SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |x|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
| | Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
ENZON, INC.
(Name of Registrant as Specified In Its Charter)
KEVIN T. COLLINS, ESQ.
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
5) Total fee paid:
_____________________________________________________________________________
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid: _________________________________________________
2) Form, Schedule or Registration Statement No. ____________________________
3) Filing Party: ___________________________________________________________
4) Date Filed: _____________________________________________________________
Preliminary Copy
[LOGO] ENZON, INC.
20 Kingsbridge Road
Piscataway, New Jersey 08854
(732) 980-4500
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 2, 1997
To our Stockholders:
You are hereby notified that the annual meeting of stockholders (the
"Annual Meeting") of Enzon, Inc., a Delaware corporation ("Enzon" or the
"Company") will be held at the Embassy Suites Hotel, 121 Centennial Avenue,
Piscataway, New Jersey on Tuesday, December 2, 1997 at 10:00 a.m. local time,
for the following purposes:
1. To elect two Class II directors, each for a term of three years in
accordance with the Company's Certificate of Incorporation and By-Laws
(Proposal No. 1);
2. To vote on a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of Common
Stock from forty million (40,000,000) to sixty million (60,000,000)
(Proposal No. 2);
3. To vote on a proposal to approve an amendment to the Company's
Non-Qualified Stock Option Plan, as amended to conform the Plan to
changes made to the rules under Section 16(b) of the Securities and
Exchange Act of 1934 (Proposal No. 3);
4. To ratify the selection of KPMG Peat Marwick LLP, independent
certified public accountants, to audit the consolidated financial
statements of the Company for the fiscal year ending June 30, 1998
(Proposal No. 4); and
5. To transact such other matters as may properly come before the Annual
Meeting or any adjournment thereof.
Only holders of record of the Company's Common Stock, par value $.01 per
share, and Series A Cumulative Convertible Preferred Stock, par value $.01 per
share, at the close of business on October 27, 1997 are entitled to notice of
and to vote at the Annual Meeting.
Enzon hopes that as many stockholders as possible will personally attend
the Annual Meeting. Whether or not you plan to attend the Annual Meeting, please
complete the enclosed proxy card and sign, date and return it promptly so that
your shares will be represented. Sending in your proxy will not prevent you from
voting in person at the Annual Meeting.
By order of the Board of Directors,
John A. Caruso, Secretary
Piscataway, New Jersey
October __, 1997
ENZON, INC.
-------
PROXY STATEMENT
-------
This Proxy Statement is furnished in connection with the solicitation of
proxies for use at the annual meeting of stockholders (the "Annual Meeting") of
Enzon, Inc. ("Enzon" or the "Company") to be held on Tuesday, December 2, 1997
and at any adjournment thereof. The accompanying proxy is solicited by the Board
of Directors of the Company and is revocable by the stockholder any time before
it is voted. For more information concerning the procedure for revoking the
proxy see "General." This Proxy Statement was first mailed to stockholders of
the Company on or about October 31, 1997, accompanied by the Company's Annual
Report to Stockholders for the fiscal year ended June 30, 1997. The principal
executive offices of the Company are located at 20 Kingsbridge Road, Piscataway,
New Jersey 08854, telephone (732) 980-4500.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of the Company's common stock, par value $.01 per share (the
"Common Stock" or "Common Shares") and Series A Cumulative Convertible Preferred
Stock, $.01 per share (the "Series A Preferred Stock" or "Series A Preferred
Shares") outstanding at the close of business on October 27, 1997 (the "Record
Date") are entitled to receive notice of and vote at the Annual Meeting. As of
the Record Date, the number and class of stock that was outstanding and will be
entitled to vote at the meeting were [30,921,258] Common Shares and 108,000
Series A Preferred Shares. Each Common Share and Series A Preferred Share is
entitled to one vote on all matters. No other class of securities will be
entitled to vote at the Annual Meeting. There are no cumulative voting rights.
To be elected, a director must receive a plurality of the votes of the
Common Shares and Series A Preferred Shares, voting as a single class, present
in person or represented by proxy at the Annual Meeting and entitled to vote on
the election of directors. The affirmative votes of at least (I) a majority of
the Common Shares and Series A Preferred Shares outstanding as of the Record
Date, and entitled to vote thereon, voting together as a single class and (ii) a
majority of the Common Shares outstanding as of the Record Date and entitled to
vote thereon, voting separately as a class, are necessary for approval of
Proposal No. 2. The affirmative vote of at least a majority of the Common Shares
and Series A Preferred Shares, present in person or represented by proxy at the
Annual Meeting and entitled to vote thereon, voting together as a single class,
is necessary for approval of Proposal No. 3 and Proposal No. 4. A quorum is
representation in person or by proxy at the Annual Meeting of at least one-third
of the combined Common Shares and Series A Preferred Shares outstanding as of
the Record Date.
Pursuant to the Delaware General Corporation Law, only votes cast "For" a
matter constitute affirmative votes. Proxy cards which are voted by marking
"Withheld" or "Abstain" on a particular matter are counted as present for quorum
purposes and for purposes of determining the outcome of such matter, but since
they are not cast "For" a particular matter, they will have the same effect as
negative votes or votes "Against" a particular matter. If a validly executed
proxy card is not marked to indicate a vote on a particular matter and the proxy
granted thereby is not revoked before it is voted, it will be voted "For" such
matter. Where brokers are prohibited from exercising discretionary authority for
beneficial owners who have not provided voting instructions (commonly referred
to as "broker non-votes"), such broker non-votes will be treated as shares that
are present for purposes of determining the presence of a quorum; however, with
respect to proposals which require the affirmative vote of a percentage of votes
present at the Annual Meeting for approval, such broker non-votes will be
treated as not present for purposes of determining the outcome of any such
matter. With respect to proposals which require the affirmative vote of a
percentage of the outstanding shares for approval, since such broker
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non-votes are not cast "For" a particular matter, they will have the same effect
as negative votes or votes "Against" such proposals.
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PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Pursuant to the provisions of the Company's Certificate of Incorporation
and By-laws, the Board of Directors is comprised of three classes of directors,
designated Class I, Class II and Class III. One class of directors is elected
each year to hold office for a three-year term and until successors of such
directors are duly elected and qualified. Two Class II directors will be elected
at this year's Annual Meeting. The nominees for election to the office of
director, and certain information with respect to their backgrounds and the
backgrounds of non-nominee directors, are set forth below. It is the intention
of the persons named in the accompanying proxy card, unless otherwise
instructed, to vote to elect the nominees named herein as Class II directors.
Each of the nominees named herein presently serves as a director of the Company.
In the event any of the nominees named herein is unable to serve as a director,
discretionary authority is reserved to the Board of Directors to vote for a
substitute. The Board of Directors has no reason to believe that any of the
nominees named herein will be unable to serve if elected.
Nominees for Election to the Office of Director
at the 1997 Annual Meeting
Director
Nominee Age Since Position with the Company
- ------- --- ----- -------------------------
Randy H. Thurman(1) 48 1993 Chairman of the Board
A.M. "Don" MacKinnon(1)(3) 72 1990 Director
Non-Nominee Directors Continuing to Serve
in the Office of Director After the 1997 Annual Meeting
Director
Nominee Age Since Position with the Company
- ------- --- ----- -------------------------
Peter G. Tombros (1)(4) 55 1994 President and Chief Executive Officer
Rolf A. Classon(2)(5) 52 1997 Director
Dr. Rosina B. Dixon (2)(4) 54 1994 Director
Robert LeBuhn (2)(3)(5) 66 1994 Director
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Class I director serving until the 1999 Annual Meeting
(5) Class III director serving until the 1998 Annual Meeting
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BUSINESS EXPERIENCE OF DIRECTORS
Nominee Class II Directors for Election at the 1997 Annual Meeting
Randy H. Thurman has served as the non-executive Chairman of the Board of
the Company since April 1996 and as a Director of the Company since April 1993.
Since 1996, Mr. Thurman has been a principal at Spencer Stuart, an executive
search consulting firm. Mr. Thurman is the founder and has been Chairman of the
Board of Health Care Strategies 2000, a global healthcare consulting firm since
1995. From 1993 to 1995, Mr. Thurman served as chairman and chief executive
officer of Corning Life Sciences. From 1985 to 1993, Mr. Thurman served as
corporate executive vice president and a director of Rhone-Poulenc Rorer, Inc.
and president of Rhone-Poulenc Rorer Pharmaceuticals, Inc. He also serves on the
Board of Directors of Onyx Pharmaceuticals and Closure Medical.
A.M. "Don" MacKinnon has served as a Director of the Company since 1990.
Mr. MacKinnon was president and chief operating officer of Ciba-Geigy
Corporation from 1980 until his retirement in 1986. He was a member of the Board
of Directors of Ciba-Geigy Corporation from 1970 until he reached the mandatory
retirement age in December 1994. Over the last nine years, Mr. MacKinnon has
served on the Board of Directors of several biopharmaceutical companies.
The Board of Directors recommends a vote FOR Mr. Thurman and Mr. MacKinnon
as Class II Directors (Proposal No. 1 on the Proxy Card).
Non-Nominee Class I Directors Serving Until the 1999 Annual Meeting
Peter G. Tombros has served as President and Chief Executive Officer of the
Company and a member of the board since April 1994. Prior to joining Enzon, Mr.
Tombros spent 25 years with Pfizer Inc., a research based, global healthcare
company headquartered in New York City. From 1986 to March 1994, he served as a
vice president of Pfizer Inc. in the following areas: executive vice president
of Pfizer Pharmaceuticals, a division of Pfizer Inc., corporate strategic
planning and investor relations. From 1980 to 1986, Mr. Tombros served as senior
vice president of Pfizer Pharmaceuticals and general manager for the Roerig
division of Pfizer Inc. Mr. Tombros currently serves on the Board of Trustees of
Cancer Care and the National Cancer Care Foundation, Dominican College and Fisk
University. From 1980 to 1992, he was a director of the American Foundation of
Pharmaceutical Education and served as Chairman for three of those years. Mr.
Tombros serves on the Board of Directors of Alpharma Inc., formally A.L. Pharma
Inc., a Norwegian company specializing in the areas of animal health,
pharmaceuticals and fine chemicals.
Dr. Rosina B. Dixon has served as a Director of the Company since August
1994. Dr. Dixon has been a consultant to the pharmaceutical industry since 1987.
Prior to such time she held senior positions at Ciba-Geigy Pharmaceuticals, a
division of Ciba-Geigy Corporation, and Schering-Plough Corporation. She
received her M.D. from Columbia University, College of Physicians and Surgeons
and is certified by the National Board of Medical Examiners and the American
Board of Internal Medicine. She is a member of the American College of Clinical
Pharmacology, American Society for Clinical Pharmacology and Therapeutics and
the National Association of Corporate Directors and currently serves as a
director of Church & Dwight Co., Inc. and Cambrex Corporation.
Non-Nominee Class III Director Serving Until the 1998 Annual Meeting
Robert LeBuhn has served as a Director of the Company since August 1994.
Mr. LeBuhn was chairman of Investor International (U.S.), Inc., a subsidiary of
Investor A.B., part of Sweden's Wallenberg Group from June 1992 until his
retirement in September 1994, and was its president from August 1984 through
June 1992. He is a former managing director of Rothschild, Inc. Mr. LeBuhn is a
director of US Airways Group, Inc., Acceptance Insurance Companies, Inc., New
Jersey Steel Corporation and Cambrex Corporation. He is president and a trustee
of the Geraldine R. Dodge Foundation.
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Rolf A. Classon has served as a Director of the Company since January 1997.
Mr. Classon is currently an Executive Vice President of Bayer Corporation and
President of Bayer Diagnostics. From 1991 to 1995, Mr. Classon was an Executive
Vice President in charge of Bayer Diagnostics' Worldwide Marketing, Sales and
Service operations. From 1990 to 1991, Mr. Classon was President and Chief
Operating Officer of Pharmacia Biosystems A.B. Prior to 1991, Mr. Classon served
as president of Pharmacia Development Company Inc. and Pharmacia A.B. Hospital
Products Division.
DIRECTORS' COMPENSATION
Directors' Cash Compensation
During the fiscal year ended June 30, 1997, the Company paid Randy H.
Thurman $100,000 in consideration for serving as Chairman of the Board. The
Company did not pay cash compensation to its remaining directors for acting as a
director or a member of committees of the Board of Directors, other than
reimbursement of reasonable expenses incurred by the director in attending board
and committee meetings.
Directors' Stock Options
In December 1993, the Board of Directors adopted, and the stockholders
approved, an amendment to the Non-Qualified Stock Option Plan, as amended, (the
"Plan") providing for automatic grants of options ("Automatic Grants") under a
formula (the "Formula") to non-executive members of the Board of Directors
("Independent Directors").
Under the Formula, Independent Directors automatically receive an option to
purchase 60,000 shares of Common Stock on each of the following dates: January
2, 1994, January 2, 1997, January 2, 2000 and January 2, 2003 (the "Regular
Grants"). On the date of each Independent Director's initial election to the
board, pursuant to a vote of the Company's stockholders or the board, such
newly-elected Independent Director automatically receives (i) an option to
purchase such Independent Director's pro rata share of the Regular Grant, which
equals the product of 1,666 multiplied by the number of whole months remaining
in the relevant three year period until the next Regular Grant (the "Pro Rata
Grant"); and (ii) an option to purchase 10,000 shares of Common Stock (the
"Initial Election Grant"). Each option granted to an Independent Director
pursuant to a Regular Grant vests and becomes exercisable as follows: as to
20,000 shares one year after the date of grant; as to 20,000 shares two years
after the date of grant, and as to the remaining 20,000 shares three years after
the date of grant. Those options granted pursuant to a Pro Rata Grant vest and
become exercisable as to that number of shares equal to the product of 1,666
multiplied by the number of whole months remaining in the first calendar year in
which the Independent Director is elected initially to the board on the January
1st following such Independent Director's initial election to the board; and as
to any remaining shares in accordance with the schedule for options granted
pursuant to a Regular Grant. Those options granted pursuant to an Initial
Election Grant vest and become exercisable as to 5,000 shares one year after the
date of grant; and as to 5,000 shares two years after the date of grant. The per
share exercise price of options granted pursuant to the Formula is equal to the
fair market value of the Common Stock on the date of grant.
An option granted to an Independent Director pursuant to the Formula will
not become exercisable as to the relevant shares unless such Independent
Director has served continuously on the board during the year preceding the date
on which such options are scheduled to vest and become exercisable, or from the
date such Independent Director joined the board until the end of such year
should such Independent Director have joined the board during such year;
provided, however, that if an Independent Director does not fulfill such
continuous service requirement due to such Independent Director's death or
disability all options granted under the Formula and held by such Independent
Director nonetheless vest and become exercisable as though such Independent
Director fulfilled the continuous service requirement. An option granted to an
Independent Director pursuant to the Formula remains exercisable for a period of
ten years from the date of grant.
During May 1997, the Company granted A.M. "Don" MacKinnon an option to
purchase 2,000 shares of the Company's Common Stock under the Plan in
consideration for additional services provided to the Company. The per
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share exercise price of the option is $2.69, which was equal to the fair market
value of the Common Stock on the date of grant. The option has a term of ten
years. The options are fully vested and will become exercisable on November 9,
1997.
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Independent Directors' Stock Plan
The Company's 1996 Independent Directors' Stock Plan (the "Independent
Directors' Stock Plan") provides compensation to Independent Directors serving
on the board which is paid in the form of the Company's Common Stock. Other than
the Chairman of the Board, Independent Directors are not currently entitled to
receive cash compensation. Under the Independent Directors' Stock Plan, each
Independent Director is entitled to compensation equivalent to $2,500 per
quarter and $500 for each meeting attended by the board member. The number of
shares issued will be based on the last reported sale price of a share of Common
Stock on the NASDAQ National Market at the end of the quarter for which fees are
payable. During the year ended June 30, 1997, the Company recorded $65,500 in
Independent Directors' fees. The following is a summary of compensation paid to
the Independent Directors under the Independent Director Stock Plan:
Value of Number
Consideration of Shares
------------- ---------
Randy H. Thurman $14,500 5,743
Rolf A. Classon 7,500 3,117
Dr. Rosina Dixon 14,500 5,743
Robert LeBuhn 14,500 5,743
A.M. "Don" MacKinnon 14,500 5,743
Section 16(a) Beneficial Ownership Reporting Compliance
Ownership of and transactions in the Company's stock by executive officers
and directors of the Company and owners of 10% or more of the Company's
outstanding Common Stock are required to be reported to the Securities and
Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of
1934, as amended. During the year ended June 30, 1997, all such reports were
filed in a timely manner.
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS
AND COMMITTEES OF THE BOARD
Nine meetings of the Company's Board of Directors were held during the
fiscal year ended June 30, 1997. Each incumbent director attended at least 75%
of the total number of meetings of the Board of Directors and any committees of
the Board of Directors of which such director was a member held during the
fiscal year.
As of June 30, 1997, the only standing committees of the Company's Board of
Directors were the Audit Committee, Compensation Committee and Executive
Committee.
The Audit Committee is comprised of Robert LeBuhn, Chairman and A.M. "Don"
MacKinnon. The primary functions of the Audit Committee are to meet with the
Company's independent auditors to discuss and review audit procedures and
issues, meet with management on matters concerning the Company's financial
condition, internal controls and year-end audit, and report to the board on such
matters. The Audit Committee held two meetings during the fiscal year ended June
30, 1997.
The Compensation Committee is comprised of Dr. Rosina B. Dixon,
Chairperson, Rolf A. Classon and Robert LeBuhn. The primary functions of the
Compensation Committee are to administer the Company's NonQualified Stock Option
Plan, determine the compensation of the Company's officers and senior management
and review compensation policy. There were four meetings of the Compensation
Committee during the fiscal year ended June 30, 1997.
The Executive Committee, comprised of A.M. "Don" MacKinnon, Chairman, Peter
G. Tombros, and Randy H. Thurman, meets to review and make decisions concerning
matters which would otherwise come before the Board, as permitted by Delaware
law and the Company's by-laws. Given the relatively small size of the Company's
current Board
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of Directors, the Company determined that efficiencies were not being realized
from meetings of the Executive Committee and therefore suspended regular
meetings of the Executive Committee in September 1994. There were no meetings of
the Executive Committee during the fiscal year ended June 30, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
As of the date hereof, the members of the Board of Directors serving on the
Compensation Committee of the Board of Directors are Dr. Rosina B. Dixon,
Chairperson, Rolf A. Classon and Robert LeBuhn, all of whom are non-employee
directors of the Company.
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
Set forth below is certain information regarding the executive officers of
the Company who do not serve on the Board of Directors.
John A. Caruso, 52, has served as Vice President, Business Development and
General Counsel of the Company since July 1994 and as Secretary of the Company
since July 1989. From January 1991 to July 1994, Mr. Caruso served as Vice
President, Legal Affairs of the Company. From the time he joined the Company in
September 1987 through December 1990, Mr. Caruso served as Corporate Counsel to
the Company. From 1979 through 1987, Mr. Caruso was employed at Baxter Travenol
Laboratories in Deerfield, Illinois as corporate counsel.
Kenneth J. Zuerblis, 38, has served as Chief Financial Officer since
January 1996 and as Vice President, Finance since April 1994. From July 1991 to
April 1994, Mr. Zuerblis served as the Company's Controller. From January 1982
to July 1991, Mr. Zuerblis was employed by KPMG Peat Marwick LLP. He became a
certified public accountant in 1985.
SUMMARY COMPENSATION TABLE
The following table provides a summary of cash and non-cash compensation
for each of the last three fiscal years ended June 30, 1997, 1996 and 1995 with
respect to Enzon's Chief Executive Officer and the other executive officers
serving during the fiscal year ended June 30, 1997 (the "Named Executive
Officers").
Long-Term
Annual Compensation Compensation
------------------- Awards
------
Name and Other Annual Securities Underlying All Other
Principal Position Year Salary($) Bonus($) Compensation($)(1) Options(#) Compensation($)(2)
------------------ ---- --------- -------- ------------------ ---------- ------------------
Peter G. Tombros 1997 $307,626 $50,000(4) $ -- 420,000 $ 4,729
President and Chief 1996 300,000 -- 36,000(3) 60,000 950
Executive Officer 1995 300,000 -- 32,000(3) 189,000 1,270
John A. Caruso 1997 170,000 25,000 -- 80,000 163
Vice President, Business 1996 163,651 39,100 -- 40,000 --
Development, General Counsel 1995 122,299 -- -- 82,000 --
and Secretary
Kenneth J. Zuerblis 1997 148,052 40,000 -- 90,000 5,395
Vice President, Finance and 1996 132,813 24,871 -- 40,000 1,989
Chief Financial Officer 1995 100,000 -- -- 85,000 1,500
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of the Named Executive Officer's total annual salary and
bonus.
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(2) Consists of annual Company contributions to a 401(k) plan.
(3) Consists of auto and living allowance. As of April 5, 1997, the Company
ceased paying Mr. Tombros an auto and living allowance.
(4) Mr. Tombros has elected to defer the payment of his bonus earned for the
year ended June 30, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's Non-Qualified Stock Option Plan to the Named
Executive Officers during the fiscal year ended June 30, 1997.
Individual Grants
----------------------------------------------
Number of Potential Realizable Value at Assumed
Securities % of Total Annual Rates of Stock Price
Underlying Options Granted Appreciation for Option Term (5)
Options to Employees Exercise or Base Expiration -------------------------------------
Name Granted (1) in Fiscal Year Price ($/Share) Date 0%($) 5%($) 10%($)
- ---- ----------- -------------- --------------- ----------- ---------- -------- ---------
Peter G. Tombros 60,000(2) 5.82% $2.81 07/23/06 $0 $106,126 $268,944
60,000(3) 5.82% 2.56 02/11/07 0 96,693 245,038
300,000(4) 29.12% 2.69 04/05/07 0 505,292 1,279,501
John A. Caruso 40,000(2) 3.88% 2.81 07/23/06 0 70,751 179,296
40,000(3) 3.88% 2.56 02/11/07 0 64,462 163,359
Kenneth J. Zuerblis 50,000(2) 4.85% 2.81 07/23/06 0 88,438 224,120
40,000(3) 3.88% 2.56 02/11/07 0 64,462 163,359
(1) All options were granted at an exercise price that equaled or exceeded the
fair market value of the Common Stock on the date of grant, as determined
by the last sale price as reported on the NASDAQ National Market. The
options will become exercisable as to all shares immediately upon a "change
in control" of the Company as defined in certain agreements between the
executive officers and the Company. See "Employment and Termination
Agreements".
(2) These options vested and became exercisable as to 50% of the shares granted
on July 23, 1997 with the remaining 50% of the shares granted vesting and
becoming exercisable on July 23, 1998, provided that the Named Executive
Officer is employed by the Company on the vesting date.
(3) These options will vest and become exercisable as to 50% of the shares
granted on February 11, 1998 and the remaining 50% on February 11, 1999,
provided that the Named Executive Officer is employed by the Company on the
vesting date.
(4) Mr. Tombros' option will vest and become exercisable on April 5, 2005. The
vesting and exercisability of the options granted will be accelerated, if
the Company's Common Stock exceeds certain closing price levels for at
least twenty consecutive trading days as reported by the NASDAQ National
Market. The options will vest and become exercisable in 100,000 share
increments if the closing price of the Company's Common Stock, as defined,
exceeds $4, $5 and $6 per share, respectively.
(5) The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their terms. These gains are based on assumed rates
of stock price appreciation of 0%, 5% and 10% compounded annually from the
dates the respective options were granted. The 0% appreciation column is
included because the options were granted with exercise prices which
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equaled or exceeded the market price of the underlying Common Stock on the
date of grant, and thus will have no value unless the Company's stock price
increases above the exercise prices.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth the information with respect to the Named
Executive Officers concerning the exercise of options during the fiscal year
ended June 30, 1997 and unexercised options held as of June 30, 1997.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)(1)
Shares Acquired Value --------------------- ----------------
Name On Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ----------- ----------- ------------- ----------- -------------
Peter G. Tombros -- -- 619,000 450,000 $28,813 --
John A. Caruso -- -- 160,992 100,000 6,250 --
Kenneth J. Zuerblis -- -- 130,000 110,000 6,250 --
(1) Based upon a market value of $2.25 as determined by the last sale price as
reported on the NASDAQ National Market on June 30, 1997. If the exercise
price is equal to or greater than such last sale price the option is deemed
to have no value.
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EMPLOYMENT AND TERMINATION AGREEMENTS
During April 1997, the Company entered into a three-year employment
agreement with Mr. Tombros pursuant to which he receives an annual base salary
of $336,000. In the event Mr. Tombros' employment is terminated for any reason,
except if such employment is terminated (I) voluntarily by Mr. Tombros (other
than in response to the Company's prior material breach of the employment
agreement), (ii) by the Company "for cause" (as defined in the employment
agreement) or (iii) as a result of Mr. Tombros' death or disability, Mr. Tombros
will be entitled to receive his base salary for one year after such termination.
In the event Mr. Tombros' employment is terminated due to his death or
disability his base salary will be paid for six months subsequent to such
termination. Pursuant to his employment agreement, Mr. Tombros was granted a
ten-year option under the Company's NonQualified Stock Option Plan to purchase
300,000 shares of the Company's Common Stock at a per share exercise price of
$2.69, the fair market value of the Company's Common Stock on the date of grant.
The option vests and becomes exercisable on April 5, 2005 provided Mr. Tombros
does not voluntarily terminate his employment with the Company (except in
response to the Company's prior material breach of the employment agreement)
prior to the relevant vesting date. The vesting and exercisability of the
options granted will be accelerated if the Company's Common Stock exceeds
certain closing price levels for at least twenty consecutive trading days as
reported by the NASDAQ National Market. The option will vest and become
exercisable in 100,000 share increments if the closing price of the Company's
Common Stock, as defined, exceeds $4, $5 and $6 per share respectively. Mr.
Tombros' employment agreement also requires him to maintain the confidentiality
of Company information and assign inventions to the Company. Mr. Tombros is
precluded from competing with the Company during the term of his employment
agreement and for two years after his employment is terminated if his employment
is terminated by the Company for cause or by Mr. Tombros voluntarily (except in
response to the Company's prior material breach of the employment agreement).
The Company has agreements with each of its executive officers which
provide for payment to each executive officer of three years of compensation and
benefits (as defined in such agreements) following a change in control of the
Company (as defined in such agreements), including the provision for such
payment in the event such executive officer's employment with the Company is
terminated under certain circumstances following such change in control. Upon a
change in control of the Company, all options held by such executive officers
shall vest immediately, notwithstanding any vesting provisions in the option
certificates or any plan covering such options. The term of these agreements is
for three years. Prior to a change in control of the Company, the agreements
automatically renew on each successive anniversary for an additional three
years, unless the Company gives the executive officer 60 days notice prior to
the anniversary date that it does not plan to renew such contracts.
- 11 -
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors consists of three
non-employee directors and determines all compensation paid or awarded to the
Company's executive officers, including the Named Executive Officers in the
Summary Compensation Table. As with many other biotechnology companies, Enzon's
current level of development and the highly volatile nature of biotechnology
stocks in general makes executive compensation which is based on sales and
earnings goals or stock performance impracticable. The Compensation Committee
believes that an important factor in Enzon's success is the continued
development and maintenance of a culture focused on team-oriented performance.
In this context, compensation has been based on the accomplishment of a blend of
mutually shared and individual goals. The Compensation Committee has reviewed
the executive compensation of other biotechnology companies with comparable
levels of stockholders' equity and development and has designed the Company's
total executive compensation to be targeted at the median of executive
compensation levels of these companies. The compensation of the Company's
executive officers consist of three principal components: (I) base salary and
benefits, (ii) a bonus based on individual contributions evaluated against
annual goals and (iii) long-term incentives in the form of stock option grants.
During April 1997, the Compensation Committee renewed the Company's Chief
Executive Officer, Peter G. Tombros' contract for a period of three years. The
contract increased Mr. Tombros' salary to $336,000 from $300,000. The contract
also eliminated certain living allowances that were paid to Mr. Tombros under
the previous contract. The living allowance totaled approximately $36,000 during
the fiscal year ended June 30, 1996. Prior to this increase, Mr. Tombros' salary
was not increased during the previous three years, at the request of Mr.
Tombros. The Compensation Committee also awarded Mr. Tombros a bonus for fiscal
year end June 30, 1997 of approximately $50,000. The bonus was based on many
factors including the strengthening of the Company's financial position and
improving its strategic focus. Mr. Tombros has elected to defer the payment of
his bonus until a future date determined by him. The annual salary of $336,000
provided in Mr. Tombros' new employment agreement and the bonus awarded were
based on Mr. Tombros' extensive experience as a senior executive of a major
multinational pharmaceutical firm and the compensation paid to chief executive
officers with similar credentials at comparable biotech companies. Pursuant to
Mr. Tombros' new employment agreement, the Compensation Committee also granted a
ten year option to purchase 300,000 shares of Common Stock at a per share price
of $2.69, the fair market value of the Company's Common Stock on the date of
grant. The option vests and becomes exercisable on April 5, 2005. The option
provides for an acceleration of vesting and exercisability if the Company's
Common Stock exceeds certain closing price levels for at least twenty
consecutive trading days as reported by the NASDAQ National Market. The option
vests and becomes exercisable in 100,000 share increments if the closing price
of the Company's Common Stock, as defined, exceeds $4, $5 and $6 per share,
respectively.
During the fiscal year ended June 30, 1997, the Compensation Committee
awarded cash bonuses to the Company's other executive officers, Messrs. Caruso
and Zuerblis. The bonuses were based on the executives' contribution to
improvement of the Company's financial position. The Company also adjusted the
salary level of Mr. Zuerblis. The salary adjustment and bonus payments were
based on a detailed compensation study of executives with similar credentials at
comparable biotechnology companies.
In addition to the option granted under Mr. Tombros' employment contract,
the Compensation Committee granted, during the fiscal year ended June 30, 1997,
options to purchase an aggregate of 290,000 shares of Common Stock to Messrs.
Tombros, Caruso and Zuerblis. These options were granted for the purpose of
encouraging these executive officers to remain with the Company and to provide a
long-term performance incentive to such officers. The options were granted with
exercise prices that equaled or exceeded the fair market value of the Company's
Common Stock on the date of grant. The options generally require the executive
officers to remain with the Company for two years in order for the options to be
fully exercisable.
THE COMPENSATION COMMITTEE
Dr. Rosina B. Dixon, Chairperson
Rolf A. Classon
Robert LeBuhn
- 12 -
STOCKHOLDER RETURN PERFORMANCE GRAPH
The graph below summarizes the total cumulative return experienced by the
Company's stockholders from June 30, 1992 through June 30, 1997, compared to the
NASDAQ Stock Market Index and a Peer Group index consisting of: Isis
Pharmaceuticals, Inc., Repligen Corp., Celgene Corp., Gensia Pharmaceuticals
Inc., Collagen Corp., Liposome Inc., Cytel Corp., Cytogen Corp. and Cephalon
Inc. (the "Peer Group"). The Company and the companies comprising the Peer Group
are biotechnology companies which are all traded on the NASDAQ Stock Market. The
Peer Group used for the stockholder return performance graph does not include
Synergen Inc., Cambridge Biotech Corporation, DNA Plant Technology Corp. or
Calgene, Inc. which were included in the Peer Group in prior years. Synergen
Inc., DNA Plant Technology and Calgene Inc. were acquired and are no longer
publicly traded. Cambridge Biotech Corporation is no longer traded on the NASDAQ
Stock Market. The changes for the periods shown in the graph and table below are
based on the assumption that $100 had been invested in Enzon, Inc. Common Stock
and in each index below on June 30, 1992.
[THE FOLLOWING TABLE WILL BE REPRESENTED
BY A LINE GRAPH IN THE PRINTED MATERIAL]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ENZON, INC., THE NASDAQ STOCK MARKET-US INDEX AND A PEER GROUP
Fiscal year ending June 30,
---------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Enzon, Inc. 100 71 40 35 51 33
Peer Group 100 75 44 53 72 45
NASDAQ Stock
Market-US 100 126 127 169 218 265
- 13 -
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning stock
ownership of all persons known by the Company to own beneficially 5% or more of
the outstanding shares of the Company's voting stock, each Director, each
Executive Officer named in the Summary Compensation Table and all Executive
Officers and Directors of the Company as a group as of October 20, 1997:
Percentage of
Directors, Officers or Number of Voting Stock
5% Stockholders(1) Shares(2) Outstanding(3)
- ------------------ --------- --------------
Peter G. Tombros 806,300(4) 2.5%
Randy H. Thurman 218,228(5) *
Rolf A. Classon 3,630 *
Dr. Rosina B. Dixon 79,892(6) *
Robert LeBuhn 85,010(7) *
A.M. "Don" MacKinnon 139,822(8) *
John A. Caruso 230,292(9) *
Kenneth J. Zuerblis 176,600(10) *
Clearwater Fund IV Ltd. 2,832,831(11) 9.0%
P.O. Box 662
Tortola, British Virgin Islands
State of Wisconsin 2,512,000(12) 8.1%
Investment Board
P.O. Box 7842
Madison, Wisconsin 53707
All Executive Officers and Directors 1,739,780(13) 5.3%
as a group (eight persons)
- ----------
* Less than one percent.
(1) The address of all current Executive Officers and Directors listed above is
in the care of the Company.
(2) All shares listed are Common Stock. Except as discussed below, none of
these shares are subject to rights to acquire beneficial ownership, as
specified in Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as
amended, and the beneficial owner has sole voting and investment power,
subject to community property laws where applicable.
(3) Gives effect to 30,921,258 shares of Common Stock and 108,000 shares of
Series A Preferred Stock which were issued and outstanding as of October
20, 1997. Generally, the Series A Preferred Stock and Common Stock vote as
one class of stock. Each share of Common Stock and each share of Series A
Preferred Stock is entitled to one vote. The percentage of voting stock
outstanding for each stockholder is calculated by dividing (I) the number
of shares deemed to be beneficially held by such stockholder as of October
20, 1997 by (ii) the sum of (A) the number of shares of Common Stock
outstanding as of October 20, 1997 plus (B) the number of shares of Series
A Preferred Stock outstanding as of October 20, 1997 plus (C) the number of
shares issuable upon exercise of options or warrants held by such
stockholder which were exercisable as of October 20, 1997 or which will
become exercisable within 60 days after October 20, 1997.
- 14 -
(4) Includes 779,000 shares subject to options which were exercisable as of
October 20, 1997 or which will become exercisable within 60 days after
October 20, 1997.
(5) Consists of 195,000 shares subject to options which were exercisable as of
October 20, 1997 or which will become exercisable within 60 days after
October 20, 1997.
(6) Includes 56,664 shares subject to options which were exercisable as of
October 20, 1997 or which will become exercisable within 60 days after
October 20, 1997.
(7) Includes 56,664 shares subject to options which were exercisable as of
October 20, 1997 or which will become exercisable within 60 days after
October 20, 1997.
(8) Includes 112,000 shares subject to options which were exercisable as of
October 20, 1997 or which will become exercisable within 60 days after
October 20, 1997 and 11,800 shares beneficially owned by Mr. MacKinnon's
wife. Mr. MacKinnon disclaims beneficial ownership as to the shares owned
by his wife.
(9) Consists of 229,992 shares subject to options which were exercisable as of
October 20, 1997 or which will become exercisable within 60 days after
October 20, 1997.
(10) Includes 175,000 shares subject to options which were exercisable as of
October 20, 1997 or which will become exercisable within 60 days after
October 20, 1997 and 600 shares owned by Mr. Zuerblis' IRA.
(11) Includes warrants to purchase 273,723 shares of the Company's Common Stock
at $4.11 per share and warrants to purchase 200,000 shares at $5.625 per
share. The information concerning the stock ownership of the Clearwater
Fund IV Ltd. was obtained from a Schedule 13D filed with the Securities and
Exchange Commission dated February 28, 1997.
(12) The information concerning the stock ownership of the State of Wisconsin
Investment Board was obtained from a Schedule 13F filed by the State of
Wisconsin Investment Board with the Securities and Exchange Commission
dated February 10, 1997.
(13) Includes all shares owned beneficially by the directors and current
executive officers named in the Summary Compensation Table.
- 15 -
PROPOSAL NO. 2 - APPROVAL OF
PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
At present the Company is authorized to issue 40,000,000 shares of Common
Stock, $.01 par value per share and 3,000,000 shares of Preferred Stock, $.01
par value per share. As of October 20, 1997, there were 108,000 shares of
Preferred Stock designated as Series A Preferred Stock outstanding. Also as of
that date, there were [30,921,258] shares of Common Stock outstanding and
4,397,000 shares reserved for issuance pursuant to various outstanding options
to purchase Common Stock, [1,453,000] shares reserved for additional options
which may be granted under the Non-Qualified Stock Option Plan, 1,039,000 shares
reserved pursuant to outstanding warrants to purchase Common Stock and 245,000
shares reserved for issuance upon conversion of the Series A Preferred Stock
outstanding. Thus, as of October 20, 1997, 1,944,742 shares of Common Stock were
available for issuance.
The Board of Directors believes that it is in the best interest of the
Company to increase the authorized number of shares of Common Stock from
40,000,000 to 60,000,000. The Company may need to issue additional Common Stock
to consummate strategic acquisitions, technology or product licensing
agreements, implement additional management or employee incentive programs or
obtain additional financing. On October 7, 1997, the Board of Directors voted to
submit to a vote of stockholders an amendment to the Certificate of
Incorporation increasing the authorized Common Stock. The Company has no present
agreement, commitment, plan or intent to issue any of the additional shares
provided for in this Proposal.
If this Proposal is approved, the additional authorized Common Stock as
well as the currently authorized but unissued Common Stock would be available
for issuance in the future for such corporate purposes as the Board of Directors
deems advisable from time to time without further action by the stockholders,
unless such action is required by applicable law or by the rules of NASDAQ or of
any stock exchange upon which the Company's shares may then be listed.
The Company's Common Stock is currently quoted on the NASDAQ National
Market. One of the non-quantitative maintenance criteria for National Market
System Securities requires stockholder approval for the establishment of certain
plans or arrangements by the Company or the issuance of designated securities by
the Company. This criterion provides that, for so long as the Company's Common
Stock is included in NASDAQ, stockholder approval will be required for (I) the
establishment of a stock option or purchase plan or other arrangement made
pursuant to which stock may be acquired by officers or directors, except for
warrants or rights issued generally to security holders of the Company or
broadly based plans or arrangements including other employees, and certain de
minimus issuances thereunder or issuances to induce individuals to enter
employment contracts; (ii) the issuance of securities which will result in a
change of control of the issuer; (iii) the issuance of securities in connection
with the acquisition of the stock or assets of another company (a) if any
director, officer or substantial stockholder of the Company has a 5% or greater
interest (or such persons collectively have a 10% or greater interest), directly
or indirectly, in the company or assets to be acquired or in the consideration
to be paid in the transaction or series of related transactions and the present
or potential issuance of Common Stock or securities convertible into or
exercisable for Common Stock, could result in an increase in outstanding Common
Shares or voting power of 5% or more, or (b) where the present or potential
issuance of Common Stock, or securities convertible into or exercisable for
Common Stock, other than a public offering for cash, if the Common Stock has, or
will have upon issuance, voting power equal to or in excess of 20% of the voting
power outstanding before the issuance of stock or securities convertible into or
exercisable for Common Stock, or the number of shares of Common Stock to be
issued is or will be equal to or in excess of 20% of the number of shares of
Common Stock outstanding before the issuance of stock or securities; or (iv) in
connection with a transaction other than a public offering involving (x) the
issuance of Common Stock, or securities convertible into or exercisable for
Common Stock, at a price less than the greater of book or market value, which
together with sales by officers, directors or substantial stockholders of the
Company equals 20% or more of the Common Stock or 20% or more of the voting
power outstanding before the issuance, or (y) the sale or issuance by the
Company of Common Stock (or securities convertible into or
- 16 -
exercisable for common stock) equal to 20% or more of the Common Stock or 20% or
more of the voting power outstanding before the issuance for less than the
greater of book or market value of the stock.
The additional authorized shares of Common Stock resulting from this
Proposal would be the same as the existing shares of Common Stock. All
outstanding Common Stock would continue to have one vote per share. Stockholders
of the Company do not presently have preemptive rights nor will they as a result
of the Proposal.
Authorized shares of Common Stock in excess of those shares outstanding
(including, if authorized, the additional Common Stock provided for in this
Proposal) will remain available for general corporate purposes, may be privately
placed and can be used to make a change in control of the Company more
difficult. Under certain circumstances, the Board of Directors could create
impediments to, or frustrate persons seeking to effect a takeover or transfer in
control of the Company by causing such shares to be issued to a holder or
holders who might side with the Board of Directors in opposing a takeover bid
that the Board of Directors determines is not in the best interests of the
Company and its stockholders, but in which unaffiliated stockholders may wish to
participate. In this connection the Board of Directors could issue authorized
shares of Common Stock to a holder or holders which when voted together with the
shares held by members of the Board of Directors and the executive officers and
their families could prevent the 66-2/3% stockholder vote required by the
Company's Certificate of Incorporation to eliminate the Company's classified or
"staggered" Board of Directors. Furthermore, the existence of such shares might
have the effect of discouraging any attempt by a person, through the acquisition
of a substantial number of shares of Common Stock, to acquire control of the
Company, since the issuance of such shares could dilute the Company's book value
per share and the Common Stock ownership of such person. One of the effects of
the Proposal, if approved, might be to render the accomplishment of a tender
offer more difficult. This may be beneficial to management in a hostile tender
offer, thus having an adverse impact on stockholders who may want to participate
in such tender offer.
It should be noted that subject to the limitations discussed above, all of
the types of Board action described in the preceding paragraph can currently be
taken and that the power of the Board of Directors to take such actions would
not be enhanced by the Proposal, although the Proposal would increase the number
of shares of Common Stock that are subject to such action.
This Proposal, the Company's authorized but unissued Preferred Stock, the
Company's classified Board of Directors and the change in control agreements the
Company has with its executive officers may generally be classified as
"anti-takeover" measures and may each, or in conjunction with each other,
discourage attempted takeovers of the Company which are not approved by the
Board of Directors. The Company does not believe that any other provision of its
current Certificate of Incorporation or By-Laws are intended or would have the
effect of discouraging or making more difficult the acquisition of control of
the Company.
If the Proposal is approved and the Amendment becomes effective, the first
sentence of Article 4 of the Company's Certificate of Incorporation, which sets
forth the Company's presently authorized capital stock, will be amended to read
in its entirety as follows:
"4. The total number of shares of capital stock which
the Corporation shall have authority to issue is 63,000,000
shares, of which 60,000,000 shares shall be Common Stock,
par value $.01 per share, and 3,000,000 shares shall be
Preferred Stock, par value $.01 per share."
The Board of Directors recommends a vote FOR approval of an amendment to
the Company's Certificate of Incorporation to increase the authorized shares of
Common Stock from 40,000,000 to 60,000,000 (Proposal No. 2 on the proxy card).
- 17 -
PROPOSAL NO. 3 - APPROVAL OF AMENDMENT
TO THE NON-QUALIFIED STOCK OPTION PLAN
In November 1987, the Company's Board of Directors adopted the
Non-Qualified Stock Option Plan (the "Plan") in order to enable the Company to
attract and retain qualified employees, directors and independent consultants.
Subject to stockholder approval, the Board of Directors has approved an
amendment to the Plan to reflect changes made to the rules under Section 16(b)
of the Securities Exchange Act 1934 (the "Exchange Act").
The following summary description of the Plan is qualified in its entirety
by the full text of the Plan which may be obtained by the Company's stockholders
upon request to the Secretary of the Company.
The last sale price of a share of the Company's Common Stock as reported by
the NASDAQ National Market on October 20, 1997 was $______.
Basic Terms
Under the Plan, directors, officers and employees of the Company and
independent consultants to the Company have been, and will be, eligible for
grants of options to purchase shares of Common Stock. To date, all options
granted under the Plan have been awarded in the discretion of the Board of
Directors or a committee thereof or pursuant to the formulas described below.
Currently, the Compensation Committee of the Board of Directors determines who
will receive options under the Plan, the number of shares of Common Stock which
will be issuable upon exercise of options which are granted under the Plan and
the terms of the options granted under the Plan to the extent the terms are not
otherwise set forth in the Plan. No option granted under the Plan may be
transferred by the optionee, otherwise than by will or the laws of descent and
distribution and, generally, during the optionee's lifetime, the option may be
exercised only by the optionee. The exercise price of the options must be at
least equal to the fair market value of the underlying Common Stock as of the
date of grant. Either the Compensation Committee of the Board of Directors or
the Board of Directors may, in its discretion, provide that an option may not be
exercised in whole or in part for any specified period or periods of time. No
option may be exercised for a minimum of six months from the date of grant
except immediately prior to the dissolution or liquidation of the Company or a
merger or consolidation where the Company is not the surviving corporation, in
which case all outstanding options become immediately exercisable. Options
expire no later than the tenth anniversary of the date of grant.
Automatic Awards To Independent Directors
The Plan provides that Independent Directors receive option grants pursuant
to a formula (the "Formula"). The Formula provides that on each of January 2,
1994, January 2, 1997, January 2, 2000 and January 2, 2003, each of the
Company's Independent Directors will automatically receive an option to purchase
60,000 shares of Common Stock (the "Regular Grant"). On the date of each
Independent Director's initial election to the board, pursuant to a vote of the
Company's stockholders or the board, such newly-elected Independent Director
will automatically receive (I) an option to purchase such Independent Director's
pro rata share of the Regular Grant, which will equal the product of 1,666
multiplied by the number of whole months remaining in the relevant three year
period until the next Regular Grant (the "Pro Rata Grant"); and (ii) an option
to purchase 10,000 shares of Common Stock (the "Initial Election Grant"). Each
option granted to an Independent Director pursuant to the Formula will vest and
become exercisable as follows: those options granted pursuant to a Regular Grant
will vest and become exercisable as to 20,000 shares one year after the date of
grant; as to 20,000 shares two years after the date of grant; and as to the
remaining 20,000 shares three years after the date of grant. Those options
granted pursuant to a Pro Rata Grant will vest and become exercisable as to that
number of shares equal to the product of 1,666 multiplied by the number of whole
months remaining in the first calendar year in which the Independent Director is
elected initially to the board on the January 1st following such Independent
Director's initial election to the board; and as to any remaining shares in
accordance with the schedule for options granted pursuant to a Regular Grant.
Those options granted pursuant to an Initial Election Grant will vest and become
exercisable as to 5,000 shares one year after the date of grant; and as to 5,000
shares two years after the date of grant.
- 18 -
An option granted to an Independent Director pursuant to the Formula will
not become exercisable as to the relevant shares unless such Independent
Director has served continuously on the board during the year preceding the date
on which such options are scheduled to vest and become exercisable, or from the
date such Independent Director joined the board until the end of such year
should such Independent Director have joined the board during such year;
provided, however, that if an Independent Director does not fulfill such
continuous service requirement due to such Independent Director's death or
disability all options granted under the Formula and held by such Independent
Director shall nonetheless vest and become exercisable as though such
Independent Director fulfilled the continuous service requirement. An option
granted to an Independent Director pursuant to the Formula will remain
exercisable for a period of ten years from the date of grant.
Administration
The Plan is to be administered by either the Board of Directors or a
committee of at least two directors appointed by the board. The Plan is
currently administered by the Compensation Committee.
Amendments and Termination
Currently, no options may be granted under the Plan beyond November 21,
2007. The Compensation Committee or the Board of Directors may terminate, amend,
or revise the Plan with respect to any shares as to which options have not been
granted, but may not alter any previously granted options without the optionee's
consent. Termination of the Plan will not affect previously granted options. See
"Proposed Amendments to the Plan" for a discussion of the current restrictions
in the ability of the Compensation Committee or the Board of Directors to amend
the Plan.
Capital Adjustments
The aggregate number of shares of Common Stock available for options, the
shares subject to any option, and the price per share, will all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from (1) a subdivision or consolidation of
shares or any other capital adjustment, (2) the payment of a stock dividend on
the Company's Common Stock, or (3) other increase or decrease in such shares
effected without receipt of consideration by the Company. If the Company shall
be the surviving corporation in any merger or consolidation, any option
outstanding under the Plan shall pertain, apply, and relate to the securities to
which a holder of the number of shares of Common Stock subject to the option
would have been entitled after the merger or consolidation. Upon dissolution or
liquidation of the Company, or upon a merger or consolidation in which the
Company is not the surviving corporation, all options outstanding under the Plan
shall terminate; except that each optionee shall have the right, immediately
prior to such dissolution or liquidation, or such merger or consolidation, to
exercise the options that such optionee holds, in whole or in part.
Tax Consequences
An optionee will not recognize taxable income for Federal income tax
purposes upon the receipt of an option under the Plan, and the Company will not
be entitled to a deduction upon the grant of an option. Upon exercise of an
option, the optionee will recognize ordinary income equal to the excess of the
fair market value on the date of exercise of the Common Stock received upon
exercise over the exercise price for such Common Stock. However, any such
optionee who is subject to the trading restrictions of Section 16(b) of the
Exchange Act would, unless the optionee elected to recognize ordinary income on
the date of exercise, recognize ordinary income on the date such trading
restrictions terminate (the "Deferred Date"). The amount of such income would
equal the excess of the fair market value on the Deferred Date of the Common
Stock received upon exercise of the option over the exercise price for such
Common Stock, and the holding period for long-term capital gain treatment would
not begin until the Deferred Date. The Company will be entitled to a deduction
equal to the amount of ordinary income recognized by any optionee at the same
time that such optionee recognized such income.
- 19 -
Eligible Participants
As of October 20, 1997, there were approximately [85] persons
eligible to participate in the Plan. Of these eligible participants, six are
members of the Board of Directors (five of whom are Independent Directors), two
are executive officers who are not board members and the remainder are employees
of the Company who are not executive officers.
Proposed Amendments to the Plan
Currently, the Plan contains certain provisions which were designed to
comply with the requirements of Rule 16b-3 prior to the amendments to Rule 16b-3
adopted by the SEC in May, 1996 ("Old Rule 16b-3"). The amendments to the Plan
proposed herein are designed to reflect the current provisions of Rule 16b-3
("Current Rule 16b-3").
The Plan currently provides that the Board may not grant options under the
Plan or take certain other actions with respect to such options unless each
member of the Board is a "disinterested person", as such term is defined in Old
Rule 16b-3. The Plan also provides that the Plan may be administered by the
Compensation Committee of the Board. Under Old Rule 16b-3 all of the members of
the Compensation Committee had to be "disinterested persons". The Plan as
amended would provide that the Plan is to be administered by either the Board or
the Compensation Committee and that at least two members of the Compensation
Committee must be "nonemployee directors," as such term is defined in Current
Rule 16b-3. The concept of a "disinterested person" will be eliminated from the
Plan.
The Plan currently provides that no amendment may be made to the Plan
without stockholder approval where such amendment would materially (I) increase
the total number of shares which may be issued under the Plan; (ii) alter the
class of persons eligible to participate in the Plan; or (iii) increase the
benefits under the Plan. These provisions were consistent with the requirements
of Old Rule 16b-3. The Plan as amended would provide that the Plan could be
amended by the Board without stockholder approval unless stockholder approval
was required by applicable law or the rules of NASDAQ or any stock exchange on
which the Company's shares are then traded.
For information concerning options granted under the Plan to directors, the
Chief Executive Officer and the Named Executive Officers see "Directors'
Compensation - Directors' Stock Options," "Summary Compensation Table" and
"Option Grants In Last Fiscal Year."
The Board of Directors recommends a vote FOR approval of the amendment to
the Non-Qualified Stock Option Plan (Proposal No. 3 on the Proxy Card).
PROPOSAL NO. 4 - RATIFICATION OF AUDITORS
On October 7, 1997, the Audit Committee of the Board of Directors, pursuant
to authority granted by the Board of Directors, approved the retention of KPMG
Peat Marwick LLP ("KPMG"), independent certified public accountants, to audit
the consolidated financial statements of the Company for the fiscal year ending
June 30, 1998. KPMG served as auditor of the consolidated financial statements
of the Company for the fiscal years ended June 30, 1997, June 30, 1996, and June
30, 1995. Representatives of KPMG are expected to be present at the Annual
Meeting and will have the opportunity to make a statement should they desire to
do so. Such representatives are also expected to be available to respond to
questions.
The Board of Directors recommends a vote FOR ratification of the selection
of KPMG Peat Marwick LLP, independent certified public accountants, to audit the
consolidated financial statements of the Company for the fiscal year ending June
30, 1998 (Proposal No. 4 on the Proxy Card).
- 20 -
ANNUAL REPORT TO STOCKHOLDERS
The Company's Annual Report to Stockholders for the fiscal year ended June
30, 1997 accompanies this Proxy Statement.
STOCKHOLDERS' PROPOSALS
It is anticipated that the Company's fiscal 1998 Annual Meeting of
Stockholders will be held on or about December 1, 1998. Stockholders who intend
to present proposals at such Annual Meeting of Stockholders must submit their
proposals to the Secretary of the Company on or before August 3, 1998.
GENERAL
The cost of soliciting proxies will be borne by the Company. In addition to
mailing, proxies may be solicited by personal interview, telephone and
telegraph, and by directors, officers and regular employees of the Company,
without special compensation therefor. The Company expects to reimburse banks,
brokers and other persons for their reasonable out-of-pocket expenses in
handling proxy materials for beneficial owners of the Company's Common Stock.
Unless contrary instructions are indicated on the proxy card, all Common
Shares or Series A Preferred Shares represented by valid proxies received
pursuant to this solicitation (and not revoked before they are voted) will be
voted FOR the election of the nominees for directors named herein and FOR
Proposal No. 2, Proposal No. 3 and Proposal No. 4.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by filing with
the Secretary of the Company written notice of revocation bearing a later date
than the proxy, by duly executing a subsequent proxy relating to the same Common
Shares or Series A Preferred Shares or by attending the Annual Meeting and
voting in person. Attendance at the Annual Meeting will not in and of itself
constitute revocation of a proxy unless the stockholder votes his or her Common
Shares or Series A Preferred Shares in person at the Annual Meeting. Any notice
revoking a proxy should be sent to the Secretary of the Company, John A. Caruso,
at Enzon, Inc., 20 Kingsbridge Road, Piscataway, New Jersey 08854.
The Board of Directors knows of no business other than that set forth above
to be transacted at the meeting, but if other matters requiring a vote of the
stockholders arise, the persons designated as proxies will vote the Common
Shares or Series A Preferred Shares represented by the proxies in accordance
with their judgment on such matters. If a stockholder specifies a different
choice on the proxy, his or her Common Shares or Series A Preferred Shares will
be voted in accordance with the specification so made.
Please complete, sign and date the enclosed proxy card, which is revocable
as described herein, and mail it promptly in the enclosed postage-paid envelope.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO FILL IN,
SIGN AND RETURN THE ACCOMPANYING PROXY CARD, NO MATTER HOW LARGE OR SMALL YOUR
HOLDINGS MAY BE.
By order of the Board of Directors,
John A. Caruso, Secretary
Piscataway, New Jersey
October __, 1997
- 21 -
Proxy Card
ENZON, INC.
Annual Meeting of Stockholders December 2, 1997
This Proxy Is Solicited on Behalf of the Board of Directors
Peter G. Tombros and John A. Caruso and each of them, as proxies, with full
power of substitution in each of them, are hereby authorized to represent and to
vote, as designated below and on the reverse side, on all proposals and in the
discretion of the proxies on such other matters as may properly come before the
annual meeting of stockholders of Enzon, Inc. to be held on December 2, 1997 or
any adjournment(s), postponement(s), or other delay(s) thereof (the "Annual
Meeting"), all shares of stock of Enzon, Inc. to which the undersigned is
entitled to vote at the Annual Meeting.
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2, 3
and 4 AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSALS 1, 2, 3 and 4.
(1) Election of the following nominees as Class II Directors to serve in such
capacities until their successors are duly elected and qualified:
RANDY H. THURMAN A.M. "DON" MACKINNON
(Authority to vote for any nominee(s) may be withheld by lining through the
name(s) of any such nominee(s).)
/ / FOR / / WITHHOLD AUTHORITY FOR ALL
(2) Proposal to amend the Company Certification of Incorporation to increase
the number of authorized shares from forty million (40,000,000) to sixty
million (60,000,000).
/ / FOR / / AGAINST / / ABSTAIN
(3) Proposal to approve an amendment to the Enzon, Inc. Non-Qualified Stock
Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
- 22 -
(4) Ratification of the selection of KPMG Peat Marwick LLP to audit the
consolidated financial statements of the Company for the fiscal year ending
June 30, 1998.
/ / FOR / / AGAINST / / ABSTAIN
/ / Please check this box if you expect to attend the Annual Meeting in person.
(Please sign exactly as name appears to the left,
date and return. If shares are held by joint tenants,
both should sign. When signing as attorney, executor,
administrator, trustees or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in partnership
name by authorized person.)
Date:................................................
.....................................................
Sign Here
.....................................................
Signature (if held jointly)
.....................................................
Capacity (Title or Authority, i.e. Executor, Trustee)
PLEASE SIGN, DATE AND MAIL YOUR PROXY TODAY.
- 23 -
ENZON, INC.
NON-QUALIFIED STOCK OPTION PLAN, AS AMENDED*/
A. Purpose and Scope
The purpose of this Plan is to encourage stock ownership by employees
and directors of, and independent consultants to, Enzon, Inc., a Delaware
corporation, and its subsidiaries (herein called the "Company"), to provide
an incentive to such persons to develop, expand and improve the profits and
prosperity of the Company, and to assist the Company in attracting key
personnel and consultants through the grant of Options to purchase shares
of the Company's Common Stock.
B. Definitions
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Compensation Committee, which is appointed by
the Board, and which shall be composed of at least two Non-Employee Directors.
- --------
*/ The Plan was amended by vote of the Board of Directors on each of January 10,
1990, February 6, 1990, April 25, 1990, February 23, 1991, May 30, 1991,
November 21, 1991, approved by vote of the Stockholders on January 22, 1992,
amended by vote of the Board of Directors on December 28, 1992 with such
amendment ratified by vote of the Stockholders on February 8, 1993, amended by
vote of the Board of Directors on September 13, 1993 with such amendment
ratified by vote of the Stockholders on December 7, 1993, amended by the Board
of Directors on July 17, 1995 with such amendment ratified by vote of the
Stockholders on December 5, 1995.
1
3. "Company" shall mean Enzon, Inc. and its subsidiaries.
4. "Code" shall mean the Internal Revenue Code of 1986, as amended.
5. "Independent Director" shall mean a director who is not an employee of
the Company.
6. "Non-Employee Director" shall have the meaning ascribed in Rule 16b-3
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended.
7. "Option" shall mean a right to purchase Stock, granted pursuant to the
Plan.
8. "Option Price" shall mean the purchase price for Stock under an Option,
as determined in Section F below.
9. "Participant" shall mean an employee of the Company, a director of the
Company, a consultant to the Company, or any person to whom an Option is granted
under the Plan.
10. "Plan" shall mean this Enzon, Inc. Non-Qualified Stock Option Plan, as
amended.
11. "Stock" shall mean the Common Stock of the Company, par value $.01.
C. Stock to be Optioned
Subject to the provisions of Section L of the Plan, the maximum number of
shares of Stock that may be optioned or sold under the Plan is 6,200,000 shares.
Such
2
shares may be treasury, or authorized but unissued shares of, the Stock of the
Company.
D. Administration
The Plan shall be administered by the Committee or the Board. Two
members of the Committee shall constitute a quorum for the transaction of
business. Except as provided in Section Q hereof, the Committee or the Board
shall make all decisions with respect to the operation of the Plan, the
participation in the Plan by employees or directors of, or consultants to the
Company, and with respect to the extent of that participation. The
interpretation and construction of any provision of the Plan by the Board or the
Committee shall be final. No member of the Board or the Committee shall be
liable for any action or determination made by him in good faith.
E. Eligibility
The Board or the Committee may grant Options to any employee (including an
employee who is a director or an officer), or any person who is not an employee
who is a director or an officer, or any person who is not an employee and serves
as a director of the Company, or any consultant to the Company. Options may be
awarded by the Board or the Committee at any time and from time to time to new
Participants, or to then current Participants, or to a greater or lesser number
of Participants, and may include or exclude previous Participants, as the Board,
or the
3
Committee shall determine. Options granted at different times need not
contain similar provisions.
F. Option Price
The purchase price for Stock under each Option shall be at least 100
percent of the fair market value of the Stock at the time the Option is granted,
but in no event less than the par value of the Stock. The fair market value of
the Company's Stock shall be determined as follows:
a. If the Common Stock continues to be traded on the over-the-counter
market as a National Market System Security or is traded on a national
securities exchange, the fair market value of the Stock shall be the
closing sale price on such day that the Option is granted as reported by
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") or the national securities exchange on which the Stock is
trading, as the case may be; or
b. If the Common Stock ceases to be traded as a National Market System
Security but continues to be traded on the over-the-counter market, the
fair market value of the Stock shall be the closing bid price on such day
that the Option is granted as reported by NASDAQ; or
c. If the Common Stock ceases to be traded on the over-the-counter market
and is not traded on a national securities exchange, the current market
value shall be determined by a reputable investment banking firm
4
retained by the Board.
G. Terms and Conditions of Options
Except as provided in Section Q hereof, Options granted pursuant to the
Plan shall be authorized by the Board or the Committee and shall be evidenced by
agreements ("Option Agreements") in such form as the Board or the Committee,
shall from time to time approve. Such Agreements shall comply with and be
subject to the following terms and conditions:
1. Employment Agreement - The Board or the Committee may, in its
discretion, include in any Option granted under the Plan to a Participant who is
an employee of the Company a condition that the Participant shall agree to
remain in the employ of, and/or to render services to, the Company for a period
of time (specified in the Option Agreement) following the date the Option is
granted. No such agreement shall impose upon the Company, however, any
obligation to employ the Participant for any period of time, except as otherwise
agreed to by the Company.
2. Time and Method of Payment - The Option Price shall be paid in full in
cash, by certified check or official bank check, at the time an Option is
exercised under the Plan. If the Board or the Committee in its sole discretion
so authorizes, payment may be made by exchange of shares of the Company's Common
Stock previously owned by the optionee, having the same fair market value as
determined in the manner set forth in Section F. Without payment by one of the
5
methods described above, an exercise of any Option granted under the Plan shall
be invalid and of no effect. Promptly after the exercise of an Option and the
payment of the full Option Price, the Participant shall be entitled to the
issuance of a stock certificate evidencing his or her ownership of the Stock
issuable under such Option. A Participant shall have none of the rights of a
stockholder until the Option is duly exercised, and no adjustment will be made
for dividends or other rights for which the record date is prior to the date
such Option is duly exercised.
3. Number of Shares - Each Option shall state the total number of shares of
Stock to which it pertains.
4. Option Period and Limitations on Exercise of Options - Except for
Options granted pursuant to Section Q hereof, the Board or Committee shall
determine the period of time during which an Option may be exercised, provided,
however, that no Option may be exercised after the expiration of ten years from
the date it is granted. Except for Options granted pursuant to Section Q hereof,
the Board or the Committee may, in its discretion, provide that an Option may
not be exercised in whole or in part for any period or periods of time specified
in the Option Agreement; provided, however, that no Option granted subsequent to
November 21, 1991 may be exercisable for a minimum of six months from the date
of grant. Options granted pursuant to Section Q hereof will be exercisable in
accordance with Section R hereof. Except as provided in the Option Agreement and
in this Section G(4), an Option may be exercised in whole or in part at any time
during its term. No Option may be exercised for a fractional share of Stock.
6
H. Termination of Employment
Except as provided in Section I below, if an employee who is a Participant
ceases to be employed by the Company, his or her Options unless otherwise
exercised, shall terminate as of the close of business on the one hundred and
ninetieth (190th) day following the termination of the Participant's employment
with the Company; provided, however, that such Participant may exercise his or
her Options during such one hundred and ninety (190) day period following such
termination of employment only to the extent that he or she would otherwise be
entitled to exercise such Options during such period; provided, further,
however, that in no event shall any Option be exercisable more than ten (10)
years from the date it was granted. Notwithstanding the foregoing, the Board or
the Committee may cancel an Option during the one hundred and ninety (190) day
period referred to in this section, if the Participant engages in employment or
activities contrary, in the opinion of the Board or the Committee, to the best
interests of the Company. The Board or the Committee shall determine in each
case whether a termination of employment shall be considered a retirement with
the consent of the Company, and, subject to applicable law, whether a leave of
absence shall constitute a termination of employment. Any such determination of
the Board or the Committee shall be final and conclusive. The foregoing
provisions may be modified or waived by the Board or the Committee and do not,
in any case, apply to any Participant who is not an employee of the Company.
Except for Options granted
7
pursuant to Section Q hereof, the Board or the Committee will determine what, if
any, provisions for earlier termination of the Option will be included in the
Option Agreement issued to any person who is not an employee. The Board or the
Committee will determine who shall be deemed to be an employee of the Company
for the purposes of this Section H and Section I below at the time the Option is
granted.
I. Rights in Event of Death
If an employee who is a Participant dies while employed by the Company, or
within three months after having retired with the consent of the Company, and
without having fully exercised his or her Options, the executors or
administrators, or legatees or heirs, of his or her estate shall have the right
to exercise such Options to the extent that such deceased Participant was
entitled to exercise the Options on the date of his or her death; provided,
however, that in no event shall the Options be exercisable more than ten years
from the date they were granted. The foregoing provisions may be modified or
waived by the Board or the Committee and do not, in any case, apply to any
Participant who is not an employee of the Company. Except for Options granted
pursuant to Section Q hereof, the Board or the Committee will
8
determine what, if any, provisions concerning exercise of the Option upon the
death of the holder will be included in the Option Agreement issued to any
person who is not an employee.
J. No Obligations to Exercise Option
The granting of an Option shall impose no obligation upon the Participant
to exercise such Option.
K. Nonassignability
Options shall not be transferable other than by will or by the laws of
descent and distribution, and during a Participant's lifetime an Option shall be
exercisable only by such Participant.
L. Effect of Chance in Stock Subject to the Plan
The aggregate number of shares of Stock available for Options under the
Plan, the shares subject to any Option, and the price per share, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock subsequent to the effective date of the Plan resulting from (1)
a subdivision or consolidation of shares or any other capital adjustment, (2)
the payment of a stock dividend on the Company's Common Stock, or (3) other
increase or decrease in such shares effected without receipt of consideration by
the Company. If the Company shall be the surviving corporation in any merger or
consolidation, any
9
Option shall pertain, apply, and relate to the securities to which a holder of
the number of shares of Stock subject to the Option would have been entitled
after the merger or consolidation. Upon dissolution or liquidation of the
Company, or upon a merger or consolidation in which the Company is not the
surviving corporation, all Options outstanding under the Plan shall terminate;
provided, however, that each Participant (and each other person entitled under
Section I to exercise an Option) shall have the right, immediately prior to such
dissolution or liquidation, or such merger or consolidation, to exercise such
Participant's Options in whole or in part, notwithstanding any provisions
contained in the Plan or the Option Agreement to the contrary.
M. Amendment and Termination
Subject to the last paragraph of this Section M, the Board or the
Committee, by resolution, may terminate, amend, or revise the Plan with respect
to any shares as to which Options have not been granted. Neither the Board nor
the Committee may, without the consent of the holder of an Option, alter or
impair any Option previously granted under the Plan, except as authorized
herein. Unless sooner terminated, the Plan shall remain in effect for a period
of twenty years from the date of the Plan's initial adoption by the Board.
Termination of the Plan shall not affect any Option previously granted.
No such amendment will require stockholder approval, unless stockholder
approval is required by either the rules of Nasdaq or any other stock exchange
upon
10
which the Company's securities shall be listed or any applicable law.
N. Agreement and Representation of Participants
As a condition to the exercise of any portion of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of such exercise that any shares of Stock acquired at exercise are not
registered under the Securities Act of 1933 (the "Act"), are "restricted
securities" as that term is defined in Rule 144 under the Act and are being
acquired only for investment and without any present intention to sell or
distribute such shares, if, in the opinion of counsel for the Company, such a
representation is required under the Act or any other applicable law,
regulation, or rule of any governmental agency.
O. Reservation of Shares of Stock
The Company, during the term of this Plan, will at all times reserve and
keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the number
of shares of Stock that shall be sufficient to satisfy the requirements of this
Plan. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority deemed necessary by counsel for the Company for the
lawful issuance and sale of its Stock hereunder shall relieve the Company of any
liability in respect of the failure to issue or sell Stock as to which the
requisite authority has not been obtained.
11
P. Effective Date of Plan
The Plan shall be effective as of the date it is initially adopted by the
Board, provided that Section Q shall not become effective until it has been
ratified by the stockholders.
Q. Grant of Options to Independent Directors
(a) On each of January 2, 1994, January 2, 1997, January 2, 2000 and
January 2, 2003, each Independent Director shall automatically receive an Option
to purchase 60,000 shares of Stock (the "Regular Independent Director Grant").
Notwithstanding the foregoing, should the date on which a Regular Independent
Director Grant is scheduled to be awarded pursuant to the preceding sentence
fall on a Saturday, Sunday or holiday, the Regular Independent Director Grant
shall be awarded on the first business day immediately following such scheduled
date.
(b) On the date of each Independent Director's initial election to the
Board, pursuant to a vote of the Company's stockholders or the Board, such
newly-elected Independent Director shall automatically receive (i) an Option to
purchase a pro rata share of the shares of Stock underlying an Option granted
pursuant to a Regular Independent Director Grant, which shall be equal to the
product of 1,666 multiplied by the number of whole months remaining in the
relevant three year period until the next Regular Independent Director Grant
(the "Pro Rata Independent Director Grant"); and (ii) an Option to purchase
10,000 shares of Common Stock (the "Initial Independent Director Election
Grant").
12
R. Exercise Period of Options Granted to Independent Directors
Subject to the last paragraph of this Section R, each Option granted
pursuant to the Plan shall vest and become exercisable as follows:
(1) Those Options granted pursuant to a Regular Independent Director Grant
shall vest and become exercisable as to 20,000 shares on the first anniversary
of the date of grant; as to 20,000 shares on the second anniversary of the date
of grant; and as to the remaining 20,000 shares on the third anniversary of the
date of grant.
(2) Those Options granted pursuant to a Pro Rata Independent Director Grant
shall vest and become exercisable as to that number of shares equal to the
product of 1,666 multiplied by the number of whole months remaining in the first
calendar year in which the Independent Director is elected initially to the
Board on the January 1st following such Independent Director's initial election
to the Board; and as to any remaining shares in accordance with the schedule for
Options granted pursuant to a Regular Independent Director Grant as provided in
Section R(1) hereof.
(3) Those Options granted pursuant to an Initial Independent Director
Election Grant shall become exercisable as to 5,000 shares on the first
anniversary of the date of grant; and as to 5,000 shares on the second
anniversary of the date of grant.
Notwithstanding the foregoing, an Option shall not vest and become
13
exercisable as to the relevant shares unless such Independent Director has
served continuously on the Board during the year preceding the date on which
such Options are scheduled to vest and become exercisable, or from the date such
Independent Director joined the board should such Independent Director have
joined the board during such preceding year; provided, however, that if an
Independent Director does not fulfill such continuous service requirement due to
such Independent Director's death or disability all Options granted to such
Independent Director pursuant to Section Q hereof shall nonetheless vest and
become exercisable as provided in this Section R. For purposes of this Section R
"disability" shall mean a physical or mental condition which prevents an
Independent Director from performing his duties as an Independent Director of
the Company for a continuous six month period or for a total of six months
during any 18 month period. Any Option which does not vest and become
exercisable in accordance with this Section R shall terminate and be of no
further force or effect.
14
