SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_]Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
INCARA PHARMACEUTICAL CORPORATION
(Name of Registrant as Specified In Its Charter)
Not Applicable
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] 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:
(2) Form, Schedule or Registration Statement No.:
(3)Filing Party:
(4) Date Filed:
PRELIMINARY
INCARA PHARMACEUTICALS CORPORATION
P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, North Carolina 27709
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 27, 2001
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TO THE STOCKHOLDERS OF INCARA PHARMACEUTICALS CORPORATION:
The Annual Meeting of Stockholders (the "Meeting") of Incara Pharmaceuticals
Corporation ("Incara") will be held at the North Carolina Biotechnology Center,
15 Alexander Drive, Research Triangle Park, North Carolina, on Tuesday, March
27, 2001 at 12:30 p.m., for the following purposes:
1. To elect a board of four directors;
2. To approve an amendment to Incara's 1994 Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance thereunder
from 2,500,000 shares to 3,500,000 shares;
3. To approve the sale of up to $10 million of Incara's securities pursuant
to a shelf registration filed with the Securities and Exchange
Commission;
4. To ratify the appointment of PricewaterhouseCoopers LLP as the
independent auditors of Incara for the fiscal year ending September 30,
2001; and
5. To act upon such other matters as may properly come before the meeting
or any adjournment thereof.
These items are more fully described in the attached Proxy Statement.
The Board of Directors has fixed the close of business on January 26, 2001,
as the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting or any adjournments thereof. A list of stockholders
of Incara entitled to vote at the Meeting will be available for examination by a
stockholder at Incara's office, for the ten days prior to the Meeting and during
normal business hours. All such stockholders are cordially invited to attend
the Meeting in person. However, to assure your representation at the Meeting,
you are urged to mark, sign, date and return the enclosed proxy card as promptly
as possible in the postage-prepaid envelope enclosed for that purpose. Any
stockholder attending the Meeting may vote in person, even if such stockholder
returned a proxy.
Incara's Proxy Statement and proxy is submitted herewith along with Incara's
Annual Report to Stockholders for the fiscal year ended September 30, 2000.
IMPORTANT--YOUR PROXY IS ENCLOSED
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY RETURN
THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING
IN THE UNITED STATES.
By Order of the Board of Directors
Richard W. Reichow
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
Research Triangle Park,
North Carolina
February 8, 2001
INCARA PHARMACEUTICALS CORPORATION
P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, North Carolina 27709
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MARCH 27, 2001
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by the Board of Directors (the "Board") of
Incara Pharmaceuticals Corporation, a Delaware corporation ("Incara" or the
"Company"), for use at Incara's Annual Meeting of Stockholders to be held at the
North Carolina Biotechnology Center, 15 Alexander Drive, Research Triangle Park,
North Carolina, at 12:30 p.m. on Tuesday, March 27, 2001, and any adjournments
thereof (the "Meeting"). The cost of soliciting proxies will be borne by
Incara. In addition to solicitation of proxies by mail, employees of Incara,
without extra remuneration, might solicit proxies personally or by telephone.
Incara will reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy
materials to beneficial owners and seeking instruction with respect thereto.
The mailing address of the principal executive offices of Incara is P.O. Box
14287, Research Triangle Park, North Carolina 27709. Copies of this Proxy
Statement and accompanying proxy card are being mailed to stockholders on or
about February 8, 2001.
Revocability of Proxies
Any stockholder giving a proxy has the power to revoke it at any time before
it is voted by giving a later proxy or written notice to Incara (Attention:
Richard W. Reichow, Secretary), or by attending the Meeting and voting in
person.
Voting
When the enclosed proxy is properly executed and returned (and not
subsequently properly revoked), the shares it represents will be voted in
accordance with the directions indicated thereon, or, if no direction is
indicated thereon, it will be voted:
1. FOR the election of the four nominees for director identified below;
2. FOR the approval of an amendment to the 1994 Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance thereunder from
2,500,000 shares to 3,500,000 shares;
3. FOR the approval of the sale of up to $10 million of Incara's securities
pursuant to a shelf registration filed with the Securities and Exchange
Commission (the "SEC");
4. FOR ratification of the appointment of PricewaterhouseCoopers LLP, Raleigh,
North Carolina, as independent auditors of Incara for the fiscal year
ending September 30, 2001; and
5. In the discretion of the proxies with respect to any other matters properly
brought before the stockholders at the Meeting.
Record Date
Only the holders of record of Common Stock at the close of business on the
record date, January 26, 2001 (the "Record Date"), are entitled to notice of and
to vote at the Meeting. On the Record Date, 8,365,849 shares of Common Stock
were outstanding. Stockholders will be entitled to one vote for each share of
Common Stock held on the Record Date.
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Vote Required
Votes withheld from any voting will be counted for purposes of determining
the presence or absence of a quorum for the transaction of business, but will be
excluded from the vote on any proposal. In Proposal 1, the four nominees for
director receiving the highest number of affirmative votes of the shares present
or represented and entitled to be voted at the Meeting shall be elected as
directors of Incara. On Proposals 2, 3 and 4, the affirmative vote of the
holders of a majority of the shares of Incara's Common Stock present or
represented and voting on the proposal at the Meeting is required for approval.
PROPOSAL NO. 1 - ELECTIONS OF DIRECTORS
Nominees
Incara's By-Laws provide that the number of directors constituting the Board
of Directors shall be no less than one nor greater than seven. The number of
directors currently authorized is four. Therefore, four directors are to be
elected to serve for one year, each until the election and qualification of his
successor, or until his death, removal or resignation. It is intended that
proxies will be voted FOR all of the nominees named below. If any nominee is
unable or declines to serve as a director at the time of the Meeting, the
individuals named in the enclosed proxy may exercise their discretion to vote
for any substitute proposed by the Board of Directors. Each nominee listed
below has agreed to serve as a director if elected. None of the nominees is
related by blood, marriage or adoption to any other nominee or any executive
officer of Incara.
Name of Nominee Age Director Since
--------------- --- --------------
Clayton I. Duncan......................... 51 1995
David B. Sharrock......................... 64 1995
Edgar H. Schollmaier...................... 67 1998
Stephen M. Prescott, M.D.................. 52 2000
CLAYTON I. DUNCAN has been Chairman of the Board of Directors since April
2000 and President, Chief Executive Officer and a director of Incara since
January 1995. From 1989 until December 1993, Mr. Duncan was President and Chief
Executive Officer of Sphinx Pharmaceuticals Corporation, a biopharmaceutical
company which was acquired by Eli Lilly and Company in September 1994. From
December 1993 until September 1994, he served as an independent consultant to
Sphinx with regard to the sale of Sphinx to Lilly. From 1987 to 1989, Mr.
Duncan was a General Partner of Intersouth Partners, a venture capital firm.
From 1979 to 1987, he was an executive with Carolina Securities Corporation, a
regional investment banking firm, serving as Executive Vice President and a
director from 1984 to 1987. Mr. Duncan was founder and Chairman of the Board of
CRX Medical, Inc., a medical products company that conducted research and
development in wound management, ophthalmic disorders and interventional
radiology. Mr. Duncan is also a director of Aeolus Pharmaceuticals, Inc., CPEC
LLC, and Renaissance Cell Technologies, Inc., all of which are subsidiaries of
Incara. Mr. Duncan received an M.B.A. from the University of North Carolina at
Chapel Hill. In addition, Mr. Duncan is a director of The Forest at Duke, a
continuing care retirement community, and Chairman of the Board of Directors of
the Carolina Ballet, a professional ballet company.
DAVID B. SHARROCK has been a director of Incara since October 1995. Mr.
Sharrock was associated with Marion Merrell Dow, Inc., a multi-national
pharmaceutical company, and its predecessor companies for over 35 years until
his retirement in December 1993. Most recently, since December 1989, he served
as Executive Vice President, Chief Operating Officer and a director, and in
1988, he was named President and Chief Operating Officer of Merrell Dow
Pharmaceuticals Inc. Mr. Sharrock is also a director of Interneuron
Pharmaceuticals, Inc., Broadwing Inc. and Praecis Pharmaceuticals Incorporated.
EDGAR H. SCHOLLMAIER has been a director of Incara since May 1998. Mr.
Schollmaier is Chairman of Alcon Laboratories, Inc., a wholly owned subsidiary
of Nestle SA. He served as President of Alcon from 1972 to 1997 and was Chief
Executive Officer for the last 20 years of that term. He is a graduate of the
University of Cincinnati and the Harvard Graduate School of Business
Administration. He serves as a director of DENTSPLY International, Inc., a
dental products company, and Stevens International Inc., a printing and
packaging company. In addition, he is a Regent of Texas Christian University
and a director of the University of Cincinnati Foundation, the Cook Children's
Hospital, Research to Prevent Blindness and the Foundation of the American
Academy of Ophthalmology.
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STEPHEN M. PRESCOTT, M.D. has been a director of Incara since April 2000.
Dr. Prescott is the Executive Director of the Huntsman Cancer Institute at the
University of Utah in Salt Lake City. Dr. Prescott received his M.D. degree
from Baylor College of Medicine in 1973 and then completed training in Internal
Medicine at the University of Utah. Dr. Prescott subsequently undertook
advanced research training in biochemistry and molecular biology at Washington
University School of Medicine. He joined the faculty at the University of Utah
in 1982 and currently is a Professor of Internal Medicine at the University of
Utah where he holds the H.A. & Edna Benning Presidential Endowed Chair in Human
Molecular Biology and Genetics. From 1998 until 1999, Dr. Prescott was Director
of the Program in Human Molecular Biology and Genetics in the Eccles Institute
at the University of Utah.
Information Concerning the Board of Directors and its Committees
The business of Incara is under the general management of the Board of
Directors as provided by the laws of Delaware and the By-Laws of Incara. During
the fiscal year ended September 30, 2000, the Board of Directors held five
formal meetings, excluding actions by unanimous written consent. Each member of
the Board attended all of the fiscal 2000 meetings of Board of Directors and
Board committees of which he was a member.
The Board of Directors has established an audit committee (the "Audit
Committee"), and a compensation committee (the "Compensation Committee"). The
Board has no nominating committee. The Audit Committee currently consists of
Mr. Schollmaier, Mr. Sharrock and Dr. Prescott. During fiscal 2000, the Audit
Committee held two formal meetings. The Audit Committee reviews the results and
scope of the audit and other services provided by Incara's independent public
accountants. The Compensation Committee currently consists of Mr. Sharrock, Mr.
Schollmaier and Dr. Prescott. During fiscal 2000, the Compensation Committee
held three formal meetings. The Compensation Committee makes recommendations to
the Board of Directors regarding salaries and incentive compensation for
officers of Incara, and determines the amount and type of equity incentives
granted to participants in Incara's 1994 Stock Option Plan (the "Option Plan")
and the 1999 Equity Incentive Plan.
The Board of Directors has approved and recommends that stockholders vote
"FOR" the election of the four nominees listed above.
PROPOSAL NO. 2 - APPROVAL OF AMENDMENT TO THE 1994 STOCK OPTION PLAN
Incara's Option Plan was adopted and approved by the Board and by the
stockholders of Incara in October 1994. A total of 3,500,000 shares of Common
Stock have been reserved for issuance under the Option Plan, 1,000,000 of which
are subject to stockholder approval at the Meeting. As of the Record Date,
options to purchase 189,927 shares had been exercised under the Option Plan,
options for 1,971,160 shares were outstanding thereunder at a weighted average
exercise price of approximately $3.08 per share, and options for 1,338,913
shares were available for grant (including the 1,000,000 shares subject to
stockholder approval at the Meeting).
The Option Plan provides for the grant of "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), solely to employees, and nonstatutory stock options to employees,
officers and directors of, and consultants or advisors to, Incara. As of the
Record Date, approximately 24 employees, officers and directors of Incara were
eligible to receive grants under the Option Plan. The Option Plan is
administered by the Compensation Committee of the Board. Subject to the
restrictions of the Option Plan, the Compensation Committee determines who is
granted options, the terms of options granted, including exercise price, the
number of shares subject to the option and the option's exercisability. The
current members of the Compensation Committee are Mr. Sharrock, Mr. Schollmaier
and Dr. Prescott.
The exercise price of options granted under the Option Plan is determined on
the date of grant, and in the case of incentive stock options, must be at least
100% of the fair market value per share at the time of grant. The exercise
price of any option granted to an optionee who owns stock possessing more than
10% of the voting power of Incara's outstanding capital stock must equal at
least 110% of the fair market value of the common stock on the date of grant.
Payment of the exercise price may be made by delivery of cash or a check to the
order of Incara or by other means determined by the Board.
Options granted to employees under the Option Plan generally become
exercisable in increments, based on the optionee's continued employment with
Incara, generally over a period of three to four years. The term of an
incentive stock
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option may not exceed 10 years. The form of option agreement generally provides
that options granted under the Option Plan, whether incentive stock options or
nonstatutory options, expire 10 years from the date of grant. Incentive stock
options granted pursuant to the Option Plan are not transferable by the
optionee, other than by will or the laws of descent and distribution, and are
exercisable during the optionee's lifetime only by the optionee. Nonstatutory
options granted under the Option Plan are transferable to the optionee's family
members. All outstanding options under the Option Plan become fully exercisable
for a period of 60 days following the occurrence of any of the following events:
(i) a tender offer or exchange offer (other than by Incara or any employee
benefit plan of Incara); (ii) the acquisition by any person or group, as defined
under Rule 13d-3 promulgated under the Exchange Act (other than Incara or any
employee benefit plan of Incara) of beneficial ownership of stock possessing 30%
or more of the voting power of Incara's outstanding capital stock; (iii) the
approval of an agreement providing for the merger or consolidation of Incara
with another corporation where the stockholders of Incara, after the merger or
consolidation, will own stock possessing less than 50% of the voting power of
the corporation issuing cash or securities in the merger or consolidation; (iv)
the approval of an agreement providing for the sale or other disposition of all
or substantially all of Incara's assets; ands (v) the date during any period of
two consecutive years when individuals who at the beginning of such period
constitute the Board cease for any reason to constitute a majority thereof,
unless the election or nomination of each new director was approved by at least
two-thirds of the directors still in office who were directors at the beginning
of such period. In the event of a merger of Incara with or into another
corporation, Incara shall request the successor corporation to assume all
options outstanding under the Option Plan. If such successor corporation fails
or refuses to assume the options or to issue substantially equivalent options,
then the outstanding options under the Option Plan shall accelerate and become
fully exercisable.
The Option Plan provides for the grant of nonstatutory options to non-
employee directors of Incara pursuant to a non-discretionary, automatic grant
mechanism (the "Automatic Grant Program"). Each non-employee director of Incara
("Eligible Director") will be granted a stock option to purchase 10,000 shares
of Incara Common Stock on the date each such person first becomes an Eligible
Director. Each Eligible Director shall thereafter be granted automatically each
year (except in the year his or her initial director stock option is granted) an
option to purchase 6,000 shares of Common Stock, as long as such director is a
member of the Board. The exercise price of options granted under the Automatic
Grant Program is the fair market value of the Common Stock on the date of grant.
Such options become exercisable ratably over 36 months, commencing one month
from the date of grant and will expire 10 years after the date of grant.
The Board may amend the Option Plan at any time or from time to time or may
terminate the Option Plan without the approval of the stockholders, provided
that stockholder approval is required for any amendment to the Option Plan
requiring stockholder approval under applicable law as in effect at the time,
and provided further that amendments with respect to options granted to persons
subject to Section 16 of the Exchange Act cannot be made more frequently than
once every six months. However, no action by the Board or stockholders may
alter or impair any option previously granted under the Option Plan. The Board
may accelerate the exercisability of any option or waive any condition or
restriction pertaining to such option at any time. The Option Plan will
terminate in November 2004, unless terminated sooner by the Board.
Tax Consequences of Options
An optionee who is granted an incentive stock option will generally not
recognize taxable income either at the time the option is granted or upon its
exercise, although the exercise may subject the optionee to the alternative
minimum tax. Upon the sale or exchange of the shares more than two years after
grant of the option and one year after exercising the option, any gain or loss
will be treated by the optionee as capital gain or loss. If these holding
periods are not satisfied, the optionee will recognize ordinary income at the
time of sale or exchange equal to the difference between the exercise price and
the lower of the fair market value of the shares at the date of the option
exercise or the sale price of the shares. A different rule for measuring
ordinary income upon such a premature disposition may apply if the optionee is
also an officer, director or holder of more than 10% of the outstanding Common
Stock. Incara will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee. Any gain or loss recognized on such
a premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized as long-term or short-term capital gain
or loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. Generally, an optionee will not recognize
any taxable income at the time he or she is granted a nonstatutory option.
However, upon its exercise, the optionee will recognize taxable income generally
measured as the excess of the then fair market value of the shares purchased
over the purchase price. Any taxable income recognized in connection with an
option exercise by an optionee who is also an employee of Incara will be subject
to tax withholding by Incara. Incara will be entitled to a tax deduction in the
same amount as the ordinary income recognized by the optionee with respect to
shares acquired upon exercise of a nonstatutory option. Upon resale of such
shares by the optionee, any difference between the sales price and
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the optionee's purchase price, to the extent not recognized as taxable income as
described above, will be treated as long-term or short-term capital gain or
loss, depending on the holding period.
The foregoing is only a summary, based on the Code as currently in effect, of
the effect of federal income taxation upon the optionee and Incara with respect
to the grant and exercise of options under the Option Plan, does not purport to
be complete, and does not discuss the tax consequences of the optionee's death
or the income tax laws of any municipality, state or foreign country in which an
optionee may reside.
Proposed Amendment
In January 2001, the Board adopted an amendment to the Option Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
from 2,500,000 shares to 3,500,000 shares (the "Share Amount Amendment").
Without giving effect to the Share Amount Amendment, an adequate number of
option shares would not be available to allow us to meet anticipated needs with
respect to the issuance of additional options to employees, directors and
consultants under the Option Plan.
No benefits or amounts that will be received by or allocated to the Named
Officers as defined under "OTHER INFORMATION-Executive Compensation") under the
Option Plan are currently determinable.
The Board of Directors has approved and recommended, that the stockholders
vote "FOR" the amendment to the Option Plan.
PROPOSAL NO. 3 - APPROVAL OF THE SALE OF SECURITIES
General
Incara requires additional working capital to support its operations. In an
effort to meet these capital requirements, the Company proposes to sell up to
$10,000,000 of its securities to investors from time to time on an as needed
basis. The Company might issue Common Stock, warrants to purchase its Common
Stock (the "Warrants") or new series of preferred stock (the "Preferred Stock"),
or a combination of any of these securities (collectively, the "Securities"),
all as determined by Incara's Board of Directors. The sale of the Securities is
referred to herein as the "Shelf Financing."
The price at which Incara would sell any of the Securities will be negotiated
by Incara and the investor, provided that the price will not be less than the
market price for Incara's Common Stock as reported on the Nasdaq National Market
at the time of the sale. The purchase price of any Preferred Stock, the
conversion price, if any, at which Preferred Stock could convert into Common
Stock, and the exercise price of any Warrants convertible into Common Stock
would be determined on a Common Stock equivalent basis based on the then market
price of the Common Stock. On January 19, 2001, the closing price on the Nasdaq
National Market for Incara Common Stock was $2.875. Based on that price, if
Incara sold only Common Stock, the total number of shares of Common Stock to be
issued would be 3,478,260. In addition, Warrants convertible into shares of
Common Stock also could be issued by Incara. There is no limit on the number of
Warrants that Incara can issue in the Shelf Financing. Consequently, if
stockholders approve the Shelf Financing, the existing holders of Incara Common
Stock could face substantial dilution of their voting power and percentage
ownership in the Company.
On December 20, 2000, Incara filed a registration statement with the SEC
covering all shares of Common Stock and Preferred Stock to be issued in the
Shelf Financing up to an aggregate of $10,000,000, and shares of Common Stock
issuable upon exercise of the Warrants that might be sold by Incara, which has
been assumed to be $2,000,000 of Common Stock. The registration of the
Securities will make them freely tradable by the purchasers of the Securities,
which will make the securities more attractive to potential investors. The
registration statement became effective on January 23, 2000 and will remain
effective as long as Incara intends to sell Securities under it and as long as
there are Securities available for sale. The later sale of any Securities by
investors after their purchase from Incara could have a negative affect on the
price of Incara's Common Stock.
The Preferred Stock
The Company has the authority to issue up to 3,000,000 shares of Preferred
Stock. Currently, of the 3,000,000 authorized shares of Preferred Stock,
1,500,000 shares are designated as Series A Preferred Stock, none of which are
is-
6
sued or outstanding, 600,000 shares are designated as Series B Preferred Stock,
of which 28,457 shares are issued and outstanding, and 20,000 shares are
designated as Series C Preferred Stock, of which 12,015 shares are issued and
outstanding.
The Board of Directors has the authority to issue Preferred Stock in one or
more additional series and to fix the rights, preferences, privileges and
restrictions, including the dividend, conversion, voting, redemption (including
sinking fund provisions), and other rights, liquidation preferences, and the
number of shares constituting any series and the designations of such series,
without any further vote or action by the stockholders of Incara. Because the
terms of the Preferred Stock may be fixed by the Board of Directors of Incara
without stockholder action, the Preferred Stock could be issued quickly with
terms calculated to defeat a proposed take-over of Incara or to make the removal
of management of Incara more difficult. Under certain circumstances this could
have the effect of decreasing the market price of the Common Stock. Management
of Incara is not aware of any threatened transaction to obtain control of
Incara.
The Board will determine, in its discretion, the particular terms of any
series of Preferred Stock to be sold in the Shelf Financing. Those terms might
include:
. the designation, number of shares and stated value per share;
. the amount of liquidation preference;
. the price at which shares of such series of Preferred Stock will be sold;
. the dividend rate or rates (or method of determining the dividend rate);
. the dates on which dividends shall be payable, the date from which
dividends shall accrue and the record dates for determining the holder
entitled to such dividends;
. any redemption or sinking fund provisions;
. any voting rights;
. any conversion or exchange provisions, including conversion into Common
Stock; and
. any additional dividend, redemption, liquidation or other preferences or
rights and qualifications, limitations or restrictions thereof.
The Warrants
Incara may sell and issue Warrants to any purchaser in the Shelf Financing.
The Warrants may be sold separately or sold together with the Common Stock or
the Preferred Stock. There is no limit on the number of Warrants that Incara
may sell in the Shelf Financing, but Incara has registered an additional
$2,000,000 of Common Stock, an amount equal to 20% of the total amount of Common
Stock that could be sold by Incara in the Shelf Financing, to cover the exercise
of the Warrants.
The Warrants may be issued at any purchase price and with any exercise price
that Incara determines is appropriate, provided that the exercise price of the
Warrants will be less than the Common Stock equivalent price as reported on the
Nasdaq National Market at the time of the sale. Typically, warrants are issued
for no consideration as an inducement to the investor to purchase the
securities. Incara currently does not expect to receive a purchase price for
the Warrants.
The Warrants are expected to contain provisions that protect the purchaser
against dilution by adjustment of the exercise price and the number of shares
issuable thereunder upon the occurrence of specified events, such as a merger,
stock split, stock dividend or recapitalization. The exercise price for the
Warrant shares will be payable in cash.
The Warrants will be evidenced by warrant certificates. Unless otherwise
specified, the warrant certificates may be traded separately from the Common or
Preferred Stock, if any, with which the warrant certificates were issued. Until
a Warrant is exercised, the holder of a Warrant will not have any of the rights
of a stockholder.
The Board of Directors of Incara, in its discretion, may determine the terms
of the Warrants, including:
. the title and the aggregate number of Warrants;
. the date or dates on which the Warrants will expire;
. the price or prices at which the Warrants are exercisable;
. the periods during which the Warrants are exercisable;
. the terms of any mandatory or optional call provisions; and
. the price or prices, if any, at which the Warrants may be redeemed at the
option of the holder or will be redeemed upon expiration.
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Manner of Sale
Incara may sell the Securities through agents, underwriters, dealers or
directly to purchasers. Incara will receive the proceeds from the sale of the
Securities, less any commissions or other selling expenses of agents,
underwriters or dealers.
NASDAQ Marketplace Rule 4350(i)
This proposal is submitted for stockholder approval pursuant to Nasdaq
Marketplace Rule 4350(i), which is one of several non-quantitative designation
criteria required of a Nasdaq National Market issuer, such as the Company. One
of the events that necessitates prior stockholder approval pursuant to Rule
4350(i) is as follows:
. When the issuance or potential issuance will result in a change of control
of the issuer.
The Nasdaq has not adopted any rule on what constitutes a "change of
control". Nasdaq has indicated that, generally, it views an issuance of more
than 30% of the issuer's outstanding voting securities as a change of control.
Because the proposed Shelf Financing involves the potential issuance by the
Company of Common Stock, and Securities potentially convertible into Common
Stock, greater than 30% of the Company's currently outstanding Common Stock (the
"30% Share Limitation"), the portion of the Shelf Financing that could exceed
the 30% Share Limitation is subject to Rule 4350(i) and, therefore, requires
stockholder approval. In addition, if the Company wished to enter into other
financing arrangements that require the issuance of the Company's Common Stock
or Preferred Stock, Nasdaq possibly could integrate such additional financing
arrangements with the Shelf Financing and, if the issuance of Incara's Common
Stock or Preferred Stock in all such integrated financing arrangements,
including that with the Shelf Financing, exceeds the 30% Share Limitation,
subject all such financing arrangements to stockholder approval. Management of
the Company believes it is important for the Company to have flexibility in
seeking new financing without having to delay such financing arrangements to
obtain stockholder approval and, therefore, is submitting the Shelf Financing to
stockholders for approval. In this manner, if the Company finds a satisfactory
source of new financing that requires the Company to issue its Common Stock or
Preferred Stock, no stockholder approval of such new financing arrangement would
be required unless the new financing arrangement exceeded an amount of
Securities (on an as converted basis, if applicable) that is less than 30% of
the Company's then outstanding Common Stock. Absent stockholder approval of the
Shelf Financing, the Company would be limited to issuing an amount of Securities
(on an as converted basis, if applicable) that is less than 30% of the Company's
then outstanding Common Stock in connection with the Shelf Financing and
possibly could be prohibited from entering into any other equity-based
financings in which the Company wished to engage (based on the number of shares
of Common Stock outstanding on the date of this proxy statement).
If the Company is unsuccessful in obtaining approval from its stockholders
for the proposal, but the Company nonetheless issues more than 30% of its
outstanding voting Securities in the Shelf Financing or another equity-based
financing arrangement that is integrated with the Shelf Financing, Nasdaq could
delist the Company's Common Stock on the Nasdaq National Market. If this
happens, the Common Stock could be traded in the over-the-counter market on the
OTC Electronic Bulletin Board, an electronic bulletin board established for
securities that do not meet the Nasdaq SmallCap Market listing requirements, in
what is commonly referred to as the "pink sheets". In such an event, the market
price of the Common Stock may be adversely impacted and stockholders might find
it difficult to dispose, or obtain accurate quotations as to the market value,
of their shares of Common Stock. In addition, the Company could find it more
difficult to obtain future financing.
The Board of Directors has approved and recommends a vote "FOR" the approval of
the Shelf Financing.
PROPOSAL NO. 4 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of Incara has appointed the firm of
PricewaterhouseCoopers LLP, Raleigh, North Carolina to serve as the independent
auditors of Incara for the fiscal year ending September 30, 2001, and recommends
that the stockholders ratify such action. PricewaterhouseCoopers has audited
that accounts of Incara and its subsidiaries since Incara's inception in March
1994 and has advised Incara that it does not have, and has not had, any direct
or indirect financial interest in Incara or its subsidiaries in any capacity
other than that of serving as independent auditors. Representatives of
PricewaterhouseCoopers are expected to attend the Meeting. They will have an
opportunity to make a statement, if they desire to do so, and will also be
available to respond to appropriate questions.
8
If the appointment of PricewaterhouseCoopers is not ratified by the
stockholders, the Board of Directors will reconsider its selection.
The Board of Directors has approved and recommends a vote "FOR" the
ratification of the appointment of PricewaterhouseCoopers as independent
auditors of Incara for the fiscal year ending September 30, 2001.
OTHER INFORMATION
Principal Stockholders
The following table sets forth certain information regarding the ownership
of shares of Incara's stock as of the Record Date by
. each person known by Incara to beneficially own more that 5% of the
outstanding shares of each class of stock,
. each director of Incara,
. each executive officer of Incara, and
. all directors and executive officers of Incara as a group.
Series B Convertible Preferred Stock
- ------------------------------------
As of the Record Date, Incara had 28,457 shares of Series B Convertible
Preferred Stock ("Series B Stock") outstanding. The Series B Stock is non-voting
except for matters relating to the rights of Series B Stock.
Shares Percentage
Beneficially of Class
Owned Owned
-------------- --------------
Elan International Services, Ltd..................... 28,457 100.0%
102 St. James Court
Flatts, Smiths Parish
Bermuda FL 04
Series C Convertible Exchangable Preferred Stock
- -------------------------------------------------
As of the Record Date, Incara had 12,015 shares of Series C Convertible
Exchangable Preferred Stock ("Series C Stock") outstanding. The Series C Stock
is non-voting except for matters relating to the rights of Series C Stock.
Shares Percentage
Beneficially of Class
Owned Owned
-------------- --------------
Elan International Services, Ltd...................... 12,015 100.0%
102 St. James Court
Flatts, Smiths Parish
Bermuda FL 04
Common Stock
- ------------
As of the Record Date Incara had 8,365,849 shares of common stock
outstanding. Share ownership in each case includes shares issuable upon exercise
of options that may be exercised within 60 days after the Record Date for
purposes of computing the percentage of common stock owned by such person but
not for purposes of computing percentage owned by any other person. Except as
indicated in footnotes to this table, the persons named in this table have sole
voting and investment power with respect to all shares of common stock indicated
below.
9
Shares Percentage
Beneficially of Class
Owned Owned
------------------- --------------
Clayton I. Duncan (1)............................................................ 686,860 8.0%
3200 East Highway 54, Cape Fear Building, Suite 300
Research Triangle Park, North Carolina 27709
David B. Sharrock (2)............................................................ 47,701 *
Edgar H. Schollmaier (3)......................................................... 35,423 *
Stephen M. Prescott, M.D. (3).................................................... 16,711 *
Richard W. Reichow (4)........................................................... 309,036 3.7%
David P. Ward, M.D. (5).......................................................... 255,403 3.0%
W. Bennett Love (6).............................................................. 117,868 1.4%
John P. Richert (7).............................................................. 117,705 1.4%
Elan International Services, Ltd................................................. 825,000 9.9%
102 St. James Court
Flatts, Smiths Parish
Bermuda FL 04
Lola M. Reid (8)................................................................. 555,890 6.6%
3621 Sweeten Creek Road
Chapel Hill, North Carolina 27514
James D. Crapo (9)............................................................... 495,951 5.8%
4650 South Forest St.
Englewood, Colorado 80110
Interneuron Pharmaceuticals, Inc................................................. 482,011 5.8%
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02421
All directors and executive officers as a group (8 persons) (10)................. 1,586,707 17.8%
_____________
*Less than one percent
(1) Includes 362,470 shares owned (of which, 94,493 shares are unvested shares
of restricted stock) by Mr. Duncan, 152,000 shares owned by Mr. Duncan's
children, and 172,390 shares issuable upon exercise of options held by Mr.
Duncan. Mr. Duncan disclaims beneficial ownership of the shares held by
his children.
(2) Includes 1,000 shares owned and 47,701 shares issuable upon exercise of
options held by Mr. Sharrock.
(3) Consists of shares issuable upon exercise of options held by the named
individual.
(4) Includes 219,347 shares owned (of which, 61,838 shares are unvested shares
of restricted stock) and 89,689 shares issuable upon exercise of options
held by Mr. Reichow.
(5) Includes 125,014 shares owned (of which, 61,838 shares are unvested shares
of restricted stock) and 130,389 shares issuable upon exercise of options
held by Dr. Ward.
(6) Includes 77,702 shares owned (of which 24,348 shares are unvested shares of
restricted stock) and 40,166 shares issuable upon exercise of options held
by Mr. Love.
(7) Includes 77,539 shares owned (of which, 26,779 shares are unvested shares
of restricted stock) and 40,166 shares issuable upon exercise of options
held by Mr. Richert.
(8) Includes 314,286 shares owned by Dr. Reid and 131,604 shares owned by Dr.
Mark Furth, Dr. Reid's husband, and 110,000 shares issuable upon exercise
of options held by Dr. Reid. Dr. Reid disclaims beneficial ownership of
the shares held by her husband.
(9) Includes 339,951 shares owned by Dr. Crapo and 156,000 shares issuable upon
exercise of options held by Dr. Crapo.
(10) See footnotes (1)-(7).
10
Executive Compensation
Summary Compensation
The following table sets forth all compensation earned for services rendered
to it in all capacities for the fiscal years ended September 30, 2000, 1999 and
1998, by Incara's Chief Executive Officer and by the four most highly
compensated executive officers who earned at least $100,000 in the respective
fiscal year (collectively, the "Named Officers").
Summary Compensation Table
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Name and Fiscal Stock Options Restricted Stock All Other
Principal Position Year Salary Bonus (Shares) (Shares) (2) Compensation (1)
- ------------------ ------ ------ ----- ------------- ---------------- ---------------
Clayton I. Duncan 2000 $ 322,500 $ 30,000 --- --- $ 2,823
Chairman, President and 1999 $ 300,000 $ 84,000 --- 188,375 $ 2,934
Chief Executive Officer 1998 $ 295,225 $ 78,652 235,877 --- $ 2,791
Richard W. Reichow 2000 $ 252,625 $ 31,844 --- --- $ 2,762
Executive Vice President, 1999 $ 235,000 $ 54,637 --- 120,000 $ 3,044
Chief Financial Officer, 1998 $ 212,250 $ 46,825 140,000 --- $ 2,811
Treasurer and Secretary
David P. Ward, M.D. 2000 $ 252,625 $ 30,844 --- --- $ 3,340
Executive Vice President, 1999 $ 235,000 $ 51,994 --- 120,000 $ 3,993
Research & Development 1998 $ 221,250 $ 44,520 140,000 --- $ 3,657
W. Bennett Love 2000 $ 131,150 $ 13,344 --- --- $ 1,664
Vice President, Corporate 1999 $ 122,000 $ 23,028 --- 44,000 $ 1,608
Planning/Communications 1998 $ 117,333 $ 17,480 54,000 --- $ 1,554
John P. Richert 2000 $ 131,150 $ 9,531 --- --- $ 1,159
Vice President, 1999 $ 122,000 $ 22,341 --- 49,000 $ 1,200
Market Development 1998 $ 119,083 $ 18,262 59,000 --- $ 1,126
______________________
(1) Consists of life and long-term disability insurance premiums and health
club fees reimbursed or paid on behalf of the Named Officers.
(2) As of September 23, 1999, the Named Officer purchased the number of shares
of restricted stock indicated at par value ($0.001 per share) and cancelled
stock options to purchase an equal number of shares of Common Stock. The
shares of restricted stock vest over three years from the date of grant and
vesting could be accelerated pursuant to a change of control or an
involuntary termination of employment. As of September 30, 2000 a total of
66,884 shares had vested for Mr. Duncan, 40,494 shares for Dr. Ward, 40,494
shares for Mr. Reichow, 12,696 shares for Mr. Love and 14,570 shares for
Mr. Richert. The value of the restricted stock received by the Named
Officer, based on the closing price of Incara's Common Stock on September
23, 1999 ($0.625), was as follows: for Mr. Duncan $117,546; for Dr. Ward
$74,880; for Mr. Reichow $74,880; for Mr. Love $27,456; and for Mr. Richert
$30,625.
Management Incentive Plan
The Compensation Committee and the Board of Directors have approved a
Management Incentive Plan ("MIP") for the executive officers of Incara. The MIP
provides for cash payments to the executive officers upon the achievement of
certain corporate and individual objectives. The MIP is intended to be an annual
compensation program. For the calendar year ended December 31, 2000, the
corporate objectives related to financing and our three research and development
programs. For the calendar years ended December 31, 1999 and 1998, the corporate
objectives related primarily to the development and commercialization of
bucindolol and the identification and advancement of other potential products or
11
programs. The corporate and individual objectives for calendar 2000 have been
evaluated and measured, and cash payments were made to the Named Officers in
January 2001.
Option Grants, Exercises and Holdings and Fiscal Year-End Option Values
No stock option grants were made to any of the Named Officers during the
fiscal year ended September 30, 2000.
The following table sets forth certain information concerning all stock
options exercised during the fiscal year ended September 30, 2000 by the Named
Officers, and the number and value of unexercised options held by the Named
Officers as of September 30, 2000:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
Number of Value of
Securities Underlying Unexercised
Shares Unexercised Options In-the-Money Options
Acquired Value at September 30, 2000 at September 30, 2000 (2)
--------------------------------- --------------------------------
Name on Exercise Realized (1) Exercisable Unexerciseable Exercisable Unexerciseable
- ---- ----------- ----------- ----------- -------------- ----------- --------------
Clayton I. Duncan 100,000 $232,750 151,557 - $ 420,267 $ -
Richard W. Reichow 40,000 $ 93,100 75,800 - $ 215,737 $ -
David P. Ward, M.D. - - 116,500 - $ 338,448 $ -
W. Bennett Love - - 36,000 - $ 85,500 $ -
John P. Richert - - 36,000 - $ 97,500 $ -
______________________
(1) Market value of underlying securities on the date of exercise, minus the
exercise price.
(2) Value based on the difference between the fair market value of the shares
of common stock at September 30, 2000 ($3.375), as quoted on the Nasdaq
National Market, and the exercise price of the options.
Employment Agreements
In December 2000, Incara entered into a three-year employment agreement with
Mr. Duncan. The agreement provides for an annual base salary of $360,000 and
annual bonuses based on the achievement of performance milestones to be mutually
agreed upon by Mr. Duncan and the Board or its Compensation Committee. The
agreement with Mr. Duncan also provides that during the term of the agreement
and, unless Mr. Duncan terminates his employment for cause, for a period of one
year thereafter, Mr. Duncan will not compete with Incara, directly or
indirectly. In the event Mr. Duncan's employment is terminated by the Board,
other than in a change in control and without just cause, Incara shall continue
to pay for a period of one year Mr. Duncan's base salary plus a percentage of
his salary equal to the average annual bonus percentage earned for the two years
prior to the date of termination.
In November 1998, Incara entered into three-year employment agreements with
each of Dr. Ward and Mr. Reichow. The agreements provide for base salaries and
annual bonuses based upon the achievement of performance milestones to be
mutually agreed upon by the officer and the Chief Executive Officer, the Board
or the Compensation Committee. Each agreement also provides that during its term
and, unless the officer terminates his employment for cause, for a period of
nine months thereafter, the officer will not compete with Incara, directly or
indirectly. In the event that the employment of Dr. Ward or Mr. Reichow is
terminated by the Board, other than in a change in control and without just
cause, Incara shall continue to pay, for a period of nine months, Dr. Ward or
Mr. Reichow, as the case may be, his base salary plus a percentage of his salary
equal to the average annual bonus percentage earned for the two years prior to
the date of termination.
In November 1998, Incara entered into three-year employment agreements with
Mr. Love and Mr. Richert. The agreements provide for base salary and annual
bonus based upon the achievement of performance milestones to be mutually agreed
upon by the officer and the Chief Executive Officer, the Board or the
Compensation Committee. Each agreement also provides that during its term and,
unless the officer terminates his employment for cause, for a period of six
months thereafter, Mr. Love or Mr. Richert will not compete with Incara,
directly or indirectly. In the event that the employment of Mr. Love or Mr.
Richert is terminated by the Board, other than in a change in control and
without just cause, Incara shall continue to pay Mr. Love or Mr. Richert his
base salary for a period of six months.
12
In September 1999, Incara entered into individual severance agreements with
Mr. Duncan, Dr. Ward, Mr. Reichow, Mr. Love and Mr. Richert. The severance
agreements provide that if the officer's employment with Incara is terminated,
without just cause, subsequent to a change in control as defined in the
severance agreements, such officer shall receive a severance benefit of two and
one-half times his annual base salary and average bonus.
Compensation of Directors
All directors are reimbursed for expenses incurred in connection with each
board or committee meeting attended. From October 1, 1999 and through January
17, 2000, each director who was not an employee of Incara received a fee of
$2,000 per Board meeting attended in person. In addition, the 1994 Stock Option
Plan provided for the grant of nonstatutory options to non-employee directors of
Incara pursuant to a non-discretionary, automatic grant mechanism (the
"Automatic Grant Program"). Each non-employee director of Incara ("Eligible
Director") was granted a stock option to purchase 5,000 shares of Common Stock
on the date each such person first became an Eligible Director. Each Eligible
Director thereafter was granted automatically each year upon re-election (except
in the year his or her initial director stock option was granted) an option to
purchase 3,000 shares of Common Stock as long as such director was a member of
the Board. The exercise price of options granted under the Automatic Grant
Program was the fair market value of Incara's Common Stock on the date of grant.
Such options became exercisable ratably over 36 months commencing one month from
the date of grant and expire the earlier of 10 years after the date of grant or
90 days after termination of the director's service on the Board.
After a review of director compensation programs of other companies in its
industry, on January 18, 2000, the Compensation Committee and the Board adopted
a new compensation program for Eligible Directors. Each Eligible Director will
receive an annual retainer of $13,000 and will receive a fee of $500 for each
Board meeting attended in person. The annual retainer will be due on the date
that the Eligible Director is elected or re-elected to the Board of Directors.
Directors may elect to receive all or a portion of their annual retainer as an
option to purchase Common Stock. Any remainder will be paid in cash. Any option
elected will enable the director to purchase a number of shares equal to three
times the number of shares that could have been purchased with the portion of
the annual retainer elected to be received as option. The exercise price per
share for the option will be the fair market value of the Common Stock on the
date of the grant. The date of grant will be the date the annual retainer is
granted to the director. These options will be fully vested upon grant and will
be exercisable for ten years from the date of the grant. This director
compensation program was adopted on January 18, 2000, subject to the transition
policy that the date of the annual retainer and the grant date was January 18,
2000 for each Eligible Director who was a director on the date the program was
adopted and the director did not receive any additional retainer at the
following Annual Meeting. In addition, the Automatic Grant Program was revised
to increase the initial stock option grant for new Eligible Directors from 5,000
shares to 10,000 shares and the annual automatic stock option grant was
increased from 3,000 shares to 6,000 shares. The options will become exercisable
ratably over 36 months commencing one month from the date of grant and will
expire 10 years after the date of grant.
Report of the Compensation Committee on Executive Compensation
Neither the material in this report, nor the performance graph included in
this proxy statement under the heading " Performance Graph" (the "Performance
Graph"), is soliciting material, is or will be deemed filed with the SEC or is
or will be incorporated by reference in any filing of Incara under the
Securities Act of 1933, as amended, or the Exchange Act, whether made before or
after the date of this proxy statement and irrespective of any general
incorporating language in such filing.
The Compensation Committee is responsible for establishing compensation
policy and administering the compensation programs of Incara's executive
officers. The Compensation Committee met three times during fiscal 2000 to
review executive compensation policies, compensation programs, and individual
salaries and awards for the executive officers. The purpose of this report is
to inform stockholders of Incara's compensation policies for executive officers
and the rational for the compensation paid to executive officers in fiscal 2000.
Compensation Philosophy
Incara's compensation program is designed to motivate and reward the
executives responsible for the financial and strategic objectives essential to
Incara's long-term success and stockholder value. The financial goals for
compensation plans are reviewed and approved by the Compensation Committee.
Incara's total compensation philosophy is designed to support its overall
objective of creating value for its stockholders. Key objectives of this
philosophy are:
13
.To attract and retain key executives critical to the long-term success of
Incara;
.To support a performance-oriented environment that rewards performance with
respect to Incara's short-term and long-term financial goals;
.To encourage maximum performance through the use of appropriate incentive
programs; and
.To align the interests of executives with those of Incara's stockholders by
providing a significant portion of compensation in Incara's Common Stock.
Base Salary
The Compensation Committee annually reviews the base salary of each officer.
In determining appropriate salary levels, the Compensation Committee considers
individual performance, experience, level of responsibility, internal equity and
external pay practices for the comparable positions. The Compensation Committee
has decided not to use the compensation information of the companies included in
the CRSP Nasdaq Pharmaceuticals Stocks Index shown in the Performance Graph
because most of the companies included in the index are larger than Incara and
therefore the information is not considered to be comparable.
Management Incentive Plan
Incara has established the MIP to reward participants for their contributions
to the achievement of company-wide performance goals. Each year the Board will
approve both the performance measures selected and the specific financial
targets used under the MIP. The Compensation Committee believes these goals
will drive the future success of the Company's business and will enhance
stockholder value. Awarded amounts are directly related to performance. The
amount individual executives may earn (target awards) is directly dependent upon
the individual's position, responsibility and ability to impact the Company's
financial success. The MIP target payment as a percentage of base salary for
the Chief Executive Officer is 40%, for executive vice presidents is 30% and for
the other vice presidents is 25%. An individual may earn from 0% to 200% of the
MIP target percentage.
For calendar 2000, the corporate objectives related to financing and our
three research and development programs. For calendar 1999, Incara's corporate
objectives focused primarily on the development and commercialization of
bucindolol and the identification and advancement of other potential products or
programs. For calendar 1999, the Company achieved a weighted average of only 25%
of its corporate objectives, as 75% of the objectives related to the bucindolol
program, which was unsuccessfully terminated during 1999. The 25% that was
earned related to a non-bucindolol program.
Company and individual performance for the calendar 2000 objectives have been
evaluated, and cash payments were made to the executive officers in January
2001. See " Executive Compensation Management Incentive Plan".
Stock Options
The Option Plan offered by Incara has been established to provide all
employees of Incara with an opportunity to share, along with stockholders of
Incara, in the long-term performance of Incara. Stock options only have value to
the employee if the price of Incara's stock appreciates in value from the date
the stock options were granted. Stockholders also benefit from such stock price
appreciation.
Grants of stock options are generally made upon commencement of employment,
with additional grants being made periodically to all eligible employees, and,
occasionally, following a significant change in job responsibility, scope or
title. Stock options granted under the Option Plan generally have vesting
schedules of three to four years and expire ten years from the date of grant.
The exercise price of options granted under the Option Plan is usually 100% of
fair market value of the Common Stock on the date of grant. See " Executive
Compensation Option Grants, Exercises and Holdings and Fiscal Year End Option
Values".
Restricted Stock
As an integral component of a management and employee retention program
designed to motivate, retain and provide incentive to the Company's management,
employees and key consultants, the Compensation Committee and the
14
Board adopted the 1999 Equity Incentive Plan (the "1999 Plan") in September
1999. The 1999 Plan provides for the grant of restricted stock ("Restricted
Stock") awards which entitle employees and consultants to receive up to an
aggregate of 1,400,000 shares of the Company's Common Stock upon satisfaction of
specified vesting periods. As of September 30, 1999, Restricted Stock awards to
acquire an aggregate of 1,209,912 shares had been granted to employees and key
consultants of the Company in consideration of services rendered by the
participants to the Company, the cancellation of options for an equal number of
shares of Common Stock and payment of the par value of the shares. No Restricted
Stock awards were granted in fiscal 2000. The shares of Restricted Stock vest
over up to three years from the date of grant and vesting could be accelerated
pursuant to certain events, such as a change of control or an involuntary
termination of employment.
CEO Compensation
Mr. Duncan's base salary and grants of restricted stock and stock options for
fiscal 2000 were determined in accordance with the criteria described in the
Base Salary, Stock Options and Restricted Stock sections of this report. The
annual base salary of Mr. Duncan was increased from $300,000 to $330,000 as of
January 1, 2000. In January 2001, it was increased to $360,000. Mr. Duncan
received a bonus of $30,000 in January 2000 pursuant to the MIP for calendar
1999. Mr. Duncan did not receive any stock options during fiscal 2000.
Conclusion
The Compensation Committee believes that Incara's compensation policies are
structured to result in the highest level of performance from Incara's
executives. By providing a significant portion of each executive's total
potential compensation under the MIP and by providing each executive with a
significant number of shares of restricted stock and stock options, the
Compensation Committee believes that it has closely aligned Incara executive's
personal interests with those of the Company and the stockholders. The
Compensation Committee intends to continue to review and analyze its policies in
light of the environment in which the Company competes for executives.
Submitted by: The Compensation Committee
DAVID B. SHARROCK, Chairman
EDGAR H. SCHOLLMAIER
STEPHEN M. PRESCOTT, M.D.
Compensation Committee Interlocks and Insider Participation
During fiscal 2000, the Compensation Committee consisted of Joseph J. Ruvane,
Jr., Mr. Sharrock, Mr. Schollmaier and Dr. Prescott. Mr. Ruvane, Mr. Sharrock,
Mr. Schollmaier and Dr. Prescott were not at any time during fiscal 2000 or at
any other time an officer or employee of Incara. No executive officer of Incara
serves as a member of the board of directors or compensation committee of any
entity which has one or more executive officers serving as a member of the Board
of Directors of Incara or the Compensation Committee. Mr. Ruvane passed away in
June 2000.
Report of the Audit Committee
The Audit Committee has reviewed and discussed the Company's audited
financial statements for fiscal 2000 with management. The Audit Committee has
discussed with PricewaterhouseCoopers LLP, the Company's independent auditors,
the matters required to be discussed by Statement on Auditing Standards No. 61,
as modified or supplemented. The Audit Committee has received the written
disclosures and the letter from PricewaterhouseCoopers required by Independence
Standards Board Standard No. 1, as modified or supplemented and has discussed
with PricewaterhouseCoopers its independence. Based on the review and
discussions described above, among other things, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included in
the Company's Annual Report on Form 10-K for fiscal 2000.
15
The Board of Directors has determined that the members of the Audit
Committee are independent as defined in Rule 4200(a)(14) of the National
Association of Securities Dealers' listing standards, as applicable and as may
be modified or supplemented. The Audit Committee recommended and the Board of
Directors approved an Audit Committee charter, a copy of which is attached as
Appendix A to this Proxy Statement.
Submitted by: The Audit Committee
EDGAR H. SCHOLLMAIER, Chairman
DAVID B. SHARROCK
STEPHEN M. PRESCOTT, M.D.
The foregoing Audit Committee Report shall not be deemed to be
incorporated by reference into any of the Company's previous or future filings
with the SEC, except as otherwise explicitly specified by the Company in any
such filing.
Performance Graph
The following graph shows a five-year (1) comparison of cumulative
total stockholder returns (2) for Incara, the CRSP Nasdaq Pharmaceuticals Stocks
Index and the CRSP Total Return Index of the Nasdaq Stock Market. (The "CRSP" is
the Center for Research in Securities Prices at the University of Chicago.) The
graph assumes that $100 was invested on February 1, 1996 (the date of Incara's
initial public offering) in each of Incara's Common Stock, the stocks in the
CRSP Nasdaq Pharmaceuticals Stocks Index and the stocks in the CRSP Total Return
Index of the Nasdaq Stock Market.
2/1/96 9/30/96 9/30/97 9/30/98 9/30/99 9/30/00
-------- -------- -------- -------- -------- --------
Incara 100.0 165.0 150.0 26.7 4.4 22.5
CRSP-Pharmaceuticals 100.0 95.1 106.1 91.3 155.9 341.8
CRSP-Nasdaq 100.0 116.7 160.2 162.7 265.9 352.8
- --------------------
(1) Indicates comparison of total return for all of fiscal 2000, 1999,
1998 and 1997 and solely for that period of fiscal 1996 (February 1,
1996 September 30, 1996) during which Incara's Common Stock was
registered under Section 12 of the Exchange Act.
(2) Total return assumes reinvestment of dividends. Total returns for the
Nasdaq Stock Market and the Nasdaq Pharmaceuticals Stocks indices are
weighted based on market capitalization.
Certain Transactions
On July 26, 2000, Incara purchased from each of Lola M. Reid and James
D. Crapo, both of whom are consultants to Incara, 18,000 shares of our Common
Stock at a per share price of $2.25, the closing price as listed on Nasdaq on
July 26, 2000. Incara repurchased these shares in order to comply with Nasdaq
Rule 4350, which limits the amount of our common stock we can issue under
certain circumstances without stockholder approval. The shares repurchased were
issued to Drs. Reid and Crapo in the acquisitions of Renaissance Cell
Technologies and Aeolus Pharmaceuticals on March 31, 2000.
On March 31, 2000, Incara purchased all of the minority interests of
Renaissance Cell Technologies, Inc. and Aeolus Pharmaceuticals, Inc. Prior to
the acquisition, Incara owned 78.0% of Renaissance and 65.8% of Aeolus. Incara
issued 1,220,041 shares of its common stock in exchange for the subsidiaries'
minority ownership. The acquisition has been accounted for using the purchase
method of accounting. The total purchase price of $6,664,000 consisted of
1,220,041 shares of Incara's common stock with a fair market value of $5.46 per
share, based on the price of the Common Stock at the date of acquisition. The
total purchase price was allocated to purchased in-process research and
development and immediately charged to operations because the in-process
research purchased was in preclinical stages and feasibility had not been
established at the date of the acquisition and was deemed to have no alternative
future use. Additionally, Renaissance and Aeolus had no workforce or other
tangible fixed assets.
In January 2000, the Company's Board of Directors authorized the
repurchase of up to $2,000,000 of Common Stock during the following two months
through purchases on the stock market. During that period, the Company
repurchased 104,100 shares of Common Stock at a cost of $331,000.
16
Incara has adopted a policy that all transactions between Incara and its
executive officers, directors and other affiliates must be approved by a
majority of the members of the Board of Directors of Incara and by a majority of
the disinterested members of the Board, and must be on terms no less favorable
to Incara than could be obtained from unaffiliated third parties. In addition,
the policy requires that any loans by Incara to its executive officers,
directors or other affiliates be for bona fide business purposes only.
Section 16(a) Beneficial Ownership Reporting Compliance
To Incara's knowledge, there were no reports required under Section 16(a) of
the Exchange Act that were not timely filed during the fiscal year ended
September 30, 2000.
Deadline for Stockholder Proposals
Stockholders having proposals that they desire to present at next year's
annual meeting of stockholders of Incara should, if they desire that such
proposals be included in Incara's proxy statement relating to such meeting,
submit such proposals in time to be received by Incara not later than October
11, 2001. To be so included, all such submissions must comply with the
requirements of Rule 14a-8 promulgated under the Exchange Act and the Board of
Directors directs the close attention of interested stockholders to that Rule.
Proposals may be mailed to Richard W. Reichow, Corporate Secretary, Incara
Pharmaceuticals Corporation, P.O. Box 14287, Research Triangle Park, North
Carolina 27709.
If a stockholder of the Company wishes to present a proposal before the 2002
Annual Meeting, but does not wish to have the proposal considered for inclusion
in the Company's proxy statement and proxy card, such stockholder must also give
written notice to the Secretary of the Company at the address noted above. The
Secretary must receive such notice no later than January 1, 2002. If a
stockholder fails to provide timely notice of a proposal to be presented at the
2002 Annual Meeting, the proxies designated by the Board of Directors of the
Company will have discretionary authority to vote on any such proposal.
Other Matters
The Board of Directors knows of no other business to be brought before the
Meeting, but it is intended that, as to any such other business, the shares will
be voted pursuant to the proxy in accordance with the best judgement of the
person or persons acting thereunder.
17
APPENDIX A
INCARA PHARMACEUTICALS CORPORATION
Audit Committee Charter
I. PURPOSE
1. The primary function of the Audit Committee ("Committee") of Incara
Pharmaceuticals Corporation (the "Company") is to assist the Board of
Directors ("Board") in fulfilling its oversight responsibilities related to
corporate accounting, financial reporting practices, quality and integrity
of financial reports as well as legal compliance and business ethics
matters. It shall be the policy of the Committee to maintain free and open
communication among the Board, the independent auditors and the management
of the Company.
2. Although the Committee has the responsibilities and powers set forth in
this charter, it is not the duty of the Committee to plan or conduct audits
or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting
principles. This is the responsibility of management and the independent
auditors. Nor is it the duty of the Committee to conduct investigations, to
resolve disagreements, if any, between management and the independent
auditors or to assure compliance with laws and regulations and the
Company's policies.
II. ORGANIZATION
1. Members - The Committee shall be composed of directors who are independent
of the management of the Company and are free of any relationship that, in
the opinion of the Board, would interfere with their exercise of
independent judgement as a Committee member. The Board shall appoint
Committee members and (on or before June 13, 2001) the Committee shall be
composed of not less than three independent Directors who are financially
literate or will become financially literate within a reasonable period of
time after his or her appointment to the Committee. At least one member of
the Committee shall have accounting or related financial management
expertise.
2. Meetings - The Committee should meet on a regular basis and special
meetings should be called as circumstances require. The Committee shall
meet privately from time to time with representatives of the Company's
independent public accountants and management. Written minutes should be
kept for all Committee meetings and the Committee will report to the Board
after each Committee meeting.
3. Charter - The Board and the Committee shall review the adequacy of the
Audit Committee Charter on an annual basis.
III. FUNCTIONS
1. Independent Accountants - Recommend to the Board annually, the firm to be
employed by the Company as its independent accountants. Instruct the
independent accountants that they are ultimately responsible to the Board
and the Committee, as representatives of the Company's stockholders.
Receive from the independent accountants a formal written statement
delineating all relationships between the independent accountants and the
Company, to ensure objectivity and independence. Evaluate and, if
necessary, replace the independent accountants.
2. Audit Plans & Results - Review the plans, scope, fees and results for the
annual audit with the independent auditors. Meet with management and the
independent auditors together and separately to dis-
cuss the financial statements and the results of the audit. Inquire of
management and the independent auditor if any significant financial
reporting issues arose during the current audit and, if so, how they were
resolved. Evaluate and recommend to the Board whether or not the annual
audited financial statements should be included in the Annual Report on
Form 10-K to be filed with the SEC. Discuss any significant issues raised
by the independent auditors in their letter of recommendations, if any, to
management regarding internal control weaknesses and process improvements.
Review the extent of any services and fees outside the audit area performed
for the Company by its independent accountants.
3. Accounting Principles and Disclosures - Review significant developments in
accounting rules and recommended changes in the Company's methods of
accounting or financial statements. Review with the independent accountants
the quality and acceptability of the application of the Company's
accounting principles to the Company's financial reporting, including any
significant proposed changes in accounting principles and financial
statements.
4. Internal Accounting Controls - Consult with the independent accountants
regarding the adequacy of internal accounting controls. Inquire as to the
adequacy of the Company's accounting, financial and auditing personnel
resources. As appropriate, consultation with the independent accountants
regarding internal accounting controls should be conducted out of
management's presence.
5. Internal Control Systems - Review with management and the independent
accountants Company's internal control systems intended to ensure the
reliability of financial reporting and compliance with applicable codes of
conduct, laws and regulations. Special presentations may be requested of
Company personnel responsible for such areas as legal, human resources,
information technology, environmental, risk management, tax compliance and
others as considered appropriate. Ensure that the independent accountants
have access to the Committee on issues of fraud, deficiencies in internal
control and related matters.
6. Interim Financial Statements - Review how management develops and
summarizes quarterly financial information. Require the independent
auditors to review the quarterly financial information to be included in
the Company's Quarterly Report on Form 10-Q to be filed with the SEC and
discuss the results of the review with the Committee or the Committee
Chairman.
In carrying out its responsibilities, the Committee believes that its policies
and procedures should remain flexible in order that it can best react to
changing conditions and environment and to assure to the directors and
stockholders that the corporate accounting and reporting practices of the
Company are in accordance with all requirements and are of the highest quality.
PRELIMINARY
INCARA PHARMACEUTICALS CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
PROXY
The undersigned, a stockholder of Incara Pharmaceuticals Corporation, a Delaware
corporation ("Incara"), hereby constitutes and appoints Clayton I. Duncan and
Richard W. Reichow, or either of them, attorneys and proxies with full power of
substitution to act and vote all shares of the undersigned at the annual meeting
of stockholders of Incara to be held at the North Carolina Biotechnology Center,
15 Alexander Drive, Research Triangle Park, North Carolina on March 27, 2001
commencing at 12:30 p.m., Eastern Time, and any adjournment(s) thereof (the
"Meeting"). The undersigned hereby directs this proxy to be voted as follows:
(Continued and to be signed on other side)
A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
FOR ALL NOMINEES WITHHOLD AUTHORITY
LISTED AT RIGHT TO VOTE FOR ALL
(except as marked to NOMINEES LISTED
the contrary below) AT RIGHT
1. The election of four directors. [ ] [ ]
INSTRUCTION: To withhold authority NOMINEES:
to vote for any individual nominee Clayton I.Duncan
strike a line through the nominee's David B.Sharrock
name listed at right. Edgar H. Schollmaier
Stephen M. Prescott, M.D.
2. The approval of an amendment to Incara's 1994 Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance thereunder from
2,500,000 to 3,500,000 shares, as described in the accompanying Proxy Statement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. The approval of the sale of up to $10 million of Incara's securities
pursuant to a shelf registration filed with the Securities and Exchange
Commission, as described in the accompanying Proxy Statement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. The ratification of the appointment of PricewaterhouseCoopers LLP as the
independent auditors of the Company for the fiscal year ending September 30,
2001.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE. IN THE ABSENCE OF ANY DIRECTION,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1-4, WITH DISCRETION TO VOTE UPON SUCH
OTHER MATTERS AS MAY BE BROUGHT BEFORE THE MEETING. ANY PROXY HERETOFORE GIVEN
BY THE UNDERSIGNED FOR THE MEETING IS HEREBY REVOKED AND DECLARED NULL AND VOID
AND WITHOUT ANY EFFECT WHATSOEVER.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING. IF YOU ATTEND
THE MEETING, YOU CAN VOTE EITHER IN PERSON OR BY PROXY.
___________________________ (SEAL) ________________________________________
Signature Print name and title, if appropriate
___________________________ (SEAL) ________________________________________ Dated: _______ ,2001
Signature Print name and title, if appropriate
NOTE: [Please sign exactly as name appears on certificate(s)]