def14a
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to § 240.14a-12 |
ARADIGM CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Check box if any part of the fee is offset as provided by Exchange
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ARADIGM CORPORATION
3929 Point Eden Way
Hayward, California, 94545
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On May 19, 2005
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Aradigm Corporation, a California corporation
(the Company). The meeting will be held on Thursday,
May 19, 2005, at 9:00 a.m. local time at the
Companys offices for the following purposes:
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1. To elect directors to serve for the ensuing year and
until their successors are elected. |
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2. To approve the Companys 2005 Equity Incentive
Plan, which amends, restates and retitles the Companys
1996 Equity Incentive Plan. |
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3. To approve the Companys Employee Stock Purchase
Plan, as amended, to increase the aggregate number of shares of
Common Stock authorized for issuance under such plan by
2,000,000 shares. |
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4. To ratify the selection of Ernst & Young LLP as
the Companys independent auditors for the fiscal year
ending December 31, 2005. |
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5. To conduct any other business properly brought before
the meeting. |
These items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for the Annual Meeting is March 30, 2005.
Only shareholders of record at the close of business on that
date may vote at the meeting or any adjournment thereof.
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By Order of the Board of Directors |
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/s/ V. Bryan Lawlis |
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V. Bryan Lawlis |
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President and Chief Executive Officer |
Hayward, California
April 11, 2005
You are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please
complete, date, sign and return the enclosed proxy as promptly
as possible in order to ensure your representation at the
meeting. A return envelope (which is postage prepaid if mailed
in the United States) is enclosed for your convenience. Even if
you have voted by proxy, you may still vote in person if you
attend the meeting. Please note, however, that if your shares
are held of record by a broker, bank or other nominee and you
wish to vote at the meeting, you must obtain a proxy issued in
your name from that record holder.
Table of
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A-1 |
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ARADIGM CORPORATION
3929 Point Eden Way
Hayward, California, 94545
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Why am I receiving these materials?
We sent you this proxy statement and the enclosed proxy card
because the Board of Directors of Aradigm Corporation (sometimes
referred to as the Company or Aradigm)
is soliciting your proxy to vote at the 2005 Annual Meeting of
Shareholders. You are invited to attend the annual meeting to
vote on the proposals described in this proxy statement.
However, you do not need to attend the meeting to vote your
shares. Instead, you may simply complete, sign and return the
enclosed proxy card.
The Company intends to mail this proxy statement and
accompanying proxy card on or about April 11, 2005 to all
shareholders of record entitled to vote at the annual meeting.
Who can vote at the annual meeting?
Only shareholders of record at the close of business on
March 30, 2005 will be entitled to vote at the annual
meeting. On this record date, there were 72,297,980 shares
of common stock and 1,544,626 shares of Series A
Convertible Preferred Stock (Preferred Stock)
outstanding and entitled to vote.
Shareholder of Record: Shares Registered in Your Name
If on March 30, 2005 your shares were registered directly
in your name with Aradigms transfer agent, Equiserve
Trust, N.A., then you are a shareholder of record. As a
shareholder of record, you may vote in person at the meeting or
vote by proxy. Whether or not you plan to attend the meeting, we
urge you to fill out and return the enclosed proxy card to
ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker
or Bank
If on March 30, 2005 your shares were held in an account at
a brokerage firm, bank, dealer, or other similar organization,
then you are the beneficial owner of shares held in street
name and these proxy materials are being forwarded to you
by that organization. The organization holding your account is
considered the shareholder of record for purposes of voting at
the annual meeting. As a beneficial owner, you have the right to
direct your broker or other agent on how to vote the shares in
your account. You are also invited to attend the annual meeting.
However, since you are not the shareholder of record, you may
not vote your shares in person at the meeting unless you request
and obtain a valid proxy from your broker or other agent.
What am I voting on?
There are four matters scheduled for a vote:
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Election of eight directors; |
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Approval of the Companys 2005 Equity Incentive Plan (the
2005 Plan), which amends, restates and retitles the
Companys 1996 Equity Incentive Plan (the 1996
Plan). |
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Approval of the Companys Employee Stock Purchase Plan, as
amended (the Purchase Plan), to increase the
aggregate number of shares of common stock authorized for
issuance under such plan by 2,000,000 shares; and |
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Ratification of Ernst & Young LLP as the Companys
independent auditors for the fiscal year ending
December 31, 2005. |
How do I vote?
You may either vote For all the nominees for
director or you may abstain from voting for any nominee you
specify. For each of the other matters to be voted on, you may
vote For or Against or abstain from
voting. The procedures for voting are fairly simple:
Shareholder of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote in person at
the annual meeting or vote by proxy using the enclosed proxy
card. Whether or not you plan to attend the meeting, we urge you
to vote by proxy to ensure your vote is counted. You may still
attend the meeting and vote in person if you have already voted
by proxy.
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To vote in person, come to the annual meeting and we will give
you a ballot when you arrive. |
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To vote using the proxy card, simply complete, sign and date the
enclosed proxy card and return it promptly in the envelope
provided. If you return your signed proxy card to us before the
annual meeting, we will vote your shares as you direct. |
Beneficial Owner: Shares Registered in the Name of Broker or
Bank
If you are a beneficial owner of shares registered in the name
of your broker, bank, or other agent, you should have received a
proxy card and voting instructions with these proxy materials
from that organization rather than from Aradigm. Simply complete
and mail the proxy card to ensure that your vote is counted. To
vote in person at the annual meeting, you must obtain a valid
proxy from your broker, bank, or other agent. Follow the
instructions from your broker or bank included with these proxy
materials, or contact your broker or bank to request a proxy
form.
How many votes do I have?
On each matter to be voted upon, you have one vote for each
share of common stock you own and four votes for each share of
Preferred Stock you own as of March 30, 2005.
What if I return a proxy card but do not make specific
choices?
If you return a signed and dated proxy card without marking any
voting selections, your shares will be voted For the
election of all eight nominees for director, For the
2005 Plan, For the amendment to the Purchase Plan
and For the ratification of Ernst & Young
LLP as independent auditor for our fiscal year ending
December 31, 2005. If any other matter is properly
presented at the meeting, your proxy (one of the individuals
named on your proxy card) will vote your shares using his or her
best judgment.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In
addition to these mailed proxy materials, our directors and
employees and Georgeson Shareholder Communications, Inc.
(Georgeson) may also solicit proxies in person, by
telephone, or by other means of communication. Directors and
employees will not be paid any additional compensation for
soliciting proxies, but Georgeson will be paid its customary
fee, estimated to be $9,000 plus out-of-pocket expenses, if it
solicits proxies.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are
registered in more than one name or are registered in different
accounts. Please complete, sign and return each proxy card to
ensure that all of your shares are voted.
2
Can I change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote
at the meeting. You may revoke your proxy in any one of three
ways:
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You may submit another properly completed proxy card with a
later date. |
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You may send a written notice that you are revoking your proxy
to Aradigms Secretary at 3929 Point Eden Way, Hayward,
California, 94545. |
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You may attend the annual meeting and vote in person. Simply
attending the meeting will not, by itself, revoke your proxy. |
When are shareholder proposals due for next years
annual meeting?
To be considered for inclusion in next years proxy
materials, your proposal must be submitted in writing by
December 12, 2005, to Aradigms Secretary at 3929
Point Eden Way, Hayward, California, 94545. If you wish to
submit a proposal that is not to be included in next years
proxy materials or nominate a director, you must do so no later
than the close of business on March 20, 2006 and no earlier
than the close of business on February 18, 2006. You are
also advised to review the Companys Bylaws, which contain
additional requirements about advance notice of shareholder
proposals and director nominations.
How are votes counted?
Votes will be counted by the inspector of election appointed for
the meeting, who will separately count For and (with
respect to proposals other than the election of directors)
Against votes, abstentions and broker non-votes.
Abstentions and broker non-votes will not be counted towards the
vote total for any proposal.
If your shares are held by your broker as your nominee (that is,
in street name), you will need to obtain a proxy
form from the institution that holds your shares and follow the
instructions included on that form regarding how to instruct
your broker to vote your shares. If you do not give instructions
to your broker, your broker can vote your shares with respect to
discretionary items, but not with respect to
non-discretionary items. On non-discretionary items
for which you do not give your broker instructions, the shares
will be treated as broker non-votes.
How many votes are needed to approve each proposal?
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For the election of directors, the eight nominees receiving the
most For votes (among votes properly cast in person
or by proxy) will be elected. Broker non-votes will have no
effect. |
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To be approved, Proposal 2, approval of the 2005 Plan, must
receive a For vote from the majority of shares
present either in person or by proxy and entitled to vote.
Broker non-votes will have no effect. |
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To be approved, Proposal 3, the amendment to the Purchase
Plan, must receive a For vote from the majority of
shares present either in person or by proxy and entitled to
vote. Broker non-votes will have no effect. |
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To be approved, Proposal 4, ratifying the selection of
Ernst & Young LLP as independent auditors of the
Company for the fiscal year ending December 31, 2005, must
receive a For vote from the majority of shares
present either in person or by proxy and entitled to vote.
Broker non-votes will have no effect. |
What is the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. A
quorum will be present if shares representing a majority of the
voting power of the outstanding shares are represented by
shareholders present at the meeting or by proxy. On the record
date, there were 72,297,980 shares of common stock and
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1,544,626 shares of Preferred Stock outstanding and
entitled to vote, which represent 6,178,504 votes on an
as-converted basis.
Your shares will be counted towards the quorum only if you
submit a valid proxy vote or vote at the meeting. Abstentions
and broker non-votes will be counted towards the quorum
requirement. If there is no quorum, a majority of the votes
present at the meeting may adjourn the meeting to another date.
How can I find out the results of the voting at the annual
meeting?
Preliminary voting results will be announced at the annual
meeting. Final voting results will be published in the
Companys quarterly report on Form 10-Q for the second
quarter of 2005.
4
PROPOSAL 1
ELECTION OF DIRECTORS
Our Board of Directors currently consists of nine directors.
There are eight nominees for director this year. Stan Benson
will not stand for reelection at this years Annual Meeting
of the Shareholders. Each director to be elected will hold
office until the next annual meeting of shareholders and until
his successor is elected, or until the directors death,
resignation or removal. Each of the nominees listed below is
currently a member of our Board of Directors who was previously
elected by the shareholders, other than V. Bryan Lawlis, our
President and Chief Executive Officer, who was appointed to our
Board of Directors in February 2005. It is our policy to invite
nominees to attend the annual meeting and to encourage
attendance at meetings at which substantial shareholder
attendance is expected. Two of the nominees for election as a
director at the 2004 Annual Meeting of Shareholders attended the
2004 Annual Meeting of Shareholders.
The eight candidates receiving the highest number of affirmative
votes by the shares entitled to be voted will be elected. Shares
represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the eight nominees
named below. If any nominee becomes unavailable for election as
a result of an unexpected occurrence, your shares will be voted
for the election of a substitute nominee proposed by our
management. Each person nominated for election has agreed to
serve if elected. Our management has no reason to believe that
any nominee will be unable to serve.
Nominees
The following is a brief biography of each nominee for director.
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Frank H. Barker
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74 |
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Retired Group Chairman of Johnson & Johnson Company and
Director |
Igor Gonda
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57 |
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Chief Executive Officer and Managing Director of Acrux Ltd. and
Director |
Stephen O. Jaeger
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60 |
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Chairman of eBT International, Inc. and Director |
V. Bryan Lawlis
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53 |
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President, Chief Executive Officer and Director |
John M. Nehra
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56 |
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Managing General Partner of Catalyst Ventures, L.P. and Director |
Wayne I. Roe
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Consultant and Director |
Virgil D. Thompson
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President and Chief Executive Officer of Angstrom
Pharmaceuticals, Chairman and Director |
Richard P. Thompson
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53 |
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Director and former Chief Executive Officer |
Frank H. Barker has been a director since May 1999. From
January 1980 to January 1994, Mr. Barker served as a
company group chairman of Johnson & Johnson, Inc., a
diversified health care company, and was Corporate Vice
President from January 1989 to January 1996. Mr. Barker
holds a B.A. in Business Administration from Rollins College,
Winter Park, Florida.
Igor Gonda, Ph.D. has been a director since
September 2001. Dr. Gonda is the Chief Executive Officer
and Managing Director of Acrux Limited, a drug delivery company
in Melbourne, Australia. Dr. Gonda was our Chief Scientific
Officer until December 2001 and previously held the position of
Vice President, Research and Development, from October 1995
until July 2001. From February 1992 to September 1995,
Dr. Gonda was a Senior Scientist and Group Leader at
Genentech, Inc. Prior to that, Dr. Gonda held academic
positions at the University of Aston in Birmingham, UK, and the
University of Sydney, Australia. Dr. Gonda has a B.Sc. in
Chemistry and a Ph.D. in Physical Chemistry from Leeds
University, UK. Dr. Gonda is the Chairman of the Scientific
Advisory Board of Aradigm.
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Stephen O. Jaeger has been a director since March 2004.
He is currently the Chairman of eBT International, Inc., a
software products and services company. Mr. Jaeger also has
held the positions of Chairman, President and Chief Executive
Officer since 1999. Prior to joining eBT, Mr. Jaeger was
the Executive Vice President and Chief Financial Officer of
Clinical Communications Group, Inc., a provider of educational
marketing services to the pharmaceutical and biotech industry,
from 1997 to 1998. From 1995 to 1997, Mr. Jaeger served as
Vice President, Chief Financial Officer and Treasurer of Applera
Corp., formerly known as Perkin-Elmer Corporation, an analytical
instruments and systems company with a focus on life sciences
and genetic discovery. Prior to 1995, Mr. Jaeger was Chief
Financial Officer and a director of Houghton Mifflin Company and
held various financial positions with the British Petroleum
Company, Plc., Weeks Petroleum Limited and Ernst &
Young LLP. Mr. Jaeger holds a B.A. in Psychology from
Fairfield University and an MBA in Accounting from Rutgers
University. Mr. Jaeger is also a Certified Public
Accountant. Mr. Jaeger serves on the boards of Savient
Pharmaceuticals, Inc. and Arlington Tankers Ltd. Mr. Jaeger
is the designated financial expert on Savients
Audit Committee and the Chairman of Arlington Tankers
Audit Committee.
V. Bryan Lawlis has been a director since February
2005 and has served as President and Chief Executive Officer
since August 2004. Dr. Lawlis served as President and Chief
Operating Officer from June 2003 to August 2004 and as our Chief
Operating Officer from November 2001 to June 2003. Previously,
Dr. Lawlis founded Covance Biotechnology Services, a
contract biopharmaceutical manufacturing operation, and served
as its President and Chief Executive Officer from 1996 to 1999,
and as Chairman from 1999 to 2001 when it was sold to Diosynth
RTP, Inc., a division of Akzo Nobel, NV. From 1981 to 1996,
Dr. Lawlis was employed at Genencor, Inc., and Genentech,
Inc. His last position at Genentech was Vice President of
Process Sciences. Dr. Lawlis holds a B.A. in Microbiology
from the University of Texas at Austin, and a Ph.D. in
Biochemistry from Washington State University.
John M. Nehra has been a director since December 2001.
Mr. Nehra is a Special Partner of New Enterprise
Associates 10, Limited Partnership (NEA 10) and
New Enterprise Associates 11, Limited Partnership, both
venture capital partnerships, and a General Partner of NEA VI,
NEA VII, NEA VIII and NEA IX. Mr. Nehra is also the
managing General Partner of Catalyst Ventures, a venture capital
partnership. Prior to joining NEA 10 and its affiliated venture
funds in 1989, Mr. Nehra was Managing Director of Alex
Brown & Sons, an investment banking firm. Upon joining
Alex Brown in 1975, Mr. Nehra was responsible for building
the firms healthcare research and healthcare banking
practice and forming its capital markets group. Mr. Nehra
holds a B.A. from the University of Michigan. Mr. Nehra is
a director of Iridex Corporation and Davita Inc. and also serves
on the boards of several privately held healthcare companies.
Wayne I. Roe has been a director since May 1999.
Mr. Roe was Senior Vice President of United Therapeutics
Corporation, a pharmaceutical manufacturer, from 1999 to 2000.
Mr. Roe was Chairman of Covance Health Economics and
Outcomes Services, Inc., a strategic marketing firm, from 1996
to 1998. From June 1988 to March 1996, Mr. Roe was the
President of Health Technology Associates, a pharmaceutical
industry consulting firm. Mr. Roe received a B.A. from
Union College, an M.A. from the State University of New York at
Albany and an M.A. from the University of Maryland. Mr. Roe
is also a director of Ista Pharmaceuticals Inc., Aderis
Pharmaceuticals, Inc., Favrille, Inc. and several privately held
companies. Mr. Roe currently is an independent consultant
in the life sciences industry.
Richard P. Thompson has been a director since July 1994
and served as our President and Chief Executive Officer from
June 1994 to June 2003. He served as Chief Executive Officer
from June 2003 through July 2004 and as the Chairman of the
Board from 2000 until January 2005. From 1991 to 1994,
Mr. Thompson was President of LifeScan, Inc., a diversified
health care subsidiary of Johnson & Johnson Company. In
1981, Mr. Thompson co-founded LifeScan, which was sold to
Johnson & Johnson in 1986. Mr. Thompson holds a
B.S. in Biological Sciences from the University of California at
Irvine and an MBA from California Lutheran University.
Virgil D. Thompson has been a director since June 1995
and has been Chairman of the Board since January 2005. Since
November 2002, Mr. Thompson has been President and Chief
Executive Officer of Angstrom Pharmaceuticals, Inc., a
pharmaceutical company. From September 2000 to November 2002,
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Mr. Thompson was President, Chief Executive Officer and
Director of Chimeric Therapies, Inc., a biotechnology company.
From May 1999 until September 2000, Mr. Thompson was the
President, Chief Operating Officer and a Director of
Bio-Technology General Corp. (now Savient Pharmaceuticals Inc.),
a pharmaceutical company. From January 1996 to April 1999,
Mr. Thompson was the President and Chief Executive Officer
and a Director of Cytel Corporation, a biopharmaceutical
company. From 1994 to 1996, Mr. Thompson was President and
Chief Executive Officer of Cibus Pharmaceuticals, Inc., a drug
delivery device company. From 1991 to 1993, Mr. Thompson
was President of Syntex Laboratories, Inc., a pharmaceutical
company. Mr. Thompson holds a B.S. in Pharmacy from Kansas
University and a J.D. from The George Washington University Law
School. Mr. Thompson is also a director of Questcor
Pharmaceuticals, Inc. and Savient Pharmaceuticals Inc.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Independence of the Board of Directors
As required under the Nasdaq Stock Market (Nasdaq)
listing standards, a majority of the members of a listed
companys board of directors must qualify as
independent, as affirmatively determined by the
Board of Directors. The Board consults with our counsel to
ensure that the Boards determinations are consistent with
all relevant securities and other laws and regulations regarding
the definition of independent, including those set
forth in pertinent listing standards of the Nasdaq, as in effect
from time to time.
Consistent with these considerations, after review of all
relevant transactions or relationships between each director, or
any of his or her family members, and the Company, its senior
management and its independent auditors, the Board affirmatively
has determined that all of the Companys directors are
independent directors within the meaning of the applicable
Nasdaq listing standards, except for Dr. Lawlis, our
President and Chief Executive Officer, and Mr. R. Thompson,
who was employed by the Company as its Chief Executive Officer
until August 2004.
As required under applicable Nasdaq listing standards, in fiscal
2004 the Companys independent directors met five times in
regularly scheduled executive sessions at which only independent
directors were present. Persons interested in communicating with
the independent directors with their concerns or issues may
address correspondence to a particular director, or to the
independent directors generally, in care of Aradigm at 3929
Point Eden Way, Hayward, California, 94545.
Information Regarding the Board of Directors and its
Committees
The Board has three committees: an Audit Committee, a
Compensation Committee and a Nominating and Corporate Governance
Committee (formerly called the Nominating Committee). The
following table provides membership information for each of the
Board committees:
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Nominating and | |
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Audit | |
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Compensation | |
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Governance | |
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Frank H. Barker
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X |
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X |
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Stan M. Benson(1)
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X |
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Igor Gonda
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Stephen Jaeger
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X |
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V. Bryan Lawlis
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John Nehra
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X |
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Wayne I. Roe
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X |
*(2) |
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Richard P. Thompson
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Virgil D. Thompson
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X |
* |
|
|
|
|
|
Total Meetings in fiscal year 2004
|
|
|
7 |
|
|
|
6 |
|
|
|
2 |
|
7
|
|
* |
Committee Chairperson |
|
(1) |
Mr. Benson is not standing for reelection at the 2005
Annual Meeting of Shareholders. |
|
(2) |
Immediately following the 2005 Annual Meeting of Shareholders,
Mr. Jaeger will replace Mr. Roe as Chairman of the
Audit Committee. |
Below is a description of each committee of the Board. The Board
has determined that each current member of each committee meets
the applicable rules and regulations regarding
independence and that each member is free of any
relationship that would interfere with his individual exercise
of independent judgment with regard to the Company.
Audit Committee
The Audit Committee of the Board oversees our corporate
accounting and financial reporting process. For this purpose,
the Audit Committee performs several functions. The Audit
Committee evaluates the performance of and assesses the
qualifications of the independent auditors; determines and
approves the engagement of the independent auditors; determines
whether to retain or terminate the existing independent auditors
or to appoint and engage new independent auditors; reviews and
approves the retention of the independent auditors to perform
any proposed permissible non-audit services; monitors the
rotation of partners of the independent auditors on our audit
engagement team as required by law; confers with management and
the independent auditors regarding the effectiveness of internal
controls over financial reporting; establishes procedures, as
required under applicable law, for the receipt, retention and
treatment of complaints received by the Company regarding
accounting, internal accounting controls or auditing matters and
the confidential and anonymous submission by employees of
concerns regarding questionable accounting or auditing matters;
reviews the financial statements to be included in our Annual
Report on Form 10-K; and discusses with management and the
independent auditors the results of the annual audit and the
results of the Companys quarterly financial statements.
The Audit Committee met seven times during the fiscal year.
Currently, three directors comprise the Audit Committee:
Messrs. Barker, Roe (chair) and Jaeger. Immediately
following the 2005 Annual Meeting of Shareholders,
Mr. Jaeger will replace Mr. Roe as chair of the Audit
Committee. The Audit Committee has adopted a written Audit
Committee Charter, which is attached as Appendix A to the
2004 Proxy Statement.
The Board annually reviews the Nasdaq listing standards
definition of independence for Audit Committee members and has
determined that all members of the Companys Audit
Committee are independent (as independence is currently defined
in Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq
listing standards. The Board has determined that Mr. Jaeger
qualifies as an audit committee financial expert, as
defined in applicable rules of the Securities and Exchange
Commission (the SEC). The Board made a qualitative
assessment of Mr. Jaegers level of knowledge and
experience based on a number of factors, including his formal
education and experience as a Chief Financial Officer for public
reporting companies.
Compensation Committee
The Compensation Committee of the Board reviews and approves the
overall compensation strategy and policies for the Company. The
Compensation Committee reviews and approves corporate
performance goals and objectives relevant to the compensation of
the Companys executive officers and other senior
management; reviews and approves the compensation and other
terms of employment of the Companys Chief Executive
Officer; reviews and recommends to the Board for approval the
compensation and other terms of employment of the other
officers; and administers the Companys stock option and
purchase plans, pension and profit sharing plans, stock bonus
plans, deferred compensation plans and other similar programs.
Three directors currently comprise the Compensation Committee:
Dr. Gonda and Messrs. Benson and V. Thompson (chair).
Dr. Gonda joined the Compensation Committee in January
2005. Mr. Benson is not standing for reelection and will
not serve on this Committee following the 2005 Annual Meeting of
Shareholders. Mr. Jaeger will take Mr. Bensons
place on the Compensation Committee immediately following the
2005 Annual Meeting. All members of our Compensation Committee
are independent (as independence is
8
currently defined in Rule 4200(a)(15) of the Nasdaq listing
standards). The Compensation Committee met six times during
the fiscal year.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee of the Board
of Directors is responsible for identifying, reviewing and
evaluating candidates to serve as directors of the Company
(consistent with criteria approved by the Board), reviewing and
evaluating incumbent directors, recommending to the Board for
selection candidates for election to the board of directors,
making recommendations to the Board regarding the membership of
the committees of the Board, assessing the performance of
management and the Board, monitoring compliance with the
Companys Code of Business Conduct and Ethics, periodically
reviewing the performance of the board and its committees and
overseeing the process for dissemination of information to
directors. Our Nominating and Corporate Governance Committee
charter can be found on our corporate website at
www.aradigm.com. The Nominating and Corporate Governance
Committee met two times during the fiscal year. Currently, the
Nominating and Corporate Governance Committee consists of three
directors: Messrs. Barker (chair), Benson and Nehra.
Mr. Benson is not standing for reelection and will not
serve on this committee following the 2005 Annual Meeting of
Shareholders. Mr. R. Thompson is expected to take
Mr. Bensons place on the Nominating and Corporate
Governance Committee immediately following the 2005 Annual
Meeting. All current members of the Nominating and Corporate
Governance Committee are independent (as independence is
currently defined in Rule 4200(a)(15) of the Nasdaq listing
standards). Mr. R. Thompson was employed by the Company
until March 31, 2005 and is not independent (as
independence is currently defined in Rule 4200(a)(15) of
the Nasdaq listing standards).
Any potential candidates for director nominees, including
candidates recommended by shareholders, are reviewed in the
context of the current composition of the Board, the operating
requirements of the Company and the long-term interests of
shareholders. In conducting this assessment, the Committee
considers such factors as it deems appropriate given the current
needs of the Board and the Company, to maintain a balance of
knowledge, experience and capability. In the case of incumbent
directors whose terms of office are set to expire, the
Nominating and Corporate Governance Committee reviews such
directors overall service to the Company during their
term, including the number of meetings attended, level of
participation and quality of performance. The Committee also
determines whether the nominee would be independent for Nasdaq
purposes, which determination is based upon applicable Nasdaq
listing standards, applicable SEC rules and regulations and the
advice of counsel, if necessary. The Committee then compiles a
list of potential candidates from suggestions it may receive,
but may also engage, if it deems appropriate, a professional
search firm to generate additional suggestions. The Committee
conducts any appropriate and necessary inquiries into the
backgrounds and qualifications of possible candidates as it
deems appropriate. The Committee meets to discuss and consider
such candidates qualifications and then selects a nominee
for recommendation to the Board by majority vote. To date, the
Nominating and Corporate Governance Committee has not paid a fee
to any third party to assist in the process of identifying or
evaluating director candidates. While the Committee and the
Board have from time to time received and considered suggestions
from shareholders for nominations to the Board, the Committee
has received no suggestions for which disclosure is required in
this proxy statement.
The Nominating and Corporate Governance Committee will consider
director candidates recommended by shareholders. The Committee
will consider candidates recommended by shareholders in the same
manner as it considers recommendations from other sources.
Shareholders who wish to recommend individuals for consideration
by the Nominating and Corporate Governance Committee to become
nominees for election to the Board may do so by delivering a
written recommendation to the Nominating and Corporate
Governance Committee at the following address: 3929 Point Eden
Way, Hayward, California 94545 at least 60 days prior to
the anniversary date of the last annual meeting of shareholders.
Submissions should include the full name of the proposed
nominee, a description of the proposed nominees business
experience for at least the previous five years, complete
biographical information, a description of the proposed
nominees qualifications as a director and a representation
that the nominating shareholder is a beneficial or record owner
of the Companys stock.
9
Meetings of the Board of Directors
The Board met ten times during the last fiscal year. Each Board
member attended 75% or more of the aggregate of the meetings of
the Board and of the committees on which he served, held during
the period for which he was a director or committee member,
respectively.
Shareholder Communications with the Board of Directors
The Company has implemented a process by which shareholders may
communicate with the Board or any of its directors. Shareholders
who wish to communicate with the Board may do so by sending
written communications addressed to the Secretary of Aradigm at
3929 Point Eden Way, Hayward, California 94545. All
communications will be compiled by the Secretary of the Company
and submitted to the Board or the individual directors on a
periodic basis. All communications directed to the Audit
Committee in accordance with the Companys whistleblower
policy that relate to questionable accounting or auditing
matters involving the Company will be forwarded directly to the
Audit Committee.
Code of Ethics
The Company has adopted the Aradigm Code of Business Conduct and
Ethics that applies to all officers, directors and employees.
The Code of Business Conduct and Ethics is available on our
website at www.aradigm.com. If the Company makes any substantive
amendments to the Code of Business Conduct and Ethics or grants
any waiver from a provision of the Code to any executive officer
or director, the Company will promptly disclose the nature of
the amendment or waiver on its website.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS*
The Audit Committee has the responsibility, under delegated
authority from the Companys Board of Directors, for
providing independent, objective oversight of the Companys
accounting functions and internal controls. The Audit Committee
is comprised of three non-employee directors and acts under a
written charter adopted and approved by the Board of Directors.
The Audit Committee oversees the Companys financial
reporting process on behalf of the Board of Directors.
Management has the primary responsibility for the financial
statements and the reporting process, including the systems of
internal controls. The Audit Committee meets with the
independent auditors, who report directly to the Audit
Committee, with and without management present, to discuss the
results of their examinations, the evaluations of the
Companys internal controls, and the overall quality of the
Companys financial reporting. In fulfilling its oversight
responsibilities, the Audit Committee has met and held
discussions with management and the independent auditors.
Management represented to the Audit Committee that the
Companys financial statements were prepared in accordance
with generally accepted accounting principles, and the Audit
Committee has reviewed and discussed the financial statements
with management and the independent auditors. The Audit
Committee discussed with the independent auditors matters
required to be discussed by Statement on Auditing Standards
No. 61 (Communication With Audit Committees).
In addition, the Audit Committee has discussed with the
independent auditors, the auditors independence from the
Company and its management, including the matters in the written
disclosures and the letter from the independent auditors
required by the Independence Standards Board Standard No. 1
(Independence Discussion With Audit Committees). The Audit
Committee also discussed with the Companys independent
auditors the overall scope and plans for their audit and
quarterly reviews.
* The material in this report is not soliciting
material, is not deemed filed with the SEC,
and is not to be incorporated by reference into any filing of
the Company under the Securities Act of 1933, as amended (the
1933 Act) or the Securities Act of 1934, as
amended (the 1934 Act), whether made before or
after the date hereof and irrespective of any general
incorporation language contained in such filing.
10
In reliance on the reviews and discussions referred to above,
the Audit Committee recommended to the Board of Directors, and
the Board has approved, that the audited financial statements be
included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2004, for filing with the
SEC.
From the members of the Audit Committee of Aradigm Corporation:
|
|
|
Frank H. Barker |
|
Stephen Jaeger |
|
Wayne I. Roe |
11
PROPOSAL 2
APPROVAL OF 2005 EQUITY INCENTIVE PLAN
In April 1996, the Board adopted, and the shareholders
subsequently approved, the Companys 1996 Plan. At
February 28, 2005, a total of 14,593,193 shares of the
Companys Common Stock have been authorized for issuance
under the 1996 Plan.
At February 28, 2005, options (net of canceled or expired
options) covering an aggregate of 10,899,948 shares of the
Companys Common Stock had been granted under the 1996
Plan, and 3,693,245 shares remained available for future
grant under the 1996 Plan. During the last fiscal year, under
the 1996 Plan, the Company granted to all current executive
officers as a group options to purchase 930,000 shares
at exercise prices of $1.06 to $2.40 per share and to all
employees and directors (excluding current executive officers)
as a group options to purchase 2,558,800 shares at
exercise prices of $0.76 to $2.40 per share.
In March 2005, the Board approved the Companys 2005 Plan,
an amended, restated and retitled version of the Companys
1996 Plan, subject to shareholder approval. The Company operates
in a very competitive environment with respect to the hiring and
retaining of qualified employees. The Board adopted this
amendment (i) to increase the types of awards available to
be granted to the Companys employees, (ii) to ensure
that the Company can continue to grant stock options at levels
determined appropriate by the Board and the Compensation
Committee in order to employ the highly qualified individuals
necessary for the Companys successful growth and to retain
existing employees and (iii) to meet the Companys
anticipated growth over the next several years.
No shares are being added to the share reserve under the 2005
Plan other than shares reserved for future issuance under the
1996 Plan, which will carry over into the 2005 Plan.
Shareholders are requested in this Proposal 2 to approve
the 2005 Plan. The affirmative vote of the holders of a majority
of the shares present in person or represented by proxy and
voting at the meeting will be required to approve the 2005 Plan.
For purposes of this vote, abstentions and broker non-votes will
not be counted for any purpose in determining whether this
matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The full text of the 2005 Plan is set forth in Appendix A
to this Proxy Statement. The essential features of the 2005 Plan
are outlined below:
General
The 2005 Plan provides for the grant of incentive stock options,
nonstatutory stock options, stock purchase awards, stock bonus
awards, stock unit awards, stock appreciation rights and other
forms of equity compensation (collectively, the stock
awards). Incentive stock options granted under the 2005
Plan are intended to qualify as incentive stock
options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, or the
Code. Nonstatutory stock options granted under the
2005 Plan are not intended to qualify as incentive stock options
under the Code. See Federal Income Tax Information
for a discussion of the tax treatment of stock awards.
Purpose
The 2005 Plan was adopted to provide a means by which selected
officers, directors and employees of and consultants to the
Company and its affiliates could be given an opportunity to
acquire an equity interest in the Company, to assist in
retaining the services of employees holding key positions, to
secure and retain the services of persons capable of filling
such positions and to provide incentives for such persons to
exert maximum efforts for the success of the Company. As of
February 28, 2005, all of the approximately
101 employees, directors, and consultants of the Company
are eligible to participate in the 2005 Plan.
12
Administration
The Board administers the 2005 Plan. Subject to the provisions
of the 2005 Plan, the Board has the authority to construe and
interpret the plan, to determine the persons to whom and the
dates on which stock awards will be granted, the type of stock
award to grant to such person, the number of shares of Common
Stock to be subject to each stock award, the time or times
during the term of each stock award within which all or a
portion of the award may be exercised, the exercise, purchase,
or strike price of each stock award, the type of consideration
permitted to exercise or purchase each stock award, and other
terms of the stock awards.
The Board is authorized to delegate administration of the 2005
Plan to a committee composed of not fewer than two members of
the Board. The Board has delegated administration of the 2005
Plan to the Compensation Committee of the Board. As used herein
with respect to the 2005 Plan, the Board refers to
the Compensation Committee as well as to the Board of Directors
itself. In the Boards discretion, directors serving on the
Compensation Committee will be outside directors
within the meaning of Section 162(m) of the Code
(Section 162(m)). See Federal Income Tax
Information for a discussion of the application of
Section 162(m).
The Board may also delegate to one or more officers of the
Company the authority to designate officers and employees of the
Company to be recipients of stock awards and the terms thereof
and/or determine the number of shares of Common Stock of the
Company to be subject to the stock awards granted to such
officers and employees, so long as the Board resolution
delegating such authority specifies the total number of shares
of Common Stock underlying stock awards that the officer may
grant, the officer does not grant any stock awards to himself or
herself and the Board does not delegate the authority to
determine the fair market value on the date of grant of the
Common Stock underlying the stock awards.
Eligibility
Incentive stock options may be granted under the 2005 Plan only
to employees (including officers) of the Company and its
affiliates. Employees, non-employee Board members, and
consultants of the Company and its affiliates are eligible to
receive all other types of stock awards under the 2005 Plan.
No incentive stock option may be granted under the 2005 Plan to
any person who, at the time of the grant, owns (or is deemed to
own) stock possessing more than 10% of the total combined voting
power of the Company or its affiliates, unless the exercise
price of such option is at least 110% of the fair market value
of the stock subject to the option on the date of grant and the
term of the option does not exceed five years from the date of
grant. In addition, the aggregate fair market value, determined
on the date of grant, of the shares of common stock with respect
to which incentive stock options are exercisable for the first
time by a participant during any calendar year (under the 2005
Plan and any other plans of the Company and its affiliates) may
not exceed $100,000.
No employee may be granted stock awards under the 2005 Plan
exercisable for more than 1,500,000 shares of Common Stock
during any calendar year.
Stock Subject to the 2005 Plan
Subject to this Proposal, an aggregate of 13,187,634 shares
of Common Stock is reserved for issuance under the 2005 Plan.
This share reserve consists solely of the number of shares the
Company estimates will be carried over from the 1996 Plan,
including shares subject to outstanding options under such
predecessor plan. If stock awards granted under the 2005 Plan
expire or otherwise terminate without being exercised or if the
Company reacquires shares of Common Stock pursuant to the terms
of unvested stock awards, the shares of Common Stock not
acquired pursuant to such stock awards again become available
for issuance under the 2005 Plan; provided, however, that any
shares of Common Stock reacquired pursuant to incentive stock
option awards will again become available for reissuance only
for awards other than incentive stock options. If any shares of
Common Stock subject to a stock award are not delivered because
such shares are withheld for payment of taxes or because such
shares are tendered as consideration for the exercise price of a
stock award, the shares of Common Stock not delivered pursuant
to such stock awards again become available for issuance
13
under the 2005 Plan; provided, however, that any shares of
Common Stock not delivered pursuant to incentive stock option
awards will again become available for reissuance only for
awards other than incentive stock options.
Terms of Options
The following is a description of the permissible terms of
options under the 2005 Plan. Individual stock option agreements
may be more restrictive as to any or all of the permissible
terms described below.
Exercise Price. The exercise price of incentive stock
options under the 2005 Plan may not be less than the fair market
value of the Common Stock subject to the option on the date of
the option grant, and in some cases (see Eligibility
above), may not be less than 110% of such fair market value. The
exercise price of nonstatutory options under the 2005 Plan may
not be less than 85% of the fair market value of the Common
Stock subject to the option on the date of the option grant.
However, if options are granted with exercise prices below
market value, deductions for compensation attributable to the
exercise of such options could be limited by Section 162(m)
and certain adverse tax consequences would result under
Section 409A of the Code. See Federal Income Tax
Information. At February 28, 2005, the closing price
of the Companys Common Stock as reported on the Nasdaq
National Market System was $1.23 per share.
Consideration. The exercise price of options granted
under the 2005 Plan must be paid either in cash at the time the
option is exercised or, at the discretion of the Board,
(i) pursuant to a broker-assisted same-day
sale, (ii) by delivery of other common stock of the
Company, (iii) pursuant to a deferred payment arrangement
or (iv) in any other form of legal consideration acceptable
to the Board.
Repricing. In the event of a decline in the value of the
Companys Common Stock, the Board has the authority to
amend any outstanding stock awards to reduce the exercise,
strike or purchase price and to offer participants the
opportunity to replace outstanding higher priced options with
new lower priced options. To the extent required by
Section 162(m), a repriced option is deemed to be canceled
and a new option granted. Both the option deemed to be canceled
and the new option deemed to be granted will be counted against
the limitation specified in Section 162(m).
Vesting. Options granted under the 2005 Plan may become
exercisable in cumulative increments, or vest, as
determined by the Board. Shares covered by currently outstanding
options under the 1996 Plan granted to newly hired employees
typically vest at the rate of 25% on the one year anniversary of
the vesting commencement date and in twelve equal quarterly
installments thereafter during the optionees employment or
services as a consultant. Shares covered by currently
outstanding options under the 1996 Plan granted to existing
employees typically vest at the rate of
1/16
per quarter (25% per year) during the optionees
employment or services as a consultant. Shares covered by
options granted in the future under the 2005 Plan may be subject
to different vesting terms. The Board has the authority to
accelerate the time during which an option may vest. In
addition, options granted under the 2005 Plan may permit
exercise prior to vesting. However, any unvested shares acquired
under such an early exercise arrangement may be subject to
repurchase by the Company or to any other restriction the Board
determines to be appropriate. To the extent provided by the
terms of an option, a participant may satisfy any federal, state
or local tax withholding obligation relating to the exercise of
such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to
the participant or by such other method as the Board determines
to include in the stock award agreement.
Term. The Board has the discretion to determine the term
of an option. However, the maximum term of an incentive stock
option granted under the 2005 Plan is 10 years, except that
in certain cases (see Eligibility above) the maximum
permitted term of such award is five years. Options under the
2005 Plan terminate three months after termination of the
participants service unless (i) such termination is
due to the participants permanent and total disability (as
defined in the Code), in which case the option may be exercised
(to the extent the option was exercisable at the time of the
termination of service) at any time within 12 months of
such termination, unless the option agreement provides
otherwise; (ii) the participant dies before the
participants service has terminated, in which case the
option may be exercised (to the extent the option was
exercisable at the time of the participants death) within
18 months of the participants death
14
by the person or persons to whom the rights to such option pass
by will or by the laws of descent and distribution, unless the
option agreement provides otherwise; or (iii) the option by
its terms specifically provides otherwise. In no event, however,
may an option be exercised beyond the expiration of its term.
A participants option agreement may provide that if the
exercise of the option following the termination of the
participants service would be prohibited because the
issuance of stock would violate the registration requirements
under the Securities Act, then the option will terminate on the
earlier of (i) the expiration of the term of the option or
(ii) three months after the termination of the
participants service during which the exercise of the
option would not be in violation of such registration
requirements.
Restrictions on Transfer. Unless specified otherwise by
the Board or required by law, a participant in the 2005 Plan may
not transfer a stock option other than by will or by the laws of
descent and distribution. During the lifetime of the
participant, only the participant may exercise a stock option. A
participant may designate a beneficiary who may exercise an
option following the participants death. Shares subject to
repurchase by the Company pursuant to an early exercise
arrangement may be subject to restrictions on transfer that the
Board deems appropriate.
Terms of Stock Purchase Awards and Stock Bonus Awards
Stock purchase awards and stock bonus awards may be granted
under the 2005 Plan pursuant to stock purchase award agreements
and stock bonus award agreements, respectively.
Purchase Price. The purchase price for stock purchase
awards must be at least the par value of the Companys
common stock.
Consideration. The purchase price for stock purchase
awards may be paid in cash, or, at the discretion of the Board,
under a deferred payment or similar arrangement, by past
services rendered to the Company or in any other form of legal
consideration acceptable to the Board and permissible under
applicable law. The Board may grant stock bonus awards in
consideration for past services rendered to the Company or any
other form of legal consideration acceptable to the Board and
permissible under applicable law.
Vesting. Shares of stock acquired under a stock purchase
may, but need not, be subject to a repurchase right or option in
favor of the Company and shares of stock acquired under a stock
bonus award may, but need not, be subject to forfeiture to the
Company in accordance with a vesting schedule as determined by
the Board. The Board has the authority to accelerate the vesting
of stock acquired pursuant to a stock purchase or stock bonus
award.
Termination of Service. Upon termination of a
participants service, the Company may repurchase or
otherwise reacquire any forfeited shares of stock that have not
vested as of such termination under the terms of the applicable
stock purchase award or stock bonus award agreement.
Restrictions on Transfer. Rights to acquire shares under
a stock purchase or stock bonus award may be transferred only
upon such terms and conditions as determined by the Board.
Terms of Stock Unit Awards
Stock unit awards may be granted under the 2005 Plan pursuant to
stock unit award agreements.
Consideration. The purchase price for stock unit awards
may be paid in any form of legal consideration acceptable to the
Board.
Settlement of Awards. A stock unit award may be settled
by the delivery of shares of the Companys common stock,
cash, in any combination of the two or in any other form of
consideration, as determined by the Board.
Vesting. At the time of the grant of a stock unit, the
Board may impose such restrictions or conditions to the vesting
of the stock unit as it, in its sole discretion, deems
appropriate. Also, at the time of grant, the Board may impose
additional restrictions or conditions that delay the delivery of
stock or cash subject to the stock
15
unit award after vesting. The Board has the authority to
accelerate the vesting of stock unit awards as it deems
appropriate.
Dividend Equivalents. Dividend equivalent rights may be
credited with respect to shares covered by a stock unit award,
as determined by the Board. The Company does not anticipate
paying cash dividends on its common stock for the foreseeable
future.
Termination of Service. Except as otherwise provided in
the applicable award agreement, stock units that have not vested
will be forfeited upon the participants termination of
service.
Terms of Stock Appreciation Rights
Stock appreciation rights may be granted under the 2005 Plan
pursuant to stock appreciation rights agreements.
Exercise. Each stock appreciation right is denominated in
shares of common stock equivalents. Upon exercise of a stock
appreciation right, the Company will pay the participant an
amount equal to the excess of (i) the aggregate fair market
value on the date of exercise of a number of common stock
equivalents with respect to which the participant is exercising
the stock appreciation right over (ii) the strike price on
the date of grant, as determined by the Board.
Settlement of Awards. The appreciation distribution upon
exercise of a stock appreciation right may be paid in cash, in
shares of the Companys common stock, in any combination of
the two or in any other form of consideration determined by the
Board.
Vesting. The Board may impose such conditions and
restrictions as to the vesting of stock appreciation rights as
it deems appropriate. The Board has the authority to accelerate
the vesting of stock appreciation rights as it deems appropriate.
Termination of Service. Upon termination of a
participants service, the participant generally may
exercise any vested stock appreciation right for three months
(or such longer or shorter period specified in the stock
appreciation right agreement) after the date such service
relationship ends. In no event may a stock appreciation right be
exercised beyond the expiration of its term.
Terms of Other Equity Awards
The Board may grant other equity awards based in whole or in
part by reference to the value of the Companys common
stock. See the full text of the 2005 Plan, setforth in
Appendix A to this Proxy Statement, for more details.
Subject to the provisions of the 2005 Plan, the Board has the
authority to determine the persons to whom and the dates on
which such other equity awards will be granted, the number of
shares of common stock (or cash equivalents) to be subject to
each award, and other terms and conditions of such awards.
Changes to Capital Structure
In the event any change is made to the outstanding shares of the
Companys common stock without the Companys receipt
of consideration (whether through a stock split or other
specified change in the capital structure of the Company),
appropriate adjustments will be made to: (i) the maximum
number and/or class of securities issuable under the 2005 Plan;
(ii) the maximum number and/or class of securities for
which any one person may be granted options and/or stock
appreciation rights per calendar year pursuant to the limitation
under Section 162(m); and (iii) the number and/or
class of securities and the price per share in effect under each
outstanding stock award under the 2005 Plan.
Effect of Certain Corporate Events
In the event of a dissolution or liquidation of the Company, any
stock award which remains unvested or subject to a right or
repurchase shall terminate immediately prior to such liquidation
or dissolution and the shares of Common Stock subject to such
repurchase right may be repurchased by the Company notwithstand-
16
ing that that the holder of such award is providing service to
the Company. The Board may, in its discretion, cause some or all
stock awards to become fully vested, exercisable and/or no
longer subject to repurchase or forfeiture before the
liquidation or dissolution is completed, but contingent on its
completion.
In the event of certain significant corporate transactions, all
outstanding stock awards under the 2005 Plan may be assumed,
continued or substituted for by any surviving or acquiring
entity (or its parent company). If the surviving or acquiring
entity (or its parent company) elects not to assume, continue or
substitute such stock awards, then (i) with respect to any
such stock awards that are held by individuals then performing
services for the Company or its affiliates, the vesting and
exercisability provisions of such stock awards will be
accelerated in full and such awards will be terminated if not
exercised prior to the effective date of the corporate
transaction; and (ii) all other outstanding stock awards
will be terminated if not exercised prior to the effective date
of the corporate transaction.
A significant corporate transaction will be deemed to occur in
the event of (i) a sale or all or substantially all of the
consolidated assets of the Company and its subsidiaries,
(ii) the sale of at least 90% of the outstanding securities
of the Company, (iii) a merger or consolidation in which
the Company is not the surviving corporation or (iv) a
merger, consolidation or similar transaction in which the
Company is the surviving corporation, but shares of the
Companys outstanding common stock are converted into other
property by virtue of the transaction.
Following certain specified change in control transactions, the
vesting and exercisability of specified stock awards will be
accelerated only if specifically provided by a
participants award agreement. The acceleration of a stock
award in the event of certain significant corporate transaction
or a change in control may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
Duration, Termination and Amendment
The Board may suspend or terminate the 2005 Plan without
shareholder approval or ratification at any time. Unless sooner
terminated, the 2005 Plan will terminate on March 20, 2015.
The Board may amend the 2005 Plan at any time or from time to
time. However, no amendment will be effective unless approved by
the shareholders of the Company if the amendment would
(i) modify the requirements as to eligibility for
participation (to the extent such modification requires
shareholder approval in order for the 2005 Plan to satisfy
Section 422 of the Code, if applicable, or Rule 16b-3
of the Securities Exchange Act of 1934, as amended (the
Exchange Act)); (ii) increase the number of
shares reserved for issuance upon exercise of awards; or
(iii) change any other provision of the Incentive Plan in
any other way if such modification requires shareholder approval
in order to comply with Rule 16b-3 of the Exchange Act or
satisfy the requirements of Section 422 of the Code or any
securities exchange listing requirements. The Board may submit
any other amendment to the 2005 Plan for shareholder approval,
including, but not limited to, amendments intended to satisfy
the requirements of Section 162(m) regarding the exclusion
of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
Federal Income Tax Information
The following is a summary of the principal United States
federal income taxation consequences to employees and the
Company with respect to participation in the 2005 Plan. This
summary is not intended to be exhaustive, and does not discuss
the income tax laws of any city, state or foreign jurisdiction
in which a participant may reside.
Incentive Stock Options. Incentive stock options granted
under the 2005 Plan are intended to be eligible for the
favorable federal income tax treatment accorded incentive
stock options under the Code. There generally are no
federal income tax consequences to the participant or the
Company by reason of the grant or exercise of an incentive stock
option. However, the exercise of an incentive stock option may
give rise to or increase alternative minimum tax liability for
the participant.
17
If a participant holds stock acquired through exercise of an
incentive stock option for more than two years from the date on
which the option was granted and more than one year after the
date the option was exercised for those shares, any gain or loss
on a disposition of those shares (a qualifying
disposition) will be a long-term capital gain or loss.
Upon such a qualifying disposition, the Company will not be
entitled to any income tax deduction.
Generally, if the participant disposes of the stock before the
expiration of either of these holding periods (a
disqualifying disposition), then at the time of
disposition the participant will realize taxable ordinary income
equal to the lesser of (i) the excess of the stocks
fair market value on the date of exercise over the exercise
price or (ii) the participants actual gain, if any,
on the purchase and sale. The participants additional gain
or any loss upon the disqualifying disposition will be a capital
gain or loss, which will be long-term or short-term depending on
whether the stock was held for more than one year.
To the extent the participant recognizes ordinary income by
reason of a disqualifying disposition, generally the Company
will be entitled (subject to the requirement of reasonableness,
the provisions of Section 162(m), and the satisfaction of a
tax reporting obligation) to a corresponding income tax
deduction in the tax year in which the disqualifying disposition
occurs.
Nonstatutory Stock Options, Restricted Stock Purchase Awards
and Stock Bonuses. There generally are no tax consequences
to the participant or the Company by reason of the grant of
these awards. However, if the strike price of a nonstatutory
stock option can, at any time, be less than the fair market
value of the stock on the grant date, Section 409A of the
Code imposes ordinary income and employment tax liability for
the participant as the option vests in an amount equal to the
difference between the fair market value of the stock on the
vesting date and the strike price. In addition,
Section 409A imposes a penalty of 20% of such amount and an
interest charge. The Company would be responsible for
withholding these tax amounts. Upon acquisition of the stock
under any of these awards, the participant normally will
recognize taxable ordinary income equal to the excess, if any,
of the stocks fair market value on the acquisition date
over the purchase price. However, to the extent the stock is
subject to certain types of vesting restrictions, the taxable
event will be delayed until the vesting restrictions lapse
unless the participant elects to be taxed on receipt of the
stock under Section 83(b) of the Code. With respect to
employees, the Company is generally required to withhold from
regular wages or supplemental wage payments an amount based on
the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) and the
satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to
the taxable ordinary income realized by the participant.
Upon disposition of the stock, the participant will recognize a
capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any
amount recognized as ordinary income upon acquisition (or
vesting) of the stock. Such gain or loss will be long-term or
short-term depending on whether the stock was held for more than
one year. Slightly different rules may apply to participants who
acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
Stock Unit Awards. No taxable income is generally
recognized upon receipt of a stock unit award. The participant
will recognize ordinary income in the year in which the shares
subject to that unit are actually issued to the participant in
an amount equal to the fair market value of the shares on the
date of issuance. The participant and the Company will be
required to satisfy certain tax withholding requirements
applicable to such income. The Company will be entitled to an
income tax deduction equal to the amount of ordinary income
recognized by the participant at the time the shares are issued.
In general, the deduction will be allowed for the taxable year
in which such ordinary income is recognized by the participant.
Section 409A of the Code may apply to the grant of a stock
unit award if the award permits the participant to defer receipt
of the stock after vesting, unless a deferral election and
certain other requirements are met.
Stock Appreciation Rights. A participant will recognize
taxable income is realized upon the later of the grant or
vesting of a stock appreciation right, unless the right meets
certain requirements promulgated under Section 409A of the
Code. These requirements include: (i) the baseline stock
value for determining appreciation under the award must never be
less than the fair market value of the stock on the grant date;
18
(ii) the stock of the Company must be traded on an
established securities market; (iii) the right may be
settled only in Company stock; and (iv) the right may not
permit the deferral of compensation except for the deferral
inherent in the participants ability to choose when to
exercise the right. If a stock appreciation right does not
satisfy these requirements, the participant will be subject to
taxation, a 20% penalty and an interest charge upon the later of
the grant or vesting of the right pursuant to Section 409A.
The Company would be responsible for withholding these tax
amounts. Assuming Section 409A does not require earlier
taxation of a stock appreciation right, upon exercise of the
stock appreciation right, the fair market value of the shares
(or cash in lieu of shares) received is recognized as ordinary
income to the participant in the year of such exercise.
Generally, with respect to employees, the Company is required to
withhold from the payment made on exercise of the stock
appreciation right or from regular wages or supplemental wage
payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness,
Section 162(m) and the satisfaction of a reporting
obligation, the Company will be entitled to an income tax
deduction equal to the amount of ordinary income recognized by
the participant.
Potential Limitation on Company Deductions.
Section 162(m) denies a deduction to any publicly held
corporation for compensation paid to certain covered
employees in a taxable year to the extent that
compensation to such covered employee exceeds $1 million.
It is possible that compensation attributable to awards, when
combined with all other types of compensation received by a
covered employee from the Company, may cause this limitation to
be exceeded in any particular year.
Certain kinds of compensation, including qualified
performance-based compensation, are disregarded for
purposes of the deduction limitation. In accordance with
Treasury Regulations issued under Section 162(m),
compensation attributable to stock options and stock
appreciation rights will qualify as performance-based
compensation if the award is approved by a compensation
committee comprised solely of outside directors and
either (i) the plan contains a per-employee limitation on
the number of shares for which such awards may be granted during
a specified period, the per-employee limitation is approved by
the shareholders, and the exercise price of the award is no less
than the fair market value of the stock on the date of grant or
(ii) the award is granted (or exercisable) only upon the
achievement (as certified in writing by the compensation
committee) of an objective performance goal established in
writing by the compensation committee while the outcome is
substantially uncertain, and the award is approved by
shareholders.
Stock purchase awards, stock units and stock bonus awards will
qualify as performance-based compensation under the Treasury
Regulations only if (i) the award is approved by a
compensation committee comprised solely of outside
directors, (ii) the award is granted (or exercisable)
only upon the achievement of an objective performance goal
established in writing by the compensation committee while the
outcome is substantially uncertain, (iii) the compensation
committee certifies in writing prior to the granting (or
exercisability) of the award that the performance goal has been
satisfied and (iv) prior to the granting (or
exercisability) of the award, shareholders have approved the
material terms of the award (including the class of employees
eligible for such award, the business criteria on which the
performance goal is based, and the maximum amount or
formula used to calculate the amount payable upon
attainment of the performance goal).
19
Equity Compensation Plan Information
The following table provides certain information with respect to
all of the Companys equity compensation plans in effect as
of December 31, 2004. No equity compensation plans that
were in effect as of December 31, 2004 were adopted without
the approval of the Companys security holders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
|
|
|
|
Remaining Available for | |
|
|
Number of Securities to | |
|
Weighted-Average | |
|
Issuance Under Equity | |
|
|
be Issued Upon Exercise | |
|
Exercise Price of | |
|
Compensation Plans | |
|
|
of Outstanding Options, | |
|
Outstanding Options, | |
|
(Excluding Securities | |
|
|
Warrants and Rights | |
|
Warrants and Rights | |
|
Reflected in Column (a)) | |
Plan Category |
|
(a) | |
|
(b) | |
|
(c)(1) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
9,415,848 |
|
|
$ |
4.44 |
|
|
|
3,879,960 |
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,415,848 |
|
|
$ |
4.44 |
|
|
|
3,879,960 |
|
|
|
(1) |
As of December 31, 2004, 13,189,884 and 105,924 shares
are reserved for future issuance under the 1996 Plan and the
1996 Non-Employee Directors Plan, respectively. An
additional 730,455 shares are authorized for issuance under
the Purchase Plan. The 1996 Plan contains an evergreen provision
whereby the aggregate number of shares reserved for issuance is
increased annually by a number of shares equal to 6% of the
issued and outstanding common stock as determined on the date of
the annual meeting of shareholders beginning with the 2001
meeting and ending with the 2005 meeting (or some lesser number
of shares as determined by the Board of Directors). Under the
1996 Plan, the aggregate increase in the number of shares to be
reserved by operation of the evergreen provision will not exceed
10,000,000. The 2005 Plan contains does not contain an evergreen
feature. |
20
PROPOSAL 3
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
In April 1996, the Board of Directors adopted, and the
shareholders subsequently approved, the Purchase Plan. A total
of 3,250,000 shares of the Companys Common Stock have
previously been authorized for issuance under the Purchase Plan.
At February 28, 2005, an aggregate of 2,519,545 shares
had been issued under the Purchase Plan and 730,455 shares
remained for the grant of future rights under the Purchase Plan.
During the last fiscal year, shares were purchased at prices
ranging from $1.08 to $1.53 in the following amounts under the
Purchase Plan: Thomas C. Chesterman, 10,035 shares, all
current executive officers as a group, 15,865 shares, and
all employees (excluding current executive officers) as a group
823,866 shares.
In March 2005, the Board of Directors of the Company adopted an
amendment to the Purchase Plan, subject to shareholder approval,
to increase the number of shares authorized for issuance under
the Purchase Plan by 2,000,000 to 5,250,000 shares. This
amendment is intended to afford the Company greater flexibility
in providing employees with stock incentives and ensures that
the Company can continue to provide such incentives at levels
determined appropriate by the Board.
Shareholders are requested in this Proposal 3 to approve
the Purchase Plan, as amended. The affirmative vote of the
holders of a majority of the shares present in person or
represented by proxy and voting at the meeting will be required
to approve the Purchase Plan, as amended. For purposes of this
vote abstentions and broker non-votes will not be counted for
any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The full text of the Purchase Plan, as amended, is set forth in
Appendix B to this Proxy Statement. The essential features
of the Purchase Plan, as amended, are outlined below:
Purpose
The purpose of the Purchase Plan is to provide a means by which
key employees of the Company (and any parent or subsidiary of
the Company designated by the Board of Directors to participate
in the Purchase Plan) may be given an opportunity to purchase
Common Stock of the Company through payroll deductions, to
assist the Company in retaining the services of its employees,
to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for
the success of the Company. At February 28, 2005,
approximately 93 of the Companys approximately 95
employees were eligible to participate in the Purchase Plan.
The rights to purchase Common Stock granted under the Purchase
Plan are intended to qualify as options issued under an
employee stock purchase plan as that term is defined
in Section 423(b) of the Code.
Administration
The Purchase Plan is administered by the Board of Directors,
which has the final power to construe and interpret the Purchase
Plan and the rights granted under it. The Board has the power,
subject to the provisions of the Purchase Plan, to determine
when and how rights to purchase Common Stock of the Company will
be granted, the provisions of each offering of such rights
(which need not be identical), and whether any parent or
subsidiary of the Company shall be eligible to participate in
such plan. The Board has the power, which it has not exercised,
to delegate administration of such plan to a committee of not
less than two Board members. The Board may abolish any such
committee at any time and revest in itself the administration of
the Purchase Plan.
21
Offerings
The Purchase Plan is implemented by offerings of rights to all
eligible employees from time to time by the Board. Generally,
each such offering is two years in duration. The Board may set
the duration of an offering for a period of time not to exceed
27 months.
Eligibility
Any person who is customarily employed at least 20 hours
per week and five months per calendar year by the Company (or by
any parent or subsidiary of the Company designated from time to
time by the Board) on the first day of an offering period is
eligible to participate in that offering under the Purchase
Plan, provided such employee has been in the continuous employ
of the Company for at least 10 days preceding the first day
of the offering period.
Notwithstanding the foregoing, no employee is eligible for the
grant of any rights under the Purchase Plan if, immediately
after such grant, the employee would own, directly or
indirectly, stock possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company or
of any parent or subsidiary of the Company (including any stock
which such employee may purchase under all outstanding rights
and options), nor will any employee be granted rights that would
permit him to buy more than $25,000 worth of stock (determined
at the fair market value of the shares at the time such rights
are granted) under all employee stock purchase plans of the
Company in any calendar year.
Participation in the Plan
Eligible employees become participants in the Purchase Plan by
delivering to the Company, prior to the date selected by the
Board as the offering date for the offering, an agreement
authorizing payroll deductions of up to 15% of such
employees total compensation during the purchase period.
Purchase Price
The purchase price per share at which shares are sold in an
offering under the Purchase Plan is the lower of (i) 85% of
the fair market value of a share of Common Stock on the date of
commencement of the offering, or (ii) 85% of the fair
market value of a share of Common Stock on any purchase date.
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares is accumulated by payroll
deductions over the offering period. At any time during the
purchase period, a participant may reduce or terminate his or
her payroll deductions. A participant may not increase or begin
such payroll deductions after the beginning of any purchase
period, except, if the Board provides, in the case of an
employee who first becomes eligible to participate as of a date
specified during the purchase period. All payroll deductions
made for a participant are credited to his or her account under
the Purchase Plan and deposited with the general funds of the
Company. A participant may not make any additional payments into
such account.
Purchase of Stock
By executing an agreement to participate in the Purchase Plan,
the employee is entitled to purchase shares under such plan. In
connection with offerings made under the Purchase Plan, the
Board specifies a maximum number of shares any employee may be
granted the right to purchase and the maximum aggregate number
of shares which may be purchased pursuant to such offering by
all participants. If the aggregate number of shares to be
purchased upon exercise of rights granted in the offering would
exceed the maximum aggregate number, the Board would make a pro
rata allocation of shares available in a uniform and equitable
manner. Unless the employees participation is
discontinued, his right to purchase shares is exercised
automatically at the end of the purchase period at the
applicable price. See Withdrawal below.
22
Withdrawal
While each participant in the Purchase Plan is required to sign
an agreement authorizing payroll deductions, the participant may
withdraw from a given offering by terminating his or her payroll
deductions and by delivering to the Company a notice of
withdrawal from the Purchase Plan. Such withdrawal may be
elected at any time prior to the end of the applicable offering
period.
Upon any withdrawal from an offering by the employee, the
Company will distribute to the employee his or her accumulated
payroll deductions without interest, less any accumulated
deductions previously applied to the purchase of stock on the
employees behalf during such offering, and such
employees interest in the offering will be automatically
terminated. The employee is not entitled to again participate in
such offering. An employees withdrawal from an offering
will not have any effect upon such employees eligibility
to participate in subsequent offerings under the Purchase Plan.
Termination of Employment
Rights granted pursuant to any offering under the Purchase Plan
terminate immediately upon cessation of an employees
employment for any reason, and the Company will distribute to
such employee all of his or her accumulated payroll deductions,
without interest.
Restrictions on Transfer
Rights granted under the Purchase Plan are not transferable and
may be exercised only by the person to whom such rights are
granted.
Duration, Amendment and Termination
The Board may, in its discretion, suspend or terminate the
Purchase Plan at any time.
The Board may amend the Purchase Plan at any time. Any amendment
of the Purchase Plan must be approved by the shareholders within
12 months of its adoption by the Board if the amendment
would (i) increase the number of shares of Common Stock
reserved for issuance under the Purchase Plan, (ii) modify
the requirements relating to eligibility for participation in
the Purchase Plan, or (iii) modify any other provision of
the Purchase Plan in a manner that would materially increase the
benefits accruing to participants under the Purchase Plan, if
such approval is required in order to comply with the
requirements of Rule 16b-3 under the Exchange Act.
Rights granted before amendment or termination of the Purchase
Plan will not be altered or impaired by any amendment or
termination of such plan without consent of the person to whom
such rights were granted.
Effect of Certain Corporate Events
In the event of a dissolution, liquidation or specified type of
merger of the Company, the surviving corporation either will
assume the rights under the Purchase Plan or substitute similar
rights, or the exercise date of any ongoing offering will be
accelerated such that the outstanding rights may be exercised
immediately prior to, or concurrent with, any such event.
Stock Subject to Purchase Plan
If rights granted under the Purchase Plan expire, lapse or
otherwise terminate without being exercised, the Common Stock
not purchased under such rights again becomes available for
issuance under such plan.
Federal Income Tax Information
Rights granted under the Purchase Plan are intended to qualify
for favorable federal income tax treatment associated with
rights granted under an employee stock purchase plan which
qualifies under provisions of Section 423 of the Code.
23
A participant will be taxed on amounts withheld for the purchase
of shares as if such amounts were actually received. Other than
this, no income will be taxable to a participant until
disposition of the shares acquired, and the method of taxation
will depend upon the holding period of the purchased shares.
If the stock is disposed of at least two years after the
beginning of the offering period and at least one year after the
stock is transferred to the participant, then the lesser of
(i) the excess of the fair market value of the stock at the
time of such disposition over the purchase price or
(ii) the excess of the fair market value of the stock as of
the beginning of the offering period over the purchase price
(determined as of the beginning of the offering period) will be
treated as ordinary income. Any further gain or any loss will be
taxed as a capital gain or loss. Capital gains currently are
generally subject to lower tax rates than ordinary income.
If the stock is sold or disposed of before the expiration of
either of the holding periods described above, then the excess
of the fair market value of the stock on the purchase date over
the purchase price will be treated as ordinary income at the
time of such disposition, and the Company may, in the future, be
required to withhold income taxes relating to such ordinary
income from other payments made to the participant. The balance
of any gain will be treated as capital gain. Even if the stock
is later disposed of for less than its fair market value on the
purchase date, the same amount of ordinary income is attributed
to the participant, and a capital loss is recognized equal to
the difference between the sales price and the fair market value
of the stock on such purchase date.
There are no federal income tax consequences to the Company by
reason of the grant or purchase of rights under the Purchase
Plan. The Company is entitled to a deduction to the extent
amounts are taxed as ordinary income to a participant (subject
to the requirement of reasonableness, the provisions of
Section 162(m) and the satisfaction of a tax reporting
obligation).
24
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected
Ernst & Young LLP as the Companys independent
auditors for the fiscal year ending December 31, 2005 and
has further directed that management submit the selection of
independent auditors for ratification by the shareholders at the
Annual Meeting. Ernst & Young LLP has audited the
Companys financial statements since 1995. Representatives
of Ernst & Young LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make a
statement if they so desire and will be available to respond to
appropriate questions.
Neither the Companys Bylaws nor other governing documents
or law require shareholder ratification of the selection of
Ernst & Young LLP as the Companys independent
auditors. However, the Audit Committee of the Board is
submitting the selection of Ernst & Young LLP to the
shareholders for ratification as a matter of good corporate
practice. If the shareholders fail to ratify the selection, the
Audit Committee of the Board will reconsider whether or not to
retain that firm. Even if the selection is ratified, the Audit
Committee of the Board in its discretion may direct the
appointment of different independent auditors at any time during
the year if they determine that such a change would be in the
best interests of the Company and its shareholders.
The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and voting at the
annual meeting (which shares voting affirmatively also
constitute a majority of the required quorum) will be required
to ratify the selection of Ernst & Young LLP. For
purposes of this vote, abstentions and broker non-votes will not
be counted for any purpose in determining whether this matter
has been approved.
Principal Accountant Fees and Services
The following table represents aggregate fees billed to the
Company for fiscal years ended December 31, 2004 and
December 31, 2003, by Ernst & Young LLP, the
Companys principal accountant. All fees described below
were approved by the Audit Committee.
|
|
|
|
|
|
|
|
|
|
|
Fiscal | |
|
|
Year Ended | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Audit Fees
|
|
$ |
328 |
|
|
$ |
247 |
|
Audit-related Fees(1)
|
|
|
15 |
|
|
|
6 |
|
Tax Fees(2)
|
|
|
3 |
|
|
|
|
|
All Other Fees(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$ |
346 |
|
|
$ |
253 |
|
|
|
(1) |
Audit-related Fees represent fees for professional services
provided they are reasonably related to the performance of the
audit of our annual financial statements and review of our
quarterly financial statements, and are not included in Audit
Fees. 2003 Audit-related Fees are related to implementation of
Sarbanes-Oxley Act regulations. 2004 Audit-related Fees are
related to accounting and reporting consultation on the subject
of the proxy materials for the Special Meeting of Shareholders
relating to the restructuring transaction with Novo Nordisk. |
|
(2) |
Tax Fees represent sales tax advice related to the restructuring
transaction with Novo Nordisk. |
|
(3) |
All Other Fees represent fees for professional services for
advice on accounting matters on SEC filings related to business
transactions. |
Pre-Approval Policies and Procedures
The Audit Committee pre-approves audit services, audit-related
services, and non-audit services provided by the Companys
independent auditor, Ernst & Young, LLP and will not
approve services that the Audit
25
Committee determines are outside the bounds of applicable laws
and regulations. Pre-approval may also be given as part of the
Audit Committees approval of the scope of the engagement
of the independent auditor or on an individual explicit
case-by-case basis before the independent auditor is engaged to
provide each service. The pre-approval of services may be
delegated to one or more of the Audit Committees members,
but the decision must be reported to the full Audit Committee at
its next scheduled meeting.
The Audit Committee has determined that the rendering of the
services rendered by Ernst & Young LLP other than audit
services is compatible with maintaining the principal
accountants independence.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Companys common stock as of
February 28, 2005 by: (i) each director and nominee
for director; (ii) each of the executive officers named in
the Summary Compensation Table (provided below); (iii) all
executive officers and directors of the Company as a group; and
(iv) all those known by the Company to be beneficial owners
of more than five percent of its common stock or the Preferred
Stock.
|
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|
|
|
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|
|
|
|
|
|
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|
|
|
|
|
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|
|
Beneficial Ownership | |
|
|
| |
|
|
Common | |
|
Series A Preferred | |
|
|
|
|
| |
|
| |
|
Common Stock and | |
|
|
|
|
Percent | |
|
|
|
Percent | |
|
Preferred Stock | |
|
|
Number of | |
|
of Total | |
|
Number of | |
|
of Total | |
|
Combined Voting | |
Beneficial Owner(1) |
|
Shares | |
|
(%) | |
|
Shares | |
|
(%) | |
|
Power (%) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Novo Nordisk A/ S(2)
|
|
|
7,868,369 |
|
|
|
10.9 |
|
|
|
|
|
|
|
|
|
|
|
10.0 |
|
|
Novo Alle DK-2880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bagsvaerd, Denmarko
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Enterprise Associates 10, Limited Partnership(3)
|
|
|
4,937,148 |
|
|
|
6.6 |
|
|
|
1,033,057 |
|
|
|
66.9 |
|
|
|
11.2 |
|
|
1119 St. Paul Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore, MD 21202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Situations Private Equity Fund L.P.(4)
|
|
|
4,939,229 |
|
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
|
6.2 |
|
|
153 E 53rd Street, 55th Floor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York, New York 10022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camden Partners Strategic Fund II-A, LP(5)
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
9.7 |
|
|
|
* |
|
|
c/o Camden Partners, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One South Street, Suite 2150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore, MD 21202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain Public Equity Partners, LP(6)
|
|
|
1,467,788 |
|
|
|
2.0 |
|
|
|
154,958 |
|
|
|
10.0 |
|
|
|
2.6 |
|
|
One Palmer Square
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Princeton, NJ 08542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPM BioEquities Master Fund LP(7)
|
|
|
537,188 |
|
|
|
* |
|
|
|
206,611 |
|
|
|
13.4 |
|
|
|
1.7 |
|
|
601 Gateway Blvd., Suite 360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South San Francisco, CA 94080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard P. Thompson(8)
|
|
|
1,168,754 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
Stephen J. Farr(9)
|
|
|
451,102 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
V. Bryan Lawlis(10)
|
|
|
359,017 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Klaus D. Kohl(11)
|
|
|
220,312 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Thomas C. Chesterman(12)
|
|
|
166,940 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Bobba Venkatadri(13)
|
|
|
98,124 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Igor Gonda(14)
|
|
|
340,673 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Virgil D. Thompson(15)
|
|
|
212,500 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Frank H. Barker(16)
|
|
|
145,212 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Wayne I. Roe(17)
|
|
|
145,212 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Stan M. Benson (18)
|
|
|
122,500 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
John M. Nehra(19)
|
|
|
95,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Stephen O. Jaeger(20)
|
|
|
35,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
All executive officers and directors as a group
(16 persons)(21)
|
|
|
4,339,856 |
|
|
|
5.7 |
|
|
|
|
|
|
|
|
|
|
|
5.3 |
|
|
|
(1) |
This table is based upon information supplied by officers,
directors and principal shareholders and Schedules 13D and 13G
filed with the SEC. Unless otherwise indicated in the footnotes
to this table and |
27
|
|
|
subject to community property laws where applicable, we believe
that each of the shareholders named in this table has sole
voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on
72,297,980 shares of common stock and 1,544,626 shares
of Preferred Stock (convertible at any time into
6,178,504 shares of common stock) outstanding on
February 28, 2005, adjusted as required by rules
promulgated by the SEC. |
|
(2) |
Represents 7,868,369 shares of common stock held by Novo
Nordisk A/ S, a publicly quoted Danish company. According to a
Schedule 13D Amendment No. 3 dated March 10,
2003, Novo Nordisk A/ S holds the shares through Novo Nordisk
Pharmaceuticals, Inc., a Delaware corporation. Novo Nordisk
Pharmaceuticals is a wholly-owned subsidiary of Novo Nordisk of
North America, Inc., a Delaware corporation. Novo Nordisk North
America is wholly owned by Novo Nordisk A/ S. Novo A/ S, a
private limited Danish company, owns approximately 26.7% of Novo
Nordisk A/ Ss total share capital, representing
approximately 69.0% of the voting rights of Novo Nordisk A/ S
and may be deemed to control Novo Nordisk A/ S. Novo Nordisk A/
S is a wholly-owned subsidiary of Novo Nordisk Foundation, a
self-governing and self- owned foundation. |
|
(3) |
Includes 2,489,585 shares of common stock and warrants to
purchase an aggregate of 2,447,563 shares of Common Stock
held by NEA 10. According to a Schedule 13D Amendment
No. 4 dated June 25, 2003 and filed jointly by
NEA 10, NEA Partners 10, Limited Partnership
(NEA Partners 10), Stewart Alsop, James Barrett,
Peter J. Barris, Robert T. Coneybeer, Nancy L. Dorman, Ronald H.
Kase, C. Richard Kramlich, Thomas C. McConnell, Peter T. Morris,
Charles W. Newhall III, Mark W. Perry, Scott D. Sandell and
Eugene A. Trainor III, each of the aforementioned general
partners of NEA Partners 10 has shared dispositive and shared
voting power with respect to the shares held by NEA 10. Each of
the aforementioned disclaims beneficial ownership as to the
shares held by NEA 10, except to the extent of their
pecuniary interest therein. |
|
(4) |
Includes 1,375,511 shares of common stock and a warrant to
purchase 534,106 shares of common stock held by
Special Situations Private Equity Fund L.P.
(SSPE), 564,552 shares of common stock and a
warrant to purchase 268,810 shares of common stock
held by Special Situations Cayman Fund, L.P.
(Cayman) and 1,589,184 shares of common stock
and warrants to purchase 607,066 shares of common
stock held by Special Situations Fund III, L.P.
(SSF3). According to a Schedule 13G Amendment
No. 1 dated February 4, 2005, Austin W. Marxe
(Marxe) and David M. Greenhouse
(Greenhouse), are the controlling principals of AWM
Investment Company, Inc. (AWM), the general partner
of and investment adviser to Cayman. AWM also serves as the
general partner of MGP Advisers Limited Partnership, the general
partner of and investment adviser to SSF3. Marxe and Greenhouse
are also members of MG Advisers, L.L.C., the general partner of
and investment adviser to SSPE. |
|
(5) |
Includes 8,400 shares of Preferred Stock held by Camden
Partners Strategic Fund II-B, L.P. |
|
(6) |
Includes 582,320 shares of common stock issuable upon
exercise of warrants. |
|
(7) |
Includes 537,188 shares of common stock issuable upon
exercise of warrants. |
|
(8) |
Includes 109,613 shares of common stock held by
Mr. Thompson, 279,206 shares of common stock held by
the Thompson Family Trust and 15,000 shares of common stock
held by Thompson Family Partners. Mr. Thompson is a
co-trustee of the Thompson Family Trust and a General Partner of
Thompson Family Partners and, as such, may be deemed to share
voting and investment power with respect to the shares held by
the Thompson Family Trust and Thompson Family Partners.
Mr. Thompson disclaims beneficial ownership of the shares
held by his family members, the Thompson Family Trust and
Thompson Family Partnership except to the extent of his
pecuniary and proportionate partnership interest arising from
his interest therein. Includes 744,999 shares of common
stock subject to options exercisable within 60 days of
February 28, 2005. Includes 19,936 shares of common
stock issuable upon exercise of warrants held by the Thompson
Family Trust. |
|
(9) |
Includes 398,748 shares of common stock subject to options
exercisable within 60 days of February 28, 2005. |
28
|
|
(10) |
Includes 312,499 shares of common stock subject to options
exercisable within 60 days of February 28, 2005.
Includes 8,544 shares of common stock issuable upon
exercise of warrants. |
|
(11) |
Includes 220,312 shares of common stock subject to options
exercisable within 60 days of February 28, 2005. |
|
(12) |
Includes 134,999 shares of common stock subject to options
exercisable within 60 days of February 28, 2005.
Includes 2,848 shares of common stock issuable upon
exercise of warrants. |
|
(13) |
Includes 98,124 shares of common stock subject to options
exercisable within 60 days of February 28, 2005. |
|
(14) |
Includes 207,813 shares of common stock subject to options
exercisable within 60 days of February 28, 2005. |
|
(15) |
Includes 193,000 shares of common stock subject to options
exercisable within 60 days of February 28, 2005. |
|
(16) |
Includes 145,212 shares of common stock subject to options
exercisable within 60 days of February 28, 2005. |
|
(17) |
Includes 145,212 shares of common stock subject to options
exercisable within 60 days of February 28, 2005. |
|
(18) |
Includes 122,500 shares of common stock subject to options
exercisable within 60 days of February 28, 2005. |
|
(19) |
Includes 95,000 shares subject to options exercisable
within 60 days of February 28, 2005. Does not include
4,937,148 shares, including shares of common stock issuable
upon conversion of Preferred Stock, beneficially owned by NEA
10. Mr. Nehra is a director of the Company and a limited
partner of NEA Partners 10, the general partner of NEA 10.
Mr. Nehra disclaims beneficial ownership of the shares held
by NEA 10 except to the extent of his pecuniary interest therein. |
|
(20) |
Includes 35,000 shares of common stock subject to options
exercisable within 60 days of February 28, 2005. |
|
(21) |
See footnotes (1) through (20) above, as applicable. |
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the 1934 Act requires the
Companys directors and executive officers, and persons who
own more than ten percent of a registered class of the
Companys equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company.
Officers, directors and greater than ten percent shareholders
are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Companys knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, during the
fiscal year ended December 31, 2004, all Section 16(a)
filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with,
except that two reports, each covering one transaction, were
filed late for Richard P. Thompson, one report covering one
transaction was filed late for each of V. Bryan Lawlis, Bobba
Venkatadri, Babatunde A. Otulana, Norma L. Milligin, Klaus D.
Kohl, Thomas C. Chesterman and Stephen J. Farr and one report
covering four transactions was filed late by Eugene A.
Trainor III, an affiliate of New Enterprise
Associates 10, Limited Partnership.
Compensation of Directors
Each non-employee director of the Company receives a per meeting
fee of $3,000 for all regularly scheduled meetings, and a per
meeting fee of $1,000 for additional special meetings of the
Board of Directors. The non-employee director serving as
Chairman of the Board of Directors receives an annual $25,000
fee, payable quarterly, for his service. In addition, each
non-employee director of the Company receives $1,000 for each
committee meeting, and each committee chairperson receives an
additional $500 per committee meeting. In the fiscal year
ended December 31, 2004, the total compensation paid to
non-employee directors
29
was $297,500. The members of the Board of Directors are also
eligible for reimbursement for their expenses incurred in
attending Board meetings in accordance with Company policy.
Under current Board policy, each director receives an automatic
option grant upon election to the board, and at each annual
meeting of the shareholders thereafter. Additional grants may be
made to non-employee directors under the 1996 Plan (as succeeded
by the 2005 Plan, assuming Proposal 2 is approved by the
shareholders).
During the last fiscal year, the Company granted options
covering 20,000 shares to each non-employee director of the
Company at an exercise price per share of $1.06 (the fair market
value of such common stock on the date of each grant based on
the closing sales price reported on the Nasdaq National Market
for the date of each grant). Additionally, Mr. Jaeger
received an option covering 20,000 shares at an exercise
price of $2.26 per share (the fair market value of such
common stock on the date of grant based on the closing sales
price reported on the Nasdaq National Market) upon his
appointment to the Board on March 19, 2004. As of
February 28, 2005, non-employee directors held options to
purchase an aggregate of 1,029,982 shares of the
Companys Common Stock.
Compensation of Executive Officers
The following table shows for the fiscal years ended
December 31, 2002, 2003 and 2004, compensation awarded or
paid to, or earned by, the Companys Chief Executive
Officer, its other four most highly compensated executive
officers at December 31, 2004, and Mr. Thompson, who
was the Companys chief executive officer until October
2004 (the Named Executive Officers). In accordance
with the rules of the SEC, the compensation described in this
table does not include medical or other benefits received by the
Named Executive Officers that are available generally to all of
the Companys salaried employees and certain perquisites
and other personal benefits received by the Named Executive
Officers which do not exceed in the aggregate the lesser of
$50,000 or 10% of any such officers salary and bonus
contained in this table.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term | |
|
|
|
|
|
|
Annual Compensation | |
|
Compensation | |
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
Other | |
|
Securities | |
|
|
|
|
|
|
|
|
Compensation | |
|
Underlying | |
|
All Other | |
Name and Principal Position |
|
Year | |
|
Salary ($) | |
|
Bonus ($) | |
|
($) | |
|
Options (#) | |
|
Compensations ($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
V. Bryan Lawlis, Jr.(1)
|
|
|
2004 |
|
|
|
304,077 |
|
|
|
228,998 |
|
|
|
110,705 |
|
|
|
250,000 |
|
|
|
8,879 |
|
President and Chief
|
|
|
2003 |
|
|
|
280,000 |
|
|
|
56,000 |
|
|
|
127,683 |
|
|
|
100,000 |
|
|
|
5,250 |
|
|
Executive Officer
|
|
|
2002 |
|
|
|
280,000 |
|
|
|
95,200 |
|
|
|
283,136 |
|
|
|
50,000 |
|
|
|
2,302 |
|
Thomas C. Chesterman(2)
|
|
|
2004 |
|
|
|
278,231 |
|
|
|
126,651 |
|
|
|
|
|
|
|
95,000 |
|
|
|
4,868 |
|
Senior Vice President and
|
|
|
2003 |
|
|
|
260,000 |
|
|
|
41,600 |
|
|
|
|
|
|
|
35,000 |
|
|
|
5,250 |
|
|
Chief Financial Officer
|
|
|
2002 |
|
|
|
82,000 |
|
|
|
31,488 |
|
|
|
|
|
|
|
150,000 |
|
|
|
|
|
Bobba Venkatadri(3)
|
|
|
2004 |
|
|
|
271,418 |
|
|
|
123,184 |
|
|
|
179,657 |
|
|
|
130,000 |
|
|
|
12,214 |
|
Senior Vice President,
|
|
|
2003 |
|
|
|
155,000 |
|
|
|
53,400 |
|
|
|
75,386 |
|
|
|
150,000 |
|
|
|
5,250 |
|
|
Operations
|
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Klaus D. Kohl(4)
|
|
|
2004 |
|
|
|
265,100 |
|
|
|
114,214 |
|
|
|
55,104 |
|
|
|
75,000 |
|
|
|
1,885 |
|
Senior Vice President,
|
|
|
2003 |
|
|
|
229,154 |
|
|
|
46,665 |
|
|
|
73,130 |
|
|
|
75,000 |
|
|
|
|
|
|
Quality and Technical Director
|
|
|
2002 |
|
|
|
227,123 |
|
|
|
87,215 |
|
|
|
67,233 |
|
|
|
100,000 |
|
|
|
|
|
Stephen J. Farr(5)
|
|
|
2004 |
|
|
|
245,923 |
|
|
|
127,508 |
|
|
|
|
|
|
|
135,000 |
|
|
|
7,738 |
|
Senior Vice President,
|
|
|
2003 |
|
|
|
224,389 |
|
|
|
35,902 |
|
|
|
|
|
|
|
150,000 |
|
|
|
3,635 |
|
|
Chief Scientific Officer
|
|
|
2002 |
|
|
|
208,282 |
|
|
|
61,282 |
|
|
|
|
|
|
|
130,000 |
|
|
|
994 |
|
Richard P. Thompson(6)
|
|
|
2004 |
|
|
|
358,269 |
|
|
|
272,855 |
|
|
|
|
|
|
|
300,000 |
|
|
|
9,090 |
|
Former Chairman and Chief
|
|
|
2003 |
|
|
|
345,000 |
|
|
|
69,000 |
|
|
|
|
|
|
|
150,000 |
|
|
|
5,250 |
|
|
Executive Officer
|
|
|
2002 |
|
|
|
345,000 |
|
|
|
122,584 |
|
|
|
|
|
|
|
250,000 |
|
|
|
1,559 |
|
|
|
(1) |
In 2004, bonus includes $172,998 in respect of 2004 performance
that was paid in January 2005. In 2004, a tax
gross-up payment was made by the Company to
Mr. Lawlis in the amount of $38,164 for taxes |
30
|
|
|
attributable to loan forgiveness and housing subsidy payments,
indebtedness to the Company in the amount of $44,891 was
forgiven, $27,650 was paid by the Company in housing subsidy
payments, $2,379 was paid by the Company in term life insurance
benefits and $6,500 was paid by the Company as matching
contributions under the Companys 401(k) plan. In 2003, a
tax gross-up payment was made by the Company to
Mr. Lawlis in the amount of $43,987 for taxes attributable
to loan forgiveness and housing subsidy payments, indebtedness
to the Company in the amount of $46,796 was forgiven, $36,900
was paid by the Company in housing subsidy payments and $5,250
was paid by the Company as matching contributions under the
Companys 401(k) plan. In 2002, a tax gross-up
payment was made by the Company to Mr. Lawlis in the amount
of $97,541 for taxes attributable to loan forgiveness and
housing subsidy payments, indebtedness to the Company in the
amount of $48,847 was forgiven, $136,748 was paid by the Company
in housing subsidy payments and $2,302 was paid by the Company
as matching contributions under the Companys 401(k) plan. |
|
(2) |
In 2004, $849 was paid by the Company in term life insurance
benefits for Mr. Chesterman and $4,019 was paid by the
Company as matching contributions under the Companys
401(k) plan. In 2003, $5,250 was paid by the Company to
Mr. Chesterman as matching contributions under the
Companys 401(k) plan. |
|
(3) |
In 2004, a tax gross-up payment was made by the
Company to Mr. Venkatadri in the amount of $65,787 for
taxes attributable to loan forgiveness and housing subsidy
payments, $113,870 was paid by the Company in housing subsidy
payments, $16,478 was paid by the Company in housing subsidy
payments, $5,714 was paid by the Company in term life insurance
benefits and $6,500 was paid by the Company as matching
contributions under the Companys 401(k) plan. In 2003,
$75,386 was paid by the Company to Mr. Venkatadri in
housing subsidy payments and $5,250 was paid by the Company as
matching contributions under the Companys 401(k) plan.
Mr. Venkatadri joined the Company in May 2003. |
|
(4) |
In 2004, a tax gross-up payment was made by the
Company to Mr. Kohl in the amount of $19,028 for taxes
attributable to loan forgiveness and housing subsidy payments,
indebtedness to the Company in the amount of $17,380 was
forgiven, $1,885 was paid by the Company in term life insurance
benefits and $2,218 was paid by the Company in European health
insurance premiums. In 2003, a tax gross-up payment
was made by the Company to Mr. Kohl in the amount of
$25,193 for taxes attributable to loan forgiveness and housing
subsidy payments, indebtedness to the Company in the amount of
$18,277 was forgiven and $29,660 was paid by the Company in
housing subsidy payments. In 2002, a tax gross-up
payment was made by the Company to Mr. Kohl in the amount
of $23,162 for taxes attributable to loan forgiveness and
housing subsidy payments, indebtedness to the Company in the
amount of $14,411 was forgiven and $29,660 was paid by the
Company in housing subsidy payments. Mr. Kohl resigned from
his position with the Company in January 2005. |
|
(5) |
In 2004, $1,238 was paid by the Company in term life insurance
benefits for Mr. Farr and $6,500 was paid by the Company as
matching contributions under the Companys 401(k) plan. In
2002 and 2003, All Other Compensation represents matching
contributions paid by the Company under the Companys
401(k) plan. |
|
(6) |
In 2004, bonus includes $203,855 in respect of 2004 performance
that was paid in January 2005. In 2004, $2,590 was paid by the
Company in term life insurance benefits for Mr. Thompson
and $6,500 was paid by the Company as matching contributions
under the Companys 401(k) plan. In 2002 and 2003, All
Other Compensation represents matching contributions paid by the
Company under the Companys 401(k) plan. Mr. Thompson
resigned from his position as Chairman and Chief Executive
Officer in 2004, though he remains as a director of the Company. |
31
STOCK OPTION GRANTS AND EXERCISES
The following table presents, for the fiscal year ended
December 31, 2004, certain information regarding options
granted to the Named Executive Officers during the year ended
December 31, 2004. In 2004, the Company granted options to
its executive officers under the 1996 Plan. These options vest
20% after the first year and quarterly thereafter for the
following three years. The options will fully vest upon a change
of control (as defined in the Plan), unless the acquiring
company assumes the options or substitutes similar options. In
the year ended December 31, 2004, the Company granted
options to purchase a total of 3,488,800 shares of the
Companys common stock.
Potential realizable value is calculated assuming that the stock
price on the date of grant appreciates at the indicated rate
compounded annually until the option is exercised and sold on
the last day of its term for the appreciated stock price. The 5%
and 10% assumed rates of appreciation are required by the rules
of the SEC and do not represent the Companys estimate or
projection of the future common stock price.
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Individual Grants | |
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Potential Realizable | |
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% of Total | |
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Value at Assumed | |
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Options | |
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Annual Rates of Stock | |
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Securities | |
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Granted to | |
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Price Appreciation for | |
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Underlying | |
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Employees in | |
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Exercise or | |
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Option Term | |
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Options | |
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Fiscal Year | |
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Base Price | |
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Granted (#) | |
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(%) | |
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($/SH) | |
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Expiration Date | |
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5% ($) | |
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10% ($) | |
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V. Bryan Lawlis, Jr.
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250,000 |
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7.2 |
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2.40 |
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2/26/14 |
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373,265 |
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949,761 |
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Thomas C. Chesterman
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95,000 |
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2.7 |
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2.40 |
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2/26/14 |
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141,841 |
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360,909 |
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Bobba Venkatadri
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130,000 |
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3.7 |
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2.40 |
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2/26/14 |
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194,098 |
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493,876 |
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Klaus D. Kohl
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75,000 |
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2.1 |
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2.40 |
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2/26/14 |
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111,980 |
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284,928 |
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Stephen J. Farr
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135,000 |
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3.9 |
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2.40 |
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2/26/14 |
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201,563 |
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512,871 |
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Richard P. Thompson
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300,000 |
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8.6 |
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2.40 |
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2/26/14 |
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447,918 |
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1,139,713 |
|
OPTION EXERCISES AND YEAR-END OPTION VALUES
No Named Executive Officers exercised options during 2004.
Options granted under the 1996 Plan are immediately exercisable
if permitted in the stock option grant. No grants have been made
since 1996 that allow for early exercise. The value of
in-the-money options is based on the fair market value of the
Companys common stock at December 31, 2004, which was
$1.73 per share, minus the exercise price of the options.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year End Option Values
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Number of Securities | |
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Value of Unexercised | |
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Underlying Unexercised | |
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In-the-Money | |
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Shares Acquired | |
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Value | |
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Options/SARs at FY-End (#) | |
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Options/SARs at FY-End ($) | |
Name |
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on Exercise (#) | |
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Realized ($) | |
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Exercisable/ Unexercisable | |
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Exercisable/ Unexercisable | |
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V. Bryan Lawlis, Jr.
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312,499/287,501 |
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39,000/39,000 |
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Thomas C. Chesterman
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128,750/91,250 |
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27,300/27,300 |
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Bobba Venkatadri
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98,124/181,876 |
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15,750/20,250 |
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Klaus D. Kohl
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220,312/154,688 |
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25,593/32,907 |
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Stephen J. Farr
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378,748/213,752 |
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84,448/137,102 |
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Richard P. Thompson
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744,999/375,001 |
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58,500/58,500 |
|
Compensation Committee Interlocks and Insider
Participation
During the 2004 fiscal year, the Companys Compensation
Committee consisted of Dr. Gonda and Messrs. Benson
and V. Thompson. Dr. Gonda stepped down from the
Compensation Committee in February 2004 to comply with Nasdaq
regulations regarding Compensation Committee independence. Dr
Gonda was previously an executive officer of the Company from
August 2000 until December 2001. He rejoined the Compensation
Committee in January 2005. No interlocking relationship exists
between the Board of Directors
32
or the Compensation Committee and the board of directors or the
compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS
ON EXECUTIVE COMPENSATION*
The Compensation Committee of the Board of Directors (the
Committee) is composed of three non-employee
directors. The Committee is responsible for setting and
administering the policies that govern annual executive
salaries, bonuses and stock option grants. The Committee
annually evaluates the performance, and recommends to the Board
of Directors the level of compensation, of the Chief Executive
Officer (CEO), and the other executive officers of
the Company based upon a mix of the achievement of the corporate
goals, individual performance and comparisons with other
biotechnology companies. The CEO is not present during the
discussion of his compensation.
The policies of the Committee with respect to executive
officers, including the CEO, are to provide compensation
sufficient to attract, motivate and retain executives of
outstanding ability and potential and to establish an
appropriate relationship between executive compensation and the
creation of shareholder value. To meet these goals, the
Committee has adopted a mix among the compensation elements of
salary, bonus and stock options, with a bias toward stock
options to emphasize the link between executive incentives and
the creation of shareholder value as measured by the equity
markets.
In general, the salaries of executive officers are based upon a
review of surveys of publicly-held biotechnology companies of a
similar size to the Company in terms of number of persons
employed. Based upon such surveys, the executive officers
salaries are set at the beginning of a fiscal year in the low-
to mid-range as compared to other biotechnology companies
described above. The salaries are adjusted at such time within
such range based upon whether an executive officer met specific
individual performance goals. Such individual performance goals
are based upon the officers contribution toward Company
goals. For the fiscal year ended December 31, 2004, the
average increase in the salaries of the executive officers,
including the CEO and Richard Thompson, who was the
Companys CEO until August 2004 (the Former
CEO), was 7.2%.
Target bonuses of executive officers are based upon the surveys
of other biotechnology companies described above and are set at
the beginning of each fiscal year as a percentage of base
salary, which percentage is in the mid-range as compared to such
other biotechnology companies. Actual bonuses are paid at the
end of each fiscal year and may be above or below target
depending on whether certain corporate goals have been met
during the year. The set of corporate goals is the same for all
executive officers. Because the Company is a development stage
company, the corporate goals are based upon product development
and financing objectives rather than the operating performance
of the Company. The Committee assigns a weight to each goal
according to whether it was attained or surpassed. The bonus is
capped at 150% of the target percentage based on maximum goal
achievement.
In recommending stock options for executive officers, the
Committee considers individual performance, overall contribution
to the Company and the total number of stock options to be
awarded. The level of stock option awards is also based upon the
surveys of other biotechnology companies described above. After
considering the criteria relating to awarding stock options, the
Committee determined that nine executive officers, including the
CEO and the Former CEO, would receive option grants in the
fiscal year ended December 31, 2004.
The Committee generally uses the same procedures described above
for the other executive officers in setting the annual salary,
bonus and stock option awards for the CEO, except that during
2004 both the CEOs and the Former CEOs bonuses were
based on performance targets in product development and levels of
* The material in this report is not soliciting
material, is not deemed filed with the SEC,
and is not to be incorporated by reference into any filing of
the Company under the 1933 Act or 1934 Act, whether
made before or after the date hereof and irrespective of any
general incorporation language contained in such filing.
33
financing achieved. The corporate goals used in adjusting the
salary of the CEO are the same as the corporate goals utilized
in adjusting the salaries of all executive officers. The
CEOs salary and bonus are determined based on comparisons
with other biotechnology companies and adjusted according to
corporate performance as described above. During 2004, the CEO
received an 8.6% increase from his prior salary and received a
bonus that was 113.8% of the target bonus, and the Former CEO
received a 4.4% increase in salary and received a bonus that was
113.8% of the target bonus. In addition, in January 2005 the
Former CEO received a bonus relating to the restructuring
transaction with Novo Nordisk, which amounted to 36.2% of the
target bonus set for the Former CEO for 2004. In awarding stock
options, the Committee considers the CEOs performance,
overall contribution to the Company, the total number of options
awarded and the level of options granted by other biotechnology
companies as described above. Based on such criteria, the CEO
received options to purchase an aggregate of 250,000 shares
of the Companys common stock for the fiscal year ended
December 31, 2004 and the Former CEO received options to
purchase an aggregate of 300,000 shares of the
Companys common stock. Compared to other biotechnology
companies as described above, the salary and stock options of
the CEO and the Former CEO for the fiscal year ended
December 31, 2004 are in the mid-range.
Section 162(m) limits the Company to a deduction for
federal income tax purposes of no more than $1 million of
compensation paid to certain Named Executive Officers during a
taxable year. Compensation above $1 million may be deducted
if it is performance-based compensation within the
meaning of the Code. The Compensation Committee believes that at
the present time it is unlikely that the compensation paid to
any Named Executive Officer in a taxable year which is subject
to the deduction limit will exceed $1 million. Therefore,
the Committee has not yet established a policy for determining
which forms of incentive compensation awarded to its Named
Executive Officers shall be designed to qualify as
performance-based compensation. The Committee
intends to continue to evaluate the effects of the statute and
any United States Treasury regulations and to comply with
Section 162(m) in the future to the extent consistent with
the best interests of the Company.
From the members of the Compensation Committee of Aradigm
Corporation:
|
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|
Stan M. Benson |
|
Igor Gonda |
|
Virgil D. Thompson |
34
PERFORMANCE MEASUREMENT COMPARISON*
The following graph shows the total shareholder return of an
investment of $100 in cash on December 31, 1999 for
(i) Aradigms common stock, (ii) the Nasdaq
composite Market Index (the Nasdaq Index) and
(iii) the Nasdaq Pharmaceutical Index (the
Nasdaq-Pharmaceutical). The total return for the
Companys stock and for each index assumes the reinvestment
of dividends, although dividends have never been declared on the
Companys stock, and is based on the returns of the
component companies weighted according to their capitalizations
as of the end of each quarterly period. The Nasdaq Index tracks
the aggregate price performance of equity securities traded on
the Nasdaq. The Nasdaq-Pharmaceutical tracks the aggregate price
performance of equity securities of pharmaceutical companies
traded on the Nasdaq Index. The Companys common stock is
traded on the Nasdaq and is a component of both the Nasdaq Index
and the Nasdaq-Pharmaceutical.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG ARADIGM CORPORATION, THE NASDAQ STOCK MARKET (U.S.)
INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
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Cumulative Total Return | |
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12/99 |
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12/00 |
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12/01 |
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12/02 |
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12/03 |
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12/04 |
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ARADIGM CORPORATION
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100.00 |
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153.95 |
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74.74 |
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17.05 |
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18.00 |
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18.21 |
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NASDAQ INDEX
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100.00 |
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72.62 |
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50.23 |
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29.12 |
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44.24 |
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47.16 |
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NASDAQ PHARMACEUTICAL
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100.00 |
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120.50 |
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109.11 |
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72.38 |
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104.08 |
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111.76 |
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* This section is not soliciting material, is
not deemed filed with the SEC, and is not to be
incorporated by reference into any filing of the Company under
the 1933 Act or 1934 Act, whether made before or after
the date hereof and irrespective of any general incorporation
language contained in such filing.
35
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain
officers and directors that provide, among other things, that
the Company will indemnify such officer or director, under the
circumstances and to the extent provided for therein, for
expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be
made a party be reason of his position as a director, officer or
other agent of the Company, and otherwise to the full extent
permitted under California law and the Companys Bylaws.
Pursuant to an offer letter dated September 20, 2001, the
Company agreed to provide Mr. Lawlis with a loan in the
principal amount of $200,000. The loan has a five-year term and
accrues interest at the rate of 4.8% per year. By the terms
of the offer letter, the loan is to be forgiven over the first
five years of Mr. Lawliss employment with the
Company. In 2004, the total amount of principal and interest
forgiven was $44,891, and the largest aggregate amount of
indebtedness outstanding in 2004, including principal and
accrued interest, was $116,667. As of February 28, 2005,
the amount of principal and accrued interest outstanding was
$73,333.
Pursuant to a letter agreement dated April 1, 2002, the
Company agreed to provide Mr. Kohl with a loan in the
principal amount of $50,000. The loan has a three-year term and
accrues interest at the rate of 5.4% per year. By the terms
of the letter agreement, the loan is to be forgiven in 36 equal
installments, together with accrued interest, for as long as
Mr. Kohl continues to be employed by the Company. In 2004,
the total amount of principal and interest forgiven was $17,380,
and the largest aggregate amount of indebtedness outstanding in
2004, including principal and accrued interest, was $19,444. As
of March 1, 2005, the amount of principal and accrued
interest outstanding was $0.
As of January 26, 2005, the Company completed the
restructuring of the AERx iDMS program, pursuant to the
Restructuring Agreement entered into with Novo Nordisk A/ S and
Novo Nordisk Delivery Technologies, Inc. as of
September 28, 2004. Under the terms of the Restructuring
Agreement the Company sold certain equipment, leasehold
improvements and other tangible assets currently utilized in the
AERx iDMS program to Novo Nordisk Delivery Technologies, for a
cash payment of approximately $55.3 million, in which the
Company received net proceeds of $51.3 million, after refund of
cost advances of approximately $4.0 million made by Novo
Nordisk. The Companys expense related to this transaction
for legal and other consulting costs were approximately
$1.1 million. In connection with the restructuring
transaction, the Company entered into various related agreements
with Novo Nordisk and Novo Nordisk Delivery Technologies
effective January 26, 2005, including the following:
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an amended and restated license agreement amending the
Development and License Agreement previously in place with Novo
Nordisk, expanding Novo Nordisks development and
manufacturing rights to the AERx iDMS program and providing for
royalties to the Company on future AERx iDMS net sales in lieu
of a percentage interest in the gross profits from the
commercialization of AERx iDMS; |
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a three-year agreement under which Novo Nordisk Delivery
Technologies will perform contract manufacturing for the Company
of AERx iDMS-identical devices and dosage forms filled with
compounds provided by the Company in support of preclinical and
initial clinical development by the Company of other AERx
products; and |
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an amendment of the common stock purchase agreement in place
with Novo Nordisk prior to the closing of the restructuring
transaction, deleting the provisions whereby the Company can
require Novo Nordisk to purchase certain amounts of common
stock, imposing certain restrictions on the ability of Novo
Nordisk to sell shares of the Companys common stock
previously purchased by Novo Nordisk, and providing Novo Nordisk
with certain registration and information rights with respect to
these shares. |
In addition, pursuant to the Restructuring Agreement, the
Manufacturing and Supply Agreement and the Patent Cooperation
Agreement, each previously in place with Novo Nordisk, were
terminated. As of February 28, 2005 Novo Nordisk
beneficially owned 7,868,369 shares of the Companys
common stock.
36
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements and annual reports with
respect to two or more shareholders sharing the same address by
delivering a single proxy statement addressed to those
shareholders. This process, which is commonly referred to as
householding, potentially means extra convenience
for shareholders and cost savings for companies.
This year, a number of brokers with account holders who are
Aradigm shareholders will be householding our proxy
materials. A single proxy statement will be delivered to
multiple shareholders sharing an address unless contrary
instructions have been received from the affected shareholders.
Once you have received notice from your broker that they will be
householding communications to your address,
householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you
no longer wish to participate in householding and
would prefer to receive a separate proxy statement and annual
report, please notify your broker, direct your written request
to Aradigm Corporation, Corporate Secretary, 3929 Point Eden
Way, Hayward, CA 94545 or contact the Companys Corporate
Secretary at (510) 265-9000. Shareholders who currently
receive multiple copies of the proxy statement at their address
and would like to request householding of their
communications should contact their broker.
OTHER MATTERS
The Board of Directors knows of no other matters that will be
presented for consideration at the Annual Meeting. If any other
matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote
on such matters in accordance with their best judgment.
|
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By Order of the Board of Directors |
|
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/s/ V. Bryan Lawlis |
|
|
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V. Bryan Lawlis |
|
President and Chief Executive Officer |
April 11, 2005
A copy of the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2004 is available
without charge upon written request to: Corporate Secretary,
Aradigm Corporation, 3929 Point Eden Way, Hayward, CA 94545.
Copies may also be obtained without charge through the
SECs website at http://www.sec.gov.
37
APPENDIX A 2005 EQUITY INCENTIVE PLAN
ARADIGM CORPORATION
2005 Equity Incentive
Plan
Adopted: March 21,
2005
Approved By
Shareholders: ,
2005
Termination Date:
March 20, 2015
(a) Amendment and Restatement. The Plan is a
complete amendment and restatement of the Companys 1996
Equity Incentive Plan that was previously adopted in April 1996
(as thereafter amended, the Prior
Plan). All outstanding awards granted under the
Prior Plan shall remain subject to the terms of the Prior Plan.
All Stock Awards granted on or after the effective date of this
Plan shall be subject to the terms of this Plan.
(b) Eligible Stock Award Recipients. The persons
eligible to receive Stock Awards are Employees, Directors and
Consultants.
(c) Available Stock Awards. The Plan provides for
the grant of the following Stock Awards: (i) Incentive
Stock Options, (ii) Nonstatutory Stock Options,
(iii) Stock Purchase Awards, (iv) Stock Bonus Awards,
(v) Stock Appreciation Rights, (vi) Stock Unit Awards
and (vii) Other Stock Awards.
(d) General Purpose. The Company, by means of the
Plan, seeks to secure and retain the services of the group of
persons eligible to receive Stock Awards as set forth in
Section 1(a), to provide incentives for such persons to
exert maximum efforts for the success of the Company and any
Affiliate and to provide a means by which such eligible
recipients may be given an opportunity to benefit from increases
in value of the Common Stock through the granting of Stock
Awards.
As used in the Plan, the following definitions shall apply to
the capitalized terms indicated below:
(a) Affiliate means (i) any
corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, provided each corporation
in the unbroken chain (other than the Company) 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, and
(ii) any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company,
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. The Board shall have the authority
to determine (i) the time or times at which the ownership
tests are applied, and (ii) whether Affiliate
includes entities other than corporations within the foregoing
definition.
(b) Board means the Board of
Directors of the Company.
(c) Capitalization Adjustment has
the meaning ascribed to that term in Section 11(a).
(d) Cause means, with respect to
a Participant, the occurrence of any of the following:
(i) such Participants commission of any felony or any
crime involving fraud, dishonesty or moral turpitude under the
laws of the United States or any state thereof; (ii) such
Participants attempted commission of, or participation in,
a fraud or act of dishonesty against the Company;
(iii) such Participants intentional, material
violation of any material contract or agreement between the
Participant and the Company or any statutory duty owed to the
Company; (iv) such Participants unauthorized use or
disclosure of the Companys confidential information or
trade secrets; or (v) such Participants gross
misconduct. The determination that a termination is for Cause
shall be made by the Company in its sole discretion. Any
determination by the Company that the Continuous Service of a
Participant was terminated by reason of dismissal without Cause
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for the purposes of outstanding Stock Awards held by such
Participant shall have no effect upon any determination of the
rights or obligations of the Company or such Participant for any
other purpose.
(e) Change in Control means the
occurrence, in a single transaction or in a series of related
transactions, of any one or more of the following events:
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(i) any Exchange Act Person becomes the Owner,
directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined
voting power of the Companys then outstanding securities
other than by virtue of a merger, consolidation or similar
transaction. Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur (A) on account of the
acquisition of securities of the Company by an investor, any
affiliate thereof or any other Exchange Act Person from the
Company in a transaction or series of related transactions the
primary purpose of which is to obtain financing for the Company
through the issuance of equity securities or (B) solely
because the level of Ownership held by any Exchange Act Person
(the Subject Person) exceeds the
designated percentage threshold of the outstanding voting
securities as a result of a repurchase or other acquisition of
voting securities by the Company reducing the number of shares
outstanding, provided that if a Change in Control would occur
(but for the operation of this sentence) as a result of the
acquisition of voting securities by the Company, and after such
share acquisition, the Subject Person becomes the Owner of any
additional voting securities that, assuming the repurchase or
other acquisition had not occurred, increases the percentage of
the then outstanding voting securities Owned by the Subject
Person over the designated percentage threshold, then a Change
in Control shall be deemed to occur; |
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(ii) there is consummated a merger, consolidation or
similar transaction involving (directly or indirectly) the
Company and, immediately after the consummation of such merger,
consolidation or similar transaction, the shareholders of the
Company immediately prior thereto do not Own, directly or
indirectly, either (A) outstanding voting securities
representing more than fifty percent (50%) of the combined
outstanding voting power of the surviving Entity in such merger,
consolidation or similar transaction or (B) more than fifty
percent (50%) of the combined outstanding voting power of the
parent of the surviving Entity in such merger, consolidation or
similar transaction, in each case in substantially the same
proportions as their Ownership of the outstanding voting
securities of the Company immediately prior to such transaction; |
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(iii) the shareholders of the Company approve or the
Board approves a plan of complete dissolution or liquidation of
the Company, or a complete dissolution or liquidation of the
Company shall otherwise occur; |
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(iv) there is consummated a sale, lease, exclusive
license or other disposition of all or substantially all of the
consolidated assets of the Company and its Subsidiaries, other
than a sale, lease, license or other disposition of all or
substantially all of the consolidated assets of the Company and
its Subsidiaries to an Entity, more than fifty percent (50%) of
the combined voting power of the voting securities of which are
Owned by shareholders of the Company in substantially the same
proportions as their Ownership of the outstanding voting
securities of the Company immediately prior to such sale, lease,
license or other disposition; or |
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(v) individuals who, on the date this Plan is
adopted by the Board, are members of the Board (the
Incumbent Board) cease for any reason
to constitute at least a majority of the members of the Board;
provided, however, that if the appointment or
election (or nomination for election) of any new Board
member was approved or recommended by a majority vote of the
members of the Incumbent Board then still in office, such new
member shall, for purposes of this Plan, be considered as a
member of the Incumbent Board. |
The term Change in Control shall not include a sale of assets,
merger or other transaction effected exclusively for the purpose
of changing the domicile of the Company.
Notwithstanding the foregoing or any other provision of this
Plan, the definition of Change in Control (or any analogous
term) in an individual written agreement between the Company or
any Affiliate and the Participant shall supersede the foregoing
definition with respect to Stock Awards subject to such
agreement;
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provided, however, that if no definition of Change in
Control or any analogous term is set forth in such an individual
written agreement, the foregoing definition shall apply.
(f) Code means the Internal
Revenue Code of 1986, as amended.
(g) Committee means a committee
of one (1) or more members of the Board to whom authority
has been delegated by the Board in accordance with
Section 3(c).
(h) Common Stock means the common
stock of the Company.
(i) Company means Aradigm
Corporation, a California corporation.
(j) Consultant means any person,
including an advisor, who is (i) engaged by the Company or
an Affiliate to render consulting or advisory services and is
compensated for such services or (ii) serving as a member
of the Board of Directors of an Affiliate and is compensated for
such services. However, service solely as a Director, or payment
of a fee for such service, shall not cause a Director to be
considered a Consultant for purposes of the Plan.
(k) Continuous Service means that
the Participants service with the Company or an Affiliate,
whether as an Employee, Director or Consultant, is not
interrupted or terminated. A change in the capacity in which the
Participant renders service to the Company or an Affiliate as an
Employee, Consultant or Director or a change in the entity for
which the Participant renders such service, provided that there
is no interruption or termination of the Participants
service with the Company or an Affiliate, shall not terminate a
Participants Continuous Service. For example, a change in
status from an employee of the Company to a consultant to an
Affiliate or to a Director shall not constitute an interruption
of Continuous Service. To the extent permitted by law, the Board
or the chief executive officer of the Company, in that
partys sole discretion, may determine whether Continuous
Service shall be considered interrupted in the case of any leave
of absence approved by that party, including sick leave,
military leave or any other personal leave. Notwithstanding the
foregoing, a leave of absence shall be treated as Continuous
Service for purposes of vesting in a Stock Award only to such
extent as may be provided in the Companys leave of absence
policy or in the written terms of the Participants leave
of absence.
(l) Corporate Transaction means
the occurrence, in a single transaction or in a series of
related transactions, of any one or more of the following events:
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(i) a sale or other disposition of all or
substantially all, as determined by the Board in its sole
discretion, of the consolidated assets of the Company and its
Subsidiaries; |
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(ii) a sale or other disposition of at least ninety
percent (90%) of the outstanding securities of the
Company; |
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(iii) the consummation of a merger, consolidation or
similar transaction following which the Company is not the
surviving corporation; or |
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(iv) the consummation of a merger, consolidation or
similar transaction following which the Company is the surviving
corporation but the shares of Common Stock outstanding
immediately preceding the merger, consolidation or similar
transaction are converted or exchanged by virtue of the merger,
consolidation or similar transaction into other property,
whether in the form of securities, cash or otherwise. |
(m) Covered Employee means the
chief executive officer and the four (4) other highest
compensated officers of the Company for whom total compensation
is required to be reported to shareholders under the Exchange
Act, as determined for purposes of Section 162(m) of the
Code.
(n) Director means a member of
the Board.
(o) Disability means the
permanent and total disability of a person within the meaning of
Section 22(e)(3) of the Code.
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(p) Employee means any person
employed by the Company or an Affiliate. However, service solely
as a Director, or payment of a fee for such services, shall not
cause a Director to be considered an Employee for
purposes of the Plan.
(q) Entity means a corporation,
partnership or other entity.
(r) Exchange Act means the
Securities Exchange Act of 1934, as amended.
(s) Exchange Act Person means any
natural person, Entity or group (within the meaning
of Section 13(d) or 14(d) of the Exchange Act), except that
Exchange Act Person shall not include (i) the
Company or any Subsidiary of the Company, (ii) any employee
benefit plan of the Company or any Subsidiary of the Company or
any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary of the
Company, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities,
(iv) an Entity Owned, directly or indirectly, by the
shareholders of the Company in substantially the same
proportions as their Ownership of stock of the Company; or
(v) any natural person, Entity or group (within
the meaning of Section 13(d) or 14(d) of the Exchange Act)
that, as of the effective date of the Plan as set forth in
Section 14, is the Owner, directly or indirectly, of
securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Companys then
outstanding securities.
(t) Fair Market Value means, as
of any date, the value of the Common Stock determined as follows:
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(i) If the Common Stock is listed on any established
stock exchange or traded on the Nasdaq National Market or the
Nasdaq SmallCap Market, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest
volume of trading in the Common Stock) on the date in question,
as reported in The Wall Street Journal or such other
source as the Board deems reliable. Unless otherwise provided by
the Board, if there is no closing sales price (or closing bid if
no sales were reported) for the Common Stock on the date in
question, then the Fair Market Value shall be the closing
selling price (or closing bid if no sales were reported) on the
last preceding date for which such quotation exists. |
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(ii) In the absence of such markets for the Common
Stock, the Fair Market Value shall be determined by the Board in
good faith. |
(u) Incentive Stock Option means
an Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(v) Non-Employee Director means a
Director who either (i) is not a current employee or
officer of the Company or an Affiliate, does not receive
compensation, either directly or indirectly, from the Company or
an Affiliate for services rendered as a consultant or in any
capacity other than as a Director (except for an amount as to
which disclosure would not be required under Item 404(a) of
Regulation S-K promulgated pursuant to the Securities Act
(Regulation S-K)), does not
possess an interest in any other transaction for which
disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business
relationship for which disclosure would be required pursuant to
Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a non-employee director for
purposes of Rule 16b-3.
(w) Nonstatutory Stock Option
means an Option not intended to qualify as an Incentive
Stock Option.
(x) Officer means a person who is
an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated
thereunder.
(y) Option means an Incentive
Stock Option or a Nonstatutory Stock Option to purchase shares
of Common Stock granted pursuant to the Plan.
(z) Option Agreement means a
written agreement between the Company and an Optionholder
evidencing the terms and conditions of an Option grant. Each
Option Agreement shall be subject to the terms and conditions of
the Plan.
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(aa) Optionholder means a person
to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.
(bb) Other Stock Award means an
award based in whole or in part by reference to the Common Stock
which is granted pursuant to the terms and conditions of
Section 7(e).
(cc) Other Stock Award Agreement
means a written agreement between the Company and a holder of an
Other Stock Award evidencing the terms and conditions of an
Other Stock Award grant. Each Other Stock Award Agreement shall
be subject to the terms and conditions of the Plan.
(dd) Outside Director means a
Director who either (i) is not a current employee of the
Company or an affiliated corporation (within the
meaning of Treasury Regulations promulgated under
Section 162(m) of the Code), is not a former employee of
the Company or an affiliated corporation who
receives compensation for prior services (other than benefits
under a tax-qualified retirement plan) during the taxable year,
has not been an officer of the Company or an affiliated
corporation, and does not receive remuneration from the
Company or an affiliated corporation, either
directly or indirectly, in any capacity other than as a
Director, or (ii) is otherwise considered an outside
director for purposes of Section 162(m) of the Code.
(ee) Own, Owned,
Owner, Ownership A person or Entity
shall be deemed to Own, to have Owned,
to be the Owner of, or to have acquired
Ownership of securities if such person or Entity,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting
power, which includes the power to vote or to direct the voting,
with respect to such securities.
(ff) Participant means a person
to whom a Stock Award is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Stock
Award.
(gg) Performance Criteria means
the one or more criteria that the Board shall select for
purposes of establishing the Performance Goals for a Performance
Period. The Performance Criteria that shall be used to establish
such Performance Goals may be based on any one of, or
combination of, the following: (i) earnings per share;
(ii) earnings before interest, taxes and depreciation;
(iii) earnings before interest, taxes, depreciation and
amortization (EBITDA); (iv) net earnings; (v) total
shareholder return; (vi) return on equity;
(vii) return on assets, investment or capital employed;
(viii) operating margin; (ix) gross margin;
(x) operating income; (xi) net income (before or after
taxes); (xii) net operating income; (xiii) net
operating income after tax; (xiv) pre- and after-tax
income; (xv) pre-tax profit; (xvi) operating cash
flow; (xvii) sales or revenue targets;
(xviii) increases in revenue or product revenue;
(xix) expenses and cost reduction goals;
(xx) improvement in or attainment of expense levels;
(xxi) improvement in or attainment of working capital
levels; (xxii) economic value added (or an equivalent
metric); (xxiii) market share; (xxiv) cash flow;
(xxv) cash flow per share; (xxvi) share price
performance; (xxvii) debt reduction;
(xxviii) implementation or completion of projects or
processes; (xxix) customer satisfaction; (xxx) total
shareholder return; (xxxi) shareholders equity; and
(xxxii) other measures of performance selected by the
Board. Partial achievement of the specified criteria may result
in the payment or vesting corresponding to the degree of
achievement as specified in the Stock Award Agreement. The Board
shall, in its sole discretion, define the manner of calculating
the Performance Criteria it selects to use for such Performance
Period.
(hh) Performance Goals means, for
a Performance Period, the one or more goals established by the
Board for the Performance Period based upon the Performance
Criteria. The Board is authorized at any time in its sole
discretion, to adjust or modify the calculation of a Performance
Goal for such Performance Period in order to prevent the
dilution or enlargement of the rights of Participants,
(a) in the event of, or in anticipation of, any unusual or
extraordinary corporate item, transaction, event or development;
(b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company, or the
financial statements of the Company, or in response to, or in
anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions; or (c) in
view of the Boards assessment of the business strategy of
the Company, performance of comparable organizations, economic
and business conditions, and any other circumstances deemed
relevant. Specifically, the Board is authorized to make
adjustment in the method of calculating attainment of
Performance Goals and objectives for a Performance Period as
follows: (i) to exclude the dilutive effects of
acquisitions or joint ventures; (ii) to assume that any
business divested by the
A-5
Company achieved performance objectives at targeted levels
during the balance of a Performance Period following such
divestiture; and (iii) to exclude the effect of any change
in the outstanding shares of common stock of the Company by
reason of any stock dividend or split, stock repurchase,
reorganization, recapitalization, merger, consolidation,
spin-off, combination or exchange of shares or other similar
corporate change, or any distributions to common shareholders
other than regular cash dividends. In addition, the Board is
authorized to make adjustment in the method of calculating
attainment of Performance Goals and objectives for a Performance
Period as follows: (i) to exclude restructuring and/or
other nonrecurring charges; (ii) to exclude exchange rate
effects, as applicable, for non-U.S. dollar denominated net
sales and operating earnings; (iii) to exclude the effects
of changes to generally accepted accounting standards required
by the Financial Accounting Standards Board; (iv) to
exclude the effects to any statutory adjustments to corporate
tax rates; (v) to exclude the impact of any
extraordinary items as determined under generally
accepted accounting principles; and (vi) to exclude any
other unusual, non-recurring gain or loss or other extraordinary
item.
(ii) Performance Period means the
one or more periods of time, which may be of varying and
overlapping durations, as the Board may select, over which the
attainment of one or more Performance Goals will be measured for
the purpose of determining a Participants right to and the
payment of a Stock Award.
(jj) Plan means this Aradigm
Corporation 2005 Equity Incentive Plan.
(kk) Rule 16b-3 means
Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(ll) Securities Act means the
Securities Act of 1933, as amended.
(mm) Stock Appreciation Right
means a right to receive the appreciation on Common Stock that
is granted pursuant to the terms and conditions of
Section 7(d).
(nn) Stock Appreciation Right
Agreement means a written agreement between the
Company and a holder of a Stock Appreciation Right evidencing
the terms and conditions of a Stock Appreciation Right grant.
Each Stock Appreciation Right Agreement shall be subject to the
terms and conditions of the Plan.
(oo) Stock Award means any right
granted under the Plan, including an Option, a Stock Purchase
Award, Stock Bonus Award, a Stock Appreciation Right, a Stock
Unit Award or any Other Stock Award.
(pp) Stock Award Agreement means
a written agreement between the Company and a Participant
evidencing the terms and conditions of a Stock Award grant. Each
Stock Award Agreement shall be subject to the terms and
conditions of the Plan.
(qq) Stock Bonus Award means an
award of shares of Common Stock which is granted pursuant to the
terms and conditions of Section 7(b).
(rr) Stock Bonus Award Agreement
means a written agreement between the Company and a holder of a
Stock Bonus Award evidencing the terms and conditions of a Stock
Bonus Award grant. Each Stock Bonus Award Agreement shall be
subject to the terms and conditions of the Plan.
(ss) Stock Purchase Award means
an award of shares of Common Stock which is granted pursuant to
the terms and conditions of Section 7(a).
(tt) Stock Purchase Award
Agreement means a written agreement between the
Company and a holder of a Stock Purchase Award evidencing the
terms and conditions of a Stock Purchase Award grant. Each Stock
Purchase Award Agreement shall be subject to the terms and
conditions of the Plan.
(uu) Stock Unit Award means a
right to receive shares of Common Stock which is granted
pursuant to the terms and conditions of Section 7(c).
(vv) Stock Unit Award Agreement
means a written agreement between the Company and a holder of a
Stock Unit Award evidencing the terms and conditions of a Stock
Unit Award grant. Each Stock Unit Award Agreement shall be
subject to the terms and conditions of the Plan.
A-6
(ww) Subsidiary means, with
respect to the Company, (i) any corporation of which more
than fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether, at the
time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening
of any contingency) is at the time, directly or indirectly,
Owned by the Company, and (ii) any partnership in which the
Company has a direct or indirect interest (whether in the form
of voting or participation in profits or capital contribution)
of more than fifty percent (50%).
(xx) Ten Percent Shareholder
means a person who Owns (or is deemed to Own pursuant to
Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes
of stock of the Company or any Affiliate.
(a) Administration by Board. The Board shall
administer the Plan unless and until the Board delegates
administration of the Plan to a Committee, as provided in
Section 3(c).
(b) Powers of Board. The Board shall have the power,
subject to, and within the limitations of, the express
provisions of the Plan:
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(i) To determine from time to time (1) which of
the persons eligible under the Plan shall be granted Stock
Awards; (2) when and how each Stock Award shall be granted;
(3) what type or combination of types of Stock Award shall
be granted; (4) the provisions of each Stock Award granted
(which need not be identical), including the time or times when
a person shall be permitted to receive Common Stock pursuant to
a Stock Award; and (5) the number of shares of Common Stock
with respect to which a Stock Award shall be granted to each
such person. |
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(ii) To construe and interpret the Plan and Stock
Awards granted under it, and to establish, amend and revoke
rules and regulations for its administration. The Board, in the
exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Stock Award Agreement, in a
manner and to the extent it shall deem necessary or expedient to
make the Plan fully effective. |
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(iii) To effect, at any time and from time to time,
with the consent of any adversely affected Optionholder,
(1) the reduction of the exercise price of any outstanding
Option under the Plan; (2) the cancellation of any
outstanding Option under the Plan and the grant in substitution
therefor of (a) a new Option under the Plan or another
equity plan of the Company covering the same or a different
number of shares of Common Stock, (b) a Stock Purchase
Award, (c) a Stock Bonus Award, (d) a Stock
Appreciation Right, (e) a Stock Unit Award, (f) an
Other Stock Award, (g) cash, and/or (h) other valuable
consideration (as determined by the Board, in its sole
discretion); or (3) any other action that is treated as a
repricing under generally accepted accounting principles. |
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(iv) To amend the Plan or a Stock Award as provided
in Section 12. |
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(v) To terminate or suspend the Plan as provided in
Section 13. |
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(vi) Generally, to exercise such powers and to
perform such acts as the Board deems necessary or expedient to
promote the best interests of the Company and that are not in
conflict with the provisions of the Plan. |
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(vii) To adopt such procedures and sub-plans as are
necessary or appropriate to permit participation in the Plan by
Employees who are foreign nationals or employed outside the
United States. |
(c) Delegation to Committee.
(i) General. The Board may delegate some or all of
the administration of the Plan to a Committee or Committees. If
administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board that have been
delegated to the Committee, including the power to delegate to a
subcommittee any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board
shall thereafter be to the
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Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may
retain the authority to concurrently administer the Plan with
the Committee and may, at any time, revest in the Board some or
all of the powers previously delegated.
(ii) Section 162(m) and Rule 16b-3
Compliance. In the sole discretion of the Board, the
Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code, and/or
solely of two or more Non-Employee Directors, in accordance with
Rule 16b-3. In addition, the Board or the Committee, in its
sole discretion, may (1) delegate to a committee of one or
more members of the Board who need not be Outside Directors the
authority to grant Stock Awards to eligible persons who are
either (a) not then Covered Employees and are not expected
to be Covered Employees at the time of recognition of income
resulting from such Stock Award or (b) not persons with
respect to whom the Company wishes to comply with
Section 162(m) of the Code, and/or (2) delegate to a
committee of one or more members of the Board who need not be
Non-Employee Directors the authority to grant Stock Awards to
eligible persons who are not then subject to Section 16 of
the Exchange Act.
(d) Delegation to an Officer. The Board may delegate
to one or more Officers of the Company the authority to do one
or both of the following (i) designate Officers and
Employees of the Company or any of its Subsidiaries to be
recipients of Stock Awards and the terms thereof, and
(ii) determine the number of shares of Common Stock to be
subject to such Stock Awards granted to such Officers and
Employees of the Company; provided, however, that the
Board resolutions regarding such delegation shall specify the
total number of shares of Common Stock that may be subject to
the Stock Awards granted by such Officer and that such Officer
may not grant a Stock Award to himself or herself.
Notwithstanding anything to the contrary in this
Section 3(d), the Board may not delegate to an Officer
authority to determine the Fair Market Value of the Common Stock
pursuant to Section 2(t)(ii) above.
(e) Effect of Boards Decision. All
determinations, interpretations and constructions made by the
Board in good faith shall not be subject to review by any person
and shall be final, binding and conclusive on all persons.
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Shares Subject to the
Plan. |
(a) Share Reserve. Subject to the provisions of
Section 11(a) relating to Capitalization Adjustments, the
number of shares of Common Stock that may be issued pursuant to
Stock Awards shall not exceed, in the aggregate, thirteen
million one hundred eighty-seven thousand six hundred
thirty-four (13,187,634) shares of Common Stock (including
shares underlying Stock Awards issued pursuant to the Prior
Plan).
(b) Reversion of Shares to the Share Reserve. Any
shares of Common Stock subject to outstanding awards granted
under the Prior Plan that would otherwise have reverted to the
share reserve of the Prior Plan shall revert to and again become
available for issuance under this Plan. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in
part, without having been exercised in full, if any shares of
Common Stock issued to a Participant pursuant to a Stock Award
are forfeited to or repurchased by the Company, including, but
not limited to, any repurchase or forfeiture caused by the
failure to meet a contingency or condition required for the
vesting of such shares, or if any shares of Common Stock are
cancelled in accordance with the cancellation and regrant
provisions of Section 3(b)(iii), then the shares of Common
Stock not issued under such Stock Award, or forfeited to or
repurchased by the Company, shall revert to and again become
available for issuance under the Plan. If any shares subject to
a Stock Award are not delivered to a Participant because such
shares are withheld for the payment of taxes, the number of
shares that are not delivered to the Participant shall remain
available for issuance under the Plan. If the exercise price of
any Stock Award is satisfied by tendering shares of Common Stock
held by the Participant (either by actual delivery or
attestation), then the number of shares so tendered shall remain
available for issuance under the Plan. Notwithstanding anything
to the contrary in this Section 4(b), subject to the
provisions of Section 11(a) relating to Capitalization
Adjustments the aggregate maximum number of shares of Common
Stock that may be issued pursuant to the exercise of Incentive
Stock Options shall be thirteen million one hundred eighty- seven
A-8
thousand six hundred thirty-four (13,187,634) shares of Common
Stock plus the amount of any increase in the number of shares
that may be available for issuance pursuant to Stock Awards
pursuant to Section 4(a).
(c) Source of Shares. The stock issuable under the
Plan shall be shares of authorized but unissued or reacquired
Common Stock, including shares repurchased by the Company on the
open market.
(a) Eligibility for Specific Stock Awards. Incentive
Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted to Employees,
Directors and Consultants.
(b) Ten Percent Shareholders. A Ten Percent
Shareholder shall not be granted an Incentive Stock Option
unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of the Common Stock
on the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) Section 162(m) Limitation on Annual Grants.
Subject to the provisions of Section 11(a) relating to
Capitalization Adjustments, at such time as the Company may be
subject to the applicable provisions of Section 162(m) of
the Code, no Employee shall be eligible to be granted Stock
Awards whose value is determined by reference to an increase
over an exercise or strike price of at least one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date
the Stock Award is granted covering more than one million five
hundred thousand (1,500,000) shares of Common Stock during any
calendar year.
(d) Consultants. A Consultant shall not be eligible
for the grant of a Stock Award if, at the time of grant, a
Form S-8 Registration Statement under the Securities Act
(Form S-8) is not available to
register either the offer or the sale of the Companys
securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company,
because the Consultant is not a natural person, or because of
any other rule governing the use of Form S-8.
Each Option shall be in such form and shall contain such terms
and conditions as the Board shall deem appropriate. All Options
shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and, if
certificates are issued, a separate certificate or certificates
shall be issued for shares of Common Stock purchased on exercise
of each type of Option. The provisions of separate Options need
not be identical; provided, however, that each Option
Agreement shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of
each of the following provisions:
(a) Term. The Board shall determine the term of an
Option; provided, however, that subject to the provisions
of Section 5(b) regarding Ten Percent Shareholders, no
Incentive Stock Option shall be exercisable after the expiration
of ten (10) years from the date of grant.
(b) Exercise Price of an Incentive Stock Option.
Subject to the provisions of Section 5(b) regarding Ten
Percent Shareholders, the exercise price of each Incentive Stock
Option shall be not less than one hundred percent (100%) of the
Fair Market Value of the Common Stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing,
an Incentive Stock Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for
another option in a manner consistent with the provisions of
Section 424(a) of the Code.
(c) Exercise Price of a Nonstatutory Stock Option.
The exercise price of each Nonstatutory Stock Option shall be
not less than eighty-five percent (85%) of the Fair Market Value
of the Common Stock subject to the Option on the date the Option
is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set
forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in
a manner consistent with the provisions of Section 424(a)
of the Code.
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(d) Consideration. The purchase price of Common
Stock acquired pursuant to the exercise of an Option shall be
paid, to the extent permitted by applicable law and as
determined by the Board in its sole discretion, by any
combination of the methods of payment set forth below. The Board
shall have the authority to grant Options that do not permit all
of the following methods of payment (or otherwise restrict the
ability to use certain methods) and to grant Options that
require the consent of the Company to utilize a particular
method of payment. The methods of payment permitted by this
Section 6(d) are:
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(i) by cash or check; |
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(ii) pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Common Stock, results in either
the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds; |
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(iii) by delivery to the Company (either by actual
delivery or attestation) of shares of Common Stock; |
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(iv) according to a deferred payment or similar
arrangement with the Optionholder; provided, however,
that interest shall compound at least annually and shall be
charged at the minimum rate of interest necessary to avoid
(i) the imputation of interest income to the Company and
compensation income to the Optionholder under any applicable
provisions of the Code and (ii) the treatment of the Option
as a variable award for financial accounting purposes; or |
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(v) in any other form of legal consideration that
may be acceptable to the Board. |
(e) Transferability of Options. The Board may, in
its sole discretion, impose such limitations on the
transferability of Options as the Board shall determine. In the
absence of such a determination by the Board to the contrary,
the following restrictions on the transferability of Options
shall apply:
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(i) Restrictions on Transfer. An Option shall not be
transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. |
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(ii) Domestic Relations Orders. Notwithstanding the
foregoing, an Option may be transferred pursuant to a domestic
relations order. |
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(iii) Beneficiary Designation. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to
the Company, in a form provided by or otherwise satisfactory to
the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to
exercise the Option. |
(f) Vesting Generally. The total number of shares of
Common Stock subject to an Option may vest and therefore become
exercisable in periodic installments that may or may not be
equal. The Option may be subject to such other terms and
conditions on the time or times when it may or may not be
exercised (which may be based on performance or other criteria)
as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this
Section 6(f) are subject to any Option provisions governing
the minimum number of shares of Common Stock as to which an
Option may be exercised.
(g) Termination of Continuous Service. In the event
that an Optionholders Continuous Service terminates (other
than upon the Optionholders death or Disability), the
Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the
date of termination of Continuous Service) but only within such
period of time ending on the earlier of (i) the date three
(3) months following the termination of the
Optionholders Continuous Service (or such longer or
shorter period specified in the Option Agreement) or
(ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination of Continuous
Service, the Optionholder does not exercise his or her Option
within the time specified herein or in the Option Agreement (as
applicable), the Option shall terminate.
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(h) Extension of Termination Date. An
Optionholders Option Agreement may provide that if the
exercise of the Option following the termination of the
Optionholders Continuous Service (other than upon the
Optionholders death or Disability or upon a Change in
Control) would be prohibited at any time solely because the
issuance of shares of Common Stock would violate the
registration requirements under the Securities Act, then the
Option shall terminate on the earlier of (i) the expiration
of a period of three (3) months after the termination of
the Optionholders Continuous Service during which the
exercise of the Option would not be in violation of such
registration requirements or (ii) the expiration of the
term of the Option as set forth in the Option Agreement.
(i) Disability of Optionholder. In the event that an
Optionholders Continuous Service terminates as a result of
the Optionholders Disability, the Optionholder may
exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of
termination of Continuous Service), but only within such period
of time ending on the earlier of (i) the date twelve
(12) months following such termination of Continuous
Service (or such longer or shorter period specified in the
Option Agreement) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after
termination of Continuous Service, the Optionholder does not
exercise his or her Option within the time specified herein or
in the Option Agreement (as applicable), the Option shall
terminate.
(j) Death of Optionholder. In the event that
(i) an Optionholders Continuous Service terminates as
a result of the Optionholders death or (ii) the
Optionholder dies within the period (if any) specified in the
Option Agreement after the termination of the
Optionholders Continuous Service for a reason other than
death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date
of death) by the Optionholders estate, by a person who
acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option
upon the Optionholders death, but only within the period
ending on the earlier of (i) the date eighteen
(18) months following the date of death (or such longer or
shorter period specified in the Option Agreement) or
(ii) the expiration of the term of such Option as set forth
in the Option Agreement. If, after the Optionholders
death, the Option is not exercised within the time specified
herein or in the Option Agreement (as applicable), the Option
shall terminate.
(k) Early Exercise. The Option may include a
provision whereby the Optionholder may elect at any time before
the Optionholders Continuous Service terminates to
exercise the Option as to any part or all of the shares of
Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may
be subject to a repurchase option in favor of the Company or to
any other restriction the Board determines to be appropriate.
The Company shall not be required to exercise its repurchase
option until at least six (6) months (or such longer or
shorter period of time necessary to avoid a charge to earnings
for financial accounting purposes) have elapsed following
exercise of the Option unless the Board otherwise specifically
provides in the Option.
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7. |
Provisions of Stock
Awards other than Options. |
(a) Stock Purchase Awards. Each Stock Purchase Award
Agreement shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. At the
Boards election, shares of Common Stock may be
(i) held in book entry form subject to the Companys
instructions until any restrictions relating to the Stock
Purchase Award lapse or (ii) evidenced by a certificate,
which certificate shall be held in such form and manner as
determined by the Board. The terms and conditions of Stock
Purchase Award Agreements may change from time to time, and the
terms and conditions of separate Stock Purchase Award Agreements
need not be identical, provided, however, that each Stock
Purchase Award Agreement shall include (through incorporation of
the provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:
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(i) Purchase Price. At the time of the grant of a
Stock Purchase Award, the Board will determine the price to be
paid by the Participant for each share subject to the Stock
Purchase Award. To the extent required by applicable law, the
price to be paid by the Participant for each share of the Stock
Purchase Award will not be less than the par value of a share of
Common Stock. |
A-11
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(ii) Consideration. At the time of the grant of a
Stock Purchase Award, the Board will determine the consideration
permissible for the payment of the purchase price of the Stock
Purchase Award. The purchase price of Common Stock acquired
pursuant to the Stock Purchase Award shall be paid either:
(A) in cash or by check at the time of purchase,
(B) at the discretion of the Board, according to a deferred
payment or other similar arrangement with the Participant,
(C) by past services rendered to the Company or (D) in
any other form of legal consideration that may be acceptable to
the Board in its sole discretion and permissible under
applicable law. |
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(iii) Vesting. Shares of Common Stock acquired under
a Stock Purchase Award may be subject to a share repurchase
right or option in favor of the Company in accordance with a
vesting schedule to be determined by the Board. |
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(iv) Termination of Participants Continuous
Service. In the event that a Participants Continuous
Service terminates, the Company shall have the right, but not
the obligation, to repurchase or otherwise reacquire, any or all
of the shares of Common Stock held by the Participant that have
not vested as of the date of termination under the terms of the
Stock Purchase Award Agreement. At the Boards election,
the price paid for all shares of Common Stock so repurchased or
reacquired by the Company may be at the lesser of: (A) the
Fair Market Value on the relevant date, or (B) the
Participants original cost for such shares. The Company
shall not be required to exercise its repurchase or
reacquisition option until at least six (6) months (or such
longer or shorter period of time necessary to avoid a charge to
earnings for financial accounting purposes) have elapsed
following the Participants purchase of the shares of stock
acquired pursuant to the Stock Purchase Award unless otherwise
determined by the Board or provided in the Stock Purchase Award
Agreement. |
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(v) Transferability. Rights to purchase or receive
shares of Common Stock granted under a Stock Purchase Award
shall be transferable by the Participant only upon such terms
and conditions as are set forth in the Stock Purchase Award
Agreement, as the Board shall determine in its sole discretion,
and so long as Common Stock awarded under the Stock Purchase
Award remains subject to the terms of the Stock Purchase Award
Agreement. |
(b) Stock Bonus Awards. Each Stock Bonus Award
Agreement shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. At the
Boards election, shares of Common Stock may be
(i) held in book entry form subject to the Companys
instructions until any restrictions relating to the Stock Bonus
Award lapse or (ii) evidenced by a certificate, which
certificate shall be held in such form and manner as determined
by the Board. The terms and conditions of Stock Bonus Award
Agreements may change from time to time, and the terms and
conditions of separate Stock Bonus Award Agreements need not be
identical, provided, however, that each Stock Bonus Award
Agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
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(i) Consideration. A Stock Bonus Award may be
awarded in consideration for (A) past services actually
rendered to the Company or an Affiliate, or (B) any other
form of legal consideration that may be acceptable to the Board
in its sole discretion and permissible under applicable law. |
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(ii) Vesting. Shares of Common Stock awarded under
the Stock Bonus Award Agreement may be subject to forfeiture to
the Company in accordance with a vesting schedule to be
determined by the Board. |
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(iii) Termination of Participants Continuous
Service. In the event a Participants Continuous
Service terminates, the Company may receive via a forfeiture
condition, any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination
of Continuous Service under the terms of the Stock Bonus Award
Agreement. |
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(iv) Transferability. Rights to acquire shares of
Common Stock under the Stock Bonus Award Agreement shall be
transferable by the Participant only upon such terms and
conditions as are set forth in the Stock Bonus Award Agreement,
as the Board shall determine in its sole discretion, so long as |
A-12
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Common Stock awarded under the Stock Bonus Award Agreement
remains subject to the terms of the Stock Bonus Award Agreement. |
(c) Stock Unit Awards. Each Stock Unit Award
Agreement shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The terms and
conditions of Stock Unit Award Agreements may change from time
to time, and the terms and conditions of separate Stock Unit
Award Agreements need not be identical, provided, however,
that each Stock Unit Award Agreement shall include (through
incorporation of the provisions hereof by reference in the
agreement or otherwise) the substance of each of the following
provisions:
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(i) Consideration. At the time of grant of a Stock
Unit Award, the Board will determine the consideration, if any,
to be paid by the Participant upon delivery of each share of
Common Stock subject to the Stock Unit Award. The consideration
to be paid (if any) by the Participant for each share of Common
Stock subject to a Stock Unit Award may be paid in any form of
legal consideration that may be acceptable to the Board in its
sole discretion and permissible under applicable law. |
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(ii) Vesting. At the time of the grant of a Stock
Unit Award, the Board may impose such restrictions or conditions
to the vesting of the Stock Unit Award as it, in its sole
discretion, deems appropriate. |
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(iii) Payment. A Stock Unit Award may be settled by
the delivery of shares of Common Stock, their cash equivalent,
any combination thereof or in any other form of consideration,
as determined by the Board and contained in the Stock Unit Award
Agreement. |
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(iv) Additional Restrictions. At the time of the
grant of a Stock Unit Award, the Board, as it deems appropriate,
may impose such restrictions or conditions that delay the
delivery of the shares of Common Stock (or their cash
equivalent) subject to a Stock Unit Award after the vesting of
such Stock Unit Award. |
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(v) Dividend Equivalents. Dividend equivalents may
be credited in respect of shares of Common Stock covered by a
Stock Unit Award, as determined by the Board and contained in
the Stock Unit Award Agreement. At the sole discretion of the
Board, such dividend equivalents may be converted into
additional shares of Common Stock covered by the Stock Unit
Award in such manner as determined by the Board. Any additional
shares covered by the Stock Unit Award credited by reason of
such dividend equivalents will be subject to all the terms and
conditions of the underlying Stock Unit Award Agreement to which
they relate. |
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(vi) Termination of Participants Continuous
Service. Except as otherwise provided in the applicable
Stock Unit Award Agreement, such portion of the Stock Unit Award
that has not vested will be forfeited upon the
Participants termination of Continuous Service. |
(d) Stock Appreciation Rights. Each Stock
Appreciation Right Agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of Stock Appreciation
Right Agreements may change from time to time, and the terms and
conditions of separate Stock Appreciation Right Agreements need
not be identical; provided, however, that each Stock
Appreciation Right Agreement shall include (through
incorporation of the provisions hereof by reference in the
agreement or otherwise) the substance of each of the following
provisions:
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(i) Strike Price and Calculation of Appreciation.
Each Stock Appreciation Right will be denominated in shares of
Common Stock equivalents. The appreciation distribution payable
on the exercise of a Stock Appreciation Right will be not
greater than an amount equal to the excess of (A) the
aggregate Fair Market Value (on the date of the exercise of the
Stock Appreciation Right) of a number of shares of Common Stock
equal to the number of share of Common Stock equivalents in
which the Participant is vested under such Stock Appreciation
Right, and with respect to which the Participant is exercising
the Stock Appreciation Right on such date, over (B) an
amount (the strike price) that will be determined by the Board
at the time of grant of the Stock Appreciation Right. |
A-13
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(ii) Vesting. At the time of the grant of a Stock
Appreciation Right, the Board may impose such restrictions or
conditions to the vesting of such Stock Appreciation Right as
it, in its sole discretion, deems appropriate. |
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(iii) Exercise. To exercise any outstanding Stock
Appreciation Right, the Participant must provide written notice
of exercise to the Company in compliance with the provisions of
the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right. |
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(iv) Payment. The appreciation distribution in
respect to a Stock Appreciation Right may be paid in Common
Stock, in cash, in any combination of the two or in any other
form of consideration, as determined by the Board and contained
in the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right. |
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(v) Termination of Continuous Service. In the event
that a Participants Continuous Service terminates, the
Participant may exercise his or her Stock Appreciation Right (to
the extent that the Participant was entitled to exercise such
Stock Appreciation Right as of the date of termination) but only
within such period of time ending on the earlier of (i) the
date three (3) months following the termination of the
Participants Continuous Service (or such longer or shorter
period specified in the Stock Appreciation Right Agreement) or
(ii) the expiration of the term of the Stock Appreciation
Right as set forth in the Stock Appreciation Right Agreement.
If, after termination, the Participant does not exercise his or
her Stock Appreciation Right within the time specified herein or
in the Stock Appreciation Right Agreement (as applicable), the
Stock Appreciation Right shall terminate. |
(e) Other Stock Awards. Other forms of Stock Awards
valued in whole or in part by reference to, or otherwise based
on, Common Stock may be granted either alone or in addition to
Stock Awards provided for under Section 6 and the preceding
provisions of this Section 7. Subject to the provisions of
the Plan, the Board shall have sole and complete authority to
determine the persons to whom and the time or times at which
such Other Stock Awards will be granted, the number of shares of
Common Stock (or the cash equivalent thereof) to be granted
pursuant to such Other Stock Awards and all other terms and
conditions of such Other Stock Awards.
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8. |
Covenants of the
Company. |
(a) Availability of Shares. During the terms of the
Stock Awards, the Company shall keep available at all times the
number of shares of Common Stock required to satisfy such Stock
Awards.
(b) Securities Law Compliance. The Company shall
seek to obtain from each regulatory commission or agency having
jurisdiction over the Plan such authority as may be required to
grant Stock Awards and to issue and sell shares of Common Stock
upon exercise of the Stock Awards; provided, however,
that this undertaking shall not require the Company to
register under the Securities Act the Plan, any Stock Award or
any Common Stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the
authority that counsel for the Company deems necessary for the
lawful issuance and sale of Common Stock under the Plan, the
Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards
unless and until such authority is obtained.
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9. |
Use of Proceeds from
Sales of Common Stock. |
Proceeds from the sale of shares of Common Stock pursuant to
Stock Awards shall constitute general funds of the Company.
(a) Acceleration of Exercisability and Vesting. The
Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a
Stock Award or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Stock Award stating
the time at which it may first be exercised or the time during
which it will vest.
A-14
(b) Shareholder Rights. No Participant shall be
deemed to be the holder of, or to have any of the rights of a
holder with respect to, any shares of Common Stock subject to
such Stock Award unless and until such Participant has satisfied
all requirements for exercise of the Stock Award pursuant to its
terms.
(c) No Employment or Other Service Rights. Nothing
in the Plan, any Stock Award Agreement or other instrument
executed thereunder or any Stock Award granted pursuant thereto
shall confer upon any Participant any right to continue to serve
the Company or an Affiliate in the capacity in effect at the
time the Stock Award was granted or shall affect the right of
the Company or an Affiliate to terminate (i) the employment
of an Employee with or without notice and with or without cause,
(ii) the service of a Consultant pursuant to the terms of
such Consultants agreement with the Company or an
Affiliate or (iii) the service of a Director pursuant to
the Bylaws of the Company or an Affiliate, and any applicable
provisions of the corporate law of the state in which the
Company or the Affiliate is incorporated, as the case may be.
(d) Incentive Stock Option $100,000 Limitation. To
the extent that the aggregate Fair Market Value (determined at
the time of grant) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of
the Company and any Affiliates) exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof that exceed
such limit (according to the order in which they were granted)
shall be treated as Nonstatutory Stock Options, notwithstanding
any contrary provision of the applicable Option Agreement(s).
(e) Investment Assurances. The Company may require a
Participant, as a condition of exercising or acquiring Common
Stock under any Stock Award, (i) to give written assurances
satisfactory to the Company as to the Participants
knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced
in financial and business matters and that he or she is capable
of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock
Award and (ii) to give written assurances satisfactory to
the Company stating that the Participant is acquiring Common
Stock subject to the Stock Award for the Participants own
account and not with any present intention of selling or
otherwise distributing the Common Stock. The foregoing
requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of
the shares upon the exercise or acquisition of Common Stock
under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or
(ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities
laws. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as
such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to,
legends restricting the transfer of the Common Stock.
(f) Withholding Obligations. To the extent provided
by the terms of a Stock Award Agreement, the Company may, in its
sole discretion, satisfy any federal, state or local tax
withholding obligation relating to a Stock Award by any of the
following means (in addition to the Companys right to
withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) causing the
Participant to tender a cash payment; (ii) withholding
shares of Common Stock from the shares of Common Stock issued or
otherwise issuable to the Participant in connection with the
Stock Award; or (iii) by such other method as may be set
forth in the Stock Award Agreement.
(g) Electronic Delivery. Any reference herein to a
written agreement or document shall include any
agreement or document delivered electronically or posted on the
Companys intranet.
(h) Performance Stock Awards. A Stock Award may be
granted, may vest, or may be exercised based upon service
conditions, upon the attainment during a Performance Period of
certain Performance Goals, or both. The length of any
Performance Period, the Performance Goals to be achieved during
the Performance Period, and the measure of whether and to what
degree such Performance Goals have been attained shall be
conclusively determined by the Board in its sole discretion. The
maximum benefit to be received by any individual in any calendar
year attributable to Stock Awards described in this
Section 10(h) shall not exceed the value of five hundred
thousand (500,000) shares of Common Stock.
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11. |
Adjustments upon
Changes in Common Stock; Corporate Transactions. |
(a) Capitalization Adjustments. If any change is
made in, or other events occur with respect to, the Common Stock
subject to the Plan or subject to any Stock Award after the
effective date of the Plan set forth in Section 14 without
the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than
cash, stock split, liquidating dividend, combination of shares,
exchange of shares, change in corporate structure or other
transaction not involving the receipt of consideration by the
Company (each a Capitalization
Adjustment)), the Plan shall be appropriately
adjusted in the class(es) and maximum number of securities
subject to the Plan pursuant to Sections 4(a) and 4(b), the
maximum number of securities that may be awarded to any person
pursuant to Section 5(c) and the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of
securities and price per share of stock subject to such
outstanding Stock Awards. The Board shall make such adjustments,
and its determination shall be final, binding and conclusive.
(Notwithstanding the foregoing, the conversion of any
convertible securities of the Company shall not be treated as a
transaction without receipt of consideration by the
Company.)
(b) Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, all outstanding Stock
Awards (other than Stock Awards consisting of vested and
outstanding shares of Common Stock not subject to the
Companys right of repurchase) shall terminate immediately
prior to the completion of such dissolution or liquidation, and
the shares of Common Stock subject to the Companys
repurchase option may be repurchased by the Company
notwithstanding the fact that the holder of such Stock Award is
providing Continuous Service, provided, however, that the
Board may, in its sole discretion, cause some or all Stock
Awards to become fully vested, exercisable and/or no longer
subject to repurchase or forfeiture (to the extent such Stock
Awards have not previously expired or terminated) before the
dissolution or liquidation is completed but contingent on its
completion.
(c) Corporate Transaction. The following provisions
shall apply to Stock Awards in the event of a Corporate
Transaction unless otherwise provided in a written agreement
between the Company or any Affiliate and the holder of the Stock
Award:
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(i) Stock Awards May Be Assumed. In the event of a
Corporate Transaction, any surviving corporation or acquiring
corporation (or the surviving or acquiring corporations
parent company) may assume or continue any or all Stock Awards
outstanding under the Plan or may substitute similar stock
awards for Stock Awards outstanding under the Plan (including
but not limited to, awards to acquire the same consideration
paid to the shareholders of the Company pursuant to the
Corporate Transaction), and any reacquisition or repurchase
rights held by the Company in respect of Common Stock issued
pursuant to Stock Awards may be assigned by the Company to the
successor of the Company (or the successors parent
company, if any), in connection with such Corporate Transaction.
A surviving corporation or acquiring corporation may choose to
assume or continue only a portion of a Stock Award or substitute
a similar stock award for only a portion of a Stock Award. The
terms of any assumption, continuation or substitution shall be
set by the Board in accordance with the provisions of
Section 3. |
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(ii) Stock Awards Held by Participants. In the event
of a Corporate Transaction in which the surviving corporation or
acquiring corporation (or its parent company) does not assume or
continue such outstanding Stock Awards or substitute similar
stock awards for such outstanding Stock Awards, then with
respect to Stock Awards that have not been assumed, continued or
substituted and that are held by Participants whose Continuous
Service has not terminated prior to the effective time of the
Corporate Transaction (referred to as the
Participants), the vesting of such
Stock Awards (and, if applicable, the time at which such Stock
Awards may be exercised) shall (contingent upon the
effectiveness of the Corporate Transaction) be accelerated in
full to a date prior to the effective time of such Corporate
Transaction as the Board shall determine (or, if the Board shall
not determine such a date, to the date that is five
(5) days prior to the effective time of the Corporate
Transaction), and such Stock Awards shall terminate if not
exercised (if applicable) at or prior to the effective time of
the Corporate Transaction, and any reacquisition or repurchase
rights held by the Company with respect to such Stock Awards
shall lapse (contingent upon the effectiveness of the Corporate
Transaction). |
A-16
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(iii) Stock Awards Held by Former Participants. In
the event of a Corporate Transaction in which the surviving
corporation or acquiring corporation (or its parent company)
does not assume or continue such outstanding Stock Awards or
substitute similar stock awards for such outstanding Stock
Awards, then with respect to Stock Awards that have not been
assumed, continued or substituted and that are held by persons
other than Participants, the vesting of such Stock Awards (and,
if applicable, the time at which such Stock Award may be
exercised) shall not be accelerated and such Stock Awards (other
than a Stock Award consisting of vested and outstanding shares
of Common Stock not subject to the Companys right of
repurchase) shall terminate if not exercised (if applicable)
prior to the effective time of the Corporate Transaction;
provided, however, that any reacquisition or repurchase
rights held by the Company with respect to such Stock Awards
shall not terminate and may continue to be exercised
notwithstanding the Corporate Transaction. |
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(iv) Payment for Stock Awards in Lieu of Exercise.
Notwithstanding the foregoing, in the event a Stock Award will
terminate if not exercised prior to the effective time of a
Corporate Transaction, the Board may provide, in its sole
discretion, that the holder of such Stock Award may not exercise
such Stock Award but will receive a payment, in such form as may
be determined by the Board, equal in value to the excess, if
any, of (A) the value of the property the holder of the
Stock Award would have received upon the exercise of the Stock
Award, over (B) any exercise price payable by such holder
in connection with such exercise. |
(d) Change in Control. A Stock Award may be subject
to additional acceleration of vesting and exercisability upon or
after a Change in Control as may be provided in the Stock Award
Agreement for such Stock Award or as may be provided in any
other written agreement between the Company or any Affiliate and
the Participant, but in the absence of such provision, no such
acceleration shall occur.
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12. |
Amendment of the Plan
and Stock Awards. |
(a) Amendment of Plan. Subject to the limitations,
if any, of applicable law, the Board at any time, and from time
to time, may amend the Plan. However, except as provided in
Section 11(a) relating to Capitalization Adjustments, no
amendment shall be effective unless approved by the shareholders
of the Company to the extent shareholder approval is necessary
to satisfy applicable law.
(b) Shareholder Approval. The Board, in its sole
discretion, may submit any other amendment to the Plan for
shareholder approval, including, but not limited to, amendments
to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from
the limit on corporate deductibility of compensation paid to
Covered Employees.
(c) Contemplated Amendments. It is expressly
contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible
Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring
the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) No Impairment of Rights. Rights under any Stock
Award granted before amendment of the Plan shall not be impaired
by any amendment of the Plan unless (i) the Company
requests the consent of the affected Participant and
(ii) such Participant consents in writing.
(e) Amendment of Stock Awards. The Board, at any
time and from time to time, may amend the terms of any one or
more Stock Awards, including, but not limited to, amendments to
provide terms more favorable than previously provided in the
Stock Award Agreement, subject to any specified limits in the
Plan that are not subject to Board discretion; provided,
however, that the rights under any Stock Award shall not be
impaired by any such amendment unless (i) the Company
requests the consent of the affected Participant and
(ii) such Participant consents in writing.
A-17
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13. |
Termination or
Suspension of the Plan. |
(a) Plan Term. The Board may suspend or terminate
the Plan at any time. Unless sooner terminated, the Plan shall
terminate on the day before the tenth (10th) anniversary of the
date the Plan is adopted by the Board or approved by the
shareholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended
or after it is terminated.
(b) No Impairment of Rights. Suspension or
termination of the Plan shall not impair rights and obligations
under any Stock Award granted while the Plan is in effect except
with the written consent of the affected Participant.
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14. |
Effective Date of
Plan. |
This Plan (as an amendment and restatement of the Prior Plan)
shall become effective on the date that the Plan is adopted by
the Board, but no Stock Award shall be exercised (or, in the
case of a Stock Purchase Award, Stock Bonus Award, Stock Unit
Award, or Other Stock Award shall be granted) unless and until
the Plan has been approved by the shareholders of the Company,
which approval shall be within twelve (12) months before or
after the date the Plan is adopted by the Board.
The law of the State of California shall govern all questions
concerning the construction, validity and interpretation of this
Plan, without regard to such states conflict of laws rules.
A-18
APPENDIX B AMENDED EMPLOYEE STOCK PURCHASE
PLAN
ARADIGM CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Adopted April 16, 1996
Approved by the Shareholders on June 5, 1996
Amended by the Board of Directors on April 7, 1998
Approved by the Shareholders on May 15, 1998
Amended by the Board of Directors on February 2, 1999
Approved by the Shareholders on May 21, 1999
Amended by the Board of Directors on April 3, 2000
Approved by the Shareholders on May 19, 2000
Amended by the Board of Directors on April 2, 2001
Approved by the Shareholders on May 18, 2001
Amended by the Board of Directors on December 17,
2001
Approved by the Shareholders on February 8, 2002
Amended by the Board of Directors on February 19,
2003
Approved by the Shareholders on May 15, 2003
Amended by the Board of Directors on March 21, 2005
Approved by the Shareholders
on ,
2005
(a) The purpose of the Employee Stock Purchase Plan
(the Plan) is to provide a means by which employees
of Aradigm Corporation, a California corporation (the
Company), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in
subparagraph 2(b), may be given an opportunity to purchase
stock of the Company.
(b) The word Affiliate as used in the
Plan means any parent corporation or subsidiary corporation of
the Company, as those terms are defined in Sections 424(e)
and (f), respectively, of the Internal Revenue Code of 1986, as
amended (the Code).
(c) The Company, by means of the Plan, seeks to
retain the services of its employees, to secure and retain the
services of new employees, and to provide incentives for such
persons to exert maximum efforts for the success of the Company.
(d) The Company intends that the rights to purchase
stock of the Company granted under the Plan be considered
options issued under an employee stock purchase plan
as that term is defined in Section 423(b) of the Code.
(a) The Plan shall be administered by the Board of
Directors (the Board) of the Company unless and
until the Board delegates administration to a Committee, as
provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power
to determine all questions of policy and expediency that may
arise in the administration of the Plan.
(b) The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
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(i) To determine when and how rights to purchase
stock of the Company shall be granted and the provisions of each
offering of such rights (which need not be identical). |
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(ii) To designate from time to time which Affiliates
of the Company shall be eligible to participate in the Plan. |
B-1
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(iii) To construe and interpret the Plan and rights
granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board, in the exercise
of this power, may correct any defect, omission or inconsistency
in the Plan, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective. |
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(iv) To amend the Plan as provided in
paragraph 13. |
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(v) Generally, to exercise such powers and to
perform such acts as the Board deems necessary or expedient to
promote the best interests of the Company and its Affiliates and
to carry out the intent that the Plan be treated as an
employee stock purchase plan within the meaning of
Section 423 of the Code. |
(c) The Board may delegate administration of the
Plan to a Committee composed of not fewer than two
(2) members of the Board (the Committee)
constituted in accordance with the requirements of
Rule 16b-3 under the Exchange Act. If administration is
delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers
theretofore possessed by the Board, subject, however, to such
resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the
administration of the Plan.
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3. |
Shares Subject to the Plan |
(a) Subject to the provisions of paragraph 12
relating to adjustments upon changes in stock, the stock that
may be sold pursuant to rights granted under the Plan shall not
exceed in the aggregate five million two hundred fifty thousand
(5,250,000) shares of the Companys common stock (the
Common Stock). If any right granted under the Plan
shall for any reason terminate without having been exercised,
the Common Stock not purchased under such right shall again
become available for the Plan.
(b) The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
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4. |
Grant of Rights; Offering |
The Board or the Committee may from time to time grant or
provide for the grant of rights to purchase Common Stock of the
Company under the Plan to eligible employees (an
Offering) on a date or dates (the Offering
Date(s)) selected by the Board or the Committee. Each
Offering shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate,
which shall comply with the requirements of
Section 423(b)(5) of the Code that all employees granted
rights to purchase stock under the Plan shall have the same
rights and privileges. The terms and conditions of an Offering
shall be incorporated by reference into the Plan and treated as
part of the Plan. The provisions of separate Offerings need not
be identical, but each Offering shall include (through
incorporation of the provisions of this Plan by reference in the
document comprising the Offering or otherwise) the period during
which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering
Date, and the substance of the provisions contained in
paragraphs 5 through 8, inclusive.
(a) Rights may be granted only to employees of the
Company or, as the Board or the Committee may designate as
provided in subparagraph 2(b), to employees of any
Affiliate of the Company. Except as provided in
subparagraph 5(b), an employee of the Company or any
Affiliate shall not be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous
period preceding such grant as the Board or the Committee may
require, but in no event shall the required period of continuous
employment be equal to or greater than two (2) years. In
addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering,
no employee of the Company or any Affiliate shall be eligible to
be granted rights under the Plan, unless, on the Offering Date,
such employees customary employment with the Company or
such Affiliate is for at least twenty (20) hours per week
and at least five (5) months per calendar year.
B-2
(b) The Board or the Committee may provide that,
each person who, during the course of an Offering, first becomes
an eligible employee of the Company or designated Affiliate
will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that
Offering, which right shall thereafter be deemed to be a part of
that Offering. Such right shall have the same characteristics as
any rights originally granted under that Offering, as described
herein, except that:
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(i) the date on which such right is granted shall be
the Offering Date of such right for all purposes,
including determination of the exercise price of such right; |
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(ii) the period of the Offering with respect to such
right shall begin on its Offering Date and end coincident with
the end of such Offering; and |
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(iii) the Board or the Committee may provide that if
such person first becomes an eligible employee within a
specified period of time before the end of the Offering, he or
she will not receive any right under that Offering. |
(c) No employee shall be eligible for the grant of
any rights under the Plan if, immediately after any such rights
are granted, such employee owns stock possessing five percent
(5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 5(c), the rules of
Section 424(d) of the Code shall apply in determining the
stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be
treated as stock owned by such employee.
(d) An eligible employee may be granted rights under
the Plan only if such rights, together with any other rights
granted under employee stock purchase plans of the
Company and any Affiliates, as specified by
Section 423(b)(8) of the Code, do not permit such
employees rights to purchase stock of the Company or any
Affiliate to accrue at a rate which exceeds twenty five thousand
dollars ($25,000) of fair market value of such stock (determined
at the time such rights are granted) for each calendar year in
which such rights are outstanding at any time.
(e) Officers of the Company and any designated
Affiliate shall be eligible to participate in Offerings under
the Plan, provided, however, that the Board may provide in an
Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the
Code shall not be eligible to participate.
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6. |
Rights; Purchase Price |
(a) On each Offering Date, each eligible employee,
pursuant to an Offering made under the Plan, shall be granted
the right to purchase up to the number of shares of Common Stock
of the Company purchasable with a percentage designated by the
Board or the Committee not exceeding fifteen percent (15%) of
such employees Earnings (as defined by the Board or the
Committee in each Offering) during the period which begins on
the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than
the end of the Offering. The Board or the Committee shall
establish one or more dates during an Offering (the
Purchase Date(s)) on which rights granted under the
Plan shall be exercised and purchases of Common Stock carried
out in accordance with such Offering.
(b) In connection with each Offering made under the
Plan, the Board or the Committee may specify a maximum number of
shares that may be purchased by any employee as well as a
maximum aggregate number of shares that may be purchased by all
eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one
Purchase Date, the Board or the Committee may specify a maximum
aggregate number of shares which may be purchased by all
eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of
rights granted under the Offering would exceed any such maximum
aggregate number, the Board or the Committee shall make a pro
rata allocation of the shares available in as nearly a uniform
manner as shall be practicable and as it shall deem to be
equitable.
B-3
(c) The purchase price of stock acquired pursuant to
rights granted under the Plan shall be not less than the lesser
of:
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(i) an amount equal to eighty-five percent (85%) of
the fair market value of the stock on the Offering Date; or |
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(ii) an amount equal to eighty-five percent (85%) of
the fair market value of the stock on the Purchase Date. |
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7. |
Participation; Withdrawal; Termination |
(a) An eligible employee may become a participant in
the Plan pursuant to an Offering by delivering a participation
agreement to the Company within the time specified in the
Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the
maximum percentage specified by the Board or the Committee of
such employees Earnings during the Offering (as defined by
the Board or Committee in each Offering). The payroll deductions
made for each participant shall be credited to an account for
such participant under the Plan and shall be deposited with the
general funds of the Company. A participant may reduce
(including to zero) or increase such payroll deductions, and an
eligible employee may begin such payroll deductions, after the
beginning of any Offering only as provided for in the Offering.
A participant may make additional payments into his or her
account only if specifically provided for in the Offering and
only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant
may terminate his or her payroll deductions under the Plan and
withdraw from the Offering by delivering to the Company a notice
of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the
Offering. Upon such withdrawal from the Offering by a
participant, the Company shall distribute to such participant
all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock
for the participant) under the Offering, without interest, and
such participants interest in that Offering shall be
automatically terminated. A participants withdrawal from
an Offering will have no effect upon such participants
eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new
participation agreement in order to participate in subsequent
Offerings under the Plan.
(c) Rights granted pursuant to any Offering under
the Plan shall terminate immediately upon cessation of any
participating employees employment with the Company and
any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her
accumulated payroll deductions (reduced to the extent, if any,
such deductions have been used to acquire stock for the
terminated employee) under the Offering, without interest.
(d) Rights granted under the Plan shall not be
transferable by a participant otherwise than by will or the laws
of descent and distribution, or by a beneficiary designation as
provided in paragraph 14 and, otherwise during his or her
lifetime, shall be exercisable only by the person to whom such
rights are granted.
(a) On each Purchase Date specified therefor in the
relevant Offering, each participants accumulated payroll
deductions and other additional payments specifically provided
for in the Offering (without any increase for interest) will be
applied to the purchase of whole shares of stock of the Company,
up to the maximum number of shares permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase
price specified in the Offering. No fractional shares shall be
issued upon the exercise of rights granted under the Plan. The
amount, if any, of accumulated payroll deductions remaining in
each participants account after the purchase of shares
which is less than the amount required to purchase one share of
stock on the final Purchase Date of an Offering shall be held in
each such participants account for the purchase of shares
under the next Offering under the Plan, unless such participant
withdraws from such next Offering, as provided in
subparagraph 7(b), or is no longer eligible to be granted
rights under the Plan, as provided in paragraph 5, in which
case such amount shall be distributed to the participant after
such final Purchase Date,
B-4
without interest. The amount, if any, of accumulated payroll
deductions remaining in any participants account after the
purchase of shares which is equal to the amount required to
purchase whole shares of stock on the final Purchase Date of an
Offering shall be distributed in full to the participant after
such Purchase Date, without interest.
(b) No rights granted under the Plan may be
exercised to any extent unless the shares to be issued upon such
exercise under the Plan (including rights granted thereunder)
are covered by an effective registration statement pursuant to
the Securities Act of 1933, as amended (the Securities
Act) and the Plan is in material compliance with all
applicable state, foreign and other securities and other laws
applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance,
no rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be
delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve
(12) months and the Purchase Date shall in no event be more
than twenty-seven (27) months from the Offering Date. If on
the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in
such compliance, no rights granted under the Plan or any
Offering shall be exercised and all payroll deductions
accumulated during the Offering (reduced to the extent, if any,
such deductions have been used to acquire stock) shall be
distributed to the participants, without interest.
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9. |
Covenants of the Company |
(a) During the terms of the rights granted under the
Plan, the Company shall keep available at all times the number
of shares of stock required to satisfy such rights.
(b) The Company shall seek to obtain from each
federal, state, foreign or other regulatory commission or agency
having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the
rights granted under the Plan. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission
or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights
unless and until such authority is obtained.
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10. |
Use of Proceeds from Stock |
Proceeds from the sale of stock pursuant to rights granted under
the Plan shall constitute general funds of the Company.
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11. |
Rights as a Shareholder |
A participant shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares
subject to rights granted under the Plan unless and until the
participants shareholdings acquired upon exercise of
rights under the Plan are recorded in the books of the Company.
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12. |
Adjustments upon Changes in Stock |
(a) If any change is made in the stock subject to
the Plan, or subject to any rights granted under the Plan
(through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of
consideration by the Company), the Plan and outstanding rights
will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the class(es) and
number of shares and price per share of stock subject to
outstanding rights. Such adjustments shall be made by the Board
or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a
transaction not involving the receipt of consideration by
the Company.)
B-5
(b) In the event of: (1) a dissolution or
liquidation of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving
corporation but the shares of the Companys Common Stock
outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) the acquisition by
any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act or any
comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company
or any Affiliate of the Company) of the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the
Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of
directors, then, as determined by the Board in its sole
discretion (i) any surviving or acquiring corporation may
assume outstanding rights or substitute similar rights for those
under the Plan, (ii) such rights may continue in full force
and effect, or (iii) participants accumulated payroll
deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the
participants rights under the ongoing Offering terminated.
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13. |
Amendment of the Plan |
(a) The Board at any time, and from time to time,
may amend the Plan. However, except as provided in
paragraph 12 relating to adjustments upon changes in stock,
no amendment shall be effective unless approved by the
shareholders of the Company within twelve (12) months
before or after the adoption of the amendment, where the
amendment will:
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(i) Increase the number of shares reserved for
rights under the Plan; |
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(ii) Modify the provisions as to eligibility for
participation in the Plan (to the extent such modification
requires shareholder approval in order for the Plan to obtain
employee stock purchase plan treatment under Section 423 of
the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act as amended
(Rule 16b-3)); or employee stock purchase plan
treatment under Section 423 of the Code or to comply with
the requirements of Rule 16b-3 promulgated under the
Exchange Act as amended (Rule 16b-3)); or |
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(iii) Modify the Plan in any other way if such
modification requires shareholder approval in order for the Plan
to obtain employee stock purchase plan treatment under
Section 423 of the Code or to comply with the requirements
of Rule 16b-3. |
It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide
eligible employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations
promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into
compliance therewith.
(b) Rights and obligations under any rights granted
before amendment of the Plan shall not be impaired by any
amendment of the Plan, except with the consent of the person to
whom such rights were granted, or except as necessary to comply
with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under
the Plan comply with the requirements of Section 423 of the
Code.
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14. |
Designation of Beneficiary |
(a) A participant may file a written designation of
a beneficiary who is to receive any shares and cash, if any,
from the participants account under the Plan in the event
of such participants death subsequent to the end of an
Offering but prior to delivery to the participant of such shares
and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the
participants account under the Plan in the event of such
participants death during an Offering.
(b) Such designation of beneficiary may be changed
by the participant at any time by written notice. In the event
of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at
the time of such participants death, the Company shall
deliver such shares and/or cash to the executor or administrator
of the estate of the participant, or if no such executor or
administrator has been
B-6
appointed (to the knowledge of the Company), the Company, in its
sole discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may
designate.
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15. |
Termination or Suspension of the Plan |
(a) The Board in its discretion, may suspend or
terminate the Plan at any time. No rights may be granted under
the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted
while the Plan is in effect shall not be impaired by suspension
or termination of the Plan, except as expressly provided in the
Plan or with the consent of the person to whom such rights were
granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that
the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.
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16. |
Effective Date of Plan |
The Plan shall become effective on the same day that the
Companys initial public offering of shares of common stock
becomes effective (the Effective Date), but no
rights granted under the Plan shall be exercised unless and
until the Plan has been approved by the shareholders of the
Company within twelve (12) months before or after the date
the Plan is adopted by the Board or the Committee, which date
may be prior to the Effective Date.
B-7
PROXY
ARADIGM CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 19, 2005
The undersigned hereby appoints V. BRYAN LAWLIS and THOMAS C. CHESTERMAN, and each of them, as
attorneys and proxies of the undersigned, with full power of substitution, to vote all shares of
stock of Aradigm Corporation which the undersigned may be entitled to vote at the Annual Meeting of
Shareholders of Aradigm Corporation to be held at the Companys offices located at 3929 Point Eden
Way, Hayward, California on Thursday, May 19, 2005 at 9:00 a.m. local time, and at any and all
postponements, continuations and adjournments thereof, with all powers that the undersigned would
possess if personally present, upon and in respect of the following matters and in accordance with
the following instructions, with discretionary authority as to any and all other matters that may
properly come before the meeting.
þ Please mark votes as in this example.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND A VOTE FOR PROPOSALS
2, 3 and 4.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED IN
PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF
SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
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1. |
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To elect (01) Frank H. Barker, (02) Wayne I.
Roe, (03) V. Bryan Lawlis, (04) Virgil D.
Thompson, (05) Igor Gonda, (06) Richard P.
Thompson, (07) John M. Nehra and (08) Stephen O.
Jaeger as directors to hold office until the next
Annual Meeting of Shareholders and until their
successors are elected
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FOR ALL NOMINEES |
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WITHHELD FROM ALL NOMINEES |
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FOR ALL NOMINEES EXCEPT: |
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FOR |
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To approve the Companys 2005 Equity Incentive Plan,
which amends, restates and retitles the Companys
1996 Equity Incentive Plan. |
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3. |
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To approve the Companys Employee Stock Purchase
Plan, as amended, to increase the aggregate number
of shares of Common Stock authorized for
issuance under such plan by 2,000,000 shares. |
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4. |
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To ratify the selection of Ernst & Young LLP as
the Companys independent auditors for the
fiscal year ending December 31, 2005.
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Please vote, date and promptly return this proxy in the enclosed return envelope which is
postage prepaid if mailed in the United States.
Please sign exactly as your name appears hereon. If stock is registered in the names of two or
more persons, each should sign. Executors, administrators, trustees, guardians and
attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate
name and have a duly authorized officer sign, stating that if signer is a partnership, please sign
in partnership name by authorized person.
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Signature: |
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Date: |
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Signature: |
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Date: |
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