchase shares of
Common Stock in accordance with the provisions of Article Three.
B. General Provisions. Unless the context clearly indicates
------------------
otherwise, the provisions of Articles One and Four of the Plan shall apply to
both the Discretionary
3.
Option Grant Program and the Automatic Option Grant Program and shall
accordingly govern the interests of all individuals under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Discretionary Option Grant Program shall be administered by a
committee ("Committee") of two (2) or more non-employee Board members appointed
by the Board.
B. The Committee as Plan Administrator shall have the sole and
exclusive power and authority (subject to the express provisions of the
Discretionary Option Grant Program) to establish such rules and regulations as
it may deem appropriate for the proper administration of such program and to
make such determinations under the program and any outstanding option as it may
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties with an interest in any outstanding option under the
Discretionary Option Grant Program.
C. Service on the Committee shall constitute service as a Board
member, and members of the Committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on the
Committee. No member of the Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option granted under the
Plan.
D. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three.
IV. ELIGIBILITY FOR OPTION GRANTS
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two of the Plan shall be limited to the following:
(i) officers and other key employees of the Company (or its
parent or subsidiaries) who render services which contribute to the
management, growth and financial success of the Company (or its parent or
subsidiaries);
(ii) non-employee Board members; and
(iii) those consultants and other independent contractors
who provide valuable services to the Company (or its parent or
subsidiaries).
4.
B. The Plan Administrator shall have the sole and exclusive
authority to determine which eligible individuals are to receive option grants
under the Discretionary Option Grant Program, the number of shares to be covered
by each such grant, the status of the granted option as either an incentive
stock option ("Incentive Option") which satisfies the requirements of Section
422 of the Internal Revenue Code or a non-statutory option not intended to meet
such requirements, the time or times at which each such option is to become
exercisable, and the maximum term for which the option is to remain outstanding.
V. STOCK SUBJECT TO THE PLAN
A. Shares of the Company's Common Stock shall be issuable under the
Plan, and such shares may be obtained from either the Company's authorized but
unissued shares of Common Stock or from shares of Common Stock reacquired by the
Company and held as treasury shares. The maximum number of shares available for
issuance over the term of the Plan shall not exceed 7,566,719 shares of Common
Stock, subject to adjustment from time to time in accordance with the provisions
of this Section V. Such authorized share reserve includes the two million
(2,000,000)-share increase authorized by the Board under this October 1996
restatement, subject to stockholder approval at the 1996 Annual Meeting. To the
extent one or more outstanding options under the 1983 Plan which have been
incorporated into this Plan are subsequently exercised, the number of shares
issued with respect to each such option shall reduce, on a share-for-share
basis, the number of shares available for issuance under this Plan.
B. In no event shall any one individual participating in the Plan
be granted stock options and separately exercisable stock appreciation rights
for more than 200,000 shares of Common Stock in the aggregate per calendar year,
effective retroactive to January 1, 1996.
C. Should an outstanding option under this Plan (including any
outstanding options under the 1983 Plan incorporated into this Plan) expire or
terminate for any reason prior to exercise in full (including any option
canceled in accordance with the cancellation-regrant provisions of Section IV of
Article Two of this Plan), the shares subject to the portion of the option not
so exercised shall be available for subsequent option grants under this Plan.
Unvested shares issued under the Plan and subsequently repurchased by the
Company at the original option or issue price paid per share shall be added back
to the share reserve and shall accordingly be made available for subsequent
issuance under the Plan. Shares subject to any option or portion thereof
surrendered in accordance with Section V of Article Two or Section III of
Article Three shall not be available for subsequent issuance under the Plan. In
addition, should the exercise price of an outstanding option under the Plan
(including any option incorporated from the 1983
5.
Plan) be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Company in satisfaction of
the withholding taxes incurred in connection with the exercise of an outstanding
option under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised, and not by the net number of shares of Common Stock
actually issued to the option holder.
D. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum
number and/or class of securities for which any one participant may be granted
stock options and separately exercisable stock appreciation rights per calendar
year, (iii) the number and/or class of securities and price per share in effect
under each outstanding option under the Discretionary Option Grant Program, (iv)
the number and/or class of securities per non-employee Board member for which
automatic option grants are subsequently to be made under the Automatic Option
Grant Program to both newly-elected and re-elected non-employee Board members,
(v) the number and/or class of securities and price per share in effect under
each grant outstanding under the Automatic Option Grant Program and (vi) the
number and /or class of shares and price per share in effect under each
outstanding option incorporated into this Plan from the 1983 Plan. The purpose
of such adjustments to the outstanding options shall be to preclude the
enlargement or dilution of rights and benefits thereunder.
6.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
VI. TERMS AND CONDITIONS OF OPTIONS
Options granted 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 Company or its parent or subsidiaries may only be
granted non-statutory options under this Article Two. Each option granted shall
be evidenced by one or more instruments in the form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
--------
the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. Option Price.
-------------
1. The option price per share shall be fixed by the Plan Administrator.
In no event, however, shall the option price per share be less than eighty-five
percent (85%) of the fair market value per share of Common Stock on the date of
the option grant.
2. The option price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section VI of this Article Two
and the instrument evidencing the grant, be payable in one of the alternative
forms specified below:
(i) full payment in cash or check drawn to the Company's order; or
(ii) full payment in shares of Common Stock held by the optionee
for the requisite period necessary to avoid a charge to the Company's
earnings for financial reporting purposes and valued at fair market value
on the Exercise Date (as such term is defined below); or
(iii) full payment through a combination of shares of Common Stock
held by the optionee for the requisite period necessary to avoid a charge
to the Company's earnings for financial reporting purposes and valued at
fair market value on the Exercise Date and cash or check drawn to the
Company's order; or
7.
(iv) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the optionee (I) shall provide
irrevocable written instructions to a Company-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the Company,
out of the sale proceeds available on the settlement date, sufficient funds
to cover the aggregate option price payable for the purchased shares plus
all applicable Federal, State and local income and employment taxes
required to be withheld by the Company by reason of such purchase and (II)
shall provide written directives to the Company to deliver the certificates
for the purchased shares directly to such brokerage firm in order to
complete the sale transaction.
For purposes of this subparagraph 2, the Exercise Date shall be the date on
which written notice of the option exercise is delivered to the Company. Except
to the extent the sale and remittance procedure above is utilized in connection
with the exercise of the option, payment of the option price for the purchased
shares must accompany such notice.
3. The fair market value per share of Common Stock on any relevant date
under subparagraph 1 or 2 above (and for all other valuation purposes under the
Plan) shall be determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded on the Nasdaq National
Market, then the fair market value shall be the closing selling price per
share of Common Stock on the date in question, as reported by the National
Association of Securities Dealers on the Nasdaq National Market or any
successor system. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists on the Nasdaq National
Market shall be determinative of fair market value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the fair market value shall be
the closing selling price per share of Common Stock on 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 such
reported price 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.
8.
B. Term and Exercise of Options.
-----------------------------
Each option granted under this Article Two shall be exercisable at
such time or times, during such period, and for such number of shares as shall
be determined by the Plan Administrator and set forth in the instrument
evidencing such option. No such option, however, shall have a maximum term in
excess of ten (10) years from the grant date. During the lifetime of the
optionee, the option, together with any stock appreciation rights pertaining to
such option, shall be exercisable only by the optionee and shall not be
assignable or transferable by the optionee other than a transfer of the option
effected by will or by the laws of descent and distribution following the
optionee's death.
C. Termination of Service.
-----------------------
1. Should an optionee cease to remain in Service 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
this Article Two, then each such option shall not (except to the extent
otherwise provided pursuant to Section VII of this Article Two) remain
exercisable for more than a twelve (12) month period (or such shorter period as
is determined by the Plan Administrator and specified in the instrument
evidencing the grant) measured from the date of such cessation of Service. Under
no circumstances, however, shall any such option be exercisable after the
specified expiration date of the option term. Each such option shall, during
such twelve (12) month or shorter period, be exercisable only to the extent of
the number of shares (if any) for which the option is exercisable on the date of
the optionee's cessation of Service. Upon the expiration of such twelve (12)
month or shorter period or (if earlier) upon the expiration of the option term,
the option 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 Service. The option, however, shall immediately terminate and cease
to be outstanding, at the time of the optionee's cessation of Service, with
respect to any shares for which such option is not otherwise at that time
exercisable or in which the optionee is not otherwise at that time vested.
2. Should the optionee die while holding one or more outstanding
options under this Article Two, then each such option shall be exercisable,
subject to the limitations of subparagraph 1 above, 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 the laws of descent and
distribution.
3. Should (i) the optionee's Service be terminated for misconduct
(including, but not limited to, any act of dishonesty, willful misconduct, fraud
or embezzlement) or (ii) the optionee make any unauthorized use or disclosure of
confidential information or trade secrets of the Company or its parent or
subsidiaries,
9.
then in any such event all outstanding options held by the optionee under this
Article Two shall terminate immediately and cease to be outstanding.
4. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time the option
remains outstanding, to permit one or more options granted under this Article
Two to be exercised, during the applicable exercise period under subparagraph 1
above, not only for the number of shares for which each such option is
exercisable at the time of the optionee's cessation of Service but also for one
or more subsequent installments of purchasable shares for which the option would
otherwise have become exercisable had such cessation of Service not occurred.
5. For purposes of the foregoing provisions of this Section I.C
(and for all other purposes under the Plan):
The optionee shall be deemed to remain in the SERVICE of the
Company for so long as such individual renders services on a periodic basis
to the Company (or any parent or subsidiary) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant or advisor.
The optionee shall be considered to be an EMPLOYEE for so long
as such individual remains in the employ of the Company or one or more of
its parent or subsidiaries, subject to the control and direction of the
employer entity not only as to the work to be performed but also as to the
manner and method of performance.
D. Stockholder Rights.
------------------
An optionee shall have none of the rights of a stockholder with
respect to the shares of Common Stock subject to the option until such
individual shall have exercised the option, paid the option price for the
purchased shares and been issued a stock certificate for such shares.
E. Repurchase Rights.
-----------------
The shares of Common Stock issued under this Article Two may be
subject to repurchase by the Company in accordance with the following
provisions:
1. The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock under this Article Two. Should the
Optionee cease Service while holding such unvested shares, the Company shall
have the
10.
right to repurchase any or all of those unvested shares at the option
price paid per share. The terms and conditions upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the issued shares) shall be established by the
Plan Administrator and set forth in the instrument evidencing such repurchase
right.
2. All of the Company's outstanding repurchase rights shall
automatically terminate, and all shares subject to such terminated rights shall
immediately vest in full, upon the occurrence of any Corporate Transaction under
Section III of this Article Two, except to the extent: (i) any such repurchase
right is, in connection with a Corporate Transaction, expressly assigned to the
successor corporation (or parent thereof) or (ii) such termination is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is granted.
3. The Plan Administrator shall have the discretionary authority,
exercisable either before or after the optionee's cessation of Service, to
cancel the Company's outstanding repurchase rights with respect to one or more
shares purchased or purchasable by the optionee under this Article Two and
thereby accelerate the vesting of such shares at any time.
VII. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees of the Company. Options which are
specifically designated as "non-statutory" options when issued under the Plan
shall not be subject to such terms and conditions.
---
A. Option Price. The option price per share of the Common Stock
------------
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the fair market value of such Common Stock on the grant
date.
B. Dollar Limitation. The aggregate fair market value (determined
-----------------
as of the respective date or dates of grant) of the Common Stock for which
one or more options granted to any Employee under this Plan (or any other
option plan of the Company or its parent or subsidiaries) may for the first
time become exercisable as incentive stock options under the Federal tax
laws during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two or more
such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of
11.
such options as incentive stock options under the Federal tax laws shall be
applied on the basis of the order in which such options are granted. To the
extent the One Hundred Thousand Dollar ($100,000) limitation is exceeded in
any calendar year, the option shall nevertheless be exercisable for the
excess number of shares as a non-statutory option.
C. 10% Stockholder. If any individual to whom an Incentive Option
---------------
is granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing 10% or more of the total combined voting
power of all outstanding classes of stock of the Company or any parent or
subsidiary, 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 the
Common Stock on the grant date, and the option term shall not exceed five
(5) years, measured from the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Four of the Plan shall apply to all
Incentive Options granted hereunder.
VIII. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any of the following stockholder-approved
transactions to which the Company is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, or
(iii) any reverse merger in which the Company is the
surviving entity but in which the holders of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company'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,
the exercisability of each option at the time outstanding under
this Article Two shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully
12.
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. However, an outstanding option under this Article Two shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation or parent thereof, (ii) such option
is to be replaced by a cash incentive program of the successor corporation which
preserves the option spread existing at the time of the Corporate Transaction
and provides for pay-out in accordance with the same vesting schedule in effect
for such option, or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of grant. The
determination of option comparability under clause (i) above shall be made by
the Plan Administrator, and its determination shall be final, binding and
conclusive. The Plan Administrator shall also have full power and authority to
grant options under the Plan which are to automatically accelerate in whole or
in part immediately prior to the Corporate Transaction, whether or not those
options are otherwise to be assumed or replaced in connection with the
consummation of such Corporate Transaction.
B. Upon the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
C. Each outstanding option under this Article Two which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
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. Appropriate adjustments shall
also be made to the option price payable per share, provided the aggregate
--------
option price payable for such securities shall remain the same. In addition,
the class and number of securities available for issuance under the Plan
following the consummation of the Corporate Transaction shall be appropriately
adjusted.
D. The grant of options under this Article Two shall in no way
affect the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
E. The Plan Administrator shall have the discretionary authority,
exercisable in advance of any actually-anticipated Change in Control or at the
time of an actual Change in Control, to provide for the automatic acceleration
of one or more
13.
outstanding options under this Article Two (and the automatic termination of one
or more of the Company's outstanding repurchase rights under this Article Two)
upon the occurrence of the Change in Control. Alternatively, the Plan
Administrator shall have full power and authority to condition any such option
acceleration (and the termination of any outstanding repurchase rights) upon the
subsequent termination of the optionee's Service within a specified period
following the Change in Control. For purposes of this Article Two, a Change in
Control shall be deemed to occur in the event:
(i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Company) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept; or
(ii) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a majority
of the Board members (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.
F. Each option accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term or the cancellation of such option in accordance with Section V of
this Article Two (if applicable).
G. The exercisability as incentive stock options under the Federal
tax laws of any options accelerated under this Section III in connection with a
Corporate Transaction or Change in Control shall remain subject to the
applicable dollar limitation specified in Section II of this Article Two.
IX. CANCELLATION AND REGRANT OF OPTIONS
14.
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 and to
grant in substitution new options under the Plan covering the same or different
numbers of shares of Common Stock but having an option price per share not less
than (i) eighty-five percent (85%) of the fair market value of the Common Stock
on the new grant date, or (ii) one hundred percent (100%) of such fair market
value in the case of an Incentive Option, or (iii) one hundred ten percent
(110%) of such fair market value in the case of an Incentive Option to be
granted to a 10% Stockholder.
X. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Company in an amount equal to the excess of (i) the fair market value
(on the option surrender date) of the number of shares in which the optionee is
at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate option price payable for such vested shares.
B. No such option surrender shall be effective unless it is approved
by the Plan Administrator. If the surrender is so approved, then the
distribution to which the optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at fair market value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the optionee shall retain whatever rights the optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
-----
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years (or five (5) years in the case of an
Incentive Option granted to a 10% Stockholder) after the date of the option
grant.
D. One or more officers of the Company subject to the short-swing
profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Discretionary Option Grant
Program. Upon the occurrence of a
15.
Hostile Take-Over, each such officer holding one or more options with such a
limited stock appreciation right in effect shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Company, to the extent the option is at the
time exercisable for vested shares of Common Stock. In return for the
surrendered option, the officer shall be entitled to a cash distribution from
the Company in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock which are at the time vested under each surrendered
option (or surrendered portion) over (ii) the aggregate exercise price payable
for such vested shares. Such cash distribution shall be paid within five (5)
days following the option surrender date. At the time any such limited stock
appreciation right is granted, the Plan Administrator shall concurrently pre-
approve the subsequent exercise of that right in accordance with the provisions
of this Section V.D, and no additional approval of the Board or any Plan
Administrator shall accordingly be required at the time of the actual option
surrender and cash distribution. The balance of the option (if any) shall
continue in full force and effect in accordance with the instrument evidencing
such grant.
E. For purposes of Section V.D, the following definitions shall be in
effect:
A HOSTILE TAKE-OVER shall be deemed to occur in the event (i) any
person or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Company) directly or indirectly acquires beneficial ownership (within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept.
The TAKE-OVER PRICE per share shall be deemed to be equal to the
greater of (a) the fair market value per share on the option surrender date, as
- -------
determined pursuant to the valuation provisions of Section I.A.3 of this Article
Two, or (b) the highest reported price per share paid by the tender offeror in
effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (a) price per
share.
F. The shares of Common Stock subject to any option surrendered for an
appreciation distribution pursuant to this Section V shall NOT be available for
subsequent option grants under the Plan.
XI. LOANS OR INSTALLMENT PAYMENTS
16.
The Plan Administrator may assist any optionee (including any officer)
in the exercise of one or more outstanding options under this Article Two by (a)
authorizing the extension of a loan to such optionee from the Company or (b)
permitting the optionee to pay the option price for the purchased Common Stock
in installments over a period of years. The terms of any such loan or
installment method of payment (including the interest rate and terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Loans and installment payments may be granted without security or
collateral, but the maximum credit available to the optionee shall not exceed
the sum of (i) the aggregate option price (less par value) of the purchased
---
shares plus (ii) any Federal, State and local income tax and employment tax
liabilities incurred by the optionee in connection with the exercise of the
option.
XII. 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 1.C.1 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.
17.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
XIII. ELIGIBILITY
A. Eligible Optionees. The individuals eligible to receive
------------------
automatic option grants pursuant to the provisions of this successor Article
Three program shall be limited to (i) those individuals who are first elected or
appointed as non-employee Board members on or after the Effective Date of this
Plan, whether through appointment by the Board or election by the Company's
stockholders, provided they have not otherwise been in the prior employ of the
Company (or any parent or subsidiary) and (ii) those individuals who are re-
elected as non-employee Board member at one or more stockholder meetings held
after the Effective Date, whether or not such individuals are otherwise serving
as non-employee Board members on the Effective Date.
XIV. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants will be made under this Article Three
-----------
on the dates specified below:
(i) Each individual who first becomes a non-employee Board
member on or after the Effective Date of the Plan, whether through election
by the Company's stockholders or appointment by the Board, and who has not
otherwise been in the prior employ of the Company shall automatically be
granted, at the time of such initial election or appointment, a non-
statutory stock option to purchase 20,000 shares of Common Stock upon the
terms and conditions of this Article Three.
(ii) Each individual re-elected as a non-employee Board member
at one or more annual stockholder meetings, beginning with the 1996 Annual
Meeting at which this October 1996 restatement is approved, shall
automatically be granted, at each such meeting at which he or she is so re-
elected, a non-statutory stock option to purchase an additional 7,500
shares of Common Stock upon the terms and conditions of this Article Three.
However, any non-employee Board member who is an officer or other executive
of DowElanco at the time of his or her re-election shall receive a non-
statutory option for only 5,000 shares of Common Stock.
There shall be no limit on the number of annual option grants any one non-
employee Board member may receive over the period of Board service.
18.
The applicable 20,000-share, 7,500-share and 5,000-share limitations on the
automatic grants to be made to each newly-elected or re-elected non-employee
Board member shall be subject to periodic adjustment pursuant to the applicable
provisions of Section V.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 automatic grant
date.
C. Payment.
-------
The exercise price shall be payable in one of the alternative
forms specified below:
(i) full payment in cash or check made payable to the Company's
order; or
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Company's reported
earnings and valued at fair market value on the Exercise Date (as such term
is defined below); or
(iii) full payment in a combination of shares of Common
Stock held for the requisite period necessary to avoid a charge to the
Company's reported earnings and valued at fair market value on the Exercise
Date and cash or check payable to the Company's order; or
(iv) full payment through a sale and remittance procedure
pursuant to which the non-employee Board member shall provide irrevocable
written directives to a designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares and shall
concurrently provide written instructions to the Company to deliver the
certificates for the purchased shares directly to such brokerage firm in
order to complete the sale transaction.
For purposes of this subparagraph, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the Company,
and the fair market value per share of Common Stock on any relevant date shall
be determined in accordance with the provisions of Section I.A.3 of Article Two.
Except to the extent the
19.
sale and remittance procedure specified above is utilized for the exercise of
the option, payment of the option price for the purchased shares must accompany
the exercise notice.
D. Option Term. Each automatic grant under this Article Three
-----------
shall have a maximum term of ten (10) years measured from the automatic grant
date.
E. Exercisability. Each automatic grant shall become exercisable
--------------
in a series of three (3) equal annual installments over the optionee's period of
service on the Board, with the first such installment to become exercisable one
(1) year after the automatic grant date. The option shall not become exercisable
for any additional option shares following the optionee's cessation of Board
service for any reason.
F. Non-Transferability. During the lifetime of the optionee, each
-------------------
automatic option grant, together with the limited stock appreciation right
pertaining to such option, shall be exercisable only by the optionee and shall
not be assignable or transferable by the optionee other than a transfer of the
option effected by will or by the laws of descent and distribution following
optionee's death.
G. Effect of Termination of Board Membership.
-----------------------------------------
1. Should the optionee cease to serve as a Board member for
any reason (other than death) while holding one or more automatic option grants
under this Article Three, then such optionee shall have a six (6) month period
following the date of such cessation of Board membership in which to exercise
each such option for any or all of the shares of Common Stock for which the
option is exercisable at the time of such cessation of Board service. Each such
option shall immediately terminate and cease to be outstanding, at the time of
such cessation of Board service, with respect to any shares for which the option
is not otherwise at that time exercisable.
2. Should the optionee die while serving as a member of the
Board or within six (6) months after cessation of Board service, then each
outstanding automatic option grant held by the optionee at the time of death may
subsequently be exercised, for any or all of the shares of Common Stock for
which the option is exercisable at the time of the optionee's cessation of Board
service (less any option shares subsequently purchased by the optionee prior to
death), by the personal representative of the optionee's estate or by the person
or persons to whom the option is transferred pursuant to the optionee's will or
in accordance with the laws of descent and distribution. Any such exercise must
occur within twelve (12) months after the date of the optionee's death. However,
each such automatic option grant shall immediately terminate and cease to be
outstanding, at the time of the optionee's cessation of Board service, with
respect to any option shares for which it is not otherwise at such time
exercisable.
20.
3. 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 subparagraphs 1 and 2 above 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.
H. Stockholder Rights. The holder of an automatic option grant
------------------
under this Article Three shall have none of the rights of a stockholder with
respect to any shares subject to such option until such individual shall have
exercised the option, paid the exercise price for the purchased shares and been
issued a stock certificate for such shares.
I. Remaining Terms. The remaining terms and conditions of each
---------------
automatic option grant shall be as set forth in the prototype Non-statutory
Stock Option Agreement attached as Exhibit A to the Plan.
XV. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any of the following stockholder-approved
transactions to which the Company is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State of the Company's incorporation,
(ii) the sale, transfer or disposition of all or substantially
all of the assets of the Company in liquidation or dissolution of the
Company, or
(iii) any reverse merger in which the Company is the surviving
entity but in which the holders of securities possessing more than fifty percent
(50%) of the total combined voting power of the Company'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,
the exercisability of each automatic option grant at the time
outstanding under this Article Three shall automatically accelerate so that each
such option shall, immediately prior to the specified effective date for the
Corporate
21.
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 automatic option grants under this Article Three shall
terminate and cease to be outstanding.
B. In connection with any Change in Control of the Company, the
exercisability of each automatic option grant at the time outstanding under this
Article Three shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Change in Control,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares. For purposes of this Article Three, a Change in Control
shall be deemed to occur in the event:
(i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Company) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept; or
(ii) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a majority
of the Board members (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.
C. Upon the occurrence of a Hostile Take-Over, each non-employee
Board member holding an automatic option grant under this Article Three 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 Company in an amount equal to the excess of (i) the Take-
Over Price of the shares of Common Stock at the time subject to the 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
22.
surrender date. At the time of each Article Three option grant, the Board shall
concurrently pre-approve any subsequent surrender of that option in accordance
with the provisions of this Section III.C, and no additional approval of the
Board or any Plan Administrator shall accordingly be required at the time of the
actual option surrender and cash distribution.
D. For purposes of this Section III, the following definitions
shall be in effect:
A HOSTILE TAKE-OVER shall be deemed to occur in the event (i)
any person or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Company) directly or indirectly acquires beneficial ownership (within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept.
The TAKE-OVER PRICE per share shall be deemed to be equal to the
greater of (a) the fair market value per share on the option surrender date, as
- -------
determined pursuant to the valuation provisions of Section I.A.3 of Article Two,
or (b) the highest reported price per share paid by the tender offeror in
effecting such Hostile Take-Over.
E. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under this Plan.
F. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
23.
ARTICLE FOUR
MISCELLANEOUS
-------------
XVI. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects whatsoever; provided, however,
--------
that no such amendment or modification shall, without the consent of the
holders, adversely affect rights and obligations with respect to options at the
time outstanding under the Plan. In addition, amendments to the Plan shall be
subject to stockholder approval to the extent required under applicable law or
regulation.
XVII. TAX WITHHOLDING
A. The Company's obligation to deliver shares of Common Stock or
cash upon the exercise of stock options or stock appreciation rights granted
under the Discretionary Option Grant Program shall be subject to the
satisfaction of all applicable Federal, State and local income tax and
employment tax withholding requirements.
B. The Plan Administrator may, in its discretion and in accordance
with the provisions of this Section II of Article Four and such supplemental
rules as the Plan Administrator may from time to time adopt (including the
applicable safe-harbor provisions of Securities and Exchange Commission Rule
16b-3), provide any or all holders of non-statutory options (other than the
automatic grants made pursuant to Article Three of the Plan) or unvested shares
under the Plan with the right to use shares of the Company's Common Stock in
satisfaction of all or part of the Federal, State and local income tax and
employment tax liabilities incurred by such holders in connection with the
exercise of their options or the vesting of their shares(the "Taxes"). Such
right may be provided to any such option holder in either or both of the
following formats:
1. Stock Withholding: The holder of the non-statutory option
-----------------
or unvested shares may be provided with the election to have the Company
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such non-statutory option or the vesting of such shares, a portion of those
shares with an aggregate fair market value not to exceed one hundred percent
(100%) of the applicable Taxes.
2. Stock Delivery: The Plan Administrator may, in its
--------------
discretion, provide the holder of the non-statutory option or the unvested
shares with the election to deliver to the Company, at the time the non-
statutory option is exercised or the shares
24.
vest, one or more shares of Common Stock previously acquired by such individual
(other than in connection with the option exercise or share vesting triggering
the Taxes) with an aggregate fair market value equal to the designated
percentage (up to 100% as specified by the option holder) of the Taxes incurred
in connection with such option exercise or share vesting.
XVIII. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan, as successor to the Company's 1983 Plan, became
effective immediately upon approval by the Company's stockholders at the 1992
Special Stockholders Meeting.
B. Each option issued and outstanding under the 1983 Plan
immediately prior to the Effective Date of this Plan was incorporated into this
Plan and treated as an outstanding option under this Plan, but each such option
continued to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder or their
exercise of outstanding stock appreciation rights thereunder.
C. The Plan was amended and restated on October ___, 1996 (the
"October 1996 Restatement") to effect the following changes: (i) increase the
number of shares of Common Stock authorized for issuance over the term of the
Plan by an additional two million (2,000,000) shares, (ii) limit to two hundred
thousand (200,000) shares of Common Stock the stock option grants and separately
exercisable stock appreciation rights which any one participant in the Option
Plan may receive in the aggregate per calendar year, (iii) render the non-
employee Board members eligible to receive option grants and stock appreciation
rights under the Discretionary Option Grant Program, (iv) allow unvested shares
issued under the Plan and subsequently repurchased by the Company at the option
exercise price or issue price paid per share to be reissued under the Plan, (v)
increase the number of shares of Common Stock for which options are to be
granted on an annual basis to certain non-employee Board members upon their re-
election to the Board at each Annual Stockholders Meeting, beginning with the
1996 Annual Meeting, and (vi) effect a series of technical changes to the
provisions of the Plan in order to take advantage of the recent amendments to
Rule 16b-3 of the Securities Exchange Act of 1934 which exempts certain officer
and director transactions under the Plan from the short-swing liability
provisions of the federal securities laws. The October 1996 Restatement is
subject to stockholder approval at the 1996 Annual Meeting, and no option grants
made on the basis of the share increase included in the October 1996 Restatement
shall become exercisable in whole or in part unless and until the October 1996
Restatement is approved by the stockholders. Should such stockholder approval
not
25.
be obtained at the 1996 Annual Meeting, then each option grant made pursuant
to the share increase included in the October 1996 Restatement shall terminate
and cease to remain outstanding, and no further option grants shall be made on
the basis of that share increase. However, the provisions of the Plan as in
effect immediately prior to the amendments effected by the October 1996
Restatement shall automatically be reinstated, and option grants may thereafter
continue to be made pursuant to the reinstated provisions of the Plan. All
option grants made prior to the October 1996 Restatement shall remain
outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options, and nothing in the October 1996
Restatement shall be deemed to modify or in any way affect those outstanding
options. Subject to the foregoing limitations, the Plan Administrator may make
option grants under the Plan at any time before the date fixed herein for the
termination of the Plan.
D. Unless sooner terminated in accordance with Section III of
Article Two and Section III of Article Three, the Plan shall terminate upon the
earlier of (i) December 31, 2002 or (ii) the date on which all shares available
for issuance under the Plan shall have been issued or cancelled pursuant to the
exercise, surrender or cash-out of the options granted hereunder. If the date of
termination is determined under clause (i) above, then options outstanding on
such date shall thereafter continue to have force and effect in accordance with
the provisions of the instruments evidencing such options.
E. Options may be granted under this Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided each option so granted is not to become exercisable, in whole
--------
or in part, at any time prior to stockholder approval of an amendment
authorizing a sufficient increase in the number of shares issuable under the
Plan.
XIX. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
XX. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option hereunder,
and the issuance of stock upon the exercise or surrender of any such option
shall be subject to the procurement by the Company of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it and the stock issued pursuant to it.
XXI. NO EMPLOYMENT/SERVICE RIGHTS
26.
Neither the action of the Company in establishing this Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of this Plan
shall be construed so as to grant any individual the right to remain in the
employ or service of the Company (or any parent or subsidiary) for any period of
specific duration, and the Company (or any parent or subsidiary corporation
retaining the services of such individual) may terminate such individual's
employment or service at any time and for any reason, with or without cause.
27.
DETACH HERE MYC F
PROXY
MYCOGEN CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Carlton J. Eibl, the Secretary of the
Company, as proxy, with full power of substitution, to vote all shares of stock
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of Mycogen Corporation to be held on Thursday, December 12, 1996, or at any
adjournment(s) thereof, as specified on the reverse side, and to vote in his
discretion on such other business as may properly come before the Meeting and
any adjournment(s) thereof.
(PLEASE SIGN AND DATE ON REVERSE SIDE)
SEE REVERSE
SIDE
1996 HIGHLIGHTS
In October, Mycogen received U.S. patents for methods for putting Bacillus
thuringiensis ("Bt") pest-resistance genes into plants. These patents cover all
Bt seed products now on the market.
DowElanco acquired more than 47% of Mycogen's common stock, and the companies
began taking advantage of research and development synergies and exploring
strategies for cooperative marketing and distribution worldwide.
As part of the DowElanco transaction, Mycogen acquired United AgriSeeds, making
Mycogen Seeds the fourth largest seed corn producer and marketer in North
America.
Pioneer Hi-Bred, the world's largest seed company, made a $30 million equity
investment and is providing another $21 million in R&D funding to gain access to
Mycogen's BT technology for a joint program to transform corn, soybean,
sunflower, sorghum, canola and wheat with Bt genes.
In September, Mycogen acquired Morgan Seeds, Argentina's third largest seed
company, establishing a platform to expand sales in South America.
DETACH HERE MYC F
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
Unless otherwise specified by the undersigned this proxy will be voted in the
manner directed below, but if no contrary direction is made, it will be voted
FOR the director nominees listed below, and by the proxyholder at his or her
discretion as to any other matters properly transacted at the Annual Meeting or
any adjournment(s) thereof.
1. Election of Directors
NOMINEES: Thomas J. Cable, Jerry D. Caulder, Perry J. Gehring, John L. Hagaman,
David H. Rammler, William C. Schmidt, A. John Speziale, G. Willian Tolbert, and
W. Wayne Withers
FOR WITHHELD
[_] [_]
MARK HERE
IF YOU PLAN
TO ATTEND
THE MEETING [_]
MARK HERE
FOR ADDRESS
CHANGE AND
NOTE BELOW [_]
[_]
- --------------------------------------
For all nominees except as noted above
2. To approve various amendments to the Company's 1992 Stock Option Plan
including an increase in the number of shares of Common Stock reserved for
issuance under such plan by 2 million shares.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending August 31, 1997.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. The undersigned confers upon the proxy hereby appointed discretion to
transact any other business which may properly come before the Meeting or
any adjournment(s) thereof.
Please sign exactly as name appears on your stock certificates. If signing as
attorney, executor, administrator, trustee, or guardian, please give full title
as such, and if signing for an organization, give your title. When shares are in
the names of more than one person, each should sign.
Signature:______________ Date:________ Signature:________________ Date:________