[LOGO]
LIGAND (R) PHARMACEUTICALS
April 11, 2002
Dear Stockholder:
You are cordially invited to attend the annual meeting of the
stockholders of Ligand Pharmaceuticals Incorporated, to be held on Wednesday,
May 15, 2002 at 9:00 a.m. local time at the La Jolla Marriott located at 4240 La
Jolla Village Drive, La Jolla, California 92037.
Details of the business to be conducted at the annual meeting are
given in the attached notice of annual meeting and proxy statement.
YOUR VOTE IS IMPORTANT, so even if you plan to attend the meeting, I
encourage you to sign, date and return the enclosed proxy promptly in the
accompanying reply envelope. This will ensure your vote is counted whether or
not you are able to attend. If you decide to attend the annual meeting and wish
to change your proxy vote, you may do so automatically by voting in person at
the annual meeting.
We look forward to seeing you at the annual meeting.
/S/DAVID E. ROBINSON
David E. Robinson
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
San Diego, California
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested to
complete, sign and date the enclosed proxy or vote by telephone as described in
the enclosed proxy materials as promptly as possible. If you are voting by mail,
please return it in the enclosed envelope. You do not need to add postage if
mailed in the United States.
[LOGO]
LIGAND (R) PHARMACEUTICALS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, MAY 15, 2002
Dear Stockholder:
The annual meeting of stockholders of Ligand Pharmaceuticals
Incorporated (the "Company") will be held at the La Jolla Marriott located at
4240 La Jolla Village Drive, La Jolla, California 92037 on Wednesday, May 15,
2002 at 9:00 a.m., for the following purposes:
1. To elect a Board of Directors for the following year. Management
has nominated the following persons for election at the meeting:
David E. Robinson, Henry F. Blissenbach, Alexander D. Cross, John
Groom, Irving S. Johnson, Carl C. Peck and Michael A. Rocca.
2. To approve a new 2002 Stock Option/Stock Issuance Plan and to
authorize shares for issuance under that plan.
3. To approve a new 2002 Employee Stock Purchase Plan, and to
authorize shares for issuance under that plan.
4. To ratify the selection of Deloitte & Touche LLP as independent
accountants for the fiscal year ending December 31, 2002.
5. To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
Stockholders of record at the close of business on March 20, 2002 will
be entitled to vote at the annual meeting. The stock transfer books of the
Company will remain open between the record date and the date of the meeting. A
list of stockholders entitled to vote at the annual meeting will be available
for inspection at the offices of the Company. Whether or not you plan to attend
the annual meeting in person, please sign, date and return the enclosed proxy in
the envelope provided. If you attend the annual meeting and vote by ballot, your
proxy will be revoked automatically and only your vote at the annual meeting
will be counted. The prompt return of your proxy will assist us in preparing for
the annual meeting.
By Order of the Board of Directors
/S/WARNER R. BROADDUS
Warner R. Broaddus
VICE PRESIDENT, GENERAL COUNSEL & SECRETARY
San Diego, California
April 11, 2002
TABLE OF CONTENTS
Introduction.................................................................1
Proposal No. 1, Election of Directors........................................2
Business Experience of Directors-Nominees...............................2
Board Meetings and Committees ..........................................4
Director Compensation ..................................................4
Recommendation of the Board of Directors ...............................5
Proposal No. 2, Approval of the 2002 Stock Option/Stock Issuance Plan........6
Plan Structure..........................................................6
Issuable Shares.........................................................6
Eligibility.............................................................7
Valuation...............................................................8
Discretionary Grant Program.............................................8
Stock Issuance Program..................................................9
Automatic Option Grant Program..........................................9
Director Fee Option Grant Program.......................................10
General Plan Provisions.................................................10
Amendment and Termination...............................................12
Stock & Option Awards to Officers & Directors...........................13
New Plan Benefits.......................................................13
Federal Income Tax Consequences.........................................14
Accounting Treatment....................................................15
Stockholder Approval....................................................15
Recommendation of the Board of Directors ...............................16
Proposal No. 3, Approval of the 2002 Employee Stock Purchase Plan............17
Share Reserve and Plan Administration...................................17
Offering Periods and Purchase Rights....................................17
Purchase Price..........................................................18
Eligibility and Participation...........................................18
Special Limitations.....................................................19
Change in Ownership.....................................................19
Share Proration.........................................................20
Amendment and Terminations..............................................20
Federal Tax Consequences ...............................................20
Accounting Treatment....................................................21
Stock Issuances to Officers and Directors...............................21
New Purchase Plan Benefits..............................................21
Stockholder Approval....................................................21
Recommendation of the Board of Directors ...............................22
Proposal No. 4, Ratification of Independent Auditors.........................23
Audit Fees..............................................................23
Financial Information Systems Design and Implementation Fees............23
All Other Fees..........................................................23
Change of Independent Accountants in October 2000.......................23
Recommendation of the Board of Directors ...............................24
Stock Ownership..............................................................25
Executive Officers...........................................................26
Executive Compensation and Other Information.................................28
Relationships and Independence of the Compensation Committee Members....32
Compensation Committee Report...........................................32
Audit Committee Report..................................................35
Performance Graph.......................................................36
Certain Relationships and Related Transactions...............................37
Section 16(a) Beneficial Ownership Reporting Compliance......................38
Deadline for Proposals for Next Annual Meeting...............................38
Annual Report and Form 10-K..................................................38
Solicitation of Proxies......................................................39
Other Business...............................................................39
Appendix A, Audit Committee Charter..........................................A-1
Appendix B, 2002 Stock Incentive Plan........................................B-1
Appendix C, 2002 Employee Stock Purchase Plan................................C-1
LIGAND PHARMACEUTICALS INCORPORATED
10275 SCIENCE CENTER DRIVE
SAN DIEGO, CALIFORNIA 92121
PROXY STATEMENT
For the Annual Meeting of Stockholders
May 15, 2002
On behalf of the Board of Directors of Ligand Pharmaceuticals
Incorporated, (the "Company"), we are asking for your proxy, to be used at the
annual meeting of stockholders to be held on May 15, 2002. The annual meeting
will be held at 9:00 a.m. at the La Jolla Marriott located at 4240 La Jolla
Village Drive, La Jolla, California 92037. Stockholders of record on March 20,
2002 are entitled to notice of and to vote at the annual meeting. This proxy
statement and accompanying proxy materials were first mailed to stockholders on
or about April 11, 2002.
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At our annual meeting, stockholders will act on the items outlined in
the Notice of Meeting that is attached to this proxy statement. These include
the election of directors, adopting a new Stock Option/Stock Issuance Plan,
adopting a new Employee Stock Purchase Plan, and ratifying the appointment of
our independent auditors. In addition, management will report on the performance
of the company during the past year and will respond to questions from our
stockholders. An annual report for the year ended December 31, 2001, is enclosed
with this proxy statement.
WHO CAN VOTE AT THE MEETING?
Only stockholders of record as of the close of business on the record
date, March 20, 2002, are entitled to vote the shares of stock they held on that
date. Stockholders may vote in person or by proxy (see "How do I vote" below).
Each holder of shares of common stock is entitled to one vote for each share of
stock held on the proposals presented in this proxy statement. Our bylaws
provide that a majority of all of the shares of the stock entitled to vote,
whether present in person or represented by proxy, will be a quorum for the
transaction of business at the meeting. As of the record date, there were
64,548,787 shares of common stock outstanding and only shares of one class of
common stock outstanding.
All votes will be counted by an inspector of elections appointed for
the meeting. The inspector will count separately "yes" votes, "no" votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as "present" when determining whether there is a quorum to transact business.
Abstentions will be counted as votes on the proposals discussed in this proxy
statement and will have the same effect as "no" votes. However, broker non-votes
will not be counted as votes on the proposals.
HOW DO I VOTE?
If you complete and properly sign the enclosed proxy card and return
it as instructed on the card, it will be voted as you direct. If you are a
registered stockholder and you attend the meeting, you may deliver your
completed proxy card in person. If you hold your shares in "street name" through
a brokerage or other nominee, you will need to obtain a proxy card from the
institution that holds your shares.
All shares represented by a proxy will be voted, and if a stockholder
specifies a choice with respect to any item to be acted upon, the shares will be
voted in accordance with that choice. If no choice is indicated on the proxy
card, the shares will be voted in favor of the election of the nominees for
director contained in this proxy statement, and in favor of the three other
proposals specified in the attached Notice of the Meeting, and in the discretion
of the proxy holders on any other matter that comes before the meeting.
You may revoke your proxy at any time before it is voted. It may be
revoked by sending a notice of revocation or another signed proxy with a later
date to the Secretary of the Company at the Company's principal executive
offices, 10275 Science Center Drive, San Diego, California 92121. You may also
revoke your proxy by attending the annual meeting and voting in person.
1
ITEMS TO BE VOTED ON AT THE MEETING
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The persons named below have been nominated by management to serve as
directors of the Company until the next annual meeting of stockholders and until
their successors have been elected and qualified. The Company's bylaws provide
that the authorized number of directors shall be determined by resolution of the
Board of Directors or by the stockholders at an annual meeting and shall be
within the range of seven to 11 individuals. The authorized number of directors
is currently eight. The Board of Directors has selected seven nominees, all of
whom are currently directors of the Company. Each person nominated for election
has agreed to serve if elected, and management has no reason to believe that any
nominee will be unavailable to serve. Unless otherwise instructed, the
proxyholders will vote the proxies received by them for the nominees named
below. The proxies received by the proxyholders cannot be voted for more than
seven directors and, unless otherwise instructed, the proxyholders will vote
such proxies for the nominees named below. The seven candidates receiving the
highest number of affirmative votes of the shares entitled to vote at the annual
meeting will be elected directors of the Company. As of the date of this proxy
statement, the Board of Directors is not aware of any nominee who is unable to
or will decline to serve as a director.
NOMINEES
Year First
Name Offices Held Elected Director Age
---- ------------ ---------------- ---
David E. Robinson Chairman, President, Chief 1991 53
Executive Officer and Director
Henry F. Blissenbach (A) (C) (N) Director 1995 59
Alexander D. Cross, Ph.D. (A) Director 1991 70
John Groom (C) (N) Director 1995 63
Irving S. Johnson, Ph.D. (C) (N) Director 1989 76
Carl C. Peck, M.D. Director 1997 60
Michael A. Rocca (A) Director 1999 57
_____________________________
(A) Member of the Audit Committee
(C) Member of the Compensation Committee
(N) Member of the Nominating Committee
BUSINESS EXPERIENCE OF DIRECTOR-NOMINEES
DAVID E. ROBINSON has served as President, Chief Executive Officer and
a Director since 1991. Since May 1996, Mr. Robinson has also served as Chairman
of the Board. Mr. Robinson was Chief Operating Officer at Erbamont, a
pharmaceutical company from 1987 to 1990. From 1984 to 1987 Mr. Robinson was
President of Adria Laboratories, Erbamont's North American subsidiary. Before
joining Erbamont he was employed in various executive positions for more than 10
years by Abbott Laboratories, most recently as Regional Director of Abbott
Europe. Mr. Robinson received his B.A. in political science and history from
MacQuaire University, Australia and his M.B.A. from the University of New South
Wales, Australia. Mr. Robinson is a Director of BIOCOM San Diego, and is a
director and Chairman of the Board of the Biotechnology Industry Organization.
2
HENRY F. BLISSENBACH has served as a Director since May 1995 and
currently serves as a member of the Board's Compensation, Nominating and Audit
Committees. Dr. Blissenbach is currently Chairman, President and Chief Executive
Officer of Chronimed, Inc., a publicly held prescription drug distribution
company ("Chronimed"), a position he has held since March 2000, having
previously served as President and Chief Operating Officer from May 1997 to
March 2000. Previously, Dr. Blissenbach served as President of Diversified
Pharmaceutical Services, a division of United Health Care, from 1992 to 1997
(now GlaxoSmithKline). He earned his Doctor of Pharmacy (Pharm.D.) degree at the
University of Minnesota, College of Pharmacy. He has held an academic
appointment in the College of Pharmacy, University of Minnesota, since 1981. Dr.
Blissenbach currently serves on the Board of Directors of Chronimed. Mr.
Blissenbach holds a B.S. from the University of Minnesota.
ALEXANDER D. CROSS, PH.D. has served as a Director of Company since
March 1991 and currently serves as a member of the Company's Audit Committee.
Dr. Cross has been an independent consultant in the fields of pharmaceuticals
and biotechnology since January 1986. Dr. Cross served as President and Chief
Executive Officer of Zoecon Corporation, a biotechnology company, from April
1983 to December 1985, and Executive Vice President and Chief Operating Officer
from 1979 to 1983. Dr. Cross currently serves as Chairman of the Board of
Directors and Chief Executive Officer for Cytopharm, Inc., a private company. He
is a member of the Boards of Directors of Dermal Systems International Inc. and
Dermal NEWCO, private companies. Dr. Cross received his B.Sc., Ph.D. and D.Sc.
degrees from the University of Nottingham, England, and is a Fellow of the Royal
Society of Chemistry.
JOHN GROOM has served as a Director since May 1995 and currently
serves as a member of the Company's Nominating and Compensation Committees. In
2001, Mr. Groom retired as President and Chief Operating Officer of Elan
Corporation, plc ("Elan") having served in that capacity since January 1997.
Previously, he was President, Chief Executive Officer and a Director of Athena
Neurosciences, Inc. from 1987 until its acquisition by Elan in July 1996. From
1960 until 1985, Mr. Groom was employed by Smith Kline & French Laboratories
("SK&F"), a division of SmithKline Beckman (now GlaxoSmithKline). He held a
number of positions at SK&F including President of SK&F International, Vice
President, Europe, and Managing Director, United Kingdom. Mr. Groom currently
also serves on the Board of Directors of Elan, Riboyzme Pharmaceuticals Inc.,
Amarin Corporation, plc and CV Therapeutics, Inc. Mr. Groom is a Fellow of the
Association of Certified Accountants (UK).
IRVING S. JOHNSON, PH.D. has served as a Director since March 1989 and
currently serves as a member of the Company's Compensation and Nominating
Committees. Dr. Johnson has been an independent consultant in biomedical
research since 1989. From 1953 until his retirement in November 1988, Dr.
Johnson held various positions with Eli Lilly & Company, a pharmaceutical
company, most recently as Vice President of Research from 1973 until 1988. He
currently serves on the Scientific Advisory Boards of both the Company and Elan.
Dr. Johnson holds a Ph.D. from the University of Kansas and a B.S. from Washburn
Municipal University.
CARL C. PECK, M.D. has served as a Director since May 1997. Dr. Peck
has been Professor of Pharmacology and Medicine and Director of the Center for
Drug Development Science at Georgetown University Medical Center since September
1994. Dr. Peck was Boerhaave Professor of Clinical Drug Research at Leiden
University from November 1993 to July 1995. From October 1987 to November 1993,
Dr. Peck was Director, Center for Drug Evaluation and Research of the FDA. He
held a number of academic positions prior to October 1987, including Professor
of Medicine and Pharmacology, Uniformed Services University, from 1982 to
October 1987. Dr. Peck holds an M.D. and a B.S., both from the University of
Kansas.
MICHAEL A. ROCCA has served as a Director since April 1999 and
currently serves as a member of the Company's Audit Committee. Mr. Rocca is
currently an independent financial consultant. Previously he was Senior Vice
President and Chief Financial Officer of Mallinckrodt, Inc., a global
manufacturer and marketer of specialty medical products, a position he held from
April 1994 to October 2000. From 1966 until 1994, Mr. Rocca was employed by
Honeywell, Inc., a control technology company. He held a number of positions at
Honeywell which included Vice President and Treasurer, Vice President of
Finance, Europe, and Vice President and Controller International. Mr. Rocca
earned his BBA in accounting from the University of Iowa.
3
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five meetings
during the fiscal year ended December 31, 2001. During such year, each director
attended at least 75% of the aggregate number of meetings of the Board of
Directors and of the Board committees on which such director served which were
held during the periods in which he served, with the exception of Dr. Johnson.
The Company has an Audit Committee, a Nominating Committee and a
Compensation Committee of the Board of Directors.
The Audit Committee was established in March 1992 and is primarily
responsible for reviewing the Corporation's audit process, financial reporting
functions, systems of internal control, and compliance programs. This Committee
currently consists of Dr. Cross and Messrs. Blissenbach and Rocca, each of whom
is independent as defined under Rule 4200 of the National Association of
Securities Dealers' listing standards. The Audit Committee held two meetings
during 2001. The Audit Committee is governed by a written charter approved by
the Board of Directors, which was last amended in March 2002. A copy of this
charter is included as Appendix A to this proxy statement.
The Nominating Committee was established in December 2001 and is
responsible for identifying and recommending candidates for director of the
Company. The Committee's current members are Dr. Johnson and Messrs. Blissenbach
and Groom. The Nominating Committee did not meet during 2001. The Nominating
Committee considers nominees recommended by stockholders, if submitted in
writing to the Secretary at the Company's principal executive offices and
accompanied by the author's full name, current address and telephone number.
The Compensation Committee was established in March 1992 and reviews
and approves the Company's compensation policies, sets executive officers'
compensation and administers the Company's stock option and stock purchase
plans. This committee currently consists of Dr. Johnson and Messrs. Blissenbach
and Groom. The Compensation Committee held three meetings and two telephonic
meetings and acted by unanimous written consent twice during 2001.
DIRECTOR COMPENSATION
Non-employee Board members are paid fees for their Board service and
are reimbursed for expenses incurred in connection with such service. Drs. Cross
and Peck, and Messrs. Blissenbach, Groom and Rocca each receive a fee of $2,500
for each Board meeting attended, $1,000 for each committee meeting attended on
non-Board meeting dates and $500 for each Board meeting in which he participates
by telephone. The Company also reimburses each of Drs. Cross and Peck, and
Messrs. Groom, Blissenbach and Rocca for all reasonable and necessary travel and
other incidental expenses incurred in connection with the performance of his
Board duties. Under a commitment with Dr. Johnson, the Company pays him a fee of
$2,500 for each Board meeting attended, $500 for each Board meeting in which he
participates by telephone and $4,000 for each day of service as a member of the
Scientific Advisory Board or as a consultant to the Company. The Company also
reimburses Dr. Johnson for all reasonable and necessary travel and other
incidental expense incurred in connection with such duties. In addition, the
Company paid Dr. Peck $2,000 for consulting services to the Company in 2001.
Non-employee Board members are also eligible to participate in the
Automatic Option Grant Program in effect under the 1992 Stock Option/Stock
Issuance Plan. This program will be continued under the 2002 Stock Option/Stock
Issuance Plan, if approved (see Proposal 2 below). At the 2001 annual meeting of
stockholders, each of Messrs. Blissenbach, Groom and Rocca and Drs. Cross,
Johnson and Peck received an option to purchase 10,000 shares of common stock
with an exercise price of $13.02 per share, the fair market value per share of
common stock on the date of their re-election as a non-employee Board member.
Each of the options granted under the Automatic Option Grant Program becomes
exercisable for all the option shares upon completion of one year of Board
service. Each option has a maximum term of 10 years measured from the grant
date, subject to earlier termination following the optionee's cessation of Board
service. Each non-employee Board member re-elected at the 2002 annual meeting
will receive an option for 10,000 shares of common stock under the Automatic
Option Grant Program of the 1992 Stock Option/Stock Issuance Plan. For further
information concerning such automatic option grants to directors, please see
"Proposal 2, Approval of the 2002 Stock Option/Stock Issuance Plan--Automatic
Option Grant Program" below.
4
Non-employee directors may also elect to apply all or a portion of
their cash fee to the acquisition of a special discounted stock option under the
Director Fee Option Grant Program of the 1992 Stock Option/Stock Issuance Plan.
This Program will be continued under the proposed new stock option/stock
issuance plan. On January 2, 2002, in connection with such election the
directors listed below were each granted an option for the number of shares
shown. The numbers include each director's option grants under this program for
2002. In addition, in July 2001, the Compensation Committee increased the cash
fee for each outside director from $2,000 to $2,500 per meeting of the full
Board and from $750 to $1,000 for each committee meeting attended on non-Board
meeting dates, effective July 5, 2001. In accordance with that increase, the
Compensation Committee also set a number of additional option shares available
to each director listed below, if the director elected to have all or part of
his cash fee increase for 2001 paid in the form of stock options. Those
additional option shares for 2001 are also included in the numbers shown below.
2002 DIRECTOR FEE OPTION GRANTS
Option
Name Shares
----- ------
Henry F. Blissenbach............................................ 857
John Groom...................................................... 1,759
Irving S. Johnson, Ph.D. ....................................... 1,583
Carl C. Peck, M. D.............................................. 1,759
Michael A. Rocca................................................ 1,759
Each option has an exercise price of $5.6828 per share, one-third of
the fair market value per share of common stock on the grant date, which was
$17.05. Accordingly, the fair market value of those shares less the aggregate
exercise price was equal to the cash retainer fee that such Board member elected
to apply to the grant. Each option becomes exercisable in a series of 12
successive equal monthly installments upon the optionee's completion of each
month of Board service during the 2002 calendar year. Each option has a maximum
term of 10 years measured from the grant date, subject to earlier termination
three years following the optionee's cessation of Board service. For further
information concerning this program, please see "Proposal 2--Approval of the
2002 Stock Option/Stock Issuance Plan" below.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR the nominees
listed herein.
5
PROPOSAL NO. 2
APPROVAL OF THE 2002 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve a new 2002 Stock
Option/Stock Issuance Plan (the "2002 Plan") and to authorize for issuance under
the plan (i) 750,000 common shares plus (ii) the number of shares available for
issuance under the 1992 Stock Option/Stock Issuance Plan (the "1992 Plan") on
the effective date of the new plan, including the shares subject to outstanding
options and the shares available for future option grants. The 1992 Plan was
originally adopted by the Board and was approved by the stockholders in 1992. It
expires in November 2002. The 2002 Plan was adopted by the Board of Directors in
March 2002 and if approved by the stockholders will become effective on May 16,
2002.
The new plan will serve as a successor to the 1992 Plan and will allow
the Company to continue to provide a comprehensive equity incentive program for
the Company's officers, employees and non-employee Board members to encourage
these individuals to remain in the Company's service and to more closely align
their interests with those of the stockholders. The number of shares for which
options will be granted to each newly hired or continuing employee will be based
on both competitive market conditions and individual performance.
The following is a summary of the principal features of the 2002 Plan.
The summary, however, is not a complete description of all the provisions of the
2002 Plan. The full text of the proposed 2002 Plan is attached to this proxy
statement as Appendix B. The summary also provides information on the current
status of the 1992 Plan.
PLAN STRUCTURE
The 2002 Plan contains four separate equity programs:
o the Discretionary Option Grant Program,
o the Automatic Option Grant Program,
o the Stock Issuance Program, and
o the Director Fee Option Grant Program.
The principal features of these programs are described below. The 2002 Plan will
be administered by the Compensation Committee of the Board. This committee has
complete discretion, subject to the provisions of the 2002 Plan, to authorize
option grants and direct stock issuances under the 2002 Plan. However, the Board
may also appoint a secondary committee of one or more Board members to have
separate but concurrent authority to make option grants and stock issuances
under those programs to all eligible individuals other than the Company's
executive officers and non-employee Board members. The term "Plan
Administrator," as used in this proxy statement, will mean either the
Compensation Committee or any secondary committee, to the extent each such
entity is acting within the scope of its duties under the 2002 Plan. The Plan
Administrator will not exercise any administrative discretion under the
Automatic Option Grant or Director Fee Option Grant Program for the non-employee
Board members. All grants under those programs will be made in strict compliance
with the express provisions of each such program.
ISSUABLE SHARES
Over the term of the 1992 Plan, a total of 10,323,457 shares of common
stock has been reserved for issuance. As of March 31, 2002, options for
5,548,981 shares of common stock were outstanding under the 1992 Plan, 555,034
shares remained available for future option grant or direct issuance, and
4,229,305 shares have been issued under the 1992 Plan.
Under this proposal 750,000 new shares are to be reserved for issuance
under the new 2002 Plan in addition to (i) the approximately 555,000 shares
reserved and available for future option grants under the 1992 Plan and (ii) the
approximately 5,550,000 shares reserved and subject to outstanding options under
the 1992 Plan.
6
Shares available for issuance under the 1992 Plan on the effective date of the
2002 Plan, whether under current options outstanding or future option grants
will be transferred to the 2002 Plan. Thus, if approved, there will be
approximately 1,305,000 shares available for future option grants under the 2002
Plan out of a total of approximately 6,855,000 shares reserved for issuance
under the plan. At the time the 2002 Plan becomes effective, the 1992 Plan will
terminate, and no further options will be granted or exercised under that plan.
No shares have yet been issued under the 2002 Plan. The transferred options will
continue with their existing terms unless the Plan Administrator elects to
extend one or more features of the 2002 Plan to those options.
In no event may any one participant in either the 2002 or 1992 Plan
receive options, separately exercisable stock appreciation rights and direct
stock issuances for more than one million shares in any calendar year.
If an option expires or is terminated for any reason before all its
shares are exercised (including options transferred from the 1992 Plan), the
shares not exercised will be available for subsequent option grants or stock
issuances under the 2002 Plan. In addition, unvested shares issued under the
2002 Plan and subsequently repurchased by the Company at a price not greater
than the original exercise price or issue price paid per share will be added
back to the number of shares of common stock reserved for issuance under the
2002 Plan. Accordingly, such repurchased shares will be available for reissuance
through one or more subsequent option grants or direct stock issuances under the
2002 Plan. However, shares subject to any option surrendered or canceled in
accordance with the stock appreciation right provisions of the 2002 Plan will
reduce on a share-for-share basis the number of shares of common stock available
for subsequent grants.
Should any change be made to the common stock issuable under the 2002
Plan 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 Company's receipt of consideration, then
appropriate adjustments will be made to
o the maximum number and/or class of securities issuable under the
2002 Plan;
o 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 per calendar year under the
2002 Plan;
o the number and/or class of securities for which grants are to be
made under the Automatic Option Grant Program to new or
continuing non-employee Board members;
o the number and/or class of securities and price per share in
effect under each outstanding option; and
o the number and/or class of securities and the exercise price per
share in effect under each outstanding option transferred to the
2002 Plan from the 1992 Plan.
Such adjustments to the outstanding options will be effected in a manner which
will preclude the enlargement or dilution of rights and benefits under those
options.
ELIGIBILITY
Officers and employees of the Company and its parent or subsidiaries,
whether now existing or subsequently established, non-employee members of the
Board and consultants and independent contractors of the Company and its parent
and subsidiaries will be eligible to participate in the 2002 Plan.
As of March 31, 2002, approximately 358 employees, including 10
executive officers, and six non-employee Board members were eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs. The
six non-employee Board members were also eligible to participate in the
Automatic Option Grant and Director Fee Option Grant Programs.
7
VALUATION
The fair market value per share of common stock on any relevant date
under the 2002 Plan will be deemed to be equal to the closing selling price per
share on that date on the Nasdaq National Market. If there is no reported
selling price for such date, then fair market value per share will be the
closing selling price on the last preceding date for which such quotation
exists. On March 31, 2002, the closing selling price per share was $19.72.
DISCRETIONARY GRANT PROGRAM
GRANTS
The Plan Administrator will have complete discretion under the
Discretionary Option Grant Program to determine which eligible individuals are
to receive option grants, the time or times when those grants are to be made,
the number of shares subject to each such grant, the status of any granted
option as either an incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule (if any) to be in effect for the option
grant and the maximum term for which any granted option is to remain
outstanding.
PRICE AND EXERCISABILITY
Each granted option will have an exercise price per share not less
than 100% of the fair market value per share of common stock on the option grant
date, and no granted option will have a term in excess of 10 years. The shares
subject to each option will generally become exercisable for fully-vested shares
in a series of installments over a specified period of service measured from the
grant date. However, one or more options may be structured so that they are
immediately exercisable for any or all of the option shares. The shares acquired
under such immediately-exercisable options will normally be unvested and subject
to repurchase by the Company, at the lower of (i) the exercise price paid per
share or (ii) the fair market value per share of common stock at the time of
cessation of service if the optionee ceases service with the Company prior to
vesting in those shares.
Each option transferred from the 1992 Plan will have an exercise price
per share not less than 85% of the fair market value per share of common stock
on the option grant date. The shares acquired under immediately-exercisable
options transferred from the 1992 Plan will normally be unvested and subject to
repurchase by the Company at the exercise price paid per share.
The exercise price may be paid in cash or in shares of common stock.
Outstanding options may also be exercised through a same-day sale program
pursuant to which a designated brokerage firm is to effect an immediate sale of
the shares purchased under the option and pay to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
exercise price for the purchased shares plus all applicable withholding taxes.
No optionee will have any stockholder rights with respect to the
option shares until such optionee has exercised the option and paid the exercise
price for the purchased shares. Options will generally not be assignable or
transferable other than by will or the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by such optionee. However,
the Plan Administrator may allow non-statutory options to be transferred or
assigned 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 or to the optionee's former spouse, to the extent such transfer
or assignment is in furtherance of the optionee's estate plan or pursuant to a
domestic relations order. The optionee may also designate one or more
beneficiaries to automatically receive his or her outstanding options at death.
The options transferred from the 1992 Plan do not have terms that expressly
allow for such beneficiary designations.
TERMINATION OF SERVICE
Upon cessation of service, the optionee will have a limited period of
time in which to exercise his or her outstanding options for any shares in which
the optionee is vested at that time. The Plan Administrator will have discretion
to extend the period following the optionee's cessation of service during which
his or her outstanding options may be exercised, up to the date of the option's
expiration and/or to accelerate the exercisability or vesting of such options in
whole or in part.
8
CANCELLATION/REGRANT PROGRAM
The Plan Administrator will have the authority to effect, with the
consent of the affected option holders, the cancellation of outstanding options
under the Discretionary Option Grant Program (including options transferred from
the 1992 Plan) in return for the grant of new options for the same or a
different number of option shares with an exercise price per share based upon
the fair market value of the common stock on the new grant date.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per
share not less than their fair market value, payable in cash or, in the
discretion of the Plan Administrator, through a promissory note payable to the
Company. Shares may also be issued as a bonus for past services without any cash
outlay required of the recipient. Shares of common stock may also be issued
under the Stock Issuance Program pursuant to share right awards which entitle
the recipients to receive those shares upon the attainment of designated
performance goals or completion of a specified service period. The Plan
Administrator will have complete discretion under this program to determine
which eligible individuals are to receive such stock issuances or share right
awards, the time or times when such issuances or awards are to be made, the
number of shares subject to each such issuance or award and the vesting schedule
to be in effect for the stock issuance or share rights award.
The shares issued may be fully and immediately vested upon issuance or
may vest upon the recipient's completion of a designated service period or upon
the Company's attainment of pre-established performance goals. The Plan
Administrator will, however, have the discretionary authority at any time to
accelerate the vesting of any and all unvested shares outstanding under the
Stock Issuance Program.
Any unvested shares for which the requisite service requirement or
performance objective is not obtained must be surrendered to the Company for
cancellation, and the participant will not have any further stockholder rights
with respect to those shares. The Company will, however, repay the participant
the lower of (i) the cash amount paid for the surrendered shares or (ii) the
fair market value of those shares at the time of the participant's cessation of
service and shall cancel any promissory note delivered in payment of those
shares by the applicable clause (i) or (ii) amount.
Outstanding share right awards under the Stock Issuance Program will
automatically terminate, and no shares of common stock will actually be issued
in satisfaction of those awards, if the performance goals established for such
awards are not attained. The Plan Administrator, however, will have the
discretionary authority to issue shares of common stock in satisfaction of one
or more outstanding share right awards as to which the designated performance
goals are not attained.
AUTOMATIC OPTION GRANT PROGRAM
GRANTS
Under the Automatic Option Grant Program, eligible non-employee Board
members will receive a series of option grants over their period of Board
service. Each individual who first becomes a non-employee Board member at any
time on or after the effective date will receive an option grant for 20,000
shares of common stock on the date such individual joins the Board, provided
such individual has not been in the prior employ of the Company. In addition, on
the date of each annual stockholders meeting held after the effective date, each
non-employee Board member who is to continue to serve as a non-employee Board
member (including individuals who joined the Board prior to the effective date)
will automatically be granted an option to purchase 10,000 shares of common
stock, provided such individual has served on the Board for at least six months.
There will be no limit on the number of such 10,000-share option grants any one
eligible non-employee Board member may receive over his or her period of
continued Board service, and non-employee Board members who have previously been
in the Company's employ will be eligible to receive one or more such annual
option grants over their period of Board service.
OPTION TERMS
Each automatic grant will have an exercise price per share equal to
the fair market value per share of common stock on the grant date and will have
a maximum term of 10 years. The shares subject to each automatic option grant
(whether the initial grant or an annual grant) will fully vest and become
exercisable upon his or her completion of one year of Board service measured
from the grant date. Additionally, the shares subject to each
9
automatic option grant will immediately vest in full upon certain changes in
control or ownership of the Company or upon the optionee's death or disability
while a Board member. Each option granted under the program will remain
exercisable for vested shares until the earlier of (i) the expiration of the
10-year option term or (ii) the expiration of the 3-year period measured from
the date of the optionee's cessation of Board service.
Non-employee directors elected at the 2002 annual meeting will each
receive an automatic option grant under the 1992 Plan. Those options will vest
after completion of one year of Board service measured from the 2002 annual
meeting. Other automatic option grants transferred from the 1992 Plan will be
fully vested. All automatic option grants transferred from the 1992 Plan will
remain exercisable for vested shares for a period of three months following the
optionee's cessation of Board service, unless the optionee dies within three
months of cessation of Board service. However, for automatic option grants
transferred from the 1992 Plan, if the optionee's cessation of Board service is
due to the optionee's death, or if the optionee dies within three months of
cessation of Board service, each option will remain exercisable for vested
shares for a three-year period following the optionee's death. In no event shall
any automatic option grant transferred from the 1992 Plan be exercisable
following the expiration of the 10-year option term.
DIRECTOR FEE OPTION GRANT PROGRAM
The Director Fee Option Grant Program will be implemented for each
calendar year following the effective date until otherwise determined by the
Plan Administrator. Under the Director Fee Option Grant Program, each
non-employee Board member may elect, prior to the start of each calendar year,
to apply all or any portion of the retainer fee otherwise payable in cash for
his or her period of service on the Board for that year to the acquisition of a
special discounted option grant. The option grant will be a non-statutory option
under the federal tax laws and will automatically be made on the first trading
day in January in the calendar year for which the director fee election is in
effect. The option will have a maximum term of 10 years measured from the grant
date and an exercise price per share equal to one-third of the fair market value
of the option shares on such date. The number of shares subject to each option
will be determined by dividing the amount of the retainer fee applied to the
acquisition of that option by two-thirds of the fair market value per share of
common stock on the grant date. As a result, the total spread on the option (the
fair market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will be equal to the portion of the
retainer fee applied to the acquisition of the option. Until the Company
establishes an annual retainer fee for the non-employee Board members, the
dollar amount of the fee subject to the Board member's election each year will
be equal to the number of regularly-scheduled Board meetings for that year
multiplied by the per Board meeting fee in effect for such year. Under the 1992
Plan, the current annual dollar amount of the fee that can be applied is
$17,500.
The option will become exercisable in a series of 12 successive equal
monthly installments upon the optionee's completion of each month of Board
service in the calendar year for which the retainer fee election is in effect,
subject to full and immediate acceleration upon certain changes in control or
ownership of the Company or upon the optionee's death or disability while a
Board member. Each option granted under the program will remain exercisable for
vested shares until the earlier of (i) the expiration of the 10-year option term
or (ii) the expiration of the 3-year period measured from the date of the
optionee's cessation of Board service.
GENERAL PLAN PROVISIONS
VALUATION
For all valuation purposes under the 2002 Plan, the fair market value
per share of common stock on any date will be deemed equal to the closing
selling price per share on that date, as reported on the Nasdaq National Market.
If there is no reported selling price for such date, then fair market value per
share will be the closing selling price on the last preceding date for which
such quotation exists. On March 31, 2002, the closing selling price per share
was $19.72.
VESTING ACCELERATION
In the event that the Company is acquired by merger or asset sale,
each outstanding option under the Discretionary Option Grant Program which is
not to be assumed by the successor corporation will automatically accelerate in
full, and all unvested shares under the Discretionary Option Grant and Stock
Issuance Programs will immediately vest, except to the extent the Company'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
10
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 Company or the acquiring
entity is involuntarily terminated within a designated period (not to exceed 18
months) following such acquisition. The vesting of outstanding shares under the
Stock Issuance Program may be accelerated upon similar terms and conditions. The
Plan Administrator will also have the authority to grant options which will
immediately vest upon an acquisition of the Company, whether or not those
options are assumed by the successor corporation.
The Plan Administrator is also authorized under the Discretionary
Option Grant and Stock Issuance Programs to grant options and to structure
repurchase rights so that the shares subject to those options or repurchase
rights will immediately vest in connection with a change in ownership or control
of the Company (whether by successful tender offer for more than 50% of the
outstanding voting stock or by a change in the majority of the Board by reason
of one or more contested elections for Board membership). Such accelerated
vesting may occur either at the time of such change in ownership or control or
upon the subsequent involuntary termination of the individual's service within a
designated period (not to exceed 18 months) following such change in ownership
or control.
The Plan Administrator will have the discretionary authority to extend
the vesting acceleration provisions of the 2002 Plan to any or all of the
options transferred from the 1992 Plan which do not otherwise provide similar
change in control protection.
The shares subject to each option under the Automatic Option Grant and
Director Fee Option Grant Programs will immediately vest upon (i) an acquisition
of the Company by merger or asset sale, (ii) the successful completion of a
tender offer for more than 50% of the Company's outstanding voting stock or
(iii) a change in the majority of the Board effected through one or more
contested elections for Board membership.
The acceleration of vesting in the event of a change in the ownership
or control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
STOCK APPRECIATION RIGHTS
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the Plan:
TANDEM STOCK APPRECIATION RIGHTS, which may be granted under the
Discretionary Option Grant Program, provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of common stock subject to the surrendered option over (b) the
aggregate exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of common stock.
LIMITED STOCK APPRECIATION RIGHTS may be granted under the
Discretionary Option Grant Program to one or more officers of the Company
as part of their option grants, and such rights will automatically be
included as part of each grant made under the Automatic Option Grant and
Director Fee Option Grant Programs. Options with such a limited stock
appreciation right may be surrendered to the Company upon the successful
completion of a hostile tender offer for more than 50% of the Company's
outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from the Company in an
amount per surrendered option share equal to the excess of (a) the highest
price per share of common stock paid in connection with the tender offer
over (b) the exercise price payable for such share.
None of the options currently outstanding under the 1992 Plan contain
any stock appreciation rights.
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 under the 2002 Plan. The Plan Administrator will determine the
terms of
11
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 share issuances under the 2002 Plan with the right to have the Company
withhold a portion of the shares otherwise issuable to such individuals in
satisfaction of the withholding taxes to which such individuals may become
subject in connection with the exercise of those options or the vesting of those
shares. Alternatively, the Plan Administrator may allow such individuals to
deliver previously acquired shares of common stock in payment of such
withholding tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 2002 Plan at any time, subject to
any required stockholder approval pursuant to applicable laws and regulations.
Unless sooner terminated by the Board, the 2002 Plan will terminate on the
EARLIER of
o March 7, 2012 or
o the termination of all outstanding options in connection with
certain changes in control or ownership of the Company.
12
STOCK & OPTION AWARDS TO OFFICERS & DIRECTORS
The table below shows, as to the Company's Chief Executive Officer,
each of the other four most highly-compensated executive officers of Company
(collectively, the "Named Executive Officers") and the various indicated
individuals and groups, the number of shares of common stock subject to options
granted under the 1992 Plan between January 1, 2001 and March 31, 2002, together
with the weighted average exercise price payable per share.
Weighted Average
Exercise Price of
Options Granted Granted Options
Name and Principal Position (Number of Shares) ($)
--------------------------- ------------------ -----------------
DAVID E. ROBINSON................................................... 50,000 9.87
Chairman of the Board, President, Chief Executive Officer and
Director-Nominee
PAUL V. MAIER....................................................... 40,000 10.68
Senior Vice President, Chief Financial Officer
ANDRES F. NEGRO-VILAR............................................... 40,000 10.68
Senior Vice President, Research and Development and Chief
Scientific Officer
WILLIAM A. PETTIT................................................... 30,000 10.68
Senior Vice President, Human Resources & Administration
THOMAS H. SILBERG................................................... 115,000 13.6539
Senior Vice President, Commercial Operations
HENRY F. BLISSENBACH................................................ 11,620 11.9249
Director-Nominee
ALEXANDER D. CROSS, PH.D............................................ 10,000 13.02
Director-Nominee
JOHN GROOM.......................................................... 13,286 11.0789
Director-Nominee
IRVING S. JOHNSON................................................... 13,110 11.1513
Director-Nominee
CARL C. PECK, M.D................................................... 13,286 11.0789
Director-Nominee
MICHAEL A. ROCCA.................................................... 13,286 11.0789
Director-Nominee
All current directors who are not executive officers (6 persons).... 74,588 11.4837
All current executive officers as a group (10 persons).............. 495,000 12.3509
All employees who are not executive officers (249 persons).......... 655,477 13.1976
NEW PLAN BENEFITS
As of March 31, 2002, no options have been granted, and no direct
stock issuances have been made under the new plan which forms part of this
proposal. Each of the non-employee Board members will, upon his re-election to
the Board at the annual meeting, receive an option grant under the 1992 Plan's
Automatic Option Grant Program for 10,000 shares of common stock, namely Messrs.
Blissenbach, Groom, and Rocca and Drs. Cross, Johnson and Peck. Each option will
have an exercise price per share equal to the fair market value per share of
common stock on the grant date.
13
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 2002 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:
INCENTIVE OPTIONS. The optionee recognizes no taxable income at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. However, the amount by which the fair market value
(at the time of exercise) of the purchased shares exceeds the exercise price
will be included in the optionee's income for purposes of the alternative
minimum tax. The optionee will, however, recognize taxable income in the year in
which the purchased shares are sold or otherwise made the subject of a taxable
disposition. For Federal tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held the
shares for more than two years after the option grant date and more than one
year after the exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the lesser of the fair market value of those
shares on the exercise date or the sale date over (ii) the exercise price paid
for the shares will be taxable as ordinary income to the optionee. Any
additional gain or loss recognized upon the disposition will be recognized as a
capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the option exercise date or the sale date,
if less, over (ii) the exercise price paid for the shares. In no other instance
will the Company be allowed a deduction with respect to the optionee's
disposition of the purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
STOCK APPRECIATION RIGHTS
No taxable income is recognized upon receipt of a stock appreciation
right. The holder will recognize ordinary income, in the year in which the stock
appreciation right is exercised, in an amount equal to the excess of the fair
market value of the underlying shares of common stock on the exercise date over
the base price in effect for the exercised right, and the holder will be
required to satisfy the tax withholding requirements applicable to such income.
14
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the holder in connection with the
exercise of the stock appreciation right. The deduction generally will be
allowed for the taxable year in which such ordinary income is recognized.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 2002
Plan will be substantially the same as those summarized above for the exercise
of non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options under the Discretionary Option Grant or
Automatic Option Grant Programs will qualify as performance-based compensation
for purposes of Code Section 162(m) and will not have to be taken into account
for purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those options
will remain deductible by the Company without limitation under Code Section
162(m). Option grants under the Director Fee Option Grant Program will not
qualify as performance-based compensation, and any income tax deductions
attributable to the exercise of those options will be subject to the $1 million
limitation.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less
than the fair market value of the shares on the grant or issue date will result
in a compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be amortized against the Company's
earnings over the period that the option shares or issued shares are to vest.
Option grants or stock issuances with exercise or issue prices equal
to the fair market value of the shares at the time of issuance or grant
generally will not result in any charge to the Company's earnings, but the
Company must disclose, in pro forma statements to the Company's financial
statements, the impact those option grants would have upon the Company's
reported earnings were the value of those options treated as compensation
expense. Whether or not granted at a discount, the number of outstanding options
may be a factor in determining the Company's earnings per share on a fully
diluted basis.
In addition, any option grants made to non-employee consultants (but
not non-employee board members) will result in a direct charge to Company's
reported earnings based upon the fair value of the option measured initially as
of the grant date and then subsequently on the vesting date of each installment
of the underlying option shares. Such charge will accordingly be adjusted to
reflect the appreciation in the value of the option shares over the period
between the grant date of the option and the vesting date of each installment of
the option shares.
Should any outstanding options under the 2002 Plan be repriced, then
that repricing will trigger a direct charge to Company's reported earnings
measured by the appreciation in the value of the underlying shares between the
grant of the repriced option and the date the repriced option is exercised for
those shares or otherwise terminates unexercised.
Should one or more optionees be granted stock appreciation rights that
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings. Accordingly, at the end of each fiscal quarter, the amount
(if any) by which the fair market value of the shares of common stock subject to
such outstanding stock appreciation rights has increased from the prior
quarter-end would be accrued as compensation expense, to the extent such fair
market value is in excess of the aggregate exercise price in effect for those
rights.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the annual meeting is
required for approval of the 2002 Plan and to reserve
15
approximately 6,855,000 shares for issuance under that Plan consisting of (i)
750,000 new common shares, plus (ii) approximately 6,105,000 shares available
under the 1992 Plan to be transferred to the 2002 Plan. In the absence of such
stockholder approval, the 2002 Plan will not be implemented, the 1992 Plan will
continue to remain in effect, and option grants and direct stock issuances may
continue to be made pursuant to the provisions of the 1992 Plan until the
available reserve of common stock as last approved by the stockholders has been
issued pursuant to the exercise of options granted or direct stock issuances
made under the 1992 Plan or the earlier expiration of the 1992 Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the 2002 Plan is necessary in
order to continue to provide equity incentives to attract and retain the
services of high quality employees. The Board of Directors unanimously
recommends a vote FOR the 2002 Plan.
16
PROPOSAL NO. 3
APPROVAL OF THE 2002 EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to approve a new 2002
Employee Stock Purchase Plan (the "2002 ESPP") and to authorize for issuance
under the 2002 ESPP (i) 75,000 new common shares plus (ii) the number of shares
available for issuance under the existing 1992 Employee Stock Purchase Plan (the
"1992 ESPP") on the effective date of the new plan. The 2002 ESPP was adopted by
the Board of Directors in March 2002 and if approved by the stockholders will
become effective on July 1, 2002. The 1992 ESPP was approved by the stockholders
in 1992 and will expire on December 31, 2002.
The purpose of the new 2002 ESPP and share reserve is to provide a
successor plan to the 1992 ESPP and continue to provide eligible employees of
the Company and its participating affiliates with the opportunity to acquire an
ownership interest in the Company by purchasing its stock through payroll
deductions under Section 423 of the Internal Revenue Code.
The following is a summary of the principal features of the 2002 ESPP.
This summary is not a complete description of all the provisions of the 2002
ESPP. The full text of the proposed 2002 ESPP is attached to this proxy
statement as Appendix C. The summary also provides information on the current
status of the 1992 ESPP.
SHARE RESERVE AND PLAN ADMINISTRATION
Since its adoption in 1992, 465,000 shares of common stock have been
reserved for issuance under the 1992 ESPP. As of March 31, 2002, 417,361 shares
of common stock had been issued under the 1992 ESPP, and 47,639 shares are
available for future issuance.
Under this proposal 75,000 shares of common stock will be reserved for
issuance under the new 2002 ESPP in addition to approximately 48,000 shares that
remain available for issuance under the existing 1992 ESPP. Shares available for
issue under the 1992 ESPP will be included in the share reserve for the 2002
ESPP. Thus, if approved, there will be a total of approximately 123,000 shares
available for issue under the 2002 ESPP. At the time the 2002 ESPP becomes
effective no further purchase rights will be granted or exercised under the 1992
Plan. No shares have yet been issued under the 2002 ESPP.
Should any change be made to our outstanding common stock by reason of
any stock dividend, stock split, exchange or combination of shares or other
similar change affecting the outstanding common stock as a class without the
Company's receipt of consideration, appropriate adjustments will be made to
o the class and maximum number of securities issuable over the term
of the 2002 ESPP,
o the class and maximum number of securities purchasable per
participant on any purchase date and
o the class and number of securities and the price per share in
effect under each outstanding purchase right.
Such adjustments are designed to preclude the dilution or enlargement of rights
and benefits under the 2002 ESPP.
The 2002 ESPP will be administered by the Compensation Committee of
the Board of Directors (the "Plan Administrator"). As Plan Administrator, the
committee has full authority to administer the 2002 ESPP, including the
authority to interpret and construe any provision of the 2002 ESPP.
OFFERING PERIODS AND PURCHASE RIGHTS
Common stock will be offered for purchase under the 2002 ESPP through
a series of successive offering periods, each with a maximum duration (not to
exceed 24 months) specified by the Plan Administrator prior to the start date.
The initial offering period under the 2002 ESPP will begin on July 1, 2002 and
will end on the last
17
business day of June 2004. The next offering period will begin on the first
business day of July 2004 and subsequent offering periods shall commence as
designated by the Plan Administrator.
At the time a participant joins the offering period, he or she will be
granted a purchase right to acquire shares of common stock at quarterly
intervals over the remainder of that offering period. Each participant may
authorize periodic payroll deductions in any multiple of 1% (up to a maximum of
10%) of his or her total cash earnings to be applied to the acquisition of
common stock at quarterly intervals. The purchase dates will occur on the last
business days of March, June, September and December of each year, and all
payroll deductions collected from the participant for the three month period
ending with each such quarterly purchase date will automatically be applied to
the purchase of common stock on that date provided the participant remains an
eligible employee and does not withdraw from the 2002 ESPP prior to that date.
The initial purchase date under the 2002 ESPP will be September 30, 2002.
A participant may withdraw from the 2002 ESPP at any time, and his or
her accumulated payroll deductions will, at the participant's election, either
be applied to the purchase of shares on the next quarterly purchase date or be
refunded immediately.
A participant's purchase right will immediately terminate upon his or
her cessation of employment or loss of eligible employee status. Any payroll
deductions which the participant may have made for the quarterly period in which
such cessation of employment or loss of eligibility occurs will be refunded and
will not be applied to the purchase of common stock.
No participant will have any stockholder rights with respect to the
shares covered by his or her purchase rights until the shares are actually
purchased on the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
No purchase rights will be assignable or transferable by the
participant, and the purchase rights will be exercisable only by the
participant.
PURCHASE PRICE
The purchase price of the common stock acquired on each quarterly
purchase date will be equal to 85% of the LOWER of
o the fair market value per share of common stock on the start date
of the offering period in which the individual is enrolled or
o the fair market value on the quarterly purchase date.
The fair market value per share of common stock on any particular date
under the 2002 ESPP will be deemed to be equal to the closing selling price per
share on such date on the Nasdaq National Market. If there is no closing selling
price for the common stock on that date, then the fair market value per share
shall be the closing selling price on the last preceding date for which such
quotation exists. On March 31, 2002, the last selling price per share of common
stock on the Nasdaq National Market was $19.72.
ELIGIBILITY AND PARTICIPATION
Any individual who has been employed continuously for at least three
months on a basis under which he or she is regularly expected to work for more
than 20 hours per week and more than five months per calendar year in the employ
of the Company or any participating parent or subsidiary corporation (including
any corporation which subsequently becomes a parent or subsidiary during the
term of the 2002 ESPP) will be eligible to participate in the 2002 ESPP. An
individual who is an eligible employee on the start date of any offering period
may join that offering period at that time or on any subsequent quarterly entry
date (the first business day in January, April, July and October each year)
within that offering period. An individual who first becomes an eligible
employee after such start date may join the offering period on any quarterly
entry date within that offering period on which he or she is an eligible
employee. An employee may participate in only one offering period at a time.
18
For the initial offering period beginning at the effective time, each
eligible employee at that time will automatically be enrolled as a participant
with the ability to contribute the maximum amount (10%) of his cash earnings to
the plan. Payroll deductions will begin only if the participant affirmatively
elects to commence such payroll deductions following his or her receipt of the
2002 ESPP prospectus. In addition, for the first quarterly purchase interval
within that initial offering period, each participant will have the limited
opportunity to make his or her contribution to the 2002 ESPP through a lump sum
payment rather than through payroll deductions. All other contributions to the
2002 ESPP, however, must be made through authorized payroll deductions. If a
participant that is automatically enrolled in the initial offering period does
not elect to commence payroll deductions and does not make a lump sum payment of
contributions, then no shares will be purchased under the 2002 ESPP on that
participant's behalf.
Should the fair market value per share of common stock on any
quarterly purchase date within an offering period be less than the fair market
value per share on the start date of that offering period, then the participants
in that offering period will, immediately following the purchase of shares on
their behalf on such quarterly purchase date, be automatically transferred from
that offering period and enrolled in the new offering period beginning on the
next business day.
As of March 31, 2002, approximately 320 employees, including 10
officers of the Company, were eligible to participate in the Employee Stock
Purchase Plan.
SPECIAL LIMITATIONS
The 2002 ESPP imposes certain limitations upon a participant's rights
to acquire common stock, including the following limitations:
o Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 worth of common stock
(valued at the time each purchase right is granted) for each
calendar year those purchase rights are outstanding at any time.
o Purchase rights may not be granted to any individual if such
individual would, immediately after the grant, own or hold
outstanding options or other rights to purchase, stock possessing
5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its affiliates.
o No participant may purchase more than 1,330 shares of common
stock on any one purchase date.
The Plan Administrator will have the discretionary authority to
increase or decrease the per participant and total participant purchase
limitations as of the start date of any new offering period under the 2002 ESPP,
with the new limits to be in effect for that offering period and each subsequent
offering period.
CHANGE IN OWNERSHIP
Should the Company be acquired by merger, sale of substantially all of
its assets or sale of securities representing more than 50% of the total
combined voting power of the Company's outstanding securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the LOWER of
o the fair market value per share of common stock on the start date
of the offering period in which the individual is enrolled at the
time such acquisition occurs or
o the fair market value per share of common stock immediately prior
to such acquisition.
19
The limitation on the maximum number of shares purchasable in total by
all participants on any one purchase date will be applicable to any purchase
date attributable to such an acquisition.
SHARE PRORATION
Should the total number of shares of common stock which are to be
purchased under outstanding purchase rights on any particular date exceed the
number of shares then available for issuance under the 2002 ESPP, the plan
administrator shall make a pro rata allocation of the available shares on a
uniform and nondiscriminatory basis, and the payroll deductions of each
participant, to the extent in excess of the aggregate purchase price payable for
the common stock prorated to such individual, shall be refunded to such
participant.
AMENDMENT AND TERMINATION
The 2002 ESPP will terminate upon the earlier of
o the last business day in June 2012 or
o the date on which all purchase rights are exercised in connection
with a change in ownership of the Company.
The Board may terminate, suspend or amend the 2002 ESPP at any time.
However, the Board may not, without stockholder approval,
o increase the number of shares issuable under the 2002 ESPP,
o alter the purchase price formula so as to reduce the purchase
price, or
o modify the requirements for eligibility to participate in the
plan.
FEDERAL TAX CONSEQUENCES
The 2002 ESPP is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the 2002 ESPP
or in the event the participant should die while still owning the purchased
shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after his or her entry date into the offering period in
which such shares were acquired or within one (1) year after the quarterly
purchase date on which those shares were actually acquired, then the participant
will recognize ordinary income in the year of sale or disposition equal to the
amount by which the fair market value of the shares on the purchase date
exceeded the purchase price paid for those shares, and the Company will be
entitled to an income tax deduction, for the taxable year in which such
disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than
two (2) years after his or her entry date into the offering period in which the
shares were acquired and more than one (1) year after the quarterly purchase
date of those shares, then the participant will recognize ordinary income in the
year of sale or disposition equal to the lesser of (i) the amount by which the
fair market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) fifteen percent (15%) of the fair
market value of the shares on the participant's entry date into that offering
period; and any additional gain upon the disposition will be taxed as a
long-term capital gain. The Company will not be entitled to an income tax
deduction with respect to such disposition.
If the participant still owns the purchased shares at the time of
death, the lesser of (i) the amount by which the fair market value of the shares
on the date of death exceeds the purchase price or (ii) fifteen percent (15%) of
the fair market value of the shares on his or her entry date into the offering
period in which those shares were acquired will constitute ordinary income in
the year of death.
20
ACCOUNTING TREATMENT
Under current accounting principles applicable to employee stock
purchase plans qualified under Section 423 of the Internal Revenue Code, the
issuance of common stock under the 2002 ESPP will not result in a compensation
expense chargeable against the Company's reported earnings. However, the Company
must disclose, in pro forma statements to the Company's financial statements,
the impact the purchase rights granted under the 2002 ESPP would have upon the
Company's reported earnings were the value of those purchase rights treated as
compensation expense.
STOCK ISSUANCES TO OFFICERS AND DIRECTORS
The table below shows, as to the Named Executive Officers and as to
the various indicated groups, the number of shares of common stock and the
weighted average purchase price per share, with respect to transactions under
the 1992 ESPP effected during the period from January 1, 2001 to March 31, 2002,
together with the weighted average purchase price paid per share. Non-employee
directors are not eligible to participate in the 1992 or 2002 ESPP.
Weighted
Average
Number of Shares Purchase
Name and Position Purchased Price
----------------- ----------- --------
DAVID E. ROBINSON................................................. 0
Chairman of the Board, President and Chief Executive Officer
PAUL V. MAIER..................................................... 1,687 9.8623
Senior Vice President, Chief Financial Officer
ANDRES F. NEGRO-VILAR............................................. 0
Senior Vice President, Research and Development and Chief
Scientific Officer
WILLIAM A. PETTIT................................................. 0
Senior Vice President, Human Resources & Administration
THOMAS H. SILBERG................................................. 0
Senior Vice President, Commercial Operations
All current executive officers as a group (10 persons)............ 3,938 9.8439
All employees who are not executive officers (151 persons)........ 51,345 9.9158
NEW PURCHASE PLAN BENEFITS
No purchase rights have been granted, and no shares of common stock
have been issued under the 2002 Plan for which stockholder approval is sought
under this proposal.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the annual meeting is
required to approve the 2002 ESPP and to reserve approximately 123,000 shares
for issuance under the 2002 ESPP, consisting of (i) the 75,000 new shares in
addition to (ii) the shares available under the 1992 ESPP to be transferred to
the 2002 ESPP. If the stockholders approve the 2002 ESPP, no shares will be
issued under the 1992 ESPP after June 30, 2002. Should such stockholder approval
not be obtained, then the 2002 ESPP will not be implemented and the 1992 ESPP
will not terminate until the existing share reserve under the 1992 ESPP as
previously approved by the stockholders has been issued or the earlier
expiration of the 1992 ESPP.
21
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the 2002 ESPP is necessary in
order to continue to provide equity incentives to attract and retain the
services of high quality employees. The Board of Directors unanimously
recommends that the stockholders vote FOR this proposal.
22
PROPOSAL NO. 4
RATIFICATION OF INDEPENDENT AUDITORS
The Company is asking the stockholders to ratify the selection of
Deloitte & Touche LLP as the Company's independent auditors for the year ending
December 31, 2002. Neither the firm nor any of its members has any relationship
with the Company or any of its affiliates, except in the firm's capacity as the
Company's auditor.
In the event the stockholders fail to ratify the selection, the Board
of Directors will reconsider its selection. Even if the selection is ratified,
the Board of Directors, in its discretion, may direct the appointment of a
different independent auditing firm at any time during the year if the Board of
Directors feels that such a change would be in the Company's and its
stockholders' best interests.
Representatives of Deloitte & Touche LLP are expected to be present at
the annual meeting, will have the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions. The
affirmative vote of the holders of a majority of the shares represented and
voting at the annual meeting will be required to ratify the selection of
Deloitte & Touche LLP.
AUDIT FEES
The aggregate fees billed by Deloitte & Touche LLP for professional
services rendered for the audit of the Company's annual financial statements for
fiscal year 2001 and for the reviews of the financial statements included in the
Company's Form 10-Q for 2001 were $99,300.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed by Deloitte & Touche for financial
information systems design or implementation services for fiscal year 2001.
ALL OTHER FEES
The aggregate fees billed by Deloitte & Touche LLP in 2001 for
professional services other than as stated under the caption "Audit Fees" above
were $147,200 which consisted of:
o $22,900 for attestation services for items such as consents
related to SEC and other registration statements, audits of
employee benefit plans and consultations regarding accounting
standards or transactions.
o $124,300 for all other services such as consultations related to
tax planning and compliance.
The Audit Committee of the Board of Directors considers the provision
of these services to be compatible with maintaining the independence of Deloitte
& Touche LLP.
CHANGE OF INDEPENDENT ACCOUNTANTS IN OCTOBER 2000
On November 6, 2000, the Company filed a current report on Form 8-K
regarding its dismissal of Ernst & Young LLP and the engagement of Deloitte &
Touche LLP as the Company's independent accountants. The contents of that report
are as follows:
Item 4. Changes in Registrant's Certifying Accountant.
On October 31, 2000, the Company engaged Deloitte & Touche LLP ("D&T")
as its independent certifying accountants for the remainder of the fiscal
year ending December 31, 2000 and for the fiscal year ending December 31,
2001. In connection with this engagement, the Company dismissed Ernst &
Young LLP ("E&Y"), as its prior independent certifying accountants for the
fiscal year ending December 31, 2000.
23
The engagement of D&T and the dismissal of E&Y was recommended by the
Audit Committee of the Company's Board of Directors and approved by its
Board of Directors.
The reports of E&Y with respect to the Company for fiscal years 1998
and 1999 contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or application of
accounting principles. During fiscal years 1998 and 1999 and the subsequent
interim period preceding the dismissal of E&Y, there were no disagreements
between the Company and E&Y on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of E&Y, would have
caused E&Y to make reference to the subject matter of the disagreements in
its report on the financial statements for such years.
During fiscal years 1998 and 1999 and the subsequent interim period
prior to engaging D&T, the Company did not consult with D&T regarding
either the application of accounting principles to a specified transaction,
the type of audit opinion that might be rendered on the Company's financial
statements or any matter that was the subject of a disagreement or
reportable event with E&Y.
A letter from E&Y addressed to the Securities and Exchange Commission
is included as Exhibit 1 to this Current Report on Form 8-K. Such letter
states that such firm agrees with the statements made by the Company in
this Item 4.
Each of Deloitte & Touche and Ernst & Young was given a copy of this
disclosure prior to its filing and given the opportunity to furnish the
Securities and Exchange Commission a letter containing any new information or
clarification of this disclosure which each has determined is unnecessary.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that the stockholders
vote FOR the ratification of the selection of Deloitte & Touche LLP to serve as
the Company's independent auditors for the year ending December 31, 2002.
24
STOCK OWNERSHIP
HOW MUCH STOCK IS HELD BY LIGAND'S DIRECTORS, EXECUTIVE OFFICERS AND LARGEST
STOCKHOLDERS?
The following table shows, based on information we have, the
beneficial ownership of the Company's common stock as of March 31, 2002, by
o all persons who are beneficial owners of 5% or more of the
Company's common stock,
o each director and nominee for director,
o the Named Executive Officers and
o all current directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable. Percentage of ownership is based on
66,855,089 shares of common stock outstanding on March 31, 2002. Shares of
common stock underlying options and convertible notes includes options which are
currently exercisable or will become exercisable and convertible notes which are
currently convertible or will become convertible within 60 days after March 31,
2002, are deemed outstanding for computing the percentage of the person or group
holding such options, but are not deemed outstanding for computing the
percentage of any other person or group. The address for individuals for whom an
address is not otherwise indicated is 10275 Science Center Drive, San Diego,
California 92121.
Shares Beneficially
Number of Shares Owned Via Options,
Beneficially Warrants or Percent of
Beneficial Owner Owned Convertible Notes Class Owned
---------------- ---------------- ------------------ -----------
Elan Corporation, plc(1).......................... 14,053,139 0 21.0%
Lincoln House
Lincoln Place
Dublin 2 Ireland
Citigroup, Inc.(2)................................
399 Park Ave. 4,330,006 0 6.5
New York, NY 10043
Henry F. Blissenbach.............................. 74,277 74,277 *
Alexander D. Cross................................ 92,731 72,473 *
John Groom........................................ 76,100 76,100 *
Irving S. Johnson................................. 97,457 74,528 *
Carl C. Peck...................................... 60,864 59,864 *
Michael A. Rocca.................................. 51,627 43,627 *
David E. Robinson................................. 884,800 596,165 1.3
Paul V. Maier..................................... 311,476 277,300 *
Andres F. Negro-Vilar............................. 211,273 206,200 *
William A. Pettit................................. 124,459 124,459 *
Thomas H. Silberg................................. 78,646 78,646 *
Directors and executive officers
as a group (16 persons)........................... 2,456,805 2,071,799 3.6
-----------------------
* Less than 1%
(1) Pursuant to Amendment No. 6 to Schedule 13D filed March 22, 2002 by Elan
Corporation, plc, which reported sole dispositive and voting power over
14,053,139 shares. Additional shares have been issued to Elan since the
filing of its Schedule 13D in March 2002. For additional information
related to Elan's transactions with Ligand, please see "Certain
Relationships and Related Transactions."
(2) Pursuant to a Schedule 13G filed February 13, 2002 by Citigroup, Inc. which
reported shared voting and dispositive power over 4,330,006 shares.
25
EXECUTIVE OFFICERS
The executive officers of the Company as of March 31, 2002 were:
Name Age Position
---- --- --------
David E. Robinson 53 Chairman of the Board, President, Chief Executive
Officer and Director
Paul V. Maier 54 Senior Vice President, Chief Financial Officer
Andres F. Negro-Vilar, M.D., Ph.D. 62 Senior Vice President, Research and Development and
Chief Scientific Officer
William A. Pettit 52 Senior Vice President, Human Resources and
Administration
Thomas H. Silberg 55 Senior Vice President, Global Commercial Operations
Giambattista Aliprandi 59 Vice President, Senior Corporate Controller & Treasurer
Warner R. Broaddus 39 Vice President, General Counsel & Secretary
Phillip A. Duffy 58 Vice President, Technical Operations
Eric S. Groves, M.D., Ph.D. 59 Vice President, Project Management
Howard T. Holden, Ph.D. 57 Vice President, Regulatory Affairs and Compliance
DAVID E. ROBINSON is being considered for the position of director of
the Company. See "Election of Directors" for a discussion of Mr. Robinson's
business experience.
PAUL V. MAIER joined the Company in October 1992 as Vice President,
Chief Financial Officer and became Senior Vice President, Chief Financial
Officer in November 1996. Prior to joining the Company, Mr. Maier served as Vice
President, Finance at DFS West, a division of DFS Group, L.P., a private
multinational retailer from October 1990 to October 1992. From February 1990 to
October 1990, Mr. Maier served as Vice President and Treasurer of ICN
Pharmaceuticals, Inc., a pharmaceutical and biotechnology research products
company. Mr. Maier held various positions in finance and administration at SPI
Pharmaceuticals, Inc., a publicly held subsidiary of ICN Pharmaceuticals Group,
from 1984 to 1988, including Vice President, Finance from February 1984 to
February 1987. He is a member of the Board of Directors of Entropin, Inc., a
public development stage company. Mr. Maier received an M.B.A. from Harvard
Graduate School of Business and a B.S. from Pennsylvania State University.
ANDRES F. NEGRO-VILAR, M.D., PH.D. joined the Company in September
1996 as Senior Vice President, Research, and Chief Scientific Officer and became
Senior Vice President, Research and Development and Chief Scientific Officer in
December 1999. Prior to joining the Company, Dr. Negro-Vilar was Vice President
of Research and Head of the Women's Health Research Institute for Wyeth-Ayerst
Laboratories from 1993 to 1996. From 1983 to 1993, Dr. Negro-Vilar served at the
National Institute of Environmental Health Sciences of the National Institutes
of Health as the Director of Clinical Programs and Chief of the Laboratory of
Molecular and Integrative Neurosciences. He is a member of the Board of
Directors of X-Ceptor Therapeutics, Inc., a privately held biotechnology
company. Dr. Negro-Vilar received an M.D. from the University of Buenos Aires,
Argentina, a Ph.D. in physiology from the University of Sao Paulo, Brazil, and a
B.S. in science from Belgrano College.
WILLIAM A. PETTIT joined the Company in November 1996 as Senior Vice
President, Human Resources and Administration. Prior to joining the Company, Mr.
Pettit was Senior Vice President, Human Resources at Pharmacia & Upjohn, Inc., a
global pharmaceutical and healthcare company, where he was employed from 1986 to
1996. From 1984 to 1986, Mr. Pettit served as Corporate Director, Human
Resources at Browning Ferris Industries, a waste services company. From 1975 to
1984, Mr. Pettit served in various positions at Bristol-Myers Company, now
Bristol-Myers Squibb Company, including Director, Human Resources. Mr. Pettit
received a B.A. in English from Amherst College.
26
THOMAS H. SILBERG joined Ligand in January 2000 as Senior Vice
President, Global Commercial Operations. Prior to joining Ligand, Mr. Silberg
spent 27 years with Hoffmann-La Roche Inc., a major pharmaceutical firm, where
he held a number of sales and marketing positions, most recently as Vice
President of Business Operations and was responsible for general management
relating to the sales and marketing of the product line, and for the national
executive committee activities for major launch products. Mr. Silberg earned
B.S. degrees in marketing and advertising from the University of Minnesota.
GIAMBATTISTA ALIPRANDI joined Ligand in January 1999 as Vice
President, Senior Corporate Controller and was elected an officer of the Company
in May 2001. Prior to joining Ligand, he was an independent consultant to
several companies (including Ligand) in the areas of acquisitions, manufacturing
and planning. From 1994 to 1997, he was the Vice President, Corporate Controller
at Pirelli Cavi S.p.A, a multinational cable and telecommunication equipment
company in Milano, Italy. From 1991 to 1994, he was the Senior Vice President,
Administration and Chief Financial Officer at Himont Inc., a U.S-based
multinational polyolefin company. From 1984 to 1990, he was employed at Erbamont
Inc., a U.S.-based multinational pharmaceutical company where his most recent
position was Vice President, Chief Financial Officer. Mr. Aliprandi held various
management positions with The Singer Company from 1963 to 1984. Mr. Aliprandi
earned an accounting degree from Istituto Mose Bianchi in Italy.
WARNER R. BROADDUS joined Ligand in November 2001 as Vice President,
General Counsel & Secretary. Prior to joining Ligand, Mr. Broaddus served as
General Counsel and Secretary of Invitrogen Corporation, a biotechnology
reagents & equipment maker, where he was employed from October 1994 to November
2000. In that capacity he had overall responsibility for the company's legal
affairs, including intellectual property, securities and corporate governance.
From 1986 to 1990, Mr. Broaddus was an analyst for Morgan Stanley & Co. and UBS
Securities, Inc. (now UBS Warburg). Mr. Broaddus holds a J.D. from the
University of San Diego and a B.S. from the University of Virginia.
PHILIP A. DUFFY joined Ligand as Vice President, Technical Operations
in January 1998. From 1994 until joining Ligand, Mr. Duffy served as Vice
President, Product Supply for Schein Bayer Pharmaceutical Services, Inc., where
he was responsible for all global manufacturing and supply chain activities.
From 1993 to 1994, he was the principal of Philip A. Duffy & Associates, a New
Jersey-based pharmaceutical consulting practice. From 1992 to 1993, he was
Corporate Vice President, Materials Management at ICN Pharmaceuticals Inc. Prior
to 1992, Mr. Duffy held management positions with a number of pharmaceutical
companies including Schering-Plough Inc., G.D. Searle & Co., and Baxter
International. Mr. Duffy earned a B.A. in economics from Marquette University
and an M.B.A. at George Williams College.
ERIC S. GROVES, M.D., PH.D. joined Ligand in August 1999 as Vice
President, Project Management. From 1994 until joining Ligand, Dr. Groves held a
number of positions at Sanofi Pharmaceuticals, most recently as Vice President,
Project Direction where he was responsible for the worldwide strategy of and
project direction for late-stage Sanofi oncology projects. From May 1991 through
October 1994, Dr. Groves had served as Senior Project Director for the research
division of Sterling Winthrop Corporation, and served as acting Vice President,
Discovery and Clinical Research, Immunoconjugate Division. He was Director,
Clinical Research and Development at CETUS Corporation from 1989 through 1991.
Dr. Groves received his B.S. degree from Massachusetts Institute of Technology
and his Ph.D. in physics from the University of Pennsylvania. He earned his M.D.
at the University of Miami and completed an oncology fellowship at the National
Cancer Institute.
HOWARD T. HOLDEN, PH.D. joined the Company in September 1992 as Vice
President, Regulatory Affairs and Compliance. Prior to joining the Company, Dr.
Holden was Senior Director, Worldwide Regulatory Affairs at Parke-Davis
Pharmaceutical Research Division of the Warner-Lambert Company (now Pfizer,
Inc.). From 1986 to 1988, Dr. Holden served as Director, Regulatory Affairs and
Compliance at Centocor Inc., a pharmaceutical company. From 1973 to 1986, Dr.
Holden served at the National Cancer Institute as Section Head/ Senior
Investigator in the Cancer Therapy Evaluation Program and the Biological
Response Modifiers Program. Dr. Holden received a Ph.D. in microbiology from the
University of Miami and a B.A. in zoology from Drew University.
27
EXECUTIVE COMPENSATION AND OTHER INFORMATION
HOW ARE THE SENIOR EXECUTIVES COMPENSATED?
The following table summarizes the compensation earned by the Named
Executive Officers, i.e. the Chief Executive and the next four most
highly-compensated executive officers, for services rendered in all capacities
to the Company and its subsidiaries for the fiscal years ended December 31,
2001, 2000 and 1999:
SUMMARY COMPENSATION TABLE
Long-Term
Compensation All Other
Annual Compensation Awards Compensation($)(4)
--------------------------------------------------------------------------------------------
Name and Principal Position Securities
--------------------------- Other Annual Underlying
Compensation Options/
Year Salary($)(1) Bonus($)(2) ($)(3) SARS(#)
---- ----------- ----------- ------------ ----------
DAVID E. ROBINSON..................... 2001 573,945 0 0 50,000 1,242
Chairman of the Board, 2000 554,631 50,000 0 75,000 1,242
President and CEO 1999 540,225 50,000 61,078 100,000 1,917
PAUL V. MAIER......................... 2001 259,109 0 0 40,000 1,240
Senior Vice President, 2000 249,144 39,865 0 40,000 1,214
Chief Financial Officer 1999 238,444 46,735 23,943 0 1,819
ANDRES F. NEGRO-VILAR ................
Senior Vice President, 2001 369,550 0 0 40,000 35,544
Research and Development and Chief 2000 359,561 62,500 0 30,000 37,524
Scientific Officer 1999 288,864 62,100 57,678 30,000 39,526
230,080 16,972
WILLIAM A. PETTIT..................... 2001 222,300 0 0 30,000 18,949
Senior Vice President, 2000 214,799 35,570 5,250 30,000 20,453
Human Resources and Administration 1999 44,463 9,000 0
THOMAS H. SILBERG(5).................. 2001 310,500 0 14,250 40,000 41,457
Senior Vice President, 2000 287,500 157,000 96,722 125,000 1,190
Commercial Operations
(1) Compensation deferred at the election of the executive, pursuant to
the Ligand Pharmaceuticals 401(k) Plan and Ligand Deferred
Compensation Plan are included in the year earned.
(2) Bonuses to be paid to the Named Executive Officers for services
rendered during 2001 will be determined following the mailing of this
proxy statement. The amount for 2000 for Mr. Silberg includes a
sign-on bonus of $115,000.
(3) Amounts which are not otherwise described in this note for the Named
Executive Officers represent the value of excess earnings on
contributions to the Deferred Compensation Plan that were either paid
or for which payment was deferred at the election of the Named
Executive Officers. The amounts for 2001 include the following: for
Mr. Silberg, includes $14,250 of housing allowance. The amounts for
2000 include the following: for Mr. Silberg, includes $96,722 of
relocation reimbursements, for Mr. Pettit, includes $5,250 of housing
allowance. The amounts for 1999 include the following: for Dr.
Negro-Vilar, includes $15,000 housing allowance; for Mr. Pettit,
includes $9,000 housing allowance.
(4) Amounts which are not otherwise described in this note for the Named
Executive Officers represent the value of life insurance coverage. The
amounts for 2001 include the following: for Mr. Silberg, includes
$39,135 loan forgiveness; for Dr. Negro-Vilar, includes $31,980 loan
forgiveness; for Mr. Pettit, includes $15,861 loan forgiveness. The
amounts for 2000 include the following: for Dr. Negro-Vilar, includes
$33,960 loan forgiveness; for Mr. Pettit, includes $17,875 loan
forgiveness. The amounts for 1999 include the following: for Dr.
Negro-Vilar, includes $35,940 loan forgiveness; for Mr. Pettit,
includes $18,834 loan forgiveness.
(5) Mr. Silberg joined the Company in January 2000.
28
WHAT STOCK OPTIONS AND STOCK APPRECIATION RIGHTS DID THE SENIOR EXECUTIVES
RECEIVE IN THE LAST YEAR?
The following table provides information on the option grants made to
the Named Executive Officers, i.e. the Chief Executive and the next four most
highly-compensated executive officers, during the fiscal year ended December 31,
2001. No stock appreciation rights were granted to the Named Executive Officers
during that fiscal year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------
Potential Realizable
Value at Assumed
Annual Rates of
Number of % of Total Stock Price
Securities Options/SARs Appreciation for
Underlying Granted to Option Term
Options/SARs Employees in Exercise or --------------------
Granted Fiscal Base Price Expiration
Name (#) Year ($/Sh) Date 5%($) 10%($)
---- --- ---- ------ ---- --------- --------
David E. Robinson 50,000 5.2358% $9.87 7/12/11 $310,360 $786,512
Paul V. Maier 40,000 4.1887 10.68 7/6/11 268,664 680,847
Andres Negro-Vilar 40,000 4.1887 10.68 7/6/11 268,664 680,847
William A. Pettit 30,000 3.1415 10.68 7/6/11 201,498 510,635
Thomas H. Silberg 40,000 4.1887 10.68 7/6/11 268,664 680,847
Each option has a maximum term of 10 years measured from such grant
date, subject to earlier termination upon the optionee's cessation of service
with the Company. The shares subject to each option are only exercisable if
vested and will vest in four successive equal annual installments upon the
optionee's completion of each year of service with the Company over the
four-year period measured from the option grant date. The vesting of the shares
subject to the options granted to Mr. Robinson will accelerate in connection
with his termination of employment under certain circumstances, including a
change in control of the Company. The shares subject to the options granted to
the other Named Executive Officers will immediately vest in full in the event
their employment were to terminate following certain changes in control of the
Company. These arrangements are described below in "Employment, Severance and
Change of Control Arrangements with Executive Officers."
The plan administrator may grant tandem stock appreciation rights in
connection with option grants which require the holder to elect between the
exercise of the underlying option for shares of common stock and the surrender
of such option for a distribution from the Company, payable in cash or shares of
common stock, based upon the appreciated value of the option shares.
The exercise price may be paid in cash, in shares of common stock
valued at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company may
also finance the option exercise by loaning the optionee sufficient funds to pay
the exercise price for the purchased shares and the federal and state tax
liability incurred in connection with such exercise. The optionee may be
permitted, subject to the approval of the plan administrator, to apply a portion
of the shares purchased under the option, or to deliver existing shares of
common stock, in satisfaction of such tax liability.
The Company does not provide assurance to any executive officer or any
other holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% and 10%
levels or at any other defined level. Unless the market price of the common
stock does in fact appreciate over the option term, no value will be realized
from the option grants made to the executive officers.
29
WHAT STOCK OPTIONS AND STOCK APPRECIATION RIGHTS DID THE SENIOR EXECUTIVES
EXERCISE OR HOLD LAST YEAR?
The following table shows information concerning option exercises and
holdings for the year ended December 31, 2001 with respect to each of the Named
Executive Officers. No stock appreciation rights were exercised by the Named
Executive Officers during such fiscal year, and no stock appreciation rights
were held by them at the end of such fiscal year. No shares were acquired on the
exercise of options during the fiscal year ended December 31, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
----------------------------------------------------------------------------------------------------------------
Number of Securities Underlying
Shares Unexercised Options/SARs Value of Unexercised In-the-Money
acquired at December 31, 2001 Options/SARs at December 31, 2001
on ---------------------------------- -------------------------------------
Name exercise Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
---- -------- --------------- ----------------- --------------- -----------------
David E. Robinson 0 559,187 143,228 $3,809,679 $1,014,566
Paul V. Maier 0 257,830 78,107 2,068,736 557,137
Andres Negro-Vilar 0 184,860 86,015 1,305,766 661,923
William A. Pettit 0 110,292 57,708 707,250 410,363
Thomas H. Silberg 0 57,292 107,708 87,370 392,055
----------------------------------------------------------------------------------------------------------------
Value of unexercised in-the-money options is equal to the fair market value of
the securities underlying the option at fiscal year-end, $17.90 per share, less
the exercise price payable for those securities.
EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS WITH EXECUTIVE OFFICERS
In May 1996, the Company entered into an employment agreement with Mr.
Robinson pursuant to which he is to be employed as President and Chief Executive
Officer. This agreement will automatically renew for three years on May 1, 2002,
i.e. until May 1, 2005, and will automatically be renewed for successive
additional three year terms unless earlier terminated by the Company or Mr.
Robinson. During the remainder of the employment term, Mr. Robinson will receive
a base salary of at least $561,834 per year and annual incentive bonuses based
upon his performance and the Company's attainment of designated performance
goals. If Mr. Robinson's employment is terminated without cause, or if he
resigns for specified reasons, such as
o a change in position, duties and responsibilities without consent,
o a reduction in salary or benefits, or
o certain events occurring upon a change in control of the Company,
he will be entitled to a severance payment equal to 24 months of base salary, at
the rate in effect for him at the time of such termination, and all of his
outstanding options will, except under certain limited circumstances, vest and
become exercisable for all the option shares on an accelerated basis in
connection with his termination of employment, including a termination following
a change in control of the Company.
In January 2000, the Company entered into an employment agreement with
Mr. Silberg pursuant to which he is employed as Senior Vice President,
Commercial Operations for an unspecified term with an initial annual base salary
of $300,000. The agreement provides that Mr. Silberg is an at-will employee. In
connection with the agreement, the Company loaned Mr. Silberg the principal sum
of $150,000 with an interest rate of 6.09% per annum. The principal balance,
together with accrued interest, will be forgiven in five successive annual
installments upon his completion of each year of employment with the Company
over the five-year period measured from October 2000. Upon his termination of
employment, the entire unpaid balance will become immediately due and
30
payable. Mr. Silberg was also granted an option to purchase 125,000 shares of
common stock at an exercise price of $16.375 per share.
In September 1996, the Company entered into an employment agreement
with Dr. Negro-Vilar pursuant to which he is employed as Senior Vice President,
Research and Chief Scientific Officer for an unspecified term. The agreement
provides that Dr. Negro-Vilar is an at-will employee. In connection with the
agreement, the Company loaned Dr. Negro-Vilar the principal sum of $150,000 with
an interest rate of 6.6% per annum. The principal balance, together with accrued
interest, will be forgiven in five successive equal annual installments upon his
completion of each year of employment with the Company over the five-year period
measured from November 1996. Upon his termination of employment, the entire
unpaid balance will become immediately due and payable. In addition, Dr.
Negro-Vilar was granted an option to purchase 100,000 shares of the common stock
at an exercise price of $12.13 per share. The shares will vest in a series of
four successive equal annual installments upon his completion of each year of
employment with the Company over the four-year period measured from the grant
date. In the event his employment is terminated without cause, he will be
entitled to 12 months of salary continuation payments, and all of his
outstanding options will immediately vest and become exercisable for all of the
option shares.
In September 1992, Ligand entered into an employment agreement with
Paul V. Maier pursuant to which Mr. Maier is employed as Senior Vice President
and Chief Financial Officer for an unspecified term. The agreement provides that
Mr. Maier is an at-will employee. In connection with the agreement, Ligand
loaned Mr. Maier $75,000 which, with the accrued interest, was forgiven in equal
annual installments over five years. In connection with the agreement, Mr. Maier
was granted an option to purchase 81,188 shares of common stock, which shares
vest over four years, at an average price of $8.87 per share. If Mr. Maier's
employment is terminated by the Company without cause, he will be entitled to
six months base salary.
In November 1996, Ligand entered into an employment agreement with
William A. Pettit pursuant to which Mr. Pettit is employed as Senior Vice
President, Human Resources and Administration for an unspecified term. The
agreement provides that Mr. Pettit is an at-will employee. In connection with
the agreement, Ligand loaned Mr. Pettit $75,000 which, with the accrued
interest, was repaid in 2001. In connection with the agreement, Mr. Pettit was
granted an option to purchase 75,000 shares of common stock, which shares vest
over four years, at an average price of $12.13 per share. If Mr. Pettit's
employment is terminated by the Company without cause, he will be entitled to
six months base salary.
The Company has entered into an agreement with each employee holding
one or more outstanding options under the 1992 Plan, including each of the Named
Executive Officers other than Mr. Robinson, pursuant to which such options will
automatically vest on an accelerated basis in the event that such individual's
employment is terminated following
o an acquisition of the Company by merger or asset sale or
o a change in control of the Company effected through a successful
tender offer for more than 50% of the Company's outstanding common
stock or through a change in the majority of the Board as a result of
one or more contested elections for Board membership.
As indicated above, all of Mr. Robinson's outstanding options will, except under
certain limited circumstances, vest and become exercisable for all the option
shares on an accelerated basis in connection with his termination of employment,
including a termination following a change in control of the Company.
The Company has entered into severance agreements with each of the
Named Executive Officers, other than Mr. Robinson, and the other executive
officers pursuant to which such individuals will, in the event their employment
is involuntarily terminated in connection with a change in control of the
Company, receive a severance benefit equal to
o one times the annual rate of base salary in effect for such officer at
the time of involuntary termination plus
31
o one times the average of bonuses paid to such officer for services
rendered in the two fiscal years immediately preceding the fiscal year
of involuntary termination. The severance amount will be payable in 12
monthly installments following the officer's termination of
employment.
RELATIONSHIPS AND INDEPENDENCE OF THE COMPENSATION COMMITTEE MEMBERS
The Compensation Committee is composed of Messrs. Blissenbach and
Groom and Dr. Johnson. No member of the Compensation Committee was at any time
during the 2001 fiscal year or at any other time an officer or employee of the
Company. No executive officer of the Company served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as members of the Company's Board of Directors or Compensation
Committee.
Mr. Groom, a member of the Compensation Committee, is currently a
director of Elan Corporation where he also served as President, Chief Operating
Officer until his retirement in January 2001. Ligand and Elan have entered into
a number of agreements and transactions. For a more detailed description of Mr.
Groom's and the Company's relationship with Elan please see "Proposal No. 1
Election of Directors-Business Experience of Director-Nominees" above and
"Certain Relationships and Related Transactions" below.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE EXCHANGE ACT, AS AMENDED, THAT MIGHT INCORPORATE THIS PROXY
STATEMENT OR FUTURE FILINGS MADE BY THE COMPANY UNDER THOSE STATUTES, THE
COMPENSATION COMMITTEE REPORT, THE AUDIT COMMITTEE REPORT, AUDIT COMMITTEE
CHARTER, REFERENCE TO THE INDEPENDENCE OF THE AUDIT COMMITTEE MEMBERS AND STOCK
PERFORMANCE GRAPH ARE NOT DEEMED FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND SHALL NOT BE DEEMED INCORPORATED BY REFERENCE INTO ANY OF THOSE
PRIOR FILINGS OR INTO ANY FUTURE FILINGS MADE BY THE COMPANY UNDER THOSE
STATUTES..
COMPENSATION COMMITTEE REPORT
THE FOLLOWING IS THE REPORT DELIVERED BY THE COMPENSATION COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS WITH RESPECT TO THE PRINCIPAL FACTORS
CONSIDERED BY SUCH COMMITTEE IN DETERMINING THE COMPENSATION OF THE COMPANY'S
EXECUTIVE OFFICERS.
As members of the Compensation Committee of the Board of Directors, it
is our duty to set the base salary of the Company's executive officers and to
administer the Company's Stock Option/Stock Issuance and Employee Stock Purchase
Plans under which grants may be made to the executive officers and other key
employees. In addition, we approve the individual bonus programs to be effective
for the executive officers each fiscal year.
GENERAL COMPENSATION POLICY. Our fundamental policy is to offer the
Company's executive officers competitive compensation opportunities based upon
their contribution to the financial success of the Company and their personal
performance. It is our objective to have a substantial portion of each officer's
compensation contingent upon the Company's performance as well as upon his or
her own level of performance. Accordingly, each executive officer's compensation
package is comprised of three elements:
o base salary which reflects individual performance and is designed
primarily to be competitive with salary levels in the industry,
o annual variable performance awards payable in cash and tied to the
achievement of financial performance goals established by the Company,
and
o long-term stock-based incentive awards which strengthen the mutuality
of interests between the executive officers and the Company's
stockholders.
As an officer's level of responsibility increases, it is our intent to have a
greater portion of his or her total compensation be dependent upon the Company's
performance and stock price appreciation rather than base salary.
32
FACTORS. The principal factors which we considered in establishing the
components of each executive officer's compensation package for the 2001 fiscal
year are summarized below. We may in our discretion apply entirely different
factors, particularly different measures of financial performance, in setting
executive compensation for future fiscal years, but all compensation decisions
will be designed to further the general compensation policy indicated above.
BASE SALARY. The base salary for each officer is set on the basis of:
o industry experience, knowledge and qualifications,
o the salary levels in effect for comparable positions within the
Company's principal industry marketplace competitors and
o internal comparability considerations.
We did not rely upon any specific compensation surveys for comparative
compensation purposes. Instead, we made our decisions as to the appropriate
market level of base salary for each executive officer on the basis of our
understanding of the salary levels in effect for similar positions at those
companies with which the Company competes for executive talent. We estimate that
the salary levels of the Company's executive officers range from the 50th
percentile to the 90th percentile of the salary levels in effect for comparable
positions at those other companies.
ANNUAL INCENTIVE COMPENSATION. Annual bonuses are earned by each
executive officer solely on the basis of the Company's achievement of the
corporate performance targets we establish at the start of the fiscal year. For
fiscal year 2001, the performance targets were based upon individual goals
supporting key corporate objectives, and each executive will be evaluated in
relation to his or her contribution to the attainment of those targets.
Accordingly, this element of executive compensation is earned solely on the
basis of the Company's success in achieving the corporate goals. This element of
compensation has not been determined as of the date of the mailing of this
proxy.
LONG-TERM INCENTIVE COMPENSATION. During 2001, we approved the grant
of stock options to certain executive officers under the 1992 Stock Option/Stock
Issuance Plan. The grants are designed to align the interests of each executive
officer with those of the stockholders and provide each individual with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. The number of shares subject to each
option grant was based on the officer's level of responsibilities and relative
position in the Company. However, we do not adhere to any specific set of
guidelines and determine the size of each grant as circumstances warrant.
Each grant allows the officer to acquire shares of common stock the
market price on the grant date over a specified period of time, up to 10 years.
Accordingly, the option will provide a return to the executive officer only if
the market price of the shares appreciates over the option term.
CEO COMPENSATION. In setting the compensation payable to the Company's
Chief Executive Officer, Mr. Robinson, we have sought to be competitive with
other companies in the industry, while at the same time tying a significant
percentage of such compensation to the Company's performance and stock price
appreciation. As described above under "Employment, Severance and Change of
Control Arrangements with Executive Officers," an employment agreement between
the Company and Mr. Robinson sets forth the terms and conditions, including
compensation, governing Mr. Robinson's employment.
We established Mr. Robinson's base salary upon our evaluation of his
personal performance and our objective to have his base salary keep pace with
salaries being paid to similarly situated chief executive officers. We estimate
that his base salary is at the 75th to 90th percentile of the salary levels paid
to such other chief executive officers.
The remaining components of Mr. Robinson's 2001 fiscal year
compensation, however, were entirely dependent upon financial performance and
provided no dollar guarantees. The cash bonus paid to him for the 2001 fiscal
year will be based entirely on the Company's attainment of certain objectives
based on key corporate goals. This cash bonus has not been determined as of the
date of the mailing of this proxy. It is our objective to
33
have an increasing percentage of Mr. Robinson's total compensation each year
tied to the attainment of performance targets and stock price appreciation on
his option shares.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m)
of the Internal Revenue Code disallows a tax deduction to publicly held
companies for compensation paid to certain of their executive officers, to the
extent that compensation exceeds $1.0 million per covered officer in any fiscal
year. The limitation applies only to compensation which is not considered to be
performance-based. The non-performance based compensation paid in cash to the
Company's executive officers for the 2001 fiscal year did not exceed the $1.0
million limit per officer, and the Compensation Committee does not anticipate
that the non-performance based compensation to be paid in cash to the Company's
executive officers for fiscal 2002 will exceed that limit. The 1992 Stock
Option/Stock Issuance Plan has been structured so that any compensation paid in
connection with the exercise of options grants under that plan with an exercise
price equal to the fair market value of the option shares on the grant date will
qualify as performance-based compensation, and therefore not subject to the $1.0
million limitation.
It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align the Company's performance and the interests of the Company's
stockholders through the use of competitive and equitable executive
compensations in a balanced and reasonable manner, for both the short- and
long-term.
We conclude our report with the acknowledgement that no member of the
Compensation Committee is a current officer or employee of the Company or any of
its subsidiaries.
COMPENSATION COMMITTEE
HENRY F. BLISSENBACH, CHAIR
JOHN GROOM
IRVING S. JOHNSON, Ph.D.
34
AUDIT COMMITTEE REPORT
THE FOLLOWING IS THE REPORT DELIVERED BY THE AUDIT COMMITTEE OF THE
COMPANY'S BOARD OF DIRECTORS WITH RESPECT TO THE PRINCIPAL FACTORS CONSIDERED BY
SUCH COMMITTEE IN ITS OVERSIGHT OF THE ACCOUNTING, AUDITING AND FINANCIAL
REPORTING PRACTICES OF THE COMPANY FOR FISCAL YEAR 2001.
In accordance with its written charter adopted by the Board of
Directors, the Audit Committee of the Board assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of the Company. During 2001, the
Committee met two times, and the Committee chair, as representative of the
Committee, discussed the interim financial information contained in each
quarterly earnings announcement with the CFO, senior corporate controller and
independent auditors prior to public release.
In discharging its oversight responsibility as to the audit process,
the Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditor's independence consistent with Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees,"
discussed with the auditors any relationships that may impact their objectivity
and independence and satisfied itself as to the auditor's independence. The
Committee also discussed with management, and the independent auditors the
quality and adequacy of the Company's internal controls. The Committee reviewed
with the independent auditors their audit plans, audit scope, and identification
of audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements.
The Committee reviewed the audited financial statement of the Company
as of and for the fiscal year ended December 31, 2001 with management and the
independent auditors. Management has the responsibility for the preparation of
the Company's financial statements and the independent auditors have the
responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management
and the independent auditors, the Committee recommended to the Board that the
Company's audited financial statements be included in its Annual Report on Form
10-K for the fiscal year ended December 31, 2001, for filing with the Securities
and Exchange Commission. The Committee also recommended the reappointment,
subject to stockholder approval, of the independent auditors and the Board
concurred in such recommendation.
AUDIT COMMITTEE
MICHAEL A. ROCCA, CHAIR
HENRY F. BLISSENBACH
ALEXANDER D. CROSS, PH.D.
35
PERFORMANCE GRAPH
The graph below shows the five-year cumulative total stockholder
return assuming the investment of $100 and the reinvestment of dividends,
although dividends have not been declared on the common stock, and is based on
the returns of the component companies weighted according to their market
capitalizations as of the end of each monthly period for which returns are
indicated in each of the common stock, and compares total stockholder returns of
common stock, the Nasdaq Composite Index, and the Nasdaq Pharmaceutical Index.
The Nasdaq Composite Index tracks the aggregate price performance of equity
securities of companies traded on the Nasdaq. The common stock is traded on the
Nasdaq National Market. The Nasdaq Pharmaceutical Index tracks approximately 260
domestic stocks in the biotechnology sector.
The stockholder return shown on the graph below is not necessarily
indicative of future performance and the Company will not make or endorse any
predictions as to future stockholder returns.
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETUN*
NASDAQ NASDAQ
LIGAND COMPOSITE INDEX PHARMACEUTICAL INDEX
------- --------------- --------------------
12/31/1996 100 100 100
12/31/1997 86.555 122.482 103.05
12/31/1998 78.151 172.704 130.807
12/31/1999 86.555 320.874 246.642
12/31/2000 94.118 193.001 307.651
12/31/2001 120.336 153.146 262.188
*Assumes $100 investment in Company's common stock on December 31, 1996.
36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1998 the Company and Elan Corporation, plc and one or
more of its affiliates ("Elan") entered into an agreement for Elan to provide
financing to the Company and an exclusive license in the United States and
Canada to Elan's product Avinza(TM) (formerly Morphelan(TM)), a form of morphine
for pain management in oncology and HIV patients. In connection with the
financing agreement, the Company has issued an aggregate of 3,783,512 shares of
common stock, 91,406 warrants and $110 million issue price of zero coupon
convertible senior notes, due 2008 with 8% per annum yield to maturity. Through
March 2002, Elan has converted $110 million issue price of those notes for an
aggregate of 9,918,929 shares of common stock, and has received an additional
664,146 shares of common stock as incentive to convert the notes. For the rights
to Avinza(TM), the Company paid Elan certain license fees in 1998, with
milestone payments due upon the occurrence of certain events. The Company has
made milestone payments of an aggregate of $14 million through the issuance of
an aggregate of 1,168,180 shares of common stock.
In 1996, the Board adopted a shareholders rights plan (the "Rights
Plan") which provides for a dividend distribution of one preferred share
purchase right (a "Right") on each outstanding share of our common stock. Each
Right entitles stockholders to buy 1/1000th of a share of Ligand Series A
Participating Preferred Stock at an exercise price of $100, subject to
adjustment. Generally, the Rights become exercisable following the tenth day
after a person or group announces acquisition of 20% or more of the common
stock, or announces commencement of a tender offer, the consummation of which
would result in ownership by the person or group of 20% or more of the common
stock. In connection with our September 1998 agreements with Elan, we amended
the Rights Plan to provide that the Rights would not become exercisable by
reason of Elan's (i) beneficial ownership on or before November 9, 2005 of up to
25% of the Common Stock or (ii) beneficial ownership after November 9, 2005 of a
percentage of our common stock equal to its beneficial ownership on that date,
to the extent such ownership exceeds 20%.
In December 2001, an affiliate of Elan Corporation plc agreed to
convert $50.0 million issue price of zero coupon convertible senior notes, plus
accrued interest, into 4,406,010 shares of common stock. In connection with this
conversion, the Company provided Elan with a $5.0 million conversion incentive
through the issuance of an additional 274,843 shares of common stock. In March
2002, the same Elan affiliate agreed to convert an additional $20.0 million
issue price of those notes, plus accrued interest, into 1,766,916 shares of
common stock and received a conversion incentive of an additional 102,151
shares. Also in March 2002, the Elan affiliate exercised its warrant for 91,406
shares of common stock, resulting in proceeds to Ligand of $914,406. In February
2001, we entered into an exclusive distribution agreement with Elan to market
and sell in the territory, principally Eastern and Western Europe, the Company's
five near-term oncology products: ONTAK(R), Targretin(R) capsules, Targretin(R)
gel, Panretin(R) capsules and Panretin(R) gel. Elan will be responsible for
marketing directly in key markets in its territory, which include Germany,
France, the U.K. and other countries in Northern Europe, as well as working with
the Company to develop and coordinate marketing and promotional strategies
throughout Europe. The Company will exclusively supply Elan with all five
products at fixed percentages of in-market net selling prices, which vary by
product and country.
Mr. Groom, a member of our Board and a nominee for director, is a
director of Elan Corporation where he also served as President and Chief
Operating Officer until his retirement in January 2001. Please see "Proposal No.
1 Election of Directors-Business Experience of Directors" above for a more
detailed description of Mr. Groom's relationship with Elan. As of March 31,
2002, Elan beneficially owned 14,457,993 shares of our common stock.
Certain holders of the common stock, and the common stock issuable
upon exercise of warrants and other convertible securities, are entitled to
registration rights with respect to such stock.
We have entered into employment agreements and severance agreements
with each of Messrs. Robinson, Silberg, Pettit and Maier and Dr. Negro-Vilar. As
of March 31, 2002 Mr. Silberg owed the Company $107,500 pursuant to a loan made
under his employment agreement. The largest amount owed to the Company by Mr.
Silberg during 2001 was $145,000. Please see "Employment, Severance and Change
of Control Arrangements with Executive Officers" above for more details
regarding these agreements.
37
Our bylaws provide that the Company will indemnify its directors and
executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by the Delaware General Corporation Law.
The Company is also empowered under its bylaws to enter into indemnification
contracts with its directors and officers and to purchase insurance on behalf of
any person whom it is required or permitted to indemnify. Pursuant to this
provision, the Company has entered into indemnity agreements with each of its
directors and officers.
In addition, the Company's certificate of incorporation provides that
to the fullest extent permitted by Delaware law, the Company's directors will
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Company and its stockholders. This provision in the Certificate
of Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, for acts or omissions that
the director believes to be contrary to the best interests of the Company or its
stockholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Company or its stockholders when the director was aware
or should have been aware of a risk of serious injury to the Company or its
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
All future transactions between the Company and its officers,
directors, principal stockholders and affiliates will be approved by a majority
of the independent and disinterested members of the Board of Directors, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the Nasdaq. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that, during the period from January through December 2001, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were satisfied except that three Forms 4 were filed late
during 2001 as follows: one Form 4 was filed late for each of Drs. Holden, Peck
and Negro-Vilar, representing 1, 1 and 3 transactions in our common stock,
respectively. The aggregate number of shares involved in these late filings was
11,649.
DEADLINE FOR PROPOSALS FOR NEXT ANNUAL MEETING
Under the present rules of the SEC, the deadline for stockholders to
submit proposals to be considered for inclusion in the Company's proxy statement
for next year's annual meeting of stockholders is expected to be December 12,
2002, 120 days prior to April 11, 2003. Such proposals may be included in next
year's proxy statement if they comply with certain rules and regulations
promulgated by the SEC and the procedure set forth in the bylaws of the Company,
which requires notice to be delivered or mailed and received at the Company's
executive offices on or before December 21, 2002.
In addition, the proxy solicited by the Board of Directors for the
year 2003 annual meeting of stockholders will confer discretionary authority to
rate on any stockholder proposal presented at that meeting, unless the Company
receives notice of such proposal no later than December 12, 2002.
ANNUAL REPORT AND FORM 10-K
A copy of the Annual Report of the Company for the 2001 Fiscal Year
which includes the Company's Annual Report on Form 10-K has been mailed
concurrently with this proxy statement to all stockholders
38
entitled to notice of and to vote at the annual meeting. The Annual Report is
not incorporated into this proxy statement and is not considered proxy
solicitation material.
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional solicitation material furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram or other means by directors, officers, employees or agents
of the Company. To assist in the solicitation process, the Company has retained
Mellon Investor Services LLC. The fee for such services will be approximately
$5,500 plus reasonable expenses incurred to distribute solicitation materials.
No additional compensation will be paid to directors, officers or employees of
the Company for any such services. Except as described above, the Company does
not presently intend to solicit proxies other than by mail.
OTHER BUSINESS
As of the date of this proxy statement, the Board of Directors knows
of no other business that will be presented for consideration at the annual
meeting. If other matters are properly brought before the annual meeting,
however, it is the intention of the persons named in the accompanying proxy to
vote the shares represented thereby on such matters in accordance with their
best judgment.
By Order of the Board of Directors
/S/WARNER R. BROADDUS
Warner R. Broaddus
VICE PRESIDENT, GENERAL COUNSEL & SECRETARY
April 11, 2002
"LIGAND", THE LIGAND LOGO, ONTAK, PANRETIN AND TARGRETIN ARE REGISTERED
TRADEMARKS OF THE COMPANY. AVINZA(TM) IS A TRADEMARK OF THE COMPANY. OTHER
TRADEMARKS IN THIS PROXY STATEMENT ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.
39
APPENDIX A
AUDIT COMMITTEE CHARTER
LIGAND PHARMACEUTICALS INCORPORATED
I. THE ROLE OF THE AUDIT COMMITTEE
The primary responsibility of the Audit Committee (the "Committee") is
to assist the Board of Directors (the "Board") of Ligand Pharmaceuticals
Incorporated (the "Company") in fulfilling its oversight responsibilities by:
1. reviewing the financial information to be provided to the Company's
stockholders and others;
2. overseeing the Company's audit and compliance processes and financial
reporting functions;
3. monitoring and ensuring the adequacy of the Company's systems of internal
control;
4. reviewing the performance of the Company's outside auditors (the
"Independent Auditors") and ensuring the independence thereof.
The Committee's mandate is one of oversight and its role in no way
relieves the Company's management of its responsibility for preparing the
Company's financial statements such that they accurately and fairly present the
Company's financial condition, nor does it relieve the Independent Auditors of
their responsibility for auditing those financial statements.
The Audit Committee may call on such resources as necessary to fulfill
its responsibilities including Independent Auditors, management and consultants.
The Independent Auditors' ultimate responsibility is to the Board of
Directors and the Audit Committee, as representatives of the stockholders. The
Committee shall review the performance of the Independent Auditors and make
reports and recommendations to the Board which are appropriate in its judgment,
however at least one such report shall be made annually in connection with the
Company's year-end reporting. The Board has the ultimate authority to select,
evaluate and, where appropriate, replace the Independent Auditors.
The Audit Committee will primarily fulfill its responsibilities by
carrying out the activities enumerated under Article IV, "Duties of the Audit
Committee."
II. AUDIT COMMITTEE COMPOSITION
The Audit Committee shall be comprised of three or more independent
directors. All members of the Audit Committee shall have a working familiarity
with basic finance and accounting practices, and at least one member of the
Audit Committee shall have accounting or related financial management expertise.
Members shall be appointed or removed by the Board.
III. FREQUENCY OF MEETINGS
The Audit Committee's regular meetings ordinarily coincide with the
regular meetings of the Board, but the Committee shall set the time and place of
its regular meetings as it deems appropriate. The Committee may hold special
meetings as needed to fulfill its duties. The business of the Committee may be
conducted at such regular or special meetings, or by unanimous written consent.
Special meetings may be called by any member of the Committee, by the Board, or
by the Chairman of the Board. Reasonable notice of the time and place of all
meetings shall be given to the Committee members in writing by fax, email,
regular mail or courier effective upon receipt, but in no event less than 48
hours prior to the meeting. Notice may be waived at the relevant meeting, or at
any time in writing. Meetings may be held in person or by telephonic or video
conference.
A-1
IV. DUTIES OF THE AUDIT COMMITTEE
To fulfill its responsibilities and duties the Audit Committee shall:
1. Review this Charter at least annually and recommend any changes to the
Board of Directors;
2. Review the Company's annual financial statements and any other relevant
reports or other financial information;
3. Review the regular internal financial reports prepared by management and
any internal auditing department;
4. Review with management, the Independent Auditors and the internal auditing
department, if any, the quality and adequacy of, and compliance with, the
Company's internal controls;
5. Recommend to the Board of Directors the selection of the Independent
Auditors and approve the terms of engagement, scope of audits and fees and
other compensation to be paid to the Independent Auditors;
6. On an annual basis, obtain and review a formal written statement of
Independence from the Independent Auditors which describes at least (a) the
qualifications of all partners and key managers involved in the Company's
audit; and (b) all relationships between the such Auditors and the Company
relevant to applicable independence standards;
7. Review the performance of the Independent Auditors and approve any proposed
discharge of the Independent Auditors when circumstances warrant;
8. Following completion of the annual audit, review separately with each of
(a) the Independent Auditors, (b) the Chief Financial Officer and (c) the
Corporate Controller and (d) appropriate member(s) of the internal
accounting department, if any, and management any significant issues
encountered during the course of the audit and the Company's internal
processes and controls and compliance therewith;
9. Review with the Independent Auditors and/or management the Company's 10-K
and other financial reports prior to their filing as necessary and
appropriate;
10. Conduct or authorize investigations into any matter within the Committee's
scope of responsibilities.
11. Perform any other activities as assigned by law, this Charter or the
Company's charter or bylaws or the Board.
V. REPORTS
The Committee together with the Secretary shall maintain a record of
any actions taken by it. The Committee shall periodically report to the Board on
its actions and findings. The Committee shall be responsible for the preparation
of any reports required by law or requested by the Board.
* Supersedes Previous Charter Dated March 8, 2001.
A-2
APPENDIX B
LIGAND PHARMACEUTICALS INCORPORATED
2002 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2002 Stock Incentive Plan is intended to promote the interests of
Ligand Pharmaceuticals Incorporated, a Delaware corporation, by providing
eligible persons in the Corporation's service 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 such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity incentives
programs:
o 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,
o 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),
o the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive
option grants at designated intervals over their period of
continued Board service, and
o the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any
portion of their annual retainer fee otherwise payable in
cash applied to a special stock option grant.
B. The provisions of Articles One and Six shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. 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. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.
B-1
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 those 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 stock 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.
E. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
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 such grants, the time or times
when those 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 such issuances, the time or times when the 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. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Effective Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (ii) those individuals who continue to serve as non-employee Board members
at one or more Annual Stockholders Meetings
B-2
held after the Effective Date. A non-employee Board member who has previously
been in the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an option grant under the Automatic Option Grant Program at
the time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-employee Board member.
E. All non-employee Board members shall be eligible to participate in
the Director Fee 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 number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall be approximately 6,855,000
shares consisting of (i) the number of shares that remain available for
issuance, as of the Plan Effective Date, under the Predecessor Plan as last
approved by the Corporation's stockholders, including the shares subject to
outstanding options under the Predecessor Plan, estimated to be approximately
6,105,000 shares, (ii) plus an additional increase of 750,000 shares to be
approved by the Corporation's stockholders at the 2002 Annual Meeting.
B. No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate per calendar year.
C. Shares of Common Stock subject to outstanding options (including
options transferred to this Plan from the Predecessor Plan) shall be available
for subsequent issuance under the Plan to the extent (i) those options expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan and subsequently cancelled or repurchased
by the Corporation, at a price per share not greater than 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. Shares of Common Stock underlying one or more stock
appreciation rights exercised under Section IV of Article Two, Section II of
Article Four or Section III of Article Five of the Plan shall NOT be available
for subsequent issuance under the Plan.
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 by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the 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 exercise
price per share in effect under each outstanding option transferred to 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.
B-3
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Six
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on
the Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant
to which the Optionee shall concurrently provide irrevocable
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 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.
B-4
(ii) Any option held by the Optionee at the time of death
and exercisable in whole or in part at that time may be
subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option
is transferred pursuant to the Optionee's will or the laws of
inheritance or by the Optionee's designated beneficiary or
beneficiaries of that option.
(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.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service
from the limited exercise period otherwise in effect for that
option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of
the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to
the number of vested shares of Common Stock for which such option
is exercisable at the time of the Optionee's cessation of Service
but also with respect to one or more additional installments in
which the Optionee would have vested had the Optionee continued
in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase any or all of those unvested
shares at a price per share equal to the LOWER of (i) the exercise price paid
per share or (ii) the Fair Market Value per share of Common Stock at the time of
repurchase. 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 the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same restriction, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to Optionee's former spouse, to the extent such assignment is in connection
with the Optionee's estate plan or pursuant to a domestic relations order. 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.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
B-5
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. 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. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of a Change in Control, each outstanding option under
the Discretionary Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of that Change
in Control, become exercisable for all the 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
become exercisable on such an accelerated basis if and to the extent: (i) such
option is to be assumed by the successor corporation (or parent thereof) or is
otherwise to continue in full force and effect pursuant to the terms of the
Change in Control transaction or (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing at the time of the Change in Control on any shares for which the option
is not otherwise at that time exercisable and provides for subsequent payout of
that spread in accordance with the same exercise/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.
B. All outstanding repurchase rights under the Discretionary Option
Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of a Change in Control, except to the extent: (i) those repurchase rights are to
be assigned to the successor corporation (or parent thereof) or are otherwise to
continue in full force and effect pursuant to the terms of the Change in Control
transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Change in Control,
all outstanding options under the Discretionary Option Grant Program shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) or otherwise continued in full force
and effect pursuant to the terms of the Change in Control transaction.
D. Each option which is assumed in connection with a Change in Control
or otherwise continued in effect shall be appropriately adjusted, immediately
after such Change in Control, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments to reflect such Change in Control 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
B-6
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 and (iv) the maximum
number and/or class of securities by which the share reserve is to increase
automatically each calendar year. To the extent the actual holders of the
Corporation's outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control, the successor corporation
may, in connection with the assumption of the outstanding options under the
Discretionary Option Grant Program, substitute one or more shares of its own
common stock with a fair market value equivalent to the cash consideration paid
per share of Common Stock in such Change in Control transaction.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock, whether or not those options are
to be assumed in the Change in Control transaction or otherwise continued in
effect. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Discretionary Option Grant Program so that those rights shall immediately
terminate upon the consummation of the Change in Control transaction, and the
shares subject to those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become exercisable for all the shares of
Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Change in Control transaction in which those options do
not otherwise accelerate. In addition, the Plan Administrator may structure one
or more of the Corporation's repurchase rights so that those rights shall
immediately terminate with respect to any shares held by the Optionee at the
time of such Involuntary Termination, and the shares subject to those terminated
repurchase rights shall accordingly vest in full at that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Hostile Take-Over, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Hostile Take-Over, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent 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 Hostile Take-Over.
H. The portion of any Incentive Option accelerated in connection with
a Change in Control or Hostile Take-Over shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory 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
B-7
Option Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new options covering the same or
a 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:
(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 Tender-Offer, 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
Tender-Offer) to surrender each such option to the Corporation.
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 Tender-Offer Price of the shares of Common
Stock at the time subject to such option (whether or not the
option is otherwise at that time vested and exercisable for those
shares) over (B) the aggregate exercise price payable for those
shares. Such cash distribution shall be paid within five (5) days
following the option surrender date.
(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent
exercise of that right in accordance with the terms of this
Paragraph C. Accordingly, no further approval of the Plan
Administrator or the Board shall be required at the time of the
actual option surrender and cash distribution.
B-8
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. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals or the satisfaction of specified Service requirements.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Six, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals or the
satisfaction of specified Service requirements.
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.
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
B-9
consideration paid in cash or cash equivalent (including the Participant's
purchase-money indebtedness), the Corporation shall repay to the Participant the
LOWER of (i) the cash consideration paid for the surrendered shares or (ii) the
Fair Market Value of those shares at the time of cancellation and shall cancel
the unpaid principal balance of any outstanding purchase-money note of the
Participant attributable to the surrendered shares by the applicable clause (i)
or (ii) amount.
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 of Common Stock 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.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals or
Service requirements established for such awards are not attained or satisfied.
The Plan Administrator, however, shall have the discretionary authority to issue
shares of Common Stock under one or more outstanding share right awards as to
which the designated performance goals or Service requirements have not been
attained or satisfied.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
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 Change in Control, except to the extent (i) those repurchase
rights are to be assigned to the successor corporation (or parent thereof) or
are otherwise to continue in full force and effect pursuant to the terms of the
Change in Control transaction or (ii) such accelerated vesting is precluded by
other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof) or are otherwise continued in effect.
C. The Plan Administrator shall also have the discretionary authority
to structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so 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, either upon the occurrence of a Hostile Take-Over or upon the
subsequent 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 that Hostile Take-Over.
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.
B-10
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 on or after the 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 in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after the
Effective Date, each individual who is to continue to serve as a non-employee
Board member, 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 such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 10,000-share option grants
any one non-employee Board member may receive over his or her period of Board
service, and non-employee Board members who have previously been in the employ
of the Corporation (or any Parent or Subsidiary) or who have otherwise received
one or more stock option grants from the Corporation prior to the Effective Date
shall be eligible to receive one or more such annual option grants over their
period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISABILITY AND VESTING OF OPTIONS. Each automatic grant shall
become fully vested and exercisable upon the Optionee's completion of the one
(1)-year period of continued Board service measured from the grant date.
E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article
Four may be assigned in whole or in part during the Optionee's lifetime to one
or more members of the Optionee's family or to a trust established exclusively
for one or more such family members or to Optionee's former spouse, to the
extent such assignment is in connection with the Optionee's estate plan or
pursuant to a domestic relations order. 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. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Four, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.
B-11
F. 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 shall have a three (3)-year period
following the date of such cessation of Board service in which to
exercise each such option.
(ii) During the three (3)-year exercise period, the option
may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable
at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member
by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that
such option may, during the three (3)-year exercise period
following such cessation of Board service, be exercised for any
or all 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
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. CHANGE IN CONTROL/HOSTILE TAKE-OVER/HOSTILE TENDER-OFFER
A. In the event of a Change in Control while the Optionee remains a
Board member, the shares of Common Stock at the time subject to each outstanding
option held by such Optionee under this Automatic Option Grant Program 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
exercisable for all the option shares as fully vested shares of Common Stock and
may be exercised for any or all of those vested shares. Immediately following
the consummation of the Change in Control, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) or otherwise continued in effect
pursuant to the terms of the Change in Control transaction.
B. In the event of a Hostile Take-Over while the Optionee remains a
Board member, the shares of Common Stock at the time subject to each outstanding
option held by such Optionee under this Automatic Option Grant Program but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Hostile Take-Over, become
exercisable for all the option shares as fully vested shares of Common Stock and
may be exercised for any or all of those vested shares. 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 Tender-Offer.
C. All outstanding repurchase rights under this under this Automatic
Option Grant Program shall automatically terminate, and the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Change in Control or Hostile Take-Over.
D. Upon the occurrence of a Hostile Tender-Offer while the Optionee
remains a Board member, such Optionee shall have a thirty (30)-day period in
which to surrender to the Corporation each of his or her outstanding options
under this Automatic Option Grant Program. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Tender-Offer 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 at the time of the
actual option surrender and cash distribution.
B-12
E. Each option which is assumed in connection with a Change in Control
or otherwise continued in effect shall be appropriately adjusted, immediately
after such Change in Control, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. 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. To the extent the
actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control,
the successor corporation may, in connection with the assumption of the
outstanding options under the Automatic Option Grant Program, substitute one or
more shares of its own common stock with a fair market value equivalent to the
cash consideration paid per share of Common Stock in such Change in Control
transaction.
F. 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.
B-13
ARTICLE FIVE
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program. Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the retainer fee election is in effect. Until the Corporation establishes an
annual retainer fee for the non-employee Board members, the dollar amount of the
fee subject to the Board member's election each year shall be equal to the
number of regularly scheduled Board meetings for that year multiplied by the per
Board meeting fee in effect for such year.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to
the non-employee Board member's election under this Director
Fee Option Grant Program, and
B is the Fair Market Value per share of Common Stock on
the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each calendar month of Board service during the calendar year for
which the retainer fee election is in effect. Each option shall have a maximum
term of ten (10) years measured from the option grant date.
D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article
Five may be assigned in whole or in part during the Optionee's lifetime to one
or more members of the Optionee's family or to a trust established exclusively
for one or more such family members or to Optionee's former spouse, to the
extent such
B-14
assignment is in connection with Optionee's estate plan or pursuant to a
domestic relations order. 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. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Five, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason other than death or Permanent Disability while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully vested shares until the EARLIER of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. To the extent such
option is held by the Optionee at the time of his or her death, that option may
be 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 the laws of inheritance or by the designated beneficiary or
beneficiaries of such option.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER/HOSTILE TENDER-OFFER
A. In the event of any Change in Control while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. Each such outstanding option shall terminate immediately
following the Change in Control, except to the extent assumed by the successor
corporation (or parent thereof) or otherwise continued in effect pursuant to the
terms of the Change in Control transaction. Any option so assumed or continued
shall remain exercisable for the fully vested shares until the EARLIEST to occur
of (i) the expiration of the ten (10)-year option term, (ii) the expiration of
the three (3)-year period measured from the date of the Optionee's cessation of
Board service or (iii) the surrender of the option in connection with a Hostile
Tender-Offer.
B. In the event of a Hostile Take-Over while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Hostile Take-Over, become
exercisable for all the 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. The option shall remain so exercisable until the
EARLIEST to occur of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Change in Control transaction or (iv) the surrender of the
option in connection with a Hostile Tender-Offer.
C. Upon the occurrence of a Hostile Tender-Offer while the Optionee
remains a Board member, such Optionee shall have a thirty (30)-day period in
which to surrender to the Corporation each outstanding option held by him or her
under the Director Fee Option Grant Program. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Tender-Offer Price of the shares of
B-15
Common Stock at the time subject to each surrendered option (whether or not the
option is otherwise at the time exercisable for 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 at the time of the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Change in Control
or otherwise continued in effect shall be appropriately adjusted, immediately
after such Change in Control, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. 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. To the extent the
actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control,
the successor corporation may, in connection with the assumption of the
outstanding options under the Director Fee Option Grant Program, substitute one
or more shares of its own common stock with a fair market value equivalent to
the cash consideration paid per share of Common Stock in such Change in Control
transaction.
E. The grant of options under the Director Fee 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.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE SIX
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest-bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any applicable 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 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 or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject 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 Withholding
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 Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on March 7, 2002, and shall
become effective on the Plan Effective Date. However, the Director Fee Option
Grant Program shall not be implemented until such time as the Primary Committee
may deem appropriate. Options may be granted under the Discretionary 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 Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained 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. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be transferred to the Plan
at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so transferred shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan
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shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such transferred options with respect to their acquisition of shares
of Common Stock.
C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Changes in
Control and Hostile Take-Overs, may, in the Plan Administrator's discretion, be
extended to one or more options incorporated from the Predecessor Plan which do
not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) March 7,
2012, or (ii) the termination of all outstanding options in connection with a
Change in Control. Should the Plan terminate on March 7, 2012, then all option
grants and unvested stock issuances outstanding at that time shall continue to
have force and effect in accordance with the provisions of the documents
evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program 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 applicable 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.
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VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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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 Article Four of the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through any of the following transactions:
(i) a merger, consolidation or other reorganization approved
by the Corporation's stockholders, unless securities representing
more than fifty percent (50%) of the total combined voting power
of the voting securities of the successor corporation are
immediately thereafter beneficially owned, directly or indirectly
and in substantially the same proportion, by the persons who
beneficially owned the Corporation's outstanding voting
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, or
(iii) 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.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATION shall mean Ligand Pharmaceuticals Incorporated, a
Delaware corporation, and any corporate successor to all or substantially all of
the assets or voting stock of Ligand Pharmaceuticals Incorporated which shall by
appropriate action adopt the Plan.
G. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Five of the
Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under Article Two of the Plan.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATe shall mean the date on which the Corporation
shall have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question,
as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market
B-A1
and published in THE WALL STREET JOURNAL. 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 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 and
published in THE WALL STREET JOURNAL. If there is no closing
selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
L. HOSTILE TAKE-OVER shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) 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, or
(ii) a Hostile Tender-Offer.
M. HOSTILE TENDER-OFFER 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.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which
materially reduces his or her duties and responsibilities or the
level of management to which he or she reports, (B) a reduction
in his or her 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 such individual'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 the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not in any way preclude or restrict the right of the Corporation (or any
Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other
person in the Service of the Corporation (or
B-A2
any Parent or Subsidiary) for any other acts or omissions, but such other acts
or omissions shall not be deemed, for purposes of the Plan, to constitute
grounds for termination for Misconduct.
P. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
R. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Automatic Option Grant or Director Fee Option
Grant Program.
S. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
T. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
U. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
V. PLAN shall mean the Corporation's 2002 Stock Incentive Plan, as set
forth in this document.
W. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
X. PLAN EFFECTIVE DATE shall mean the date the Plan shall become
effective and shall be coincident with the first business day following the 2002
Annual Meeting of Stockholders scheduled to take place on May 15, 2002.
Y. PREDECESSOR PLAN shall mean the Corporation's 1992 Stock
Option/Stock Issuance Plan in effect immediately prior to the Plan Effective
Date hereunder.
Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
AA. SECONDARY COMMITTEE shall mean a committee of one 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.
BB. 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.
CC. 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
B-A3
consultant or independent advisor, except to the extent otherwise specifically
provided in the documents evidencing the option grant or stock issuance.
DD. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
EE. 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.
FF. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under Article Three of the Plan.
GG. 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.
HH. TENDER-OFFER 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 Tender-Offer or (ii) the highest
reported price per share of Common Stock paid by the tender offeror in effecting
such Hostile Tender-Offer. However, if the surrendered option is an Incentive
Option, the Tender-Offer Price shall not exceed the clause (i) price per share.
II. 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).
JJ. WITHHOLDING TAXES shall mean the applicable income and employment
withholding taxes to which the holder of Non-Statutory Options or unvested
shares of Common Stock may become subject in connection with the exercise of
those options or the vesting of those shares.
B-A4
APPENDIX C
LIGAND PHARMACEUTICALS INCORPORATED
2002 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Ligand Pharmaceuticals Incorporated, a Delaware corporation, by providing
eligible employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll deduction-based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall be approximately 123,000
shares, consisting of (i) the number of shares that remain available for
issuance, as of the Plan Effective Date, under the Predecessor Plan as last
approved by the Corporation's stockholders, estimated to be approximately 48,000
shares, plus (ii) an additional increase of 75,000 shares to be approved by the
Corporation's stockholders at the 2002 Annual Meeting.
B. Should any change be 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 class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in June
2004. The next offering period shall commence on the first business day in July
2004, and subsequent offering periods shall commence as designated by the Plan
Administrator.
C-1
C. Each offering period shall consist of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from (i) the first
business day in January to the last business day in March each year (ii) from
the first business day in April to the last business day in June each year,
(iii) from the first business day in July to the last business day in September
each year and (iv) from the first business day in October to the last business
day in December each year. However, the first Purchase Interval in effect under
the initial offering period shall commence at the Effective Time and terminate
on the last business day in September 2002.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then
immediately after the purchase of shares of Common Stock on behalf of the
participants in that offering period on that Purchase Date, that offering period
will automatically terminate, and a new two-year offering period will begin on
the next business day, with all participants in the terminated offering period
to be automatically transferred to the new offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date or on any subsequent Quarterly Entry Date within that offering period,
provided he or she remains an Eligible Employee. For the initial offering period
commencing at the Effective Time, each individual who is an Eligible Employee at
that time shall automatically be enrolled as a Participant with a contribution
rate equal to ten percent (10%) of his or her Cash Earnings.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Quarterly Entry Date within that offering period on which he or she
is an Eligible Employee.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. Except as otherwise provided in Sections IV.D. and V.A. above, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock during an offering period may be any multiple
of one percent (1%) of the Cash Earnings paid to the Participant during each
Purchase Interval within that offering period, up to a maximum of ten percent
(10%). The deduction rate so authorized shall continue in effect throughout the
offering period, except to the extent such rate is changed in accordance with
the following guidelines:
(i) The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction (or to the
extent applicable, the percentage of Cash Earnings to serve as
his or her lump sum contribution for the initial Purchase
Interval of the first offering period) to become effective as
soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than
one (1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of any
new Purchase Interval within the offering period, increase the
rate of his or her payroll deduction by filing the appropriate
form with the Plan Administrator. The new rate (which may not
exceed the ten percent (10%) maximum) shall become effective on
the start date of the first Purchase Interval following the
filing of such form.
C-2
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the Participant's
book account under the Plan, but no interest shall be paid on the balance from
time to time outstanding in such account. The amounts collected from the
Participant shall not be required to be held in any segregated account or trust
fund and may be commingled with the general assets of the Corporation and used
for general corporate purposes.
C. For the initial Purchase Interval of the first offering period
under the Plan, no payroll deductions shall be required of the Participant until
such time as the Participant affirmatively elects to commence such payroll
deductions following his or her receipt of the SEC prospectus for the Plan. In
the absence of such payroll deductions, the Participant will be required to
contribute the applicable percentage of his or her Cash Earnings to the Plan in
a lump sum payment immediately prior to the close of that Interval should the
Participant elect to have shares of Common Stock purchased on his or her behalf
on the Purchase Date for that initial Purchase Interval.
D. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
E. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHTS. A Participant shall be granted a separate
purchase right for each offering period in which he or she participates. The
purchase right shall be granted on the Participant's Entry Date into the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments over the
remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions (or, to the extent
applicable, his or her lump sum contribution) for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Common Stock
will be purchased on the Participant's behalf on each Purchase Date within the
offering period shall be equal to eighty-five percent (85%) of the lower of (i)
the Fair Market Value per share of Common Stock on the Participant's Entry Date
into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Purchase Interval
ending with that Purchase Date (or, to the extent applicable, his or her lump
sum contribution for that Purchase Interval) by the purchase price in effect for
the Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed 1,330 shares, subject to
C-3
periodic adjustments in the event of certain changes in the Corporation's
capitalization. However, the Plan Administrator shall have the discretionary
authority, exercisable prior to the start of any offering period under the Plan,
to increase or decrease the limitations to be in effect for the number of shares
purchasable per Participant and to establish limitations on the maximum number
of shares that may be purchased in total by all Participants on each Purchase
Date during that offering period.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in
total by all Participants on the Purchase Date shall be promptly refunded.
F. SUSPENSION OF PAYROLL DEDUCTIONS. In the event that a Participant
is, by reason of the accrual limitations in Article VIII, precluded from
purchasing additional shares of Common Stock on one or more Purchase Dates
during the offering period in which he or she is enrolled, then no further
payroll deductions shall be collected from such Participant with respect to
those Purchase Dates. The suspension of such deductions shall not terminate the
Participant's purchase right for the offering period in which he or she is
enrolled, and payroll deductions shall automatically resume on behalf of such
Participant once he or she is again able to purchase shares during that offering
period in compliance with the accrual limitations of Article VIII.
G. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his or
her outstanding purchase right by filing the appropriate form
with the Plan Administrator (or its designate), and no further
payroll deductions shall be collected from the Participant with
respect to the terminated purchase right. Any payroll deductions
collected during the Purchase Interval in which such termination
occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next Purchase
Date. If no such election is made at the time such purchase right
is terminated, then the payroll deductions collected with respect
to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was
granted. In order to resume participation in any subsequent
offering period, such individual must re-enroll in the Plan (by
making a timely filing of the prescribed enrollment forms) on or
before his or her scheduled Entry Date into that offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding, then
that purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the Purchase Interval in
which the purchase right so terminates shall be immediately
refunded. However, should the Participant cease to remain in
active service by reason of an approved unpaid leave of absence,
then the Participant shall have the right, exercisable up until
the last business day of the Purchase Interval in which such
leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase Interval
or (b) have such funds held for the purchase of shares on his or
her behalf on the next scheduled Purchase Date. In no event,
however, shall any further payroll deductions be collected on the
Participant's behalf during such leave. Upon the Participant's
return to active service (x) within ninety (90) days following
the commencement of such leave or (y) prior to the expiration of
any longer period for which such Participant's right to
reemployment with the Corporation is guaranteed by statute or
contract, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave
began, unless the Participant withdraws from the Plan prior to
his or her return. An individual who returns to active employment
following a leave of absence that exceeds in duration the
applicable (x) or (y) time period will be treated as a new
C-4
Employee for purposes of subsequent participation in the Plan and
must accordingly re-enroll in the Plan (by making a timely filing
of the prescribed enrollment forms) on or before his or her
scheduled Entry Date into the offering period.
H. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in total
by all Participants on any one Purchase Date.
The Corporation shall use its best efforts to provide at least ten
(10) days' prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
I. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of
Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
J. ASSIGNABILITY. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.
K. STOCKHOLDER RIGHTS. A Participant shall have no stockholder rights
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423)) of the Corporation or any Corporate Affiliate, would
otherwise permit such Participant to purchase more than Twenty-Five Thousand
Dollars ($25,000.00) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each
successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has
already accrued in the same calendar year the right to acquire
Common Stock under one or more other purchase rights at a rate
equal to Twenty-Five Thousand Dollars ($25,000.00) worth of
Common Stock (determined on the basis of the Fair
C-5
Market Value per share on the date or dates of grant) for
each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions that the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on March 7, 2002, and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
B. The Plan shall serve as the successor to the Predecessor Plan, and
no further purchase rights shall be granted or exercised under the Predecessor
Plan after the Plan Effective Date.
C. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in June 2012 or (ii) the date on
which all purchase rights are exercised in connection with a Change in Control.
No further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at any
time. However, no such amendment, modification or termination may adversely
affect any purchase rights outstanding under the Plan without the consent of the
affected Plan participant if such Board action shall become effective prior to
the close of the current Purchase Interval. However, the Plan may be amended or
terminated immediately upon Board action, if and to the extent necessary to
assure that the Corporation will not recognize, for financial reporting
purposes, any compensation expense in connection with the shares of Common Stock
offered for purchase under the Plan, should the financial accounting rules
applicable to the Plan at the Effective Time be subsequently revised so as to
require the Corporation to recognize compensation expense in the absence of such
amendment or termination.
B. In no event may the Board effect any of the following amendments or
revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the number of shares of Common Stock issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation; however, each Plan Participant shall bear all
costs and expenses incurred by such individual in the sale or other disposition
of any shares purchased under the Plan.
C-6
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
C-7
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Ligand Pharmaceuticals Incorporated
C-8
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean (i) the regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any contributions made by the Participant to any Code
Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall NOT include any contributions made by
the Corporation or any Corporate Affiliate on the Participant's behalf to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions deducted from such Cash
Earnings).
C. CHANGE IN CONTROL shall mean a change in ownership of the
Corporation pursuant to any of the following transactions:
(i) a merger, consolidation or other reorganization approved
by the Corporation's stockholders, UNLESS securities representing
more than fifty percent (50%) of the total combined voting power
of the voting securities of the successor corporation are
immediately thereafter beneficially owned, directly or indirectly
and in substantially the same proportion, by the persons who
beneficially owned the Corporation's outstanding voting
securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly, by a 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.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. CORPORATION shall mean Ligand Pharmaceuticals Incorporated, a
Delaware corporation, and any corporate successor to all or substantially all of
the assets or voting stock of Ligand Pharmaceuticals Incorporated that shall by
appropriate action adopt the Plan.
H. EFFECTIVE TIME shall mean July 1, 2002. Any Corporate
Affiliate that becomes a Participating Corporation after such Effective Time
shall designate a subsequent Effective Time with respect to its
employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who has been
continuously employed by a Participating Corporation for at least three months
on a basis under which he or she is regularly expected to render more than
twenty (20) hours of service per week for more than five (5) months per calendar
year for earnings considered wages under Code Section 3401 (a).
C-A1
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question,
as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market and published in
THE WALL STREET JOURNAL. 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 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 and
published in THE WALL STREET JOURNAL. If there is no closing
selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. PLAN shall mean the Corporation's Employee Stock Purchase
Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
Q. PREDECESSOR PLAN shall mean the Corporation's 1992 Employee
Stock Purchase Plan in effect immediately prior to the Plan Effective Date
hereunder.
R. PURCHASE DATE shall mean the last business day of each
Purchase Interval. The initial Purchase Date shall be September 30, 2002.
S. PURCHASE INTERVAL shall mean each successive three (3)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
T. QUARTERLY ENTRY DATE shall mean the first business day in
January, April, July and October each year on which an Eligible Employee may
first enter an offering period.
U. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
C-A2
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
LIGAND PHARMACEUTICALS INCORPORATED
The undersigned hereby appoints David E. Robinson and Warner R. Broaddus,
as proxies, jointly and severally, with full power of substitution to vote all
shares of stock which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of Ligand Pharmaceuticals Incorporated to be held on Wednesday,
May 15, 2002, or at any postponements of adjournments thereof, as specified on
the reverse side, and to vote in their discretion on such other business as may
properly come before the Meeting and any adjournments thereof.
(Continued, and to be marked, dated and signed, on the other side)
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
Please mark
your votes as [X]
indicated in
this example
The Board of Directors recommends a vote FOR Items 1, 2, 3, and 4
ITEM 1-ELECTION OF DIRECTORS Nominees: 01 Henry F. Blissenbach,
02 Alexander D. Cross,
FOR all nominees WITHHOLD 03 John Groom,
listed at right AUTHORITY 04 Irving S. Johnson,
(except as marked to vote for 05 Carl Peck,
to the contrary) all nominees 06 David E. Robinson,
listed at 07 Michael A. Rocca
right
WITHHELD FOR: (Write that nominee's name in the
[ ] [ ] space provided below):
______________________________________________
ITEM 2-APPROVAL OF A NEW 2002 STOCK OPTION/STOCK ISSUANCE PLAN
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 3-APPROVAL OF A NEW 2002 EMPLOYEE STOCK PURCHASE PLAN
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 4-APPOINTMENT OF INDEPENDENT AUDITORS
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
CHECK HERE IF YOU PLAN ATTEND THE ANNUAL MEETING [ ]
Signature__________________ Signature__________________ Date_________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If signing for a corporation, give your title. When shares
are in the names of more than one person, each should sign.
*FOLD AND DETACH HERE*
--------------------------------------------------------------------------------
Vote by Telephone or Mail
24 Hours a Day, 7 Days a Week
Telephone voting is available through 4PM Eastern Time
the business day prior to annual meeting day.
Your telephone vote authorizes the named proxies to vote your shares in the
same manner as if you marked, signed and returned your proxy card.
___________________________________________________ _______________________
| Telephone | | Mail |
| 1-800-435-6710 | | |
| | | Mark, sign and date |
| Use any touch-tone telephone to vote your proxy.| | your proxy card |
| Have your proxy card in hand when you call. You| OR | and |
| will be prompted to enter your control number, | | return it in the |
| located in the box below, and then follow the | |enclosed postage-paid|
| directions given. | | envelope. |
| | | |
|_________________________________________________| |_____________________|
If you vote your proxy by telephone,
you do NOT meed to mail back your proxy card.