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
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(3) Filing Party: not applicable
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(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 Friday, June 16, 2000
------------------------------------------
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 Friday, June 16, 2000, at 9:00
a.m. Eastern Standard Time at the New York Athletic Club at 180 Central Park
South, New York, NY 10019 for the following purposes:
I. To elect six 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 2,200,959 shares of Common Stock to
3,000,000 shares of Common Stock; (ii) and to increase the
number of shares of Common Stock subject to options
automatically granted to non-employee members of the Board on
the date of each annual stockholders meeting from 10,000
shares to 20,000 shares, commencing on the date of the 2000
annual stockholders meeting; and (iii) to provide that the
shares subject to options granted to non-employee members of
the Board on or after the date of the 1998 annual stockholders
meeting shall vest on the first anniversary of the date of
grant instead of vesting in four equal annual installments
commencing 18 months after the date of grant;
III. 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 at the close of
business on May 3, 2000 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 15, 2000
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.
2
Discovery Laboratories, Inc.
350 South Main Street, Suite 307
Doylestown, PA 18901
(215) 340-4699
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
June 16, 2000
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 Friday, June 16, 2000 at 9 a.m. Eastern Standard Time at
the New York Athletic Club, 180 Central Park South, New York, NY 10019. It is
expected that this Proxy Statement and the form of proxy will be mailed to
stockholders on or about May 15, 2000.
Only holders of shares of Common Stock, par value $.001 per share (the "Common
Stock") of the Corporation of record as of May 3, 2000 (the "Record Date") will
be entitled to vote at the Annual Meeting and any adjournments or postponements
thereof. As of April 19, 2000, there were 20,707,804 shares of Common Stock
outstanding. Each share of Common Stock outstanding as of the Record Date will
be entitled to one vote.
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. 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 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 2,200,959 to 3,000,000; to increase the number of shares of
Common Stock subject to options automatically granted to non-employee members of
the Board on the date of each annual stockholders meeting from 10,000 shares to
20,000 shares, commencing on the date of the 2000 annual stockholders meeting;
and to provide that the shares subject to options granted to non-employee
members of the Board on or after the date of the 1998 annual stockholders
meeting shall vest on the first anniversary of the date of grant instead of
vesting in four equal annual installments commencing 18 months after the date of
grant. 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.
3
PROPOSAL I
ELECTION OF DIRECTORS
At the Annual Meeting, six 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. 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.; Max Link, Ph.D.; Richard G.
Power; Marvin E. Rosenthale, Ph.D.; Herbert McDade, Jr.; and Mark C. Rogers, MD.
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 4 times in person and 4 times telephonically during
the fiscal year ended December 31, 1999. Each incumbent director attended, in
person or by telephone, at least 75% of 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 Compensation Committee met 2 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 Sperber and Richard Power, 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. Mr Sperber will not serve as a director
of the Company after the 2000 annual meeting and another independent director
will be selected to replace him on the Audit Committee.
Compensation Committee. The Board of Directors also has a Compensation
Committee, of which Marvin E. Rosenthale, Ph.D.; and Herbert McDade, Jr. are
members. The Compensation Committee reviews and makes recommendations concerning
executive and general compensation matters and administers the 1998 Option Plan
together with the Board of Directors.
Nominating Committee. The Nominating Committee, consisting of Robert J.
Capetola, Ph.D.; 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 Executive Officers. The
Nominating Committee does not consider nominees recommended by stockholders.
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, 1999 and representations made by the Reporting Persons, the
Corporation believes that during fiscal year 1999 its Reporting Persons complied
with all substantive filing
4
requirements under Section 16(a) of the Exchange Act except Robert J. Capetola
filed a Form 4 related to the purchase of shares of Common Stock one business
day late.
Nominees for Election to the Board of Directors
The following table sets forth the names and ages, as of May 3, 2000, 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. 50 Chief Executive Officer
Max Link, Ph.D. 59 Director
Richard G. Power 70 Director
Marvin E. Rosenthale, Ph.D. 66 Director
Herbert McDade, Jr. 73 Director
Mark C. Rogers, MD 57 Director
Robert J. Capetola, Ph.D. has served as President, Chief Executive Officer and a
Director of the Company since the Company completed the acquisition of the then
outstanding minority interest in Acute Therapeutics, Inc. ("ATI") through the
merger of a transitory subsidiary of the Company with and into ATI (the "1998
Merger"), and prior to that time served as Chairman and Chief Executive Officer
of ATI, which was 60% owned by Discovery Laboratories Inc., from its inception
in October 1996. From February 1994 to May 1996, Dr. Capetola was President of
Delta Biotechnology, a subsidiary of Ohmeda Pharmaceutical Products Division, a
division of The BOC Group ("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 from Hahnemann Medical College.
Max Link, Ph.D., has served as a Director of Discovery since the effective time
of the 1997 Merger and was a Director of Old Discovery from October 1996 until
such time. 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 Discovery since the effective time of
the 1998 Merger 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 Discovery since the
effective time of the 1998 Merger 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
5
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, 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
the Philadelphia College of Pharmacy.
Herbert H. McDade, Jr. has served as a Director of Discovery since the effective
time of the 1997 Merger 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, M.D. has served as a Director of Discovery since the effective
time of the 1997 Merger and was a Director of Old Discovery from June 1996 until
such time. Dr. Rogers is currently the President of Paramount Capital Asset
Management, Inc. ("PCAM"), Paramount Capital Investments, LLC ("PCI") and
Paramount Capital, Inc. PCAM serves as the general partner of the Aries Domestic
Fund, L.P. and the Aries Domestic Fund II, L.P. and the investment manager to
the Aries Master Fund. Dr. Rogers also serves as the chairman of the Board of
Directors of Genta Corporation (Nasdaq: GNTA) and as a director of Cypress
Bioscience, Inc. (Nasdaq: CYPB). Dr. Rogers also serves on the Board of
Directors of several other privately-held companies. Dr. Rogers also serves as
the Chairman of Genini Management Partners, LLC, which serves as the investment
manager of Gemini Master Fund and the general partner of each of Gemini Domestic
Fund, L.P. and Gemini Domestic Fund II, L.P. Dr. Rogers was formerly Senior Vice
President, Corporate Development and Chief Technology Officer of the
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 16 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. In 1996, Dr. Rogers was elected to the National Institute of
Medicine of the National Academy of Sciences and was subsequently chosen to
chair the Fulbright Scholar selection committee. Dr. Rogers also serves on the
board of a number of public companies in the field of health care as well as
being involved in a number of charitable activities. 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.
6
EXECUTIVE OFFICERS
The following table sets forth the names and positions of the executive officers
of the Corporation:
Name Age Position with the Corporation
Robert J. Capetola, Ph.D. 50 President, Chief Executive Officer and Director
Cynthia Davis 31 Controller
Lisa Mastroianni 38 Director of Clinical Research
Evan Myrianthopoulos 35 Vice President, Finance and Secretary
Christopher J. Schaber 33 Executive Vice President, Drug Development and Regulatory Compliance
Huei Tsai, Ph.D. 60 Vice President, Biometrics
Thomas E. Wiswell, MD 48 Executive Vice President, Clinical Research and Development
Robert J. Capetola, Ph.D. has served as President, Chief Executive Officer and a
Director of the Company since the Company completed the acquisition of the then
outstanding minority interest in Acute Therapeutics, Inc. ("ATI") through the
merger of a transitory subsidiary of the Company with and into ATI (the "1998
Merger"), and prior to that time served as Chairman and Chief Executive Officer
of ATI, which was 60% owned by Discovery Laboratories Inc., from its inception
in October 1996. From February 1994 to May 1996, Dr. Capetola was President of
Delta Biotechnology, a subsidiary of Ohmeda Pharmaceutical Products Division, a
division of The BOC Group ("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 from Hahnemann Medical College.
Cynthia Davis has served as Controller of Discovery since the effective time of
the 1998 Merger and was Controller of ATI from October 1996 until such time. Ms.
Davis was an office manager with ERD Environmental Group from September 1991
until September 1996. Ms. Davis received her A.A. degree from the Lansdale
School of Business in May 1989.
Lisa Mastroianni, R.N., has served as Director of Clinical Research of the
Company since the effective time of the 1998 Merger. Prior to such time, she
held such position with ATI commencing in January of 1997. Prior to joining the
Company, Ms. Mastroianni was employed from November of 1994 to November of 1996
by Ohmeda 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 its cardiovascular clinical research department
and was responsible for monitoring Phase 3 lipid studies and managing and
monitoring Phase 1 congestive heart failure studies. Ms. Mastroianni has her
Bachelors degree in Nursing from Bloomfield College and 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 Company since
the effective time of the 1998 Merger. He served as Chief Financial Officer of
Discovery from December 1997 until June 1998 and as Chief Operating Officer of
Discovery from the effective time of the 1997 Merger 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.
7
Christopher J. Schaber has served as Executive Vice President, Drug Development
and Regulatory Compliance since April 1999. Previously, he held the position of
Vice President of Regulatory Affairs and Quality Assurance of the Company 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 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 2000. 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 Company
since the effective time of the 1998 Merger. 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. 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 (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, M.D., has served as Executive Vice President, Clinical
Research and Development since May 1999. Previously, he held the position of
Vice President of Clinical Research of the Company since the effective time of
the 1998 Merger 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 of Medicine in Bethesda, Maryland. He retired as a Lieutenant
Colonel from the U.S. Army in June 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.
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.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 19, 2000, certain information
regarding the beneficial ownership of the Common Stock (i) by each person known
by the Company to be the beneficial owner of more than five percent of the
outstanding shares of the Common Stock, (ii) by each director, (iii) by each of
named officers (as defined under "Compensation and Other Information Concerning
Directors and Officers"), and (iv) by all officers and directors of the Company
as a group. The address of all individuals is c/o Discovery Laboratories, 350
South Main Street, Suite 307, Doylestown, Pennsylvania 18901, unless otherwise
noted.
Name and Address of Beneficial Number of Percentage of Class
Owner (1) Shares of Beneficially Owned (1)
--------- Common Stock ----------------------
------------
Robert J. Capetola, Ph.D.(2) 1,051,209 4.83%
Steve H. Kanzer, CPA, Esq. (3) 235,530 1.12%
Corporate Technology Dev.
787 Seventh Avenue, 48th Floor
New York, New York 10019
Evan Myrianthopoulos (4) 253,933 1.21%
8
Name and Address of Beneficial Number of Percentage of Class
Owner (1) Shares of Beneficially Owned (1)
--------- Common Stock ----------------------
------------
Cynthia Davis (5) 137,206 *
Lisa Mastroianni (6) 74,640 *
Thomas E. Wiswell, M.D. (7) 235,218 1.12%
Christopher J. Schaber (8) 275,161 1.31%
Huei Tsai, Ph.D. (9) 244,744 1.17%
Marvin E. Rosenthale, Ph.D. (10) 35,600 *
6908 Queenferry Circle
Boca Raton, Florida 33496
Richard G. Power (11) 119,960 *
The Sage Group
245 Route 22 West, Suite 304
Bridgewater, New Jersey 08807
Herbert H. McDade, Jr. (12) 33,619 *
1421 Partridge Place North
Boynton Beach, Florida 33436
Max Link, Ph.D. (13) 66,819 *
230 Central Park West, Apt.14A
New York, New York 10024
Mark C. Rogers, M.D. (14) 69,683 *
Paramount Capital Incorporated
787 Seventh Avenue, 48th Floor
New York, New York 10019
Richard Sperber (15) 20,000 *
11 Island Avenue, Suite 403
Miami Beach, FL 33139
David Naveh, Ph.D. (16) 24,000 *
Bayer Corporation
800 Dwight Way
P.O. Box 1986
Berkeley, California 94701-1986
Finsbury Worldwide Pharmaceutical 1,652,892 7.39%
Trust (17)
767 Third Avenue 6th Floor
New York, NY 10017
Caduceus Capital II, L.P. (17) 330,578 1.57%
767 Third Avenue 6th Floor
New York, NY 10017
Winchester Global Trust Company LTD. As 1,322,314 6.00%
Trustee for Caduceus Capital Trust (17)
Williams House, 20 Reid Street
Hamilton, HM11 Bermuda
9
Name and Address of Beneficial Number of Percentage of Class
Owner (1) Shares of Beneficially Owned (1)
--------- Common Stock ----------------------
------------
OrbiMed Advisors, LLC (17) 3,305,784 13.77%
767 Third Avenue 6th Floor
New York, NY 10017
The Aries Master Fund, a Cayman Island 1,181,262 5.40%
Exempted Company (18)
c/o Mees Pierson (Cayman) Ltd.
P.O. Box 2003
British American Centre, Phase 3
Dr. Roy's Drive
George Town, Grand Cayman
Aries Domestic Fund, L.P. (19) 503,984 2.38%
787 Seventh Avenue, 48th Floor
New York, New York 10019
RAQ, LLC (20) 1,001,739 4.61%
787 Seventh Avenue, 48th Floor
New York, NY 10019
Paramount Capital Asset 1,685,246 7.53%
Management, Inc. (21)
787 Seventh Avenue, 48th Floor
New York, NY 10019
Lindsay A. Rosenwald, M.D. (22) 3,480,109 13.14%
787 Seventh Avenue, 48th Floor
New York, NY 10019
All Company directors and officers as a 2,877,322 13.89%
group (15 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. Shares of Common 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; 59,500 shares of Common Stock issuable on the exercise
of outstanding options granted on June 16, 1998; 54,240 shares of Common Stock
issuable on the exercise of outstanding options granted on June 16, 1998,
187,730 shares of Common Stock issuable on the exercise of outstanding options
granted on January 1, 1999, and 62,500 shares of Common Stock issuable on the
exercise of outstanding options granted on September 30, 1999, all of which are
immediately exercisable and fully vested.
(3) 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, all of which are immediately exercisable. Does not
include an additional 35,413 shares of Common Stock owned by certain family
members of Mr. Kanzer, as to which Mr. Kanzer disclaims beneficial ownership.
10
(4) 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;
40,000 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 Company. Unvested shares of Common Stock subject to such options remain
subject to the Company's right to repurchase at the exercise price paid per
share. Also includes 18,400 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1999, 20,493 shares of Common Stock
issuable on the exercise of outstanding options granted on June 16, 1999, and
60,000 shares of Common Stock issuable on the exercise of outstanding options
granted on September 30, 1999, all of which are fully vested and immediately
exercisable. Does not include an additional 1,906 shares of Common Stock owned
by Mr. Myrianthopoulos' brother, as to which Mr. Myrianthopoulos disclaims
beneficial ownership.
(5) 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; 6,125 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, and 30,000 shares of Common Stock issuable on the
exercise of outstanding options granted on September 30, 1999, 7,760 shares of
Common Stock issuable on the exercise of outstanding options granted on June 16,
1998 and 60,000 shares of Common Stock issuable on the exercise of outstanding
options granted on September 30, 1999, most 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
granted on January 1, 1999 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 Company. Unvested shares of Common
Stock subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
(6) 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; 5,985 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998; 5,152 shares of Common Stock
issuable on the exercise of outstanding options granted on June 16, 1998, 10,000
shares of Common Stock issuable on the exercise of outstanding options granted
on January 1, 1999, and 22,000 shares of Common Stock issuable on the exercise
of outstanding options granted on September 30, 1999, most 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 issued January 1, 1999 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 Company. Unvested shares of
Common Stock subject to all of the foregoing options remain subject to the
Company's right to repurchase at the exercise price paid per share.
(7) Includes 15,600 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; 20,493 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998; 18,400 shares of Common Stock
issuable on the exercise of outstanding options granted on June 16, 1998 and
20,000 shares of Common Stock issuable on the exercise of outstanding options
granted on January 1, 1999, and 22,500 shares of Common Stock issuable on the
exercise of outstanding options granted on September 30, 1999, most 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 issued January 1, 2000 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 Company. Unvested shares of
Common Stock subject to all of the foregoing options remain subject to the
Company's right to repurchase at the exercise price paid per share.
11
(8) Includes 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; 20,493
shares of Common Stock issuable on the exercise of outstanding options granted
on June 16, 1998; 18,400 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998, 40,000 shares of Common Stock
issuable on the exercise of outstanding options granted on January 1, 1999, and
42,500 shares of Common Stock issuable on the exercise of outstanding options
granted on September 30, 1999, most 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 granted January 1,
2000 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 Company. Unvested shares of Common Stock subject to all of
the foregoing options remain subject to the Company'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 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; 20,493 shares of Common Stock issuable on the exercise of
outstanding options granted on June 16, 1998; 18,400 shares of Common Stock
issuable on the exercise of outstanding options granted on June 16, 1998, 40,000
shares of Common Stock issuable on the exercise of outstanding options granted
on January 1, 1999, and 38,000 shares of Common Stock issuable on the exercise
of outstanding options granted on September 30, 1999, most 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 granted January 1, 2000 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 Company. Unvested shares of
Common Stock subject to all of the foregoing options remain subject to the
Company's right to repurchase at the exercise price paid per share.
(10) 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, and 10,000 shares of Common Stock issuable on the
exercise of outstanding options granted on June 28, 1999, all of which are
immediately exercisable pursuant to the Amendment to the 1998 Plan proposed,
shares of Common Stock subject to options granted on June 16, 1998 and June 28,
1999 vest on the first anniversary of the date of grant instead of vesting 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 Company. Unvested shares of Common
Stock subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
(11) Includes 4,368 shares of Common Stock issuable on the exercise of
outstanding options granted on October 10, 1996, 10,000 shares of Common Stock
issuable to Sage Partners, of which Mr. Power is a partner, on the exercise of
outstanding options granted on June 16, 1998 and 10,000 shares of Common Stock
issuable to Sage Partners on the exercise of outstanding options granted on June
28, 1999, all of which are immediately exercisable. Also includes 78,000 shares
of common stock held in the name of Sage Partners. Also includes 615 shares of
Common Stock issuable on the exercise of Class E warrants. Pursuant to the
Amendment to the 1998 Plan proposed, shares of Common Stock subject to options
granted on June 16, 1998 and June 28, 1999 vest on the first anniversary of the
date of grant instead of vesting 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
Company. Unvested shares of Common Stock subject to all of the foregoing options
remain subject to the Company's right to repurchase at the exercise price paid
per share.
(12) Includes 13,619 shares of Common Stock issuable on the exercise of
outstanding options, all of which are immediately exercisable. Also includes
10,000 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 June 28, 1999, all of which are
immediately. Pursuant to the Amendment to the 1998 Plan proposed, shares of
Common Stock subject to options granted on June 16, 1998 and June 28, 1999 vest
on the first anniversary of the date of grant instead of vesting in four
successive equal annual installments over the optionee's
12
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
Company's right to repurchase at the exercise price paid per share.
(13) 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 Company. Unvested shares of Common Stock subject
to the foregoing options remain subject to the Company's right to repurchase at
the exercise price paid per share. Also includes 10,000 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 June 28, 1999, all of which are immediately exercisable and pursuant
to the Amendment to the 1998 Plan proposed vest on the first anniversary of the
date of grant instead of vesting in four successive equal annual installments
over the optionee's period of service, beginning six months after the option
grant date Unvested shares of such Common Stock remain subject to the Company's
right to repurchase such shares at the exercise price paid per share.
(14) Includes 13,619 shares of Common Stock issuable on the exercise of
outstanding options, all of which are immediately exercisable. Also includes
10,000 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 June 28, 1999, all of which are
immediately exercisable and pursuant to the Amendment to the 1998 Plan proposed,
vest on the first anniversary of the date of grant instead of vesting 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 Company, all of which are also immediately
exercisable. Unvested shares of Common Stock subject to all of the foregoing
options remain subject to the Company's right to repurchase at the exercise
price paid per share.
(15) Includes 10,000 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 June 28, 1999, all of
which are immediately exercisable. Pursuant to the Amendment to the 1998 Plan
proposed, shares of Common Stock subject to options granted on June 16, 1998 and
June 28, 1999 vest on the first anniversary of the date of grant instead of
vesting in four successive equal annual installments over the optionee's period
of service, beginning six months after the option grant date. Unvested shares of
such Common Stock remain subject to the Company's right to repurchase such
shares at the exercise price paid per share.
(16) Includes 10,000 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 June 28, 1999, all of
which are immediately exercisable and pursuant to the Amendment to the 1998 Plan
proposed, vest on the first anniversary of the date of grant instead of vesting
in four successive equal annual installments over the optionee's period of
service, beginning six months after the option grant date. Unvested shares of
such Common Stock remain subject to the Company's right to repurchase such
shares at the exercise price paid per share.
(17) OrbiMed Advisors, LLC is the general partner of and investment manager of
Finsbury Worldwide Pharmaceutical Trust, Caduceus Capital II, and Winchester
Global Trust Company. As a consequence of these relationships, the shares
beneficially owned includes shares owned by these entities, as to which OrbiMed
Advisors may be deemed to share beneficial ownership.
(18) Beneficial ownership of Common Stock includes (i) 55,163 shares issuable
upon exercise of warrants, all of which are exercisable within 60 days of the
date hereof, all of which are exercisable within 60 days of the date hereof, all
of which are exercisable within 60 days of the date hereof.
(19) Beneficial ownership of Common Stock includes (i) 2,626 shares issuable
upon exercise of warrants, all of which are exercisable within 60 days of the
date hereof, (ii) 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.
(20) Dr. Lindsay Rosenwald is 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.
13
(21) Dr. Rosenwald is Chairman and sole stockholder of Paramount Capital Asset
Management (PCAM). PCAM is the general partner of Aries Domestic and the
investment manager of Aries Fund. As a consequence of these relationships, each
of Dr. Rosenwald and PCAM may be deemed to share beneficial ownership of the
Common Stock beneficially owned by Aries.
(22) PCAM's and Dr. Rosenwald's beneficial ownership of Common Stock includes
1,686,119 shares beneficially owned by The Aries Master Fund, Aries Domestic
Fund, L.P. and Aries Domestic Fund II. Dr. Rosenwald's beneficial ownership also
includes 1,001,739 shares of Common Stock held by RAQ, LLC. Dr. Rosenwald's
beneficial ownership also includes (i) 275,982 shares issuable upon exercise of
warrants exercisable for Common Stock held by him, (ii) 168,802 shares of Common
Stock issuable under Unit Purchase Options from 1999 financing, (iii) 348,341
shares of Common Stock issuable upon exercise of warrants granted to Paramount
Capital in connection with the 2000 financing.
14
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
Executive Compensation
The following Summary Compensation Table sets forth the compensation earned for
each of the last three completed fiscal years by (i) the person who served as
the Corporation's chief executive officer during the last completed fiscal year,
(ii) the four most highly compensated officers of the Corporation other than the
chief executive officer who were serving as executive officers at the end of the
last completed fiscal year and whose total annual salary and bonus equaled or
exceeded $100,000 and (iii) the executive officer who was not serving as an
executive officer at the end of the last fiscal year and whose total annual
salary and bonus equaled or exceeded $100,000, but would have been included
under (ii) above if they were (collectively the "Named Officers") for services
rendered in all capacities to the Corporation.
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Restricted Securities
Stock Underlying All Other
Name and Principal Position Year Salary Bonus Award(s) Options/SARs (1) Compensation
--------------------------- ---- ------ ----- -------- ---------------- ------------
($) ($) ($) (#) ($)
Robert J. Capetola, Ph.D. 1999 $245,700 $63,700(2) -- 312,730 --
President, Chief Executive 1998 $231,094 $160,000(3) -- 271,840 --
Officer and Director 1997 $225,000 $50,000(4) -- -- --
Laurence B. Katz, Ph.D. (5) 1999 $105,446 $10,000(2) -- -- --
Vice President 1998 $143,458 -- -- 93,344 --
1997 $142,000 $5,000 -- -- --
Evan Myrianthopoulos 1999 $110,500 $40,000(2) -- 138,893 --
Vice President 1998 $105,000 $20,000(6) -- 30,000 --
1997 $80,000 $10,000 -- 11,675 --
Christopher J. Schaber 1999 $159,417 $64,000(2) -- 125,000 --
Executive Vice President 1998 $133,333 $12,000 -- 93,344 --
1997 $125,000 $27,340 (7) -- -- --
Huei Tsai 1999 $147,000 $29,000(2) -- 78,000 --
Vice President 1998 $140,000 $5,000 -- 93,344 --
1997 $122,500 $10,000 -- -- --
Thomas Wiswell, MD 1999 $204,000 $23,000(2) -- 85,000 --
Executive Vice President 1998 $200,000 -- -- 93,344 --
1997 $116,667 $7,000 -- -- --
(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. Also includes
options granted in 1999 that vest based on meeting certain performance
criteria.
(2) Includes 1998 bonus paid in 1999; and 1999 bonus paid in 1999.
(3) $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.
15
(4) $50,000 represents 1996 signing bonus paid in 1997.
(5) Mr. Katz' employment with the Company terminated in September 1999.
(6) $20,000 represents 1997 bonus paid in 1998.
(7) Includes $5,340 representing 1996 bonus paid in 1997.
Option Grants In Last Fiscal Year
---------------------------------
The following table contains information concerning the stock option grants
(including grants of Contingent Milestone Options) made to the Named Officers
for the fiscal year ended December 31, 1999. No stock appreciation rights were
granted to these individuals during such year.
Number of Exercise or
Securities % of Total Options Base Price
Underlying Granted to Employees ----------
Name Expiration Date Options Granted in Fiscal Year ($/sh) (1)
---- --------------- --------------- ----------- ----------
Robert J. Capetola, Ph.D. 01/01/09 187,730 18.07% $3.00
09/29/09 125,000 12.03% $1.38
Laurence B. Katz, Ph.D. 01/01/09 40,000 3.85% $3.00
Evan Myrianthopoulos 01/01/09 40,000 3.85% $3.00
06/27/09 20,493 1.97% $4.44
06/27/09 18,400 1.77% $4.44
09/29/09 60,000 5.78% $1.38
Christopher J. Schaber 01/01/09 40,000 3.85% $3.00
09/29/09 85,000 8.18% $1.38
Huei Tsai 01/01/09 40,000 3.85% $3.00
09/29/09 38,000 3.66% $1.38
Thomas Wiswell, MD 01/01/09 40,000 3.85% $3.00
09/29/09 45,000 4.33% $1.38
(1) 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.
16
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, 1999 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 In The
Unexercisable Options at FY-End Money Options at FY-End (1)
------------------------------- ---------------------------
(#)
Shares
Acquired on Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------ --------- ------------ -------------- ------------ ----------------
Robert J. Capetola, Ph.D. -- 367,623 238,740 $49,470 $175,000
Laurence B. Katz, Ph.D. 15,600 $23,102 -- -- -- --
Evan Myrianthopoulos -- 54,175 126,393 $26,502 $84,000
Christopher J. Schaber -- 69,351 180,193 $84,176 $119,000
Huei Tsai -- 69,351 133,193 $84,176 $53,200
Thomas Wiswell, MD -- 73,251 155,793 $90,828 $103,368
(1) Based on the fair market value of the Common Stock at year-end, $2.78 per share, less the exercise price payable for such
shares.
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. Pursuant to the Amendment, the annual award
commencing in 2000 will be options to purchase 20,000 shares. 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. Currently, director options vest in four equal
annual installments commencing six months after the date of grant. If the
Amendment is approved, each option, including options previously granted, will
vest on the first anniversary of 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. Each of Richard Sperber, David Naveh, and
Steve Kanzer, who served as director until the 2000 annual stockholder meeting,
will on the date of the 2000 annual meeting of stockholders, be granted an
option to purchase 20,000 shares, and all options previously granted to them
will be immediately vested.
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.
17
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 Christopher J. Schaber, the
Corporation's Executive Vice President of Drug Development and Regulatory
Compliance; Thomas Wiswell, MD, the Corporation's Executive Vice President of
Clinical Research and Development; and Huei Tsai, Ph.D., the Corporation's Vice
President of Biometrics, have been retained for a term of three years ending
June 15, 2001 at the following respective base salaries currently in effect:
$195,000; $207,500; and $150,000. 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 3 clinical trials or the
receipt of marketing approval with respect to any portfolio compound of the
Corporation, in each case as determined by the Compensation Committee. Dr. Tsai
receives an annual payment of $5,000 for the length of his Agreement in lieu of
receiving any health care, dental and life insurance benefits.
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 Mr. or Mr.
Tsai'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 Mr. Schaber, Dr.
Wiswell, Dr. Tsai, and Mr. Myrianthopoulos 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.
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.
In July 1999, Paramount Capital Incorporated ("Paramount") acted as placement
agent in connection with a private placement of $2,450,000 of Common Stock and
Class D Warrants. The Placement Agent received a commission of approximately
$171,500 and 202,479 unit purchase options exercisable at $1.33 per share for
202,479 shares of Common Stock and 202,479 Class D Warrants exercisable for
Common Stock at $1.33 per share.
In March 2000, Paramount acted as placement agent in connection with a private
placement (the "2000 Financing") of approximately $19 million of Common Stock
and Class E Warrants. The Placement Agent received a commission of approximately
$1,320,795 and warrants exercisable at $8.113 per share for 348,341 shares of
Common Stock. Richard Power, a Company board member, participated in the 2000
Financing with an investment of $20,000.
18
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, a predecessor of the Comapny 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. Following the March 2000 private placement, The Sage
Group received a payment in the amount of $52,000 as final payment in lieu of
payment following a corporate partnering transaction.
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 during the 1999
fiscal year, 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.
19
PROPOSAL II
PROPOSAL TO AMEND THE 1998 STOCK INCENTIVE PLAN
Amendment to Increase the Number of Authorized Shares
- -----------------------------------------------------
Under the 1998 Stock Incentive Plan and
- ---------------------------------------
to Modify the Terms of the Automatic Grants to Directors
- --------------------------------------------------------
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
1998 Plan was amended pursuant to an amendment approved by the stockholders on
June 28, 1999 to increase the number of shares authorized under the Plan from
1,406,024 to 2,200,959. The purposes of the 1998 Plan is to provide incentive to
employees, consultants, and non-employee Board members of the Corporation, to
encourage employee and director 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 April 28, 2000, options to purchase 1,709,206
shares of Common Stock were outstanding at a weighted average price of $2.85 per
share, and 186,400 options had been exercised. As of April 19, 2000, the market
value of the shares was $5.34 per share, based upon the closing price on such
date on the Nasdaq SmallCap Market. In addition there are options to purchase
81,724 shares of Common Stock with a weighted average price of $0.46 per share,
outstanding under Old Discovery's 1996 Stock Option/Stock Issuance Plan and
options to purchase 270,140 shares of Common Stock with a weighted average price
of $0.51 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
2,200,959 shares; and non-employee Board Members receive automatic annual grants
on the date of each annual stockholders meeting of options to purchase 10,000
shares at an exercise price equal to 60% of the fair market value of Common
Stock on the option grant date. The Board of Directors has approved and
recommended to the stockholders that they approve an amendment to (i) increase
the number of shares of Common Stock issuable pursuant to the 1998 Plan to
3,000,000 shares; (iii) increase the number of shares subject to options
automatically granted annually to non-employee Board Members from 10,000 shares
to 20,000 shares, commencing with the 2000 annual stockholders' meeting; and
(iii) provide that the shares subject to options granted to non-employee members
of the Board on or after the 1998 annual stockholders meeting shall vest on the
first anniversary of the date of grant instead of vesting in four equal
installments commencing 18 months after the date of grant (the "Amendment"). The
proposed Amended and Restated 1998 Stock Incentive Plan is annexed to the Proxy
Statement as Annex A.
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 have
only 305,354 shares available for grant under the 1998 Plan and thereafter will
not be able to grant additional options under the 1998 Plan. In addition,
non-employee directors will receive an automatic annual grant of options to
purchase 10,000 shares of Common Stock instead of 20,000 shares and the options
granted to non-employee members of the Board would vest on the first anniversary
of the date of grant instead of vesting in four equal annual installments
commencing 18 months after the date of grant. In such event, the Corporation's
long-term equity-based incentives to directors, officers, and employees would be
adversely affected.
New Plan Benefits
- -----------------
As of April 28, 2000, of the 2,200,959 shares of Common Stock authorized for
issuance under the 1998 Plan, 305,354 shares remained available for new grants
of options to purchase shares. Except for the additional options to be granted
automatically to non-employee members of the Board of Directors subject to
stockholder approval of the Amendment; no benefits or amounts have been
allocated out of the increase in authorized shares under the 1998 Plan pursuant
to the proposed amendment; nor are any such benefits or amounts now
determinable. In addition, options to purchase 150,000 shares of Common stock
granted to non-employee members of the board in 1998 and 1999 will be effected
by the Amendment and will effectively be fully vested on the first anniversary
of the date of
20
the grant. For comparison purposes, please refer to the grants and awards that
were made in fiscal year 1999 under the 1998 Plan, as shown in the 1999 stock
option grants table on page 16. In addition, to the data shown in that table, in
1999, 859,893 stock options were granted to all current officers as a group;
99,000 stock options were granted to all other employees as a group; and 70,000
stock options were granted to non-employee directors.
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
An aggregate of 1,406,024 shares were initially reserved for issuance under the
1998 Plan and an additional 794,935 shares were reserved for issuance under the
amendment to the 1998 Plan approved in 1999. An additional 799,041 shares will
be reserved for issuance under the proposed Amendment. 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, 7 executive officers, 5 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 April 19, 2000, the closing selling price
per share was $5.34.
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 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
21
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 additional shares of Common Stock, provided that such
individual has served as a non-employee Board member for at least six months.
Under the 1998 Plan prior to the Amendment, each non-employee Board member
received an automatic grant of 10,000 shares on the date of each stockholders'
meeting. Under the Amendment, the amount of the automatic grant will be
increased to 20,000 shares commencing on the date of the 2000 annual
stockholders' meeting date.
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. Prior to the
Amendment, the 1998 Plan provided that the shares subject to each option vest
(and the Corporation's repurchase rights lapse) in four successive equal annual
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. Pursuant to the Amendment, options granted on or after the date of
the 1998 annual stockholders' meeting will vest on the first anniversary of the
date of grant.
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.
22
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.
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
23
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
24
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.
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.
Proposal I. Directors are elected by a plurality of the votes cast, in person or
by proxy, at the Annual Meeting. The six 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 must be
approved by the vote of a majority of the votes cast, whether in person or by
proxy.
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 are not counted as present in determining whether a
majority of the shares present and entitled to vote on a matter have approved
the matter.
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.
INDEPENDENT AUDITORS
The Corporation expects that a representative of Richard A. Eisner & Company,
LLP, the Corporation's independent auditors, will attend the 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 14, 2001. 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.
25
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, 1999, 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 15, 2000
26
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.
27
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,
(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 3,000,000
shares. Such authorized share reserve is comprised of (i) the number of shares
which remained available for issuance under the
28
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, and approved by the Corporation's stockholders at the 1999 Annual Meeting,
plus (iv) an additional increase of 799,041 shares authorized by the Board on
March 17, 2000, subject to approval by the Corporation's shareholders at the
2000 Annual Meeting.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 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.
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.
29
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.
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:
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(i) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service
from the limited exercise period otherwise in effect for that option to
such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price 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.
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
31
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 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.
32
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) 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.
(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:
33
(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.
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.
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.
34
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 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.
35
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 that such amount shall be
increased to 20,000 shares for grants on or after the date of the 2000 Annual
Meeting, with respect to each Annual Stockholders 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 or 20,000-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. With respect to options granted on or after
the date of the 1998 annual stockholders' meeting, each option shall vest, and
the Corporation's repurchase right shall lapse, on the first anniversary of the
date of grant.
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
36
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, 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.
37
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.
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.
38
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 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.
39
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 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.
40
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.
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.
T. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
41
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.
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.
42
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
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).
43
ANNEX B
PROXY
Discovery Laboratories, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Robert J. Capetola,
with full power of substitution, as proxies to represent and vote all shares of
Common 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 16, 2000, at 9:00
a.m. Eastern Standard Time at New York Athletic Club at 180 Central Park South,
New York, NY 10019 and at all adjournments or postponements thereof, upon
matters set forth in the Notice of Annual Meeting of Stockholders and Proxy
Statement dated May 15, 2000, a copy of which has been received by the
undersigned. Each share of Common Stock is entitled to one vote. 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 and 2 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; Max Link, Ph.D.; Richard G. Power; Marvin E.
Rosenthale, Ph.D.; Herbert H. McDade, Jr.; and Mark C. Rogers, M.D..
Proposal Number 2 - Consideration and approval of an amendment to the
Corporation's 1998 Stock Incentive Plan (the "1998 Plan") that (i) increases the
number of shares of Common Stock available for issuance under the 1998 Plan from
2,200,959 to 3,000,000 shares; (ii) increases the number of shares of Common
Stock subject to options automatically granted to non-employee members of the
Board on the date of each annual stockholders' meeting from 10,000 shares to
20,000 shares, commencing on the date of the 2000 annual stockholders' meeting;
and (iii) provides that the shares subject to options granted to non-employee
members of the Board on or after the date of the 1998 annual stockholders'
meeting shall vest on the first anniversary of the date of the grant instead of
vesting in four equal annual installments commencing 18 months after the date of
grant.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(continued on reverse side)
44
(continued)
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, AND FOR THE
APPROVAL OF THE AMENDMENT TO THE 1998 PLAN.
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
45