SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as
[ ] Definitive Additional Materials permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
DISCOVERY LABORATORIES, INC.
----------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant):
Not Applicable
--------------
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
not applicable
--------------
(2) Aggregate number of securities to which transaction applies:
not applicable
--------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
not applicable
--------------
(4) Proposed maximum aggregate value of transaction: not applicable
--------------
(5) Total fee paid: not applicable
--------------
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount previously paid: not applicable
--------------
(2) Form, Schedule or Registration Statement No.: not applicable
--------------
(3) Filing Party: not applicable
--------------
(4) Date Filed: not applicable
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Discovery Laboratories, Inc.
350 South Main Street, Suite 307
Doylestown, PA 18901
(215)340-4699
--------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on Monday, June 28, 1999
--------------------------------
To the Stockholders of Discovery Laboratories, Inc.:
The Annual Meeting of Stockholders of Discovery Laboratories, Inc., a Delaware
corporation (the "Corporation"), will be held on Monday, June 28, 1999, at 10:00
a.m. Eastern Standard Time at the office of Roberts, Sheridan & Kotel, P.C., 12
East 49th Street, 30th Floor, New York, N.Y., for the following purposes:
I. To elect nine members to the Board of Directors to serve for the
ensuing year and until their respective successors have been duly
elected and qualified;
II. To consider and approve an amendment to the Corporation's 1998 Stock
Incentive Plan (the "1998 Plan") to increase the number of shares of
Common Stock available for issuance under the 1998 Plan from
1,406,024 shares of Common Stock to 2,200,959 shares of Common
Stock;
III. To consider and approve the entry by the Corporation into a stock
purchase agreement with Crescent International Limited ("Crescent")
providing for the sale to Crescent of up to $1 million in new equity
of the Corporation;
IV. To consider and approve an amendment to the Corporation's Restated
Certificate of Incorporation to increase the number of authorized
shares of Common Stock available for issuance by the Corporation
from 20 million to 35 million; and
V. To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
Only stockholders of record of the Corporation's Common Stock and Series B
Convertible Preferred Stock at the close of business on May 19, 1999 are
entitled to notice of, and to vote at, the meeting and any adjournment or
postponements thereof. A complete list of those stockholders will be open to
examination by any stockholder, for any purpose germane to the meeting, during
ordinary business hours at the Corporation's executive offices at 350 South Main
Street, Suite 307, Doylestown, Pennsylvania 18901, for a period of 10 days prior
to the meeting. The stock transfer books of the Corporation will not be closed.
By Order of the Board of Directors
/s/ Evan Myrianthopoulos
------------------------
Evan Myrianthopoulos
Corporate Secretary
Doylestown, Pennsylvania
May 28, 1999
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. IF YOU
DO ATTEND THE ANNUAL MEETING YOU MAY REVOKE YOUR PROXY AND VOTE BY BALLOT.
Discovery Laboratories, Inc.
350 South Main Street, Suite 307
Doylestown, PA 18901
(215)340-4699
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
June 28, 1999
Proxies in the form enclosed with this Proxy Statement are solicited by the
Board of Directors of Discovery Laboratories, Inc., a Delaware corporation
("Discovery" or the "Corporation"), with its principal executive offices at 350
South Main Street, Suite 307, Doylestown, Pennsylvania 18901, for use at the
Annual Meeting of Stockholders and any adjournment thereof (the "Annual
Meeting") to be held on Monday, June 28, 1999 at 10:00 a.m. Eastern Standard
Time at the office of Roberts, Sheridan & Kotel, P.C., 12 East 49th Street, 30th
Floor, New York, N.Y. 10017. It is expected that this Proxy Statement and the
form of proxy will be mailed to stockholders on or about May 29, 1999.
Only holders of shares of Common Stock, par value $.001 per share (the "Common
Stock") of the Corporation and holders of shares of Series B Convertible
Preferred Stock, par value $.001 per share (the "Series B Preferred Stock"), of
the Corporation of record as of May 19, 1999 (the "Record Date") will be
entitled to vote at the Annual Meeting and any adjournments or postponements
thereof. As of May 19, 1999, 6,502,414 shares of Common Stock and 1,678,755
shares of Series B Preferred Stock were issued and outstanding. Each share of
Common Stock outstanding as of the Record Date will be entitled to one vote and
each share of Series B Preferred Stock outstanding as of the Record Date will be
entitled to approximately 3.1132 votes. As of May 19, 1999, the 1,678,755 shares
of Series B Preferred Stock are entitled to 5,226,392 votes in the aggregate on
all matters to be voted on.
Stockholders may vote at the annual meeting in person or by proxy. Execution of
a proxy will not in any way affect a stockholder's right to attend the Annual
Meeting and vote in person. Any stockholder giving a proxy has the right to
revoke it by written notice to the Secretary of the Corporation at any time
before it is exercised, by executing a proxy with a later date, or by attending
and voting at the Annual Meeting. The persons named as proxies in the form of
proxy are directors and/or officers of the Corporation. All properly executed
proxies that are returned in time to be counted at the Annual Meeting will be
voted as stated below under "Voting Procedures." Any stockholder giving a proxy
has the right to withhold authority to vote for any individual nominee to the
Board of Directors by striking through that nominee's name on the proxy. In
addition to the election of directors, the stockholders will consider and vote
upon (i) a proposal to amend the Corporation's 1998 Stock Incentive Plan (the
"1998 Plan") to increase the number of shares of Common Stock available for
issuance under the 1998 Plan from 1,406,024 to 2,200,959, (ii) a proposal to
approve the entry by the Corporation into a stock purchase agreement with
Crescent International Limited ("Crescent") providing for the sale to Crescent
of up to $1 million in new equity of the Corporation, and (iii) a proposal to
amend the Corporation's Restated Certificate of Incorporation to increase the
number of authorized shares of Common Stock available for issuance by the
Corporation from 20 million to 35 million. Where a choice has been specified on
the proxy with respect to the foregoing matters, the shares represented by the
proxy will be voted in accordance with the specifications and will be voted FOR
a respective matter if no specification is indicated.
The Board of Directors of the Corporation knows of no other matters to be
presented at the Annual Meeting. If any other matter should be presented at the
Annual Meeting upon which a vote properly may be taken, shares represented by
all proxies received by the Board of Directors will be voted with respect
thereto in accordance with the judgment of the persons named as proxies in the
form of proxy.
PROPOSAL I
ELECTION OF DIRECTORS
At the Annual Meeting, nine directors will be elected by the stockholders to
hold office until the next annual meeting of stockholders and until their
successors have been elected and qualified, or until their earlier resignation
or removal. Management recommends that the persons named below be elected as
directors of the Corporation and it is intended that the accompanying proxy will
be voted for their election as directors, unless the proxy contains contrary
instructions. Shares represented by all proxies received by the Board of
Directors and not so marked as to withhold authority to vote for any individual
nominee or for all nominees will be voted (unless one or more nominees are
unable to serve) for the election of the nominees named below. The Board of
Directors knows of no reason why any such nominee should be unable or unwilling
to serve, but if such should be the case, proxies will be voted for the election
of some other person or the size of the Board of Directors will be fixed at a
lower number. The persons nominated for election to the Corporation's Board of
Directors are: Robert J. Capetola, Ph.D., Steve H. Kanzer, C.P.A., Esq., Max
Link, Ph.D., Richard G. Power, Marvin E. Rosenthale, Ph.D., Herbert McDade,Jr.,
Mark C. Rogers, MD, David Naveh, Ph.D., and Richard Sperber. Each of the
nominees currently serves as a director of the Corporation. A plurality of the
votes cast by the stockholders present or represented by proxy and entitled to
vote at the Annual Meeting is required for the election of directors. See
"Voting Procedures."
General Information Concerning the Board of Directors and its Committees
The Board of Directors met seven times and acted by unanimous written consent
two times during the fiscal year ended December 31, 1998. Each incumbent
director attended, in person or by telephone, all the meetings of the Board of
Directors and committees of the Board of Directors on which he served during
such fiscal year.
The Board of Directors has an Audit Committee, a Nominating Committee and a
Compensation Committee. The Audit Committee met one time during the last fiscal
year and the Compensation Committee met two times during the last fiscal year,
and otherwise their respective responsibilities were assumed by the full Board
of Directors.
Audit Committee. The Audit Committee of the Board of Directors, consisting of
Herbert McDade Jr., Richard Power and Richard Sperber, oversees the appointment
and reappointment of independent accountants for the Corporation from time to
time and addresses matters of accounting policy with such accountants. The Audit
Committee also oversees management's response to and implementation of
accounting policy and practice recommendations. The Audit Committee is
responsible for the reporting of significant events to the Board of Directors
with respect to the above audit issues.
Compensation Committee. The Board of Directors also has a Compensation
Committee, of which Marvin E. Rosenthale, Ph.D., Herbert McDade, Jr., and Steve
H. Kanzer, C.P.A., Esq. are members. The Compensation Committee reviews and
makes recommendations concerning executive and general compensation matters and
administers the 1998 Plan together with the Board of Directors.
Nominating Committee. The Nominating Committee, consisting of Robert J.
Capetola, Ph.D., Steve H. Kanzer, C.P.A., Esq. and Max Link, Ph.D., has the
authority to designate the nominees for director at each annual meeting of the
stockholders of the Corporation, to fill vacancies on the Board of Directors
occurring between such annual meetings and to evaluate the performance of the
Corporation's directors.
2
Executive Officers
Executive officers of the Corporation are elected annually and hold office until
the first meeting of the Board of Directors after each annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier resignation or removal.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Corporation's directors,
executive officers (including a person performing a principal policy-making
function) and persons who own more than 10% of a registered class of the
Corporation's equity securities (collectively, "Reporting Persons") to file with
the Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of the Corporation's Common Stock and other
equity securities of the Corporation. Reporting Persons are required by SEC
regulations to furnish the Corporation with copies of all of the Section 16(a)
reports they file. Specific due dates for these reports have been established
and the Corporation is required to identify in this Proxy Statement those person
who failed to timely file these reports. Based solely upon a review of the
copies of such filings received by it with respect to the fiscal year ended
December 31, 1998 and representations made by the Reporting Persons, the
Corporation believes that during fiscal year 1998 its Reporting Persons complied
with all substantive filing requirements under Section 16(a) of the Exchange Act
except that Steve H. Kanzer, C.P.A., Esq., Evan Myrianthopoulos, Max Link,
Ph.D., Mark Rogers, MD and Herbert McDade, Jr. did not timely file Form 5's
relating to certain option grants.
Nominees for Election to the Board of Directors
The following table sets forth the names and ages, as of May 4, 1999, of the
nominees to be elected at the Annual Meeting, their respective principal
occupations during the past three years and the period during which each has
served as a director of the Corporation. For information concerning the number
of shares of Common Stock beneficially owned by each nominee, see "Principal
Stockholders."
Name Age Position with the Corporation
- ---- --- -----------------------------
Robert J. Capetola, Ph.D. 49 Chief Executive Officer
Steve H. Kanzer, C.P.A., Esq. 35 Chairman
Max Link, Ph.D. 55 Director
Richard G. Power 68 Director
Marvin E. Rosenthale, Ph.D. 65 Director
Herbert McDade, Jr. 71 Director
Mark C. Rogers, MD 55 Director
Richard Sperber 58 Director
David Naveh, Ph.D. 45 Director
Robert J. Capetola, Ph.D. has served as President, Chief Executive Officer and a
Director of the Corporation since June 1998 and prior to that time served as
Chairman and Chief Executive Officer of ATI from its inception in October 1996.
From February 1994 to May 1996, Dr. Capetola was Managing Director of Delta
Biotechnology, a subsidiary of Ohmeda Pharmaceutical Products Division, a
division of The BOC Group, PLC ("Ohmeda"), in the U.K. He also served on the
Board of Directors of Delta Biotechnology. From December 1992 to September 1996,
Dr. Capetola served as Vice President of Research and Development at Ohmeda. He
served on Ohmeda's operating board and was responsible for all aspects of
Ohmeda's research and development, including preclinical research and
development, clinical development, biometrics and regulatory affairs. From 1977
to 1992, Dr. Capetola held a variety of positions as a drug discovery scientist
at Johnson & Johnson Pharmaceutical Research Institute, including Senior
Worldwide Director of Experimental Therapeutics. Dr. Capetola received his B.S.
from the Philadelphia College of Pharmacy & Science and his Ph.D. in
pharmacology
3
from Hahnemann Medical College.
Steve H. Kanzer, C.P.A., Esq. has served as Chairman of the Board of Directors
of the Corporation since November 1997. From June 1996 until such time he was
the Chairman of the Board of Discovery Laboratories, Inc., a former Delaware
corporation and a predecessor by merger of the Corporation ("Old Discovery"). He
has been a Director of ATI since November 1996. Mr. Kanzer is also President and
Chief Executive Officer of the Institute for Drug Research, Inc., a specialty
pharmaceutical and drug development company headquartered in Budapest, Hungary.
Mr. Kanzer is a founder and currently a director of Boston Life Sciences, Inc.
and Atlantic Pharmaceuticals, Inc. and is currently a director of Endorex, Inc.
He has been a founder and director of several other public and private
biotechnology companies including Avigen, Inc., Titan Pharmaceuticals, Inc. and
Xenometrix, Inc. Mr. Kanzer was a Senior Managing Director of Paramount Capital
Incorporated and Paramount Capital Investments, LLC until March 1998. From
October 1991 until January 1995, Mr. Kanzer was General Counsel of The Castle
Group Ltd, an affiliate of Paramount Capital. From 1988 to 1991, Mr. Kanzer was
an attorney at the law firm of Skadden, Arps, Meagher, Slate, & Flom. Mr. Kanzer
received his J.D. from New York University School of Law and a B.B.A. in
Accounting from Baruch College. He devotes only a portion of his time to the
business of the Corporation.
Max Link, Ph.D., has served as a Director of the Corporation since November 1997
and was a Director of Old Discovery from October 1996 until such date. He has
been a Director of ATI since October 1996. Dr. Link has held a number of
executive positions with pharmaceutical and health care companies. He currently
serves on the Boards of Directors of five publicly-traded life science
companies: Alexion Pharmaceuticals, Inc., Protein Design Labs, Inc., Human
Genome Sciences, Inc., Cell Therapeutics, Inc., Procept, Inc. and Access
Pharmaceuticals, Inc. From May 1993 until June 1994, Dr. Link was Chief
Executive Officer of Corange Limited, the parent company of Boehringer Mannheim
and DePuy, an orthopedic company. Prior to joining Corange, he served in a
number of positions within Sandoz Pharma, Ltd., including Chief Executive
Officer from 1987 until April 1992, and Chairman from April 1992 until May 1993.
Richard G. Power has been a Director of the Corporation since June 1998 and a
Director of ATI since October 1996. Mr. Power is a Principal and Executive
Director of The Sage Group, founded in 1994, which specializes in providing
strategic and transactional services to the managements and boards of, and
investors in, health care companies. He serves on the Board of Directors of The
Quantum Group, and Neuromedica, Inc. From 1980 to 1994, Mr. Power served as
President of R.G. Power & Associates, Inc., which specializes in worldwide
business development and financing strategy for the health care industry. From
1955 to 1980, Mr. Power held senior management positions with several
pharmaceutical industry firms, including SmithKline, Searle and as a corporate
officer at J&J. Mr. Power received his B.A. from Loras College in 1951, and
attended graduate school at the University of Wisconsin.
Marvin E. Rosenthale, Ph.D., has been a Director of the Corporation since June
1998 and a Director of ATI since October 1996. He has served as President and
Chief Executive Officer of Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT")
from 1994 until 1997. He joined the ALRT joint venture formed by Allergan and
Ligand, the entity through which they combined their resources to pursue the
development of retinoid research and development prior to ALRT, in August 1993
as Vice President. Prior to joining ALRT, Dr. Rosenthale served as Vice
President, Drug Discovery Worldwide, at R. W. Johnson Pharmaceutical Research
Institute from 1990 to 1993. From 1977 to 1990, Dr. Rosenthale served in a
variety of positions in drug discovery research for Ortho Pharmaceutical
Corporation, including director of the divisions of pharmacology and biological
research and executive director of drug discovery research. From 1960 to 1977,
he served in various positions with Wyeth Laboratories. Dr. Rosenthale received
a Ph.D. in pharmacology from Hahnemann Medical College & Hospital, an M.Sc. in
pharmacology from Philadelphia College of Pharmacy and Science and a B.Sc. in
pharmacy from Philadelphia College of Pharmacy.
4
Herbert H. McDade, Jr. has served as a Director of the Corporation since
November 25, 1997 and was a Director of Old Discovery from June 1996 until such
time. Mr. McDade is the Chairman of Access Pharmaceutical and a member of the
Boards of Directors of two other publicly-held companies, Cytrx Corporation and
Shaman Pharmaceuticals, and Clarion Pharmaceuticals, Inc., which is privately
held. Mr. McDade was employed with the Upjohn Company for 20 years and for 14
years as President of Revlon Health Care International.
Mark C. Rogers, MD has served as a Director of the Corporation since November
25, 1997 and was a Director of Old Discovery from June 1996 until such time. Dr.
Rogers has been the President of Paramount Capital, Incorporated since June,
1998. From May 1996 until June, 1998, Dr. Rogers was Senior Vice President,
Corporate Development and Chief Technology Officer at Perkin-Elmer Corporation.
Prior to that time, Dr. Rogers was the Vice Chancellor for Health Affairs,
Executive Director and Chief Executive Officer of Duke University Hospital and
Health Network from 1992 to 1996. Prior to his employment at Duke, Dr. Rogers
was on the faculty of Johns Hopkins University for 15 years where he served as
Distinguished Faculty Professor and Chairman of the Department of Anesthesiology
and Critical Care Medicine, Associate Dean for Clinical Practice, Director of
the Pediatric Intensive Care Unit and Professor of Pediatrics. Dr. Rogers
received his M.D. from Upstate Medical Center and his M.B.A. from The Wharton
School of Business. He received his B.A. from Columbia University and held a
Fulbright Scholarship.
Richard Sperber has been a Director of the Corporation since May 1994. Mr.
Sperber has been President and Chief Executive Officer of The Global Medicines
Group Inc., a consulting firm, since 1991. From 1988 to 1991 Mr. Sperber was a
Director and Head of Business Development and Strategic Planning for Glaxo
Pharmaceuticals U.K. Ltd., a subsidiary of Glaxo Holdings PLC. Prior to his
employment at Glaxo, Mr. Sperber held a variety of positions including Area
Director for Ayerst International, responsible for Southeast Asia, and Director
of Marketing for Schering-Plough Corp. responsible for Canada, Japan, Australia
and Southeast Asia. Mr. Sperber received his B.S. from the University of Denver
and attended graduate school at Columbia University.
David Naveh, Ph.D. has been a Director of the Corporation since May 1996. Dr.
Naveh is Chief Technical Officer, Bayer Biologics Worldwide. Previously, Dr.
Naveh has served as Director of Process Technology and was Director of Process
Development of Bayer Corporation beginning in 1992. Dr. Naveh was Director of
Biotechnology Operations for Centocor from 1990 to 1992 and was Director of
Purification for Centocor from 1989 to 1990. From 1984 to 1988, Dr. Naveh was a
manager at Schering-Plough Corp. Dr. Naveh was on the faculty of the University
of Wisconsin, Madison as Assistant Professor from 1982 to 1984. He received his
B.Sc. and M.S. in 1980 from the Technion, Haifa, Israel and his Ph.D. in 1982
from the University of Minnesota.
5
EXECUTIVE OFFICERS
The following table sets forth as of the Record Date the names and positions of
the executive officers of the Corporation:
Name Age Position with the Corporation
- ---- --- -----------------------------
Robert J. Capetola, Ph.D. 49 President, Chief Executive Officer
and Director
Steve H. Kanzer, C.P.A., Esq. 35 Chairman of the Board of Directors
Laurence B. Katz, Ph.D. 44 Vice President, Project Management
and Clinical Administration
Lisa Mastroianni 37 Director of Clinical Research
Evan Myrianthopoulos 34 Vice President, Finance and Secretary
Christopher J. Schaber 32 Executive Vice President, Drug
Development and Regulatory Compliance
Huei Tsai, Ph.D. 59 Vice President, Biometrics
Thomas E. Wiswell, MD 47 Vice President, Clinical Research
Cynthia Davis 30 Controller
Laurence B. Katz, Ph.D., has served as Vice President of Project Management and
Clinical Administration of the Corporation since June 1998. Prior to such time,
he held such position with ATI commencing in November 1996. Prior to joining the
Corporation, Dr. Katz was employed from April 1993 to November 1996 by Ohmeda
Pharmaceutical Products Division, a division of The BOC Group, as Senior
Director of Project Management and Clinical Administration. At Ohmeda, Dr. Katz
was project team leader for the inhaled nitric oxide project and was responsible
for the administration of all clinical trials within the Corporation.
Previously, Dr. Katz was employed by Ortho Pharmaceutical Corporation and the
R.W. Johnson Pharmaceutical Research Institute, divisions of Johnson & Johnson,
Inc. ("J&J"). While there he served as Senior Project Manager in the Project
Planning & Management department from January 1990 to April 1993, and as a
Principal Scientist in the Drug Discovery department from February 1983 to
January 1990. Dr. Katz received a B.S. degree in biology from the University of
Pennsylvania, his M.S. and Ph.D. degrees in pharmacology form the Philadelphia
College of Pharmacy & Science, and was a post-doctoral research fellow at the
University of Wisconsin-Madison.
6
Lisa Mastroianni, R.N., has served as Director of Clinical Research of the
Corporation since June 1998. Prior to such time, she held such position with ATI
commencing in January of 1997. Prior to joining the Corporation, Ms. Mastroianni
was employed from November of 1994 to November of 1996 by Ohmeda Pharmaceutical
Products Division, a division of The BOC Group as Senior Clinical Research
Associate. At Ohmeda, Ms. Mastroianni was responsible for the management and
completion of the Phase 2/3 clinical study in acute respiratory distress
syndrome, supervision of internal personnel as well as management of a Contract
Research Organization, and assisting in the development and management of a
Phase 1 clinical study in congestive heart failure. Previously Ms. Mastroianni
was employed by Sandoz Pharmaceuticals from March 1992 to November 1994 in their
cardiovascular clinical research department and was responsible for monitoring
Phase 3 lipid studies and managing and monitoring Phase 1 CHF studies. Ms.
Mastroianni has her Bachelors degree in Nursing from Bloomfield College and has
worked as a critical care nurse in a number of hospitals in the United States
from 1985 to 1992.
Evan Myrianthopoulos has served as Vice President, Finance of the Corporation
since June 1998. He served as Chief Financial Officer of the Corporation from
December 1997 until June 1998 and as Chief Operating Officer of the Corporation
from November 1997 until June 1998. From June 1996 until November 1997 he served
as Chief Operating Officer and Director of Old Discovery. Prior to joining Old
Discovery, he was a Technology Associate of Paramount Capital Investments,
L.L.C. from December 1995 until January 1987. Before joining Paramount Capital
Investments, LLC, Mr. Myrianthopoulos managed a hedge fund for S + M Capital
Management in Englewood Cliffs, New Jersey. The fund specialized in syndicate
and secondary stock issues and also engaged in arbitrage of municipal and
mortgage bonds. Prior to his employment with S + M Capital Management, Mr.
Myrianthopoulos was employed at the New York Branch of National Australia Bank
where he was Assistant Vice President of Foreign Exchange trading. Mr.
Myrianthopoulos received a B.S. in Economics and Psychology from Emory
University in 1986.
Christopher J. Schaber has served as Executive Vice President, Drug Development
and Regulatory Compliance since April 1999. Previously, he had held the position
of Vice President of Regulatory Affairs and Quality Assurance of the Corporation
since June 1998. Prior to such time, he held such position with ATI commencing
in November 1996. Prior to joining ATI, Mr. Schaber was employed from October
1994 to November 1996 by Ohmeda Pharmaceutical Products Division, a division of
The BOC Group, as Director of Regulatory Affairs. At Ohmeda, Mr. Schaber was
directly responsible for all regulatory strategies with the Food and Drug
Administration and other Health Authority bodies. From 1989 to 1994, Mr. Schaber
held a variety of regulatory positions of increasing importance with The
Liposome Company, Inc. and Elkins-Sinn Inc., a division of Wyeth-Ayerst
Laboratories. Mr. Schaber received his B.A. from Western Maryland College and
his M.S. from Temple University. Mr. Schaber is currently pursuing his Ph.D. in
Pharmaceutical Sciences-Regulatory Affairs with the Union Graduate School and is
estimated to complete his doctoral program in 1999. In 1994, Mr. Schaber also
received his Regulatory Affairs Certification (RAC) from the Regulatory Affairs
Professional Society.
Huei Tsai, Ph.D., has served as Vice President of Biometrics of the Corporation
since June 1998. Prior to such time, he held such position with ATI commencing
in February 1997. Prior to joining ATI, Dr. Tsai was a statistical consultant
after retiring from the position of Director of Biometrics and Clinical
Information at Ohmeda Pharmaceutical Products Division, a division of The BOC
Group. At Ohmeda, Dr. Tsai was responsible for all statistical, computer
operations, database and data coordination. From 1994 to 1995, Dr. Tsai was a
statistical consultant to a variety of companies, including Janssen
Pharmaceutical Company. For seventeen years prior to that, Dr. Tsai held a
variety of biostatistical positions at the Robert Wood Johnson Pharmaceutical
Research Institute and Ortho Pharmaceutical Corporation (both wholly-owned
subsidiaries of J&J), including Director of Biostatistics for Clinical
Pharmacology. Dr. Tsai received a B.A. degree in economics from Tunghai
University in 1962 and a Ph.D. in mathematical statistics from Oklahoma State
University in 1976.
Thomas E. Wiswell, MD, has served as Vice President of Clinical Research of the
Corporation since June 1998 and, prior to that time, held such position with ATI
commencing in April 1997. Since 1993, he has been a Professor of Pediatrics at
Jefferson Medical College at Thomas Jefferson University in Philadelphia,
Pennsylvania. From 1988 to 1993, he was an Associate Professor of Pediatrics at
the F. Edward Herbert School
7
of Medicine in Bethesda, Maryland. He retired as a Lieutenant Colonel from the
U.S. Army on June 30, 1993 after twenty years on active duty. Dr. Wiswell is a
graduate of the United States Military Academy at West Point and the University
of Pennsylvania Medical School.
Cynthia Davis has served as Controller of the Corporation since June 1998 and
was Controller of ATI from October 1996 until such time. Davis was an office
manager with ERD Environmental Group from September 1991 until September 1996.
Ms. Davis received her A.A. degree from Lansdale School of Business in May, 1989
All directors hold office until the next annual meeting of stockholders of the
Corporation and until their successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors. The Corporation's bylaws
provide that directors and officers shall be indemnified against liabilities
arising from their service as directors or officers to the fullest extent
permitted by the laws of the State of Delaware, which generally requires that
the individual act in good faith and in a manner he or she reasonably believes
to be in, or not opposed to, the Corporation's best interests.
Family Relationships
There are no family relationships among directors or executive officers of the
Corporation.
The Board of Directors recommends a vote FOR the nominees to the Board of
Directors set forth above.
8
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of May 19, 1999, certain information
regarding the beneficial ownership of the Common Stock (i) by each person known
by the Corporation to be the beneficial owner of more than five percent of the
outstanding shares of the Common Stock, (ii) by each Named Officer (as defined
below), each other executive officer and each director of the Corporation and
(iii) by all officers and directors of the Corporation as a group.
Name and Address of Beneficial Number of Percentage of Class
Owner (1) Title of Stock Shares Beneficially Owned
- ------------------------------- -------------- --------- -------------------
Robert J. Capetola, Ph.D.(2) Common Stock 931,443 13.48%
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
James S. Kuo, MD (3) Common Stock 240,145 3.67%
Myriad Genetics, Incorporated
320 Wakara Way
Salt Lake City, Utah 84106
Steve H. Kanzer, C.P.A., Esq. (4) Common Stock 235,530 3.63%
Institute for Drug Research, Inc.
787 Seventh Avenue, 48th Floor
New York, New York 10019
Evan Myrianthopoulos (5) Common Stock 154,040 2.37%
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
Cynthia Davis (6) Common Stock 75,706 1.17%
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
Lisa Mastroianni (7) Common Stock 52,640 *
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
Thomas Wiswell, MD (8) Common Stock 199,644 3.02%
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
Christopher J. Schaber (9) Common Stock 196,244 2.98%
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
Laurence B. Katz, Ph.D. (10) Common Stock 197,244 2.99%
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
Harry G. Brittain, Ph.D. (11) Common Stock 196,744 2.99%
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
9
Marvin E. Rosenthale, Ph.D. (12) Common Stock 25,600 *
14 Burning Tree Road
Newport Beach, California 92660
Huei Tsai, Ph. D. (13) Common Stock 206,744 3.14%
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
Milton Packer, MD (12) Common Stock 25,600 *
Columbia University.
College of Physicians
630 West 168th Street
New York, New York 10032
Richard G. Power (14) Common Stock 28,268 *
The Sage Group
245 Route 22 West, Suite 304
Bridgewater, New Jersey 08807
Herbert McDade, Jr. (15) Common Stock 23,619 *
1421 Partridge Place North
Boynton Beach, Florida 33436
Max Link, Ph.D. (16) Common Stock 56,819 *
230 Central Park West, Apt.14A
New York, New York 10024
Mark C. Rogers, MD (17) Common Stock 59,683 *
Paramount Capital Incorporated
787 Seventh Avenue, 48th Floor
New York, New York 10019
Richard Sperber (18) Common Stock 19,274 *
304 West 75th Street, Suite 16H
New York, New York 10023
David Naveh, Ph.D. (19) Common Stock 21,600 *
Bayer Corporation
800 Dwight Way
P.O. Box 1986
Berkeley, California 94701-1986
The Aries Master Fund, a Cayman Common Stock 1,053,567 14.68%
Island Trust (20)
c/o Mees Pierson (Cayman) Limited
P.O. Box 2003 Series B Preferred 173,250 10.10%
British American Centre, Phase 3 Stock
Dr. Roy's Drive
George Town, Grand Cayman
10
Aries Domestic Fund, L.P. (21) Common Stock 448,384 6.65%
787 Seventh Avenue, 48th Floor
New York, New York 10019
RAQ, LLC (22) Common Stock 1,001,739 15.59%
787 Seventh Avenue, 48th Floor
New York, NY 10019
Lindsay A. Rosenwald, MD(22) Common Stock 2,503,802 33.39%
787 Seventh Avenue, 48th Floor
New York, NY 10019 Series B Preferred 326,298 18.12%
Stock
Paramount Capital Asset Common Stock 1,501,952 20.03%
Management, Inc. (22)
787 Seventh Avenue, 48th Floor Series B Preferred 247,500 14.37%
New York, NY 10019 Stock
All the Corporation directors and Common Stock 2,941,587 35.39%
officers as a group (19 persons)
- -------------------------------------------------------------------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Exchange Act") and includes voting and
investment power with respect to shares of Common Stock and Series B Preferred
Stock. Shares of Common Stock and Series B Preferred Stock subject to options or
warrants currently exercisable or exercisable within 60 days of the date hereof,
are deemed outstanding for computing the percentage ownership of the person
holding such options or warrants, but are not deemed outstanding for purposes of
computing the percentage ownership of any other person.
(2) Includes 21,793 shares of Common Stock issuable on the exercise of
outstanding options granted on April 17, 1997; 43,010 shares of Common Stock
issuable on the exercise of outstanding options granted on March 5, 1998;
115,090 shares of Common Stock issuable on the exercise of outstanding options
granted on June 16, 1998; and 187,730 shares of Common Stock issuable on the
exercise of outstanding options granted on January 1, 1999, all of which are
immediately exercisable and fully vested, 113,740 shares of Common Stock
issuable on the exercise of outstanding options granted on June 16, 1998 which
will vest subject to acceleration events. Unvested shares of Common Stock
subject to all of the foregoing options remain subject to the Corporation's
right to repurchase at the exercise price paid per share.
(3) Includes 77,831 shares of Common Stock issuable on the exercise of
outstanding options granted on January 1, 1997 and 30,000 shares of Common Stock
issuable on the exercise of outstanding options granted on January 2, 1998, all
of which are immediately exercisable and fully vested.
(4) Includes 15,566 shares of Common Stock issuable on the exercise of
outstanding options granted on January 1, 1997; 30,000 shares of Common Stock
issuable on the exercise of outstanding options granted on January 2, 1998; and
20,000 shares of Common Stock issuable on the exercise of outstanding options
granted on January 1, 1999. Shares of Common Stock subject to such options vest
twenty five percent at the time of grant with the balance vesting in thirty-six
equal monthly installments upon the optionee's successive completion of service
with the Corporation. Unvested shares of Common Stock subject to such options
remain subject to the Corporation's right to repurchase at the exercise price
paid per share. Does not include an additional 35,413 shares of Common
11
Stock owned by certain family members of Mr. Kanzer, as to which Mr. Kanzer
disclaims beneficial ownership.
(5) Includes 11,675 shares of Common Stock issuable on the exercise of
outstanding options granted on January 1, 1997; 30,000 shares of Common Stock
issuable on the exercise of outstanding options granted on January 2, 1998; and
40,000 shares of Common Stock issuable on the exercise of outstanding options
granted on January 1, 1999, all of which are immediately exercisable. Shares of
Common Stock subject to such options vest twenty five percent at the time of
grant with the balance vesting in thirty-six equal monthly installments upon the
optionee's successive completion of service with the Corporation. Unvested
shares of Common Stock subject to such options remain subject to the
Corporation's right to repurchase at the exercise price paid per share. Does not
include an additional 1,906 shares of Common Stock owned by Mr. Myrianthopoulos'
brother, as to which Mr. Myrianthopoulos disclaims beneficial ownership.
(6) Includes 1,950 shares of Common Stock issuable on the exercise of
outstanding options granted on January 2, 1997; 8,775 shares of Common Stock
issuable on the exercise of outstanding options granted on January 1, 1998;
4,428 shares of Common Stock issuable on the exercise of outstanding options
granted on March 5, 1998; 11,848 shares of Common Stock issuable on the exercise
of outstanding options granted on June 16, 1998; and 28,270 shares of Common
Stock issuable on the exercise of outstanding options granted on January 1,
1999, all of which are immediately exercisable. Shares of Common Stock subject
to the options granted on March 5, 1998 vest in three equal annual installments,
the first installment of which will vest on the first year anniversary of June
16, 1998. Shares of Common Stock subject to the remaining options vest twenty
five percent at the time of grant with the balance vesting in thirty-six equal
monthly installments upon the optionee's successive completion of service with
the Corporation. 13,885 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998, which will vest subject to
acceleration events. Unvested shares of Common Stock subject to all of the
foregoing options remain subject to the Corporation's right to repurchase at the
exercise price paid per share.
(7) Includes 7,800 shares of Common Stock issuable on the exercise of
outstanding options granted on January 2, 1997; 4,326 shares of Common Stock
issuable on the exercise of outstanding options granted on March 5, 1998; 11,577
shares of Common Stock issuable on the exercise of outstanding options granted
on June 16, 1998; and 10,000 shares of Common Stock issuable on the exercise of
outstanding options granted on January 1, 1999, all of which are immediately
exercisable. Shares of Common Stock subject to the options granted on March 5,
1998 vest in three equal annual installments, the first installment of which
will vest on the first year anniversary of June 16, 1998. Shares of Common Stock
subject to the remaining options vest twenty five percent at the time of grant
with the balance vesting in thirty-six equal monthly installments upon the
optionee's successive completion of service with the Corporation. 11,137 shares
of Common Stock issuable on the exercise of outstanding options granted on June
16, 1998, which will vest subject to acceleration events. Unvested shares of
Common Stock subject to all of the foregoing options remain subject to the
Corporation's right to repurchase at the exercise price paid per share.
(8) Includes 3,900 shares of Common Stock issuable on the exercise of
outstanding options granted on April 17, 1997; 46,800 shares of Common Stock
issuable on the exercise of outstanding options granted on June 2, 1997; 14,813
shares of Common Stock issuable on the exercise of outstanding options granted
on March 5, 1998; 39,638 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998; and 40,000 shares of Common Stock
issuable on the exercise of outstanding options granted on January 1, 1999, all
of which are immediately exercisable. Shares of Common Stock subject to the
options granted on March 5, 1998 vest in three equal annual installments, the
first installment of which will vest on the first year anniversary of June 16,
1998. Shares of Common Stock subject to the remaining options vest twenty five
percent at the time of grant with the balance vesting in thirty-six equal
monthly installments upon the optionee's successive completion of service with
the Corporation. 38,893 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998, which will vest subject to
acceleration events. Unvested shares of Common Stock subject to all of the
foregoing options remain subject to the Corporation's right to repurchase at the
exercise price paid per share.
(9) Includes 31,200 shares of Common Stock issuable on the exercise of
outstanding options granted on October 28, 1996; 14,813 shares of Common Stock
issuable on the exercise of outstanding options granted on
12
March 5, 1998; 39,638 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998; and 40,000 shares of Common Stock
issuable on the exercise of outstanding options granted on January 1, 1999, all
of which are immediately exercisable. Shares of Common Stock subject to the
options granted on March 5, 1998 vest in three equal annual installments, the
first installment of which will vest on the first year anniversary of June 16,
1998. Shares of Common Stock subject to the remaining options vest twenty five
percent at the time of grant with the balance vesting in thirty-six equal
monthly installments upon the optionee's successive completion of service with
the Corporation. 38,893 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998, which will vest subject to
acceleration events. Unvested shares of Common Stock subject to all of the
foregoing options remain subject to the Corporation's right to repurchase at the
exercise price paid per share.
(10) Includes 31,200 shares of Common Stock issuable on the exercise of
outstanding options granted on October 28, 1996; 14,813 shares of Common Stock
issuable on the exercise of outstanding options granted on March 5, 1998; 39,638
shares of Common Stock issuable on the exercise of outstanding options granted
on June 16, 1998; and 40,000 shares of Common Stock issuable on the exercise of
outstanding options granted on January 1, 1999, all of which are immediately
exercisable. Shares of Common Stock subject to the options granted on March 5,
1998 vest in three equal annual installments, the first installment of which
will vest on the first year anniversary of June 16, 1998. Shares of Common Stock
subject to the remaining options vest twenty five percent at the time of grant
with the balance vesting in thirty-six equal monthly installments upon the
optionee's successive completion of service with the Corporation. 38,893 shares
of Common Stock issuable on the exercise of outstanding options granted on June
16, 1998, which will vest subject to acceleration events. Unvested shares of
Common Stock subject to all of the foregoing options remain subject to the
Corporation's right to repurchase at the exercise price paid per share.
(11) Includes 15,600 shares of Common Stock issuable on the exercise of
outstanding options granted on October 28, 1996; 14,813 shares of Common Stock
issuable on the exercise of outstanding options granted on March 5, 1998; 39,638
shares of Common Stock issuable on the exercise of outstanding options granted
on June 16, 1998; and 40,000 shares of Common Stock issuable on the exercise of
outstanding options granted on January 1, 1999, all of which are immediately
exercisable. Shares of Common Stock subject to the options granted on March 5,
1998 vest in three equal annual installments, the first installment of which
will vest on the first year anniversary of June 16, 1998. Shares of Common Stock
subject to the remaining options vest twenty five percent at the time of grant
with the balance vesting in thirty-six equal monthly installments upon the
optionee's successive completion of service with the Corporation. 38,893 shares
of Common Stock issuable on the exercise of outstanding options granted on June
16, 1998, which will vest subject to acceleration events. Unvested shares of
Common Stock subject to all of the foregoing options remain subject to the
Corporation's right to repurchase at the exercise price paid per share.
(12) Consists of 7,800 shares of Common Stock issuable on the exercise of
outstanding options granted on November 1, 1996; 7,800 shares of Common Stock
issuable on the exercise of outstanding options granted on January 30, 1998; and
10,000 shares of Common Stock issuable on the exercise of outstanding options
granted on June 16, 1998, all of which are immediately exercisable. Shares of
Common Stock subject to the options granted on June 16, 1998 vest in four
successive equal annual installments over the optionee's period of service,
beginning six months after the option grant date. Shares of Common Stock subject
to the remaining options vest twenty five percent at the time of grant with the
balance vesting in three equal annual installments upon the optionee's
successive completion of service with the Corporation. Unvested shares of Common
Stock subject to all of the foregoing options remain subject to the
Corporation's right to repurchase at the exercise price paid per share.
(13) Includes 31,200 shares of Common Stock issuable on the exercise of
outstanding options granted on February 16, 1997; 14,183 shares of Common Stock
issuable on the exercise of outstanding options granted on March 5, 1998; 39,638
shares of Common Stock issuable on the exercise of outstanding options granted
on June 16, 1998; and 40,000 shares of Common Stock issuable on the exercise of
outstanding options granted on January 1, 1999, all of which are immediately
exercisable. Shares of Common Stock subject to the options granted on March
13
5, 1998 vest in three equal annual installments, the first installment of which
will vest on the first year anniversary of June 16, 1998. Shares of Common Stock
subject to the remaining options vest twenty five percent at the time of grant
with the balance vesting in thirty-six equal monthly installments upon the
optionee's successive completion of service with the Corporation. 38,893 shares
of Common Stock issuable on the exercise of outstanding options granted on June
16, 1998, which will vest subject to acceleration events. Unvested shares of
Common Stock subject to all of the foregoing options remain subject to the
Corporation's right to repurchase at the exercise price paid per share.
(14) Includes 4,368 shares of Common Stock issuable on the exercise of
outstanding options granted on October 10, 1996 and 10,000 shares of Common
Stock issuable on the exercise of outstanding options granted on June 16, 1998,
all of which are immediately exercisable. Shares of Common Stock subject to the
options granted on June 16, 1998 vest in four successive equal annual
installments over the optionee's period of service, beginning six months after
the option grant date. Shares of Common Stock subject to the remaining options
vest twenty five percent at the time of grant with the balance vesting in three
equal annual installments upon the optionee's successive completion of service
with the Corporation. Unvested shares of Common Stock subject to all of the
foregoing options remain subject to the Corporation's right to repurchase at the
exercise price paid per share.
(15) Includes 13,619 shares of Common Stock issuable on the exercise of
outstanding options, all of which are immediately exercisable and fully vested.
Also includes 10,000 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998, all of which are immediately
exercisable and which vest in four successive equal annual installments over the
optionee's period of service, beginning six months after the option grant date.
Unvested shares of Common Stock subject to the foregoing options remain subject
to the Corporation's right to repurchase at the exercise price paid per share.
(16) Includes 23,400 shares of Common Stock issuable on the exercise of
outstanding options granted on October 28, 1996 and 3,891 shares of Common Stock
issuable on the exercise of outstanding options granted on September 1, 1996,
all of which are immediately exercisable. Shares of Common Stock subject to the
foregoing options vest twenty five percent at the time of grant with the balance
vesting in three equal annual installments upon the optionee's successive
completion of service with the Corporation. Unvested shares of Common Stock
subject to the foregoing options remain subject to the Corporation's right to
repurchase at the exercise price paid per share.
Also includes 10,000 shares of Common Stock which vest in four successive
equal annual installments over the optionee's period of service, beginning six
months after June 16, 1998. Unvested shares of such Common Stock remain subject
to the Corporation's right to repurchase such shares at the exercise price paid
per share.
(17) Includes 13,619 shares of Common Stock issuable on the exercise of
outstanding options, all of which are immediately exercisable and fully vested.
Also includes 10,000 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998, all of which are immediately
exercisable and which vest in four successive equal annual installments over the
optionee's period of service, beginning six months after the option grant date
and 31,200 shares of Common Stock issuable on the exercise of outstanding
options granted on October 28, 1996 which vest twenty five percent at the time
of grant with the balance vesting in three equal annual installments upon the
optionee's successive completion of service with the Corporation, all of which
are also immediately exercisable. Unvested shares of Common Stock subject to all
of the foregoing options remain subject to the Corporation's right to repurchase
at the exercise price paid per share.
(18) Includes 9,274 shares of Common Stock issuable on the exercise of
outstanding options, all of which are immediately exercisable and fully vested.
14
Also includes 10,000 shares of Common Stock which vest in four successive
equal annual installments over the optionee's period of service, beginning six
months after June 16, 1998. Unvested shares of such Common Stock remain subject
to the Corporation's right to repurchase such shares at the exercise price paid
per share.
(19) Includes 7,600 shares of Common Stock issuable on the exercise of
outstanding options, all of which are immediately exercisable and fully vested.
Also includes 10,000 shares of Common Stock which vest in four successive
equal annual installments over the optionee's period of service, beginning six
months after June 16, 1998. Unvested shares of such Common Stock remain subject
to the Corporation's right to repurchase such shares at the exercise price paid
per share.
(20) Beneficial ownership of Common Stock includes (i) 490,338 shares issuable
on the conversion of Series B Preferred Stock, (ii) 6,129 shares issuable upon
exercise of warrants, all of which are exercisable within 60 days of the date
hereof, (iii) 49,034 shares issuable on the conversion of Series B Preferred
Stock issuable on the exercise of warrants, all of which are exercisable within
60 days of the date hereof and (iv) 204,787 shares issuable upon exercise of
Series C Warrants issued in the 1999 Financing, all of which are exercisable
within 60 days of the date hereof.
Beneficial ownership of Series B Preferred Stock includes 15,750 shares
issuable on the exercise of warrants, all of which are exercisable within
60 days of the date hereof.
(21) Beneficial ownership of Common Stock includes (i) 210,245 shares issuable
on the conversion of Series B Preferred Stock, (ii) 2,626 shares issuable upon
exercise of warrants, all of which are exercisable within 60 days of the date
hereof, (iii) 21,014 shares issuable on the conversion of Series B Preferred
Stock issuable on the exercise of warrants, all of which are exercisable within
60 days of the date hereof and (iv) 87,766 shares issuable upon exercise of
Series C Warrants issued in the 1999 Financing, all of which are exercisable
within 60 days of the date hereof.
(22) Dr. Rosenwald is Chairman, President and sole stockholder of Paramount
Capital Asset Management, Inc. ("PCAM"). PCAM is the general partner of Aries
Domestic Fund, L.P. ("Aries Domestic") and the investment manager of The Aries
Master Fund, a Cayman Island Exempted Corporation ("Aries Fund" and, together
with Aries Domestic, "Aries"). As a consequence of these relationships, each of
Dr. Rosenwald and PCAM may be deemed to share beneficial ownership of the Common
Stock and Series B Preferred Stock beneficially owned by Aries. Dr. Rosenwald is
also the Managing Member of RAQ, LLC and, accordingly, may be deemed to have
beneficial ownership of the Common Stock beneficially owned by RAQ, LLC. Dr.
Rosenwald disclaims beneficial ownership of any securities issuable upon
exercise of warrants granted to employees of Paramount Capital, Incorporated
("Paramount Capital").
PCAM's and Dr. Rosenwald's beneficial ownership of Common Stock includes
(i) 700,483 shares issuable upon conversion of Series B Preferred Stock held by
Aries, (ii) 8,755 shares issuable upon exercise of warrants exercisable for
Common Stock held by Aries, all of which are exercisable within 60 days of the
date hereof, (iii) 70,048 shares issuable upon exercise of warrants exercisable
for Series B Preferred Stock held by Aries, all of which are exercisable within
60 days of the date hereof and (iv) 292,553 shares issuable upon exercise of
Series C Warrants issued in the 1999 Financing, all of which are exercisable
within 60 days of the date hereof. Dr. Rosenwald's beneficial ownership also
includes (v) 111 shares issuable upon exercise of outstanding options held by
Dr. Rosenwald, (vi) 30,664 shares issuable upon exercise of warrants exercisable
for Common Stock held by Dr. Rosenwald and (vii) 245,318 shares issuable upon
exercise of warrants exercisable for Series B Preferred Stock, all of which are
exercisable within 60 days of the date hereof.
15
PCAM's and Dr. Rosenwald's beneficial ownership of Series B Preferred
Stock includes 22,500 shares issuable upon exercise of warrants exercisable for
Series B Preferred Stock held by Aries, all of which are exercisable within 60
days of the date hereof. Dr. Rosenwald's beneficial ownership also includes
78,798 shares issuable upon exercise of warrants exercisable for Series B
Preferred Stock held by Dr. Rosenwald.
16
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
Executive Compensation
The following Summary Compensation Table sets forth the compensation earned by
the persons who served as the Corporation's chief executive officer during the
last completed fiscal year and the four most highly compensated officers of the
Corporation other than the chief executive officer (the "Named Officers") for
services rendered in all capacities to the Corporation for each of the last
three completed fiscal years. No executive officer who would have otherwise been
included in such table resigned or terminated employment during that year.
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Securities
Name and Restricted Underlying All Other
Principal Position Year Salary Bonus Stock Award(s) Options/SARs Compensation
- ------------------ ---- ------ ----- -------------- ------------ ------------
($) ($) ($) (#)(1) ($)
Robert J. Capetola, Ph.D. 1998 $231,094 $160,000(2) -- 271,840 --
President, Chief 1997 $225,000 $50,000 (3) -- -- --
Executive Officer and 1996 $56,250 -- -- -- --
Director
James S. Kuo, MD 1998 $71,094 -- -- 30,000 87,500 (6)
President, Chief 1997 $175,000 $50,000 (4) (5) 77,831 --
Executive Officer & 1996 $102,708 $30,000 (4) -- -- --
Director
Harry G. Brittain, Ph.D. 1998 $143,667 $40,000 -- 93,344 --
Vice President 1997 $142,000 $5,000 -- -- --
1996 $23,267 -- -- -- --
Laurence B. Katz, Ph.D. 1998 $143,458 -- -- 93,344 --
Vice President 1997 $142,000 $5,000 -- -- --
1996 $17,750 -- -- -- --
Christopher J. Schaber 1998 $133,333 $12,000 -- 93,344 --
Executive Vice President 1997 $125,000 $27,340 (7) -- -- --
1996 $17,548 -- -- --
Thomas Wiswell, MD 1998 $200,000 -- -- 93,344 --
Vice President 1997 $116,667 $7,000 -- -- --
1996 -- -- -- -- --
(1) Includes options granted in connection with the Corporation's acquisition
during 1998 of the previously outstanding minority interest in ATI. Vesting of
certain such options (the "Contingent Milestone Options") is contingent upon (i)
the market capitalization of the Company (based on the average closing price and
amount of Common Stock outstanding over a 30-trading-day period) exceeding $75
million or (ii) consummation of a corporate partnering deal involving any
portfolio compound having a total value of at least $20 million.
(2) $60,000 represents 1997 bonus paid in 1998; $100,000 represents signing
bonus relating to Dr. Capetola's current employment agreement, which was
executed in June 1998.
(3) $50,000 represents 1996 signing bonus paid in 1997.
17
(4) Bonus amounts earned by Dr. Kuo with respect to 1996 and 1997 were paid to
Dr. Kuo in 1997 and 1998, respectively.
(5) In May 1996, Old Discovery issued 340,000 shares of Old Common Stock, par
value $0.001 per share ("Old Discovery Common Stock") to Dr. Kuo at a purchase
price of $0.002. At the time of issuance, there was no market for such shares.
Such shares were converted into 132,313 shares of Common Stock in connection
with the 1997 merger of Old Discovery with and into the Corporation.
(6) Represents 50% of a total $175,000 severance payment.
(7) $5,340 represents 1996 bonus paid in 1997.
Option Grants In Last Fiscal Year (1)
-------------------------------------
The following table contains information concerning the stock option grants
(including grants of Contingent Milestone Options) made to the Named Officers
for the fiscal year ended December 31, 1998. No stock appreciation rights were
granted to these individuals during such year.
Number of Securities % of Total Options Exercise
Expiration Underlying Options Granted to Employees or Base
Name Date Granted in Fiscal Year Price
---- ---------- -------------------- -------------------- --------
($/sh)(2)
--------
Robert J. Capetola, Ph.D. 3/05/08 43,010 3.77% $4.06
6/16/08 115,090 10.08% $4.44
6/16/08 59,500 5.21% $4.44
6/16/08 54,240 4.75% $4.44
James S. Kuo, MD 1/02/08 30,000 2.63% $3.94
Harry G. Brittain, Ph.D. 3/05/08 14,813 1.30% $4.06
6/16/08 39,638 3.47% $4.44
6/16/08 20,493 1.79% $4.44
6/16/08 18,400 1.61% $4.44
Laurence B. Katz, Ph.D. 3/05/08 14,813 1.30% $4.06
6/16/08 39,638 3.47% $4.44
6/16/08 20,493 1.79% $4.44
6/16/08 18,400 1.61% $4.44
Christopher J. Schaber 3/05/08 14,813 1.30% $4.06
6/16/08 39,638 3.47% $4.44
6/16/08 20,493 1.79% $4.44
6/16/08 18,400 1.61% $4.44
Thomas Wiswell, MD 3/05/08 14,813 1.30% $4.06
6/16/08 39,638 3.47% $4.44
6/16/08 20,493 1.79% $4.44
6/16/08 18,400 1.61% $4.44
(1) The options granted to Dr. Kuo during 1998 are fully vested.
18
(2) The exercise price of options issued by the Corporation may be paid in cash,
in shares of Common Stock valued at the fair market value on the exercise date
or through a cashless exercise procedure involving a same-day sale of the
purchased shares. The Corporation may also finance the exercise of options
issued by the Corporation by loaning the optionee sufficient funds to pay the
exercise price for the purchased shares.
Aggregate Option Exercises In Last Fiscal Year And Fiscal Year-End Option Values
- --------------------------------------------------------------------------------
The following table sets forth information concerning option exercises and
option holdings (including Contingent Milestone Options) for the fiscal year
ended December 31, 1998 with respect to the Named Officers. No stock
appreciation rights were exercised during such year or were outstanding at the
end of that year.
Number of Securities Underlying Value of Unexercised
Unexercised Options at FY-End In The Money Options at FY-End(1)
------------------------------- ---------------------------------
(#)
Shares Acquired
Name on Exercise(#) Exercisable Unexercisable Exercisable Unexercisable
---- -------------- ----------- ------------- ----------- -------------
Robert J. Capetola, Ph.D. 98,280 367,623 113,740 $46,202 --
56,550 (2)
James S. Kuo, MD -- 107,831 -- -- --
Harry G. Brittain, Ph.D.
15,600 (2) 14,937 134,007 -- $39,748
Laurence B. Katz, Ph.D. 31,200 (2)
31,200 (2) 30,537 134,007 $39,748 $39,748
Christopher J. Schaber
Thomas Wiswell, MD 31,200 (2) 30,537 134,007 $39,748 $39,748
15,600 (2) 34,437 149,607 $49,255 $79,496
(1) Based on the fair market value of the Common Stock at year-end, $2.63 per
share, less the exercise price payable for such shares.
(2) Options exercised prior to the 1998 Merger by management of ATI as
converted.
19
Compensation of Directors
Pursuant to the Corporation's 1998 Stock Incentive Plan, non-employee Directors
of the Corporation are entitled to receive an award of options for the purchase
of 20,000 shares of Common Stock upon their election to the Board of Directors
of the Corporation (the "Discovery Board") and an annual award of options for
the purchase of 10,000 shares of Common Stock following each annual meeting of
stockholders at which they are reelected provided they have served for at least
six months prior to such meeting. Each such option has an exercise price equal
to 60% of the fair market value of Common Stock on its date of grant and has a
maximum term of ten years, subject to earlier termination should the optionee
cease to serve as a Director of the Corporation. Each option is immediately
exercisable for all of the option shares. However, the option shares are subject
to repurchase by the Corporation, at the exercise price paid per share, in the
event of the optionee's termination of service prior to vesting in the shares.
Director options vest in four equal annual installments commencing six months
after the date of grant. In addition, each of the Corporation's Director
receives cash compensation in the amount of $1,500 per quarter, $1,000 for each
meeting of the Board of Directors attended in person and $500 for each meeting
of the Board of Directors attended telephonically. Directors are not precluded
from serving the Corporation in any other capacity and receiving compensation
therefor.
Employment Agreements
Dr. Capetola has been retained as President and Chief Executive Officer of the
Corporation for a four-year period that commenced June 16, 1998. Pursuant to Dr.
Capetola's employment agreement with the Corporation (the "Capetola Employment
Agreement"), Dr. Capetola is currently entitled to a base salary of $245,700 per
annum and a minimum increase in such base salary of 5% per annum. Dr. Capetola
is entitled to a minimum annual bonus equal to 20% of his base salary and
received a $100,000 signing bonus upon execution of the Capetola Employment
Agreement. Dr. Capetola is also entitled to a $50,000 bonus upon the execution
of each partnering or similar arrangement involving Surfaxin having a value to
the Corporation in excess of $10 million and a discretionary bonus, as
determined by the Compensation Committee, to be paid in either cash or equity,
upon the completion of Phase 2 or 3 clinical trials or the receipt of marketing
approval with respect to any portfolio compound of the Corporation.
The Corporation has agreed to provide Dr. Capetola with $2 million in life
insurance and long-term disability insurance, subject to a combined premium cap
of $15,000 per year, during the term of the Capetola Employment Agreement.
The Capetola Employment Agreement has a term of four years expiring June 15,
2002. In the event the Capetola Employment Agreement is terminated prior to such
date without cause, Dr. Capetola will be entitled to severance pay equal to 18
months of his base salary, which will not be subject to set-off for any
compensation received by Dr. Capetola from subsequent employment. Dr. Capetola
has agreed not to engage in certain activities competitive with the business of
the Corporation for a period of 18 months following any termination of his
employment with the Corporation.
Pursuant to employment agreements with the Corporation executed simultaneously
with the closing of the 1998 Merger, each of Harry G. Brittan, Ph.D., the
Corporation's Vice President of Pharmaceutical and Chemical Development until
May 1999, Christopher J. Schaber, the Corporation's Executive Vice President of
Drug Development and Regulatory Compliance, Laurence B. Katz, the Corporation's
Vice President of Project Management and Clinical Administration, and Thomas
Wiswell, MD, the Corporation's Vice President of Clinical Research, has been
retained for a term of three years ending June 15, 2001 at the following
respective base salaries currently in effect: $151,410; $153,000; $151,410; and
$204,000. Dr. Brittain was paid a $40,000 relocation bonus pursuant to the terms
of his employment agreement and Mr. Schaber is paid an annual tuition
reimbursement payment in the amount of $12,000. Each such officer is entitled to
a discretionary year-end cash bonus and a discretionary bonus to be paid in
either cash or equity upon the completion of Phase 2 or 3 clinical trials or the
receipt of
20
marketing approval with respect to any portfolio compound of the Corporation, in
each case as determined by the Compensation Committee.
In the event Dr. Wiswell's employment agreement is terminated by Dr. Wiswell for
good cause, Dr. Wiswell will be entitled to severance pay equal to six months of
his base salary, which will not be subject to set-off for any compensation
received by Dr. Wiswell from subsequent employment. In the event Dr. Brittain's,
Mr. Schaber's or Dr. Katz's employment is terminated by the Corporation without
good cause, such officer will be entitled to severance pay equal to six months
of his base salary, which will be subject to set-off for any compensation
received from subsequent employment during the severance period. Each of Dr.
Brittain, Mr. Schaber, Dr. Katz and Dr. Wiswell has agreed not to engage in
activities competitive with the business of the Corporation for a period of 18
months following any termination of his employment with the Corporation,
provided that in the case of Dr. Wiswell, such agreement will be inapplicable if
his employment is terminated by the Corporation without good cause or by Dr.
Wiswell for cause.
21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During March and April 1999, the Corporation placed with certain investors, in
transactions exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act") pursuant to Section 4(2) thereof and Regulation D
thereunder (the "1999 Financing"), shares of Common Stock and a newly created
class of warrants of the Corporation (the "Class C Warrants") for an aggregate
purchase price of $1,000,000. Investors in the 1999 Financing received, for each
$100,000 invested, 53,191 shares of Common Stock at a purchase price of $1.88
and 53,191 Class C Warrants, each of which is exercisable for the purchase of a
share of Common Stock for an exercise price of $2.30 at any time prior to the
seventh anniversary of the issuance of such warrant. Under certain
circumstances, the investors in the 1999 Financing will be entitled to receive
additional shares of Common Stock, and to have the exercise price applicable to
the Class C Warrants reduced, without the payment of further consideration. The
investors in the 1999 Financing included Aries Domestic Funds, L.P. and The
Aries Master Fund, each of which was, or was affiliated with, a 5%-or-greater
beneficial owner of the Common Stock prior to the 1999 Financing.
The Corporation leases its principal executive offices from Huei Tsai, Ph.D.,
the Vice President of Biometrics of the Corporation. Pursuant to such lease, the
Corporation pays Dr. Tsai base rent of $186,200 per annum (subject to escalation
in subsequent years) and is liable for its proportionate share of real estate
taxes levied and certain operation and maintenance expenses incurred with
respect to the building in which the Corporation's offices are located. The
Corporation believes that the terms of its lease with Dr. Tsai are comparable to
the terms that would be obtained form an unrelated third party lessor. The space
leased by the Corporation was renovated in part by a construction company owned
by the spouse of Cynthia Davis, the Controller of the Corporation. The cost of
such portion of the renovations was approximately $60,000, of which $25,000 was
paid by Dr. Tsai pursuant to the terms of the Corporation's space lease.
In October 1996, ATI entered into a consulting agreement with The Sage Group
pursuant to which The Sage Group was paid a monthly consulting fee of $7,500
through March 1998. The Corporation's consulting arrangement with The Sage Group
was modified in April 1998 to provide for a monthly payment of $4,000, and to
make such agreement terminable at any time upon 30 days' notice by the
Corporation. In October 1998, such consulting agreement was further modified to
provide that twice the amount of the reduced portion of the consulting fee
(i.e., $3,500 per month commencing with October 1998) would be paid to The Sage
Group upon consummation of a corporate partnering transaction.
In November 1997, ATI entered into a second agreement with The Sage Group
relating to the provision of introductions to and the negotiation of partnering
transactions with potential strategic partners. Upon the consummation of any
strategic partnering transaction with an entity introduced by The Sage Group.
The Sage Group will be entitled to receive options for the purchase of 19,000
shares of Common Stock at fair market value. Richard Power, a director of ATI,
is a principal and the executive director of The Sage Group.
Simultaneously with and as a condition to the closing of the merger of Old
Discovery with and into the Corporation in November 1997 (the "1997 Merger"),
the Corporation repaid to Titan Pharmaceuticals, Inc. ("Titan"), which was a 32%
stockholder of the Corporation at such time, all outstanding indebtedness of the
Corporation to Titan (including indebtedness under a convertible debenture in
the original principal amount of $1 million purchased by Titan in March 1997)
pursuant to agreements (the "Titan Agreements") reached between the Corporation
and Titan at the time the merger agreement relating to the 1997 Merger was
executed. Such indebtedness aggregated approximately $1,200,000. Also pursuant
to the Titan Agreements, upon effectiveness of the 1997 Merger, (i) all of the
capital stock of the Corporation owned by Titan was surrendered to the
Corporation for cancellation (other than certain shares of capital stock
currently held in escrow which will be cancelled upon their release from escrow)
and (ii) the Corporation's rights pursuant to the a license underlying certain
drug products that had been subject to development efforts by the Corporation
prior to the 1997 Merger were transferred to Titan in exchange for Titan's
agreement to pay a 2% royalty to the Corporation on any sales of such drug
products. The Corporation's development efforts with respect to such drug
products have since been abandoned.
22
From the Corporation's inception until the closing of the 1997 Merger, Titan
provided certain executive, administrative, financial, business development and
regulatory services to the Corporation. During the year ended December 31, 1997,
the Corporation incurred expenses in the aggregate of approximately $35,400
pursuant to the services arrangement. The Corporation has in the past used
certain facilities and equipment leased by Titan and reimbursed Titan for the
expenses incurred by Titan with respect to such use, in addition to having
entered an assignment and sublease with Titan, along with the other subsidiaries
of Titan, under such equipment lease. The Corporation's liability with respect
to such equipment lease has been terminated.
Pursuant to a private equity offering conducted during June through November
1996 (the "Unit Offering") in which Paramount Capital, Incorporated ("Paramount
Capital") acted as placement agent for Old Discovery, Old Discovery raised
aggregate gross proceeds of approximately $22,002,000. In connection with
services rendered by Paramount Capital as placement agent for the Unit Offering,
and pursuant to a placement agency agreement (the "Placement Agency Agreement")
entered into by Old Discovery and Paramount Capital, Old Discovery paid
Paramount Capital cash commissions of approximately $1,980,000 and a
non-accountable expense allowance of approximately $880,000. In addition, Old
Discovery issued placement warrants to Paramount Capital that were assumed by
the Corporation in the 1997 Merger and are currently exercisable for 220,026
shares of Series B Convertible Preferred Stock at an exercise price of $11 per
share and 85,624 shares of Common Stock at an exercise price of $0.64 per share.
Pursuant to the Placement Agency Agreement, on November 7, 1996, Old Discovery
and Paramount Capital entered into a financial advisory agreement (the
"Financial Advisory Agreement"), pursuant to which Paramount Capital received a
monthly retainer of $4,000 per month through December 1998 (all of which was
pre-paid by the Corporation), plus expenses and success fees. The Financial
Advisory Agreement was assumed by the Corporation in the 1997 Merger.
Dr. Lindsay Rosenwald, MD is the sole stockholder of PCAM (which in turn is the
general partner of the Aries Domestic Fund, L.P. ("Aries Domestic") and the
investment manager of The Aries Fund, a Cayman Island Trust ("Aries Fund" and,
together with Aries Domestic, "Aries")) and the Chairman of the Board of
Directors, Chief Executive Officer, President and sole stockholder of Paramount
Capital. Dr. Rosenwald is also a director of Titan and, prior to the 1997
Merger, was a director of the Corporation.
Mark C. Rogers, MD, a Director of the Corporation, is the President of Paramount
Capital. Steve H. Kanzer, the Chairman of the Board of Directors, was a
full-time officer of Paramount Capital and of Paramount Capital Investments, LLC
("Paramount Investments"), an affiliate of Paramount Capital, until March 1998.
The Corporation has agreed pursuant to its charter documents to indemnify its
Directors to the maximum extent permissible under the General Corporation Law of
the State of Delaware.
23
PROPOSAL II
PROPOSAL TO AMEND THE 1998 STOCK INCENTIVE PLAN
Amendment to Increase the Number of Authorized Shares under
the 1998 Stock Incentive Plan
The 1998 Stock Incentive Plan of the Corporation (the "1998 Plan") was adopted
by the Board of Directors on March 24, 1998 and was approved by the stockholders
on June 16, 1998. The 1998 Plan expires by its own terms on March 24, 2008. The
purposes of the 1998 Plan is to provide incentive to employees and consultants
of the Corporation, to encourage employee proprietary interests in the
Corporation, to encourage employees to remain in the employ of the Corporation
and to attract to the Corporation individuals of experience and ability.
Pursuant to the 1998 Plan, as of May 4, 1999, options to purchase 1,629,663
shares of Common Stock (including options to purchase 233,639 shares of Common
Stock granted to employees of the Corporation subject to stockholder approval of
this proposal) were outstanding at a weighted average price of $3.76 per share,
and 10,000 options had been exercised. As of May 4, 1999, the market value of
the shares was $1.50 per share, based upon the closing price on such date on the
Nasdaq SmallCap Market. In addition there are options to purchase 250,840 shares
of Common Stock with a weighted average price of $0.49 per share, outstanding
under Old Discovery's 1996 Stock Option/Stock Issuance Plan and options to
purchase 382,590 shares of Common Stock with a weighted average price of $0.12,
outstanding under Acute Therapeutics Incorporated ("ATI") 1996 Stock
Option/Stock Issuance Plan, all of which have been assumed by the Corporation.
Such options do not confer upon holders thereof any voting or any other rights
of a stockholder of the Corporation. The shares of Common Stock issuable upon
exercise of the options in accordance with the terms thereof will be fully paid
and nonassessable.
Currently, the number of shares authorized for issuance under the 1998 Plan is
1,406,024 shares (including 383,458 shares subject to options issued under
predecessor option plans). The Board of Directors has approved and recommended
to the stockholders that they approve an amendment to increase the number of
shares of Common Stock issuable pursuant to the 1998 Plan to 2,200,959 shares
(including such 383,458 shares) (the "Amendment"). The proposed Amended and
Restated 1998 Stock Incentive Plan is annexed to the Proxy Statement as Annex A.
As of May 18, 1999 there were 15,311,940 shares of Common Stock outstanding on a
fully diluted basis, not including 2,143,333 shares issuable upon exercise of
Class A and B warrants exercisable at $19.50 and $26.25, respectively, and
options for the purchase of units (each consisting of one share of Common Stock,
one Class A warrant and one Class B warrant) exercisable at $21.00.
The purpose of the Amendment is to permit the Board of Directors, the
Corporation's Compensation Committee and its management to continue to provide
long term, equity based incentives to present and future officers, employees and
certain directors. If the Amendment is not approved, the Corporation will not
grant any additional options to purchase shares of Common Stock under the 1998
Plan and those options that have been granted subject to approval of the
Amendment will be rescinded. In such event, the Corporation will in the future
be unable to provide further long-term equity-based incentives to directors,
officers and employees.
As of May 18, 1999, of the 1,406,024 shares of Common Stock authorized for
issuance under the 1998 Plan, no shares remained available for new grants of
options to purchase shares. Except for the above aforementioned options that
have been granted by the Board of Directors subject to stockholder approval of
the Amendment, the Corporation has not at the present time determined who will
receive the newly available options, if any, if the Amendment is approved.
24
Stock Options Granted under the 1998 Plan Since its Inception
The table below shows, as to each of Discovery's executive officers named in the
Summary Compensation Table and the various indicated individuals and groups, the
number of shares of Discovery Common Stock subject to options granted under the
1998 Plan (including the predecessor plans incorporated therein) to date,
including options granted subject to stockholder approval of the Amendment,
together with the weighted average exercise price payable per share.
================================================================================
STOCK OPTIONS
- --------------------------------------------------------------------------------
Name and Position Options Granted Weighted Average
(Number of Shares) Exercise Price
- --------------------------------------------------------------------------------
Robert J. Capetola, Ph.D., Chief Executive
Officer and Director 459,570 $3.82
- --------------------------------------------------------------------------------
All current executive officers
as a group (10 persons) 1,208,417 $3.85
- --------------------------------------------------------------------------------
All current non-employee directors
as a group (8 persons) 80,000 $2.66
- --------------------------------------------------------------------------------
Steve H. Kanzer, C.P.A., Esq., Director 50,000 $3.56
- --------------------------------------------------------------------------------
Mark C. Rogers, MD, Director 10,000 $2.66
- --------------------------------------------------------------------------------
Max Link, Ph.D., Director 10,000 $2.66
- --------------------------------------------------------------------------------
Herbert H. McDade, Jr., Director 10,000 $2.66
- --------------------------------------------------------------------------------
Milton Packer, MD, Director 10,000 $2.66
- --------------------------------------------------------------------------------
Richard G. Power, Director 10,000 $2.66
- --------------------------------------------------------------------------------
Marvin E. Rosenthale, Ph.D., Director 10,000 $2.66
- --------------------------------------------------------------------------------
David Naveh, Ph.D., Director 10,000 $2.66
- --------------------------------------------------------------------------------
Richard Sperber, Director 10,000 $2.66
- --------------------------------------------------------------------------------
All employees, including current officers
who are not executive officers,
as a group (3 persons) 8,000 $3.00
================================================================================
25
Description of the 1998 Plan
Structure
The 1998 Plan includes three separate equity incentive programs: (i) the
Discretionary Option Grant Program, (ii) the Stock Issuance Program and (iii)
the Automatic Option Grant Program. The principal features of each program are
described below.
Administration
The Compensation Committee of the Board of Directors of the Corporation serves
as the Plan Administrator with respect to the Discretionary Option Grant and
Stock Issuance Programs. However, the Board may also administer those programs
or one or more additional Board committees may be appointed to administer those
programs with respect to certain designated classes of individuals in the
Corporation's service. The term "Plan Administrator" as used in this summary
will mean the Compensation Committee, the Board and any other appointed
committee acting within the scope of its administrative authority under the 1998
Stock Incentive Plan. Administration of the Automatic Option Grant Program is
self-executing in accordance with the express provisions of such program.
Share Reserve
The initial share reserve for the 1998 Plan was 1,022,566 shares (exclusive of
383,458 options outstanding under predecessor plans) shares. In the event any
change is made to the outstanding shares of Common Stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without the
Corporation's receipt of consideration, appropriate adjustments will be made to
the securities issuable (in the aggregate and to each participant) under the
1998 Plan and to each outstanding option.
Shares subject to any outstanding options under the 1998 Plan (including options
incorporated from predecessor plans) which expire or otherwise terminate prior
to exercise are available for subsequent issuance. Unvested shares issued under
the 1998 Plan and subsequently repurchased by the Corporation pursuant to its
repurchase rights under the 1998 Plan will also be available for subsequent
issuance.
Eligibility
Officers and employees, non-employee Board members and independent consultants
and advisors in the service of the Corporation or its parent and subsidiaries
(whether now existing or subsequently established) are eligible to participate
in the Discretionary Option Grant and Stock Issuance Programs. Only non-employee
members of the Board are eligible to participate in the Automatic Option Grant
Program.
As of the date of this Proxy Statement, ten executive officers, three other
employees and eight non-employee Board members are eligible to participate in
the 1998 Plan.
Valuation
The fair market value per share of the Corporation Common Stock on any relevant
date under the 1998 Plan will be the closing selling price per share on that
date on the Nasdaq SmallCap Market. On May 4, 1999, the closing selling price
per share was $1.50.
Discretionary Option Grant Program
The options granted under the Discretionary Option Grant Program may be either
incentive stock options under the federal tax laws or non-statutory options.
Each granted option has an exercise price per share not less than 100% of
26
the fair market value per share of the Corporation's Common Stock on the option
grant date, and no granted option has a term in excess of ten years. The shares
subject to each option generally vest in a series of installments over a
specified period of service measured from the grant date.
Upon cessation of service, the optionee has a limited period of time in which to
exercise any outstanding option to the extent exercisable for vested shares. The
Plan Administrator has complete discretion to extend the period following the
optionee's cessation of service during which his or her outstanding options may
be exercised and/or to accelerate the exercisability or vesting of such options
in whole or in part. Such discretion may be exercised at any time while the
options remain outstanding, whether before or after the optionee's actual
cessation of service.
Incentive stock options granted under the Discretionary Option Grant Program may
not be assigned or transferred, except by the provisions of the optionee's will
or the laws of inheritance following his or her death. Non-statutory options may
be assigned or transferred pursuant to the optionee's will or the laws of
inheritance and may also be assigned during the optionee's lifetime, in
connection with the optionee's estate plan, to members of his or her immediate
family or to a trust established exclusively for the benefit of such
individuals.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
outstanding options under the Predecessor Plans) and to issue replacement
options with an exercise price based on the fair market value of the
Corporation's Common Stock at the time of the new grant.
Stock Issuance Program
Shares may be issued under the Stock Issuance Program for such valid
consideration under the DGCL as the Plan Administrator deems appropriate,
provided the value of such consideration, as determined by the Plan
Administrator, is not less than the fair market value of the issued shares on
the date of issuance. Shares may also be issued as a bonus for past services.
Shares issued as a bonus for past services will be fully vested upon issuance.
All other shares issued under the program will be subject to a vesting schedule
tied to the performance of service or the attainment of designated financial or
key project milestones.
The Plan Administrator has the sole and exclusive authority, exercisable upon a
participant's termination of service, to vest any or all unvested shares of the
Corporation's Common Stock at the time held by that participant, to the extent
the Plan Administrator determines that such vesting provides an appropriate
severance benefit under the circumstances.
Automatic Option Grant Program
Non-employee Board members are eligible to receive option grants under the
Automatic Option Grant Program of the 1998 Plan. Each individual who first
becomes a non-employee member of the Board of the Corporation or any of its
subsidiaries, whether through election by the stockholders or appointment by the
Board, receives, at the time of such initial election or appointment, an
automatic option grant for 20,000 shares of Common Stock. In addition, on the
date of each annual stockholders meeting, each individual who is re-elected as a
non-employee Board member is automatically granted at that meeting a stock
option to purchase an additional 10,000 shares of Common Stock, provided that
such individual has served as a non-employee Board member for at least six
months.
Each option has an exercise price per share equal to 60% of the fair market
value per share of Common Stock on the option grant date and a maximum term of
ten years measured from the grant date. The option is immediately exercisable
for all the option shares, but any purchased shares are subject to repurchase by
the Corporation, at the exercise price paid per share, upon the optionee's
cessation of Board service prior to vesting in those shares. The shares subject
to each option vest (and the Corporation's repurchase rights lapse) in four
successive equal annual
27
installments over the optionee's period of Board service, beginning six months
after the option grant date, with the first such installment vesting upon the
optionee's completion of 18 months of Board service measured from the option
grant date.
The shares subject to each outstanding automatic option grant will immediately
vest should any of the following events occur while the optionee continues in
Board service: (i) the optionee's death or permanent disability, (ii) an
acquisition of the Corporation by merger or asset sale or (iii) the successful
completion of a hostile tender offer for more than 50% of the outstanding voting
securities or a change in the majority of the Board occasioned by one or more
contested elections for Board membership. Each automatic option grant held by an
optionee upon his or her termination of Board service will remain exercisable,
for any or all of the option shares in which the optionee is vested at the time
of such termination, for up to a 12-month period following such termination
date.
Automatic option grants may be assigned by the provisions of the optionee's will
or the laws of inheritance following his or her death and may also be assigned
during the optionee's lifetime, in connection with the optionee's estate plan,
to members of his or her immediate family or to a trust established exclusively
for the benefit of such individuals.
General Provisions
Acceleration
In the event that the Corporation is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed or replaced by the successor corporation will automatically
accelerate in full, and all unvested shares under the Stock Issuance Program
will immediately vest, except to the extent the Corporation's repurchase rights
with respect to those shares are to be assigned to the successor corporation.
The Plan Administrator will have complete discretion to grant one or more
options under the Discretionary Option Grant Program which will become fully
exercisable for all the option shares in the event those options are assumed in
the acquisition and the optionee's service with the Corporation or the acquiring
entity is involuntarily terminated or the optionee resigns for good cause within
a designated period following such acquisition. The Plan Administrator will have
similar discretion to grant options which will become fully exercisable for all
the option shares should the optionee's service terminate, whether involuntarily
or through a resignation for good reason, within a designated period following a
hostile change in control of the Corporation (whether by successful tender offer
for more than 50% of the outstanding voting stock or by proxy contest for the
election of Board members). The Plan Administrator may also provide for the
automatic vesting of any outstanding shares under the Stock Issuance Program
upon similar terms and conditions.
The acceleration of vesting in the event of a change in the ownership or control
of the Corporation may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt or other efforts to
gain control of the Corporation.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options under the
Discretionary Option Grant Program or the purchase of shares under the Stock
Issuance Program. The Plan Administrator will determine the terms of any such
assistance. However, the maximum amount of financing provided any participant
may not exceed the cash consideration payable for the issued shares plus all
applicable taxes incurred in connection with the acquisition of the shares.
28
Special Tax Election
The Plan Administrator may provide one or more holders of options or unvested
shares with the right to have the Corporation withhold a portion of the shares
otherwise issuable to such individuals in satisfaction of the tax liability
incurred by such individuals in connection with the exercise of those options or
the vesting of those shares. Alternatively, the Plan Administrator may allow
such individuals to deliver previously acquired shares of the Corporation Common
Stock in payment of such tax liability.
Amendment and Termination
The Board may amend or modify the 1998 Plan in any or all respects whatsoever,
subject to any required stockholder approval. The Board may terminate the 1998
Plan at any time, and the 1998 Plan will in all events terminate upon the
expiration of its ten-year term measured from the date of its adoption by the
Board of Directors.
Tax Aspects
The Federal income tax aspects of ISOs and non-ISOs are generally described
below. An employee will generally not be taxed at the time of grant or exercise
of an ISO, although the excess of the fair market value of the stock over the
exercise price on exercise of an ISO will taken into account for alternative
minimum tax purposes. If the employee holds the shares acquired upon exercise of
an ISO until at least one year after issuance and two years after grant of the
Option, the employee will have long term capital gain (or loss) based on the
difference between the amount realized on the sale or disposition and the
exercise price of the Option. An employee who realized a capital gain in such
event will be entitled to capital gains tax treatment upon the sale or
disposition of the shares. If these holdings periods are not satisfied, then
upon disposition of the shares of Common Stock, the employee will recognize
ordinary income equal, in general, to the excess of the fair market value of the
shares at the time of exercise over the exercise price of the Option, plus
capital gain in respect of any additional appreciation. With respect to a
non-ISO, an optionee will not be taxed at the time of grant; upon exercise,
however, the optionee will generally realize compensation income to the extent
that the fair market value of the shares of Common Stock exceeds the exercise
price of the Option. The Corporation generally will have a compensation
deduction to the extent that, and at the time that, an optionee realizes
compensation income with respect to an Option. In the case of an ISO, this means
that the Corporation ordinarily is not entitled to a compensation deduction.
The Board of Directors recommends a vote FOR the approval of the Amendment to
the 1998 Plan
29
PROPOSAL III
PROPOSAL TO APPROVE STOCK PURCHASE
AGREEMENT WITH CRESCENT INTERNATIONAL LIMITED
Overview of the Transaction
The Corporation is proposing to enter into a Stock Purchase Agreement (the
"Stock Purchase Agreement") with Crescent International Limited ("Crescent").
Pursuant to the proposed Stock Purchase Agreement, the Corporation will be
entitled to sell up to $1,000,000 (the "Facility Limit") in shares of Common
Stock (the "Shares") in installments (the "Put") provided that (i) the closing
bid price of the Common Stock is equal to or greater than $1.75 a share during a
period of at least seven trading days beginning on the date the Corporation
gives notice of a Put to Crescent, (ii) the average of the closing bid price of
the Common Stock multiplied by the total volume of shares traded, during a
22-day period determined in accordance with the Stock Purchase Agreement, is
equal to or greater than $30,000 and (iii) all registration statements required
to have been filed by the Company prior to the date of the Put are then
effective. These conditions will not be applicable to an initial sale of
$150,000 in equity to Crescent (the "Early Put"). The Corporation will sell the
Shares at a price equal to 85% of the average of the lowest three consecutive
closing bid prices during the 20 trading days preceding the date of the
applicable Put Notice (the "Purchase Price").
The Corporation will be required to register for resale under the Securities Act
all shares of Common Stock sold to Crescent pursuant to the Stock Purchase
Agreement or issued to Crescent pursuant to the Put Warrants or the Incentive
Warrants (in each case as hereinafter defined). In the event any such
registration is not effected on a timely basis, the Corporation will be liable
for monetary penalties equal to 2% of the purchase price of shares of Common
Stock theretofore sold to Crescent under the Stock Purchase Agreement and not
been registered for each month during which such registration was required to be
effective and was not effective.
In consideration for the Put rights, the Corporation will issue to Crescent (i)
a five-year warrant to purchase 30,000 shares of Common Stock at an exercise
price equal to 150% of the Purchase Price of the first Put and (ii) a second
warrant at the time a notice of exercise corresponding to a cumulative use of at
least half the Facility Limit is issued by the Corporation (collectively, the
"Incentive Warrants"). In addition, at the time of the Early Put, the
Corporation will issue to Crescent a warrant (the "Put Warrant"), which will
become exercisable at $0.001 per share of Common Stock in the event the Purchase
Price, calculated as of the effective date of the registration of the shares of
Common Stock purchased in the Early Put (the "Effective Date Price"), is lower
than the Purchase Price with respect to the Early Put. The Put Warrant will be
exercisable for the number of additional shares of Common Stock to which
Crescent would have been entitled had the Effective Date Price been applied in
connection with the Early Put. The Corporation will pay Crescent (i) $23,000 on
commencement of the Stock Purchase Agreement and (ii) a fee equal to 2% of the
amount of each Put at the time of exercise.
Crescent will be granted preemptive rights relating to future private financings
until two months after the date of termination of the Stock Purchase Agreement.
Pursuant to such preemptive rights, Crescent will be given the opportunity to
purchase all equity securities proposed to be issued privately by the
Corporation prior to their sale to another purchaser.
Voting Requirements
The Corporation's Common Stock is traded on the Nasdaq SmallCap Market
("Nasdaq"). Nasdaq requires the Corporation to obtain stockholder approval in
connection with the sale or issuance of shares of its Common Stock (or
securities convertible into or exercisable for shares of Common Stock) when (i)
the number of additional shares of Common Stock being issued equals or exceeds
20% of the number of shares of Common Stock that are outstanding prior to such
sale or issuance and (ii) the shares of Common Stock will be sold at a price per
share which is less than the greater of the (x) per share book value or (y) per
share market value of the shares of Common Stock at the time of such sale or
issuance (the "Threshold Price"). The Corporation is seeking shareholder
approval of this proposal because future issuances of Shares below the Threshold
Price could, either alone or together with shares of Common Stock issued
pursuant to the prior transaction described below, exceed 20% of the outstanding
shares of Common Stock as of the relevant date for such determination.
Notwithstanding shareholder approval, the Corporation will retain full
discretion as to whether to into the Stock Purchase Agreement.
Prior Transactions Involving Potential Issuance below the Threshold Price
During March and April 1999, the Corporation placed with certain investors an
aggregate of 531,915 shares of Common Stock and Class C Warrants to purchase an
equivalent number of shares of Common Stock for an aggregate purchase price of
$1,000,000 (the "Prior Financing"). Shares of Common Stock sold in the Prior
Financing were priced above the market price of the Common Stock at the time of
the Prior Financing.
Investors in the Prior Financing are entitled to receive additional shares of
Common Stock for no additional
30
consideration and to have the exercise price applicable to the Class C Warrants
reduced if, within 150 days from the effective dates of the respective purchases
pursuant the Prior Financing, the Corporation (i) shall sell shares of Common
Stock in a private offering at less than $1.88 per share, (ii) shall sell, in a
private offering, any shares of capital stock or equity derivatives of the
Corporation that are convertible into, or exercisable for, shares of Common
Stock at a conversion price or exercise price less than $1.88 per share or (iii)
shall not have either (a) raised at least $2 million through the sale of equity
or equity derivatives or (b) entered into any corporate partnering arrangement
having a value of at least $10 million. In addition, if the average of the
closing prices for the 20 trading days preceding the date that is 150 days from
the effective date of a purchase in the Prior Financing is less than $1.88, the
investor will receive a number of additional shares of Common Stock sufficient
to reduce such investor's per share purchase price to the average of the lowest
three closing prices of the Common Stock during such period and the exercise
price applicable to such investors Class C Warrants will be reduced. In no event
will the effective purchase price of Common Stock sold in the Prior Financing be
reduced below $0.86 per share, and in no event will the exercise price
applicable to the Class C Warrants be reduced below $2.15, pursuant to any of
the foregoing adjustments. The effect of these provisions is to cap at 20% of
the outstanding Common Stock at the time of the Prior Financing the number of
shares of Common Stock that may be issued below the Threshold Price pursuant to
the Prior Financing.
The Board of Directors recommends that the stockholders vote FOR the approval of
the Stock Purchase Agreement.
PROPOSAL IV
PROPOSAL TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION
Amendment to Increase the Number of Authorized Shares Under the Restated
Certificate of Incorporation
The Board of Directors of the Corporation has approved and recommended adoption
of an amendment to the Corporation's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock available for issuance
by the Corporation from 20 million to 35 million as follows:
"RESOLVED, that in the judgment of the Board of Directors of the
Corporation, it is deemed advisable and in the best interests of the
Corporation to amend (the "Charter Amendment") its Restated Certificate of
Incorporation to increase the number of shares of Common Stock, par value
$.001 per share, of the Corporation ("Common Stock") which the Corporation
shall have the authority to issue from 20 million to 35 million.
"RESOLVED that the Chief Executive Officer and each Vice President of the
Corporation (the "Authorized Officers") be, and each of them hereby is,
authorized in the name and on behalf of the Corporation, to take all such
action and to execute the Charter Amendment and any further instruments
and documents as shall be necessary or desirable in connection therewith,
in the name and on behalf of the Corporation, with such changes therein as
the Authorized Officer executing the same shall approve as necessary or
desirable, such approval to be conclusively established by the execution
thereof; and that the Corporation be, and it hereby is, authorized and
empowered to perform its obligations thereunder.
"RESOLVED that it is recommended that the stockholders of the Corporation
approve the Charter Amendment in its entirety at the Annual Stockholders
Meeting of the Corporation to be held on June 28, 1999."
The proposed Charter Amendment to the Restated Certificate of Incorporation will
be effected by amending paragraph A. of Article FOURTH thereof to read in full
as follows:
A. Authorization.
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 40,000,000 consisting of
35,000,000 shares of common stock, par value $.001 per share (the "Common
Stock"), and 5,000,000 shares of preferred stock, par value $.001 per
share (the "Preferred Stock").
The Board of Directors may divide the Preferred Stock into any
number of series, fix the designation and number of shares of each such
series, and determine or change the designation, relative rights,
preferences, and limitations of any series of Preferred Stock. The Board
of Directors (within the limits and restrictions of any resolutions
adopted by it originally fixing the number of any shares of any series of
Preferred Stock) may increase or decrease the number of shares initially
fixed for any series, but no such decrease shall reduce the number below
the number of shares then outstanding and shares duly reserved for
issuance."
As of May 4, 1999 there were 15,311,940 shares of Common Stock outstanding on a
fully diluted basis, not including 2,143,333 issuable upon exercise of Class A
and B warrants exercisable at $19.50 and $26.25, respectively, and options for
the purchase of units (each consisting of one share of Common Stock, one Class A
warrant and one Class B warrant) exercisable at $21.00.
Purpose of the Charter Amendment
The proposed increase in the authorized shares of Common Stock is intended to
provide the Board of Directors with authority, without further action of the
stockholders, to issue the proposed additional shares of Common Stock from time
to time as the Board of Directors deems necessary, including as decribed below.
The Board of Directors believes it is desirable to have the ability to issue
such additional shares of Common Stock from time to time to provide flexibility
in addressing the financing needs of the Corporation and for general corporate
purposes. Potential uses of the additional authorized shares include equity
financings, stock dividends or distributions, acquisitions of additional
businesses and the issuance of options pursuant to the Corporation's stock
option plans. Without limitation of the foregoing, the additional shares may be
issued in connection with (i) private financings that the Corporation may seek
to effect pursuant to exemptions from the registration requirements of the
Securities Act and (ii) strategic partnering transactions involving the issuance
of securities pursuant to exemptions from the registration requirements of the
Securities Act. The Corporation presently intends to sell through a placement
agent that may be deemed to be an affiliate of the Corporation between two
million dollars and six million dollars in units, each unit consisting of shares
of Common Stock and five-year warrants for the purchase of Common Stock. Such
securities, if issued, will not be registered under the Securities Act and will
not be able to be offered or sold in the United States absent such registration
or an exemption therefrom. It is anticipated that the proceeds of any such
transactions will be used to fund the research and development activities in
which the Corporation is engaged and for general working capital purposes,
although it is also possible that the Corporation may use the proceeds of any
such transactons for additional purposes.
In the absence of a proportionate increase in the Corporation's earnings and
book value, an increase in the aggregate number of outstanding shares of the
Corporation caused by the issuance of the additional shares would dilute the
earnings per share (including projected future earnings per share) and book
value per share of all outstanding shares of the Corporation's Common Stock. If
such factors were reflected in the price per share of the Common Stock, the
potential realizable value of a stockholder's investment could be adversely
affected. An issuance of additional shares by the Corporation, including the
contemplated private placement, could therefore have an effect on the potential
realizable value of a stockholder's investment. The Common Stock has no
preemptive rights to purchase additional shares.
The proposed increase in the authorized number of shares of Common Stock could
have other effects on the Corporation's stockholders depending upon the exact
nature and circumstances of any actual issuances of authorized but unissued
shares. The increase could deter takeovers, in that additional shares could be
issued (within the limits imposed by applicable law) in one or more transactions
that could make a change in control or takeover of the Corporation more
difficult. For example, additional shares could be issued by the Corporation so
as to dilute the stock ownership or voting rights of persons seeking to obtain
control of the Corporation. Similarly, the issuance of additional shares to
certain persons allied with the Corporation's management could have the effect
of making it more difficult to remove the Corporation's current management by
diluting the stock ownership or voting rights of persons seeking to cause such
removal.
The Board of Directors recommends that the stockholders vote FOR the approval of
the Charter Amendment.
31
VOTING PROCEDURES
The presence, in person or by proxy, of at least a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting is necessary to
establish a quorum for the transaction of business. Shares represented by
proxies pursuant to which votes have been withheld from any nominee for
director, or which contain one or more abstentions or broker "non-votes," are
counted as present for purposes of determining the presence or absence of a
quorum for the Annual Meeting. A "non-vote" occurs when a broker or other
nominee holding shares for a beneficial owner votes on one proposal, but does
not vote on another proposal because the broker does not have discretionary
voting power and has not received instructions from the beneficial owner.
The holders of shares of Series B Preferred Stock and Common Stock shall vote
together as one class on all matters submitted to a vote of the stockholders of
the Corporation at the Annual Meeting. On each matter properly brought before
the Annual Meeting, holders of shares of Common Stock will be entitled to one
vote for each share of Common Stock held as of the Record Date and holders of
Series B Preferred Stock shall be entitled to approximately 3.1132 votes for
each share of Series B Preferred Stock held as of the Record Date.
Proposal I. Directors are elected by a plurality of the votes cast, in person or
by proxy, at the Annual Meeting. The nine nominees receiving the highest number
of affirmative votes of the shares present, in person or represented by proxy,
and voting on the election of directors at the Annual Meeting will be elected as
directors. Shares represented by all proxies received by the Board of Directors
and not so marked as to withhold authority to vote for any individual nominee or
for all nominees will be voted (unless one or more nominees are unable to serve)
for the election of the nominees. Where the stockholder properly withheld
authority to vote for a particular nominee or nominees, such stockholder's
shares will not be counted toward such nominee's achievement of a plurality.
Proposal II. The proposal to approve the amendment to the 1998 Plan to increase
the number of shares of Common Stock available for issuance under the 1998 Plan
must be approved by the vote of a majority of the votes cast, whether in person
or by proxy. Abstentions therefore will have the same effect as a vote against
the proposal.
Proposal III. The proposal to approve the proposed Stock Purchase Agreement
between the Corporation and Crescent must be approved by the vote of a majority
of the votes cast, whether in person or by proxy. Abstentions therefore will
have the same effect as a vote against the proposal.
Proposal IV. The proposal to approve the proposed Charter Amendment must be
approved by the vote of a majority of the votes represented by all outstanding
shares of Common Stock and Series B Preferred Stock. Abstentions therefore will
have the same effect as a vote against the proposal.
Other Matters. For all other proposals described in this Proxy Statement and
submitted to stockholders at the Annual Meeting, the affirmative vote of the
majority of shares present, in person or represented by proxy, and voting on
that matter is required for approval. Abstentions are included in the number of
shares present or represented and voting on each matter and, therefore, with
respect to votes on a specific proposal, will have the effect of negative votes.
Shares subject to broker "non-votes" are not considered to have been voted for
the particular matter and have the practical effect of reducing the number of
affirmative votes required to achieve a majority for such matter by reducing the
total number of shares from which the majority is calculated. If any other
matter not discussed in this Proxy Statement should be presented at the Annual
Meeting upon which a vote may be properly taken, shares represented by all
proxies received by the Board of Directors will be voted with respect thereto in
accordance with the judgment of the persons named in the proxies.
32
INDEPENDENT AUDITORS
The Corporation expects that a representative of Richard A. Eisner & Company,
LLP, the Corporation's independent auditors, will attend the 1999 Annual
Meeting. Such representative will have the opportunity to make a statement, if
he or she desires, and will be available to respond to appropriate questions
from stockholders.
OTHER MATTERS
The Board of Directors is not aware of any matters which will be brought before
the Annual Meeting other than those specifically set forth herein. If any other
matter properly comes before the Annual Meeting, it is intended that the persons
named in and acting under the enclosed proxy or their substitutes will vote
thereon in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the Proxy Statement to be
furnished to all stockholders entitled to vote at the next annual meeting of
stockholders of the Corporation must be received at the Corporation's principal
executive offices not later than January 18, 2000. In order to curtail
controversy as to the date on which a proposal was received by the Corporation,
it is suggested that proponents submit their proposals by Certified Mail, Return
Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation. Proxies
will be solicited principally through the mails. Further solicitation of proxies
from some stockholders may be made by directors, officers and regular employees
of the Corporation personally, by telephone, telegraph or special letter. No
additional compensation, except for reimbursement of reasonable out-of-pocket
expenses will be paid for any such further solicitation. In addition, the
Corporation may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Corporation
registered in the name of a nominee. The Corporation will reimburse such persons
for their reasonable out-of-pocket costs.
ANNUAL REPORT ON FORM 10-KSB
Copies of the Corporation's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998, as filed with the Securities and Exchange Commission,
are available to stockholders without charge upon written request addressed to
Cynthia Davis, Controller, Discovery Laboratories, Inc., 350 South Main Street,
Suite 307, Doylestown, Pennsylvania 18901.
Your cooperation in giving this matter your immediate attention and returning
your proxy is appreciated.
By Order of the Board of Directors,
/s/ Evan Myrianthopoulos
------------------------
Evan Myrianthopoulos
Corporate Secretary
Doylestown, Pennsylvania
May 28, 1999
33
ANNEX A
DISCOVERY LABORATORIES, INC.
AMENDED AND RESTATED 1998 STOCK INCENTIVE PLAN
----------------------------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This Amended and Restated 1998 Stock Incentive Plan (the "Plan") is
intended to promote the interests of Discovery Laboratories, Inc., a Delaware
corporation, by providing eligible persons with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the
Corporation.
The Plan amends and restates the Corporation's 1998 Stock Incentive
Plan and shall serve as the successor to the Corporation's 1995 Stock Option
Plan and 1993 Stock Option Plan (the "Predecessor Plans"). No further option
grants shall be made under the Predecessor Plans after the Initial Approval
Date. All options outstanding under the Predecessor Plans on the Initial
Approval Date are incorporated into the Plan and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program under which eligible
non-employee board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Board shall have authority to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders but
may delegate such authority to the Primary Committee. Administration of the
Discretionary Option Grant and Stock Issuance Programs with respect to all other
persons eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer those programs with respect to all such
persons.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
2
(ii) non-employee members of the Board or the board of directors of
any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide services
to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
C. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. Only non-employee members of the Board shall be eligible to
participate in the Automatic Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
reserved for issuance over the term of the Plan shall not exceed 2,200,959
shares. Such authorized share reserve is comprised of (i) the number of shares
which remained available for issuance under the Predecessor Plans as of the
Initial Approval Date, comprised of the shares subject to the outstanding
options incorporated into the 1998 Stock Incentive Plan upon its initial
approval by the stockholders of the Corporation and outstanding options issued
subsequent to the Initial Approval Date, but not in excess of the additional
shares which were otherwise available for future grant under the Predecessor
Plans as of the Initial Approval Date (403,162 shares in the aggregate), plus
(ii) an additional 1,022,566 shares which became issuable under the 1998 Stock
Incentive Plan on the Initial Approval Date plus (iii) an additional increase of
775,231 shares authorized by the Board on December 7, 1998, subject to approval
by the Corporation's stockholders at the 1999 Annual Meeting.
B. No one person participating in the Plan may receive options,
separately
3
exercisable stock appreciation rights and direct stock issuances for more than
250,000 shares of Common Stock in the aggregate per calendar year, beginning
with the 1998 calendar year.
C. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plans) shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. However, should the exercise
price of an option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an option or the vesting of a stock issuance under the Plan,
then the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option is exercised
or which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance.
D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted options, separately exercisable stock appreciation rights and direct
stock issuances under this Plan per calendar year, (iii) the number and/or class
of securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan and (v) the number and/or class of
securities and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
4
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Five and
the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period necessary
to avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to (a)
a Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
5
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation
of Service for any reason shall remain exercisable for such period of time
thereafter as shall be determined by the Plan Administrator and set forth
in the documents evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee at
the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which the
option has not been exercised. However, the option shall, immediately upon
the Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
(vi) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to remain outstanding.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the limited
exercise period otherwise in effect for that option to such greater period
of time as
6
the Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
7
B. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding option shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation (or
parent thereof) or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation (or parent thereof), (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Plan Administrator at the time of the option grant. The determination of
option comparability under clause (i) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options upon the occurrence of a Corporate Transaction, whether or
not those options are to be assumed or replaced in the Corporate
8
Transaction.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. Notwithstanding Section III.A. of this Article Two, the Plan
Administrator shall have the discretionary authority, exercisable either at the
time the option is granted or at any time while the option remains outstanding,
to provide for the automatic acceleration of one or more outstanding options
under the Discretionary Option Grant Program upon the occurrence of a Corporate
Transaction, whether or not those options are to be assumed or replaced in the
Corporate Transaction. In addition, the Plan Administrator may provide that one
or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Corporate Transaction shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full, even in the event the options are to be
assumed.
F. The Plan Administrator shall have full power and authority
exercisable, either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program in the
event the Optionee's Service terminates by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those options are assumed
or replaced and do not otherwise accelerate. Any options so accelerated shall
remain exercisable for fully-vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1)-year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may provide that one or more of the Corporation's
outstanding repurchase rights with respect to shares held by the Optionee at the
time of such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
G. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program upon (i) a
Change in Control or (ii) the termination of the Optionee's Service by reason of
an Involuntary Termination within a designated period (not to exceed eighteen
(18)
9
months) following the effective date of such Change in Control. Each option so
accelerated shall remain exercisable for fully-vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one
(1)-year period measured from the effective date of the Optionee's cessation of
Service. In addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Change in Control or Involuntary Termination shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full.
H. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution therefor new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant
to selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable upon
such terms as the Plan Administrator may establish, to elect between the
exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
10
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares
of Common Stock valued at Fair Market Value on the option surrender date,
in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (a) five (5) business days after the receipt of the rejection
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual
holding one or more options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option to
the Corporation, to the extent the option is at the time exercisable for
vested shares of Common Stock. In return for the surrendered option, the
Optionee shall receive a cash distribution from the Corporation in an
amount equal to the excess of (A) the Take-Over Price of the shares of
Common Stock which are at the time vested under each surrendered option (or
surrendered portion thereof) over (B) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the option surrender date.
(iii) The balance of the option (if any) shall remain outstanding
and exercisable in accordance with the documents evidencing such option.
11
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Five, shares of
Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance Program may,
in the discretion of the Plan Administrator, be fully and immediately vested
upon issuance or may vest in one or more installments over the Participant's
period of Service or upon attainment of specified performance objectives.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
12
3. The Participant shall have full stockholder rights with respect to
any shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one
or more unvested shares of Common Stock issued under the Stock Issuance Program
or should the performance objectives not be attained with respect to one or more
such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant's purchase-money
indebtedness), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender
and cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
B. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase right remains outstanding, to provide for the automatic
termination of one or more of those outstanding rights and the immediate vesting
of the shares of Common Stock subject to such rights upon the occurrence of a
Corporate Transaction.
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall
13
automatically terminate in whole or in part, and the shares of Common Stock
subject to those terminated rights shall immediately vest, in the event the
Participant's Service should terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those repurchase rights are
assigned to the successor corporation (or parent thereof).
D. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest upon (i) a Change in Control or (ii) the termination of the
Participant's Service by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
14
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as a non-employee
Board member at any time after the Plan Effective Date shall automatically be
granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 20,000 shares of Common Stock, provided that individual has
not previously been a director of or in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of the 1998 Annual Meeting (the Stockholder Approval
Date) and on the date of each Annual Stockholders Meeting held after such date,
each individual who is to continue to serve as an Eligible Director, whether or
not that individual is standing for re-election to the Board at that particular
Annual Meeting, shall automatically be granted a Non-Statutory Option to
purchase 10,000 shares of Common Stock, provided, with respect to each Annual
Stockholders Meeting held after the 1998 Annual Meeting, such individual has
served as a non-employee board member for at least six (6) months. There shall
be no limit on the number of such 10,000-share option grants any one Eligible
Director may receive over his or her period of Board Service, and non-employee
board members who have previously been a director of or in the employ of the
Corporation (or any Parent or Subsidiary) shall be eligible to receive one or
more such annual option grants over their period of continued Board Service.
B. Exercise Price. 1. The exercise price per share shall be equal to
sixty percent (60%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board Service
prior to vesting in those shares. Each option grant shall vest,
15
and the Corporation's repurchase right shall lapse, in a series of four (4)
successive equal annual installments upon the Optionee's completion of each year
of Board Service over the four (4)-year period commencing six (6) months
following the option grant date, with the first such installment to vest
eighteen (18) month after the option grant date.
E. Termination of Board Service. The following provisions shall govern
the exercise of any options held by the Optionee at the time the Optionee ceases
to serve as a Board member:
(i) The Optionee (or, in the event of the Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board Service in
which to exercise each such option.
(ii) During the twelve (12)-month post-service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable at the
time of the Optionee's cessation of Board Service.
(iii) Should the Optionee cease to serve as a Board member by reason
of death or Permanent Disability, then all shares at the time subject to
the option shall immediately vest so that such option may, during the
twelve (12)-month exercise period following such cessation of Board
Service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-month
post-service exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised. However, the
option shall, immediately upon the Optionee's cessation of Board Service
for any reason other than death or Permanent Disability, terminate and
cease to be outstanding to the extent the option is not otherwise at that
time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction,
16
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for all or any portion of those
shares as fully-vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
17
ARTICLE FIVE
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at the
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
18
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan Effective
Date. Options may be granted under the Discretionary Option Grant or Automatic
Option Grant Program at any time on or after the Plan Effective Date. However,
no options granted under the Plan may be exercised, and no shares shall be
issued under the Plan, until the Stockholder Approval Date. If the Stockholder
Approval Date does not occur within twelve (12) months after the Plan Effective
Date, then all options previously granted under this Plan shall terminate and
cease to be outstanding, and no further options shall be granted and no shares
shall be issued under the Plan.
B. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan on the Stockholder Approval Date which do not otherwise contain such
provisions.
C. The Plan shall terminate upon the earliest of (i) March 24, 2008
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Programs and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held
19
in escrow, together with interest (at the applicable Short Term Federal Rate)
for the period the shares were held in escrow, and such shares shall thereupon
be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service or Board Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person) or
of the Optionee or the Participant, which rights are hereby expressly reserved
by each, to terminate such person's Service or Board Service at any time for any
reason, with or without cause.
20
APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
grant program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Board Service shall mean the performance of services for the
Corporation by a person in the capacity of a non-employee member of the board of
directors.
D. Change in Control shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
E. Code shall mean the Internal Revenue Code of 1986, as amended.
F. Common Stock shall mean the Corporation's common stock.
G. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
A-1
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
H. Corporation shall mean Discovery Laboratories, Inc., a Delaware
corporation, and its successors.
I. Discretionary Option Grant Program shall mean the discretionary
option grant program in effect under the Plan.
J. Eligible Director shall mean a non-employee Board member who is not
a 10% Stockholder.
K. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq SmallCap
Market or Nasdaq National Market, then the Fair Market Value shall be
deemed equal to the closing selling price per share of Common Stock on the
date in question, as such price is reported on such market or any successor
system. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
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N. Hostile Take-Over shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
P. Initial Approval Date shall mean June 16, 1998, the date on which
the Corporation's 1998 Stock Incentive Plan was initially approved by the
stockholders of the Corporation.
Q. Involuntary Termination shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's duties and responsibilities
or the level of management to which Optionee reports, (B) a reduction in
Optionee's level of compensation (including base salary, fringe benefits
and target bonus under any corporate performance-based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
Optionee's place of employment by more than fifty (50) miles, provided and
only if such change, reduction or relocation is effected by the Corporation
without Optionee's consent.
R. Misconduct shall mean, unless otherwise determined by the Plan
Administrator and recorded in the agreements evidencing the option grant or
stock issuance, the commission of any act of fraud, embezzlement or dishonesty
by the Optionee or Participant, any unauthorized use or disclosure by such
person of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).
S. 1934 Act shall mean the Securities Exchange Act of 1934, as
amended.
A-3
T. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
U. Optionee shall mean any person to whom an option is granted under
the Discretionary Option Grant or Automatic Option Grant Program.
V. Parent shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
W. Participant shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
X. Permanent Disability or Permanently Disabled shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
Program, Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.
Y. Plan shall mean the Corporation's Amended and Restated 1998 Stock
Incentive Plan, as set forth in this document.
Z. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
AA. Plan Effective Date shall mean March 24, 1998, the date on which
the Plan was adopted by the Board.
BB. Predecessor Plans shall mean the Corporation's 1995 Stock Option
Plan and 1993 Stock Option Plan as in effect immediately prior to the Plan
Effective Date hereunder.
CC. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
A-4
DD. Secondary Committee shall mean a committee of one (1) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
EE. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. Service shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance
GG. Stock Exchange shall mean either the American Stock Exchange or
the New York Stock Exchange.
HH. Stockholder Approval Date shall mean the date on which the Plan is
approved by the Corporation's stockholders.
II. Stock Issuance Agreement shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
JJ. Stock Issuance Program shall mean the stock issuance program in
effect under the Plan.
KK. Subsidiary shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
LL. Take-Over Price shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
MM. Taxes shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
NN. 10% Stockholder shall mean the owner of stock (as determined under
Code
A-5
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
A-6
ANNEX A
PRELIMINARY COPY
PROXY
Discovery Laboratories, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Steven H. Kanzer
and Robert J. Capetola, and each of them, with full power of substitution, as
proxies to represent and vote all shares of Common Stock and Series B
Convertible Preferred Stock of Discovery Laboratories, Inc. (the "Corporation")
which the undersigned would be entitled to vote if personally present at the
Annual Meeting of Stockholders of the Corporation to be held on June 28, 1999,
at 10:00 a.m. Eastern Standard Time at Roberts Sheridan & Kotel, P.C. 12 East
49th Street 30th Floor, New York, N.Y., and at all adjournments or postponements
thereof, upon matters set forth in the Notice of Annual Meeting of Stockholders
and Proxy Statement dated May 28, 1999, a copy of which has been received by the
undersigned. Each share of Common Stock is entitled to one vote. Each share of
Series B Convertible Preferred Stock is entitled to 3.1132 votes. The proxies
are further authorized to vote, in their discretion, upon such other business as
may properly come before the meeting or any adjournments or postponements
thereof. Each of Items 1 through 3 is proposed by the Corporation.
Proposal Number 1 - Election of Directors to serve until the next Annual Meeting
of Stockholders and until their respective successors have been duly elected and
qualified, or until their earlier resignation or removal.
FOR ALL NOMINEES listed below WITHHOLD AUTHORITY
to vote for all nominees (except as marked to the
listed below: [ ] contrary below): [ ]
(INSTRUCTIONS: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Nominees: Robert J. Capetola, Ph.D.; Steve H. Kanzer, Esq.; Max Link, Ph.D.;
Richard G. Power; Marvin E. Rosenthale, Ph.D.; Herbert H. McDade, Jr.; Mark C.
Rogers, M.D.; David Naveh, Ph.D.; Richard Sperber
Proposal Number 2 - Consideration and approval of an amendment to the
Corporation's 1998 Stock Incentive Plan (the "1998 Plan") that increases the
number of shares of Common Stock available for issuance under the 1998 Plan from
1,406,024 to 2,200,959 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal Number 3 - Consideration and approval of the Stock Purchase Agreement
between the Corporation and Crescent International Limited.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(continued on reverse side)
(continued)
Proposal Number 4 - Consideration and approval of an amendment to the
Corporation's Restated Certificate of Incorporation.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE NOMINEES SET FORTH ABOVE AS DIRECTORS, FOR THE APPROVAL
OF THE AMENDMENT TO THE 1998 PLAN, FOR THE APPROVAL OF THE STOCK PURCHASE
AGREEMENT AND FOR THE AMENDMENT OF THE CORPORATION'S RESTATED CERTIFICATE OF
INCORPORATION.
The undersigned hereby acknowledges receipt of the
Notice of Annual Meeting, Proxy Statement and Annual
Report of Discovery Laboratories, Inc.
____________________________
Signature of Stockholder Date
____________________________
Signature of Stockholder Date
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME OR NAMES APPEAR ON THE BOOKS OF THE
CORPORATION. JOINT OWNERS SHOULD EACH SIGN PERSONALLY. ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN MUST GIVE FULL TITLE AS SUCH. IF A
CORPORATION OR PARTNERSHIP, THE SIGNATURE SHOULD BE THAT OF AN AUTHORIZED PERSON
WHO SHOULD STATE HIS OR HER TITLE.
Please Date, Sign and Mail in the Enclosed Reply Envelope