PROPOSAL 2
APPROVAL OF THE 1996 STOCK PLAN, AS AMENDED
In January 1996, the Board adopted, and the stockholders
subsequently approved, the Company's 1996 Stock Plan ("1996 Plan"). As a
result of a previous amendment, as of March 19, 1999 there were 4,000,000
shares of Common Stock reserved for issuance under the 1996 Plan.
As of March 19, 1999, options (net of canceled or expired options)
covering an aggregate of 3,423,270 shares of the Company's Common Stock had
been granted under the 1996 Plan and 576,730 shares of Common Stock (plus any
shares that might in the future be returned to the 1996 Plan as a result of
cancellations or expiration of options) remained available for future grant
under the 1996 Plan. During the fiscal year ended December 31, 1998, under
the 1996 Plan, the Company granted to all current executive officers, as a
group, options to purchase 454,000 shares at exercise prices of $5.25 to
$7.81 per share, and to all employees (excluding executive officers) and
consultants, as a group, options to purchase 1,368,400 shares at exercise
prices of $4.13 to $13.13 per share. No options to purchase shares under the
1996 Plan were made to any directors who were not officers.
In November 1998, the Board of Directors voted to cancel and
re-grant employee stock options on the terms described below. The Board
approved this action because it believed retaining key employees to be in the
best interest of the stockholders and the Company. The repricing was sought
to motivate and retain key employees during a critical time in the Company's
growth. The stock price of the Company had declined significantly since the
beginning of 1998 and options granted had not appreciated in value. This
reduced the value of the stock option
5
program to the grantees as an element of the Company's compensation
arrangements. None of the directors' stock options were repriced in 1998.
Employee option holders were given the opportunity to exchange all
of their current vested and unvested options on a one-for-one basis for new
options with exercise prices equal to the fair market value of the Company's
Common Stock as of November 19, 1998. The replacement options are not
exercisable until November 20, 1999. Under certain circumstances, the
replacement options may be cancelled by the Company and the original options
reinstated. This plan was not available to members of the Board of Directors,
and executive officers were not permitted to exchange options with an
exercise price of $10.00 or below. The Compensation Committee allowed one
officer to exchange options with an exercise price below $10.00 after
reviewing that officer's total compensation package and the appropriateness
of restricting his participation to the level of other executive officers.
In February 1999, the Board approved an amendment to the 1996 Plan,
subject to stockholder approval, to enhance the flexibility of the Board and
the Compensation Committee in granting stock option to the Company's
employees. The amendment increases the number of shares authorized for
issuance under the 1996 Plan from a total of 4,000,000 shares to 6,000,000
shares. The Board adopted this amendment to ensure that the Company can
continue to grant stock options to employees at levels determined appropriate
by the Board and the Compensation Committee.
In February 1999, the Board also amended the 1996 Plan, subject to
stockholder approval, to increase the limit on the number of shares of Common
Stock that may be subject to stock awards granted to any one person in any
twelve-month period. Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), denies a deduction to any publicly-held corporation for
certain compensation paid to specified employees in a taxable year to the
extent that the compensation exceeds $1 million for any covered employee. See
"Federal Income Tax Information" below for a discussion of the application of
Section 162(m). In light of the Section 162(m) requirements, the Board of
Directors has amended the 1996 Plan, subject to stockholder approval, to
provide that no person may be granted stock awards under the 1996 Plan during
any twelve-month period covering in excess of 400,000 shares of Common Stock.
Previously, the formal limitation placed on the number of shares of Common
Stock available for grants to any individual was 200,000 shares. The Board
adopted this amendment to ensure that the Company can continue to grant stock
options to employees at levels determined appropriate by the Board and the
Compensation Committee.
Stockholders are requested in this Proposal 2 to approve the 1996
Plan, as amended. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the 1996 Plan as amended. Abstentions
will be counted toward the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes. Broker
non-votes are counted towards a quorum, but are not 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 essential features of the 1996 Plan are outlined below:
GENERAL
The 1996 Plan provides for the grant of both incentive and
nonstatutory stock options. Incentive stock options granted under the 1996
Plan are intended to qualify as "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Nonstatutory stock options granted under the 1996 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 options. In addition,
the 1996 Plan permits the granting of stock appreciation rights (SARs)
appurtenant to or independently of options, as well as stock bonuses and
rights to purchase restricted stock (options, SARs, stock bonuses and rights
to purchase restricted stock are hereinafter referred to as "Stock Awards").
6
PURPOSE
The Board adopted the 1996 Plan to provide a means by which selected
employees, officers, directors and consultants of the Company and its
affiliates could be given an opportunity to purchase stock in the Company, to
assist in retaining the services of such persons, 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. Each of the Company's approximately 167 full-time employees and
consultants are eligible to participate in the 1996 Plan.
ADMINISTRATION
The 1996 Plan is administered by the Board or a committee appointed
by the Board. The Board has the power to construe and interpret the 1996
Plan, and subject to the provisions of the 1996 Plan, the Board has the
authority to select the persons to whom grants will be made, to designate the
number of shares to be covered by each Stock Award, to determine whether an
option is to be an incentive stock option or a nonstatutory stock option, to
establish vesting schedules, to specify the option exercise price and the
type of consideration to be paid to the Company upon exercise and, subject to
certain restrictions, to specify other terms of the Stock Awards.
The Board has delegated administration of the 1996 Plan to a
Committee of the Board. In addition, the Board has delegated to Timothy J.
Rink the authority to grant Stock Awards to certain non-executive office
employees of the Company. As used herein with respect to the 1996 Plan, the
"Board" refers to the Board of Directors as well as any person or committee
to which administration of the 1996 plan has been delegated.
ELIGIBILITY
Incentive stock options and stock appreciation rights appurtenant
thereto may be granted under the 1996 Plan only to employees (including
officers) of the Company and its affiliates. Employees (including officers),
directors, and consultants of both the Company and its affiliates are
eligible to receive all other types of Stock Awards under the 1996 Plan.
No incentive stock option may be granted under the 1996 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
any affiliate of the Company, unless the option exercise price 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. For incentive stock options granted under the 1996 Plan, the
aggregate fair market value, determined at the time of grant, of the shares
of Common Stock with respect to which such incentive stock options are
exercisable for the first time by an optionee during any calendar year (under
all such plans of the Company and its affiliates) may not exceed $100,000. No
person may be granted Stock Awards under the 1996 Plan, covering more than
400,000 shares of the Company's common stock in any twelve-month period.
STOCK SUBJECT TO THE 1996 PLAN
Subject to this Proposal, an aggregate of 6,000,000 shares of Common
Stock is reserved for issuance under the 1996 Plan. Pursuant to the 1996
Plan, shares subject to Stock Awards that have expired or otherwise
terminated without having been exercised in full again become available for
the grant, but shares subject to exercised stock appreciation rights will not
again become available for the grant. If the Company reacquires unvested
stock issued under the 1996 Plan, the reacquired stock will again become
available for reissuance under the 1996 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options
under the 1996 Plan. Individual option grants may be more restrictive as to
any or all of the permissible terms described below.
7
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock
options under the 1996 Plan may not be less than 100% of the fair market
value of the stock subject to the option on the date of the 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 may not be less than
85% of the fair market value of the Common Stock on the date of the option
grant. If options were granted with exercise prices below market value,
deductions for compensation attributable to the exercise of such options
could be limited by Section 162(m) of the Code. See "Federal Income Tax
Information." As of March 19, the closing price of the Company's Common Stock
as reported on the Nasdaq National Market System was $7.375 per share.
The exercise price of options granted under the 1996 Plan must be
paid either in cash at the time the option is exercised or, at the discretion
of the Board, (i) by delivery of other Common Stock of the Company, (ii) in
any other form of legal consideration acceptable to the Board, or (iii)
pursuant to a deferred payment arrangement.
REPRICING. In the event of a decline in the value of the Company's
Common Stock, the Board has the authority to offer optionees the opportunity
to replace outstanding higher priced options with new lower priced options.
OPTION EXERCISE. Options granted under the 1996 Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Shares covered by currently outstanding options under the 1996 Plan typically
vest at the rate of 25% on the first anniversary of the date of grant and
1/48th per month (25% per year) thereafter during the optionee's employment
or services as a director or consultant. Shares covered by options granted in
the future under the 1996 Plan may be subject to different vesting terms. The
Board has the power to accelerate the time during which an option may vest or
be exercised. In addition, options granted under the 1996 Plan may permit
exercise prior to vesting, but in such event the optionee may be required to
enter into an early exercise stock purchase agreement that allows the Company
to repurchase shares not yet vested at their exercise price should the
optionee leave the employ of the Company before vesting. To the extent
provided by the terms of an option, an optionee 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 optionee, by
delivering already-owned stock of the Company or by a combination of these
means.
TERM. The maximum term of options under the 1996 Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five
years. Options under the 1996 Plan generally terminate three months after
termination of the optionee's employment or relationship as a consultant or
director of the Company or any affiliate of the Company unless (i) such
termination is due to such person's permanent and total disability (as
defined in the Code) in which case the option may, but need not, provide that
it 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;
(ii) the optionee dies before the optionee's service has terminated, or
within three months after termination of such relationship, in which case the
option may, but need not, provide that it may be exercised (to the extent the
option was exercisable at the time of the optionee's death) within 18 months
of the optionee's death by the person or persons to whom the rights to such
option pass by will or by the laws of descent and distribution; or (iii) the
option by its terms specifically provides otherwise. An optionee may
designate a beneficiary who may exercise the option following the optionee's
death. The option term may also be extended in the event that exercise of the
option within those periods is prohibited for specified reasons.
TERMS OF STOCK APPRECIATION RIGHTS
The 1996 Plan authorizes three types of stock appreciation rights.
TANDEM STOCK APPRECIATION RIGHTS. Tandem stock appreciation rights
are tied to an underlying option and require the holder to elect whether to
exercise the underlying option or to surrender the option for an appreciation
distribution in an amount up to the difference between the aggregate market
price of the vested shares purchasable under the surrendered option and the
aggregate exercise price payable for such shares. Appreciation distributions
payable upon exercise of tandem stock appreciation rights may be made in cash
or an equivalent number of shares of Common Stock based on the market price
of the Common Stock on the date of exercise.
8
CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent stock appreciation
rights are tied to an underlying option and are exercised automatically at
the same time the underlying option is exercised. The holder receives an
appreciation distribution in an amount up to the difference between the
aggregate market price of the vested shares purchased upon exercise of the
option and the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of concurrent stock appreciation rights
may be made in cash or an equivalent number of shares of Common Stock based
on the market price of the Common Stock on the date of exercise.
INDEPENDENT STOCK APPRECIATION RIGHTS. Independent stock
appreciation rights are granted independently of any option and entitle the
holder to receive upon exercise an appreciation distribution in an amount up
to the difference between (i) the aggregate market price of a number of
shares equal to the number of share equivalents to which the holder is vested
under the independent stock appreciation right and (ii) market price of such
number of shares of stock on the date of grant of the independent stock
appreciation right. Appreciation distributions payable upon exercise of
independent stock appreciation rights may be made in cash or an equivalent
number of shares of Common Stock based on the market price of the Common
Stock on the date of exercise.
TERMS OF STOCK BONUSES AND RESTRICTED STOCK PURCHASE AWARDS
Any stock bonuses or restricted stock purchase awards granted under
the Stock Plan are/will be in such form and will contain terms and conditions
as the Board deems appropriate. The purchase price under any restricted stock
purchase agreement will not be less than 85% of the fair market value of the
Company's Common Stock on the date of grant.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1996 Plan or
subject to any option granted under the 1996 Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
1996 Plan and options outstanding thereunder will be appropriately adjusted
as to the class and the maximum number of shares which may be granted to an
employee during a calendar year and the class, number of shares and price per
share of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1996 Plan provides that, in the event of a dissolution or
liquidation of the Company, specified type of merger, or other corporate
reorganization, to the extent permitted by law, any surviving corporation
will be required to either assume Stock Awards outstanding under the 1996
Plan or substitute similar Stock Awards for those outstanding under the 1996
Plan. In the event that any surviving corporation declines to assume or
continue Stock Awards outstanding under the 1996 Plan, or to substitute
similar Stock Awards, then, (i) with respect to Stock Awards held by persons
performing services as employees, directors or consultants, the time during
which such Stock Awards may be exercised will be accelerated and the Stock
Awards terminated if not exercised after such acceleration and at or prior to
such event and (ii) with respect to other Stock Awards outstanding under the
1996 Plan, such Stock Awards will be terminated if not exercised prior to
such event. In addition, in connection with certain specified transactions,
if a surviving corporation assumes Stock Awards outstanding under the 1996
Plan or substitutes similar Stock Awards for those outstanding under the 1996
Plan, and the services provided by the holder of such Stock Award are
terminated within 18 months of such transaction other than for "cause" (as
defined in the 1996 Plan) or death or disability, the term during which such
Stock Awards may be exercised will be accelerated. The acceleration of an
option in the event of an acquisition or similar corporate event 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, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1996 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1996 Plan will terminate on January 22, 2006.
9
The Board may also amend the 1996 Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve months before or after its adoption
by the Board if the amendment would (i) modify the requirements as to
eligibility for participation (to the extent such modification requires
stockholder approval in order for the 1996 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 options; or (iii) change any other provision of
the 1996 Plan in any other way if such modification requires stockholder
approval in order to comply with Rule 16b-3 of the Exchange Act or satisfy
the requirements of Section 422 of the Code. The Board may submit any other
amendment to the 1996 Plan for stockholder approval, including, but not
limited to, amendments intended to satisfy the requirements of Section 162(m)
of the Code regarding the exclusion of performance-based compensation from
the limitation on the deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the 1996 Plan, an incentive stock option may not be
transferred by the optionee otherwise than by will or by the laws of descent
and distribution, and during the lifetime of the optionee, may be exercised
only by the optionee. A nonstatutory stock option may be transferred by the
optionee only upon such terms and conditions as are set forth in the option
agreement for such option. In any case, the optionee may designate in writing
a third party who may exercise the option in the event of the optionee's
death. In addition, shares subject to repurchase by the Company under an
early exercise stock purchase agreement may be subject to restrictions on
transfer that the Board deems appropriate. Stock bonuses and restricted stock
purchase agreements awarded under the 1996 Plan are generally
non-transferable.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax
rates than ordinary income or short-term capital gains. The maximum long-term
capital gains rate for federal income tax purposes is currently 20% while the
maximum ordinary income rate and short-term capital gains rate is effectively
39.6%. 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.
INCENTIVE STOCK OPTIONS. Incentive stock options under the Incentive
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 increase
the participant's alternative minimum tax liability, if any.
If a participant holds stock acquired through exercise of an
incentive stock option for at least two years from the date on which the
option is granted and at least one year from the date on which the shares are
transferred to the participant upon exercise of the option, any gain or loss
on a disposition of such stock will be a long-term capital gain or loss if
the participant held the stock for more than one year.
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 stock's
fair market value on the date of exercise over the exercise price, or (ii)
the participant's actual gain, if any, on the purchase and sale. The
participant's 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, the Company will generally be entitled
(subject to the requirement of reasonableness, the provisions of Section
162(m) of the Code and the satisfaction of a tax reporting obligation) to a
corresponding business expense deduction in the tax year in which the
disqualifying disposition occurs.
10
NONSTATUTORY STOCK OPTIONS, RESTRICTED STOCK PURCHASE AWARDS AND
STOCK BONUSES. Nonstatutory stock options, restricted stock purchase awards
and stock bonuses granted under the Incentive Plan generally have the
following federal income tax consequences:
There are no tax consequences to the participant or the Company by
reason of the grant. Upon acquisition of the stock, the participant normally
will recognize taxable ordinary income equal to the excess, if any, of the
stock's 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. 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) of the Code 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 APPRECIATION RIGHTS. No taxable income is realized upon the
receipt of a stock appreciation right, but upon exercise of the stock
appreciation right the fair market value of the shares (or cash in lieu of
shares) received must be treated as compensation taxable 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) of the Code and
the satisfaction of a reporting obligation, the Company will be entitled to a
business expense deduction equal to the taxable ordinary income recognized by
the participant.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the
Code 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 granted 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 stockholders, 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 stockholders.
Compensation attributable to restricted stock and stock bonuses will
qualify as performance-based compensation, provided that: (i) the award is
granted by a compensation committee comprised solely of "outside directors"
and (ii) the purchase price of the award is no less than the fair market
value of the stock on the date of grant. Stock bonuses qualify as
performance-based compensation under the Treasury regulations only if (i) the
award is granted 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, stockholders
have approved the material terms of the award (including the
11
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).
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, AURORA
BIOSCIENCES CORPORATION, 11010 TORREYANA ROAD, SAN DIEGO, CALIFORNIA, 92121.
26
AURORA BIOSCIENCES CORPORATION
1996 STOCK PLAN
ADOPTED JANUARY 23, 1996
AS AMENDED AND RESTATED AS OF FEBRUARY 4, 1997
AS AMENDED ON APRIL 21, 1998
AS AMENDED ON MAY 28, 1998
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to benefit from increases in value of
the stock of the Company through the granting of (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company
or its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to
exert maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, (ii) stock
bonuses or rights to purchase restricted stock granted pursuant to Section 7
hereof, or (iii) stock appreciation rights granted pursuant to Section 8
hereof. All Options shall be separately designated Incentive Stock Options
or Nonstatutory Stock Options at the time of grant, and in such form as
issued pursuant to Section 6, and a separate certificate or certificates will
be issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CAUSE" shall mean any of the following: (a) an intentional act
which materially injures the Company; (b) an intentional refusal or failure
to follow lawful and reasonable directions of the Board or an individual to
whom a person reports (as appropriate); (c) a willful and habitual neglect of
duties; or (d) a conviction of a felony involving moral turpitude which is
1
reasonably likely to inflict or has inflicted material injury on the Company.
(d) "CHANGE IN CONTROL" means: (1) a dissolution, liquidation or sale
of all or substantially all of the assets 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 Company's 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) after the Listing Date, 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.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(g) "COMPANY" means Aurora Biosciences Corporation, a Delaware
corporation.
(h) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means
a right granted pursuant to subsection 8(b)(2) of the Plan.
(i) "CONSTRUCTIVELY TERMINATED" shall mean the voluntary termination
of Continuous Status as an Employee, Director or Consultant by a person
within fifteen (15) days after any of the following are undertaken without
such person's express written consent: (a) the assignment to such person of
any duties or responsibilities which result in a material diminution or
adverse change of such person's position, status or circumstances of
employment or engagement, other than a mere change in title or reporting
relationship; (b) reduction by the Company in such person's base salary or
compensation; (c) any failure by the Company to continue in effect any
benefit plan or arrangement, including incentive plans or plans to receive
securities of the Company, in which such person is participating (hereinafter
referred to as "Benefit Plans"), or the taking of any action by the Company
which would adversely affect such person's participation in or reduce such
person's benefits under any Benefit Plans or deprive such person of any
fringe benefit then enjoyed by such person, PROVIDED, HOWEVER, that such
person's termination shall not be deemed to be Constructively Terminated if
the Company offers a range of benefit plans and programs which, taken as a
whole, are comparable to the Benefit Plans; (d) a relocation of such person
or the Company's principal business offices to a location more than fifty
(50) miles from the location at which such person performs duties, except for
required travel by such person on the Company's business to an extent
substantially consistent with such person's business travel obligations; (e)
any breach by the Company of any material agreement between such person and
the Company concerning such person's employment or engagement; or (f) any
failure by the Company to obtain the assumption of any material agreement
between such
2
person and the Company concerning such person's employment or
engagement by any successor or assign of the Company.
(j) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who
are not compensated by the Company for their services as Directors.
(k) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
that the service of an individual to the Company, whether as an Employee,
Director or Consultant is not interrupted or terminated. The Board, in its
sole discretion, may determine whether Continuous Status as an Employee,
Director or Consultant shall be considered interrupted in the case of: (i)
any leave of absence approved by the Board, including sick leave, military
leave, or any other personal leave; or (ii) transfers between locations of
the Company or between the Company, Affiliates or their successors.
(l) "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 stockholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(m) "DIRECTOR" means a member of the Board.
(n) "DISABILITY" means permanent and total disability as defined in
Section 422(c)(6) of the Code.
(o) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as
a Director nor payment of a director's fee by the Company shall be sufficient
to constitute "employment" by the Company.
(p) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(q) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock determined as follows and, in each case, in a manner consistent with
Section 260.140.50 of Title 10 of the California Code of Regulations:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") System, 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 system or exchange
(or the exchange with the greatest volume of trading in common stock) on the
last market trading day prior to the day of determination, as reported in the
Wall Street Journal or such other source as the Board deems reliable;
3
(ii) If the common stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of Common Stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(iii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
(r) "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.
(s) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT"
means a right granted pursuant to subsection 8(b)(3) of the Plan.
(t) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice
of issuance as a national market security on an interdealer quotation system
if such securities exchange or interdealer quotation system has been
certified in accordance with the provisions of Section 25100(o) of the
California Corporate Securities Law of 1968.
(u) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company or its
parent or subsidiary 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 as to which disclosure would be required under Item 404(a)
of Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee" for purposes of Rule 16b-3.
(v) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(w) "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.
(x) "OPTION" means a stock option granted pursuant to the Plan.
(y) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
4
(z) "OPTIONEE" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(aa) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of the Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services 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.
(bb) "PLAN" mans this 1996 Stock Plan.
(cc) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect with respect to the Company when
discretion is being exercised regarding the Plan.
(dd) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(ee) "STOCK APPRECIATION RIGHT" means any of the various types of
rights which may be granted under Section 8 of the Plan.
(ff) "STOCK AWARD" means any right granted under the Plan, including
any Option, any stock bonus, any right to purchase restricted stock, and any
Stock Appreciation Right.
(gg) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
(hh) "SURVIVING STOCK AWARDS" shall have the meaning set forth in
Section 13(b) of the Plan.
(ii) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
5
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each
Stock Award shall be granted; whether a Stock Award will be an Incentive
Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase
restricted stock, a Stock Appreciation Right, or a combination of the
foregoing; 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 stock pursuant to a Stock Award; whether a person shall be permitted
to receive stock upon exercise of an Independent Stock Appreciation Right;
and the number of shares with respect to which a Stock Award shall be granted
to each such person.
(2) 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.
(3) To amend the Plan or a Stock Award as provided in Section
14.
(4) 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 which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
of the Board composed of not fewer than two (2) members (the "Committee"),
all of the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. 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,
including the power to delegate to a subcommittee of two (2) or more Outside
Directors any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or such a 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 abolish the Committee at any time and
revest in the Board the administration of the Plan. Additionally, prior to
the Listing Date, and notwithstanding anything to the contrary contained
herein, the Board may delegate administration of the Plan to a committee of
one or more members of the Board and the term Committee shall apply to any
person or persons to whom such authority has been delegated. Notwithstanding
anything in this Section 3 to the contrary, the Board or the Committee may
delegate to a committee of one or more members of the Board the authority to
grant Stock Awards to eligible persons who (1) are not then subject to
Section 16 of the Exchange Act and/or (2) are either (i) 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 (ii) not persons
with respect to whom the Company wishes to comply with Section 162(m) of the
Code.
6
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate six million (6,000,000) shares of the
Company's common stock. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in
full, the stock not acquired under such Stock Award shall revert to and again
become available for issuance under the Plan. Shares subject to Stock
Appreciation Rights exercised in accordance with Section 8 of the Plan shall
not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be
granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Option or an award
to purchase restricted stock if, at the time of grant, such person 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 of any of its Affiliates unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair Market
Value of such stock at the date of grant and the Option is not exercisable
after the expiration of five (5) years from the date of grant, or in the case
of a restricted stock purchase award, the purchase price is at least one
hundred percent (100%) of the Fair Market Value of such stock at the date of
grant.
(c) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options and
Stock Appreciation Rights covering more than four hundred thousand (400,000)
shares of the Company's common stock in any twelve (12) month period. This
subsection 5(c) shall not apply prior to the Listing Date and, following the
Listing Date, shall not apply until (i) the earliest of: (A) the first
material modification of the Plan (including any increase to the number of
shares reserved for issuance under the Plan in accordance with Section 4);
(B) the issuance of all of the shares of common stock reserved for issuance
under the Plan; (C) the expiration of the Plan; or (D) the first meeting of
stockholders at which directors are to be elected that occurs after the close
of the third calendar year following the calendar year in which occurred the
first registration of an equity security under section 12 of the Exchange
Act; or (ii) such other date required by Section 162(m) of the Code and the
rules and regulations promulgated thereunder.
7
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted; the exercise
price of each Nonstatutory Stock Option shall be not less than eighty-five
percent (85%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Option
(whether an Incentive Stock Option or 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 satisfying the provisions of Section 424(a) of
the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii)
at the discretion of the Board or the Committee, at the time of the grant of
the Option, (A) by delivery to the Company of other common stock of the
Company, or (B) in any other form of legal consideration that may be
acceptable to the Board.
(d) TRANSFERABILITY. 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 person to whom the Option is granted only by such
person; PROVIDED, HOWEVER, that, after the Listing Date, to the extent
permitted by applicable law, a Nonstatutory Stock Option shall be
transferable by the person to whom such Option is granted upon such terms and
conditions as are set forth in the Option Agreement for such Nonstatutory
Stock Option, as the Board or Committee shall determine in its discretion.
Notwithstanding the foregoing, the person to whom the Option is granted may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period,
and may be exercised with respect to some or all of the shares allotted to
such period and/or any prior period as to which the Option became vested but
was not fully exercised. The Option may be subject to such other terms and
conditions on the time or times when it may 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 but in each case will
provide for vesting of at least
8
twenty percent (20%) per year of the total number of shares subject to the
Option. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may
be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it 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 Optionee's Continuous Status as
an Employee, Director or Consultant (or such longer or shorter period, which
shall not be less than thirty (30) days, 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, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as
an Employee, Director, or Consultant (other than upon the Optionee's death or
Disability) would result in liability under Section 16(b) of the Exchange
Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the Option Agreement, or (ii) the tenth
(10th) day after the last date on which such exercise would result in such
liability under Section 16(b) of the Exchange Act. Finally, an Optionee's
Option Agreement may also provide that if the exercise of the Option
following the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant (other than upon the Optionee's death or Disability)
would be prohibited at any time solely because the issuance of shares would
violate the registration requirements under the Securities Act, then the
Option shall terminate on the earlier of (i) the expiration of the term of
the Option set forth in the first paragraph of this subsection 6(f), or (ii)
the expiration of a period of three (3) months after the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such
registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months,
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
9
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option Agreement after the
termination of, the Optionee's Continuous Status as an Employee, Director or
Consultant, the Option may be exercised (to the extent the Optionee was
entitled to exercise the Option as of the date of death) by the Optionee's
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
Optionee's death pursuant to subsection 6(d), 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, which in no event shall be less
than six (6) months, specified in the Option Agreement), or (ii) the
expiration of the term of such Option as set forth in the Option Agreement.
If, at the time of death, the Optionee was not entitled to exercise his or
her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the
Plan. If, after death, the Option is not exercised within the time specified
herein, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any unvested shares
so purchased shall be subject to a repurchase right in favor of the Company,
with the repurchase price to be equal to the original purchase price of the
stock, or to any other restriction the Board determines to be appropriate;
PROVIDED, HOWEVER, that (i) the right to repurchase at the original purchase
price shall lapse at a minimum rate of twenty percent (20%) per year over
five (5) years from the date the Option was granted, and (ii) such right
shall be exercisable only within (A) the ninety (90) day period following the
termination of employment or the relationship as a Director or Consultant,
or (B) such longer period as may be agreed to by the Company and the Optionee
(for example, for purposes of satisfying the requirements of Section
1202(c)(3) of the Code (regarding "qualified small business stock")), and
(iii) such right shall be exercisable only for cash or cancellation of
purchase money indebtedness for the shares. Should the right of repurchase
be assigned by the Company, the assignee shall pay the Company cash equal to
the difference between the original purchase price and the stock's Fair
Market Value if the original purchase price is less than the stock's Fair
Market Value.
(j) RIGHT OF REPURCHASE. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to
repurchase all or any part of the vested shares exercised pursuant to the
Option; PROVIDED, HOWEVER, that (i) such repurchase right shall be
exercisable only within (A) the ninety (90) day period following the
termination of employment or the relationship as a Director or Consultant and
(ii) such right shall be exercisable only for cash or cancellation of
purchase money indebtedness for the shares at a repurchase price equal to the
greater of (A) the stock's Fair Market Value at the time of such termination,
or (B) the original purchase price paid for such shares by the Optionee.
(k) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to
exercise a right of first refusal following receipt of notice from the
Optionee of the intent to transfer all or any part of the shares exercised
pursuant to the Option.
10
(l) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the
Board or Committee shall have the authority (but not an obligation) to
include as part of any Option Agreement a provision entitling the Optionee to
a further Option (a "Re-Load Option") in the event the Optionee exercises the
Option evidenced by the Option agreement, in whole or in part, by
surrendering other shares of Common Stock in accordance with this Plan and
the terms and conditions of the Option Agreement. Any such Re-Load Option
(i) shall be for a number of shares equal to the number of shares surrendered
as part or all of the exercise price of such Option; (ii) shall have an
expiration date which is the same as the expiration date of the Option the
exercise of which gave rise to such Re-Load Option; and (iii) shall have an
exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load
Option which is granted to a 10% stockholder (as described in subsection
5(b)), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the stock subject to the Re-Load Option on
the date of exercise of the original Option and shall have a term which is no
longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the
time of the grant of the original Option; PROVIDED, HOWEVER, that the
designation of any Re-Load Option as an Incentive Stock Option shall be
subject to the one hundred thousand dollar ($100,000) annual limitation on
exercisability of Incentive Stock Options described in subsection 12(e) of
the Plan and in Section 422(d) of the Code. There shall be no Re-Load Options
on a Re-Load Option. Any such Re-Load Option shall be subject to the
availability of sufficient shares under subsection 4(a) and the limits on the
grants of Options under subsection 5(c) and shall be subject to such other
terms and conditions as the Board or Committee may determine which are not
inconsistent with the express provisions of the Plan regarding the terms of
Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate agreements need not be identical, but each
stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase Stock Award Agreement shall be such amount as the Board or Committee
shall determine and designate in such agreement, but in no event shall the
purchase price be less than eighty-five percent (85%) of the stock's Fair
Market Value on the date such award is made. Notwithstanding the foregoing,
the Board or the Committee may determine that eligible participants in the
Plan may be awarded stock
11
pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of
descent and distribution or pursuant to a QDRO satisfying the requirements of
Rule 16b-3 and any administrative interpretations or pronouncements
thereunder, so long as stock awarded under such agreement remains subject to
the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; or (ii) in any other form of legal consideration that may be
acceptable to the Board or the Committee in its discretion. Notwithstanding
the foregoing, the Board or the Committee to which administration of the Plan
has been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee. The applicable agreement shall provide (i) that the right to
repurchase at the original purchase price shall lapse at a minimum rate of
twenty percent (20%) per year over five (5) years from the date the Stock
Award was granted, and (ii) such right shall be exercisable only (A) within
the ninety (90) day period following the termination of employment or the
relationship as a Director or Consultant, or (B) such longer period as may be
agreed to by the Company and the holder of the Stock Award (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for
the shares. Should the right of repurchase be assigned by the Company, the
assignee shall pay the Company cash equal to the difference between the
original purchase price and the stock's Fair Market Value if the original
purchase price is less than the stock's Fair Market Value.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or
all of the shares of stock held by that person which have not vested as of
the date of termination under the terms of the stock bonus or restricted
stock purchase agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under
the Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
12
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time of grant
subject to Section 16(b) of the Exchange Act, the Stock Award Agreement shall
incorporate all the terms and conditions at the time necessary to assure that
the subsequent exercise of such right shall qualify for the safe-harbor
exemption from short-swing profit liability provided by Rule 16b-3
promulgated under the Exchange Act (or any successor rule or regulation).
Except as provided in subsection 5(c), no limitation shall exist on the
aggregate amount of cash payments the Company may make under the Plan in
connection with the exercise of a Stock Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall,
except as specifically set forth in this Section 8, be subject to the same
terms and conditions applicable to the particular Option grant to which it
pertains. Tandem Stock Appreciation Rights will require the holder to elect
between the exercise of the underlying Option for shares of stock and the
surrender, in whole or in part, of such Option for an appreciation
distribution. The appreciation distribution payable on the exercised Tandem
Right shall be in cash (or, if so provided, in an equivalent number of shares
of stock based on Fair Market Value on the date of the Option surrender) in
an amount up to the excess of (A) the Fair Market Value (on the date of the
Option surrender) of the number of shares of stock covered by that portion of
the surrendered Option in which the Optionee is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion
of the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock
to which the Concurrent Right pertains. The appreciation distribution
payable on an exercised Concurrent Right shall be in cash (or, if so
provided, in an equivalent number of shares of stock based on Fair Market
Value on the date of the exercise of the Concurrent Right) in an amount equal
to such portion as shall be determined by the Board or the Committee at the
time of the grant of the excess of (A) the aggregate Fair Market Value (on
the date of the exercise of the Concurrent Right) of the vested shares of
stock purchased under the underlying Option which have Concurrent Rights
appurtenant to them over (B) the aggregate exercise price paid for such
shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They
shall be denominated in share equivalents. The appreciation distribution
payable on the exercised Independent Right shall 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 Independent Right) of a number of shares of
Company stock equal to the number of share equivalents in
13
which the holder is vested under such Independent Right, and with respect to
which the holder is exercising the Independent Right on such date, over (B)
the aggregate Fair Market Value (on the date of the grant of the Independent
Right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right shall be in cash or,
if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at
any time and from time to time, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and/or (ii) with the
consent of the affected holders of Options and/or Stock Appreciation Rights,
the cancellation of any outstanding Options and/or any Stock Appreciation
Rights under the Plan and the grant in substitution therefor of new Options
and/or Stock Appreciation Rights under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share
not less than eighty-five percent (85%) of the Fair Market Value (one hundred
percent (100%) of the Fair Market Value in the case of an Incentive Stock
Option) or, in the case of a 10% stockholder (as described in subsection
5(b)), not less than one hundred ten percent (110%) of the Fair Market Value)
per share of stock on the new grant date. Notwithstanding the foregoing, the
Board or the Committee may grant an Option and/or Stock Appreciation Right
with an exercise price lower than that set forth above if such Option and/or
Stock Appreciation Right is granted as part of a transaction to which section
424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled
under this Section 9 shall continue to be counted against the maximum award
of Options and Stock Appreciation Rights permitted to be granted pursuant to
subsection 5(c) of the Plan. The repricing of an Option and/or Stock
Appreciation Right under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Right and the grant of a substitute Option and/or
Stock Appreciation Right; in the event of such repricing, both the original
and the substituted Options and Stock Appreciation Rights shall be counted
against the maximum awards of Options and Stock Appreciation Rights permitted
to be granted pursuant to subsection 5(c) of the Plan. The provisions of
this subsection 9(b) shall be applicable only to the extent required by
Section 162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each 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 Stock Award; provided,
however, that this undertaking shall not require the
14
Company to register under the Securities Act either the Plan, any Stock Award
or any 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 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 Stock Awards unless and until such authority is
obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such
person has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.
(b) Throughout the term of any Stock Award, the Company shall deliver
to the holder of such Stock Award, not later than one hundred twenty (120)
days after the close of each of the Company's fiscal years during the term of
such Stock Award, a balance sheet and an income statement. This subsection
shall not apply when issuance is limited to key employees whose duties in
connection with the Company assure them access to equivalent information.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant)
or shall affect the right of the Company or any Affiliate to terminate the
employment of any Employee with or without cause, the right of the Company's
Board of Directors and/or the Company's stockholders to remove any Director
as provided in the Company's By-Laws and the provisions of the Delaware
General Corporation Law or the right to terminate the relationship of any
Consultant subject to the terms of such Consultant's agreement with the
Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a
15
condition of exercising or acquiring stock under any Stock Award, (1) to give
written assurances satisfactory to the Company as to such person's 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 (2) to give written
assurances satisfactory to the Company stating that such person is acquiring
the stock subject to the Stock Award for such person's own account and not
with any present intention of selling or otherwise distributing the 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 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 stock.
(f) To the extent provided by the terms of a Stock Award Agreement,
the person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means or by a combination
of such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the common stock otherwise issuable to the
participant as a result of the exercise or acquisition of stock under the
Stock Award; or (3) delivering to the Company owned and unencumbered shares
of the common stock of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award (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 will be appropriately
adjusted in the type(s) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person during any twelve (12) month period pursuant to
subsection 5(c), and the outstanding Stock Awards will be appropriately
adjusted in the type(s) and number of securities and price per share of stock
subject to such outstanding Stock Awards. 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) In the event of a Change in Control, then: (i) any surviving or
acquiring corporation shall assume any Stock Awards outstanding under the
Plan or shall substitute similar stock awards (including an award to acquire
the same consideration paid to the stockholders in such Change in Control)
for those outstanding under the Plan (such assumed or substituted stock
awards are
16
collectively referred to herein as the "SURVIVING STOCK AWARDS"), or (ii) in
the event any surviving or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan (A) with respect to Stock Awards held by persons performing services as
Employees, Directors or Consultants immediately prior to the effective date
of such Change in Control, subject to any applicable provisions of the
California Corporate Securities Law of 1968 and related regulations relied
upon as a condition of issuing securities pursuant to the Plan, the vesting
of such Stock Awards (and, if applicable, the time during which such Stock
Awards may be exercised) shall be accelerated prior to such event and such
Stock Awards terminated if not exercised (if applicable) after such
acceleration and at or prior to such event, and (B) unless otherwise provided
in this Section 13, with respect to any other Stock Awards outstanding under
the Plan, such Stock Awards shall be terminated if not exercised (if
applicable) prior to the effective date of such Change in Control.
(c) In addition, with respect to any person (i) who is Constructively
Terminated within the sixty (60) day period immediately preceding the
effective date of a Change in Control or (ii) whose Continuous Status as an
Employee, Director or Consultant is terminated by the Company within the
sixty (60) day period immediately preceding the effective date of a Change in
Control other than (A) for Cause or (B) upon such person's death or
Disability, any Stock Awards held by such person shall: (a) become fully
vested, and any repurchase right held by the Company with respect to shares
acquired by such person under a Stock Award shall lapse, immediately upon the
effective date of such Change in Control, (b) in the event such Stock Award
is granted after May 28, 1998 or has an exercise price in excess of $7.50 per
share (as adjusted for stock splits and the like subsequent to May 28, 1998)
be exercisable within the period ending on the earlier of (u) twelve (12)
months following termination of such person's Continuous Status as an
Employee, Director or Consultant or (v) expiration of the term of such Stock
Award, as set forth therein or as otherwise provided in the Plan and (c)
terminate immediately upon the completion of the period described in clause
(b) of this sentence, if applicable, or as provided in such Stock Award.
(d) Further, with respect to any person (i) who was providing services
as an Employee, Director or Consultant immediately prior to the effective
date of a Change in Control and (ii) (A) who is Constructively Terminated
within the thirteen (13) month period following the effective date of such
Change in Control or (B) whose Continuous Status as an Employee, Director or
Consultant is terminated by the surviving or acquiring corporation within the
thirteen (13) month period following the effective date of such Change in
Control other than (w) for Cause or (x) upon such person's death or
Disability, any Surviving Stock Awards held by such person shall: (a) become
fully vested, and any repurchase right held by the acquiring or surviving
corporation with respect to shares acquired by such person under a Surviving
Stock Award shall lapse, immediately upon termination of such person's
Continuous Status as an Employee, Director or Consultant, (b) in the event
such Stock Award is granted after May 28, 1998 or has an exercise price in
excess of $7.50 per share (as adjusted for stock splits and the like
subsequent to May 28, 1998) be exercisable within the period ending on the
earlier of (y) twelve (12) months following termination of such person's
Continuous Status as an Employee, Director or Consultant or (z) expiration of
the term of such Surviving Stock Award, as set forth therein or as otherwise
provided in the Plan and (c) terminate immediately upon completion of
17
the period described in clause (b) of this sentence, if applicable, or as
provided in such Stock Award.
(e) Notwithstanding subsections 13(c) and (d) above, in the event all
of the following occurs: (i) a contemplated Change in Control would occur
prior to May 28, 2000 (the date two (2) years following the adoption of
subsections 13(c) through (h)); (ii) such potential acceleration of vesting
(and exercisability) under subsections 13(c) or (d) would BY ITSELF cause a
contemplated Change in Control, that would otherwise be eligible to be
accounted for as a "pooling of interests" accounting transaction, to become
ineligible for such accounting treatment; and (iii) the potential acquiror of
the Company desires to account for such contemplated Change in Control as a
"pooling of interests" transaction, then such acceleration shall not occur.
Additionally, in the event that the restrictions upon acceleration provided
for in the immediately preceding sentence BY ITSELF would cause a
contemplated Change in Control to become ineligible to be accounted for as a
"pooling of interests" accounting transaction, then such restrictions shall
be deemed inoperative. Accounting issues shall be determined by the Company's
independent public accountants applying generally accepted accounting
principles.
(f) The terms of a particular Stock Award may provide for different
terms to govern events described in this Section 13. In the event the
provisions of this Section 13 conflict with an employment agreement or other
agreement relating to the rights of the holder of a Stock Award, the
provisions of this Section 13 and the conflicting agreement shall be
construed to provide the greatest benefit to the holder of the Stock Award.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder 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 promulgated thereunder regarding
18
the exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) 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) Rights and obligations 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 person to whom the Stock
Award was granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on January 22, 2006, which shall
be within ten (10) years from the date the Plan is adopted by the Board or
approved by the stockholders 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) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the written consent of the person to whom the Stock Award
was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
19
AURORA BIOSCIENCES CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED FEBRUARY 4, 1997
(SHARE NUMBERS HEREIN HAVE BEEN ADJUSTED TO REFLECT THE FOUR
FOR FIVE REVERSE STOCK SPLIT EFFECTED ON APRIL 25, 1997)
1. PURPOSE.
(a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Aurora Biosciences Corporation, a
Delaware 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.
2. ADMINISTRATION.
(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:
(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).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(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.
1
(iv) To amend the Plan as provided in paragraph 13.
(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.
(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").
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.
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 seven hundred thousand
(700,000) shares of the Company's 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.
4. GRANT OF RIGHTS; OFFERING.
(a) 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
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 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.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right
with a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
2
5. ELIGIBILITY.
(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 is in the employ of the Company and 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 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 employee's 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) Each person who, during the course of an Offering, first becomes an
eligible employee of the Company or designated Affiliate shall not be
eligible to be granted rights under such 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 employee's 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.
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 employee's Earnings (as defined in subparagraph 7(a))
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,
3
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 effected in accordance with such Offering.
(b) In connection with each Offering made under this Plan, the Board or
the Committee shall specify a maximum number of shares which may be purchased
by any employee as well as a maximum aggregate number of shares which may be
purchased by all eligible employees pursuant to such Offering. In addition,
in connection with each Offering which 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.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
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;
provided, however, that an eligible employee shall be entitled to participate
in no more than one (1) Offering at any time. Each such agreement shall
authorize payroll deductions of up to the maximum percentage specified by the
Board or the Committee of such employee's Earnings during the Offering.
"Earnings" is defined as an employee's regular salary or wages (including
amounts thereof elected to be deferred by the employee, that would otherwise
have been paid, under any cash or deferred arrangement established by the
Company), which shall include commissions and overtime pay, but shall exclude
bonuses, incentive pay, profit sharing, other remuneration paid directly to
the employee, the cost of employee benefits paid for by the Company or an
Affiliate, education or tuition reimbursements, imputed income arising under
any group insurance or benefit program, traveling expenses, business and
moving expense reimbursements, income received in connection with stock
options, contributions made by the Company or an Affiliate under any employee
benefit plan, and similar items of compensation. 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
or an Affiliate. A participant may reduce (including to zero) or increase
such payroll deductions after the beginning of any Offering only as provided
for in the Offering. A participant may not make additional payments into his
or her account.
4
(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 participant's interest in that Offering shall be automatically
terminated. A participant's withdrawal from an Offering will have no effect
upon such participant's 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. A reduction of payroll deductions to zero shall not, by itself,
constitute a withdrawal from an Offering.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's
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, and,
except as provided in paragraph 14, shall be exercisable only by the person
to whom such rights are granted.
8. EXERCISE.
(a) On each date specified therefor in the relevant Offering ("Purchase
Date"), each participant's accumulated payroll deductions (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 participant's account after
the purchase of shares on the final Purchase Date of an Offering shall be
distributed to the participant after such final Purchase Date, without
interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the Plan (including rights granted thereunder) is 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, 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 in 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
5
the Offering (reduced to the extent, if any, such deductions have been used
to acquire stock) shall be distributed to the participants, without interest.
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 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.
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.
11. RIGHTS AS A STOCKHOLDER.
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 participant's stockholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
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, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or otherwise), 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.
(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 Company's 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)
any other capital reorganization in which more than fifty percent (50%) of
the shares of the Company entitled to vote are exchanged, then, as determined
by the Board in its sole discretion (i) any surviving 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
6
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
Offering terminated.
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
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan (to the extent such modification requires stockholder 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 Securities Exchange Act of 1934, as amended ("Rule
16b-3")); or
(iii) Modify the Plan in any other way if such modification requires
stockholder 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 regulation.
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 participant's account
under the Plan in the event of such participant's death subsequent to the end
of an Offering but prior to delivery to him 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 participant's account under the Plan in the
event of such participant's 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 participant's 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 appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse
7
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.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board 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.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the effectiveness of the Company's
initial public offering of shares of common stock, but no rights granted
under the Plan shall be exercised unless and until the Plan has been approved
by the stockholders of the Company.
8
PROXY AURORA BIOSCIENCES CORPORATION PROXY
Next Section
Previous Section