SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11c or 240.14a-12
TRIANGLE PHARMACEUTICALS, INC.
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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)(1)
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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[LETTERHEAD OF TRIANGLE PHARMACEUTICALS]
4 UNIVERSITY PLACE, 4611 UNIVERSITY DRIVE
DURHAM, NORTH CAROLINA 27707
April 3, 1998
To the Stockholders of TRIANGLE PHARMACEUTICALS, INC.
You are cordially invited to attend the Annual Meeting of the
Stockholders of Triangle Pharmaceuticals, Inc., to be held at The University
Club, 3100 Tower Boulevard, Durham, NC 27707 on May 15, 1998 at 10:00 a.m.
Details of the business to be conducted at the Annual Meeting are
given in the attached Notice of Annual Meeting and Proxy Statement which you
are urged to read carefully.
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/ David W. Barry, M.D.
David W. Barry, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL 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).
TRIANGLE PHARMACEUTICALS, INC.
4 UNIVERSITY PLACE, 4611 UNIVERSITY DRIVE
DURHAM, NORTH CAROLINA 27707
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 1998
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To the Stockholders of TRIANGLE PHARMACEUTICALS, INC.
The Annual Meeting of Stockholders of Triangle Pharmaceuticals, Inc.
("Triangle" or the "Company") will be held at The University Club, 3100 Tower
Boulevard, Durham, NC 27707 on May 15, 1998 at 10:00 a.m. (the "Annual Meeting")
to consider and vote upon the following matters, which are more fully described
in the accompanying Proxy Statement:
1. To elect three (3) directors to the class of directors
whose term expires in 2001. The Board has nominated the following
persons for election at the Annual Meeting: Standish M. Fleming,
Dennis B. Gillings, Ph.D., and Henry G. Grabowski, Ph.D.
2. To approve a series of amendments to the 1996 Stock
Incentive Plan (i) increasing the number of shares of Common Stock
authorized for issuance under the plan (the "option pool") by an
additional 1,000,000 shares, (ii) providing for automatic annual
increases in 1999, 2000 and 2001 in the option pool by an amount equal
to 4% of the total number of shares outstanding, but in no event will
the increase in any year exceed 1,000,000 shares less the total number
of shares then available in the option pool for future grants, and
(iii) increasing the number of shares of Common Stock issuable upon the
exercise of options granted to non-employee Board members under the
Automatic Option Grant Program to 2,000 shares on the date first
elected or appointed to the Board and 2,000 additional shares for each
full or partial year of such member's term, measured from the date of
each annual meeting of stockholders.
3. To ratify the appointment of Price Waterhouse LLP as the
Company's independent accountants for the fiscal year ending December
31, 1998.
4. To transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. All stockholders of record at the close of
business on March 26, 1998 will be entitled to vote at the Annual Meeting and at
any adjournment thereof. The transfer books will not be closed. A list of
stockholders entitled to vote at the Annual Meeting will be available for
inspection at the offices of the Company.
By Order of the Board of Directors
/s/ Chris A. Rallis
Chris A. Rallis, SECRETARY
April 3, 1998
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN, PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
TRIANGLE PHARMACEUTICALS, INC.
4 UNIVERSITY PLACE, 4611 UNIVERSITY DRIVE
DURHAM, NORTH CAROLINA 27707
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PROXY STATEMENT
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FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
MAY 15, 1998
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board") of Triangle Pharmaceuticals, Inc., a Delaware corporation
("Triangle" or the "Company"), for use at the annual meeting of stockholders to
be held on May 15, 1998, and at any adjournment or postponement of the annual
meeting (the "Annual Meeting"). The Annual Meeting will be held at 10:00 a.m. at
The University Club, 3100 Tower Boulevard, Durham, NC 27707. All stockholders of
record on March 26, 1998 will be entitled to notice of and to vote at the Annual
Meeting. The Company intends to mail this Proxy Statement and the accompanying
proxy (the "Proxy") to stockholders on or about April 9, 1998.
The mailing address of the principal executive office of the Company
is 4 University Place, 4611 University Drive, Durham, North Carolina 27707.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders (collectively, the "Proposals"). Each Proposal is described in more
detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
VOTING
On March 26, 1998, the record date for determination of stockholders
entitled to vote at the Annual Meeting, there were 20,015,038 shares of Common
Stock outstanding. Each holder of Common Stock is entitled to one vote on all
matters brought before the Annual Meeting.
Abstentions and broker nonvotes will be counted for purposes of
determining whether a quorum is present at the Annual Meeting and abstentions
will have the effect of negative votes.
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, 4 University Place, 4611 University
Drive, Durham, North Carolina 27707, 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 materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward the solicitation materials 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.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a classified
Board consisting of three classes of directors serving staggered three-year
terms, with each class consisting as nearly as possible of one-third of the
total number of directors. The Bylaws of the Company provide for a Board
consisting of such number of directors as may be fixed from time to time by
resolution of two-thirds of the members of the Board or by two-thirds of the
stockholders at an annual meeting of stockholders of the Company. The Board has
fixed the number of directors to constitute the full Board from and after the
Annual Meeting at eight, with two classes consisting of three directors and the
third class consisting of two directors. Three directors are to be elected at
the Annual Meeting for a term expiring at the 2001 annual meeting of
stockholders or until their successors have been duly elected and qualified.
Standish M. Fleming and Karl Hostetler, M.D., both directors
of the Company since 1995, represent the class of directors whose term expires
at the Annual Meeting. The Board has nominated Mr. Fleming, Dennis B. Gillings,
Ph.D. and Henry G. Grabowski, Ph.D. to stand for election to the class of
directors whose term expires at the 2001 annual meeting of stockholders or until
their successors are elected and have qualified. Dr. Hostetler has notified the
Board of his intention to resign from the Board effective as of the Annual
Meeting. 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. In the event any of the nominees is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who may be designated by the present Board to fill the vacancy.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them FOR the nominees named below.
NOMINEES
The following table sets forth information regarding the nominees.
YEAR FIRST CLASS
ELECTED TERMINATION
NAME DIRECTOR AGE YEAR POSITION
---- -------- --- ---- --------
Standish M. Fleming (1) 1995 50 2001 Director
Dennis B. Gillings, Ph.D -- 53 2001 Director
Henry G. Grabowski, Ph.D -- 57 2001 Director
- --------
(1) Member of Audit Committee.
BUSINESS EXPERIENCE OF NOMINEES (FOR ELECTION TO TERMS EXPIRING IN 2001)
STANDISH M. FLEMING has served as a director of the Company
since July 1995 and as a member of the Audit Committee since August 1996.
Since April 1993, Mr. Fleming has been a general partner of Forward Ventures,
a venture capital firm. Mr. Fleming also served in an advisory position
with Forward Ventures from February 1992 through April 1993. Prior to that,
Mr. Fleming joined Ventana, a venture capital firm, in 1986 and served as a
fund manager from January 1990 through January 1992. Mr. Fleming received a
B.A. in English from Amherst College and an M.B.A. from the University of
California, Los Angeles. Mr. Fleming currently serves as a director of
four privately-held companies.
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DENNIS B. GILLINGS, PH.D. is Chairman and Chief Executive Officer of
Quintiles Transnational Corp., which he founded in 1982. Quintiles
Transnational Corp. is a provider of contract research, sales and marketing
services to the pharmaceutical, biotechnology and medical device industries.
Dr. Gillings served as a professor at the University of North Carolina at
Chapel Hill from 1972 to 1988, and he currently serves on the University of
North Carolina School of Public Health Foundation Board. Dr. Gillings
received a Diploma in Mathematical Statistics from the University of Cambridge
in 1967 and a Ph.D. in Mathematics from the University of Exeter, England,
in 1972. Dr. Gillings is currently a director of several privately-held
companies.
HENRY G. GRABOWSKI, PH.D. has served as a professor in the Economics
Department, Duke University, since 1976 and as the Director of the Program in
Pharmaceuticals and Health Economics, Duke University, since 1983. Dr.
Grabowski is considered a leader in the field of, and has authored and
co-authored numerous books, monographs and articles concerning,
pharmaceutical regulation and innovation. Dr. Grabowski has served as an
advisor to numerous private and public organizations, including the
Institute of Medicine, the National Science Foundation and the General
Accounting Office. Dr. Grabowski is an adjunct scholar at the American
Enterprise Institute and he currently serves as Associate Editor of the
THE QUARTERLY REVIEW OF ECONOMICS AND FINANCE and the JOURNAL OF RESEARCH
IN PHARMACEUTICAL ECONOMICS. Dr. Grabowski received a B.S. in Engineering
Physics from Lehigh University in 1962 and a Ph.D. in Economics from
Princeton University in 1967.
BUSINESS EXPERIENCE OF CONTINUING DIRECTORS WITH TERMS EXPIRING IN 1999 (AGE)
M. NIXON ELLIS, PH.D. (48) has served as a director of the Company
since July1995 and as President and Chief Operating Officer since September
1995. Prior to joining the Company, Dr. Ellis served as Global Brand
Director, HIV/Retrovir(R) of Wellcome plc ("Wellcome"), a pharmaceutical
company, from January 1995 through June 1995, where he was responsible for
managing a $300 million worldwide business. From April 1993 through December
1994, Dr. Ellis served as Assistant Director, Group Licensing of Wellcome.
Prior to that, Dr. Ellis served as Assistant Division Director, Virology of
Burroughs Wellcome Co. ("Burroughs Wellcome"), a pharmaceutical company, from
March 1991 to March 1993. Prior to assuming his management responsibilities
at Wellcome, Dr. Ellis' research focused on the disease producing potential
of drug resistant viral mutants. Dr. Ellis received a B.S. in biology from
the University of South Carolina, an M.B.A. from the University of North
Carolina, Chapel Hill, and an M.S. in medical microbiology and a Ph.D. in
microbiology from the University of Georgia.
ANTHONY B. EVNIN, PH.D. (57) has served as a director of the Company
since November 1995 and as a member of the Compensation Committee since
August 1996. Since 1975, Dr. Evnin has been a general partner of Venrock
Associates, a venture capital firm. Dr. Evnin received an A.B. in chemistry
from Princeton University and a Ph.D. in chemistry from Massachusetts
Institute of Technology. Dr. Evnin is currently a director of several
privately-held companies and the following publicly-held companies: AxyS
Pharmaceuticals, Inc., Centocor, Inc., and Ribozyme Pharmaceuticals, Inc.,
all of which are biopharmaceutical companies, and Opta Food Ingredients,
Inc., a food ingredients company.
BUSINESS EXPERIENCE OF CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2000 (AGE)
DAVID W. BARRY, M.D. (54) has served as Chairman of the Board and
Chief Executive Officer since July 1995 and served as the Company's President
from July through September 1995. Prior to joining the Company, Dr. Barry
served as a member of the Board and as the Director of Research, Development
and Medical Affairs of Wellcome from May 1994 through May 1995. From May 1989
through May 1994, Dr. Barry served as Vice President, Research, Development
and Medical Affairs of Burroughs Wellcome. Dr. Barry is considered a leader
in the field of antiviral therapy and is one of the co-inventors of AZT, the
first drug to treat the human immunodeficiency virus ("HIV"). Dr. Barry also
directed the clinical development of the first selective anti-herpes drug,
acyclovir. Before joining Burroughs Wellcome in 1977, Dr. Barry spent five
years at the United States Food and Drug Administration ("FDA") in various
capacities, including
-4-
Director of the Influenza Task Force of the Bureau of Biologics and Acting
Deputy Director of the Division of Virology at the Bureau of Biologics. Dr.
Barry received a B.A. in French literature from Yale College and an M.D. from
Yale University. Dr. Barry is currently a director of Family Health
International, a not-for-profit company engaged in the business of family
planning, and Molecular Biosystems, Inc., a publicly-held medical diagnostics
company. Dr. Barry is a consultant to Life Science Ventures GmbH, a European
venture capital company, and is also Chairman of the Inter-Company
Collaboration on AIDS Drug Development, a pharmaceutical industry consortium.
GEORGE MCFADDEN (57) has served as a director of the Company since
November 1995 and as a member of the Compensation Committee since August
1996. Since 1979, Mr. McFadden has served as a general partner of McFadden
Brothers, an investment company. Mr. McFadden received a B.A. in business
from Vanderbilt University and an M.B.A. from Columbia University. Mr.
McFadden is currently a director of four privately-held companies,
Washington, Inc. (where he serves as Chairman of the Board), Chemical Leaman
Corporation, Cryogenics Holdings, Inc. and Squaw Valley Corp., and of one
publicly-held packaging company, Ball Corp.
PETER MCPARTLAND (44) has served as a director of the Company since June
1996 and as a member of the Audit Committee since August 1996. Mr. McPartland
has served as a director of Schroder Ventures Life Sciences Advisers (UK)
Ltd., a venture capital firm, since July 1995. He served as a principal of
Schroder Venture Advisers from April 1988 through July 1995. Mr. McPartland
received a B.Sc. in pharmacology from University College, London. Mr.
McPartland currently serves as Deputy Chairman of the Board of Cerebrus
Limited (a private, United Kingdom company).
BOARD MEETINGS AND COMMITTEES
The Company's Board met a total of seven times during the year ended
December 31, 1997. Each director attended at least 75% of the aggregate of
(i) the total meetings of the Board and (ii) the total number of meetings
held by all committees of the Board on which he served.
The Company has a Compensation Committee currently composed of Dr. Evnin
and Mr. McFadden. The Compensation Committee met once and acted by written
consent four times in 1997. The Compensation Committee reviews and acts on
matters relating to compensation levels and benefit plans for executive
officers and key employees of the Company, including salary and stock
options. The Compensation Committee is also responsible for granting stock
awards, stock options and stock appreciation rights and other awards to be
made under the Company's existing incentive compensation plans.
The Company also has an Audit Committee composed of Messrs. Fleming and
McPartland. The Audit Committee met once in 1997. The Audit Committee assists
in selecting the independent accountants, designating the services they are
to perform and in maintaining effective communication with those accountants.
DIRECTOR COMPENSATION
The Company reimburses its directors for all reasonable and necessary
travel and other incidental expenses incurred in connection with their
attendance at meetings of the Board. In addition, the Company's 1996 Stock
Incentive Plan (the "1996 Plan") provides that all eligible non-employee
directors will automatically receive an option to purchase 1,334 shares of
Common Stock for the first year of the directors' Board term and 1,333 shares
of Common Stock for each additional year remaining on the director's Board
term following the automatic option grant. Under this Automatic Option Grant
Program, on June 24, 1997 (the date of the Company's 1997 annual meeting of
stockholders) each of the current non-employee directors received an
automatic option grant to purchase the following number of shares: Dr. Evnin
(2,667 shares),
-5-
Mr. Fleming (1,334 shares), Dr. Hostetler (1,334 shares), Mr. McFadden (4,000
shares) and Mr. McPartland (4,000 shares). The exercise price per share in
effect under each of these options is $23.63, the fair market value per share
of the Company's Common Stock on the grant date. Provided that the director
continues to serve on the Board, each of these options becomes exercisable as
follows: 1,334 shares on the day immediately preceding the date of the Annual
Meeting and 1,333 shares immediately preceding the date of each subsequent
annual meeting of stockholders until the automatic option becomes fully
exercisable for all of the option shares.
As part of the proposed amendments to the 1996 Plan, which are subject
to stockholder approval, the automatic option grants to eligible non-employee
directors will be increased to include the grant of an option to purchase 2,000
shares of Common Stock upon a director's initial election or appointment to
the Board and 2,000 shares of Common Stock for each full or partial year of
the director's term, measured from the date of each annual meeting of
stockholders. Non-employee directors re-elected to the Board will automatically
receive an additional option to purchase 2,000 shares of Common Stock for
each full or partial year of the term to which the director is reelected,
measured from the date of each annual meeting of stockholders. These options
will have an exercise price equal to 100% of the fair market value of the
Company's Common Stock on the grant date and will become exercisable in
annual installments after the completion of each full or partial year of
service following such grant. The options granted in 1997 to directors
continuing in office will not be affected by the proposed amendments and
such directors will not be eligible to receive the increased option amounts
until they stand for reelection at the conclusion of their current terms. Please
see the description of the Automatic Option Grant Program under Proposal 2 for
further information concerning the remaining terms of the automatic option
grants.
VOTE REQUIRED
The three candidates for the class of directors whose terms expire at
the 2001 annual meeting of stockholders receiving the highest number of
affirmative votes of the stockholders entitled to vote at the Annual Meeting
will be elected directors of Triangle. Unless otherwise instructed, the
proxyholders will vote each returned proxy FOR the nominees named above, or
for as many nominees of the Board as possible, such votes to be distributed
among such nominees in the manner as the proxyholders see fit.
RECOMMENDATION OF THE BOARD
The Board unanimously recommends a vote FOR the nominees listed above.
-6-
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN
The Company's stockholders are being asked to approve a series of
amendments to the 1996 Plan (i) increasing the maximum number of shares of
Common Stock authorized for issuance over the term of the 1996 Plan by an
additional 1,000,000 shares from 2,200,000 shares to 3,200,000 shares,
(ii) implementing an automatic share increase feature pursuant to which
the maximum number of shares authorized for issuance under the 1996 Plan
will automatically increase on January 1st of each of the calendar years
1999, 2000 and 2001 by an amount equal to four percent of the total number
of shares of Common Stock issued and outstanding on December 31st of the
immediately preceding calendar year; provided, however, that in no event
will any such annual increase exceed 1,000,000 shares (as adjusted for any
subsequent stock splits, stock dividends or similar changes in the Company's
capital structure) less the number of shares of Common Stock available at
the time for future option grants under the 1996 Plan (net of all outstanding
options and unvested share issuances), and (iii) increasing the number of
shares of Common Stock issuable upon the exercise of options granted to
non-employee Board members under the Automatic Option Grant Program to
2,000 shares on the date first elected or appointed to the Board and
2,000 additional shares for each full or partial year of such member's
initial term and each subsequent term, measured from the date of each annual
meeting of stockholders.
The Board believes that these share increases are necessary in order to
assure that the Company will have a sufficient reserve of Common Stock
available in the future to utilize option grants and stock issuances for
purposes of attracting and retaining the services of key individuals
essential to the Company's long-term success. The proposed changes to the
Automatic Option Grant Program will provide the Company with the opportunity
to offer a more meaningful equity incentive program to attract and retain the
services of highly qualified non-employee Board members.
The 1996 Plan became effective on August 30, 1996 (the "Effective Date")
upon adoption by the Board and was subsequently approved by the Company's
stockholders. The 1996 Plan serves as the successor to the Company's 1996
Stock Option/Stock Issuance Plan (the "Predecessor Plan"), and all
outstanding options under the Predecessor Plan have been incorporated into
the 1996 Plan. The amendments to the 1996 Plan which are the subject of this
Proposal were adopted by the Board on December 4, 1997 and March 27, 1998.
The following is a summary of the principal features of the 1996 Plan, as
amended. The summary, however, does not purport to be a complete description
of all the provisions of the 1996 Plan. Any stockholder of the Company who
wishes to obtain a copy of the actual plan document may do so upon written
request to the Company's Secretary at the Company's principal executive
offices in Durham, North Carolina.
EQUITY INCENTIVE PROGRAMS
The 1996 Plan contains four separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Salary Investment Option Grant
Program, (iii) a Stock Issuance Program, and (iv) an Automatic Option Grant
Program. The principal features of each program are described below. The
Compensation Committee has the exclusive authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to option
grants and stock issuances made to the Company's executive officers and
non-employee Board members. With respect to all other participants, those
programs may be administered by either the Compensation Committee or a
special stock option committee (the "Secondary Committee") comprised of one
or more Board members appointed by the Board, or the Board may retain the
authority to administer those programs. The Compensation Committee also has
the exclusive authority to select the executive officers and other highly
compensated employees who may participate in the Salary Investment Option
Grant Program. However, option grants under the Automatic Option Grant
Program are made in strict compliance with the express provisions of that
program, and neither the Compensation Committee nor the Board will exercise
any administrative discretion with respect to that program. The term Plan
Administrator, as used in this summary,
-7-
will mean the Compensation Committee, the Secondary Committee or the Board,
to the extent each such entity is acting within the scope of its
administrative jurisdiction under the 1996 Plan.
SHARE RESERVE
3,200,000 shares of Common Stock have been reserved for issuance over
the term of the 1996 Plan, including the 1,000,000-share increase which forms
part of this Proposal. If the stockholders approve the automatic share
increase feature included within this Proposal, then the number of shares of
Common Stock available for issuance under the 1996 Plan will increase
automatically on January 1st of each of the calendar years 1999, 2000 and
2001 by an amount equal to four percent of the total number of shares of
Common Stock issued and outstanding on December 31st of the immediately
preceding calendar year; provided, however, that in no event will any such
annual increase exceed 1,000,000 shares less the number of shares of Common
Stock at the time available for future option grants under the 1996 Plan (net
of all outstanding options and unvested share issuances). In addition, no
individual may be granted stock options, stock appreciation rights and direct
stock issuances for more than 500,000 shares in the aggregate per calendar
year.
The shares of Common Stock issuable under the 1996 Plan may be drawn
from shares of the Company's authorized but unissued Common Stock or from
shares of Common Stock reacquired by the Company, including shares
repurchased on the open market. Shares subject to any outstanding options
under the 1996 Plan (including options incorporated from the Predecessor
Plan) which expire or otherwise terminate prior to exercise will be available
for subsequent issuance. Unvested shares issued under the 1996 Plan and
subsequently repurchased by the Company, at the option exercise or direct
issue price paid per share, pursuant to the Company's repurchase rights under
the 1996 Plan will be added back to the share reserve and will accordingly be
available for reissuance. However, shares subject to any option surrendered
in accordance with the stock appreciation rights provisions of the 1996 Plan
will not be available for subsequent issuance. In addition, shares of Common
Stock withheld (i) to pay the exercise price of an option or (ii) in
satisfaction of withholding taxes incurred on such exercise or the vesting of
a stock issuance will not be available for subsequent issuance under the 1996
Plan.
ELIGIBILITY
Employees, non-employee Board members and consultants and other
independent advisors in the service of the Company or its parent and
subsidiaries (whether now existing or subsequently established) are eligible
to participate in the Discretionary Option Grant and Stock Issuance Programs.
Executive officers and other highly compensated employees are also eligible
to participate in the Salary Investment Option Grant Program, and
non-employee members of the Board are eligible to participate in the
Automatic Option Grant Program.
As of January 31, 1998, ten executive officers, five non-employee Board
members and approximately 60 other employees were eligible to participate in
the Discretionary Option Grant and Stock Issuance Programs, approximately 12
executive officers and other employees were eligible to participate in the
Salary Investment Option Grant Program, and the five non-employee Board
members were eligible to participate in the Automatic Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date
under the 1996 Plan is the closing selling price per share on that date on
the Nasdaq National Market ("Nasdaq"). However, if there is no closing
selling price per share on the date in question, the fair market value will
be the closing selling price for the last preceding date for which such
quotation exists. On April 1, 1998, the fair market value per share
determined on such basis was $16.88.
-8-
DISCRETIONARY OPTION GRANT PROGRAM
GRANTS
The Plan Administrator has complete discretion under the Discretionary
Option Grant Program to determine which eligible individuals are to receive
option grants, the time or times when such grants are to be made, the number
of shares subject to each such grant, the status of any granted option as
either an incentive stock option or a non-statutory option under the federal
tax laws, the vesting schedule (if any) to be in effect for the option grant
and the maximum term for which any granted option is to remain outstanding.
All expenses incurred in administering the 1996 Plan are paid by the Company.
PRICE AND EXERCISABILITY
Each option grant will have an exercise price per share not less than
eighty-five percent (85%) of the fair market value per share of Common Stock
on the option grant date, and no option may have a term in excess of ten (10)
years. The options will generally become exercisable in a series of
installments over the optionee's period of service with the Company.
The exercise price may be paid in cash or in shares of the Common Stock.
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 sale proceeds available on the settlement date, sufficient funds to cover
the exercise price for the purchased shares plus all applicable withholding
taxes.
Upon the optionee's cessation of service, the optionee will have a
limited period of time in which to exercise any outstanding option to the
extent exercisable for vested shares. The Plan Administrator has complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of those options in whole or in
part. Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of
service.
STOCK APPRECIATION RIGHTS
The Plan Administrator may grant tandem stock appreciation rights under
the Discretionary Option Grant Program that provide the holders with the
right to surrender their options for an appreciation distribution from the
Company equal in amount to the excess of (a) the fair market value of the
vested shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.
In addition, officers and non-employee Board members of the Company
subject to the short-swing profit restrictions of the Federal securities laws
may be granted limited stock appreciation rights in tandem with their
outstanding options. Any option with such a limited stock appreciation right
may be surrendered to the Company upon the occurrence of a hostile tender
offer for more than 50% of the Company's outstanding shares, and the optionee
will in return be entitled to a cash distribution from the Company in an
amount per surrendered option share equal to the excess of (i) the highest
reported price per share of Common Stock paid in the tender offer over (ii)
the option exercise price payable per share.
-9-
CANCELLATION/REGRANT PROGRAM
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of the Common
Stock and to issue replacement options with an exercise price based on the
market price of Common Stock at the time of the new grant.
SALARY INVESTMENT OPTION GRANT PROGRAM
GRANTS
The Plan Administrator has complete discretion in implementing the
Salary Investment Option Grant Program for one or more calendar years and in
selecting the executive officers and other highly compensated individuals
eligible to participate in the program for those years. As a condition to
such participation, each selected individual must, prior to the start of the
calendar year of participation, file with the Plan Administrator an
irrevocable authorization directing the Company to reduce his or her base
salary for the upcoming calendar year by an amount not less than $10,000 nor
more than $50,000. Each individual whose salary reduction authorization is
approved by the Plan Administrator will be granted an option under the Salary
Investment Option Grant Program as soon as possible after the start of the
calendar year for which such salary reduction is to be in effect.
TERMS
Each option is subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Option Grant
Program, except for the following differences:
- Each option is a non-statutory option.
- The exercise price per share will be equal to not less 33 1/3% nor
more than 66 2/3% of the fair market value of the Common Stock on
the option grant date, with the exact percentage fixed by the Plan
Administrator. The number of option shares will be determined by
dividing the total dollar amount of the approved reduction in the
optionee's base salary by the amount by which the fair market value
per share of Common Stock on the option grant date exceeds the
option exercise price. As a result, the total spread on the option
(the fair market value of the option shares on the grant date less
the aggregate exercise price payable for those shares) will be equal
to the dollar amount of the reduction to the optionee's base salary
that will be in effect for the calendar year for which the option
grant is made.
- The option will become exercisable for the option shares in a
series of 12 successive equal monthly installments upon the
optionee's completion of each calendar month of service in the
calendar year for which the salary reduction is in effect.
- Each option is exercisable until the earlier of (i) the
expiration of the ten-year option term or (ii) the expiration
of the three-year period measured from the date the optionee's
service terminates.
The Compensation Committee has approved the implementation of the Salary
Investment Option Grant Program for the 1998 calendar year, and options for
an aggregate of 16,636 shares were granted on January 7, 1998 at an exercise
price of $11.67 per share, which was equal to two-thirds of the fair market
value per share on that date.
-10-
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per
share not less than 100% of their fair market value, payable in cash or through
a promissory note payable to the Company. Shares may also be issued as a bonus
for past services, with no cash outlay required of the participant.
Shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be subject to a vesting
schedule tied to the performance of service or the attainment of performance
goals. The Plan Administrator, however, has the discretionary authority at any
time to accelerate the vesting of any and all unvested shares outstanding under
the Stock Issuance Program.
AUTOMATIC OPTION GRANT PROGRAM
GRANTS
If stockholders approve the proposed amendments to the 1996 Plan,
effective with the Annual Meeting (i) on the date that each non-employee Board
member is first elected or appointed as a non-employee Board member, option
grants will be made to such non-employee Board member and (ii) on the date that
each non-employee Board member is re-elected as a non-employee Board member,
option grants will be made to such non-employee Board member. Each automatic
option grant will be a Non-Statutory Option. For each individual who is first
elected or appointed as a non-employee Board member, the number of shares of
Common Stock subject to the option will be equal to 2,000 shares plus an
additional 2,000 shares for any partial year and for each full year of the
term for which the non-employee Board member is elected or appointed. Each
non-employee Board member who is re-elected to serve as a non-employee Board
member at any time after his or her initial term will receive an additional
automatic grant of 2,000 shares for any partial year and for each full year
of the term for which the non-employee Board member is re-elected to the
Board. There is no limit on the number of such automatic option grants any
one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received a
stock option grant from the Corporation prior to the Effective Date are
eligible to receive one or more such annual option grants over their period
of continued Board service.
TERMS
Each option under the Automatic Option Grant Program will have an
exercise price per share equal to 100% of the fair market value per share of
Common Stock on the option grant date and a maximum term of ten years measured
from such grant date.
Provided the optionee continues to serve as a Board member, the
automatic option grant will vest and become exercisable with respect to 2,000
shares on the day the non-employee Board member is first elected or appointed to
the Board and with respect to an additional 2,000 shares on the day immediately
preceding the date of each subsequent annual stockholders meeting following the
date of the automatic option grant until the automatic option grant has become
fully vested and exercisable for all the option shares. No portion of the
automatic option grant will vest after the optionee has ceased to be a member of
the Board.
Each outstanding automatic option will become immediately exercisable
for all the shares subject to such option should any of the following events
occur while the optionee continues in Board service: (i) the optionee's death or
permanent disability, (ii) an acquisition of the Company by merger or asset sale
or (iii) a hostile take-over of the Company, whether effected through a
successful tender offer for more than 50% of the
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Company's outstanding voting stock or through a change in the majority of the
Board as a result of one or more contested elections for Board membership. An
optionee will have a 12-month period following his or her termination of
Board service to exercise his or her outstanding automatic option grants for
any or all of the option shares for which those options are exercisable at
the time of such termination.
All options granted under the Automatic Option Grant Program include a
limited stock appreciation right which entitles the holder to surrender his or
her outstanding automatic options to the Company for a cash distribution in the
event of a hostile tender offer for more than 50% of the Company's outstanding
shares. Such cash distribution will be in an amount per surrendered option share
equal to the excess of (i) the highest reported price per share of Common Stock
paid in the tender offer over (ii) the option exercise price payable per share.
Stockholder approval of this Proposal will constitute pre-approval of each
option granted with such a limited stock appreciation right at or after the
Annual Meeting and the subsequent exercise of that right in accordance with
foregoing provisions. No additional approval of the Plan Administrator or the
Board will be required at the time of the actual option surrender or cash
distribution.
STOCK AWARDS
The following table shows, as to each of the Named Executive Officers
in the Summary Compensation Table and the various indicated individuals and
groups, the number of shares of Common Stock for which such individuals have
been granted options under the 1996 Plan and the Predecessor Plan through
January 31, 1998, together with the weighted average exercise price payable per
share. No direct stock issuances have been made to date under the 1996 Plan.
OPTION TRANSACTIONS
OPTIONS GRANTED WEIGHTED AVERAGE
(NUMBER OF SHARES) EXERCISE PRICE
------------------ --------------
NAME AND POSITION
- -----------------
David W. Barry, M.D ........................................ 257,214 6.26
Chairman, Chief Executive Officer and Director
M. Nixon Ellis, Ph.D ....................................... 270,867 4.12
President, Chief Operating Officer and Director
George R. Painter, III, Ph.D ............................... 172,489 6.48
Vice President, Research and Development
Chris A. Rallis, J.D ....................................... 95,970 10.88
Vice President, Business Development,
General Counsel and Secretary
Carolyn S. Underwood ....................................... 216,035 4.58
Vice President, Commercial Operations
All executive officers as a group (10 persons) . 1,361,654 7.70
Anthony B. Evnin, Ph.D., Director .......................... 2,667 23.63
Standish M. Fleming, Director .............................. 1,334 23.63
Karl Y. Hostetler, M.D., Director .......................... 1,334 23.63
George McFadden, Director .................................. 4,000 23.63
Peter McPartland, Director ................................. 4,000 23.63
All non-employee directors as a group (5 persons) 13,335 23.63
Non-executive officer employee group (60 persons) 798,119 8.07
As of January 31, 1998, 1,797,768 shares of Common Stock were subject
to outstanding options under the 1996 Plan and 64,299 shares remained available
for future issuance, including 37,407 shares made available for future issuance
upon the cancellation of previously outstanding options but excluding the
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1,000,000-share increase which forms part of this Proposal. Through January 31,
1998, 337,933 shares of Common Stock have been issued upon the exercise of
options granted under the 1996 Plan.
NEW PLAN BENEFITS
As of January 31, 1998, no options had been granted in reliance upon
the 1,000,000-share increase which forms part of this Proposal.
GENERAL PLAN PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed or replaced by the successor corporation will automatically
accelerate in full, and all unvested shares under the Stock Issuance Program
will immediately vest, except to the extent the Company's repurchase rights
with respect to those shares are transferred to the successor corporation.
The Plan Administrator will have complete discretion to grant one or more
options under the Discretionary Option Grant Program which will become fully
exercisable for all option shares in the event those options are assumed in
the acquisition and the optionee's service with the Company or the acquiring
entity is subsequently terminated within a designated period following such
acquisition or should the optionee's service be terminated within a
designated period following a hostile take-over of the Company. The Plan
Administrator may also provide for the automatic vesting of any outstanding
shares under the Stock Issuance Program upon similar terms and conditions.
Each option outstanding under the Salary Investment Option Grant and
Automatic Option Grant Programs will automatically accelerate in the event of
an acquisition or change in control of the Company. However, in the event of
a hostile take-over of the Company, each outstanding option under the Salary
Investment Option Grant Program will also be subject to repurchase by the
Company at a price equal to the amount by which the optionee's salary was
reduced in connection with the grant of that option.
The acceleration of vesting in the event of a change in the ownership or
control of the Company 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.
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate
structure effected without the Company's receipt of consideration,
appropriate adjustments will be made to (i) the maximum number and/or class
of securities issuable under the 1996 Plan, (ii) the maximum number and/or
class of securities for which the share reserve under the 1996 Plan is to be
increased each year pursuant to the automatic annual increase provisions of
such plan, (iii) the number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the 1996 Plan per
calendar year, (iv) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new
and continuing non-employee Board members and (v) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the 1996 Plan (including options granted under the Predecessor
Plan) in order to prevent the dilution or enlargement of benefits thereunder.
-13-
FINANCIAL ASSISTANCE
The Plan Administrator may institute a loan program to assist one or
more participants in financing the exercise of outstanding options granted under
the Discretionary Option Grant Program or the purchase of shares issued under
the Stock Issuance Program. The Plan Administrator will determine the terms of
any such assistance. However, the maximum amount of financing provided any
participant may not exceed the cash consideration payable for the issued shares
plus all applicable taxes incurred in connection with the acquisition of the
shares.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1996 Plan in any or all respects
whatsoever, subject to any required stockholder approval under applicable law or
regulation. The Board may terminate the 1996 Plan at any time, and the 1996 Plan
will in all events terminate on August 30, 2006.
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1996 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held the
shares for more than two years after the option grant date and more than one (1)
year after the exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the option exercise date over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
-14-
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
such distribution for the taxable year in which the ordinary income is
recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1996
Plan will be substantially the same as those summarized above for the exercise
of non-statutory option grants.
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 exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of 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 Code Section 162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances to employees and/or directors with
exercise or issue prices less than the fair market value of the shares on the
grant or issue date will result in a direct compensation expense to the
Company's earnings equal to the difference between the exercise or issue price
and the fair market value of the shares on the grant or issue date. Such expense
will be recognized by the Company over the period that the option shares or
issued shares are to vest. Option grants or stock issuances at 100% of fair
market value will not result in any direct charge to the Company's earnings.
However, the fair value of those options is required to be
-15-
disclosed in the Company's financial statements, and the Company must also
disclose, in pro-forma disclosure in the Company's notes to the 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 may be a factor in determining the Company's diluted
earnings per common 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 a
compensation expense to the Company's earnings.
VOTE REQUIRED
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 amendments to 1996 Plan. Should such stockholder
approval not be obtained, then neither the 1,000,000-share increase nor the
automatic share increase feature will be implemented, and any stock options
granted on the basis of such increases will immediately terminate without
becoming exercisable for the shares of Common Stock subject to those options,
and no additional options will be granted on the basis of such share increases.
In addition, the increase in the number of shares issuable upon the exercise of
the options granted to non-employee Board members under the Automatic Option
Grant Program will not be implemented.
RECOMMENDATION OF THE BOARD
The Board unanimously recommends a vote FOR the approval of the
amendments to the 1996 Plan.
-16-
PROPOSAL 3
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the stockholders to ratify the selection of Price
Waterhouse LLP as the Company's independent accountants for the year ending
December 31, 1998.
VOTE REQUIRED
The affirmative vote of a majority of the stockholders represented and
voting at the Annual Meeting will be required to ratify the selection of Price
Waterhouse LLP. In the event the stockholders fail to ratify the appointment,
the Triangle Board will reconsider its selection. Even if the selection is
ratified, the Triangle Board, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year if the
Triangle Board believes that such a change would be in Triangle's and its
stockholders' best interests.
Representatives of Price Waterhouse LLP are expected to be present 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
The Board unanimously recommends a vote FOR the ratification and
approval of the selection of Price Waterhouse LLP to serve as Triangle's
independent accountants for the year ending December 31, 1998.
-17-
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of January 31, 1998 by (i)
each person known by the Company to beneficially own more than five percent of
the Company's Common Stock, (ii) each of the Company's directors and nominees
for director, (iii) the Company's Chief Executive Officer and the four
additional most highly compensated executive officers of the Company and (iv)
all directors and executive officers of the Company as a group.
SHARES BENEFICIALLY OWNED
-------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER (1) PERCENT (2)
- ---------------------------------------- ---------- -----------
Funds advised by Soros Fund Management LLC (3) 1,989,500 9.95%
888 Seventh Avenue, Suite 3300
New York, NY 10106
Venrock Associates (4) ....................... 1,467,371 7.3%
30 Rockefeller Plaza
New York, NY 10112.......................
Forward Ventures II, L.P. (5) ................ 1,343,517 6.7%
9255 Towne Centre Drive, Suite 300
San Diego, CA 92121 .....................
The Wellcome Trust (6) ....................... 1,300,000 6.5%
183 Euston Road
London, England NN1 2BE
Duquesne Fund, L.P. (7) ...................... 800,000 4.0%
Box N9204
Charlotte House, Charlotte Street
Nassau, Bahamas
David W. Barry, M.D. (8) ..................... 1,303,881 6.5%
M. Nixon Ellis, Ph.D. (9)(10) ................ 620,934 3.1%
Anthony B. Evnin, Ph.D. (11) ................. 1,467,371 7.3%
Standish M. Fleming (12) ..................... 1,343,517 6.7%
Karl Y. Hostetler, M.D. (13) ................. 409,850 2.0%
George McFadden (14) ......................... 2,315,000 11.6%
Peter McPartland (15) ........................ 642,250 3.2%
Dennis B. Gillings, Ph.D. (16) ............... 0 --
Henry G. Grabowski, Ph.D. (17) ............... 0 --
George R. Painter, III, Ph.D. (10)(18) ....... 143,853 *
Chris A. Rallis, J.D. (10)(19) ............... 249,836 1.2%
Carolyn S. Underwood (10)(20) ................ 178,605 *
All directors and executive officers
as a group (15 persons) (8)-(21) ........ 9,149,414 44.2%
- ----------------------------
* Less than 1%.
(1) Except as otherwise indicated, (i) the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community property
laws, where applicable and (ii) the address of all stockholders listed in
the table is: 4 University Place, 4611 University Drive, Durham, North
Carolina 27707. The addresses of individual directors and nominees for
election to the Board are indicated in their corresponding footnotes.
(2) Percentage ownership is based on 20,002,338 shares of Common Stock
outstanding on January 31, 1998, and is calculated pursuant to Rule
13d-3(d)(1) under the Securities Exchange Act of 1934, as amended. On
March 10,
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1998, the Company filed a Registration Statement on Form S-3
with the Securities and Exchange Commission to register the issuance by
the Company of up to 3,450,000 shares of its Common Stock in an
underwritten public offering. These shares have not been included in the
calculations in this table.
(3) Includes shares of Common Stock held by the following entities that are
advised by Soros Fund Management LLC ("SFM LLC"): (i) 1,000,000 shares of
Common Stock held for the account of Quantum Industrial Partners LDC, (ii)
964,500 shares of Common Stock held for the account of Quantum Partners
LDC, and (iii) 25,000 shares of Common Stock held for the account of
Quasar International Partners C.V. Stanley F. Druckenmiller is the Lead
Portfolio Manager and a Member of the Management Committee of SFM LLC, and
is also the sole managing member of Duquesne LLC ("Duquesne"), an
investment advisory firm which serves as a discretionary investment
advisor to Duquesne Fund, L.P.
(4) Includes 478,754 shares of Common Stock beneficially owned by Venrock
Associates II, L.P. and 25,535 shares of Common Stock beneficially owned by
Anthony B. Evnin, Ph.D. Dr. Evnin, a director of the Company, is a general
partner of Venrock Associates and Venrock Associates II, L.P. Dr. Evnin
disclaims beneficial ownership of the shares beneficially owned by Venrock
Associates and Venrock Associates II, L.P. other than to the extent of his
individual partnership interests, but exercises shared voting and investment
power with respect to all such shares.
(5) Includes 233,663 shares of Common Stock beneficially owned by Forward
Ventures III, L.P. and 84,854 shares of Common Stock beneficially owned
by Standish M. Fleming. Mr. Fleming is a general partner of Forward II
Associates, L.P., which is the general partner of Forward Ventures II,
L.P., and a managing member of Forward III Associates, L.L.C., which is
the general partner of Forward Ventures III, L.P. Mr. Fleming disclaims
beneficial ownership of the shares beneficially owned by Forward Ventures
II, L.P. and Forward Ventures III, L.P. other than to the extent of his
individual partnership and member interests, but exercises shared voting
and investment power with respect to all such shares.
(6) All shares beneficially owned by The Wellcome Trust Limited as trustee of
The Wellcome Trust.
(7) Stanley F. Druckenmiller is the sole managing member of Duquesne and is
also the Lead Portfolio Manager and a Member of the Management Committee
of SFM LLC.
(8) Includes 25,381 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of January 31, 1998 and 30,000
shares of Common Stock held by the Barry Charitable Foundation, Inc., a
charitable North Carolina corporation of which Dr. Barry serves as
President.
(9) Includes 230,867 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of January 31, 1998 and 8,000
shares of Common Stock held by the Ellis Charitable Foundation, Inc., a
charitable North Carolina corporation of which Dr. Ellis serves as
President.
(10)Excludes an aggregate of 6,483 shares of Common Stock purchased by
certain executive officers upon the conclusion of the purchase
interval, ending February 27, 1998, under the Company's Employee Stock
Purchase Plan.
(11)Includes 963,082 shares and 478,754 shares of Common Stock beneficially
owned by Venrock Associates and Venrock Associates II, L.P.,
respectively. Dr. Evnin is a general partner of Venrock Associates and
Venrock Associates II, L.P. and consequently shares voting and investment
power with respect to all such shares. Dr. Evnin disclaims beneficial
ownership of these shares other than to the extent of his individual
partnership interest. Dr Evnin's address is 30 Rockefeller Plaza, New York,
New York 10112.
(12)Includes 1,025,000 shares and 233,633 shares of Common Stock
beneficially owned by Forward Ventures II, L.P. and Forward Ventures III,
L.P., respectively. Mr. Fleming is a general partner of Forward II
Associates, L.P., which is the general partner of Forward Ventures II,
L.P., and a managing member of Forward III Associates, L.L.C., which is
the general partner of Forward Ventures III, L.P., and consequently
shares voting and investment power with respect to all such shares. Mr.
Fleming disclaims beneficial ownership of these shares other than to the
extent of his individual partnership and member interests. Mr. Fleming's
address is 9255 Towne Centre Drive, Suite 300, San Diego, California 92121
(13)All shares of Common Stock are beneficially owned by a family trust. Dr.
Hostetler's address is 14024 Rue St. Raphael, Del Mar, California 92104.
(14)Includes 100,000 shares, 200,000 shares, 600,000 shares, 240,000 shares,
510,000 shares, 90,000 shares, 75,000 shares and 100,000 shares of Common
Stock beneficially owned by (i) McFadden Brothers, (ii) McFadden
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Securities, L.P., (iii) a family trust under the will of Alexander B.
McFadden, (iv) three family trusts for the benefit of Mr. McFadden's
children, (v) other family members, (vi) a former family member, (vii)
a former family member as custodian for one of Mr. McFadden's children
and (viii) a retirement plan for employees of Chemical Leaman
Corporation and affiliated corporations, respectively. Mr. McFadden
exercises shared voting and investment power with respect to all such
shares. Mr. McFadden disclaims beneficial ownership of these shares
other than to the extent of his pecuniary interest in the shares
beneficially owned by McFadden Brothers, McFadden Securities, L.P. and
the family trust under the will of Alexander B. McFadden. Mr.
McFadden's address is 745 Fifth Avenue, New York, New York 10151.
(15) All shares beneficially owned by Schroder Venture Managers Limited, as
manager for Schroder Ventures International Life Sciences Fund LP1,
Schroder Ventures International Life Sciences Fund LP2, Schroder
Ventures International Life Sciences Fund Trust and Schroder Venture
Managers Limited, as investment manager for the Schroder Ventures
International Life Sciences Fund Co-investment Scheme. Mr. McPartland
is a director of Schroder Ventures Life Sciences Advisers (UK) Ltd., a
wholly-owned subsidiary of Schroder Ventures Life Sciences Advisors
Limited, which acts as an advisor to Schroder Venture Managers Limited.
Mr. McPartland disclaims beneficial ownership of these shares other
than to the extent of his individual interest arising from his position
as a director of Schroder Ventures Life Science Advisers (UK) Ltd. Mr.
McPartland's address is 20 Southampton Street, London WC2E 7QG, United
Kingdom.
(16) Mr. Gilling's address is 4709 Creekstone Drive, Durham, North Carolina
27703.
(17) Dr. Grabowski's address is Duke University, 305 Social Sciences, Box
90097, Durham, North Carolina, 27708.
(18) Includes 24,057 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of January 31, 1998. Also
includes 40,000 shares of Common Stock held by the George R. Painter
III & Gwendolyn S. Powell Charitable Remainder Trust.
(19) Includes 57,970 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of January 31, 1998. Also
includes 500 shares held separately by Mr. Rallis' wife and 500 shares
held by Mr. Rallis' wife as custodian for their children under the
Uniform Gift to Minors Act.
(20) Includes 168,535 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of January 31, 1998. Also
includes 500 shares held by Ms. Underwood as custodian for her son under
the Uniform Gift to Minors Act.
(21) Includes 679,854 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of January 31, 1998.
-20-
EXECUTIVE OFFICERS
The executive officers of the Company as of March 31, 1998 are as
follows:
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------------------------
David W. Barry, M.D ............... 54 Chairman of the Board and Chief Executive Officer
M. Nixon Ellis, Ph.D .............. 48 Director, President and Chief Operating Officer
Phillip A. Furman, Ph.D ........... 53 Chief Scientific Officer
James A. Klein, Jr ................ 35 Chief Financial Officer and Treasurer
Bruce J. McCreedy, Jr., Ph.D ...... 38 Vice President, Clinical Virology and Diagnostics
Anne F. McKay ..................... 43 Vice President, Drug Regulatory Affairs
George R. Painter, III, Ph.D ...... 47 Vice President, Research and Development
Chris A. Rallis, J.D .............. 44 Vice President, Business Development, General Counsel and Secretary
Franck S. Rousseau, M.D ........... 40 Vice President, Medical Affairs and Chief Medical Officer
Carolyn S. Underwood .............. 41 Vice President, Commercial Operations
DAVID W. BARRY, M.D. is Chairman of the Board and Chief Executive
Officer of the Company. See "Election of Directors" for a discussion of Dr.
Barry's business experience.
M. NIXON ELLIS, PH.D. is the President, Chief Operating Officer and a
director of the Company. See "Election of Directors" for a discussion of Dr.
Ellis' business experience.
PHILLIP A. FURMAN, PH.D. has served as Chief Scientific Officer since
July 1997, and served as Vice President, Research and Chief Scientific
Officer of the Company from September 1995 through June 1997. Prior to
joining the Company, Dr. Furman served as Director, Virology of Burroughs
Wellcome from July 1989 through June 1995, where he played a significant role
in the development of both AZT and acyclovir. Dr. Furman's research while at
Burroughs Wellcome focused on the structure and function of nucleic acid
polymerizing enzymes. He is a co-inventor of the use of AZT for HIV therapy
as well as a co-inventor of the use of FTC to treat hepatitis B virus ("HBV")
infections. Dr. Furman received a B.S. in biology from Piedmont College, an
M.A. in microbiology from the University of Southern Florida and a Ph.D. in
microbiology from Tulane University.
JAMES A. KLEIN, JR. has served as Chief Financial Officer and Treasurer
since November 1995, and served as Secretary and Treasurer from July 1995
through November 1995. Prior to joining the Company, Mr. Klein served as
International Research, Development and Medical Financial Controller of
Wellcome from May 1994 through June 1995. From June 1992 through May 1994,
Mr. Klein served as Senior Financial Analyst of Burroughs Wellcome. Prior to
that, Mr. Klein held various management positions in finance at Burroughs
Wellcome. Mr. Klein received a B.A. in accounting from the University of
Mississippi and is a certified public accountant.
BRUCE J. MCCREEDY, JR., PH.D. has served as Vice President, Clinical
Virology and Diagnostics since August 1997 and served as Vice President,
Clinical Diagnostics of the Company from March 1997 through July 1997. Prior
to joining the Company, Dr. McCreedy served in the following positions at
Laboratory Corporation of America (formerly Roche Biomedical Laboratories):
Associate Vice President of Infectious Diseases and Clinical Trials from July
1995 to February 1997, Director of Infectious Diseases and Clinical Trials
from 1993 to 1995, and Associate Director of Infectious Diseases from 1990 to
1993. While at Laboratory Corporation of America, Dr. McCreedy was involved
in the development of diagnostic test systems for the detection and
quantitation of human retroviruses and hepatitis B and C viruses. Dr.
McCreedy received his B.S. degree from Wake Forest University in medical
microbiology and a Ph.D. in microbiology from the Bowman Gray School of
Medicine.
-21-
ANNE F. MCKAY has served as Vice President, Drug Regulatory Affairs
since October 1996. Prior to joining the Company, Ms. McKay served as
Director of Regulatory Affairs with Medco Research, Inc. ("Medco") from July
1995 to September 1996. Prior to joining Medco, Ms. McKay served as Director
of Regulatory Affairs, North America, with Burroughs Wellcome, and held
various other regulatory positions during a 15-year tenure at Burroughs
Wellcome. While at Burroughs Wellcome, Ms. McKay's department was responsible
for providing support for various FDA submissions, including the NDA
submissions for AZT and acyclovir. Ms. McKay received her B.S. in animal
science from Michigan State University.
GEORGE R. PAINTER, III, PH.D. has served as Vice President, Research and
Development since July 1997, and served as Vice President, Chemistry and
Technical Development of the Company from January 1996 through June 1997.
From July 1995 through January 1996, Dr. Painter served as Director of
Research Process for Glaxo Wellcome plc ("Glaxo"), a pharmaceutical company,
and from June 1993 through July 1995, he served as Assistant Director of
Virology for Burroughs Wellcome. While at Burroughs Wellcome, Dr. Painter led
the international development of both an HIV protease inhibitor and FTC. He
is also a co-inventor of the use of FTC to treat HBV infections. Dr. Painter
received a B.S. in chemistry, an M.S. in physical chemistry and a Ph.D. in
organic chemistry from Emory University.
CHRIS A. RALLIS, J.D. has served as Vice President, Business
Development, General Counsel and Secretary since November 1995. Prior to
joining the Company, Mr. Rallis served in the following positions with
Burroughs Wellcome: Vice President, Planning and Business Development from
February 1994 to June 1995; Director, Planning and Business Development from
June 1993 through February 1994; and Assistant General Counsel from June 1991
through June 1993. During Mr. Rallis' tenure at Burroughs Wellcome, his
department was responsible for finalizing licensing agreements with Emory
University and Vertex Pharmaceuticals Incorporated and a consumer healthcare
joint venture with Warner-Lambert Company. Mr. Rallis received an A.B. degree
in economics from Harvard College and a J.D. from Duke University.
FRANCK S. ROUSSEAU, M.D. has served as Vice President, Medical Affairs
and Chief Medical Officer since March 1997. From 1995 through March 1997, Dr.
Rousseau served as Associate Director, International Antiviral Clinical
Research for Glaxo. Prior to joining Glaxo, Dr. Rousseau was Director of
Infectious Diseases and HIV Clinical Research at Wellcome France from 1993
through 1995. From 1990 through 1993, Dr. Rousseau was a Clinical Research
Physician with the French National Agency for Research Against AIDS. Dr.
Rousseau has been involved with the clinical development of several anti-HIV
drugs. Dr. Rousseau received the equivalent of a B.A. from the University of
Paris and his M.D. from the University of Paris, College of Medicine.
CAROLYN S. UNDERWOOD has served as Vice President, Commercial Operations
since January 1998. Ms. Underwood served as Vice President, Marketing and
Investor Relations of the Company from November 1996 through December 1997
and served as Vice President, Marketing from January 1996 through November
1996. Prior to joining the Company, Ms. Underwood served as Director, CNS
Marketing of Glaxo from June 1995 through December 1995. Prior to that, Ms.
Underwood served as Director, Marketing Division of Nippon Wellcome KK, a
pharmaceutical company of which Wellcome was one of the joint venture
partners, from February 1994 through June 1995. Ms. Underwood also served as
Senior Director of Marketing of Burroughs Wellcome from July 1991 through
January 1994. Ms. Underwood received a B.S. in nursing from the University of
North Carolina, Chapel Hill.
-22-
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the aggregate
compensation paid by the Company to the Company's Chief Executive Officer and to
the four additional most highly compensated executive officers (the "Named
Executive Officers") for services rendered in all capacities to the Company for
the period from inception (July 12, 1995) to December 31, 1995 and for the years
ended December 31, 1996 and 1997:
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION
COMPENSATION(1) AWARDS
---------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (#) ($)(2)
- ---------------------------- ---- ------- -------- ------------ ------------
David W. Barry, M.D ......... 1997 221,375 84,102(3) 60,000 13,335
Chairman and Chief 1996 205,333 20,000 197,214 11,070
Executive Officer 1995 (4) 100,000 8,000 0 0
M. Nixon Ellis, Ph.D ........ 1997 194,750 74,822 (3) 40,000 1,310
President, Director and 1996 180,000 17,500 230,867 1,200
Chief Operating Officer 1995(4) 87,500 2,000 0 0
George R. Painter, III, Ph.D 1997 93,013(5) 85,185(3) 39,225(5) 1,822
Vice President, Research 1996 110,860 19,250 124,688 411
and Development 1995(4) -- -- -- --
Chris A. Rallis, J.D ........ 1997 179,270 69,044(3) 38,000 2,125
Vice President, Business 1996 158,333 16,500 57,970 1,035
Development, General 1995(4) 25,000 0 0 0
Counsel and Secretary
Carolyn S. Underwood ........ 1997 166,050 63,614(3) 32,000 421
Vice President, Commercial 1996 151,177 26,250 184,035 211
Operations 1995(4) -- -- -- --
- ------------------
(1) The aggregate amount of perquisites and other personal benefits, if any,
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each Named Executive Officer and has therefore been
omitted.
(2) Represents the amounts paid by the Company (i) during 1997 and 1996 in
the form of premiums for individual life insurance policies for the
benefit of the Named Executive Officers and (ii) during 1997 as matching
401(k) contributions in the following amounts for the following Named
Executive Officers: Dr. Barry, $945; Dr. Painter, $1,000; and
Mr. Rallis, $1,000.
(3) All incentive awards made in 1997 were earned in 1997; however, in order
to achieve the Compensation Committee's objective of aligning the
performance evaluation period (i.e., the timing of bonus payments) with
the Company's fiscal year (i.e., January 1 through December 31),
incentive awards were made in June 1997 and in December 1997. The
incentive awards made in June 1997 were based on milestones achieved over
the preceding 12 months (including the Company's successful completion of
its initial public offering in November 1996) and the incentive awards
made in December 1997 were based on milestones achieved over the
preceding six months.
(4) Represents the aggregate compensation paid by the Company during the
period from the Company's inception (July 12, 1995) to December 31, 1995.
Ms. Underwood and Dr. Painter were not employed by the Company during
this period.
-23-
(5) Excludes an aggregate of $50,000 of Dr. Painter's $143,013 salary earned in
1997 allocated toward the acquisition of options to purchase 7,225 shares
of Common Stock under the Company's Salary Investment Option Grant Program
for $6.92 per underlying share, which amount is equal to 1/3 of the fair
market value of the underlying shares of Common Stock on the date of grant.
The options were granted on January 24, 1997, were fully vested as of
December 31, 1997, and are exercisable at a price of $13.83 per share,
which amount is equal to 2/3 of the fair market value of the underlying
shares of Common Stock on the date of grant.
STOCK OPTIONS
The following table sets forth information concerning stock option
grants made to each of the Named Executive Officers during the year ended
December 31, 1997. The Company did not grant any stock appreciation rights to
the Named Executive Officers during the year ended December 31, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS/ STOCK
SECURITIES SARS GRANTED PRICE APPRECIATION FOR
UNDERLYING TO EMPLOYEES EXERCISE OR OPTION TERM (4)
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION --------------------------------
NAME GRANTED(1) YEAR(%)(2) ($/SH)(3) DATE 0%($) 5%($) 10%($)
- ----------------------------- ---------- ---------- --------- ---- --- ----- ------
David W. Barry, M.D. 60,000(5) 9.8 23.63 6/23/07 0 891,647 2,259,608
M. Nixon Ellis, Ph.D. 40,000(5) 6.5 23.63 6/23/07 0 594,431 1,506,405
George R. Painter, III, Ph.D. 7,225(6) 1.2 13.83(7) 1/23/07 49,997(7) 144,280 288,929
32,000(5) 5.2 23.63 6/23/07 0 475,545 1,205,124
Chris A. Rallis, J.D. 38,000(5) 6.2 23.63 6/23/07 0 564,710 1,431,085
Carolyn S. Underwood 32,000(5) 5.2 23.63 6/23/07 0 475,545 1,205,124
(1) All options were granted under the 1996 Stock Incentive Plan (the "1996
Plan").
(2) The Company granted options to acquire an aggregate of 612,937 shares of
Common Stock to the Company's officers and employees in 1997.
(3) Unless otherwise indicated, the exercise price per share of options
granted represented the fair market value of the underlying shares of
Common Stock on the dates the respective options were granted as
determined by the Compensation Committee of the Board. The exercise price
may be paid in cash or in shares of Common Stock valued at fair market
value on the exercise date or a combination of cash or shares or any
other form of consideration approved by the Board or the Compensation
Committee. The fair market value of shares of Common Stock is determined
in accordance with certain provisions of the 1996 Plan based on the
closing selling price per share of a share of Common Stock on the date in
question on the Nasdaq National Market.
(4) There is no assurance provided to any Named 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 0%, 5%
or 10% levels or at any other defined level. Unless the market price of
the Common Stock does in fact appreciate over the option term, no value
will be realized from the option grants made to the Named Executive
Officers.
(5) Unless otherwise indicated, each option vests and becomes exercisable as
follows: 25% after 12 months of service measured from June 24, 1997, the
date of the option grant, and the remaining 75% thereafter in a series of
36 equal monthly installments. The shares subject to each option will
immediately vest in the event the Company is acquired by a merger or
asset sale, unless the options are assumed by the acquiring entity. The
options further provide that the shares subject to each option will
immediately vest even if options are assumed by the acquiring entity if
the Named
-24-
Executive Officer's employment is terminated involuntarily (which includes,
among other things, a reduction in the responsibilities of the Named
Executive Officer) at any time within 12 months after the merger or
asset sale.
(6) Options granted on January 24, 1997 pursuant to the Company's Salary
Investment Option Grant Program. The options vested in 12 equal
installments over each month in 1997.
(7) Pursuant to the Company's Salary Investment Option Grant Program, Dr.
Painter allocated an aggregate of $50,000 of his $143,013 salary earned
in 1997 toward the acquisition of the options for $6.92 per underlying
share, which amount is equal to 1/3 of the fair market value of the
underlying shares of Common Stock on the date of grant. The options are
exercisable at a price of $13.83 per share, which amount is equal to 2/3
of the fair market value of the underlying shares of Common Stock on the
date of grant.
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning option exercises
during the year ended December 31, 1997 by the Named Executive Officers and the
value of unexercised options held by each of the Named Executive Officers as of
December 31, 1997. No stock appreciation rights were exercised during the year
ended December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT FY-END (#) DECEMBER 31, 1997($)(1)
ACQUIRED ON VALUE ----------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ---------- ---------- ------------- ------------- ----------- -------------
David W. Barry, M.D. -- -- 25,381 60,000 193,530 0
M. Nixon Ellis, Ph.D. -- -- 230,867 40,000 3,204,514 0
George R. Painter, III, Ph.D. -- -- 21,913 32,000 117,740 0
Chris A. Rallis, J.D. -- -- 57,970 38,000 701,065 0
Carolyn S. Underwood -- -- 168,535 32,000 2,231,492 0
(1) Value is defined as the fair market price of the Company's Common Stock at
December 31, 1997 less the exercise price. On December 31, 1997, the
closing selling price of a share of the Company's Common Stock on the
Nasdaq National Market was $14.63.
(2) These options are immediately exercisable but the Named Executive
Officers' interests in the option shares vest over time. All unvested
shares purchased by the Named Executive Officers are subject to repurchase
by the Company at the exercise price per share. As of December 31, 1997,
Dr. Barry had a vested interest in 7,932 of these option shares, Dr. Ellis
had a vested interest in 102,559 of these option shares, Dr. Painter had a
vested interest in 11,815 of these option shares, Mr. Rallis had a vested
interest in 23,571 of these option shares and Ms. Underwood had a vested
interest in 74,199 of these option shares.
-25-
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
In October 1996, the Company entered into an employment agreement with
Dr. David W. Barry, the Company's Chairman and Chief Executive Officer. Pursuant
to the agreement, the Company has employed Dr. Barry at a base salary of
$216,000 per year for a period of two years, subject to increase by the
Company's Board. The Company has also agreed to provide to Dr. Barry any other
benefits that are provided to the Company's other executive officers. Dr.
Barry's employment is terminable at will by either the Company or Dr. Barry. In
the event Dr. Barry's employment is terminated by the Company for any reason or
Dr. Barry resigns at any time within three years of the date of the agreement,
the Company has agreed to continue to pay Dr. Barry's then-current base salary
for a period of two years and Dr. Barry has agreed that during the two-year
period he will not serve as the chairman, chief executive officer or president
of, or participate in or direct the development of drugs for the treatment of
viral diseases for, any for-profit business in the pharmaceutical industry that
competes in the United States with the Company. In addition, in the event that
Dr. Barry's employment is terminated by the Company without cause at any time
within three years of the date of the agreement, the Company has agreed to
accelerate the vesting of any unvested stock and/or options held by Dr. Barry.
The agreement will terminate automatically in the event of any change in control
of the Company.
The Company has also entered into arrangements with each of the
Named Executive Officers and certain other executive officers pursuant to
which the executive officers are entitled to receive a severance payment
equal to one year's base salary in the event their employment is terminated
without cause after a change in control of the Company.
All of the options awarded by the Company to the Named Executive
Officers during the year ended December 31, 1997, provide that the shares
subject to each option will immediately vest in the event the Company is
acquired by a merger or asset sale, unless the options are assumed by the
acquiring entity. The options further provide that the shares subject to each
option will immediately vest even if the options are assumed by the acquiring
entity if the Named Executive Officer's employment is terminated
involuntarily (which includes, among other things, a reduction in the
responsibilities of the Named Executive Officer) at any time within 12 months
after the merger or asset sale.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was established in June 1996. Its
members are Dr. Evnin and Mr. McFadden. Dr. Evnin is a general partner of
Venrock Associates and Venrock Associates II, L.P., both of which purchased
Preferred Stock from the Company as part of several private placement
transactions completed by the Company during the years ended December 31,
1995 and 1996. Mr. McFadden and several affiliated individuals and entities
also purchased Preferred Stock from the Company as part of these financings.
Mr. McFadden received a finder's fee of $500,000 in connection with the
private placement of 2,000,000 shares of Common Stock by the Company in June
1997. See "Certain Relationships and Related Transactions."
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY
STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT OF THE COMPENSATION
COMMITTEE AND THE PERFORMANCE GRAPH ON PAGE 30 SHALL NOT BE INCORPORATED INTO
ANY SUCH FILINGS.
-26-
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") offers this report
regarding compensation for the Company's executive officers and Chief
Executive Officer.
GENERAL COMPENSATION POLICY
The Company's primary objective is to maximize the value of its shares
over time. Accomplishing this objective requires the Company to successfully
develop and market safe and effective drugs, primarily for the treatment of
viral diseases and cancer. The Committee, with this objective in mind,
authorizes compensation packages for the Company's executive officers
designed to retain and attract top quality management and to encourage them
to contribute to the achievement of the Company's business objectives. In
addition, the Committee attempts to establish compensation packages that are
comparable to the packages received by executives of similar companies and
reasonable in light of the Company's expenditures on its drug development
programs.
The Company compensates its executive officers with a combination of
salary and incentives designed to encourage efforts to achieve both the
short-term and long-term goals of the Company. The compensation structure
attempts to reward both individual contributions as well as the Company's
overall performance. Many traditional measures of corporate performance, such
as earnings per share or sales growth, are less applicable to the performance
of development stage pharmaceutical companies, like the Company, than to
mature pharmaceutical companies or companies in other industries. As a
result, in making executive compensation decisions the Committee evaluates
other indications of performance, such as the progress of the Company in
achieving milestones in the development of its drug candidates, in obtaining
rights to drug candidates and in raising the capital needed for its
operations.
The basic components of the Company's compensation packages for its
executive officers include the following:
- Base Salary
- Annual Incentives
- Long-term Incentives
- Benefits
Each officer's package contains a mix of these elements and is designed
to provide a level of compensation competitive with the compensation paid to
comparable officers of companies of similar size in similar industries. Based
on various surveys of executive compensation within the Company's industry,
the Committee believes it achieved this level of aggregate executive
compensation during 1997. The Company favors a compensation structure that
aligns the long-term interests of its executive officers with the interests
of its stockholders, and as a result places more weight upon long-term
incentives in the form of stock options than upon base salary and annual
incentives.
BASE SALARY and increases in base salary are determined by both
individual and Company performance and the salary levels in effect for
companies of similar size in similar industries. During 1997, the Committee
sought to increase the base salaries of the Company's officers from a level
around the median of the range of salaries of officers in comparable
companies at the beginning of the year to a level around the 75th percentile
of such range by the end of the year. In addition, the Committee considered
the following factors in setting the base salaries for executive officers
during 1997: the Company's success in achieving milestones in the development
of its drug candidates, in obtaining rights to drug candidates and in raising
the capital needed for its operations, and any special expertise of a
particular executive. During 1997, the base
-27-
salaries for the Named Executive Officers (excluding Dr. Barry) increased by
an average of approximately 14% over their annualized base salaries during
1996.
ANNUAL INCENTIVES in the form of cash bonuses are awarded by the
Committee based upon its evaluation of the performance of each executive
officer and the achievement of Company goals during the year. In 1997, annual
incentive compensation awarded to the Named Executive Officers (excluding Dr.
Barry) averaged approximately 44% of base salary and totaled in the aggregate
$292,665. The increase in annual incentives awarded in 1997 as compared to
1996 was due in part to the Committee's efforts to align the performance
evaluation period (i.e., the timing of bonus payments) with the Company's
fiscal year (i.e., January 1 through December 31) and, as a result, incentive
awards were made both in June 1997 and in December 1997. All incentive
awards made in 1997 were earned in 1997; however, the incentive awards made in
June 1997 were based on milestones achieved over the preceding 12 months
(including the Company's successful completion of its initial public offering
in November 1996) and the incentive awards made in December 1997 were based
on milestones achieved over the preceding six months. The awards reflect the
Committee's objective to provide a level of compensation competitive with the
compensation paid to comparable officers of companies of similar size in
similar industries.
LONG-TERM INCENTIVE compensation in the form of stock options is
expected to be the largest element of total compensation over time. Grants of
stock options are designed to align the long-term interests of each officer
with the interests of the Company's stockholders and to provide long-term
incentives for the individual officer to remain with the Company. Stock
options provide each officer with a significant incentive to manage the
Company from the perspective of an owner with an equity stake in the
business. The size of the option grant to each officer is based on the
officer's current position and expected future contributions to the Company's
business. Awards of stock options are designed to have an expected aggregate
exercise value over time equal to a multiple of salary which will create a
significant opportunity for stock ownership.
During 1997, the Named Executive Officers (excluding Dr. Barry) were
granted ten-year options to purchase an aggregate of 142,000 shares of the
Company's Common Stock at an exercise price of $23.63 per share, excluding
options to acquire 7,225 shares of Common Stock granted to Dr. Painter under
the Company's Salary Investment Option Grant Program. All of the options
(other than Dr. Painter's Salary Investment options) vest over a four year
period as long as the Named Executive Officer continues to remain employed by
the Company. The options were awarded by the Committee based on the
significant milestones achieved by the Company during 1997. The Committee
also considered the total percentage of outstanding shares beneficially owned
by the Named Executive Officers as compared to the stock ownership of similar
officers at comparable companies. The Committee believes that the option
grants were at a level around the 75th percentile of the range of option
grants to officers in comparable companies.
BENEFITS offered to the Company's executive officers serve as a safety
net of protection against the financial catastrophes that can result from
illness, disability or death. Benefits offered to the Company's executive
officers are substantially the same as those offered to all the Company's
regular employees.
CEO COMPENSATION
Dr. Barry's 1997 base salary of $221,375 represented an increase of
approximately 8% over his base salary during 1996. The cash bonus paid to Dr.
Barry increased from $20,000 during 1996 to $84,102 during 1997.
The increase in annual incentives awarded in 1997 as compared to
1996 was due in part to the Committee's efforts to align the performance
evaluation period (i.e., the timing of bonus payments) with the Company's
fiscal year (i.e., January 1 through December 31) and, as a result, incentive
awards were made both in June 1997 and in December 1997. The bonus paid to
Dr. Barry in 1997 was earned in 1997; however, the incentive award made to
Dr. Barry in June 1997 was based on milestones achieved over the preceding
12 months (including the Company's successful completion of its initial
public offering in November 1996) and the incentive award made to Dr. Barry
in December 1997 was based on
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milestones achieved over the preceding six months. The amount of Dr. Barry's
base salary and cash bonus were below the average for chief executive
officers of comparable companies, reflecting the Committee's objective,
particularly in the case of Dr. Barry, of placing more weight upon long-term
incentives than upon base salary and annual incentives.
The Committee expects that the stock options granted to Dr. Barry will
represent the largest element of his compensation and provide a direct link
between Dr. Barry's compensation and the Company's performance. During 1997,
Dr. Barry received ten-year options to purchase an aggregate of 60,000 shares
of the Company's Common Stock at an exercise price of $23.63 per share. All of
the options vest over a four year period as long as Dr. Barry continues to
remain employed by the Company. As with the other Named Executive Officers,
the options granted to Dr. Barry were awarded based on the significant
milestones achieved by the Company during 1997. The Committee believes that
the option grants were at a level around the 75th percentile of the range of
option grants to chief executive officers in comparable companies.
Additionally, the total percentage of outstanding shares beneficially owned
by Dr. Barry is above the median as compared to the stock ownership of
similar officers at comparable companies. It is the Committee's judgment that
Dr. Barry's scientific and management leadership is extremely important to
the Company, and it is therefore essential to provide Dr. Barry with a
significant unvested stock ownership position in the Company.
COMPENSATION COMMITTEE
Anthony B. Evnin, Ph.D.
George McFadden
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PERFORMANCE GRAPH
The following graph compares total stockholder returns since the
Company became a reporting company under the Exchange Act to the Nasdaq CRSP
Total Return Index ("Nasdaq Broad Index") for the Nasdaq Stock Market (U.S.
Companies) and the Nasdaq CRSP Pharmaceutical Index ("Nasdaq Pharmaceutical
Index"). The total return for each of the Company's Common Stock, the Nasdaq
Broad Index and the Nasdaq Pharmaceutical Index assumes the reinvestment of
dividends, although dividends have not been declared on the Company's Common
Stock. The Nasdaq Pharmaceutical Index is made up of all companies with the
standard industrial classification (SIC) Code 283 (category description
"Drugs"). The companies comprising the Nasdaq Pharmaceutical Index are available
upon written request to Investor Relations at the Company's executive offices.
The 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.
[GRAPHIC OMITTED]
- TRIANGLE PHARMACEUTICALS
X NASDAQ STOCK MARKET (U.S.)
Y NASDAQ PHARMACEUTICAL
CUMULATIVE TOTAL RETURN
--------------------------------
11/01/96 12/31/96 12/31/97
-------- -------- --------
TRIANGLE PHARMACEUTICALS, INC. 100 229 146
NASDAQ STOCK MARKET-US 100 106 130
NASDAQ PHARMACEUTICALS 100 103 106
-30-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Registration Statement on Form S-1 pursuant to which the
Company completed its initial public offering ("IPO") was declared effective
on October 31, 1996. As part of the IPO, each share of the Company's
Preferred Stock automatically converted into one share of Common Stock and
all outstanding warrants to purchase shares of the Company's Preferred Stock
automatically converted into the right to acquire an equivalent number of
shares of Common Stock at the same exercise price.
In October 1996, the Company entered into an Employment Agreement with
Dr. Barry, the Company's Chairman and Chief Executive Officer. See "Executive
Compensation and Other Information--Employment Contracts and Change of
Control Arrangements."
Since its inception in July 1995, the Company issued, in private
placement transactions, shares of its Preferred Stock as follows: 5,231,671
shares of Series A Preferred Stock at a price of $0.75 per share (and
warrants to purchase up to 130,000 shares of Series A Preferred Stock at an
exercise price of $0.75 per share); and 3,706,234 shares of Series B
Preferred Stock at a price of $5.00 per share (and warrants to purchase up to
16,000 shares of Series B Preferred Stock at an exercise price of $5.00 per
share). The purchasers of Preferred Stock included, among others, the
following executive officers, directors and holders of more than five percent
of the Company's outstanding stock and their respective affiliates: (i)
Venrock Associates and Venrock Associates II (of which Dr. Evnin is a general
partner) invested a total of $4,100,000; (ii) George McFadden and several
related entities and individuals invested a total of $4,000,000; (iii)
Forward Ventures II, L.P. and Forward Ventures Vanguard Fund (of which Mr.
Fleming is indirectly a general partner) invested a total of $3,788,000; (iv)
The Wellcome Trust (to which Schroder Ventures Life Sciences Advisors
Limited, of which Mr. McPartland is indirectly a director, acts as an
advisor) invested a total of $5,000,000; (v) Dr. Barry invested a total of
$400,000; (vi) Dr. Ellis invested a total of $441,000; and (vii) Dr.
Hostetler invested a total of $125,000. As part of these financings, the
Company granted registration rights to the investors that acquired the
Preferred Stock.
In November 1995, the Company entered into a license agreement and
separate consulting agreements with Dr. Hostetler, one of the Company's
directors and a member of the Company's Scientific Advisory Board, and Dr.
Dennis Carson, another member of the Company's Scientific Advisory Board.
Pursuant to the license agreement, Dr. Hostetler granted the Company an
exclusive worldwide license to his rights to Acyclovir Monophosphate
("ACVMP") and Drs. Hostetler and Carson granted the Company an exclusive
worldwide license to their rights to 2-CdAP (the "ACVMP and 2-CdAP
Technologies"). As consideration for the exclusive license of the ACVMP and
2-CdAP Technologies, the Company sold an aggregate of 500,000 shares of
Common Stock to Drs. Hostetler and Carson. The interests of Drs. Hostetler
and Carson in the shares of Common Stock vest over time as they continue to
serve as consultants to the Company. The Company also agreed to make two
separate milestone payments of $1.0 million each and to make royalty payments
ranging from 3% to 8% of net sales of products incorporating the ACVMP and
2-CdAP Technologies to Drs. Hostetler and Carson. The Company is obligated to
hold harmless Drs. Hostetler and Carson against any claims or losses caused
by or arising out of the Company's use of the ACVMP and 2-CdAP Technologies.
Drs. Hostetler and Carson have the right to terminate the license agreement
or convert the exclusive license to a nonexclusive license in the event that
the Company does not satisfy certain development, marketing and milestone
obligations. Additional termination events include the failure of the Company
to pay royalties to Drs. Hostetler and Carson when due.
Under the terms of the consulting agreement with Dr. Hostetler, the
Company paid Dr. Hostetler an initial fee of $3,000 and agreed to sell to Dr.
Hostetler shares of the Company's Series A Preferred Stock and to pay him an
annual fee of $25,000 in consideration of the consulting services Dr. Hostetler
agreed to
-31-
provide in the antiviral and anticancer fields. The consulting agreement will
terminate in November 1999, unless earlier terminated by the Company.
In July 1995, Dr. Barry, the Chairman and Chief Executive Officer of the
Company, and Forward Ventures II, L.P., a holder of more than five percent of
the Company's outstanding stock, and of which Mr. Fleming, a director of the
Company, is a general partner, purchased 800,000 and 375,000 shares of Common
Stock, respectively, at $0.01 per share (the then fair market value of the
Common Stock as determined by the Company's Board). These shares represented
all of the shares of Common Stock issued in this financing. In November 1995,
Dr. Hostetler and Mr. Fleming, directors of the Company, Dr. Ellis, a
director and executive officer of the Company, and Dr. Furman, Dr. Sandra
Lehrman and Mr. Klein, all executive officers of the Company at that time,
purchased 300,000, 62,500, 200,000, 150,000, 150,000 and 100,000 shares of
Common Stock, respectively, at $0.01 per share (the then fair market value of
the Common Stock as determined by the Company's Board). A total of 1,345,000
shares of Common Stock were issued in this financing. In December 1995, Mr.
Rallis, an executive officer of the Company, purchased 150,000 shares of
Common Stock at $0.01 per share (the then fair market value of the Common
Stock as determined by the Company's Board). The Company exercised its option
to repurchase all 150,000 shares of Common Stock from Dr. Lehrman upon her
departure from the Company in July 1996.
On June 6, 1997, the Company issued, in a private placement transaction,
2,000,000 shares of Common Stock for gross proceeds of $30,000,000, or $15.00
per share (a discount of approximately 15% from the average closing price of
the Common Stock over the 30 trading days prior to the date of the
transaction), to the Duquesne Fund, L.P. and to three entities associated
with Soros Fund Management LLC, which three entities collectively own more
than 5% of the Company's Common Stock. Stanley F. Druckenmiller, the Lead
Portfolio Manager and a Member of the Management Committee of SFM LLC, is
also the sole managing member of Duquesne LLC, an investment advisory firm
which serves as a discretionary investment advisor to Duquesne Fund, L.P. As
part of the private placement, the purchasers received certain registration
rights as well as the right, until June 6, 1999, to nominate one designee to
serve on the Company's Board, subject to the prior approval of the Company's
Chairman and certain other limitations. On January 23, 1998, the
Company filed a Registration Statement on Form S-3 registering for resale the
2,000,000 shares (plus an additional 789,500 shares acquired prior to the
private placement). The Company was introduced to the purchasers by Mr.
McFadden, a director of the Company, who received a finder's fee of $500,000
in connection with the transaction.
The Company has entered into a number of agreements with certain direct
or indirect wholly-owned subsidiaries of Quintiles Transnational Corp.
(collectively, "Quintiles") pursuant to which Quintiles has rendered or has
agreed to render contract services on behalf of Triangle, including, among
other services, clinical monitoring, pre-clinical testing, drug product
formulation and packaging and central laboratory services. Dennis B.
Gillings, Ph.D., a nominee for election to the Board at the Annual Meeting,
is the Chairman and Chief Executive Officer and a significant shareholder of
Quintiles Transnational Corp. The Company paid Quintiles nominal amounts in
1996 and approximately $450,000 during 1997 for services rendered.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All future transactions between the Company
and its officers, directors, principal stockholders and their respective
affiliates will be approved in accordance with the Delaware General
Corporation Law by a majority of the Board, including a majority of the
independent and disinterested directors of the Board, and will be on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties.
The Company's Second Restated Certificate of Incorporation eliminates,
subject to certain exceptions, directors' personal liability to the Company or
its stockholders for monetary damages for
-32-
breaches of fiduciary duties. The Second Restated Certificate of
Incorporation does not, however, eliminate or limit the personal liability of
a director for (i) any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unlawful payments of dividends or unlawful stock repurchases or redemptions
as provided in Section 174 of the Delaware General Corporation Law or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Company's Restated Bylaws provide that the Company shall indemnify
its directors and executive officers to the fullest extent permitted under
the Delaware General Corporation Law, and may indemnify its other officers,
employees and other agents as set forth in the Delaware General Corporation
Law. In addition, the Company has entered into indemnification agreements
with its directors and officers. The indemnification agreements contain
provisions that require the Company, among other things, to indemnify its
directors and executive officers against certain liabilities (other than
liabilities arising from intentional or knowing and culpable violations of
law) that may arise by reason of their status or service as directors or
executive officers of the Company or other entities to which they provide
service at the request of the Company and to advance expenses they may incur
as a result of any proceeding against them as to which they could be
indemnified. The Company believes that these provisions and agreements are
necessary to attract and retain qualified directors and officers. The Company
has obtained an insurance policy covering directors and officers for claims
that such directors and officers may otherwise be required to pay or for
which the Company is required to indemnify them, subject to certain
exclusions.
As of the date of this proxy statement, there is no pending litigation
or proceeding involving a director, officer, employee or other agent of the
Company as to which indemnification is being sought, nor is the Company aware
of any pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Triangle's officers and
directors, and persons who own more than 10% of a registered class of
Triangle's equity securities, to file reports of ownership and changes in
ownership with the SEC and the Nasdaq. Officers, directors and greater than
10% stockholders are required by SEC regulations to furnish Triangle with
copies of all reports they file pursuant to Section 16(a).
Based solely on a review of the copies of such reports furnished to
Triangle, or written representations that no Form 5s were required, Triangle
believes that, during 1997, all Section 16(a) filing requirements applicable
to its officers, directors and greater than 10% stockholders were satisfied.
-33-
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholder proposals that are intended to be presented at the Company's
annual meeting of stockholders to be held in 1999 must be received by the
Company no later than December 12, 1998, 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
ITS ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND LIST
OF EXHIBITS. REQUESTS SHOULD BE SENT TO THE ATTENTION OF INVESTOR RELATIONS
AT THE COMPANY'S EXECUTIVE OFFICES WHICH ARE LOCATED AT 4 UNIVERSITY PLACE,
4611 UNIVERSITY DRIVE, DURHAM, NORTH CAROLINA 27707.
OTHER BUSINESS
The Board 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: April 3, 1998 Order of the Board of Directors
/s/ Chris A. Rallis
Chris A. Rallis, SECRETARY
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ATTACHMENT I
------------
TRIANGLE PHARMACEUTICALS, INC.
1996 STOCK INCENTIVE PLAN
-------------------------
(AS AMENDED AND RESTATED THROUGH MARCH 27, 1998)
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1996 Stock Incentive Plan is intended to promote the interests of
Triangle Pharmaceuticals, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary), and
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Six shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders and shall have sole and exclusive authority to
administer the Salary Investment Option Grant Program with respect to all
eligible individuals.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions
of any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant,
Salary Investment Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants or stock issuances made under this program.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors
who provide services to the Corporation (or any Parent or Subsidiary).
2
B. Only Employees who are Section 16 Insiders and other highly
compensated Employees shall be eligible to participate in the Salary Investment
Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals eligible to participate in the Automatic Option
Grant Program shall be determined in accordance with the provisions of Article
Five.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
reserved for issuance over the term of the Plan shall not exceed 3,200,000
shares. Such authorized share reserve is comprised of (i) the number of shares
which remained available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to the outstanding options incorporated into the Plan and the
additional shares which were otherwise available for future grant, plus (ii) an
additional increase of 500,000 shares authorized by the Board and subsequently
approved by the stockholders prior to the Section 12 Registration Date, plus
(iii) an additional increase of 1,000,000 shares authorized by the Board on
December 4, 1997, subject to stockholder approval at the 1998 Annual Meeting.
In addition, the maximum number of shares of Common Stock reserved for issuance
under the Plan shall automatically increase on January 1st of each of the
calendar years 1999, 2000 and 2001 by an amount equal to four percent (4%) of
the total number of shares of Common Stock issued and outstanding on December
31st of the immediately preceding calendar year; provided, however, that in no
event shall any such annual increase exceed the difference between (x) 1,000,000
shares and (y) the number of shares of Common Stock available for future option
grants under the Plan on such December 31 (net of all outstanding options and
unvested stock issuances). This automatic annual increase feature was
authorized by the Board on December 4, 1997, subject to stockholder approval at
the 1998 Annual Meeting.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1996 calendar year.
C. Shares of Common Stock subject to outstanding options (including
options
3
incorporated into this Plan from the Predecessor Plan) shall be available for
subsequent issuance under the Plan to the extent (i) those options expire or
terminate for any reason prior to exercise in full or (ii) those options are
cancelled in accordance with the cancellation/regrant provisions of Article Two.
Unvested shares issued under the Plan and subsequently cancelled or repurchased
by the Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. However, should the exercise
price of an option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an option or the vesting of a stock issuance 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
or which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance.
D. If any change is made to the Common Stock 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 Corporation's receipt of consideration, 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 the share
reserve under the Plan is to be increased each year pursuant to the automatic
annual increase provisions of Section V.A of this Article One, (iii) the number
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under this Plan per calendar year, (iv) the number and/or class of
securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (v) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan and (vi) the number and/or class of
securities and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
4
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Six and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option 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 documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
5
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any outstanding option held by the Optionee
at the time of death and exercisable in whole or in part at that time
may be subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution.
(iii) Should the Optionee's Service be terminated
for Misconduct, then all outstanding options held by the Optionee
shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the
option is to remain exercisable following the Optionee's cessation of
Service from the limited exercise period otherwise in effect for that
option to such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the option
term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional installments in which the
Optionee would have vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price
6
paid per share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the document evidencing
such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory
Option may be assigned in whole or in part during the Optionee's lifetime. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent
the Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding option
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 to be replaced with a comparable option to
purchase shares of the capital
7
stock of the successor corporation (or parent thereof), (ii) such option is to
be replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested option shares at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option 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.
B. All outstanding repurchase rights shall terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
PROVIDED the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do not
otherwise accelerate. Any options so accelerated shall remain exercisable for
fully-vested shares until the EARLIER of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights with
respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for
fully-vested shares until the EARLIER of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's
8
outstanding repurchase rights with respect to shares held by the Optionee at the
time of such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the
right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and the surrender of that option in exchange
for a distribution from the Corporation in an amount equal to the
excess of (a) 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 (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective
unless it is approved by the Plan Administrator, either at the time of
the actual option surrender or at any earlier time. If the surrender
is so approved, then the distribution to which the Optionee shall be
entitled 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.
(iii) If the surrender of an option is not approved
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
9
exercise such rights at any time prior to the LATER of (a) five (5)
business days after the receipt of the rejection notice or (b) the last day
on which the option is otherwise exercisable in accordance with the terms
of the documents evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be
granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over,
each individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for
a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the
option is at the time exercisable for vested shares of Common Stock.
In return for the surrendered option, the Optionee shall receive a
cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock which
are at the time vested under each surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.
(iii) The Plan Administrator shall pre-approve, at
the time the limited stock appreciation right is granted, the
subsequent exercise of that right in accordance with the terms of the
grant and the provisions of this Section V.C. No additional approval
of the Plan Administrator or the Board shall be required at the time
of the actual option surrender and cash distribution.
(iv) The balance of the option (if any) shall
remaining outstanding and exercisable in accordance with the documents
evidencing such option.
10
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole or
in part. To the extent the Primary Committee approves the authorization, the
individual who filed that authorization shall be granted an option under the
Salary Investment Grant Program as soon as possible after the start of the
calendar year for which the salary reduction is to be in effect. All grants
under the Salary Investment Option Grant Program shall be at the sole discretion
of the Primary Committee.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; PROVIDED, however,
that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be equal to the excess of
(i) the Fair Market Value per share of Common Stock on the option grant date
over (ii) the amount of the approved Salary Reduction divided by the number of
shares subject to the Option.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A DIVIDED BY (B x C), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year,
B is the Fair Market Value per share of Common Stock on the
option grant
11
date, and
C is a percentage not less than 33 1/3% nor more than 66 2/3%
fixed by the Plan Administrator, in its sole discretion, for
purposes of the option grants to be made under the Salary
Investment Option Grant Program for a particular calendar year
for which that program is to be in effect.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the EARLIER of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
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.
Such right of exercise shall lapse, and the option shall terminate, upon the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of Service
for any reason, terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the EARLIER of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately 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 any or all of those shares as fully-vested shares of Common Stock.
Any option not exercised prior to the Change in Control may be repurchased by
the Corporation at the time of the Change in Control at a repurchase price equal
to the amount by which the Optionee's salary was reduced in connection with the
grant of that option. Any option which is neither exercised nor repurchased
shall remain exercisable for fully-vested shares until the EARLIER or (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year
12
period measured from the date of the Optionee's cessation of Service.
C. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
13
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Six,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be attained,
(ii) the number of installments in which the shares
are to vest,
(iii) the interval or intervals (if any) which are to
lapse between installments, and
(iv) the effect which death, Permanent Disability or
other event designated by the Plan Administrator is to have upon the
vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
14
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase/cancellation
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
(i) those repurchase/cancellation rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed in the
Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase/cancellation rights
are assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall
15
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
16
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. GRANT DATES. Effective with the 1998 Annual Meeting, (i) on the
date that each non-employee Board member is first elected or appointed as a
non-employee Board member, option grants shall be made to such non-employee
Board member and (ii) on the date that each non-employee Board member is
re-elected as a non-employee Board member, option grants shall be made to such
non-employee Board member. Each automatic option grant shall be a Non-Statutory
Option. For each individual who is first elected or appointed as a non-employee
Board member, the number of shares of Common Stock subject to the option shall
be equal to 2,000 shares plus an additional 2,000 shares for any partial year
and for each full year of the term for which the non-employee Board member is
elected or appointed. Each non-employee Board member who is re-elected to serve
as a non-employee Board member at any time after his or her initial term will
receive an additional automatic grant of 2,000 shares for any partial year and
for each full year of the term for which the non-employee Board member is
re-elected to the Board. There shall be no limit on the number of such
automatic option grants any one Eligible Director may receive over his or her
period of Board service, and non-employee Board members who have previously been
in the employ of the Corporation (or any Parent or Subsidiary) or who have
otherwise received a stock option grant from the Corporation prior to the
Effective Date shall be eligible to receive one or more such annual option
grants over their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
exercisable only with respect to option shares with respect to which the
automatic option grant has become vested. Provided the optionee continues to
serve as a Board member, the automatic option grant shall vest with respect to
2,000 shares on the day the non-employee Board member is first elected or
appointed to the Board and with respect to an additional 2,000 shares on the day
immediately preceding the date of each subsequent Annual Meeting following the
date of the automatic option grant until the automatic option grant has become
fully vested and exercisable for all the option shares. No portion of the
automatic option grant shall vest after the optionee has ceased to be a member
of the Board.
E. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's
death, the
17
personal representative of the Optionee's estate or 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) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period,
the option may not be exercised in the aggregate for more than the
number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any portion
of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than death
or Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Stockholder approval
of this March 27, 1998 amendment of
18
the Plan shall constitute pre-approval of each option subsequently granted under
this Article Five with such a surrender provision and the subsequent surrender
of that option in accordance with the terms of this Section II.C. No additional
approval of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, PROVIDED the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
19
ARTICLE SIX
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation
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 equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective immediately upon the Plan Effective
Date. However, the Salary Investment Option Grant Program shall not be
implemented until such time as the Primary Committee may deem appropriate.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan. All options outstanding under the Predecessor Plan on the
Section 12 Registration Date have been incorporated into the Plan and shall be
treated as outstanding options under the Plan. However, each outstanding option
so incorporated shall
20
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the 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 Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. On December 4, 1997, the Board adopted an amendment to the Plan
(the "1997 Amendment") to effect the following changes: (i) increase the
maximum number of shares of Common Stock available for issuance over the term of
the Plan by an additional 1,000,000 shares, and (ii) implement an automatic
share increase feature pursuant to which the number of shares of Common Stock
available for issuance under the Plan will automatically increase on January 1st
of each of the calendar years 1999, 2000 and 2001 by an amount equal to four
percent (4%) of the total number of shares of Common Stock issued and
outstanding on December 31st of the immediately preceding calendar year;
provided, however, that in no event shall any such annual increase exceed the
difference between (x) 1,000,000 shares and (y) the number of shares of Common
Stock available for future option grants under the Plan on such December 31 (net
of all outstanding options and unvested stock issuances). In addition, on March
27, 1998, the Board adopted an amendment to the Plan (the "1998 Amendment") to
effect the following change: under the Automatic Option Grant Program, effective
with the 1998 Annual Meeting (A) automatically grant to each individual who is
first appointed or elected as a non-employee Board member an option to purchase
shares of Common Stock in an amount equal to 2,000 shares of Common Stock plus
2,000 shares for any partial year and for each full year of the term for which
the non-employee Board member is first appointed or elected, and (B)
automatically grant to each individual who is re-elected to serve as a
non-employee Board member an option to purchase 2,000 shares of Common Stock for
each full year of the term for which the non-employee Board member is re-elected
to the Board. The 1997 Amendment and the 1998 Amendment are subject to
stockholder approval at the 1998 Annual Meeting, and no option grants made on
the basis of the 1,000,000-share increase shall become exercisable in whole or
in part unless and until the 1997 Amendment is approved by the stockholders.
Should such stockholder approval not be obtained at the 1998 Annual Meeting,
then each option grant made pursuant to the 1,000,000-share increase shall
terminate and cease to remain outstanding, and no further option grants shall be
made on the basis of that share increase. In addition, the automatic share
increase feature pursuant to which the share reserve under the Plan will
automatically increase on January 1st of the calendar years 1999, 2000 and 2001,
and the revisions to the Automatic Option Grant Program shall not be
implemented. However, the provisions of the Plan as in effect immediately prior
to the 1997 Amendment and the 1998 Amendment shall continue in full force and
effect, and option grants may thereafter continue to be made pursuant to those
provisions. All option grants made prior to the 1997 Amendment and the 1998
Amendment shall remain outstanding in accordance with the terms and conditions
of the respective instruments evidencing those options, and nothing in the 1997
Amendment or the 1998 Amendment shall be deemed to modify or in any way affect
those outstanding options or issuances.
E. The Plan shall terminate upon the EARLIEST of (i) August 30,
2006, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
21
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
if so determined by the Board or pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued under those
programs shall be held in escrow until there is obtained any required approval
of an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
22
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
23
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections
for Board membership, 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 the Board
approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean Triangle Pharmaceuticals, Inc., a Delaware
corporation, and its successors.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
grant program
A-1
in effect under the Plan.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to
the closing selling price per share of Common Stock on the date in
question, as such price is reported on the Nasdaq National Market. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to 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 closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
L. HOSTILE TAKE-OVER shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
M. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
N. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place
A-2
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without the
individual's consent.
O. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
P. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
R. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Investment Option Grant or the Automatic
Option Grant Program.
S. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
T. PARTICIPANT shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
U. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
V. PLAN shall mean the Corporation's 1996 Stock Incentive Plan, as set
forth in this document.
W. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
X. PLAN EFFECTIVE DATE shall mean, August 30, 1996, the date on which the
Plan was adopted by the Board.
Y. PREDECESSOR PLAN shall mean the Corporation's pre-existing 1996 Stock
Option/Stock Issuance Plan in effect immediately prior to the Plan Effective
Date hereunder.
A-3
Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program with
respect to all eligible individuals.
AA. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under the Plan.
BB. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
CC. SECTION 12 REGISTRATION DATE shall mean the date on which the Common
Stock was first registered under Section 12 of the 1934 Act.
DD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
EE. SERVICE shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
FF. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
GG. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
HH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
under the Plan.
II. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of
the other corporations in such chain.
JJ. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock 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 (i) price per share.
KK. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
LL. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section
A-4
424(d)) possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Corporation (or any Parent or Subsidiary).
A-5
ATTACHMENT II
-------------
PROXY CARD
TRIANGLE PHARMACEUTICALS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David W. Barry and Chris A. Rallis
jointly and severally, as proxies, with full power of substitution and
resubstitution, to vote all shares of stock which the undersigned is entitled
to vote at the Annual Meeting of Stockholders of Triangle Pharmaceuticals,
Inc. to be held on Friday, May 15, 1998, or at any postponements or
adjournments thereof, as specified on the reverse, and to vote in his
discretion on such other business as may properly come before the Annual
Meeting and any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2 AND 3 AND WILL BE VOTED BY THE PROXYHOLDERS AT THEIR DISCRETION
AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE MEETING OR ANY ADJOURNMENTS
THEREOF. TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS JUST
SIGN BELOW, NO BOXES NEED BE CHECKED.
(PLEASE SIGN AND DATE ON REVERSE SIDE)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
TRIANGLE PHARMACEUTICALS, INC.
MAY 15, 1998
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
A /X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
1. Election of Directors:
/ / Vote FOR all nominees at right (except as withheld in the space below)
/ / Vote WITHHELD from all nominees
Instruction: To withhold authority to vote for any individual nominee, check
the box "Vote FOR" and write the nominee's name on the line below.
- --------------------------------------------------------------------------------
NOMINEES:
Standish M. Fleming, Dennis B. Gillings, Ph.D. and Henry G. Grabowski, Ph.D.
will stand for election to the Board for terms to expire in 2001.
2. To approve a series of amendments to the 1996 Stock Incentive Plan (i)
increasing the number of shares of Common Stock authorized for issuance under
the plan (the "option pool") by an additional 1,000,000 shares, (ii)
providing for automatic annual increases in 1999, 2000 and 2001 in the option
pool by an amount equal to 4% of the total number of shares outstanding, but
in no event will the increase in any year exceed 1,000,000 shares less the
total number of shares then available in the option pool for future grants,
and (iii) increasing the number of shares of Common Stock issuable upon the
exercise of options granted to non-employee Board members under the Automatic
Option Grant Program to 2,000 shares on the date first elected or appointed
to the Board and 2,000 additional shares for each full or partial year of
such member's term, measured from the date of each annual meeting of
stockholders.
/ / FOR / / AGAINST / / ABSTAIN
3. Ratification of Accountants: Ratification and approval of the selection of
Price Waterhouse LLP as independent accountants for the fiscal year ending
December 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING / /
- ------------------------------ -------------------------------
SIGNATURE OF STOCKHOLDER PRINTED NAME OF STOCKHOLDER
- ------------------------------ Dated: , 1998
TITLE (IF APPROPRIATE)
-----------------------
Note: Please sign exactly as name appears hereon. If signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such, and, if signing for a corporation, give your title. When shares are
in the names of more than one person, each should sign.