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 Section240.14a-11(c) or
Section240.14a-12
NEOPHARM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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/X/ No fee required.
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and 0-11.
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NEOPHARM, INC.
100 Corporate North
Suite 215
Bannockburn, Illinois 60015
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of NeoPharm,
Inc., a Delaware corporation, will be held at the Conference Center, located at
100 Corporate North, Bannockburn, Illinois on June 10, 1999, at 9:00 a.m., local
time, for the following purposes:
1. To elect five directors to serve until the 2000 Annual Meeting of
Stockholders.
2. To adopt the Company's 1998 Equity Incentive Plan.
3. To transact such other business as may properly come before the meeting.
Only stockholders of record on April 30, 1999 will be entitled to notice of
and to vote at this meeting.
TO ASSURE THAT YOUR INTERESTS WILL BE REPRESENTED, WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND DATE THE ENCLOSED PROXY CARD
AND PROMPTLY RETURN IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. THE ENCLOSED PROXY IS REVOCABLE AND WILL
NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
By Order of the Board of Directors,
[SIGNATURE]
KEVIN M. HARRIS
SECRETARY
Bannockburn, Illinois
May 7, 1999
NEOPHARM, INC.
100 Corporate North
Suite 215
Bannockburn, Illinois 60015
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1999
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of NeoPharm, Inc., a Delaware corporation (the
"Company"), to be used at the Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held at the Conference Center, located at 100 Corporate
North, Bannockburn, Illinois on June 10, 1999 at 9:00 a.m. for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders and in this
Proxy Statement. This Proxy Statement and the enclosed form of proxy were first
sent or given to stockholders on or about May 7, 1999.
Only stockholders of record at the close of business on April 30, 1999 (the
"Record Date") will be entitled to vote at the meeting or any adjournment
thereof. As of the close of business on the Record Date, there were 8,454,621
shares of the Company's common stock, par value $.0002145 per share ("Common
Stock"), outstanding.
The presence, either in person or by properly executed proxy, of the holders
of a majority of the outstanding shares of Common Stock is necessary to
constitute a quorum at the Annual Meeting. In the election of directors, each
share is entitled to cast one vote for each director to be elected; cumulative
voting is not permitted. For all matters except the election of directors, each
share is entitled to one vote. Directors are elected by a plurality of the votes
cast by the holders of shares of Common Stock at a meeting at which a quorum is
present. In all other matters other than the election of directors, the
affirmative vote of a majority of the outstanding shares of Common Stock present
in person or represented by proxy at the Annual Meeting is required for the
adoption of such matters. Abstentions and broker non-votes are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. Abstentions and broker non-votes are not counted for purposes of
determining whether a proposal presented to stockholders has been approved.
A proxy may be revoked at any time before it is exercised by giving a
written notice to the Secretary of the Company bearing a later date than the
proxy, by submitting a later-dated proxy or by voting the shares represented by
the proxy in person at the Annual Meeting. Unless revoked, the shares
represented by each duly executed, timely delivered proxy will be voted in
accordance with the specifications made. If no specifications are made, such
shares will be voted FOR the election of directors as proposed in this Proxy
Statement and FOR approval of the 1998 Equity Incentive Plan. The Board of
Directors does not intend to present any other matters at the Annual Meeting.
However, should any other matters properly come before the Annual Meeting, it is
the intention of the proxy holders to vote the proxy in accordance with their
best judgment.
The expenses of soliciting proxies will be paid by the Company. In addition
to solicitation by mail, officers, directors and employees of the Company, who
will receive no extra compensation therefor, may solicit proxies personally or
by telephone, telecopy or telegram. The Company will reimburse brokerage houses,
custodians, nominees and fiduciaries for their expenses in mailing proxy
materials to principals.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Five directors, constituting the entire Board of Directors, are to be
elected at the Annual Meeting. Each director will hold office until the 2000
Annual Meeting of stockholders and until his successor has been elected and
qualified. The nominees named below have been selected by the Board of Directors
of the Company. The Board believes that all of its present nominees will be
available for election at the meeting and will serve if elected. If, due to
circumstances not now foreseen, any of the nominees named below will not be
available for election, the proxies will be voted for such other person or
persons as the Board of Directors may select. Each of these nominees is
currently a director of the Company.
There follows information as to each nominee for election as a director at
the Annual Meeting, including his age, present principal occupation, other
business experience during the last five years, directorships of other
publicly-held companies and period of service as a director of the Company.
THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY WILL VOTE FOR THE
ELECTION OF THE NOMINEES UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES.
NOMINEES FOR DIRECTOR. The following information has been provided by the
respective nominees for election to the Board of Directors.
NAME AGE PRINCIPAL OCCUPATION
- ----------------------------------------------------- --- -----------------------------------------------------
James M. Hussey, R.Ph., MBA.......................... 40 Mr. Hussey joined the Company as President, Chief
Executive Officer and Director on March 16, 1998.
Prior to joining the Company, Mr. Hussey served as
Chief Executive Officer of Physicians Quality Care,
Inc., a managed care organization from 1994 to 1998.
Previous to that, Mr. Hussey held several positions
with Bristol-Myers Squibb, a diversified
pharmaceutical manufacturer, from 1986 to 1994, most
recently as the General Manager Midwest Integrated
Regional Business Unit.
John N. Kapoor, Ph.D................................. 55 Dr. Kapoor has been a Director and Chairman of the
Board of the Company since its formation in July
1990. Prior to forming the Company, Dr. Kapoor
formed EJ Financial Enterprises, Inc., a health care
consulting and investment company, in March 1990, of
which Dr. Kapoor is the principal shareholder and
President. Dr. Kapoor is presently Chairman of
Option Care, Inc., a provider of home health care;
Chairman of Unimed Pharmaceuticals, Inc., a
developer and marketer of pharmaceuticals for
cancer, endocrine disorders and infectious diseases;
and Chairman and Chief Executive Officer of Akorn,
Inc., a manufacturer, distributor and marketer of
generic ophthalmic products.
2
NAME AGE PRINCIPAL OCCUPATION
- ----------------------------------------------------- --- -----------------------------------------------------
Aquilur Rahman, Ph.D................................. 56 Dr. Rahman has been a Director and the Company's
Chief Scientific Officer since joining the Company
in July 1990. Prior to joining the Company on a full
time basis in 1996, Dr. Rahman was an associate
professor of pathology and pharmacology at
Georgetown University and has more than 15 years of
research experience in developing methods of
chemotherapy treatment for cancer.
Sander A. Flaum...................................... 62 Mr. Flaum joined the Company as a Director in July
1998. Since 1991, Mr. Flaum has served as President
and CEO of Robert A Becker EURO/RSCG, a marketing
and advertising company. Mr. Flaum was Executive
Vice President of Kleinter Advertising from 1984 to
1991 and prior to that served as Marketing Director
of Lederle Laboratories, a division of American
Cyanamid.
Erick E. Hanson...................................... 52 Mr. Hanson joined the Company as a Member of the
Board of Directors in April 1997. Mr. Hanson is
currently President of Hanson and Associates, a
consulting firm working with venture capital
companies. Previously, Mr. Hanson served as
President and CEO of Option Care, Inc., a provider
of home health care. Prior to joining Option Care,
Mr. Hanson held a variety of executive positions
with Caremark, Inc., including Vice President Sales
and Marketing. Mr. Hanson served as President and
Chief Operating Officer of Clinical Partners Inc. in
Boston, MA from 1989 to 1991 and prior to 1989 was
associated with Blue Cross and Blue Shield of
Indiana for over twenty years. Mr. Hanson presently
serves on the board of directors of Condell Medical
Centers.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE ELECTION OF ALL NOMINEES FOR DIRECTOR.
3
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held three meetings in 1998. During 1998, each of the
directors participated in at least 75% of the total number of such meetings of
the Board and meetings of committees of the Board on which he served.
The Board of Directors has established a Compensation Committee and an Audit
Committee. The Company's bylaws provide that each such committee shall have one
or more members, who serve at the pleasure of the Board of Directors. The
Company does not have a standing nominating committee, however, the Board of
Directors will consider director nominations which are submitted by stockholders
in writing addressed to: Corporate Secretary, NeoPharm, Inc., 100 Corporate
North, Suite 215, Bannockburn, Illinois 60015.
COMPENSATION COMMITTEE. The Compensation Committee is responsible for
overseeing the Company's incentive compensation and benefit plans and for
reviewing and making recommendations to the Board of Directors with respect to
the administration of the salaries, incentives and other compensation of
directors, officers, and other employees of the Company, including the terms and
conditions of their employment and other compensation matters. The Compensation
Committee currently consists of Messrs. Kapoor and Dritschilo. During fiscal
1998, there was one meeting of the Compensation Committee.
AUDIT COMMITTEE. The Audit Committee is responsible for making an annual
recommendation, based on a review of qualifications, to the Board of Directors
for the appointment of independent public accountants to audit the financial
statements of the Company and to perform such other duties as the Board of
Directors may from time to time prescribe. The Audit Committee is also
responsible for reviewing and making recommendations to the Board of Directors
with respect to (i) the scope of audits conducted by the Company's independent
public accountants and internal auditors and (ii) the accounting methods and the
system of internal controls used by the Company. In addition, the Audit
Committee reviews reports from the Company's independent public accountants and
internal auditors concerning compliance by management with governmental laws and
regulations and with the Company's policies relating to ethics, conflicts of
interest and disbursements of funds. The Audit Committee currently consists of
Messrs. Dritschilo and Hanson. During fiscal 1998, there was one meeting of the
Audit Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. As noted above,
the Compensation Committee of the Board consists of Messrs. Kapoor and
Dritschilo and the Audit Committee consist of Messrs. Dritschilo and Hanson.
Each of the aforementioned individuals is a non-employee director of the
Company. In 1998, the Company paid EJ Financial Enterprises, Inc. ("EJ")
$125,000 pursuant to a Consulting Agreement for certain business and financial
services, plus reimbursement of expenses. Dr. Kapoor, the Company's Chairman, is
the president and a director of EJ. Dr. Mahendra Shah, a Vice President of the
Company, is also a Vice President of EJ and Mr. Kevin M. Harris, Chief Financial
Officer and Secretary of the Company, is Director of Taxes and Planning at EJ.
The Company's principal offices are located in space subleased from Option Care,
Inc. of which Dr. Kapoor is Chairman. Finally, Dr. Dritschilo is Chairman of the
Department of Radiation Medicine and Medical Director of the Georgetown
University Medical Center in Washington, D.C. The Company has previously entered
into two license agreements with Georgetown University for certain of the drug
compounds which the Company has under development. Under these license
agreements, the Company is obligated to pay a portion of any revenues from
commercial development of these compounds to Georgetown and Georgetown may
allocate a portion of these monies to Dr. Dritschilo. See "Certain Relationships
and Related Transactions" for additional information.
COMPENSATION OF DIRECTORS
Directors are not paid any compensation for attendance at directors'
meetings or for serving on any committee of the Board. Directors are reimbursed
for reasonable out-of-pocket expenses incurred in connection with attendance at
such meetings.
4
Non-employee Directors ("Outside Directors") are eligible to receive grants
of nonstatutory stock options. Each Outside Director is granted an option to
purchase 5,000 shares of Common Stock of the Company upon his or her initial and
each subsequent election as a director. Options granted to Outside Directors
vest one year from the date of grant. Currently three directors are eligible to
participate in this program.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION OF EXECUTIVE OFFICERS. The
following table sets forth certain summary compensation information for the
fiscal year ended December 31, 1998, for services rendered by each person who
served as chief executive officer of the Company at any time during 1998 and for
each executive officer of the Company who received more than $100,000 in salary
and bonus in 1998 (the "Named Executive Officers").
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------------- ------------------------
ANNUAL RESTRICTED
NAME AND COMPENSATION OTHER ANNUAL STOCK
PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) COMPENSATION AWARDS($) OPTIONS(#)
- --------------------------------------- ----------- --------- ------------- ------------- ----------- -----------
William C. Govier...................... 1998 $ 5,800 $ 0 $ 0 $ 0 $ 0
Chief Executive Officer 1997 138,600 0 0 0 0
and President(1) 1996 121,000 39,600 0 0 50,000(3)
James M. Hussey........................ 1998 $ 197,000 $ 90,000 $ 7,100 $ 187,500 400,000(4)
Chief Executive Officer
and President
Aquilur Rahman......................... 1998 $ 178,000 $ 54,000 $ 9,600 0 0
Chief Scientific Officer 1997 167,000 51,000 0 0 0
1996 144,100 45,000 0 0 50,000(5)
Lewis Strauss, M.D..................... 1998 $ 110,000 $ 16,800 $ 20,000 $ 35,000 20,000(6)
Chief Medical Officer(2)
- --------------------------
(1) Dr. Govier resigned as President, Chief Executive Officer and a Director of
the Company effective January 18, 1998. Effective March 16, 1998, Mr. James
M. Hussey succeeded Dr. Govier as President and Chief Executive Officer and
was appointed to fill the vacancy in the Board of Directors created by Dr.
Govier's departure.
(2) Dr. Strauss joined the Company as Chief Medical Officer on April 6, 1998.
(3) The stock options granted to Dr. Govier were cancelled after his resignation
on January 18, 1998 as President, Chief Executive Officer and a Director of
the Company in accordance with the terms of the 1995 Stock Option Plan.
(4) The stock option became exercisable for 25% of the covered shares on January
16, 1999 and will become exercisable with respect to an additional 25% on
each anniversary of such date.
(5) The stock options became exercisable for 50% of the covered shares on August
13, 1997 and the remaining options became exercisable on August 15, 1998 in
accordance with the 1995 Stock Option Plan.
(6) The stock options became exercisable for 25% of the covered shares on April
6, 1999 and will become exercisable with respect to an additional 25% on
each anniversary of such date.
5
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to grants of options
to purchase Common Stock granted to the Named Executive during the fiscal year
ended December 31, 1998:
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
% OF TOTAL OPTIONS APPRECIATION FOR OPTION
GRANTED TO EXERCISE TERM
GRANTED EMPLOYEES IN FISCAL PRICE PER EXPIRATION ------------------------
NAME OPTIONS(#) YEAR SHARE DATE 5% 10%
- -------------------------------- ----------- ------------------- ----------- ----------- ----------- -----------
James M. Hussey................. 400,000 71.81% $ 4.75 1/16/08 $ 1,194,900 $ 3,028,111
Lewis Strauss................... 20,000 3.59% $ 3.75 4/06/08 $ 47,167 $ 119,531
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR, AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to stock options
exercised during the fiscal year ended December 31, 1998, and the value at
December 31, 1998, of unexercised stock options held by the Named Executive
Officers:
INDIVIDUAL GRANTS
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY AT
OPTIONS AT FISCAL FISCAL YEAR- END*
SHARES ACQUIRED VALUE REALIZED YEAR-END EXERCISABLE/ EXERCISABLE/ UNEXERCISABLE
NAME ON EXERCISE # $ UNEXERCISABLE # $*
- -------------------------------------- ----------------- --------------- --------------------- --------------------------
William C. Govier..................... 0 0 0/0 $0/$0
James M. Hussey....................... 0 0 0/400,000 $0/$2,950,000
Aquilur Rahman........................ 0 0 50,000/0 $256,250/$0
Lewis Strauss......................... 0 0 0/20,000 $0/$167,500
* Represents the fair market value at December 31, 1998 of the Common Stock
underlying the options minus the exercise price.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors, consisting of
directors Dr. John N. Kapoor and Dr. Anatoly Dritschilo, neither of whom is an
employee of the Company, annually reviews and makes recommendations to the Board
of Directors regarding executive compensation. It is the philosophy of the
Committee that the total executive compensation package should align the
financial interests of the Company's executives with the short-term and
long-term goals of the Company and consequently enhance stockholder value. The
key elements of the Company's current compensation program include a base
salary, an annual bonus and equity participation through a long term incentive
plan.
BASE SALARY. As a development stage company, with six full time employees
and one part-time employee, it is difficult to compare salaries to any
particular peer group. Rather, the Committee takes into consideration the
responsibilities, experience level, individual performance levels and amount of
time devoted to the Company's needs. Salaries are reviewed annually by the
Committee based on the foregoing criteria and are adjusted, if warranted, by the
Committee.
6
ANNUAL BONUS. The Committee recommends to the Board the amount of bonus
awards, including who should receive them based upon its evaluations. The awards
are intended to reward excellent individual and team performance in the
achievement of the Company's financial and operational goals. The Board of
Directors reviews the Committee's bonus recommendations and makes its bonus
determinations based on the Committee's report. Bonuses (exclusive of
restrictive stock awards) paid to employees for the fiscal year 1998 amounted to
28% of base salary.
LONG-TERM INCENTIVES. The Company adopted the 1995 Stock Option Plan in
January 1995 and the 1998 Equity Incentive Plan in July 1998. The purpose of
each of those plans is to create an opportunity for employees, including
executive officers, directors and consultants to the Company, to share in the
enhancement of stockholder value. As with annual bonus payments, the
Compensation Committee annually recommends to the Board the grant of incentive
awards based upon its evaluation of individual contributions towards the
Company's past and future success. After reviewing the recommendation of the
Committee, including the executive's individual performance and level of
responsibility together with the Company's achievement with respect to
profitability and growth, the Board grants incentive awards. In 1998
recommendations for the issuance of 557,000 stock options were made by the
Committee.
Compensation Committee
Dr. John N. Kapoor
Dr. Anatoly Dritschilo
7
SECURITY OWNERSHIP
The following table sets forth certain information regarding beneficial
ownership of shares of the Common Stock as of March 31, 1999 by (i) all those
known by the Company to be beneficial owners of more than 5% of its outstanding
Common Stock, (ii) each director of the Company and each nominee for director,
(iii) each of the executive officers named in the Summary Compensation Table and
(iv) all executives, directors and nominees for director as a group.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF CLASS
NAME OWNERSHIP (1)
- ------------------------------------------------------------------------- ------------------- -------------------
John N. Kapoor........................................................... 2,146,957(2) 23.54%
EJ Financial Enterprises, Inc.
225 East Deerpath
Suite 250
Lake Forest, IL 60045
John N. Kapoor 1994-A.................................................... 1,550,453(3) 17.00%
Annuity Trust
225 East Deerpath
Suite 250
Lake Forest, IL 60045
John P. Curran........................................................... 933,800(4) 10.24%
c/o Curran Partners L.P.
230 Park Avenue
New York, NY 10017
Aquilur Rahman........................................................... 915,540 10.04%
100 Corporate North
Suite 215
Bannockburn, IL 60015
James M. Hussey.......................................................... 166,373(5) 1.82%
100 Corporate North
Suite 215
Bannockburn, IL 60015
Sander A. Flaum.......................................................... 2,000 *
100 Corporate North
Suite 215
Bannockburn, Illinois
Erick E. Hanson.......................................................... 2,000 *
100 Corporate North, Suite 212
Bannockburn, IL 60015
William C. Govier........................................................ 233,134 2.56%
225 E. Deerpath
Suite 250
Lake Forest, IL 60045
Anatoly Dritschilo....................................................... 259,136 2.84%
100 Corporate North
Bannockburn, Illinois 60015
8
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF CLASS
NAME OWNERSHIP (1)
- ------------------------------------------------------------------------- ------------------- -------------------
Mahendra Shah............................................................ 187,106 2.05%
225 E. Deerpath, Suite 250
Lake Forest, IL 60045
Kevin M. Harris.......................................................... 600 *
225 E. Deerpath, Suite 250
Lake Forest, IL 60045
Lewis Strauss, M.D....................................................... 15,862 *
100 Corporate North, Suite 215
Bannockburn, IL 60015
All officers and directors as a group (9 persons) 5,246,027(6) 57.53%
- ------------------------
* Indicates ownership of less than 1%.
(1) Based on 8,454,621 shares of Common Stock outstanding as of March 31, 1999,
plus 664,004 shares subject to warrant and options that are considered to be
beneficially owned by the persons listed. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission (the
"Commission") and generally includes voting or investment power with respect
to securities. Shares of Common Stock subject to options or warrants
exercisable or convertible within 60 days are deemed outstanding for
computing the percentage of the person or group holding such options or
warrants.
(2) Includes 620,059 shares held by the John N. Kapoor Trust, dated 9/20/89 (the
"JNK Trust"), of which Dr. Kapoor is the sole trustee and sole beneficiary
and 904,812 shares held by EJ Financial/NEO Management, L.P. (the "Limited
Partnership") of which John N. Kapoor is Managing General Partner. The
address of the Trust and the Limited Partnership is 225 East Deerpath, Suite
250, Lake Forest, Illinois 60045. The Trust also owns Warrants to purchase
287,004 shares of Common Stock, which are assumed to have been exercised for
purposes of disclosing the ownership indicated. The amount shown also
includes 300,000 shares which are held by the John N. Kapoor Charitable
Trust (the "Charitable Trust") of which Dr. Kapoor and his spouse are
co-trustees. Dr. Kapoor disclaims beneficial ownership of the shares held by
the Charitable Trust.
(3) The sole trustee of the John N. Kapoor 1994-A Annuity Trust (the "Annuity
Trust") is Editha Kapoor, Dr. Kapoor's spouse, who also serves as trustee
for four trusts which have been established for their children (the
"Childrens' Trusts") and which collectively own 310,848 shares and as
co-trustee with Dr. Kapoor of the Charitable Trust. The shares held by the
Childrens' Trusts and the Charitable Trust are not included in the reported
shares.
(4) Includes 659,000 shares of Common Stock which are held by Curran Partners,
L.P., of which John Curran is general partner, and 104,000 shares which are
issuable within 60 days pursuant to Warrants issued by the Company.
(5) Includes 100,000 shares that may be acquired pursuant to vested options.
(6) Does not include shares held by family members or trusts established for
family members of officers and directors as to which shares such officers
and directors do not have or share voting or investment power and as to
which they have disclaimed beneficial ownership.
9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November, 1997 the Company relocated its principal corporate office to
space subleased from Option Care Inc. Mr. Hanson, a director of the Company, was
formerly President, CEO and a director of Option Care Inc. In addition, Dr.
Kapoor, Chairman of the Company's Board of Directors, is a director and
principal shareholder of Option Care Inc. Dr. Kapoor holds approximately 57.5%
of the outstanding shares of Option Care Inc. The sublease was negotiated at
arms length and during 1998 the Company expensed approximately $38,700 for rent
under the Option Care sublease.
On July 1, 1994, the Company entered into a Consulting Agreement with EJ
Financial Enterprises, Inc. ("EJ Financial"). The Consulting Agreement provides
that the Company will pay EJ Financial $125,000 per year (paid quarterly) for
certain business and financial services, including having certain officers of EJ
Financial serve as officers of the Company. Dr. John Kapoor, the Company's
Chairman of the Board is the president and a director of EJ Financial. Dr.
Mahendra Shah, Vice President of the Company, is also a Vice President of EJ
Financial. Mr. Kevin Harris, Chief Financial Officer of the Company, is Director
of Taxes and Planning of EJ. Dr. Kapoor, Dr. Shah and Mr. Harris are paid by EJ
and do not receive salaries from the Company. These charges reflect the
increased need for EJ Financial's services in connection with operation of
NeoPharm as a publicly-held company. Unless terminated by the parties, the
management services agreement with EJ Financial automatically renews in June of
each year for a one year term.
On October 22, 1998, the Company established a $3,000,000 line of credit
(the "Line of Credit") with the John N. Kapoor Trust dated 9/20/89 (the "Trust")
the sole trustee and sole beneficiary of which is John N. Kapoor, the Company's
Chairman. Interest on borrowings on the Line of Credit accrued at the rate of 2%
over the prime rate charged by the Northern Trust Bank. The accrued interest and
outstanding principal became due and payable at the earlier of October 1, 2001
or the date on which the Company completed a public or private offering of debt
or equity securities or a licensing agreement for its products. There were no
borrowings on the Line of Credit during 1998 and borrowings of $250,000 in 1999.
The Line of Credit was terminated in February 1999 as a result of the Company
entering in a license agreement with Pharmacia & Upjohn and the Line of Credit
was thereupon repaid in the amount of $250,000 of principal and $1,100 of
interest.
Dr. Aquilur Rahman, Chief Scientific Officer and a Director of the Company,
was formerly an associate professor of pathology and pharmacology at Georgetown
University. Dr. Anatoly Dritschilo, a Director of the Company, is currently
chairman of the Department of Radiation Medicine and Medical Director of the
Georgetown Medical Center in Washington, D.C. As a result of their respective
positions with Georgetown University both Dr. Rahman and Dr. Dritschilo entered
into agreements with Georgetown relating to the ownership of inventions and
other intellectual property developed while in Georgetown's employ. As part of
their agreements with Georgetown University, Dr. Rahman and Dr. Dritschilo have
advised the Company that Georgetown University will share with each of them
payments which Georgetown receives from the Company under the License Agreements
between the Company and Georgetown. While there were no royalty or other
payments to Georgetown University by the Company in 1998, as a result of the
Company entering into a License Agreement with Pharmacia & Upjohn in February
1999, a payment of $800,000 was recently made to Georgetown University and,
assuming regulatory approval is obtained in the future for the Company's LED and
LEP compounds, additional royalty payments, which could be substantial, would be
made by the Company to Georgetown in the future which the Company understands
Georgetown would then share with the foregoing named individuals.
In connection with the Company's initial public offering, the Company
adopted a policy whereby any further transactions between the Company and its
officers, directors, principal stockholders and any affiliates of the foregoing
persons will be on terms no less favorable to the Company than could reasonably
be obtained in arm's length transactions with independent third parties, and
that any such transactions also be approved by a majority of the Company's
disinterested outside directors.
10
STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in cumulative total
stockholder return on the Company's Common Stock with the cumulative return on
the AMEX Market Index, the NASDAQ Market Index and the NASDAQ Pharmaceutical
Index during the period beginning January 25, 1996 (the date on which the
Company's Common Stock began trading publicly on the Nasdaq Small Cap System)
through December 31, 1998. The price of the Common Stock as reflected in the
graph has been adjusted to reflect the two-for-one stock split in the Common
Stock in August 1996. The comparison assumes that $100 was invested on January
1, 1996 in the Company's Common Stock and in the foregoing indices and assumes
the reinvestment of dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NEOPHARM, INC. AMEX MARKET INDEX-U.S. COS. NASDAQ MARKET INDEX-U.S. COS. NASDAQ PHARMACEUTICAL INDEX
12/31/95 100 100 100 100
12/31/96 229 102 123 100
12/31/97 150 127 151 104
12/31/98 346 136 213 132
11
PROPOSAL NO. 2
ADOPTION OF 1998 EQUITY INCENTIVE PLAN
INTRODUCTION
On July 23, 1998, the Board of Directors adopted the 1998 Equity Incentive
Plan and directed that it be presented to the stockholders for adoption at the
1999 Annual Meeting. The entire text of the 1998 Equity Incentive Plan (the
"Plan"), as amended to date, is set forth in Appendix A to this Proxy Statement
and the following summary of certain provisions of the Plan is qualified in its
entirety by reference to the Plan as set forth in Appendix A.
The Company has had stock option plans in effect since its formation in 1990
in order to provide key employees, directors and outside consultants with a
personal financial interest in the success of the Company and to compete with
other companies for the services of employees, directors and consultants within
the scientific community. Stock option plans have been adopted by the
stockholders in 1990 and 1995 (the "Prior Plans"). The stated purpose of the
Plan is to advance the interests of the Company by encouraging and enabling the
acquisition of a personal financial interest in the Company by those employers
and consultants upon whose judgment and efforts the Company is largely
dependent.
SUMMARY
Under the Plan, the Board of Directors as a whole, or a committee designated
by the Board, is authorized to award stock options, restricted stock,
performance shares, performance units and bonus stock. The Plan has a 10-year
term. Subject to anti-dilution adjustments, a maximum of 2,000,000 shares of
common stock may be granted, of which no more than 250,000 shares may be for
awards of restricted stock or bonus stock. All full-time employees, as well as
consultants and directors, are eligible to receive awards.
ADMINISTRATION OF THE PLAN. The administrators of the Plan have the
discretion to determine the persons to whom awards shall be made, and subject to
the terms of the Plan, the terms and conditions of each award. The
administrators of the Plan may, among other things, cancel outstanding awards
and grant substitute awards with an exercise price determined by reference to
the value of the Company's common stock on the date of substitute awards,
accelerate vesting and waive terms and conditions of outstanding awards and
permit eligible employees or consultants to elect to acquire, prior to earning
compensation, options in lieu of receiving such compensation. All awards become
fully vested upon a change of control of the Company.
OPTIONS. The exercise price of options must be no less than 85% of the fair
market value of a share of the Company's common stock on the grant date (100%
for incentive stock options and 110% for incentive stock options granted to an
individual possessing more than 10% of the Company's voting rights). Options
become exercisable as to 25% of the shares subject to the award on each of the
first four anniversaries of the grant date unless the administrator specifies a
different vesting schedule. Options have a maximum term of 10 years. The option
exercise price may be paid (i) in cash or by check, (ii) in stock, (iii) in
restricted stock, (iv) though a simultaneous sale through a broker of
unrestricted stock acquired upon exercise of the option, (v) through a loan or
loan guaranty made by the Company or (vi) any combination of the foregoing.
Options may be designated by the administrator as incentive stock options for
which the amount of option "spread" at the time of exercise, assuming no
disqualifying disposition, is generally not to be taxable income to the grantee
(except for possible alternative minimum tax liability) and is not deductible by
the Company for federal income tax purposes.
RESTRICTED STOCK AND BONUS STOCK. The administrator will determine the
purchase price applicable to grants of restricted stock, which may be as low as
the par value of the common stock. The administrator will determine the
restrictions, if any, applicable to the restrictive stock, which may include
performance goals. The administrator may also grant bonus stock.
12
GRANT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. Before performance units
or performance shares are granted, the administrator is required to (i)
determine objective performance goals and the amount of compensation under the
goals applicable to the grant, (ii) designate the measuring period of between
one and seven years to ascertain the achievement of the goals and (iii) assign a
performance percentage to each level of attainment of performance goals during
the measuring period. The administrator may use any performance factors it deems
appropriate. A grant of performance units or performance shares may, but need
not, be identified with another award under the Plan.
EXERCISE OF PERFORMANCE UNITS AND PERFORMANCE SHARES. If the minimum
performance goals applicable to an award of performance units or performance
shares are achieved, then the award generally becomes exercisable on the later
of the first anniversary of the grant date or the first day after the end of the
measuring period. The benefit of a performance unit is dependent upon the
percentage of performance goals attained and the value of each performance unit
(which is fixed at the time of its grant). If the minimum performance goals of a
performance unit award are achieved, then the Company will deliver to the
grantee (i) in the case of performance units, cash in an amount equal to the
product of the number of performance units successively multiplied by the value
of each performance unit and the performance percentage achieved during the
measuring period, or (ii) in the case of an award of performance shares, shares
of common stock equal in number to the product of the number of performance
shares subject to the award multiplied by the performance percentage achieved
during the measuring period, in either case except to the extent that the
administrator determines that cash or common stock should be paid in lieu of
some or all of such common stock or cash, as applicable. Any performance unit or
performance share award with respect to which the performance goals are not
achieved shall expire.
LOANS AND LOAN GUARANTEES. The administrator may allow a grantee to defer
payment to the Company of all or part of the exercise price of an option, the
purchase price of restricted stock or any taxes associated with any non-cash
benefit under the Plan. The administrator also may cause the Company to
guarantee a third-party loan to cover such amounts. The terms of any such
deferral or guarantee shall include an interest rate not more favorable to the
grantee than the terms applicable to funds borrowed by the Company from time to
time. The administrator may forgive the repayment of any or all of the principal
of or interest on any such deferred payment obligation.
EXERCISE AFTER TERMINATION OF CONTINUANCE STATUS AS AN EMPLOYEE OR
CONSULTANT. If a grantee's continuing status as an employee or consultant is
terminated for cause, all unvested or unexercised awards will terminate and be
forfeited. In the event of death or disability of a grantee, any restricted
stock will become vested, any unexercised option may be exercised for twelve
months following the date of termination, and any unexercised performance share
or performance units may be exercised for 180 days following such date, provided
that if a measuring period has not ended, the benefit will be pro-rated on the
basis of the elapsed portion of the measuring period and the actual or
extrapolated performance, as determined by the administrator, over the full
measuring period. If a grantee's continuing status as an employee or consultant
terminates for any other reason, any restricted stock will be forfeited, the
then-exercisable portion of any unexercised option may be exercised for 90 days
and any unexercised performance shares or performance units may be exercised if
and to the extent determined by the committee. The administrator has the
discretion to extend such post-termination exercisability.
AMENDMENTS. The Plan may be amended by the Board of Directors without
stockholder approval except as may be required to permit transactions in common
stock to be excepted from liability under Section 16(b) of the Securities
Exchange Act of 1934, or under the listing requirements of any securities
exchange or national market system on which any of our equity securities are
listed.
OPTION GRANTS. The following table sets forth information with respect to
grants of options that have been made pursuant to the Plan to (i) the Company's
chief executive officer and president, (ii) current executive officers, (iii)
any current director who is not an executive officer, (iv) any director or
nominee for election as a director, (v) all employees who are not executive
officers as a group, and (vi) any associate of
13
any of the persons referenced in (i) through (iv). The Company does not
currently know, nor is it determinable, the number of options or other awards
that the Company may grant in the future to any of the persons referenced in (i)
through (iv) above except for their awards which have already been made and are
reflected in the table and except for the automatic annual grants of options to
purchase 5,000 shares of common stock which are made to non-employee directors
at fair market value of the common stock on the date of such grant.
NEW PLAN BENEFITS
1998 EQUITY INCENTIVE PLAN
NUMBER OF
DOLLAR SHARES UNDERLYING
VALUE OPTIONS
----------- ----------------------
James M. Hussey............................................................... $ (1) 140,000
Director, President and
Chief Executive Officer
Lewis Strauss................................................................. $ (1) 100,000
Chief Medical Officer
Dr. Aquilur Rahman............................................................ $ (1) 40,000
Director and Chief Scientific Officer
Executive officers as a group................................................. $ (1) 312,000
Non-executive directors as a group............................................ $ (1) 15,000
Non-executive employees and consultants as a group............................ $ (1) 167,000
- ------------------------
(1) The dollar value of options is equal to the difference between the exercise
price of the options granted and the fair market value of the Company's
Common Stock at the date of exercise. Accordingly, such dollar value is not
readily ascertainable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN UNDER CURRENT LAW
The following discussion is only a summary of the principal federal income
tax consequences of the grant of incentives under the Plan and is based on
existing federal law, which is subject to change, in some cases retroactively.
This discussion is also qualified by the particular circumstances of each
optionee, which may substantially alter or modify the federal income tax
consequences herein discussed.
The maximum capital gains tax rate for individuals is 20% on gains from the
sales of capital assets held for more than 12 months. In contrast, the maximum
individual ordinary income tax rate is 39.6%. The following discussion assumes
that the shares of Common Stock acquired directly or upon exercise of an option
constitute capital assets in the optionee's hands.
INCENTIVE STOCK OPTIONS. An optionee will recognize no taxable income at
the time an incentive stock option is granted, vests or is exercised. If the
optionee makes no disposition of the acquired shares within two years after the
date of grant of the incentive stock option, or within one year after the
transfer of such shares to the optionee, any gain or loss that is realized on a
subsequent disposition of such shares will be treated as long-term capital gain
or loss. As to options exercised, the excess, if any, of the fair market value
of the shares on the date of exercise over the option price will be an item of
tax preference for purposes of computing the optionee's alternative minimum tax.
If the foregoing holding period requirements are not satisfied, the optionee
will realize (i) ordinary income for federal income tax purposes in the year of
the disqualifying disposition in an amount equal to the lesser of (a) the
excess, if any, of the fair market value of the shares on the date of exercise
over the option price thereof, or (b) the excess, if any, of the selling price
over the optionee's adjusted basis of such
14
shares (provided that the disqualifying disposition is a sale or exchange with
respect to which a loss (if sustained) would be recognized by such individual)
and (ii) provided that the disqualifying disposition is made more than one year
after the shares are transferred to the optionee, long-term capital gain equal
to the excess, if any, of the amount realized upon the disposition of shares
over the fair market value of such shares on the date of exercise.
NON-QUALIFYING OPTIONS. An optionee will recognize no taxable income at the
time a non-qualified stock option is granted or vests. An optionee will realize
ordinary income in the year of exercise of a non-qualified stock option measured
by the difference between the fair market value on the exercise date of the
shares transferred and the option price.
DEDUCTIONS FOR FEDERAL INCOME TAX PURPOSES
The Company will be entitled (provided it satisfies certain reporting
requirements) to a deduction for federal income tax purposes at the same time
and in the same amount as the optionee is considered to be in receipt of
compensation income in connection with the exercise if non-qualified stock
options or, in the case of an incentive stock option, a disqualifying
disposition of shares received upon exercise thereof. If the holding periods
outlined above are met, no deduction will be available to the Company in
connection with an incentive stock option.
SECTION 162(M) COMPENSATION DEDUCTIBILITY LIMIT. If the Company determines
that the grant of incentives under the Plan is subject to Section 162(m) of the
Internal Revenue Code, relating to the disallowance for deductions for
compensation of certain executive officers in excess of $1,000,000 per year,
(the "162(m) Limit") and that such grant should qualify as performance based
compensation in order to avoid the application of the 162(m) Limit the following
provisions shall apply with respect to such grant: (i) the exercise price of any
option shall equal 100% of the value of the common stock on the grant date, (ii)
the performance units or performance shares granted to any grantee for any
measuring period shall not have a value (as of the date of the grant) in excess
of the grantee's base annual salary at the time of the grant multiplied by the
number of years in the measuring period and the performance percentage for such
performance units or performance shares shall not exceed 150% and (iii) the
value (as of the date of grant) of any stock bonus awarded to a grantee for each
calendar year shall not exceed the grantee's base annual salary in effect for
such year. The administrator shall certify in writing prior to payment of
compensation related to any performance unit, performance share or stock bonus
that the performance goals and any other materials terms were in fact satisfied.
MARKET VALUE OF SECURITIES UNDERLYING OPTIONS
As of April 30, 1999, the closing price of the Company's common stock as
reported in the American Stock Exchange was $17 1/8 per share.
APPROVAL AND TERMINATION
The Plan was approved by the Board of Directors of the Company on July 23,
1998 and, unless sooner terminated by the Board of Directors will terminate on
July 23, 2008.
The Board of Directors will offer the following resolution at the Annual
Meeting:
RESOLVED, that the 1998 Equity Incentive Plan is approved and adopted.
THE BOARD OF DIRECTORS CONSIDERS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS
OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL
THEREOF.
15
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
Based solely on a review of the copies of reports furnished to the Company
or written representations that no reports were required, the Company believes
that, during the 1998 fiscal year, all filing requirements applicable to its
officers, directors and greater than 10% beneficial owners were complied with,
with the exception that (i) the Initial Statement Of Beneficial Ownership Of
Securities on Form 3, required to be filed by each of James M. Hussey, President
and Chief Executive Officer of the Company, Dr. Lewis C. Strauss, Chief Medical
Officer for the Company and Sander A. Flaum, Director of the Company, were not
filed within 10 days of each of those individuals assuming their respective
offices, (ii) Dr. Anatoly Dritschilo did not timely file a Form 4 report
relating to transfers which has been made for estate planning purposes, and
(iii) Mr. Kevin Harris did not timely file a Form 4 report regarding his initial
acquisition of shares. Each of the aforementioned individuals has now made the
required filings.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The firm of Arthur Andersen LLP was the Company's independent public
accountant for the 1998 fiscal year. A representative from the Company's
independent public accountants customarily attends the Annual Meeting and has
the opportunity to make a statement if he so desires. This representative also
is available to respond to appropriate questions. The Company has not yet
selected its independent public accountant for the 1999 fiscal year.
OTHER MATTERS
The only matters which management intends to present to the meeting are set
forth in the Notice of Annual Meeting. Management knows of no other matters
which will be brought before the meeting by any other person. However, if any
other matters are properly brought before the meeting, the persons named on the
enclosed form of proxy intend to vote on such matters in accordance with their
best judgement on such matters.
2000 ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders to be held in 2000 must be received by the Company on or
before January 7, 2000 for inclusion in the Company's Proxy Statement and form
of proxy relating to that Annual Meeting.
1998 ANNUAL REPORT ON FORM 10-K
A copy of the Company's 1998 Annual Report on Form 10-K (the "Form 10-K")
accompanies this Proxy Statement as part of the Company's Annual Report.
Additional copies of the Form 10-K are available to stockholders without charge
on request made in writing to the following address: NeoPharm, Inc., 100
Corporate North, Suite 215, Bannockburn, Illinois 60015.
By Order of the Board of Directors,
[SIGNATURE]
James M. Hussey
PRESIDENT AND CHIEF EXECUTIVE OFFICER
May 7, 1999
16
APPENDIX A
1998 EQUITY INCENTIVE PLAN
INTRODUCTION. NeoPharm, Inc., a Delaware corporation (the "Company"),
hereby establishes the NeoPharm 1998 Equity Incentive Plan (the "Plan"),
effective on the Effective Date (as defined below).
1. PURPOSE.
The purpose of the Plan is to advance the interest of the Company by
encouraging and enabling the acquisition of a larger personal financial interest
in the Company by those employees and consultants upon whose judgment and
efforts the Company is largely dependent on the successful conduct of its
operations. An additional purpose of the Plan is to provide a means by which
employees and consultants of the Company and its Subsidiaries can acquire and
maintain Stock ownership, thereby strengthening their commitment to the success
of the Company and their desire to remain associated with the Company and its
Subsidiaries. It is anticipated that the acquisition of such financial interest
and Stock ownership will stimulate the efforts of such employees and consultants
on behalf of the Company, strengthen their desire to continue in the service of
the Company and encourage shareholder and entrepreneurial perspectives through
Stock ownership.
2. DEFINITIONS.
As used in the Plan, terms defined parenthetically immediately after their
use shall have the respective meanings provided by such definitions and the
terms set forth below shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
(a) "Administrator" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.
(b) "Award" means Options, shares of Restricted Stock, performance
units, performance shares, or stock bonuses granted under the Plan.
(c) "Award Agreement" has the meaning specified in Section 4(b)(vi).
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" means conviction of the Grantee of a felony which is, in the
opinion of the Administrator, likely to result in injury of a material
nature to the Company or a Subsidiary; the material violation by the Grantee
of written policies of the Company or a Subsidiary; the gross and habitual
negligence by the Grantee in the performance of the Grantee's duties to the
Company or its Subsidiaries; or the willful and intentional action or
omission to act in connection with the Grantee's duties to the Company or a
Subsidiary resulting, in the opinion of the Administrator, in injury of a
material nature to the Company or a Subsidiary.
(f) "Change of Control" means any of the following:
(i) the acquisition or holding by any person, entity or "group"
within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act (other
than by the Company or any of its Subsidiaries or any employee benefit
plan of the Company or its subsidiaries) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the 1934 Act) of 30% or more
of either the then-outstanding Stock or the combined voting power of the
Company's then-outstanding voting securities entitled to vote generally
in the election of directors ("Voting Power"); except that no such
person, entity or group shall be deemed to own beneficially: (A) any
securities held by the Company or a Subsidiary or any employee benefit
plan (or any related trust) of the Company or a Subsidiary; (B) any
securities acquired pursuant to a benefit plan of
1
the Company or a Subsidiary; (C) any securities issuable pursuant to an
option, warrant or right owned by such person, entity or group as of the
close of business on the business day immediately preceding the Effective
Date; (D) any security that would otherwise be beneficially owned by such
person, entity or group as of the close of business on the business day
immediately preceding the Effective Date; and (E) any securities issued
in connection with a stock split, stock dividend or similar
recapitalization or reorganization with respect to shares covered by the
foregoing exceptions; or
(ii) individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; PROVIDED that any individual who becomes a
director after the Effective Date whose election or nomination for
election by the Company's stockholders was approved by at least a
majority of the incumbent Board (other than an election or nomination of
an individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the
directors of the Company (as such terms are used in Rule 14a-11 under the
1934 Act)) shall be deemed to be members of the Incumbent Board; or
(iii) approval by the stockholders of the Company of (A) a merger,
reorganization or consolidation with respect to which persons who were
the respective beneficial owners of the Stock and Voting Power of the
Company immediately before such merger, reorganization or consolidation
do not, immediately thereafter, beneficially own, directly or indirectly,
more than 60%, respectively, of the then-outstanding common shares and
the Voting Power of the corporation resulting from such merger,
reorganization or consolidation, (B) a liquidation or dissolution of the
Company or (C) the sale or other disposition of all or substantially all
of the assets of the Company; PROVIDED, HOWEVER, that for the purposes of
this Section the votes of all Section 16 Persons shall be disregarded in
determining whether stockholder approval has been obtained.
Notwithstanding the foregoing, a Change of Control shall be deemed not to have
occurred with respect to any Section 16 Person if such Section 16 Person is, by
agreement (written or otherwise), a participant on such Section 16 Person's own
behalf in a transaction which causes the Change of Control to occur.
(g) "Change of Control Value" means the Fair Market Value of a share of
Stock on the date of a Change of Control.
(h) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations and rulings thereunder. References to a particular section of
the Code shall include references to successor provisions.
(i) "Committee" means a committee of the Board appointed pursuant to
Section 4(a).
(j) "Company" has the meaning set forth in the introductory paragraph.
(k) "Consultant" means any person who is engaged by the Company or any
Subsidiary to render consulting or advisory services and is compensated for
such services and any director of the Company whether compensated for such
services or not.
(l) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship is not interrupted or terminated by
the Company or Subsidiary. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of: (i) any leave of absence
approved by the Company, including sick leave, military leave, or any other
personal leave; provided, however, that for purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless re-employment
upon the expiration of such leave is guaranteed by contract (including
certain Company policies) or statute; provided, further, that on the
ninety-first (91st) day of any such leave (where re-employment is not
guaranteed by contract or statute) the Grantee's Incentive Stock Option
2
shall automatically convert to a Nonstatutory Stock Option, or (ii)
transfers between locations of the Company or between the Company, its
Subsidiaries or its successor.
(m) "Disability" means, for purposes of the exercise of an Incentive
Stock Option after termination of employment, a disability within the
meaning of Section 22(e)(3) of the Code, and for all other purposes, a
mental or physical condition which, in the opinion of the Administrator
renders a Grantee unable or incompetent to carry out the job
responsibilities which such Grantee held or the tasks to which such Grantee
was assigned at the time the disability was incurred. and which is expected
to be permanent or for an indefinite duration exceeding one year.
(n) "Effective Date" means the date of adopting of this Plan by the
Board, provided, that if the shareholders do not approve the Plan, there
shall be no Effective Date.;
(o) "Employee" means any person, including officers and directors,
employed by the Company or any Subsidiary.
(p) "Fair Market Value" means, as of any applicable date:
(i) if the Common Stock is listed for trading on the American Stock
Exchange, the closing price, regular way, of the security as reported on
the American Stock Exchange Composite Tape, or if no such reported sale
of the security shall have occurred on such date, on the next preceding
date on which there was such a reported sale, or
(ii) if the security is not so listed, but is listed on another
national securities exchange or authorized for quotation on the National
Association of Securities Dealers Inc.'s NASDAQ National Market
("NASDAQ/NMS"), the closing price, regular way, of the security on such
exchange or NASDAQ/NMS, as the case may be, or if no such reported sale
of the security shall have occurred on such date, on the next preceding
date on which there was such a reported sale, or
(iii) if the security is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS, the
average of the closing bid and asked prices as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
or, if no such prices shall have been so reported for such date, on the
next preceding date for which such prices were so reported, or
(iv) if the security is not listed for trading on a national
securities exchange or is not authorized for quotation on NASDAQ/NMS or
NASDAQ, the fair market value of the security as determined in good faith
by the Board.
(q) "Grant Date" means the date on which an Award shall be duly granted,
as determined in accordance with Section 6(a)(i).
(r) "Grantee" means an individual who has been granted an Award.
(s) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(t) "including" or "includes" means "including, without limitation," or
"includes, without limitation", respectively.
(u) "Measuring Period" has the meaning specified in Section 6(e)(i)(B).
(v) "Minimum Consideration" means $.0002145 per share of Stock or such
other amount that is from time to time considered to be capital for purposes
of Section 154 of the Delaware General Corporation Law.
3
(w) " 1934 Act" means the Securities Exchange Act of 1934. References to
a particular section of, or rule under, the 1934 Act shall include
references to successor provisions.
(x) "Nonstatutory Stock Option" means an Option which does not or is not
intended to qualify as an Incentive Stock Option.
(y) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(z) "Option" means a stock option granted pursuant to the Plan.
(aa) "Option Price" means the per share purchase price of Stock subject
to an Option.
(bb) "Performance Percentage" has the meaning specified in Section
6(e)(i)(C).
(cc) "Plan" has the meaning set forth in the introductory paragraph.
(dd) "Retirement" means a termination of employment with the Company and
its Subsidiaries other than for Cause at any time after attaining age 65.
(ee) "Restricted Stock" means shares of Stock acquired pursuant to a
grant of a Stock Purchase Right under Section 6(d) below.
(ff) "SEC" means the Securities and Exchange Commission.
(gg) "Section 16 Person" means a person, whether or not a Grantee, who
is subject to potential liability under Section 16(b) of the 1934 Act with
respect to transactions involving equity securities of the Company.
(hh) "Stock" means the common stock, $.0002145 par value, of the
Company.
(ii) "Stock Purchase Right" means the right to purchase Stock pursuant
to Section 6(d) below.
(jj) "Subsidiary" means, for purposes of grants of Incentive Stock
Options, a corporation as defined in Section 424(f) of the Code (with the
Company being treated as the employer corporation for purposes of this
definition) and, for all other purposes, a corporation with respect to which
the Company owns, directly or indirectly, 25% or more of the
then-outstanding common shares.
(kk) "10% Owner" means a person who owns stock (including stock treated
as owned under Section 424(d) of the Code) possessing more than 10% of the
total combined voting power of all classes of stock of the Company.
3. SCOPE OF THE PLAN.
(a) Subject to Section 24, an aggregate of 2,000,000 shares of Stock are
hereby made available and are reserved for delivery on account of the grant
and exercise of Awards (including Restricted Stock) and the payment of
benefits in connection with Awards under the Plan. Such shares may be
treasury shares or newly-issued shares, as may be determined from time to
time by the Board or the Administrator.
(b) Subject to Section 3(a) (as to the maximum number of shares of Stock
available for delivery in connection with Awards), up to an aggregate of
250,000 shares of Restricted Stock and bonus shares of Stock may be granted
under the Plan.
(c) If and to the extent an Award shall expire or terminate for any
reason without having been exercised in full or shall be forfeited, without,
in either case, the Grantee having enjoyed any of the benefits of stock
ownership (other than dividends that are likewise forfeited or voting
rights), the shares of Stock (including Restricted Stock) associated with
such Award shall become available for other Awards. To the extent that the
benefit in connection with an Award is paid in cash, there shall be
4
deducted from the share limit provided in Section 3(a) a number of shares
equal to the amount of the cash paid divided by the Fair Market Value of a
share of Stock on the date of such payment.
4. ADMINISTRATION.
(a) (i) ADMINISTRATIVE WITH RESPECT TO DIRECTORS AND OFFICERS. With
respect to Awards to Officers or directors of the Company, the Plan shall
be administered by (A) the Board if the Board may administer the Plan in
compliance with Rule 16b-3 promulgated under the Exchange Act of any
successor thereto ("Rule 16b-3") with respect to a plan intended to
qualify thereunder as a discretionary plan, or (B) a Committee designated
by the Board to administer the Plan, which Committee shall be constituted
in such a manner as to permit the Plan to comply with Rule 16b-3 with
respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies, however caused, and
remove all members of the Committee and thereafter directly administer
the Plan, all to the extent permitted by Rule 16b-3 with respect to a
plan intended to qualify thereunder as a discretionary plan.
(ii) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to directors,
non-director Officers, Consultants and Employees who are neither
directors nor Officers.
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER
EMPLOYEES.With respect to Awards to Employees or Consultants who are
neither directors nor officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board,
which Committee shall be constituted in such a manner as to satisfy the
legal requirements relating to the administration of incentive stock
option plan, if any, of Delaware corporate and securities laws, of the
Code, and of any applicable stock exchange (the "Applicable Laws"). Once
appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefore, fill vacancies, however caused, and
remove all members of the Committee and thereafter directly administer
the Plan, all to the extent permitted by the Applicable Laws.
(b) Subject to the provisions of the Plan and, in the case of a
Committee, the specific duties delegated by the Board to such Committee, and
subject to the approval of any relevant authorities, including the approval,
if required, of any stock exchange upon which the Stock is listed, the
Administrator shall have full and final authority and sole discretion, as
follows:
(i) to grant Awards and determine the Grant Date and term thereof;
(ii) to determine (A) when and to whom Awards may be granted, (B) the
terms and conditions applicable to each Award, including the Option Price
of an Option, whether an Option shall qualify as an Incentive Stock
Option and the benefit payable under any performance unit or performance
share, and (C) whether or not specific Awards shall be identified with
other specific Awards, and if so whether they shall be exercisable
cumulatively with, or alternatively to, such other specific Awards;
(iii) to determine the amount, if any, that a Grantee shall pay for
shares of Restricted Stock, whether to permit or require the payment of
cash dividends thereon to be deferred and the terms related thereto, when
Restricted Stock (including Restricted Stock acquired upon the exercise
of an Option) shall be forfeited and whether such shares shall be held in
escrow;
5
(iv) to interpret the Plan and to make all determinations necessary
or advisable for the administration of the Plan;
(v) to prescribe, amend, and rescind rules relating to the Plan,
including rules with respect to the exercisability and nonforfeitability
of Awards upon the termination of employment of a Grantee;
(vi) to determine the terms and provisions and any restrictions or
conditions (including specifying such performance criteria, Measuring
Period, and Performance Percentages as the Administrator deems
appropriate and imposing restrictions with respect to stock acquired upon
exercise of an Option, which restrictions may continue beyond the
Grantee's termination of employment) of the written agreements by which
all Awards shall be evidenced ("Award Agreements") which need not be
identical and, with the consent of the Grantee, to modify any such Award
Agreement at any time;
(vii) to cancel, with the consent of the Grantee, outstanding Awards
and to grant new Awards in substitution therefor;
(viii)to authorize foreign Subsidiaries to adopt plans as provided in
Section 15;
(ix) to accelerate the exercisability (including exercisability
within a period of less than one year after the Grant Date) of, and to
accelerate or waive any or all of the restrictions and conditions
applicable to, any Award or any group of Awards for any reason and at any
time, including in connection with a termination of employment (other
than for Cause);
(x) subject to Section 6(a)(ii) and 6(c)(ii), to extend the time
during which any Award or group of Awards may be exercised;
(xi) to make such adjustments or modifications to Awards of Grantees
working outside the United States as are necessary and advisable to
fulfill the purposes of the Plan;
(xii) to amend Award Agreements with the consent of the Grantee;
PROVIDED that the consent of the Grantee shall not be required for any
amendment which (A) does not adversely affect the rights of the Grantee,
or (B) is necessary or advisable (as determined by the Administrator) to
carry out the purpose of the Award as a result of any new or change in
existing applicable law, regulation, ruling or judicial decision;
PROVIDED that any such change shall be applicable only to Awards which
have not been exercised;
(xiii)to take any action at any time before the exercise of an Option
(whether or not an Incentive Stock Option), without the consent of the
Grantee, to prevent such Option from being treated as an Incentive Stock
Option;
(xiv) to impose such additional conditions, restrictions, and
limitations upon the grant, exercise or retention of Awards as the
Administrator may, before or concurrently with the grant thereof, deem
appropriate, including requiring simultaneous exercise or related
identified Awards, and limiting the percentage of Awards which may from
time to time be exercised by a Grantee;
(xv) to certify in writing before the payment of any performance
based Awards (except for a payment that is attributable solely to the
increase in the price of the Stock of the Company) that the underlying
performance goals and any other material terms have been satisfied;
(xvi) to permit an Employee or Consultant to elect, prior to earning
compensation, to acquire Options pursuant to Section 6(b) of the Plan in
lieu of receiving such compensation, determine the terms and conditions
of such Options and determine the value of such Options on the Grant Date
in accordance with Section 6(b) of the Plan:
6
(xvii)to specify the manner of designating a beneficiary to exercise
Awards after the Grantee's death or transferring an Option (other than an
Incentive Stock Option), stock appreciation right, performance unit or
performance share to a revocable inter vivos trust;
(xviii)to approve the manner of payment and determine the terms
related thereto by a Grantee in connection with an Award, including use
of Restricted Stock to pay the Option Price, deferral of the payment or
guarantee of the payment by the Company pursuant to Section 10 and
elective share withholding pursuant to Section 13;
(xix) to prohibit a Grantee from making an election under Section
83(b) of the Code in accordance with Section 11;
(xx) to require a written investment representation by a Grantee as
provided in Section 17;
(xxi) to make equitable adjustment of Awards as provided in Section
24;
(xxii)to take any other action with respect to any matters relating
to the Plan for which it is responsible.
The determination of the Committee on all matters relating to the Plan or any
Award Agreement shall be conclusive and final. No member of the Committee shall
be liable for any action or determination made in good faith with respect to the
Plan or any Award.
5. ELIGIBILITY. Awards may be granted to Employees and Consultants with
the restriction, however, that any Option which is to be an Incentive Stock
Option may only be granted to an Employee. In selecting the individuals to whom
Awards may be granted, as well as in determining the number of shares of Stock
subject to, and the other terms and conditions applicable to, each Award, the
Administrator shall take into consideration such factors as it deems relevant in
promoting the purposes of the Plan.
6. CONDITIONS TO GRANTS.
(A) GENERAL CONDITIONS.
(i) The Grant Date of an Award shall be the date on which the
Administrator grants the Award or such later date as specified in advance
by the Administrator.
(ii) The term of each Award (subject to Section 6(c)(ii) with respect
to Incentive Stock Options) shall be a period of not more than 10 years
from the Grant Date, and shall be subject to earlier termination as
herein provided.
(iii) A Grantee may, if otherwise eligible, be granted additional
Awards in any combination.
(iv) To the extent not set forth in the Plan, the terms and
conditions of each Award shall be set forth in an Award Agreement.
(b) GRANT OF OPTIONS AND OPTION PRICE. No later than the Grant Date of any
Option, the Administrator shall determine the Option Price of such Option;
provided, however, that the Administrator may elect to determine the Option
Price as of the date the Grantee is hired or promoted (or similar event), if the
Grant Date occurs not more than 90 days after the date of hiring, promotion or
other event. The Option Price of an Option (other than an Incentive Stock
Option) shall not be less than 85% of the Fair Market Value of the Stock on the
Grant Date. The Award Agreement may provide that the Option shall be exercisable
for Restricted Stock.
The Administrator may, in its discretion, permit an Employee or Consultant
eligible to receive Awards under Section 5 of the Plan to elect, prior to
earning compensation, to be granted an Option or Options under the Plan in lieu
of receiving such compensation. Subject to the express terms of the Plan, such
7
Options shall have such terms and conditions as the Administrator in its
discretion specifies; provided that, in the judgment of the Administrator, the
value of such options on the Grant Date equals the amount of compensation
foregone by such Employee or Consultant; and provided, further, that except to
the extent such condition may be waived by the securities law counsel to the
Company, a Section 16 Person must irrevocably elect to forego such compensation
and acquire such Option at least six months prior to the Grant Date of such
Option.
(c) GRANT OF INCENTIVE STOCK OPTIONS. At the time of the grant of any
Option, the Administrator may designate that such Option shall be made subject
to additional restrictions to permit it to qualify as an "Incentive Stock
Option" under the requirements of Section 422 of the Code. Any Option designated
as an Incentive Stock Option:
(i) shall have an Option Price of not less than 100% of the Fair Market
Value of the Stock on the Grant Date except, however, that the Option Price
shall not be less than 110% of the Fair Market Value of the Stock on the
Grant Date if granted to a 10% Owner.
(ii) shall be for a period of not more than 10 years from the Grant
Date, or, in the case of an Incentive Stock Option granted to a 10% Owner, 5
years from the Grant Date, and, in either case, shall be subject to earlier
termination as provided herein or in the applicable Award Agreement;
(iii) shall not have an aggregate Fair Market Value (determined for each
Incentive Stock Option at its Grant Date) of Stock with respect to which
Incentive Stock Options are exercisable for the first time by such Grantee
during any calendar year (under the Plan and any other employee stock option
plan of the Grantee's employer or any parent or Subsidiary thereof ("Other
Plans")), determined in accordance with the provisions of Section 422 of the
Code, which exceeds $100,000 (the "$100,000 Limit");
(iv) shall, if the aggregate Fair Market Value of Stock (determined on
the Grant Date) with respect to the portion of such grant which is
exercisable for the first time during any calendar year ("Current Grant")
and all Incentive Stock Options previously granted under the Plan and any
Other Plans which are exercisable for the first time during a calendar year
("Prior Grants") would exceed the $100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant which would, when added to any
Prior Grants, be exercisable with respect to Stock which would have an
aggregate Fair Market Value (determined as of the respective Grant Date
for such options) in excess of the $100,000 Limit shall, notwithstanding
the terms of the Current Grant, be exercisable for the first time by the
Grantee in the first subsequent calendar year or years in which it could
be exercisable for the first time by the Grantee when added to all Prior
Grants without exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant, any portion of a
Current Grant could not be exercised under the preceding provisions of
this Section 6(c)(iv) during any calendar year commencing with the
calendar year in which it is first exercisable through and including the
last calendar year in which it may by its terms be exercised, such
portion of the Current Grant shall not be an Incentive Stock Option, but
shall be exercisable as a Nonstatutory Stock Option at such date or dates
as are provided in the Current Grant;
(v) shall be granted within 10 years from the earlier of the date the
Plan is adopted or the date the Plan is approved by the stockholders of the
Company;
(vi) shall require the Grantee to notify the Administrator of any
disposition of any Stock issued pursuant to the exercise of the Incentive
Stock Option under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within ten (10) days of
such disposition;
8
(vii) shall by its terms not be assignable or transferable other than by
will or the laws of descent and distribution and may be exercised, during
the Grantee's lifetime, only by the Grantee; provided, HOWEVER, that the
Grantee may, to the extent provided in the Plan in any manner specified by
the Administrator, designate in writing a beneficiary to exercise his
Incentive Stock Option after the Grantee's death; and
Notwithstanding the foregoing and Section 4(b)(vi), the Administrator may,
without the consent of the Grantee, at any time before the exercise of an Option
(whether or not an Incentive Stock Option), take any action necessary to prevent
such option from being treated as an Incentive Stock Option. Any Option not
specifically identified as an Incentive Stock Option, or failing to qualify as
an Incentive Stock Option, shall be a Nonstatutory Stock Option.
(d) GRANT OF RESTRICTED STOCK.
(i) The Administrator may grant shares of Restricted Stock to any
individual eligible under Section 5 to receive Awards.
(ii) The Administrator shall determine the amount, if any, that a
Grantee shall pay for shares of Restricted Stock, subject to the following
sentence. Except with respect to shares of Restricted Stock that are
treasury shares, for which no payment need be required, the Administrator
shall require the Grantee to pay at least the Minimum Consideration for each
share of Restricted Stock granted to such Grantee. Such payment shall be
made in full by the Grantee before the delivery of the shares and in any
event no later than 10 days after the Grant Date for such shares. In the
discretion of the Administrator, and to the extent permitted by law, payment
may also be made in accordance with Section 10.
(iii) The Administrator may, but need not, provide that all or any
portion of a Grantee's Award of Restricted Stock, or Restricted Stock
acquired upon exercise of an Option, shall be forfeited:
(A) except as otherwise specified in the Award Agreement, upon the
Grantee's termination of Continuous Status as an Employee or Consultant
for reasons other than death, Disability or any other reason specified in
the Award Agreement within a specified time period after the Grant Date,
or
(B) if the Company or the Grantee does not achieve specified
performance goals (if any) within a specified time period after the Grant
Date and before the Grantee's termination of Continuous Status as an
Employee or Consultant, or
(C) upon failure to satisfy such other restrictions as the
Administrator may specify in the Award Agreement; PROVIDED that, subject
to Section 4(c)(ix), in no case shall such Award become nonforfeitable
before the first anniversary of the Grant Date.
(iv) If a share of Restricted Stock is forfeited, then if the Grantee
was required to pay for such share or acquired such Restricted Stock upon
the exercise of an Option, the Grantee shall be deemed to have resold such
share of Restricted Stock to the Company at a price equal to the lesser of
(A) the amount paid or, if the Restricted Stock was acquired on exercise of
an Option, the Option Price paid by the Grantee for such share of Restricted
Stock, or (B) the Fair Market Value of a share of Stock on the date of such
forfeiture. The Company shall pay to the Grantee the required amount as soon
as is administratively practical. Such share of Restricted Stock shall cease
to be outstanding, and shall no longer confer on the Grantee thereof any
rights as a stockholder of the Company, from and after the later of the date
the event causing the forfeiture occurred or the date of the Company's
tender of the payment specified above, whether or not such tender is
accepted by the Grantee.
(v) The Administrator may provide that any share of Restricted Stock
shall be held (together with a stock power executed in blank by the Grantee)
in escrow by the Secretary of the Company until such shares become
nonforfeitable or are forfeited. Any share of Restricted Stock shall bear an
9
appropriate legend specifying that such share is non-transferable and
subject to the restrictions set forth in the Plan and the Award Agreement.
If any shares of Restricted Stock become nonforfeitable, the Company shall
cause certificates for such shares to be issued or reissued without such
legend.
(e) GRANT OF PERFORMANCE UNITS AND PERFORMANCE SHARES.
(i) Before the grant of any performance unit or performance share, the
Administrator shall:
(A) determine objective performance goals and the amount of
compensation under the goals applicable to such grant;
(B) designate a period, of not less than one year nor more than seven
years, for the measurement of the extent to which performance goals are
attained, which period may begin prior to the Grant Date (the "Measuring
Period"); and
(C) assign a "Performance Percentage" to each level of attainment of
performance goals during the Measuring Period, with the percentage
applicable to minimum attainment being zero percent (0%) and the
percentage applicable to maximum attainment to be determined by the
Administrator from time to time.
(ii) If a Grantee is promoted, demoted or transferred to a different
business unit of the Company during a Measuring Period, then, to the extent
the Administrator determines the performance goals or Measuring Period are
no longer appropriate, the Administrator may adjust, change or eliminate the
performance goals or the applicable Measuring Period as it deems appropriate
in order to make them appropriate and comparable to the initial performance
goals or Measuring Period.
(iii) When granted, performance units and performance shares may, but
need not, be identified with shares of Stock subject to a specific option or
specific shares of Restricted Stock of the Grantee granted under the Plan in
a number equal to or different from the number of the performance units or
performance shares so granted. If performance units or performance shares
are identified with shares of Stock subject to an Option or shares of
Restricted Stock, then unless otherwise provided in the applicable Award
Agreement, the Grantee's associated performance units shall terminate upon
(A) the expiration, termination, forfeiture or cancellation of such Option
on shares of Restricted Stock, (B) the exercise of such Option or (C) the
date such shares of Restricted Stock become nonforfeitable.
(f) GRANT OF STOCK BONUSES. The Administrator may grant shares of Stock as
a bonus to any individual eligible under Section 5 to receive Awards in such
amount and subject to such terms and conditions as the Administrator, in its
sole discretion, shall determine.
7. GRANTEE'S AGREEMENT TO SERVE. Each Grantee who is granted an Award
shall, by executing such Grantee's Award Agreement, agree that such Grantee will
remain in the employ of, or available as a consultant to, the Company or any of
its Subsidiaries for at least one year after the Grant Date. No obligation of
the Company or any of its Subsidiaries as to the length of any Grantee's
employment or consulting relationship shall be implied by the terms of the Plan,
any grant of an Award hereunder or any Award Agreement. The Company and its
Subsidiaries reserve the same rights to terminate employment of any Grantee as
existed before the Effective Date.
8. LIMITED TRANSFERABILITY. Each Award (other than Restricted Stock and
stock bonuses) granted hereunder shall not be assignable or transferable other
than by will or the laws of descent and distribution and may be exercised,
during the Grantee's lifetime, only by the Grantee; provided, however, that the
Administrator may, in its discretion, authorize all or a portion of the Options
(other than Incentive Stock Options) granted to a Grantee to be on terms which
permit transfer by such Grantee to:
(a) the spouse, children or grandchildren of the Grantee ("Immediate Family
Members");
(b) a trust or trusts for the exclusive benefit of such Immediate Family
Members, or;
10
(c) a partnership in which such Immediate Family Members are the only
partners, provided that:
(i) there may be no consideration for any such transfer;
(ii) the Award Agreement pursuant to which such Options are granted
expressly provides for transferability in a manner consistent with this
Section 8; and
(iii) subsequent transfers of transferred Options shall be prohibited
except those in accordance with Section 14(b). Following transfer, any such
Options shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, provided that for purposes of
Section 14(b) hereof the term "Grantee" shall be deemed to refer to the
transferee. The provisions of this Plan relating to the period of
exercisability and expiration of the Option shall continue to be applied
with respect to the original Optionee, and the Options shall be exercisable
by the transferee only to the extent, and for the periods, set forth in this
Plan as to the original Grantee.
9. EXERCISE.
(a) EXERCISE OF OPTIONS. Subject to Section 4(b)(ix) and such terms and
conditions as the Administrator may impose, each option shall become exercisable
with respect to 25% of the shares subject thereto on each of the first four
annual anniversaries of the Grant Date of such Option unless the Administrator
provides otherwise in the Award Agreement.
Each Option shall be exercised by delivery to the Company of written notice
of intent to purchase a specific number of shares of Stock subject to the
Option. The Option Price at any shares of Stock or shares of Restricted Stock as
to which an Option shall be exercised shall be paid in full at the time of the
exercise. Payment may, at the election of the Grantee, be made in any one or any
combination of the following:
(i) cash;
(ii) check;
(iii) surrender of other shares of Stock which (i) in the case of shares
of Stock acquired upon exercise of an Option, have been owned by the Grantee
for more than six (6) months on the date of surrender, and (ii) have a Fair
Market Value on the date of surrender equal to the Option Price of the
exercised Option shares;
(iv) with the approval of the Administrator, shares of Restricted Stock
held by the Grantee for at least 6 months prior to exercise of the Option,
each valued at the Fair Market Value of a share of Stock on the date of
exercise;
(v) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the
Company of the sale or loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of payment
In the discretion of the Administrator and to the extent permitted by law,
payment may also be made in accordance with Section 10.
If Restricted Stock ("Tendered Restricted Stock") is used to pay the Option
Price for Stock subject to an Option, then the Administrator may, but need not,
specify that (i) all the shares of Stock acquired on exercise of the Option
shall be subject to the same restrictions as the Tendered Restricted Stock,
determined as of the date of exercise of the Option, or (ii) a number of shares
of Stock acquired on exercise of the Option equal to the number to shares of
Tendered Restricted Stock shall, unless the Administrator provides otherwise, be
subject to the same restrictions as the Tendered Restricted Stock, determined as
of the date of exercise of the Option.
(b) EXERCISE OF PERFORMANCE UNITS.
11
(i) Subject to Section 4(b)(ix) and such terms and conditions as the
Administrator may impose, if, with respect to any performance unit, the
minimum performance goals have been achieved during the applicable Measuring
Period, then such performance unit shall be exercisable commencing on the
later of (A) the first anniversary of the Grant Date or (B) the first day
after the end of the applicable Measuring Period. Performance units shall be
exercised by delivery to the Company of written notice of intent to exercise
a specific number of performance units; PROVIDED, HOWEVER, that performance
units not identified with shares of Stock subject to an Option or shares of
Restricted Stock shall be deemed exercised on the date on which they first
become exercisable. Unless otherwise provided in the applicable Award
Agreement, the exercise of performance units which are identified with
shares of Stock subject to an Option or shares of Restricted Stock shall
result in the cancellation or forfeiture of such shares of Stock subject to
Option or shares at Restricted Stock, as the case may be, to the extent of
such exercise.
(ii) The benefit for each performance unit exercised shall be an amount
equal to the product of:
(A) the Unit Value (as defined below) multiplied by
(B) the Performance Percentage attained during the Measuring Period
for such performance unit.
(iii) The Unit Value shall be, as specified by the Committee.
(A) a dollar amount, or
(B) an amount equal to the Fair Market Value of a share of Stock on
the Grant Date.
(iv) The benefit upon the exercise of a performance unit shall be
payable as soon as is administratively practicable after the later of (A)
the date the Grantee exercises or is deemed to exercise such performance
unit, or (B) the date (or dates in the event of installment payments) as
provided in the applicable Award Agreement. Such benefit shall be payable in
cash, except that the Administrator may provide in the Award Agreement that
benefits, with respect to any particular exercise, may be paid wholly or
partly in Stock. Notwithstanding the foregoing, if the Administrator in its
discretion determines that the exercise of performance units would preclude
the use of pooling of interests accounting following a sale of the Company
which is reasonably likely to occur and that such preclusion of pooling
would have a material adverse effect on the sale of the Company, the
Administrator, in its discretion, may either unilaterally bar the exercise
of performance units by canceling the performance units prior to the Change
of Control or cause the Company to pay the performance units rights benefit
in Stock if it determines that such payment would not cause the transaction
to be ineligible for pooling. If the Award Agreement provides that the
benefit may be paid wholly in Stock unless the Administrator specifies at
the time of exercise that the benefit shall be paid partly or wholly in
cash, the number of shares of Stock payable in lieu of cash shall be
determined by valuing the Stock at its Fair Market Value on the date such
benefit is to be paid.
(c) PAYMENT OF PERFORMANCE SHARES. Subject to Section 4(b)(ix), and such
terms and conditions as the Administrator may impose, if, with respect to any
performance share, the minimum performance goals have been achieved during the
applicable Measuring Period, then the Company shall pay to the Grantee of such
Award shares of Stock equal in number to the product of the number of
performance shares specified in the applicable Award Agreement multiplied by the
Performance Percentage achieved during such Measuring Period, except to the
extent that the Administrator in its discretion determines that cash be paid in
lieu of some or all of such shares of Stock. The amount of cash payable in lieu
of a share of Stock shall be determined by valuing such share at its Fair Market
Value on the business day next preceding the date such cash is to be paid.
Payments pursuant to this Section 9(c) shall be made as soon as administratively
practical after the end of the applicable Measuring Period. Any performance
shares with respect to which the performance goals have not been achieved by the
end of the applicable Measuring Period shall expire.
12
(d) SPECIAL RULES FOR SECTION 16 PERSONS. No Option, performance unit, or
performance share (if the benefit payable with respect to such performance unit
or performance share is to be determined by reference to the Fair Market Value
of the Stock on the date the performance unit or performance share is exercised)
shall be exercisable by a Section 16 Person during the first six months after
its Grant Date, except as exempted from Section 16 of the 1934 Act under Rule
16a-2(d) under the 1934 Act or as may from time to time be permitted by the
Administrator.
(e) FULL VESTING UPON CHANGE OF CONTROL. In the event of a Change of
Control, all unvested Awards shall become immediately vested and exercisable;
PROVIDED that the benefit payable with respect to any performance unit or
performance share with respect to which the Measuring Period has not ended as of
the date or such Change of Control shall be equal to the product of the Unit
Value multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number of months
(including as a whole month any partial month) that have elapsed since the
beginning of such Measuring Period until the date of such Change of Control
and the denominator of which is the number of months (including as a whole
month any partial month) in the Measuring Period; and
(2) a percentage equal to the greater of the target percentage, if any,
specified in the applicable Award Agreement or the maximum percentage, if
any, that would be earned under the terms of the applicable Award Agreement
assuming that the rate at which the performance goals have been achieved as
of the date of such Change of Control would continue until the end of the
Measuring Period.
10. LOANS AND GUARANTEES. The Administrator may:
(a) allow a Grantee to defer payment to the Company of all or any
portion of (i) the Option Price of an Option, (ii) the purchase price of a
share of Restricted Stock, or (iii) any taxes associated with a benefit
hereunder which is not a cash benefit at the time such benefit is so
taxable, or
(b) cause the Company to guarantee a loan from a third party to the
Grantee, in an amount equal to all or any portion of such Option Price,
purchase price, or any related taxes.
Any such payment deferral or guarantee by the Company pursuant to this Section
10 shall be on such terms and conditions as the Administrator may determine,
provided, that the interest rate applicable to any such payment deferral shall
not be more favorable to the Grantee than the terms applicable to funds borrowed
by the Company from time to time. Notwithstanding the foregoing, a Grantee shall
not be entitled to defer the payment of such Option Price, purchase price or any
related taxes unless the Grantee (i) enters into a binding obligation to pay the
deferred amount and (ii) except with respect to treasury shares, pays upon
exercise of an Option or grant of shares of Restricted Stock, as the case may
be, an amount equal to or greater than the Minimum Consideration therefor. If
the Administrator has permitted a payment deferral or caused the Company to
guarantee a loan pursuant to this Section 10, then the Administrator may require
the immediate payment of such deferred amount or the immediate release of such
guarantee upon the Grantee's termination of employment or if the Grantee sells
or otherwise transfers the Grantee's shares of Stock purchased pursuant to such
deferral or guarantee. The Administrator may at any time in its discretion
forgive the repayment of any or all of the principal of or interest on any such
deferred payment obligation.
11. NOTIFICATION UNDER SECTION 83(B). The Administrator may, on the Grant
Date or any later date, prohibit a Grantee from making the election described
below. If the Administrator has not prohibited such Grantee from making such
election, and the Grantee, in connection with the exercise of any Option, or the
grant of any share of Restricted Stock, makes the election permitted under
Section 83(b) of the Code (i.e., an election to include in such Grantee's gross
income in the year of transfer the amounts specified in Section 83(b) of the
Code), such Grantee shall notify the Company of such election within 10 days of
filing
13
notice of the election with the internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued under the
authority of Section 83(b) of the Code.
12. MANDATORY TAX WITHHOLDING.
(a) Whenever under the Plan, cash or shares of Stock are to be delivered
upon exercise or payment of an Award or upon a share of Restricted Stock
becoming nonforfeitable, or any other event with respect to rights and
benefits hereunder, the Company shall be entitled to require as a condition
of delivery (i) that the Grantee remit an amount sufficient to satisfy all
federal, state, and local tax withholding requirements related thereto, (ii)
the withholding of such sums from compensation otherwise due to the Grantee
or from any shares of Stock due to the Grantee under the Plan or (iii) any
combination of the foregoing.
(b) If any disqualifying disposition described in Section 6(c)(vi) is
made with respect to shares of Stock acquired under an Incentive Stock
Option granted pursuant to the Plan or any election described in Section 11
is made, then the person making such disqualifying disposition or election
shall remit to the Company an amount sufficient to satisfy all federal,
state, and local tax withholding requirements thereby incurred; PROVIDED
that, in lieu of or in addition to the foregoing, the Company shall have the
right to withhold such sums from compensation otherwise due to the Grantee
or from any shares of Stock due to the Grantee under the Plan.
(c) In making any Award the Committee may elect to pay, as a cash bonus,
the amount of the tax owed by the Grantee up to a maximum of thirty (30%)
percent of the Fair Market Value of the Award.
13. ELECTIVE SHARE WITHHOLDING.
(a) Subject to Section 13(b), a Grantee may elect the withholding
("Share Withholding") by the Company of a portion of the shares of Stock
otherwise deliverable to such Grantee upon the exercise or payment of an
Award or upon a share of Restricted Stock becoming nonforfeitable (each a
"Taxable Event") having a Fair Market Value equal to:
(i) the minimum amount necessary to satisfy required federal, state,
or local tax withholding liability attributable to the Taxable Event; or
(ii) with the Administrator's prior approval, a greater amount, not
to exceed the estimated total amount of such Grantee's tax liability with
respect to the Taxable Event.
(b) Each Share Withholding election by a Grantee shall be subject to the
following restrictions:
(i) any Grantee's election shall be subject to the Administrator's
right to revoke such election of Share Withholding by such Grantee at any
time before the Grantee's election if the Administrator has reserved the
right to do so in the Award Agreement:
(ii) if the Grantee is a Section 16 Person, such Grantee's election
shall be subject to the disapproval of the Administrator at any time,
whether or not the Administrator has reserved the right to do so;
(iii) the Grantee's election must be made before the date (the "Tax
Date") on which the amount of tax to be withheld is determined;
(iv) the Grantee's election shall be irrevocable;
(v) a Section 16 Person may not elect Share Withholding within six
months after the grant of the related Option (except if the Grantee dies
or incurs a Disability before the end of the six-month period); and
14
(vi) except to the extent such condition may be waived by the
securities law counsel to the Company, a Section 16 Person must elect
Share Withholding either six months before the Tax Date or during the
10-business day period beginning on the third business day after the
release of the Company's quarterly or annual summary statement of sales
and earnings.
14. TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT. Except
as otherwise provided by the Administrator in the Award Agreement or otherwise:
(a) For Cause. If a Grantee has a termination of Continuous Status as an
Employee or Consultant for Cause,
(i) the Grantee's shares of Restricted Stock that are forfeitable
shall thereupon be forfeited, subject to the provisions of Section
6(d)(iv) regarding repayment of certain amounts to the Grantee; and
(ii) any unexercised Option, performance unit or performance share
shall thereupon terminate.
(b) On Account of Death or Disability. If a Grantee has a termination of
Continuous Status as an Employee or Consultant on account of the Grantee's
death or Disability, then, except as otherwise provided in the Award
Agreement,
(i) the Grantee's shares of Restricted Stock that were forfeitable
shall thereupon become nonforfeitable;
(ii) any unexercised Option, whether or not exercisable on the date
of such termination of Continuous Status as an Employee or Consultant on
account of death or Disability may be exercised, in whole or in part, at
any time within twelve (12) months after such termination of Continuous
Status as an Employee or Consultant by the Grantee, or after the
Grantee's death, by (A) his personal representative or by the person to
whom the Option is transferred by will or the applicable laws of descent
and distribution, (B) the Grantee's beneficiary designated in accordance
with Sections 6(c)(vii) or 8, or (C) the then-acting trustee of the trust
described in Section 8; and
(iii) any unexercised performance unit or performance share may be
exercised in whole or in part, at any time within 180 days after such
termination of Continuous Status as an Employee or Consultant on account
of death or Disability by the Grantee or, after the Grantee's death, by
(A) his personal representative or by the person to whom the performance
unit or performance share is transferred by will or the applicable laws
of descent and distribution, (B) the Grantee's beneficiary designated in
accordance with Section 8, or (C) the then-serving trustee or the trust
described in Section 8; PROVIDED that the benefit payable with respect to
any performance unit or performance share with respect to which the
Measuring Period has not ended as of the date of such termination of
Continuous Status as an Employee or Consultant on account of death or
Disability shall be equal to the product of the Unit Value multiplied
successively by each or the following:
(1) a fraction, the numerator of which is the number of months
(including as a whole month any partial month) that have elapsed
since the beginning of such Measuring Period until the date of such
termination of Continuous Status as an Employee or Consultant and the
denominator of which is the number of months (including as a whole
month any partial month) in the Measuring Period; and
(2) a percentage determined in the discretion of the Committee
that would be earned under the terms of the applicable Award
Agreement assuming that the rate at which the performance goals have
been achieved as of the date of such termination of Continuous Status
as an Employee or Consultant would continue until the end of the
Measuring Period,
15
or, if the Administrator elects to compute the benefit after the end
of the Measuring Period, the Performance Percentage, as determined by
the Administrator, attained during the Measuring Period for the
performance unit or performance share.
(c) On Account of Retirement. If a Grantee has a termination of
Continuous Status as an Employee or Consultant on account of Retirement, any
unexercised Option to the extent then exercisable, may be exercised, in
whole or in part, at any time within 90 days after such Retirement. The
nonforfeitability and exercisability of the Grantee's Restricted Stock,
performance units and performance shares shall be determined under Section
14(d).
(d) Any Other Reason. If a Grantee has a termination of Continuous
Status as an Employee or Consultant for a reason other than for Cause,
death, Disability, or Retirement,
(i) the Grantee's shares of Restricted Stock, to the extent
forfeitable on the date of the Grantee's termination of Continuous Status
as an Employee or Consultant shall be forfeited on such date;
(ii) any unexercised Option to the extent exercisable on the date of
the Grantee's termination of Continuous Status as an Employee or
Consultant, may be exercised in whole or in part, not later than the 90th
day following the Grantee's termination of Continuous Status as an
Employee or Consultant; PROVIDED, HOWEVER, that (A) if such 90th day is
not a business day, such option may be exercised not later than the first
business day following such 90th day and (B) if the Grantee has entered
into an agreement with the Company not to sell any shares of Stock (or
the capital stock of a successor to the Company) for a specified period
following the consummation of a business combination between the Company
and another corporation or entity (the "Specified Period"), such Option
may be exercised in whole or in part until the later of such 90th day
following the termination of the Grantee's Continous Status as an
Employee or Consultant or 10 business days following the expiration of
the Specified Period; and
(iii) the Grantee's performance units and performance shares shall
become non-forfeitable and may be exercised in whole or in part, but only
if and to the extent determined by the Committee.
(e) Change of Status. Notwithstanding the foregoing, in the event of a
Grantee's change of status from Employee to Consultant (or from Consultant
to Employee), there shall not be a termination of the individual's Award's
provided, however, any Incentive Stock Option granted to an Employee shall
automatically convert to a Nonstatutory Stock Option on the 91st day
following such change of status.
(f) Extension of Term. In the event of termination of the Grantee's
Continous Status as an Employee or Consultant other than for Cause, the term
of any Award (whether or not exercisable on the date of the Grantee's
termination of Continuous Status as an Employee or Consultant) which by its
terms would otherwise expire after the Grantee's termination of Continous
Status as an Employee or Consultant but prior to the end of the period
following the Grantee's termination of Continuous Status as an Employee or
Consultant described in Sections 14(b), (c) and (d) above for exercise of
Awards may, in the discretion of the Administrator, be extended so as to
permit any unexercised portion thereof to be exercised at any time within
such period. The Administrator may further extend the period of
exercisability to permit any unexercised portion thereof to be exercised
with a specified period provided by the Administrator. However, in no event
may the term of any Award expire more than 10 years after the Grant Date of
such Award.
15. EQUITY INCENTIVE PLANS OF FOREIGN SUBSIDIARIES. The Administrator may
authorize any foreign Subsidiary, if any, to adopt a plan for granting Awards
("Foreign Equity Incentive Plan"). All awards granted under such Foreign Equity
Incentive Plans shall be treated as grants under the Plan. Such Foreign Equity
Incentive Plans shall have such terms and provisions as the Administrator
permits not inconsistent
16
with the provisions of the Plan and which may be more restrictive than those
contained in the Plan. Awards granted under such Foreign Equity Incentive Plans
shall be governed by the terms of the Plan except to the extent that the
provisions of the Foreign Equity Incentive Plans are more restrictive than the
terms of the Plan, in which case such teens of the Foreign Equity Incentive
Plans shall control.
16. SUBSTITUTED AWARDS. If the Administrator cancels any Award (granted
under this Plan or any plan of any entity acquired by the Company or any of its
Subsidiaries), and a new Award is substituted therefor, then the Administrator
may determine the terms and conditions of such new Award; PROVIDED that (a) the
Option Price of any new option shall not be less than 85% of the Fair Market
Value of a share of Stock on the date of grant of the new Award; and (b) no
Award shall be canceled without the consent of the Grantee if the terms and
conditions of the new Award to be substituted are not at least as favorable as
the terms and conditions of the Award to be cancelled (and the Grant Date of the
new Award shall be the date on which such new Award is granted).
17. SECURITIES LAW MATTERS.
(a) If the Administrator deems it necessary to comply with the
Securities Act of 1933, the Administrator may require a written investment
intent representation by the Grantee and may require that a restrictive
legend be affixed to certificates for shares of Stock.
(b) If, based upon the opinion of counsel for the Company, the
Administrator determines that the exercise or nonforfeitability of, or
delivery of benefits pursuant to, any Award would violate any applicable
provision of (i) federal or state securities laws or (ii) the listing
requirements of any national securities exchange or national market system
on which are listed any of the Company's equity securities, then the
Administrator may postpone any such exercise, nonforfeitability or delivery,
as the case may be, but the Company shall use its best efforts to cause such
exercise, nonforfeitability or delivery to comply with all such provisions
at the earliest practicable date.
18. CODE SECTION 162(M).
(a) The number of shares for which Options may be granted to any Grantee
in any calendar year shall not exceed 150,000; provided, however, that such
limit shall not include Options granted at the time of initial hire of any
Grantee.
(b) If the Company determines that compensation payable under the Plan
is subject to the Code Section 162(m) limitation on deduction and if the
Company determines that a particular grant should qualify as performance
based compensation so as to be exempt from the deduction limitation, the
following provisions to the extent applicable shall apply with respect to
such grant:
(i) The Option Price for any Option shall equal 100% of the Fair
Market Value of the Stock on the Grant Date.
(ii) The performance units or performance shares awarded under the
Plan to any Grantee for any Measuring Period shall not have a value in
excess of the Grantee's base annual salary in effect at the time of the
grant of the Award multiplied by the number of years in the Measuring
Period. The Performance Percentage with respect to performance units and
performance shares attained during the Measuring Period for such
performance units or performance shares shall not exceed 150%. The value
of any stock bonuses awarded to a Grantee for each calendar year shall
not exceed the Grantee's base annual salary in effect for such year. The
value of performance shares and stock bonuses awarded under the Plan to
any Grantee for purposes of the limitations contained in this
subparagraph shall be determined by valuing the Stock at its Fair Market
Value on the date the performance shares or stock bonuses are granted.
17
(iii) The performance goals and the amount of compensation under the
goals applicable to the grant of any performance unit, performance share
or stock bonus shall be set forth in a written document prior to the
commencement of the Grantee's services to which the performance goals
relate and while the outcome is still substantially uncertain. In
establishing performance goals, the Administrator may consider any
performance factor or factors it deems appropriate, including stock
price, market share, sales, earning per share, return on equity, costs,
or any other business criteria as contemplated in Section 162(m) of the
Code. The Administrator shall certify in writing prior to payment of
compensation related to any performance unit, performance share or stock
bonus that the performance goals and any other material terms were
satisfied.
(iv) The Administrator with respect to any person covered by Section
162(m) shall be comprised solely of two or more outside directors as
defined for purposes of the regulations under Code Section 162(m).
19. FUNDING. Benefits payable under the Plan to any person shall be paid
directly by the Company. The Company shall not be required to fund, or otherwise
segregate assets to be used for payment of, benefits under the Plan.
20. NO EMPLOYMENT RIGHTS. Neither the establishment of the Plan, nor the
granting of any Award shall be construed to (a) give any Grantee the right to
remain employed by the Company or any of its Subsidiaries or to any benefits not
specifically provided by the Plan or (b) in any manner modify the right of the
Company or any of its Subsidiaries to modify, amend, or terminate any of its
employee benefit plans.
21. RIGHTS AS A STOCKHOLDER. A Grantee shall not, by reason of any Award
(other than Restricted Stock) have any right as a stockholder of the Company
with respect to the shares of Stock which may be deliverable upon exercise or
payment of such Award until such shares have been delivered to him. Shares of
Restricted Stock held by a Grantee or held in escrow by the Secretary of the
Company shall confer on the Grantee all rights of a stockholder of the Company,
except as otherwise provided in the Plan. The Administrator at the time of grant
of Restricted Stock, may permit or require the payment of cash dividends thereon
to be deferred and, if the Administrator so determines, reinvested in additional
Restricted Stock to the extent shares are available under Section 3 or otherwise
reinvested. Stock dividends and deferred cash dividends issued with respect to
Restricted Stock shall be subject to the same restrictions and other terms as
apply to the shares with respect to which such dividends are issued. The
Administrator may provide for crediting to and payment of interest on deferred
cash dividends.
22. NATURE OF PAYMENTS. Any and all grants, payments of cash, or
deliveries of shares of Stock hereunder shall constitute special incentive
payments to the Grantee and shall not be taken into account in computing the
amount of salary or compensation of the Grantee for the purposes of defining any
pension, retirement, death or other benefits under (a) any pension, retirement,
profit-sharing, bonus, life insurance or other employee benefit plan of the
Company or any of its Subsidiaries or (b) any agreement between the Company or
any Subsidiary, on the one hand, and the Grantee, on the other hand, except as
such plan or agreement shall otherwise expressly provide.
23. NON-UNIFORM DETERMINATIONS. The Administrator's determinations under
the Plan need not be uniform and may be made by the Administrator selectively
among persons who receive, or are eligible to receive, Awards (whether or not
such persons are similarly situated). Without limiting the generality of the
foregoing, the Administrator shall be entitled, among other things, to make
non-uniform and selective determinations, to enter into non-uniform and
selective Award Agreements as to (a) the identity of the Grantees, (b) the terms
and provisions of Awards, and (c) the treatment, under Section 14, of
terminations of Continuous Status as an Employee or Consultant. Notwithstanding
the foregoing, the Administrator's interpretation of Plan provisions shall be
uniform as to similarly situated Grantees.
24. ADJUSTMENTS. The Administrator shall make equitable adjustment of:
18
(a) the numbers of shares of Stock, shares of Restricted Stock, and
bonus stock, and the numbers of performance units, and performance shares
available under Sections 3(a), 3(b) and 18(a);
(b) the number of shares of Stock, shares of Restricted Stock,
performance units, or performance shares covered by an Award;
(c) the Option Price of all outstanding Options; and
(d) the Fair Market Value of Stock to be used to determine the amount of
the benefit payable upon exercise of performance units, or performance
shares to reflect a stock dividend, stock split, reverse stock split, share
combination, recapitalization, merger, consolidation, acquisition of
property or shares, asset spin-off, split-off, reorganization, stock rights
offering, liquidation or similar event, of or by the Company.
Notwithstanding the foregoing, upon the approval by the stockholders of the
Company of a plan of liquidation for the Company, any unexercised Options,
performance units, and performance shares theretofore granted shall
thereupon become exercisable, and any shares of Restricted Stock that have
not become nonforfeitable shall become nonforfeitable.
25. AMENDMENT OF THE PLAN. The Board may from time to time in its
discretion amend or modify the Plan without the approval of the stockholders of
the Company, except as such stockholder approval may be required (a) to permit
the grant of Awards under, and transactions in Stock pursuant to, the Plan to be
exempt from potential liability under Section 16(b) of the 1934 Act or (b) under
the listing requirements of any national securities exchange or national market
system on which are listed any of the Company's equity securities.
26. TERMINATION OF THE PLAN. The Plan shall terminate on the tenth (10th)
anniversary of the Effective Date or at such earlier time as the Board may
determine. Any termination. whether in whole or in part, shall not affect any
Award then outstanding under the Plan.
27. NO ILLEGAL TRANSACTIONS. The Plan and all Awards granted pursuant to
it are subject to all laws and regulations of any governmental authority which
may be applicable thereto; and notwithstanding any provision of the Plan or any
Award, Grantees shall not be entitled to exercise Awards or receive the benefits
thereof and the Company shall not be obligated to deliver any Stock or pay any
benefits to a Grantee if such exercise, delivery, receipt or payment would
constitute a violation by the Grantee or the Company of any such law or
regulation.
28. CONTROLLING LAW. The law of Illinois, except its law with respect to
choice of law, shall be controlling in all matters relating to the Plan.
29. SEVERABILITY. If all or any part of the Plan is declared by any court
or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of the Plan not declared to
be unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner which will give
effect to the terms of such Section or part of a Section to the fullest extent
possible while remaining lawful and valid.
19
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PROXY
NEOPHARM, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- JUNE 10, 1999
The undersigned appoints James M. Hussey, Kevin M. Harris and
Christopher R. Manning, and each of them, as proxies, with full power of
substitution and revocation, to vote, as designated on the reverse side
hereof, all the Common Stock of NeoPharm, Inc. which the undersigned has
power to vote, with all powers which the undersigned would possess if
personally present, at the Annual Meeting of Stockholders thereof to be held
on June 10, 1999, or at any adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR the election of
the nominees named and FOR the adoption of the 1998 Equity Incentive Plan.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NEOPHARM, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
For Withhold For All
All All Except*
1. ELECTION OF DIRECTORS -- / / / / / /
NOMINEES: John N. Kapoor, James M.
Hussey, Aquilur Rahman, Sander A.
Flaum, Erick E. Hanson.
- ---------------------------------------------
*(Exception nominee(s) written above.)
For Against Abstain
2. Approval of 1998 Equity Incentive Plan / / / / / /
- ---------------------------------- The undersigned acknowledges receipt
THIS SPACE RESERVED FOR ADDRESSING of the Notice of Annual Meeting of
(key lines do not print) Shareholders and of the Proxy Statement.
- ----------------------------------
Dated: , 1999
---------------
Signature(s):
--------------------------
----------------------------------------
Please sign exactly as your name appears. Joint owners
should each sign personally. Where applicable, indicate
your __________ position or representation __________.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY
USING THE ENCLOSED ENVELOPE.