def14a
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
|
|
|
Filed by the Registrant
|
|
þ |
Filed by a Party other than the Registrant
|
|
¨ |
|
|
|
Check the appropriate box: |
|
|
|
|
|
¨
|
|
Preliminary Proxy Statement |
¨
|
|
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
þ
|
|
Definitive Proxy Statement |
¨
|
|
Definitive Additional Materials |
¨
|
|
Soliciting Material Pursuant to § 240.14a-12 |
ARADIGM CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
|
|
|
Payment of Filing Fee (Check the appropriate box) |
|
|
|
þ
|
|
No fee required. |
¨
|
|
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
|
|
|
1.
|
|
Title of each class of securities to which transaction applies: |
|
|
|
|
|
|
|
2.
|
|
Aggregate number of securities to which transaction applies: |
|
|
|
|
|
|
|
3.
|
|
Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule a-II (Set forth the amount on which the filing fee is calculated and state how it was
determined): |
|
|
|
|
|
|
|
4.
|
|
Proposed maximum aggregate value of transaction: |
|
|
|
|
|
|
|
5.
|
|
Total fee paid: |
|
|
|
|
|
|
|
¨
|
|
Fee paid previously with preliminary materials. |
|
|
|
¨
|
|
Check box if any part of the fee is offset as provided by Exchange
Act Rule a-II(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing. |
|
|
|
6.
|
|
Amount Previously Paid: |
|
|
|
|
|
|
|
7.
|
|
Form, Schedule or Registration Statement No.: |
|
|
|
|
|
|
|
8.
|
|
Filing Party: |
|
|
|
|
|
|
|
9.
|
|
Date Filed: |
|
|
|
|
ARADIGM
CORPORATION
3929 Point Eden Way
Hayward, California, 94545
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
To Be Held On May 18,
2006
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Aradigm Corporation, a California corporation
(Aradigm). The meeting will be held on Thursday,
May 18, 2006, at 9:00 a.m. local time at
Aradigms offices for the following purposes:
1. To elect directors to hold office until the next annual
meeting of shareholders and until their successors are elected.
2. To approve the Aradigm Corporation 2005 Equity Incentive
Plan, as amended and restated, to increase the aggregate number
of shares of Common Stock authorized for issuance under such
plan by 2,000,000 shares.
3. To ratify the selection of Ernst & Young LLP as
the Aradigms independent registered public accounting firm
for the fiscal year ending December 31, 2006.
4. To conduct any other business properly brought before
the meeting.
These items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for the annual meeting is March 30, 2006.
Only shareholders of record at the close of business on that
date may vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
V. Bryan Lawlis
President and Chief Executive Officer
Hayward, California
April 13, 2006
You are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please
complete, date, sign and return the enclosed proxy as promptly
as possible in order to ensure your representation at the
meeting. A return envelope (which is postage prepaid if mailed
in the United States) is enclosed for your convenience. Even if
you have voted by proxy, you may still vote in person if you
attend the meeting. Please note, however, that if your shares
are held of record by a broker, bank or other nominee and you
wish to vote at the meeting, you must obtain a proxy issued in
your name from that record holder.
Table
of Contents
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
4
|
|
|
|
|
9
|
|
|
|
|
10
|
|
|
|
|
19
|
|
|
|
|
21
|
|
|
|
|
25
|
|
|
|
|
25
|
|
|
|
|
27
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
31
|
|
|
|
|
31
|
|
ARADIGM
CORPORATION
3929 Point Eden Way
Hayward, California, 94545
PROXY STATEMENT
FOR ANNUAL MEETING OF
SHAREHOLDERS
QUESTIONS
AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Why am I
receiving these materials?
We sent you this proxy statement and the enclosed proxy card
because the Board of Directors of Aradigm Corporation is
soliciting your proxy to vote at the 2006 Annual Meeting of
Shareholders. You are invited to attend the annual meeting to
vote on the proposals described in this proxy statement.
However, you do not need to attend the meeting to vote your
shares. Instead, you may simply complete, sign and return the
enclosed proxy card.
We intend to mail this proxy statement and accompanying proxy
card on or about April 13, 2006 to all shareholders of
record entitled to vote at the annual meeting.
Who can
vote at the annual meeting?
Only shareholders of record at the close of business on
March 30, 2006 will be entitled to vote at the annual
meeting. On this record date, there were 14,702,954 shares
of common stock and 1,235,701 shares of Series A
Convertible Preferred Stock (Preferred Stock)
outstanding and entitled to vote.
Shareholder
of Record: Shares Registered in Your Name
If on March 30, 2006 your shares were registered directly
in your name with our transfer agent, Computershare Trust
Company, N.A., then you are a shareholder of record. As a
shareholder of record, you may vote in person at the meeting or
vote by proxy. Whether or not you plan to attend the meeting, we
urge you to fill out and return the enclosed proxy card to
ensure your vote is counted.
Beneficial
Owner: Shares Registered in the Name of a Broker or
Bank
If on March 30, 2006 your shares were held in an account at
a brokerage firm, bank, dealer, or other similar organization,
then you are the beneficial owner of shares held in street
name and these proxy materials are being forwarded to you
by that organization. The organization holding your account is
considered the shareholder of record for purposes of voting at
the annual meeting. As a beneficial owner, you have the right to
direct your broker or other agent on how to vote the shares in
your account. You are also invited to attend the annual meeting.
However, since you are not the shareholder of record, you may
not vote your shares in person at the meeting unless you request
and obtain a valid proxy from your broker or other agent.
What am I
voting on?
There are three matters scheduled for a vote:
|
|
|
|
|
Election of five directors;
|
|
|
|
Approval of an amendment and restatement of our 2005 Equity
Incentive Plan to increase the number of shares of our common
stock authorized for issuance under the plan; and
|
|
|
|
Ratification of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2006.
|
1
How do I
vote?
You may either vote For all the nominees for
director or you may abstain from voting for any nominee you
specify. For each of the other matters to be voted on, you may
vote For or Against or abstain from
voting. The procedures for voting are fairly simple:
Shareholder
of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote in person at
the annual meeting or vote by proxy using the enclosed proxy
card. Whether or not you plan to attend the meeting, we urge you
to vote by proxy to ensure your vote is counted. You may still
attend the meeting and vote in person if you have already voted
by proxy.
|
|
|
|
|
To vote in person, come to the annual meeting and we will give
you a ballot when you arrive.
|
|
|
|
To vote using the proxy card, simply complete, sign and date the
enclosed proxy card and return it promptly in the envelope
provided. If you return your signed proxy card to us before the
annual meeting, we will vote your shares as you direct.
|
Beneficial
Owner: Shares Registered in the Name of Broker or
Bank
If you are a beneficial owner of shares registered in the name
of your broker, bank, or other agent, you should have received a
proxy card and voting instructions with these proxy materials
from that organization rather than from Aradigm. Simply complete
and mail the proxy card to ensure that your vote is counted. To
vote in person at the annual meeting, you must obtain a valid
proxy from your broker, bank, or other agent. Follow the
instructions from your broker or bank included with these proxy
materials, or contact your broker or bank to request a proxy
form.
How many
votes do I have?
On each matter to be voted upon, you have one vote for each
share of common stock you own and four votes for every five
shares of Preferred Stock you own as of March 30, 2006.
What if I
return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any
voting selections, your shares will be voted For the
election of all five nominees for director and For
the ratification of Ernst & Young LLP as independent
auditor for our fiscal year ending December 31, 2006. If
any other matter is properly presented at the meeting, your
proxy (one of the individuals named on your proxy card) will
vote your shares using his or her best judgment.
Who is
paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In
addition to these mailed proxy materials, our directors and
employees and Georgeson Shareholder Communications, Inc.
(Georgeson) may also solicit proxies in person, by
telephone, or by other means of communication. Directors and
employees will not be paid any additional compensation for
soliciting proxies, but Georgeson, if retained, would be paid
its customary fee, estimated to be $12,000 plus
out-of-pocket
expenses, if it solicits proxies.
What does
it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are
registered in more than one name or are registered in different
accounts. Please complete, sign and return each proxy card to
ensure that all of your shares are voted.
Can I
change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote
at the meeting. You may revoke your proxy in any one of three
ways:
|
|
|
|
|
You may submit another properly completed proxy card with a
later date.
|
2
|
|
|
|
|
You may send a written notice that you are revoking your proxy
to our Secretary at 3929 Point Eden Way, Hayward, California,
94545.
|
|
|
|
You may attend the annual meeting and vote in person. Simply
attending the meeting will not, by itself, revoke your proxy.
|
When are
shareholder proposals due for next years annual
meeting?
To be considered for inclusion in next years proxy
materials, your proposal must be submitted in writing by
December 3, 2006, to our Secretary at 3929 Point Eden Way,
Hayward, California, 94545. If you wish to submit a proposal
that is not to be included in next years proxy materials
or nominate a director, you must do so no later than the close
of business on March 19, 2007 and no earlier than the close
of business on February 17, 2007. You are also advised to
review our bylaws, which contain additional requirements about
advance notice of shareholder proposals and director nominations.
How are
votes counted?
Votes will be counted by the inspector of election appointed for
the meeting, who will separately count For and (with
respect to proposals other than the election of directors)
Against votes, abstentions and broker non-votes.
Abstentions and broker non-votes will not be counted towards the
vote total for any proposal.
If your shares are held by your broker as your nominee (that is,
in street name), you will need to obtain a proxy
form from the institution that holds your shares and follow the
instructions included on that form regarding how to instruct
your broker to vote your shares. If you do not give instructions
to your broker, your broker can vote your shares with respect to
discretionary items, but not with respect to
non-discretionary items. On non-discretionary items
for which you do not give your broker instructions, the shares
will be treated as broker non-votes.
How many
votes are needed to approve each proposal?
|
|
|
|
|
For the election of directors, the five nominees receiving the
most For votes (among votes properly cast in person
or by proxy) will be elected. Broker non-votes will have no
effect.
|
|
|
|
To be approved, Proposal 2 (ratifying the selection of
Ernst & Young LLP as our independent auditors for the
fiscal year ending December 31, 2006) and
Proposal 3 (approval of an amendment of our 2005 Equity
Incentive Plan to increase the number of shares of our common
stock authorized for issuance under the plan) must receive a
For vote from the majority of shares present either
in person or by proxy and entitled to vote. Broker non-votes
will have no effect.
|
What is
the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. A
quorum will be present if shares representing a majority of the
voting power of the outstanding shares are represented by
shareholders present at the meeting or by proxy. On the record
date, there were 14,702,954 shares of common stock and
1,235,701 shares of Preferred Stock outstanding and
entitled to vote, which represent 988,561 votes on an
as-converted basis.
Your shares will be counted towards the quorum only if you
submit a valid proxy vote or vote at the meeting. Abstentions
and broker non-votes will be counted towards the quorum
requirement. If there is no quorum, a majority of the votes
present at the meeting may adjourn the meeting to another date.
How can I
find out the results of the voting at the annual
meeting?
Preliminary voting results will be announced at the annual
meeting. Final voting results will be published in our quarterly
report on
Form 10-Q
for the second quarter of 2006.
3
PROPOSAL 1
ELECTION OF DIRECTORS
Our Board of Directors (the Board) currently
consists of eight directors. There are five nominees for
director this year. Three current members of our Board,
Messrs. Nehra, Roe and R. Thompson, are not standing for
reelection. Each director to be elected will hold office until
the next annual meeting and until his successor is elected, or
until the directors death, resignation or removal. Each of
the nominees listed below is currently a member of our Board who
was previously elected by the shareholders. It is our policy to
invite nominees to attend the annual meeting and to encourage
attendance at meetings at which substantial shareholder
attendance is expected. Two of the nominees for election as a
director at the 2005 Annual Meeting of Shareholders attended the
2005 Annual Meeting of Shareholders.
The five candidates receiving the highest number of affirmative
votes by the shares entitled to be voted will be elected. Shares
represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the eight nominees
named below. If any nominee becomes unavailable for election as
a result of an unexpected occurrence, your shares will be voted
for the election of a substitute nominee proposed by our
management. Each person nominated for election has agreed to
serve if elected. Our management has no reason to believe that
any nominee will be unable to serve.
Nominees
The following is a brief biography of each nominee for director.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Principal Occupation/Position
Held With Us
|
|
Frank H. Barker
|
|
|
75
|
|
|
Director
|
Igor Gonda
|
|
|
58
|
|
|
Chief Executive Officer and
Managing Director of Acrux Ltd. and Director
|
Stephen O. Jaeger
|
|
|
61
|
|
|
Chairman of eBT International,
Inc. and Director
|
V. Bryan Lawlis
|
|
|
54
|
|
|
President and Chief Executive
Officer, Aradigm Corporation, and Director
|
Virgil D. Thompson
|
|
|
66
|
|
|
Angstrom Pharmaceuticals, Chairman
and Director
|
Frank H. Barker has been a director since May 1999. From
January 1980 to January 1994, Mr. Barker served as a
company group chairman of Johnson & Johnson, Inc., a
diversified health care company, and was Corporate Vice
President from January 1989 to January 1996. Mr. Barker
holds a B.A. in Business Administration from Rollins College,
Winter Park, Florida.
Igor Gonda, Ph.D. has been a director since
September 2001. Dr. Gonda is the Chief Executive Officer
and Managing Director of Acrux Limited, a drug delivery company
in Melbourne, Australia. Dr. Gonda was our Chief Scientific
Officer until December 2001 and previously held the position of
Vice President, Research and Development, from October 1995
until July 2001. From February 1992 to September 1995,
Dr. Gonda was a Senior Scientist and Group Leader at
Genentech, Inc. Prior to that, Dr. Gonda held academic
positions at the University of Aston in Birmingham, UK, and the
University of Sydney, Australia. Dr. Gonda has a B.Sc. in
Chemistry and a Ph.D. in Physical Chemistry from Leeds
University, UK. Dr. Gonda is the Chairman of the Scientific
Advisory Board of Aradigm.
Stephen O. Jaeger has been a director since March 2004.
He has been the Chairman of eBT International, Inc., a former
software products and services company, since 1999.
Mr. Jaeger also held the positions of President and Chief
Executive Officer from 1999 to December 2005. Prior to joining
eBT, Mr. Jaeger was the Executive Vice President and Chief
Financial Officer of Clinical Communications Group, Inc., a
provider of educational marketing services to the pharmaceutical
and biotech industries, from 1997 to 1998. From 1995 to 1997,
Mr. Jaeger served as Vice President, Chief Financial
Officer and Treasurer of Applera Corp., formerly known as
Perkin-Elmer Corporation, an analytical instruments and systems
company with a focus on life sciences and genetic discovery.
Prior to 1995, Mr. Jaeger was Chief Financial Officer and a
director of Houghton Mifflin Company and held various financial
positions with the British Petroleum Company, PLC, Weeks
Petroleum Limited and Ernst & Young LLP.
4
Mr. Jaeger holds a B.A. in Psychology from Fairfield
University and an MBA in Accounting from Rutgers University and
is a Certified Public Accountant. Mr. Jaeger is on the
boards of Savient Pharmaceuticals, Inc. and Arlington Tankers
Ltd. Mr. Jaeger is the Chairman of and the designated
financial expert on Aradigms and
Savients Audit Committees and is the Chairman of Arlington
Tankers Audit Committee.
V. Bryan Lawlis, Ph. D. has been a director since
February 2005 and has served as our President and Chief
Executive Officer since August 2004. Dr. Lawlis served as our
President and Chief Operating Officer from June 2003 to August
2004 and as our Chief Operating Officer from November 2001 to
June 2003. Previously, Dr. Lawlis founded Covance
Biotechnology Services, a contract biopharmaceutical
manufacturing operation, and served as its President and Chief
Executive Officer from 1996 to 1999, and as Chairman from 1999
to 2001 when it was sold to Diosynth RTP, Inc., a division of
Akzo Nobel, NV. From 1981 to 1996, Dr. Lawlis was employed
at Genencor, Inc., and Genentech, Inc. His last position at
Genentech was Vice President of Process Sciences. Dr. Lawlis
holds a B.A. in Microbiology from the University of Texas at
Austin, and a Ph.D. in Biochemistry from Washington State
University.
Virgil D. Thompson has been a director since June 1995
and has been Chairman of the Board since January 2005. Since
November 2002, Mr. Thompson has been President and Chief
Executive Officer of Angstrom Pharmaceuticals, Inc., a
pharmaceutical company. From September 2000 to November 2002,
Mr. Thompson was President, Chief Executive Officer and Director
of Chimeric Therapies, Inc., a biotechnology company. From May
1999 until September 2000, Mr. Thompson was the President,
Chief Operating Officer and a Director of Bio-Technology General
Corp. (now Savient Pharmaceuticals Inc.), a pharmaceutical
company. From January 1996 to April 1999, Mr. Thompson was
the President and Chief Executive Officer and a Director of
Cytel Corporation, a biopharmaceutical company. From 1994 to
1996, Mr. Thompson was President and Chief Executive
Officer of Cibus Pharmaceuticals, Inc., a drug delivery device
company. From 1991 to 1993, Mr. Thompson was President of
Syntex Laboratories, Inc., a pharmaceutical company.
Mr. Thompson holds a B.S. in Pharmacy from Kansas
University and a J.D. from The George Washington University Law
School. Mr. Thompson is also a director of Questcor
Pharmaceuticals, Inc. and Savient.
THE BOARD
OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Independence
of the Board of Directors
As required under the Nasdaq Stock Market (Nasdaq)
listing standards, a majority of the members of a listed
companys board of directors must qualify as
independent, as affirmatively determined by the
board of directors. The Board consults with counsel to ensure
that the Boards determinations are consistent with all
relevant securities and other laws and regulations regarding the
definition of independent, including those set forth
in pertinent listing standards of the Nasdaq, as in effect from
time to time.
Consistent with these considerations, after review of all
relevant transactions or relationships between each director, or
any of his or her family members, and us, our senior management
and our independent auditors, the Board affirmatively has
determined that all of our directors are independent directors
within the meaning of the applicable Nasdaq listing standards,
except for Dr. Lawlis, our President and Chief Executive
Officer, and Mr. R. Thompson, who was employed as our
Chief Executive Officer until August 2004.
As required under applicable Nasdaq listing standards, in fiscal
2005 our independent directors met twelve times in regularly
scheduled executive sessions at which only independent directors
were present. Persons interested in communicating with the
independent directors with their concerns or issues may address
correspondence to a particular director, or to the independent
directors generally, in care of Aradigm at 3929 Point Eden Way,
Hayward, California, 94545.
5
Information
Regarding the Board of Directors and its Committees
The Board has three committees: an Audit Committee, a
Compensation Committee and a Nominating and Corporate Governance
Committee (formerly called the Nominating Committee). The
following table provides membership information for each of the
Board committees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominating and
|
|
Name
|
|
Audit
|
|
|
Compensation
|
|
|
Governance
|
|
|
Frank H. Barker
|
|
|
X
|
|
|
|
|
|
|
|
X
|
*
|
Igor Gonda
|
|
|
|
|
|
|
X
|
|
|
|
|
|
Stephen Jaeger
|
|
|
X
|
*
|
|
|
X
|
|
|
|
|
|
V. Bryan Lawlis
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Nehra
|
|
|
|
|
|
|
|
|
|
|
X
|
|
Wayne I. Roe
|
|
|
X
|
|
|
|
|
|
|
|
|
|
Richard P. Thompson
|
|
|
|
|
|
|
|
|
|
|
X
|
|
Virgil D. Thompson
|
|
|
|
|
|
|
X
|
*
|
|
|
|
|
Total Meetings in fiscal year 2005
|
|
|
6
|
|
|
|
4
|
|
|
|
2
|
|
Audit
Committee
The Audit Committee of the Board oversees our corporate
accounting and financial reporting process. For this purpose,
the Audit Committee performs several functions. The Audit
Committee evaluates the performance of and assesses the
qualifications of the independent auditors; determines and
approves the engagement of the independent auditors; determines
whether to retain or terminate the existing independent auditors
or to appoint and engage new independent auditors; reviews and
approves the retention of the independent auditors to perform
any proposed permissible non-audit services; monitors the
rotation of partners of the independent auditors on our audit
engagement team as required by law; confers with management and
the independent auditors regarding the effectiveness of internal
controls over financial reporting; establishes procedures, as
required under applicable law, for the receipt, retention and
treatment of complaints received by us regarding accounting,
internal accounting controls or auditing matters and the
confidential and anonymous submission by employees of concerns
regarding questionable accounting or auditing matters; reviews
the financial statements to be included in our Annual Report on
Form 10-K
and our quarterly financial statements; and discusses with
management and the independent auditors the results of the
annual audit. The Audit Committee held six meetings during the
fiscal year. Currently, three directors comprise the Audit
Committee: Messrs. Barker, Jaeger (chair) and Roe.
Following the Annual Meeting, it is expected that Messrs.
Barker, Jaeger and V. Thompson will be the members of the Audit
Committee. The Audit Committee has adopted a written Audit
Committee Charter, which is attached as Appendix A to the
2004 Proxy Statement.
The Board annually reviews the Nasdaq listing standards
definition of independence for Audit Committee members and has
determined that all members of our Audit Committee are
independent (as independence is currently defined in
Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq listing
standards. The Board has determined that Mr. Jaeger
qualifies as an audit committee financial expert, as
defined in applicable rules of the Securities and Exchange
Commission (the SEC). The Board made a qualitative
assessment of Mr. Jaegers level of knowledge and
experience based on a number of factors, including his formal
education and experience as a Chief Financial Officer for public
reporting companies.
Compensation
Committee
The Compensation Committee of the Board reviews and recommends
to the Board the overall compensation strategy and policies for
us. The Compensation Committee reviews and recommends to the
Board corporate performance goals and objectives relevant to the
compensation of our executive officers and other senior
management; reviews and recommends to the Board the compensation
and other terms of employment of our
6
Chief Executive Officer; reviews and recommends to the Board for
approval the compensation and other terms of employment of the
other officers; and oversees the administration of our stock
option and purchase plans, pension and profit sharing plans,
stock bonus plans, deferred compensation plans and other similar
programs. Three directors currently comprise the Compensation
Committee: Dr. Gonda and Messrs. Jaeger and V.
Thompson (chair). All members of our Compensation Committee are
independent (as independence is currently defined in
Rule 4200(a)(15) of the Nasdaq listing standards). The
Compensation Committee held four meetings during the fiscal year.
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance Committee of the Board
is responsible for identifying, reviewing and evaluating
candidates to serve as directors (consistent with criteria
approved by the Board), reviewing and evaluating incumbent
directors, recommending to the Board for selection candidates
for election to the Board, making recommendations to the Board
regarding the membership of the committees of the Board,
assessing the performance of management and the Board,
monitoring compliance with the our Code of Business Conduct and
Ethics, periodically reviewing the performance of the Board and
its committees and overseeing the process for dissemination of
information to directors. Our Nominating and Corporate
Governance Committee charter can be found on our corporate
website at www.aradigm.com. The Nominating and Corporate
Governance Committee met twice during the fiscal year.
Currently, the Nominating and Corporate Governance Committee
consists of three directors: Messrs. Barker (chair), Nehra
and R. Thompson. Following the annual meeting, it is expected
that Mr. Barker and Dr. Gonda will be members of the
Nominating and Corporate Governance Committee. All current
members of the Nominating and Corporate Governance Committee are
independent (as independence is currently defined in
Rule 4200(a)(15) of the Nasdaq listing standards), except
for Mr. R. Thompson, who was employed as our Chief
Executive Officer until August 2004.
Any potential candidates for director nominees, including
candidates recommended by shareholders, are reviewed in the
context of the current composition of the Board, our operating
requirements and the long-term interests of shareholders. In
conducting this assessment, the Committee considers such factors
as it deems appropriate given our current needs and those of our
Board, to maintain a balance of knowledge, experience and
capability. In the case of incumbent directors whose terms of
office are set to expire, the Nominating and Corporate
Governance Committee reviews such directors overall
service during their term, including the number of meetings
attended, level of participation and quality of performance. The
Committee also determines whether the nominee would be
independent for Nasdaq purposes, which determination is based
upon applicable Nasdaq listing standards, applicable SEC rules
and regulations and the advice of counsel, if necessary. The
Committee then compiles a list of potential candidates from
suggestions it may receive, but may also engage, if it deems
appropriate, a professional search firm to generate additional
suggestions. The Committee conducts any appropriate and
necessary inquiries into the backgrounds and qualifications of
possible candidates as it deems appropriate. The Committee meets
to discuss and consider such candidates qualifications and
then selects a nominee for recommendation to the Board by
majority vote. To date, the Nominating and Corporate Governance
Committee has not paid a fee to any third party to assist in the
process of identifying or evaluating director candidates. While
the Committee and the Board have from time to time received and
considered suggestions from shareholders for nominations to the
Board, the Committee has received no suggestions for which
disclosure is required in this proxy statement.
The Nominating and Corporate Governance Committee will consider
director candidates recommended by shareholders. The Committee
will consider candidates recommended by shareholders in the same
manner as it considers recommendations from other sources.
Shareholders who wish to recommend individuals for consideration
by the Nominating and Corporate Governance Committee to become
nominees for election to the Board may do so by delivering a
written recommendation to the Nominating and Corporate
Governance Committee at the following address: 3929 Point Eden
Way, Hayward, California 94545 at least 60 days prior to
the anniversary date of the last annual meeting of shareholders.
Submissions should include the full name of the proposed
nominee, a description of the proposed nominees business
experience for at least the previous five years, complete
biographical information, a description of the proposed
nominees qualifications as a director and a representation
that the nominating shareholder is a beneficial or record owner
of our stock.
7
Meetings
of the Board of Directors
The Board held eleven meetings during the last fiscal year. Each
Board member attended 75% or more of the aggregate of the
meetings of the Board and of the committees on which he served,
held during the period for which he was a director or committee
member, respectively.
Shareholder
Communications with the Board of Directors
We have implemented a process by which shareholders may
communicate with the Board or any of its directors. Shareholders
who wish to communicate with the Board may do so by sending
written communications addressed to the Secretary of Aradigm at
3929 Point Eden Way, Hayward, California 94545. All
communications will be compiled by our Secretary and submitted
to the Board or the individual directors on a periodic basis.
All communications directed to the Audit Committee in accordance
with our whistleblower policy that relate to questionable
accounting or auditing matters involving us will be forwarded
directly to the Audit Committee.
Code of
Ethics
We have adopted the Aradigm Corporation Code of Business Conduct
and Ethics that applies to all of our officers, directors and
employees. The Code of Business Conduct and Ethics is available
on our website at www.aradigm.com. If we make any substantive
amendments to the Code of Business Conduct and Ethics or grant
any waiver from a provision of the Code to any executive officer
or director, we will promptly disclose the nature of the
amendment or waiver on our website.
8
REPORT OF
THE AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS*
The Audit Committee of the Board of Directors has the
responsibility, under delegated authority from the Board of
Directors, for providing independent, objective oversight of the
accounting functions and internal controls of Aradigm
Corporation (the Company). The Audit Committee is
comprised of three non-employee directors and acts under a
written charter adopted and approved by the Board of Directors.
The Audit Committee oversees the Companys financial
reporting process on behalf of the Board of Directors.
Management has the primary responsibility for the financial
statements and the reporting process, including the systems of
internal controls. The Audit Committee meets with the
independent auditors, who report directly to the Audit
Committee, with and without management present, to discuss the
results of their examinations, the evaluations of the
Companys internal controls, and the overall quality of the
Companys financial reporting. In addition, the Audit
Committee reviews the Companys quarterly and annual SEC
reports. In fulfilling its oversight responsibilities, the Audit
Committee has met and held discussions with management and the
independent auditors. Management represented to the Audit
Committee that the Companys financial statements were
prepared in accordance with generally accepted accounting
principles, and the Audit Committee has reviewed and discussed
the financial statements with management and the independent
auditors. The Audit Committee discussed with the independent
auditors matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication With Audit
Committees).
In addition, the Audit Committee has discussed with the
independent auditors, the auditors independence from the
Company and its management, including the matters in the written
disclosures and the letter from the independent auditors
required by the Independence Standards Board Standard No. 1
(Independence Discussion With Audit Committees). The Audit
Committee also discussed with the Companys independent
auditors the overall scope and plans for their audit and
quarterly reviews.
In reliance on the reviews and discussions referred to above,
the Audit Committee recommended to the Board of Directors, and
the Board of Directors has approved, that the audited financial
statements be included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2005, for filing with the
SEC.
From the members of the Audit Committee of Aradigm Corporation:
Frank H. Barker
Stephen Jaeger
Wayne I. Roe
* The
material in this report is not soliciting material,
is not deemed filed with the SEC, and is not to be
incorporated by reference into any filing of the Company under
the Securities Act of 1933, as amended (the 1933
Act) or the Securities Act of 1934, as amended (the
1934 Act), whether made before or after the
date hereof and irrespective of any general incorporation
language contained in such filing.
9
PROPOSAL 2
APPROVAL OF 2005 EQUITY INCENTIVE PLAN, AS AMENDED AND
RESTATED
In March 2005, the Board adopted, and our shareholders
subsequently approved, the Aradigm Corporation 2005 Equity
Incentive Plan (the 2005 Plan), an amended, restated
and retitled version of the Aradigm Corporation 1996 Equity
Incentive Plan. As of February 28, 2006, a total of
2,918,638 shares of our Common Stock have been authorized
for issuance under the 2005 Plan.
As of February 28, 2006, options (net of canceled or
expired options) covering an aggregate of 2,147,401 shares
of our Common Stock had been granted under the 2005 Plan, and
771,237 shares remained available for future grant under
the 1996 Plan. During the last fiscal year, under the 2005 Plan,
we granted to all current executive officers as a group options
to purchase 155,000 shares at an exercise price of
$5.90 per share and to all employees and directors
(excluding current executive officers) as a group options to
purchase 170,460 shares at exercise prices of $4.30 to
$7.95 per share.
In March 2006, the Board adopted an amendment and restatement of
the 2005 Plan, subject to shareholder approval, primarily to
increase the number of shares authorized for issuance under the
2005 Plan by 2,000,000 shares to 4,918,638 shares.
This amendment and restatement is intended to afford us with
greater flexibility in providing employees with stock incentives
and ensures that we can continue to provide such incentives at
levels determined appropriate by the Board.
The approval of the amendment and restatement of the 2005 Plan
also will allow us to include performance-based criteria for
certain stock awards (performance-based awards) that
may be granted under the 2005 Plan. As discussed more fully
below, performance-based awards will be granted only upon the
attainment during a specified time period of performance goals
pre-established by the Board. Such awards may qualify as
performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the Code), and applicable regulations, and
therefore may be exempt from the limitation on corporate
deductibility of compensation in excess of $1 million paid
to certain covered employees in a taxable year. The
term covered employees means the chief executive
officer and our four other highest compensated officers, as
determined under Section 162(m) of the Code.
The following summary description of the 2005 Plan, as amended
and restated, is qualified in its entirety by reference to the
full text of the 2005 Plan that is attached as Appendix A
to the proxy statement filed via EDGAR with the SEC, including
all changes that this proposal would effect if approved by our
shareholders at the annual meeting.
Shareholders are requested in this Proposal 2 to approve
the amendment and restatement of the 2005 Plan. The affirmative
vote of the holders of a majority of the shares present in
person or represented by proxy and voting at the meeting will be
required to approve the amendment and restatement of the 2005
Plan. For purposes of this vote, abstentions and broker
non-votes will not be counted for any purpose in determining
whether this matter has been approved.
THE BOARD
OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 2005 Plan are outlined below:
General
The 2005 Plan provides for the grant of incentive stock options,
nonstatutory stock options, stock purchase awards, stock bonus
awards, stock unit awards, stock appreciation rights and other
forms of equity compensation (collectively, the stock
awards). Incentive stock options granted under the 2005
Plan are intended to qualify as incentive stock
options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, or the
Code. Nonstatutory stock options granted under the
2005 Plan are not intended to qualify as incentive stock options
under the Code. See Federal Income Tax Information
for a discussion of the tax treatment of stock awards.
10
Purpose
We adopted the 2005 Plan to provide a means by which selected
officers, directors, employees of and consultants to us and our
affiliates could be given an opportunity to acquire an equity
interest in Aradigm Corporation, to assist in retaining the
services of employees holding key positions, to secure and
retain the services of persons capable of filling such positions
and to provide incentives for such persons to exert maximum
efforts for our success. As of February 28, 2006, all of
our approximately 103 employees, directors, and consultants are
eligible to participate in the 2005 Plan.
Administration
The Board administers the 2005 Plan. Subject to the provisions
of the 2005 Plan, the Board has the authority to construe and
interpret the plan, to determine the persons to whom and the
dates on which stock awards will be granted, the type of stock
award to grant to such person, the number of shares of Common
Stock to be subject to each stock award, the time or times
during the term of each stock award within which all or a
portion of the award may be exercised, the exercise, purchase,
or strike price of each stock award, the type of consideration
permitted to exercise or purchase each stock award, and other
terms of the stock awards.
The Board is authorized to delegate administration of the 2005
Plan to a committee composed of not fewer than two members of
the Board. The Board has delegated administration of the 2005
Plan to the Compensation Committee of the Board. As used herein
with respect to the 2005 Plan, the Board refers to
the Compensation Committee as well as to the Board of Directors
itself. In the Boards discretion, directors serving on the
Compensation Committee will be outside directors
within the meaning of Section 162(m) of the Code
(Section 162(m)). See Federal Income Tax
Information for a discussion of the application of
Section 162(m).
The Board may also delegate to one or more of our officers the
authority to designate officers and employees to be recipients
of stock awards and the terms thereof
and/or
determine the number of shares of our Common Stock to be subject
to the stock awards granted to such officers and employees, so
long as the Board resolution delegating such authority specifies
the total number of shares of Common Stock underlying stock
awards that the officer may grant, the officer does not grant
any stock awards to himself or herself and the Board does not
delegate the authority to determine the fair market value on the
date of grant of the Common Stock underlying the stock awards.
Eligibility
Incentive stock options may be granted under the 2005 Plan only
to our employees (including officers) and our affiliates.
Employees, non-employee Board members and consultants of us and
our affiliates are eligible to receive all other types of stock
awards under the 2005 Plan.
No incentive stock option may be granted under the 2005 Plan to
any person who, at the time of the grant, owns (or is deemed to
own) stock possessing more than 10% of our total combined voting
power or its affiliates, unless the exercise price of such
option is at least 110% of the fair market value of the stock
subject to the option on the date of grant and the term of the
option does not exceed five years from the date of grant. In
addition, the aggregate fair market value, determined on the
date of grant, of the shares of Common Stock with respect to
which incentive stock options are exercisable for the first time
by a participant during any calendar year (under the 2005 Plan
and any of our other plans and those of our affiliates) may not
exceed $100,000.
No employee may be granted stock awards under the 2005 Plan
exercisable for more than 1,500,000 shares of Common Stock
during any calendar year.
Stock
Subject to the 2005 Plan
Subject to this Proposal, an aggregate of 4,918,638 shares
of Common Stock are reserved for issuance under the 2005 Plan.
This share reserve consists of the number of shares we estimate
will be carried over from the 1996 Plan, including shares
subject to outstanding options under such predecessor plan, plus
the additional shares that are the subject of Proposal 2.
If stock awards granted under the 2005 Plan expire or otherwise
terminate without being exercised or if we reacquire shares of
Common Stock pursuant to the terms of unvested stock awards, the
shares of Common Stock not acquired pursuant to such stock
awards again become available for issuance under the 2005 Plan
11
(provided, however, that any shares of Common Stock reacquired
pursuant to incentive stock option awards will again become
available for reissuance only for awards other than incentive
stock options). If any shares of Common Stock subject to a stock
award are not delivered because such shares are withheld for
payment of taxes or because such shares are tendered as
consideration for the exercise price of a stock award, the
shares of Common Stock not delivered pursuant to such stock
awards again become available for issuance under the 2005 Plan;
provided, however, that any shares of Common Stock not delivered
pursuant to incentive stock option awards will again become
available for reissuance only for awards other than incentive
stock options.
Terms of
Options
The following is a description of the permissible terms of
options under the 2005 Plan. Individual stock option agreements
may be more restrictive as to any or all of the permissible
terms described below.
Exercise Price. The exercise price of
incentive stock options under the 2005 Plan may not be less than
the fair market value of our Common Stock subject to the option
on the date of the option grant, and in some cases (see
Eligibility above), may not be less than 110% of
such fair market value. The exercise price of nonstatutory
options under the 2005 Plan may not be less than 100% of the
fair market value of our Common Stock subject to the option on
the date of the option grant. At February 28, 2006, the
closing price of our Common Stock as reported on the Nasdaq
National Market System was $3.58 per share.
Consideration. The exercise price of options
granted under the 2005 Plan must be paid either in cash at the
time the option is exercised or, at the discretion of the Board,
(i) pursuant to a broker-assisted same-day
sale, (ii) by delivery of other shares of our Common
Stock, (iii) pursuant to a deferred payment arrangement or
(iv) in any other form of legal consideration acceptable to
the Board.
Restrictions on Repricing. Under the terms of
the 2005 Plan, the Board does not have the authority to reprice
any outstanding stock awards under the 2005 Plan or cancel and
re-grant any outstanding stock awards under the 2005 Plan,
unless our shareholders have approved such an action within
12 months prior to such an event.
Vesting. Options granted under the 2005 Plan
may become exercisable in cumulative increments, or
vest, as determined by the Board. Shares covered by
currently outstanding options under the 2005 Plan typically vest
at the rate of 25% per year during the optionees
employment or services as a consultant or director. Shares
covered by options granted in the future under the 2005 Plan may
be subject to different vesting terms. The Board has the
authority to accelerate the time during which an option may
vest. In addition, options granted under the 2005 Plan may
permit exercise prior to vesting. However, any unvested shares
acquired under such an early exercise arrangement may be subject
to repurchase by us or to any other restriction the Board
determines to be appropriate. To the extent provided by the
terms of an option, a participant may satisfy any federal, state
or local tax withholding obligation relating to the exercise of
such option by a cash payment upon exercise, by authorizing us
to withhold a portion of the stock otherwise issuable to the
participant or by such other method as the Board determines to
include in the stock award agreement.
Term. The Board has the discretion to
determine the term of an option. However, the maximum term of an
incentive stock option granted under the 2005 Plan is
10 years, except that in certain cases (see
Eligibility above) the maximum permitted term of
such award is five years. Options under the 2005 Plan terminate
three months after termination of the participants service
unless (i) such termination is due to the
participants permanent and total disability (as defined in
the Code), in which case the option may be exercised (to the
extent the option was exercisable at the time of the termination
of service) at any time within 12 months of such
termination, unless the option agreement provides otherwise;
(ii) the participant dies before the participants
service has terminated, or within a certain period after
termination of service, in which case the option may be
exercised (to the extent the option was exercisable at the time
of the participants death) within 18 months of the
participants death by the person or persons to whom the
rights to such option pass by will or by the laws of descent and
distribution, unless the option agreement provides otherwise; or
(iii) the option by its terms specifically provides
otherwise. In no event, however, may an option be exercised
beyond the expiration of its term.
A participants option agreement may provide that if the
exercise of the option following the termination of the
participants service would be prohibited because the
issuance of stock would violate the registration requirements
12
under the Securities Act, then the option will terminate on the
earlier of (i) the expiration of the term of the option or
(ii) three months after the termination of the
participants service during which the exercise of the
option would not be in violation of such registration
requirements.
Restrictions on Transfer. Unless specified
otherwise by the Board or required by law, a participant in the
2005 Plan may not transfer a stock option other than by will or
by the laws of descent and distribution or pursuant to a
domestic relations order. During the lifetime of the
participant, only the participant may exercise a stock option. A
participant may designate a beneficiary who may exercise an
option following the participants death. Shares subject to
repurchase by us pursuant to an early exercise arrangement may
be subject to restrictions on transfer that the Board deems
appropriate.
Terms of
Stock Purchase Awards and Stock Bonus Awards
Stock purchase awards and stock bonus awards may be granted
under the 2005 Plan pursuant to stock purchase award agreements
and stock bonus award agreements, respectively.
Purchase Price. The purchase price for stock
purchase awards must be at least the par value of our Common
Stock.
Consideration. The purchase price for stock
purchase awards may be paid in cash, or, at the discretion of
the Board, under a deferred payment or similar arrangement, by
past services rendered to us or in any other form of legal
consideration acceptable to the Board and permissible under
applicable law. The Board may grant stock bonus awards in
consideration for past services rendered to us or any other form
of legal consideration acceptable to the Board and permissible
under applicable law.
Vesting. Shares of stock acquired under a
stock purchase may, but need not, be subject to a repurchase
right or option in our favor; and shares of stock acquired under
a stock bonus award may, but need not, be subject to forfeiture
to us in accordance with a vesting schedule as determined by the
Board. The Board has the authority to accelerate the vesting of
stock acquired pursuant to a stock purchase or stock bonus award.
Termination of Service. Upon termination of a
participants service, we may repurchase or otherwise
reacquire any forfeited shares of stock that have not vested as
of such termination under the terms of the applicable stock
purchase award or stock bonus award agreement.
Restrictions on Transfer. Rights to acquire
shares under a stock purchase or stock bonus award may be
transferred only upon such terms and conditions as may be
approved by the Board.
Terms of
Stock Unit Awards
Stock unit awards may be granted under the 2005 Plan pursuant to
stock unit award agreements.
Consideration. The purchase price for stock
unit awards may be paid in any form of legal consideration
acceptable to the Board.
Settlement of Awards. A stock unit award may
be settled by the delivery of shares of our Common Stock, cash,
in any combination of the two or in any other form of
consideration, as determined by the Board.
Vesting. At the time of the grant of a stock
unit, the Board may such restrictions or conditions to the
vesting of the stock unit as it, in its sole discretion, deems
appropriate. Also, at the time of grant, the Board may impose
additional restrictions or conditions that delay the delivery of
stock or cash subject to the stock unit award after vesting. The
Board has the authority to accelerate the vesting of stock unit
awards as it deems appropriate.
Dividend Equivalents. Dividend equivalent
rights may be credited with respect to shares covered by a stock
unit award, as determined by the Board. We do not anticipate
paying cash dividends on our Common Stock for the foreseeable
future.
Termination of Service. Except as otherwise
provided in the applicable award agreement, stock units that
have not vested will be forfeited upon the participants
termination of service.
13
Terms of
Stock Appreciation Rights
Stock appreciation rights may be granted under the 2005 Plan
pursuant to stock appreciation rights agreements.
Exercise. Each stock appreciation right is
denominated in shares of Common Stock equivalents. Upon exercise
of a stock appreciation right, we will pay the participant an
amount equal to the excess of (i) the aggregate fair market
value on the date of exercise of a number of Common Stock
equivalents with respect to which the participant is exercising
the stock appreciation right over (ii) the strike price on
the date of grant, as determined by the Board.
Settlement of Awards. The appreciation
distribution upon exercise of a stock appreciation right may be
paid in cash, in shares of our Common Stock, in any combination
of the two or in any other form of consideration determined by
the Board.
Vesting. The Board may impose such conditions
and restrictions as to the vesting of stock appreciation rights
as it deems appropriate. The Board has the authority to
accelerate the vesting of stock appreciation rights as it deems
appropriate.
Termination of Service. Upon termination of a
participants service, the participant generally may
exercise any vested stock appreciation right for three months
(or such longer or shorter period specified in the stock
appreciation right agreement) after the date such service
relationship ends. In no event may a stock appreciation right be
exercised beyond the expiration of its term.
Terms of
Other Equity Awards
The Board may grant other equity awards based in whole or in
part by reference to the value of our Common Stock. See the full
text of the 2005 Plan, set forth in Appendix A to the Proxy
Statement filed via EDGAR with the SEC, for more details.
Subject to the provisions of the 2005 Plan, the Board has the
authority to determine the persons to whom and the dates on
which such other equity awards will be granted, the number of
shares of Common Stock (or cash equivalents) to be subject to
each award, and other terms and conditions of such awards.
Performance-Based
Stock Awards
Under the 2005 Plan, a stock award may be granted, vest or be
exercised based upon the attainment during a certain period of
time of certain performance goals. All employees of and
consultants to us and our affiliates and directors are eligible
to receive performance-based stock awards under the 2005 Plan.
The length of any performance period, the performance goals to
be achieved during the performance period, and the measure of
whether and to what degree such performance goals have been
attained shall be determined by the Board. The maximum benefit
to be received by any individual in any calendar year
attributable to performance-based stock awards may not exceed
the value of 500,000 shares of our Common Stock.
In granting a performance-based stock award, the Board will set
a period of time (a performance period) over which
the attainment of one or more goals (performance
goals) will be measured for the purpose of determining
whether the award recipient has a vested right in or to such
award. Within the time period prescribed by Section 162(m)
of the Code (typically before the 90th day of a performance
period), the Board will establish the performance goals, based
upon one or more pre-established criteria (performance
criteria) enumerated in the 2005 Plan and described below.
As soon as administratively practicable following the end of the
performance period, the Board will certify (in writing) whether
the performance goals have been satisfied.
Performance goals under the 2005 Plan shall be determined by the
Board, based on one or more of the following performance
criteria: (i) earnings per share; (ii) earnings before
interest, taxes and depreciation; (iii) earnings before
interest, taxes, depreciation and amortization (EBITDA);
(iv) net earnings; (v) total shareholder return;
(vi) return on equity; (vii) return on assets,
investment or capital employed; (viii) operating margin;
(ix) gross margin; (x) operating income; (xi) net
income (before or after taxes); (xii) net operating income;
(xiii) net operating income after tax; (xiv) pre- and
after-tax income; (xv) pre-tax profit; (xvi) operating
cash flow; (xvii) sales or revenue targets;
(xviii) increases in revenue or product revenue;
(xix) expenses and cost reduction goals;
14
(xx) improvement in or attainment of expense levels;
(xxi) improvement in or attainment of working capital
levels; (xxii) economic value added (or an equivalent
metric); (xxiii) market share; (xxiv) cash flow;
(xxv) cash flow per share; (xxvi) share price
performance; (xxvii) debt reduction;
(xxviii) implementation or completion of projects or
processes; (xxix) customer satisfaction; (xxx) total
shareholder return; (xxxi) shareholders equity; and
(xxxii) to the extent that an award is not intended to
comply with Section 162(m) of the Code, other measures of
performance selected by the Board.
The Board is authorized to adjust or modify the calculation of a
performance goal for a performance period in order to prevent
the dilution or enlargement of the rights of participants,
(a) in the event of, or in anticipation of, any unusual or
extraordinary corporate item, transaction, event or development;
(b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting us, or our financial
statements, or in response to, or in anticipation of, changes in
applicable laws, regulations, accounting principles, or business
conditions; or (c) in view of the Boards assessment
of our business strategy, performance of comparable
organizations, economic and business conditions, and any other
circumstances deemed relevant. Specifically, the Board is
authorized to make adjustment in the method of calculating
attainment of performance goals and objectives for a performance
period as follows: (i) to exclude the dilutive effects of
acquisitions or joint ventures; (ii) to assume that any
business we divested achieved performance objectives at targeted
levels during the balance of a performance period following such
divestiture; and (iii) to exclude the effect of any change
in the outstanding shares of our Common Stock by reason of any
stock dividend or split, stock repurchase, reorganization,
recapitalization, merger, consolidation, spin-off, combination
or exchange of shares or other similar corporate change, or any
distributions to common shareholders other than regular cash
dividends. In addition, the Board is authorized to make
adjustment in the method of calculating attainment of
performance goals and objectives for a performance period as
follows: (i) to exclude restructuring
and/or other
nonrecurring charges; (ii) to exclude exchange rate
effects, as applicable, for
non-U.S. dollar
denominated net sales and operating earnings; (iii) to
exclude the effects of changes to generally accepted accounting
standards required by the Financial Accounting Standards Board;
(iv) to exclude the effects to any statutory adjustments to
corporate tax rates; (v) to exclude the impact of any
extraordinary items as determined under generally
accepted accounting principles; and (vi) to exclude any
other unusual, non-recurring gain or loss or other extraordinary
item.
Changes
to Capital Structure
In the event any change is made to the outstanding shares of our
Common Stock without our receipt of consideration (whether
through a stock split or other specified change in our capital
structure), appropriate adjustments will be made to:
(i) the maximum number
and/or class
of securities issuable under the 2005 Plan; (ii) the
maximum number
and/or class
of securities issuable as incentive stock options under the 2005
Plan; (iii) the maximum number
and/or class
of securities for which any one person may be granted options
and/or stock
appreciation rights or performance-based awards per calendar
year pursuant to the limitation under Section 162(m); and
(iv) the number
and/or class
of securities and the price per share in effect under each
outstanding stock award under the 2005 Plan.
Effect of
Certain Corporate Events
In the event of our dissolution or liquidation, any stock award
which remains unvested or subject to a right or repurchase shall
terminate immediately prior to such liquidation or dissolution
and the shares of Common Stock subject to such repurchase right
may be repurchased by us notwithstanding that that the holder of
such award is providing service to us. The Board may, in its
discretion, cause some or all stock awards to become fully
vested, exercisable
and/or no
longer subject to repurchase or forfeiture before the
liquidation or dissolution is completed, but contingent on its
completion.
In the event of certain significant corporate transactions, all
outstanding stock awards under the 2005 Plan may be assumed,
continued or substituted for by any surviving or acquiring
entity (or its parent company). If the surviving or acquiring
entity (or its parent company) elects not to assume, continue or
substitute such stock awards, then (i) with respect to any
such stock awards that are held by individuals then performing
services for us or our affiliates, the vesting and
exercisability provisions of such stock awards will be
accelerated in full and such awards
15
will be terminated if not exercised prior to the effective date
of the corporate transaction; and (ii) all other
outstanding stock awards will be terminated if not exercised
prior to the effective date of the corporate transaction.
A significant corporate transaction will be deemed to occur in
the event of (i) a sale or all or substantially all of our
consolidated assets and those of our subsidiaries, (ii) the
sale of at least 90% of our outstanding securities, (iii) a
merger or consolidation in which we are not the surviving
corporation or (iv) a merger, consolidation or similar
transaction in which we are the surviving corporation, but
shares of our outstanding Common Stock are converted into other
property by virtue of the transaction.
Following certain specified change in control transactions, the
vesting and exercisability of specified stock awards will be
accelerated only if specifically provided by a
participants award agreement. The acceleration of a stock
award in the event of certain significant corporate transactions
or a change in control may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of us.
Duration,
Termination and Amendment
The Board may suspend or terminate the 2005 Plan without
shareholder approval or ratification at any time. Unless sooner
terminated, the 2005 Plan will terminate on March 20, 2015.
The Board may amend the 2005 Plan at any time or from time to
time. However, no amendment will be effective unless approved by
our shareholders if the amendment would (i) modify the
requirements as to eligibility for participation (to the extent
such modification requires shareholder approval in order for the
2005 Plan to satisfy Section 422 of the Code, if
applicable, or
Rule 16b-3
of the Securities Exchange Act of 1934, as amended (the
Exchange Act)); (ii) increase the number of
shares reserved for issuance upon exercise of awards; or
(iii) change any other provision of the 2005 Plan in any
other way if such modification requires shareholder approval in
order to comply with
Rule 16b-3
of the Exchange Act or satisfy the requirements of
Section 422 of the Code or any securities exchange listing
requirements. The Board may submit any other amendment to the
2005 Plan for shareholder approval, including, but not limited
to, amendments intended to satisfy the requirements of
Section 162(m) regarding the exclusion of performance-based
compensation from the limitation on the deductibility of
compensation paid to certain employees.
Federal
Income Tax Information
The following is a summary of the principal United States
federal income taxation consequences to employees and us with
respect to participation in the 2005 Plan. This summary is not
intended to be exhaustive, and does not discuss the income tax
laws of any city, state or foreign jurisdiction in which a
participant may reside.
Incentive Stock Options. Incentive stock
options granted under the 2005 Plan are intended to be eligible
for the favorable federal income tax treatment accorded
incentive stock options under the Code. There
generally are no federal income tax consequences to the
participant or us by reason of the grant or exercise of an
incentive stock option. However, the exercise of an incentive
stock option may give rise to or increase alternative minimum
tax liability for the participant.
If a participant holds stock acquired through exercise of an
incentive stock option for more than two years from the date on
which the option was granted and more than one year after the
date the option was exercised for those shares, any gain or loss
on a disposition of those shares (a qualifying
disposition) will be a long-term capital gain or loss.
Upon such a qualifying disposition, we will not be entitled to
any income tax deduction.
Generally, if the participant disposes of the stock before the
expiration of either of these holding periods (a
disqualifying disposition), then at the time of
disposition the participant will realize taxable ordinary income
equal to the lesser of (i) the excess of the stocks
fair market value on the date of exercise over the exercise
price or (ii) the participants actual gain, if any,
on the purchase and sale. The participants additional gain
or any loss upon the disqualifying disposition will be a capital
gain or loss, which will be long-term or short-term depending on
whether the stock was held for more than one year.
16
To the extent the participant recognizes ordinary income by
reason of a disqualifying disposition, generally we will be
entitled (subject to the requirement of reasonableness, the
provisions of Section 162(m), and the satisfaction of a tax
reporting obligation) to a corresponding income tax deduction in
the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options, Restricted Stock Purchase Awards
and Stock Bonuses. There generally are no tax
consequences to the participant or us by reason of the grant of
these awards. Upon acquisition of the stock under any of these
awards, the participant normally will recognize taxable ordinary
income equal to the excess, if any, of the stocks fair
market value on the acquisition date over the purchase price.
However, to the extent the stock is subject to certain types of
vesting restrictions, the taxable event will be delayed until
the vesting restrictions lapse unless the participant elects to
be taxed on receipt of the stock under Section 83(b) of the
Code. With respect to employees, we are generally required to
withhold from regular wages or supplemental wage payments an
amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, the provisions of
Section 162(m) and the satisfaction of a tax reporting
obligation, we will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the
participant.
Upon disposition of the stock, the participant will recognize a
capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any
amount recognized as ordinary income upon acquisition (or
vesting) of the stock. Such gain or loss will be long-term or
short-term depending on whether the stock was held for more than
one year. Slightly different rules may apply to participants who
acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
Stock Unit Awards. No taxable income is
generally recognized upon receipt of a stock unit award. The
participant will recognize ordinary income in the year in which
the shares subject to that unit are actually issued to the
participant in an amount equal to the fair market value of the
shares on the date of issuance. We and the participant will be
required to satisfy certain tax withholding requirements
applicable to such income. We will be entitled to an income tax
deduction equal to the amount of ordinary income recognized by
the participant at the time the shares are issued. In general,
the deduction will be allowed for the taxable year in which such
ordinary income is recognized by the participant.
Section 409A of the Code may apply to the grant of a stock
unit award if the award permits the participant to defer receipt
of the stock after vesting, unless a deferral election and
certain other requirements are met.
Stock Appreciation Rights. No taxable income
is realized upon the receipt of a stock appreciation right. Upon
exercise of the stock appreciation right, the fair market value
of the shares (or cash in lieu of shares) received is recognized
as ordinary income to the participant in the year of such
exercise. Generally, with respect to employees, we are required
to withhold from the payment made on exercise of the stock
appreciation right or from regular wages or supplemental wage
payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness,
Section 162(m) and the satisfaction of a reporting
obligation, we will be entitled to an income tax deduction equal
to the amount of ordinary income recognized by the participant.
Potential Limitation on Company
Deductions. Section 162(m) denies a
deduction to any publicly held corporation for compensation paid
to certain covered employees in a taxable year to
the extent that compensation to such covered employee exceeds
$1 million. It is possible that compensation attributable
to awards, when combined with all other types of compensation
received by a covered employee from us, 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
shareholders, and the exercise price of the award is no less
than the fair market value of the stock on the date of grant or
(ii) the award is granted (or exercisable) only upon the
achievement (as certified in writing by the compensation
committee) of an objective performance goal established in
writing by the compensation committee while the outcome is
substantially uncertain, and the award is approved by
shareholders.
17
Stock purchase awards, stock units and stock bonus awards will
qualify as performance-based compensation under the Treasury
Regulations only if (i) the award is 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, shareholders have approved the
material terms of the award (including the class of employees
eligible for such award, the business criteria on which the
performance goal is based, and the maximum
amount or formula used to calculate the
amount payable upon attainment of the
performance goal). The Company intends to comply with these
regulations with respect to performance-based compensation that
it may award.
Equity
Compensation Plan Information
The following table provides certain information with respect to
all of our equity compensation plans in effect as of
December 31, 2005. No equity compensation plans that were
in effect as of December 31, 2005 were adopted without the
approval of our security holders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities
|
|
|
|
|
|
Remaining Available
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
for Issuance Under
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Equity Compensation
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Plans (Excluding Securities
|
|
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column(a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)(1)
|
|
|
Equity compensation plans
approved by security holders
|
|
|
1,729,709
|
|
|
$
|
19.47
|
|
|
|
919,386
|
|
Equity compensation plans not
approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,729,709
|
|
|
$
|
19.47
|
|
|
|
919,386
|
|
|
|
|
(1) |
|
As of December 31, 2005, 2,627,909 and 21,186 shares
are reserved for future issuance under the 2005 Plan and the
1996 Non-Employee Directors Plan, respectively. An
additional 452,400 shares are authorized for issuance under
the Employee Stock Purchase Plan. |
18
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee of the Board of Directors has selected
Ernst & Young LLP as our independent registered public
accounting firm for the fiscal year ending December 31,
2006 and has further directed that management submit the
selection of an independent registered public accounting firm
for ratification by the shareholders at the annual meeting.
Ernst & Young LLP has audited our financial statements
since 1995. Representatives of Ernst & Young LLP are
expected to be present at the annual meeting. They will have an
opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
Neither our bylaws nor other governing documents or law require
shareholder ratification of the selection of Ernst &
Young LLP as our independent registered public accounting firm.
However, the Audit Committee is submitting the selection of
Ernst & Young LLP to the shareholders for ratification
as a matter of good corporate practice. If the shareholders fail
to ratify the selection, the Audit Committee will reconsider
whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee in its discretion may direct the
appointment of different independent auditors at any time during
the year if they determine that such a change would be in the
best interests of us and our shareholders.
The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and voting at the
annual meeting (which shares voting affirmatively also
constitute a majority of the required quorum) will be required
to ratify the selection of Ernst & Young LLP. For
purposes of this vote, abstentions and broker non-votes will not
be counted for any purpose in determining whether this matter
has been approved.
Principal
Accountant Fees and Services
The following table represents aggregate fees billed to us for
fiscal years ended December 31, 2005 and December 31,
2004, by Ernst & Young LLP, our principal accountant.
All services described below were approved by the Audit
Committee.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Audit Fees(1)
|
|
$
|
377
|
|
|
$
|
328
|
|
Audit-related Fees(2)
|
|
|
30
|
|
|
|
15
|
|
Tax Fees(3)
|
|
|
0
|
|
|
|
3
|
|
All Other Fees(4)
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
407
|
|
|
$
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit fees represent fees for professional services related to
the performance of the audit of our annual financial statements,
review of our quarterly financial statements and consents on SEC
filings. |
|
(2) |
|
Audit-related fees in 2005 relate to preparing for the
implementation and internal control documentation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002.
Audit-related fees in 2004 were related to accounting and
reporting consultation on the subject of the proxy materials for
the Special Meeting of Shareholders related to the restructuring
transaction with Novo Nordisk. |
|
(3) |
|
Tax fees represent sales tax advice related to the restructuring
transaction with Novo Nordisk. |
|
(4) |
|
There were no Other fees for professional services by Ernst
& Young in fiscal years ended December 31, 2005 and
December 31, 2004. |
19
Pre-Approval
Policies and Procedures
The Audit Committee pre-approves audit services, audit-related
services, and non-audit services provided by our independent
registered public accounting firm, Ernst & Young, LLP
and will not approve services that the Audit Committee
determines are outside the bounds of applicable laws and
regulations. Pre-approval may also be given as part of the Audit
Committees approval of the scope of the engagement of the
independent registered public accounting firm or on an
individual explicit
case-by-case
basis before the independent registered public accounting firm
is engaged to provide each service. The pre-approval of services
may be delegated to one or more of the Audit Committees
members, but the decision must be reported to the full Audit
Committee at its next scheduled meeting.
The Audit Committee has determined that the rendering of the
services rendered by Ernst & Young LLP other than audit
services is compatible with maintaining the principal
accountants independence.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
20
SECURITY
OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of our common stock and the Preferred Stock as of
February 15, 2006 by: (i) each director and nominee
for director; (ii) each of the executive officers named in
the Summary Compensation Table (provided below); (iii) all
of our executive officers and directors as a group; and
(iv) all those known by us to be beneficial owners of more
than five percent of our common stock or the Preferred Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership
|
|
Common Stock and
|
|
|
Common
|
|
Series A
Preferred
|
|
Preferred Stock
|
|
|
Number of
|
|
Percent of
|
|
Number of
|
|
Percent of
|
|
Combined Voting
|
Beneficial Owner(1)
|
|
Shares
|
|
Total (%)
|
|
Shares
|
|
Total (%)
|
|
Power (%)
|
|
Novo Nordisk A/S(2)
|
|
|
1,573,673
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
10.0
|
|
Novo Alle DK-2880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bagsvaerd, Denmarko
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Enterprise
Associates 10,
Limited Partnership(3)
|
|
|
937,638
|
|
|
|
6.2
|
|
|
|
1,033,057
|
|
|
|
66.9
|
|
|
|
10.9
|
|
1119 St. Paul Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore, MD 21202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurence W. Lytton(4)
|
|
|
787,382
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
467 Central Park West
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain Public Equity Partners,
LP(5)
|
|
|
417,523
|
|
|
|
2.8
|
|
|
|
154,958
|
|
|
|
10.0
|
|
|
|
3.4
|
|
One Palmer Square
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Princeton, NJ 08542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPM BioEquities Master
Fund LP(6)
|
|
|
107,436
|
|
|
|
*
|
|
|
|
206,611
|
|
|
|
13.4
|
|
|
|
1.7
|
|
501 Gateway Blvd., Suite 360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South San Francisco, CA 94080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camden Partners Strategic
Fund II-A,
LP(7)
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
9.7
|
|
|
|
*
|
|
c/o Camden Partners, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One South Street, Suite 2150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore, MD 21202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V. Bryan Lawlis(8)
|
|
|
111,801
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Thomas C. Chesterman(9)
|
|
|
59,750
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Bobba Venkatadri(10)
|
|
|
46,124
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Stephen J. Farr(11)
|
|
|
120,717
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Babatunde A. Otulana(12)
|
|
|
100,767
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Richard P. Thompson(13)
|
|
|
329,249
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Igor Gonda(14)
|
|
|
73,131
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Virgil D. Thompson(15)
|
|
|
55,500
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Stephen O. Jaeger(16)
|
|
|
11,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Frank H. Barker(17)
|
|
|
33,043
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Wayne I. Roe(18)
|
|
|
33,043
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
John M. Nehra(19)
|
|
|
23,058
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
All officers and directors as a
group (14 persons)(20)
|
|
|
1,109,843
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
6.6
|
|
|
|
|
(1) |
|
This table is based upon information supplied by officers,
directors and principal shareholders and Schedules 13D and 13G
filed with the SEC. Unless otherwise indicated in the footnotes
to this table and subject to community property laws where
applicable, we believe that each of the shareholders named in
this table has |
21
|
|
|
|
|
sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are
based on 14,565,201 shares of common stock and
1,235,701 shares of Preferred Stock (convertible at any
time into 988,561 shares of common stock) outstanding on
February 15, 2006, adjusted as required by rules
promulgated by the SEC. |
|
(2) |
|
Represents 1,573,673 shares of common stock held by Novo
Nordisk A/S, a publicly quoted Danish company. According to a
Schedule 13D Amendment No. 4 dated September 28, 2004,
Novo Nordisk A/S holds the shares through Novo Nordisk
Pharmaceuticals, Inc., a Delaware corporation. Novo Nordisk
Pharmaceuticals is a wholly-owned subsidiary of Novo Nordisk of
North America, Inc., a Delaware corporation. Novo Nordisk North
America is wholly owned by Novo Nordisk A/S. Novo A/S, a private
limited Danish company, owns approximately 26.7% of Novo Nordisk
A/Ss total share capital, representing approximately 69.0%
of the voting rights of Novo Nordisk A/S and may be deemed to
control Novo Nordisk A/S. Novo Nordisk A/S is a wholly-owned
subsidiary of Novo Nordisk Foundation, a self-governing and
self-owned foundation. |
|
(3) |
|
Includes 497,917 shares of common stock and warrants to
purchase an aggregate of 439,721 shares of Common Stock
held by NEA 10. According to a Schedule 13D Amendment
No. 4 dated June 25, 2003 and filed jointly by
NEA 10, NEA Partners 10, Limited Partnership
(NEA Partners 10), Stewart Alsop, James Barrett,
Peter J. Barris, Robert T. Coneybeer, Nancy L. Dorman, Ronald H.
Kase, C. Richard Kramlich, Thomas C. McConnell, Peter T. Morris,
Charles W. Newhall III, Mark W. Perry, Scott D. Sandell and
Eugene A. Trainor III, each of the aforementioned general
partners of NEA Partners 10 has shared dispositive and shared
voting power with respect to the shares held by NEA 10. Each of
the aforementioned disclaims beneficial ownership as to the
shares held by NEA 10, except to the extent of their
pecuniary interest therein. |
|
(4) |
|
According to a Schedule 13G dated December 13, 2005,
represents 787,382 shares of common stock held directly by
Laurence W. Lytton. |
|
(5) |
|
Includes 240,430 shares of common stock issuable upon
exercise of warrants. |
|
(6) |
|
Includes 107,436 shares of common stock issuable upon
exercise of warrants. |
|
(7) |
|
Includes 8,400 shares of Preferred Stock held by Camden
Partners Strategic
Fund II-B,
L.P. |
|
(8) |
|
Includes 102,498 shares of common stock subject to options
exercisable within 60 days of February 15, 2006.
Includes 1,709 shares of common stock issuable upon
exercise of warrants. |
|
(9) |
|
Includes 49,747 shares of common stock subject to options
exercisable within 60 days of February 15, 2006.
Includes 570 shares of common stock issuable upon exercise
of warrants. |
|
(10) |
|
Includes 46,124 shares of common stock subject to options
exercisable within 60 days of February 15, 2006. |
|
(11) |
|
Includes 110,247 shares of common stock subject to options
exercisable within 60 days of February 15, 2006. |
|
(12) |
|
Includes 97,747 shares of common stock subject to options
exercisable within 60 days of February 15, 2006. |
|
(13) |
|
Includes 21,922 shares of common stock held by
Mr. Thompson, 55,841 shares of common stock held by
the Thompson Family Trust and 3,000 shares of common stock
held by Thompson Family Partners. Mr. Thompson is a
co-trustee of the Thompson Family Trust and a General Partner of
Thompson Family Partners and, as such, may be deemed to share
voting and investment power with respect to the shares held by
the Thompson Family Trust and Thompson Family Partners.
Mr. Thompson disclaims beneficial ownership of the shares
held by his family members, the Thompson Family Trust and
Thompson Family Partnership except to the extent of his
pecuniary and proportionate partnership interest arising from
his interest therein. Includes 244,499 shares of common
stock subject to options exercisable within 60 days of
February 15, 2006. Includes 3,987 shares of common
stock issuable upon exercise of warrants held by the Thompson
Family Trust. |
|
(14) |
|
Includes 46,559 shares of common stock subject to options
exercisable within 60 days of February 15, 2006. |
|
(15) |
|
Includes 51,600 shares of common stock subject to options
exercisable within 60 days of February 15, 2006. |
|
(16) |
|
Includes 11,000 shares of common stock subject to options
exercisable within 60 days of February 15, 2006. |
|
(17) |
|
Includes 33,043 shares of common stock subject to options
exercisable within 60 days of February 15, 2006. |
|
(18) |
|
Includes 33,043 shares of common stock subject to options
exercisable within 60 days of February 15, 2006. |
|
(19) |
|
Includes 23,000 shares subject to options exercisable
within 60 days of February 15, 2006. Does not include
shares beneficially owned by NEA 10. Mr. Nehra is a
director of Aradigm Corporation and a limited partner of |
22
|
|
|
|
|
NEA Partners 10, the general partner of NEA 10.
Mr. Nehra disclaims beneficial ownership of the shares held
by NEA 10 except to the extent of his pecuniary interest therein. |
|
(20) |
|
See footnotes (1) through (19) above, as applicable. |
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act requires our directors
and executive officers, and persons who own more than ten
percent of a registered class of our equity securities, to file
with the SEC initial reports of ownership and reports of changes
in ownership of our common stock and other equity securities.
Officers, directors and greater than ten percent shareholders
are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such
reports furnished to us and written representations that no
other reports were required, during the fiscal year ended
December 31, 2005, all Section 16(a) filing
requirements applicable to our officers, directors and greater
than ten percent beneficial owners were complied with.
Compensation
of Directors
Each of our non-employee directors receives a per meeting fee of
$3,000 for all regularly scheduled meetings, and a per meeting
fee of $1,000 for additional special meetings of the Board. The
non-employee director serving as Chairman of the Board receives
an annual $25,000 fee, payable quarterly, for his service. In
addition, each of our non-employee directors receives $1,000 for
each committee meeting, and each committee chairperson receives
an additional $500 per committee meeting. In the fiscal
year ended December 31, 2005, the total compensation paid
to non-employee directors was $236,194. The members of the Board
are also eligible for reimbursement for their expenses incurred
in attending Board meetings in accordance with our reimbursement
policy.
Under current Board policy, each director receives an automatic
option grant upon election to the Board, and at each annual
meeting of the shareholders thereafter. Additional grants may be
made to non-employee directors under the 2005 Plan.
During the last fiscal year, we granted options covering
4,000 shares to each of our non-employee directors at an
exercise price per share of $5.30 (the fair market value of such
common stock on the date of each grant based on the closing
sales price reported on the Nasdaq National Market for the date
of each grant), as adjusted for the reverse split of our common
stock effected on January 4, 2006. As of February 28,
2006, non-employee directors held options to purchase an
aggregate of 520,686 shares of our common stock.
23
Compensation
of Executive Officers
The following table shows for the fiscal years ended
December 31, 2005, 2004 and 2003, compensation awarded or
paid to, or earned by, our Chief Executive Officer and our other
four most highly compensated executive officers at
December 31, 2005 (the Named Executive
Officers). In accordance with the rules of the SEC, the
compensation described in this table does not include medical or
other benefits received by the Named Executive Officers that are
available generally to all of our salaried employees and certain
perquisites and other personal benefits received by the Named
Executive Officers which do not exceed in the aggregate the
lesser of $50,000 or 10% of any such officers salary and
bonus contained in this table. Share numbers reflect January
2006 1-for-5
reverse stock split.
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
Annual Compensation
|
|
Other
|
|
Underlying
|
|
All Other
|
Name and Principal
Position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
Compensation ($)
|
|
Options (#)
|
|
Compensations ($)
|
|
V. Bryan Lawlis, Jr.(l)
|
|
|
2005
|
|
|
|
315,000
|
|
|
|
122,063
|
|
|
|
131,062
|
|
|
|
50,000
|
|
|
|
9,470
|
|
President and Chief
|
|
|
2004
|
|
|
|
304,077
|
|
|
|
172,998
|
|
|
|
110,705
|
|
|
|
50,000
|
|
|
|
8,879
|
|
Executive Officer
|
|
|
2003
|
|
|
|
280,000
|
|
|
|
56,000
|
|
|
|
127,683
|
|
|
|
20,000
|
|
|
|
5,250
|
|
Thomas C. Chesterman(2)
|
|
|
2005
|
|
|
|
296,731
|
|
|
|
106,986
|
|
|
|
|
|
|
|
35,000
|
|
|
|
7,810
|
|
Senior Vice President and
|
|
|
2004
|
|
|
|
278,231
|
|
|
|
126,651
|
|
|
|
|
|
|
|
19,000
|
|
|
|
4,868
|
|
Chief Financial Officer
|
|
|
2003
|
|
|
|
260,000
|
|
|
|
41,600
|
|
|
|
|
|
|
|
7,000
|
|
|
|
5,250
|
|
Bobba Venkatadri(3)
|
|
|
2005
|
|
|
|
281,731
|
|
|
|
87,336
|
|
|
|
57,862
|
|
|
|
35,000
|
|
|
|
12,377
|
|
Senior Vice President,
|
|
|
2004
|
|
|
|
271,418
|
|
|
|
123,184
|
|
|
|
179,657
|
|
|
|
26,000
|
|
|
|
12,214
|
|
Operations
|
|
|
2003
|
|
|
|
155,000
|
|
|
|
53,400
|
|
|
|
75,386
|
|
|
|
30,000
|
|
|
|
5,250
|
|
Stephen J. Farr(4)
|
|
|
2005
|
|
|
|
265,693
|
|
|
|
115,482
|
|
|
|
|
|
|
|
35,000
|
|
|
|
5,605
|
|
Senior Vice President,
|
|
|
2004
|
|
|
|
245,923
|
|
|
|
127,508
|
|
|
|
|
|
|
|
27,000
|
|
|
|
7,738
|
|
Chief Scientific Officer
|
|
|
2003
|
|
|
|
224,389
|
|
|
|
35,902
|
|
|
|
|
|
|
|
30,000
|
|
|
|
3,635
|
|
Babatunde A. Otulana(5)
|
|
|
2005
|
|
|
|
268,654
|
|
|
|
62,462
|
|
|
|
|
|
|
|
25,000
|
|
|
|
8,349
|
|
Vice President, Clinical and
|
|
|
2004
|
|
|
|
241,742
|
|
|
|
82,531
|
|
|
|
|
|
|
|
22,000
|
|
|
|
7,346
|
|
Regulatory Affairs
|
|
|
2003
|
|
|
|
232,100
|
|
|
|
27,852
|
|
|
|
55,062
|
|
|
|
10,000
|
|
|
|
5,250
|
|
|
|
|
(1) |
|
In 2005, bonus includes $27,563 in respect of 2005 performance
that we paid in January 2006. In 2005, we made a tax
gross-up payment to Mr. Lawlis in the amount of
$22,575 for taxes attributable to loan forgiveness and housing
subsidy payments, we forgave indebtedness to us in the amount of
$40,000 and we paid $65,531 in housing subsidy payments, $2,956
in loan interest, $2,470 in term life insurance benefits and
$7,000 as matching contributions under our 401(k) plan. In 2004,
we made a tax gross-up payment to Mr. Lawlis in
the amount of $38,164 for taxes attributable to loan forgiveness
and housing subsidy payments, we forgave indebtedness to us in
the amount of $44,891 and we paid $27,650 in housing subsidy
payments, $2,379 in term life insurance benefits and $6,500 as
matching contributions under our 401(k) plan. In 2003, we made a
tax gross-up payment to Mr. Lawlis in the
amount of $43,987 for taxes attributable to loan forgiveness and
housing subsidy payments, we forgave indebtedness to us in the
amount of $46,796 and we paid $36,900 in housing subsidy
payments and $5,250 as matching contributions under our 401(k)
plan. |
|
(2) |
|
In 2005, bonus includes $20,771 in respect of 2005 performance
that we paid in January 2006. In 2005, we paid $810 in term life
insurance benefits for Mr. Chesterman and $7,000 as
matching contributions under our 401(k) plan. In 2004, we paid
$849 in term life insurance benefits for Mr. Chesterman and
$4,019 as matching contributions under our 401(k) plan. In 2003,
we paid $5,250 to Mr. Chesterman as matching contributions
under our 401(k) plan. |
|
(3) |
|
In 2005, bonus includes $19,721 in respect of 2005 performance
that we paid in January 2006. In 2005, we made a tax
gross-up payment to Mr. Venkatadri in the amount of
$15,932 for taxes attributable to housing subsidy payments, and
we paid $41,930 in housing subsidy payments, $6,298 in term life
insurance benefits and $6,079 as matching contributions under
our 401(k) plan. In 2004, we made a tax gross-up
payment to Mr. Venkatadri in the amount of $65,787 for
taxes attributable to housing subsidy payments, and we paid
$113,870 in housing subsidy payments, $5,714 in term life
insurance benefits and $6,500 as matching |
24
|
|
|
|
|
contributions under our 401(k) plan. In 2003, we paid $75,386 to
Mr. Venkatadri in housing subsidy payments and $5,250 as
matching contributions under our 401(k) plan.
Mr. Venkatadri joined us in May 2003. |
|
(4) |
|
In 2005, bonus includes $18,599 in respect of 2005 performance
that we paid in January 2006. In 2005, we paid $1,345 in term
life insurance benefits for Mr. Farr and $4,260 as matching
contributions under our 401(k) plan. In 2004, we paid $1,238 in
term life insurance benefits for Mr. Farr and $6,500 as
matching contributions under our 401(k) plan. In 2003, All Other
Compensation represents matching contributions we made under our
401(k) plan. |
|
(5) |
|
In 2005, bonus includes $14,104 in respect of 2005 performance
that we paid in January 2006. In 2005, we paid $1,349 in term
life insurance benefits for Mr. Otulana and $7,000 as
matching contributions under our 401(k) plan. In 2004, we paid
$1,215 in term life insurance benefits for Mr. Otulana and
$6,131 as matching contributions under our 401(k) plan. In 2003,
we made a tax gross-up payment to Mr. Otulana
in the amount of $18,969 for taxes attributable to loan
forgiveness, we forgave indebtedness to us in the amount of
$36,093 and we paid $5,250 as matching contributions under our
401(k) plan. |
STOCK
OPTION GRANTS AND EXERCISES
The following table presents, for the fiscal year ended
December 31, 2005, certain information regarding options
granted to the Named Executive Officers during the year ended
December 31, 2005, after giving effect to the reverse split
of our common stock effected on January 4, 2006. In 2005,
we granted options to our executive officers under the 2005
Plan. These options vest 20% after the first year and quarterly
thereafter for the following three years. The options will fully
vest upon a change of control (as defined in the 2005 Plan),
unless the acquiring company assumes the options or substitutes
similar options. In the year ended December 31, 2005, we
granted options to purchase a total of 325,460 shares of
our common stock, after giving effect to the reverse split of
our common stock effected on January 4, 2006.
Potential realizable value is calculated assuming that the stock
price on the date of grant appreciates at the indicated rate
compounded annually until the option is exercised and sold on
the last day of its term for the appreciated stock price. The 5%
and 10% assumed rates of appreciation are required by the rules
of the SEC and do not represent our estimate or projection of
the future common stock price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants
|
|
|
|
|
|
|
|
|
Potential Realizable
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
|
|
|
Value at Assumed
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
Annual Rates of
|
|
|
|
Securities
|
|
|
Granted to
|
|
|
|
|
|
|
|
|
Stock Price
|
|
|
|
Underlying
|
|
|
Employees
|
|
|
Exercise
|
|
|
|
|
|
Appreciation for
|
|
|
|
Options
|
|
|
in Fiscal
|
|
|
or Base
|
|
|
|
|
|
Option Term
|
|
|
|
Granted (#)
|
|
|
Year (%)
|
|
|
Price ($/Sh)
|
|
|
Expiration Date
|
|
|
5%($)
|
|
|
10%($)
|
|
|
V. Bryan Lawlis, Jr.
|
|
|
50,000
|
|
|
|
15.3
|
|
|
|
5.90
|
|
|
|
2/21/2015
|
|
|
|
114,773
|
|
|
|
290,858
|
|
Thomas C. Chesterman
|
|
|
35,000
|
|
|
|
10.8
|
|
|
|
5.90
|
|
|
|
2/21/2015
|
|
|
|
80,341
|
|
|
|
203,601
|
|
Bobba Venkatadri
|
|
|
35,000
|
|
|
|
10.8
|
|
|
|
5.90
|
|
|
|
2/21/2015
|
|
|
|
80,341
|
|
|
|
203,601
|
|
Stephen J. Farr
|
|
|
35,000
|
|
|
|
10.8
|
|
|
|
5.90
|
|
|
|
2/21/2015
|
|
|
|
80,341
|
|
|
|
203,601
|
|
Babatunde A. Otulana
|
|
|
25,000
|
|
|
|
7.7
|
|
|
|
5.90
|
|
|
|
2/21/2015
|
|
|
|
57,387
|
|
|
|
145,429
|
|
OPTION
EXERCISES AND YEAR-END OPTION VALUES
No Named Executive Officers exercised options during 2005.
Options granted under the 2005 Plan are immediately exercisable
if permitted in the stock option grant. No grants have been made
since 1996 that allow for early exercise. The value of
in-the-money
options is based on the fair market value of our common stock at
December 31, 2005, which was $3.65 per share, minus
the exercise price of the options, as adjusted for the reverse
split of our common stock effected on January 4, 2006.
25
The table below shows for the fiscal year ended
December 31, 2005, certain information regarding options
granted to, exercised by and held at year end by the Named
Executive Officers, after giving effect to the reverse split of
our common stock effected on January 4, 2006.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
Value of Unexercised
|
|
|
|
Shares
|
|
|
|
|
|
Underlying Unexercised
|
|
|
In-the-Money
|
|
|
|
Acquired on
|
|
|
Value
|
|
|
Options/SARs at
|
|
|
Options/SARs at
|
|
|
|
Exercise
|
|
|
Realized
|
|
|
FY-End (#)
|
|
|
FY-End ($)
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
Exercisable/Unexercisable
|
|
|
Exercisable/Unexercisable
|
|
|
V. Bryan Lawlis, Jr.
|
|
|
|
|
|
|
|
|
|
|
84,997/85,003
|
|
|
|
/
|
|
Thomas C. Chesterman
|
|
|
|
|
|
|
|
|
|
|
37,497/70,185
|
|
|
|
/
|
|
Bobba Venkatadri
|
|
|
|
|
|
|
|
|
|
|
33,874/57,126
|
|
|
|
/
|
|
Stephen J. Farr
|
|
|
|
|
|
|
|
|
|
|
101,113/56,503
|
|
|
|
13,028/
|
|
Babatunde A. Otulana
|
|
|
|
|
|
|
|
|
|
|
87,872/42,128
|
|
|
|
/
|
|
Compensation
Committee Interlocks and Insider Participation
During the 2005 fiscal year, our Compensation Committee
initially consisted of Messrs. Benson and V. Thompson.
Dr. Gonda joined the Compensation Committee in January
2005. Mr. Benson stepped down from the Compensation
Committee immediately after the 2005 Annual Meeting of
Shareholders and was replaced by Mr. Jaeger. No
interlocking relationship exists between the Board or the
Compensation Committee and the board of directors or the
compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
26
REPORT OF
THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE
COMPENSATION*
The Compensation Committee of the Board of Directors (the
Committee) is composed of three non-employee
directors. The Committee is responsible for setting and
administering the policies that govern annual executive
salaries, bonuses and stock option grants. The Committee
annually evaluates the performance, and recommends to the Board
of Directors the level of compensation of, the Chief Executive
Officer (CEO) and the other executive officers of
Aradigm Corporation (the Company) based upon a mix
of the achievement of corporate goals, individual performance
and comparisons with other biotechnology companies. The CEO is
not present during the discussion of his compensation.
The policies of the Committee with respect to executive
officers, including the CEO, are to provide compensation
sufficient to attract, motivate and retain executives of
outstanding ability and potential and to establish an
appropriate relationship between executive compensation and the
creation of shareholder value. To meet these goals, the
Committee has adopted a mix among the compensation elements of
salary, bonus and stock options, with a bias toward stock
options to emphasize the link between executive incentives and
the creation of shareholder value as measured by the equity
markets.
In general, the salaries of executive officers are based upon a
review of surveys of similar publicly-held biotechnology
companies in the same industry sector. The salaries are adjusted
at such time within such range based upon whether an executive
officer met specific individual performance goals. Such
individual performance goals are based upon the officers
contribution toward Company goals, primarily based upon product
development. For the fiscal year ended December 31, 2005,
the average increase in the salaries of the executive officers,
including the CEO, was 5.1%.
Target bonuses of executive officers are based upon the surveys
of similar biotechnology companies described above and are set
at the beginning of each fiscal year as a percentage of base
salary. Actual bonuses are paid at the end of each fiscal year
and may be above or below target depending on whether certain
corporate goals have been met during the year. The set of
corporate goals is the same for all executive officers. Because
the Company is a development stage company, the corporate goals
are based upon product development and financing objectives
rather than the operating performance of the Company. The
Committee assigns a weight to each goal according to whether it
was attained or surpassed. The bonus is capped at 150% of the
target percentage based on maximum goal achievement.
In recommending stock options for executive officers, the
Committee considers surveys of similar publicly held companies,
the need to provide long-term incentives for the executives
based on their individual past performance, their strategic
importance for the future overall contribution to the Company
and the total number of stock options to be awarded. After
considering the criteria relating to awarding stock options, the
Committee determined that seven executive officers, including
the CEO, would receive option grants in respect of the fiscal
year ended December 31, 2005.
The Committee generally uses the same procedures described above
for the other executive officers in setting the annual salary,
bonus and stock option awards for the CEO. The corporate goals
used in adjusting the salary of the CEO are the same as the
corporate goals utilized in adjusting the salaries of all
executive officers. The CEOs salary and bonus are
determined based on comparisons with similar companies in the
same industry sector and adjusted according to corporate
performance as described above. During 2005, the CEO received an
3.5% increase from his prior salary and received a bonus that
was 60% of the target bonus. In awarding stock options, the
Committee considers the CEOs performance, overall
contribution to the Company, the total number of options awarded
and the level of options granted by similar companies as
described above. Based on such criteria, on March 1, 2006,
the CEO received options to purchase an aggregate of
150,000 shares of the Companys common stock in
respect of his
* The
material in this report is not soliciting material,
is not deemed filed with the SEC, and is not to be
incorporated by reference into any filing of the Company under
the 1933 Act or 1934 Act, whether made before or after
the date hereof and irrespective of any general incorporation
language contained in such filing.
27
performance for the fiscal year ended December 31, 2005.
Compared to similar companies as described above, the salary and
stock options of the CEO for the fiscal year ended
December 31, 2005 are in the mid-range.
Section 162(m) limits the Company to a deduction for
federal income tax purposes of no more than $1 million of
compensation paid to certain Named Executive Officers during a
taxable year. Compensation above $1 million may be deducted
if it is performance-based compensation within the
meaning of the Code. The Compensation Committee believes that at
the present time it is unlikely that the compensation paid to
any Named Executive Officer in a taxable year which is subject
to the deduction limit will exceed $1 million. Therefore,
the Committee has not yet established a policy for determining
which forms of incentive compensation awarded to its Named
Executive Officers shall be designed to qualify as
performance-based compensation. The Committee
intends to continue to evaluate the effects of the statute and
any United States Treasury regulations and to comply with
Section 162(m) in the future to the extent consistent with
the best interests of the Company.
From the members of the Compensation Committee of Aradigm
Corporation:
Igor Gonda
Stephen Jaeger
Virgil D. Thompson
28
CERTAIN
TRANSACTIONS
We have entered into indemnity agreements with certain officers
and directors that provide, among other things, that we will
indemnify such officer or director, under the circumstances and
to the extent provided for therein, for expenses, damages,
judgments, fines and settlements he may be required to pay in
actions or proceedings which he is or may be made a party be
reason of his position as a director, officer or other agent of
us, and otherwise to the full extent permitted under California
law and our Bylaws.
Pursuant to an offer letter dated September 20, 2001, we
agreed to provide Mr. Lawlis with a loan in the principal
amount of $200,000. The loan has a five-year term and accrues
interest at the rate of 4.8% per year. By the terms of the
offer letter, the loan is to be forgiven over the first five
years of Mr. Lawliss employment. In 2005, the total
amount of principal and interest forgiven was $42,956, and the
largest aggregate amount of indebtedness outstanding in 2005,
including principal and accrued interest, was $80,000. As of
February 28, 2006, the amount of principal and accrued
interest outstanding was $33,333.
As of January 26, 2005, we completed the restructuring of
the AERx iDMS program, pursuant to the Restructuring Agreement
entered into with Novo Nordisk A/S and Novo Nordisk Delivery
Technologies, Inc. as of September 28, 2004. Under the
terms of the Restructuring Agreement we sold certain equipment,
leasehold improvements and other tangible assets currently
utilized in the AERx iDMS program to Novo Nordisk Delivery
Technologies, for a cash payment of approximately
$55 million (before refund of cost advances made by Novo
Nordisk). Our expense related to this transaction for legal and
other consulting costs were approximately $1.1 million. In
connection with the restructuring transaction, we entered into
various related agreements with Novo Nordisk and Novo Nordisk
Delivery Technologies effective January 26, 2005, including
the following:
|
|
|
|
|
an amended and restated license agreement amending the
Development and License Agreement previously in place with Novo
Nordisk, expanding Novo Nordisks development and
manufacturing rights to the AERx iDMS program and providing for
royalties to us on future AERx iDMS net sales in lieu of a
percentage interest in the gross profits from the
commercialization of AERx iDMS;
|
|
|
|
a three-year agreement under which Novo Nordisk Delivery
Technologies will perform contract manufacturing for us of AERx
iDMS-identical devices and dosage forms filled with compounds
provided by us in support of preclinical and initial clinical
development by us of other AERx products; and
|
|
|
|
an amendment of the common stock purchase agreement in place
with Novo Nordisk prior to the closing of the restructuring
transaction, deleting the provisions whereby we can require Novo
Nordisk to purchase certain amounts of common stock, imposing
certain restrictions on the ability of Novo Nordisk to sell
shares of our common stock previously purchased by Novo Nordisk
and providing Novo Nordisk with certain registration and
information rights with respect to these shares.
|
In addition, pursuant to the Restructuring Agreement, the
Manufacturing and Supply Agreement and the Patent Cooperation
Agreement, each previously in place with Novo Nordisk, were
terminated. As of February 28, 2006 Novo Nordisk
beneficially owned 1,573,673 shares of our common stock and
is considered a related party.
On October 7, 2005, we adopted the Aradigm Corporation
Executive Officer Severance Benefit Plan, in which members of
our senior management who are involuntarily terminated,
including our Named Executive Officers, are eligible to receive
(i) a lump sum payment equal to such officers annual
base salary plus an amount up to such officers target
bonus, (ii) payment of COBRA premiums for a period of up to
12 months following termination and (iii) career
transition assistance. We have also entered into Change of
Control Agreements with certain members of our senior
management, including our Named Executive Officers, whereby if
such officers are involuntarily or constructively terminated
following a change in control, such officers are eligible to
receive (i) a lump sum payment equal to between one and two
times such officers annual base salary plus up to two
times such officers target bonus, (ii) payment of
COBRA premiums for a period of between 12 and 24 months
following termination (iii) career transition assistance
and (iv) and accelerated vesting of all options
and/or
restricted stock held by such officer.
30
HOUSEHOLDING
OF PROXY MATERIALS
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements and annual reports with
respect to two or more shareholders sharing the same address by
delivering a single proxy statement addressed to those
shareholders. This process, which is commonly referred to as
householding, potentially means extra convenience
for shareholders and cost savings for companies.
This year, a number of brokers with account holders who are our
shareholders will be householding our proxy
materials. A single proxy statement will be delivered to
multiple shareholders sharing an address unless contrary
instructions have been received from the affected shareholders.
Once you have received notice from your broker that they will be
householding communications to your address,
householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you
no longer wish to participate in householding and
would prefer to receive a separate proxy statement and annual
report, please notify your broker, direct your written request
to Aradigm Corporation, Corporate Secretary, 3929 Point Eden
Way, Hayward, CA 94545 or contact our Corporate Secretary at
(510) 265-9000.
Shareholders who currently receive multiple copies of the proxy
statement at their address and would like to request
householding of their communications should contact
their broker.
OTHER
MATTERS
The Board of Directors knows of no other matters that will be
presented for consideration at the annual meeting. If any other
matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote
on such matters in accordance with their best judgment.
By Order of the Board of Directors
V. Bryan Lawlis
President and Chief Executive Officer
April 13, 2006
A copy of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005 is available
without charge upon written request to: Corporate Secretary,
Aradigm Corporation, 3929 Point Eden Way, Hayward,
CA 94545. Copies may also be obtained without charge
through the SECs website at http://www.sec.gov.
31
Appendix A
ARADIGM CORPORATION
2005 Equity Incentive Plan
Adopted: March 21, 2005
Approved By Shareholders: May 19, 2005
Termination Date: March 20, 2015
Amended by Board (including to reflect January 2006 1-for-5 reverse stock split): March 30, 2006
1. General.
(a) Amendment and Restatement. The Plan is a complete amendment and restatement of the
Companys 1996 Equity Incentive Plan that was previously adopted in April 1996 (as thereafter
amended, the Prior Plan). All outstanding awards granted under the Prior Plan shall remain
subject to the terms of the Prior Plan. All Stock Awards granted on or after the effective date of
this Plan shall be subject to the terms of this Plan.
(b) Eligible Stock Award Recipients. The persons eligible to receive Stock Awards are
Employees, Directors and Consultants.
(c) Available Stock Awards. The Plan provides for the grant of the following Stock Awards:
(i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Purchase Awards, (iv)
Stock Bonus Awards, (v) Stock Appreciation Rights, (vi) Stock Unit Awards and (vii) Other Stock
Awards.
(d) General Purpose. The Company, by means of the Plan, seeks to secure and retain the
services of the group of persons eligible to receive Stock Awards as set forth in Section 1(a), to
provide incentives for such persons to exert maximum efforts for the success of the Company and any
Affiliate and to provide a means by which such eligible recipients may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of Stock Awards.
2. Definitions.
As used in the Plan, the following definitions shall apply to the capitalized terms indicated
below:
(a) Affiliate means (i) any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, provided each corporation in the unbroken chain (other than
the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other corporations in such
chain, and (ii) any corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other corporations in such
chain. The Board shall have the authority to determine
1.
(i) the time or times at which the ownership tests are applied, and (ii) whether Affiliate
includes entities other than corporations within the foregoing definition.
(b) Board means the Board of Directors of the Company.
(c) Capitalization Adjustment has the meaning ascribed to that term in Section 11(a).
(d) Cause means, with respect to a Participant, the occurrence of any of the following: (i)
such Participants commission of any felony or any crime involving fraud, dishonesty or moral
turpitude under the laws of the United States or any state thereof; (ii) such Participants
attempted commission of, or participation in, a fraud or act of dishonesty against the Company;
(iii) such Participants intentional, material violation of any material contract or agreement
between the Participant and the Company or any statutory duty owed to the Company; (iv) such
Participants unauthorized use or disclosure of the Companys confidential information or trade
secrets; or (v) such Participants gross misconduct. The determination that a termination is for
Cause shall be made by the Company in its sole discretion. Any determination by the Company that
the Continuous Service of a Participant was terminated by reason of dismissal without Cause for the
purposes of outstanding Stock Awards held by such Participant shall have no effect upon any
determination of the rights or obligations of the Company or such Participant for any other
purpose.
(e) Change in Control means the occurrence, in a single transaction or in a series of
related transactions, of any one or more of the following events:
(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the combined voting power of the Companys
then outstanding securities other than by virtue of a merger, consolidation or similar transaction.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of
the acquisition of securities of the Company by an investor, any affiliate thereof or any other
Exchange Act Person from the Company in a transaction or series of related transactions the primary
purpose of which is to obtain financing for the Company through the issuance of equity securities
or (B) solely because the level of Ownership held by any Exchange Act Person (the Subject Person)
exceeds the designated percentage threshold of the outstanding voting securities as a result of a
repurchase or other acquisition of voting securities by the Company reducing the number of shares
outstanding, provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of voting securities by the Company, and after such share
acquisition, the Subject Person becomes the Owner of any additional voting securities that,
assuming the repurchase or other acquisition had not occurred, increases the percentage of the then
outstanding voting securities Owned by the Subject Person over the designated percentage threshold,
then a Change in Control shall be deemed to occur;
(ii) there is consummated a merger, consolidation or similar transaction involving (directly
or indirectly) the Company and, immediately after the consummation of such merger, consolidation or
similar transaction, the shareholders of the Company immediately prior thereto do not Own, directly
or indirectly, either (A) outstanding voting securities representing
2.
more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity
in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the
combined outstanding voting power of the parent of the surviving Entity in such merger,
consolidation or similar transaction, in each case in substantially the same proportions as their
Ownership of the outstanding voting securities of the Company immediately prior to such
transaction;
(iii) the shareholders of the Company approve or the Board approves a plan of complete
dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company
shall otherwise occur;
(iv) there is consummated a sale, lease, exclusive license or other disposition of all or
substantially all of the consolidated assets of the Company and its Subsidiaries, other than a
sale, lease, license or other disposition of all or substantially all of the consolidated assets of
the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting
power of the voting securities of which are Owned by shareholders of the Company in substantially
the same proportions as their Ownership of the outstanding voting securities of the Company
immediately prior to such sale, lease, license or other disposition; or
(v) individuals who, on the date this Plan is adopted by the Board, are members of the Board
(the Incumbent Board) cease for any reason to constitute at least a majority of the members of
the Board; provided, however, that if the appointment or election (or nomination for election) of
any new Board member was approved or recommended by a majority vote of the members of the Incumbent
Board then still in office, such new member shall, for purposes of this Plan, be considered as a
member of the Incumbent Board.
The term Change in Control shall not include a sale of assets, merger or other transaction
effected exclusively for the purpose of changing the domicile of the Company.
Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in
Control (or any analogous term) in an individual written agreement between the Company or any
Affiliate and the Participant shall supersede the foregoing definition with respect to Stock Awards
subject to such agreement; provided, however, that if no definition of Change in Control or any
analogous term is set forth in such an individual written agreement, the foregoing definition shall
apply.
(f) Code means the Internal Revenue Code of 1986, as amended.
(g) Committee means a committee of one (1) or more members of the Board to whom authority
has been delegated by the Board in accordance with Section 3(c).
(h) Common Stock means the common stock of the Company.
(i) Company means Aradigm Corporation, a California corporation.
(j) Consultant means any person, including an advisor, who is (i) engaged by the Company or
an Affiliate to render consulting or advisory services and is compensated for such services or (ii)
serving as a member of the Board of Directors of an Affiliate and is compensated
3.
for such services. However, service solely as a Director, or payment of a fee for such
service, shall not cause a Director to be considered a Consultant for purposes of the Plan.
(k) Continuous Service means that the Participants service with the Company or an
Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A
change in the capacity in which the Participant renders service to the Company or an Affiliate as
an Employee, Consultant or Director or a change in the entity for which the Participant renders
such service, provided that there is no interruption or termination of the Participants service
with the Company or an Affiliate, shall not terminate a Participants Continuous Service. For
example, a change in status from an employee of the Company to a consultant to an Affiliate or to a
Director shall not constitute an interruption of Continuous Service. To the extent permitted by
law, the Board or the chief executive officer of the Company, in that partys sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case of any leave of
absence approved by that party, including sick leave, military leave or any other personal leave.
Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for
purposes of vesting in a Stock Award only to such extent as may be provided in the Companys leave
of absence policy or in the written terms of the Participants leave of absence.
(l) Corporate Transaction means the occurrence, in a single transaction or in a series of
related transactions, of any one or more of the following events:
(i) a sale or other disposition of all or substantially all, as determined by the Board in its
sole discretion, of the consolidated assets of the Company and its Subsidiaries;
(ii) a sale or other disposition of at least ninety percent (90%) of the outstanding
securities of the Company;
(iii) the consummation of a merger, consolidation or similar transaction following which the
Company is not the surviving corporation; or
(iv) the consummation of a merger, consolidation or similar transaction following which the
Company is the surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of
the merger, consolidation or similar transaction into other property, whether in the form of
securities, cash or otherwise.
(m) Covered Employee means the chief executive officer and the four (4) other highest
compensated officers of the Company for whom total compensation is required to be reported to
shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.
(n) Director means a member of the Board.
(o) Disability means the permanent and total disability of a person within the meaning of
Section 22(e)(3) of the Code.
4.
(p) Employee means any person employed by the Company or an Affiliate. However, service
solely as a Director, or payment of a fee for such services, shall not cause a Director to be
considered an Employee for purposes of the Plan.
(q) Entity means a corporation, partnership or other entity.
(r) Exchange Act means the Securities Exchange Act of 1934, as amended.
(s) Exchange Act Person means any natural person, Entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), except that Exchange Act Person shall not include
(i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or
any Subsidiary of the Company or any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities, (iv) an Entity Owned,
directly or indirectly, by the shareholders of the Company in substantially the same proportions as
their Ownership of stock of the Company; or (v) any natural person, Entity or group (within the
meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the effective date of the Plan
as set forth in Section 14, is the Owner, directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power of the Companys then
outstanding securities.
(t) Fair Market Value means, as of any date, the value of the Common Stock determined as
follows:
(i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq
National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest volume of trading in
the Common Stock) on the date in question, as reported in The Wall Street Journal or such other
source as the Board deems reliable. Unless otherwise provided by the Board, if there is no closing
sales price (or closing bid if no sales were reported) for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price (or closing bid if no sales
were reported) on the last preceding date for which such quotation exists.
(ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be
determined by the Board in good faith.
(u) Incentive Stock Option means an Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(v) Non-Employee Director means a Director who either (i) is not a current employee or
officer of the Company or an Affiliate, does not receive compensation, either directly or
indirectly, from the Company or an Affiliate for services rendered as a consultant or in any
capacity other than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
(Regulation S-K)), does not possess an interest in any other transaction for which disclosure
5.
would be required under Item 404(a) of Regulation S-K, and is not engaged in a business
relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or
(ii) is otherwise considered a non-employee director for purposes of Rule 16b-3.
(w) Nonstatutory Stock Option means an Option not intended to qualify as an Incentive Stock
Option.
(x) Officer means a person who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated thereunder.
(y) Option means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares
of Common Stock granted pursuant to the Plan.
(z) Option Agreement means a written agreement between the Company and an Optionholder
evidencing the terms and conditions of an Option grant. Each Option Agreement shall be subject to
the terms and conditions of the Plan.
(aa) Optionholder means a person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.
(bb) Other Stock Award means an award based in whole or in part by reference to the Common
Stock which is granted pursuant to the terms and conditions of Section 7(e).
(cc) Other Stock Award Agreement means a written agreement between the Company and a holder
of an Other Stock Award evidencing the terms and conditions of an Other Stock Award grant. Each
Other Stock Award Agreement shall be subject to the terms and conditions of the Plan.
(dd) Outside Director means a Director who either (i) is not a current employee of the
Company or an affiliated corporation (within the meaning of Treasury Regulations promulgated
under Section 162(m) of the Code), is not a former employee of the Company or an affiliated
corporation who receives compensation for prior services (other than benefits under a
tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or
an affiliated corporation, and does not receive remuneration from the Company or an affiliated
corporation, either directly or indirectly, in any capacity other than as a Director, or (ii) is
otherwise considered an outside director for purposes of Section 162(m) of the Code.
(ee) Own, Owned, Owner, Ownership A person or Entity shall be deemed to Own, to
have Owned, to be the Owner of, or to have acquired Ownership of securities if such person or
Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power, which includes the power to vote or to direct the voting,
with respect to such securities.
(ff) Participant means a person to whom a Stock Award is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Stock Award.
(gg) Performance Criteria means the one or more criteria that the Board shall select for
purposes of establishing the Performance Goals for a Performance Period. The Performance
6.
Criteria that shall be used to establish such Performance Goals may be based on any one of, or
combination of, the following: (i) earnings per share; (ii) earnings before interest, taxes and
depreciation; (iii) earnings before interest, taxes, depreciation and amortization (EBITDA); (iv)
net earnings; (v) total shareholder return; (vi) return on equity; (vii) return on assets,
investment or capital employed; (viii) operating margin; (ix) gross margin; (x) operating income;
(xi) net income (before or after taxes); (xii) net operating income; (xiii) net operating income
after tax; (xiv) pre- and after-tax income; (xv) pre-tax profit; (xvi) operating cash flow; (xvii)
sales or revenue targets; (xviii) increases in revenue or product revenue; (xix) expenses and cost
reduction goals; (xx) improvement in or attainment of expense levels; (xxi) improvement in or
attainment of working capital levels; (xxii) economic value added (or an equivalent metric);
(xxiii) market share; (xxiv) cash flow; (xxv) cash flow per share; (xxvi) share price performance;
(xxvii) debt reduction; (xxviii) implementation or completion of projects or processes; (xxix)
customer satisfaction; (xxx) total shareholder return; (xxxi) shareholders equity; and (xxxii)
other measures of performance selected by the Board. Partial achievement of the specified criteria
may result in the payment or vesting corresponding to the degree of achievement as specified in the
Stock Award Agreement. The Board shall, in its sole discretion, define the manner of calculating
the Performance Criteria it selects to use for such Performance Period.
(hh) Performance Goals means, for a Performance Period, the one or more goals established by
the Board for the Performance Period based upon the Performance Criteria. The Board is authorized
at any time in its sole discretion, to adjust or modify the calculation of a Performance Goal for
such Performance Period in order to prevent the dilution or enlargement of the rights of
Participants, (a) in the event of, or in anticipation of, any unusual or extraordinary corporate
item, transaction, event or development; (b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company, or the financial statements of the Company,
or in response to, or in anticipation of, changes in applicable laws, regulations, accounting
principles, or business conditions; or (c) in view of the Boards assessment of the business
strategy of the Company, performance of comparable organizations, economic and business conditions,
and any other circumstances deemed relevant. Specifically, the Board is authorized to make
adjustment in the method of calculating attainment of Performance Goals and objectives for a
Performance Period as follows: (i) to exclude the dilutive effects of acquisitions or joint
ventures; (ii) to assume that any business divested by the Company achieved performance objectives
at targeted levels during the balance of a Performance Period following such divestiture; and (iii)
to exclude the effect of any change in the outstanding shares of common stock of the Company by
reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger,
consolidation, spin-off, combination or exchange of shares or other similar corporate change, or
any distributions to common shareholders other than regular cash dividends. In addition, the Board
is authorized to make adjustment in the method of calculating attainment of Performance Goals and
objectives for a Performance Period as follows: (i) to exclude restructuring and/or other
nonrecurring charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar
denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally
accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude
the effects to any statutory adjustments to corporate tax rates; (v) to exclude the impact of any
extraordinary items as determined under generally accepted accounting principles; and (vi) to
exclude any other unusual, non-recurring gain or loss or other extraordinary item.
7.
(ii) Performance Period means the one or more periods of time, which may be of varying and
overlapping durations, as the Board may select, over which the attainment of one or more
Performance Goals will be measured for the purpose of determining a Participants right to and the
payment of a Stock Award.
(jj) Plan means this Aradigm Corporation 2005 Equity Incentive Plan.
(kk) Rule 16b-3 means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule
16b-3, as in effect from time to time.
(ll) Securities Act means the Securities Act of 1933, as amended.
(mm) Stock Appreciation Right means a right to receive the appreciation on Common Stock that
is granted pursuant to the terms and conditions of Section 7(d).
(nn) Stock Appreciation Right Agreement means a written agreement between the Company and a
holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation
Right grant. Each Stock Appreciation Right Agreement shall be subject to the terms and conditions
of the Plan.
(oo) Stock Award means any right granted under the Plan, including an Option, a Stock
Purchase Award, Stock Bonus Award, a Stock Appreciation Right, a Stock Unit Award or any Other
Stock Award.
(pp) Stock Award Agreement means a written agreement between the Company and a Participant
evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement shall be
subject to the terms and conditions of the Plan.
(qq) Stock Bonus Award means an award of shares of Common Stock which is granted pursuant to
the terms and conditions of Section 7(b).
(rr) Stock Bonus Award Agreement means a written agreement between the Company and a holder
of a Stock Bonus Award evidencing the terms and conditions of a Stock Bonus Award grant. Each
Stock Bonus Award Agreement shall be subject to the terms and conditions of the Plan.
(ss) Stock Purchase Award means an award of shares of Common Stock which is granted pursuant
to the terms and conditions of Section 7(a).
(tt) Stock Purchase Award Agreement means a written agreement between the Company and a
holder of a Stock Purchase Award evidencing the terms and conditions of a Stock Purchase Award
grant. Each Stock Purchase Award Agreement shall be subject to the terms and conditions of the
Plan.
(uu) Stock Unit Award means a right to receive shares of Common Stock which is granted
pursuant to the terms and conditions of Section 7(c).
8.
(vv) Stock Unit Award Agreement means a written agreement between the Company and a holder
of a Stock Unit Award evidencing the terms and conditions of a Stock Unit Award grant. Each Stock
Unit Award Agreement shall be subject to the terms and conditions of the Plan.
(ww) Subsidiary means, with respect to the Company, (i) any corporation of which more than
fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether, at the time, stock
of any other class or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company,
and (ii) any partnership in which the Company has a direct or indirect interest (whether in the
form of voting or participation in profits or capital contribution) of more than fifty percent
(50%).
(xx) Ten Percent Shareholder means a person who Owns (or is deemed to Own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Affiliate.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan unless and until the Board
delegates administration of the Plan to a Committee, as provided in Section 3(c).
(b) Powers of Board. The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time (1) which of the persons eligible under the Plan shall be
granted Stock Awards; (2) when and how each Stock Award shall be granted; (3) what type or
combination of types of Stock Award shall be granted; (4) the provisions of each Stock Award
granted (which need not be identical), including the time or times when a person shall be permitted
to receive Common Stock pursuant to a Stock Award; and (5) the number of shares of Common Stock
with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish,
amend and revoke rules and regulations for its administration. The Board, in the exercise of this
power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) To terminate or suspend the Plan as provided in Section 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 that are not in conflict with the
provisions of the Plan.
9.
(vi) To adopt such procedures and sub-plans as are necessary or appropriate to permit
participation in the Plan by Employees who are foreign nationals or employed outside the United
States.
(c) Delegation to Committee.
(i) General. The Board may delegate some or all of the administration of the Plan to a
Committee or Committees. If administration is delegated to a Committee, the Committee shall have,
in connection with the administration of the Plan, the powers theretofore possessed by the Board
that have been delegated to the Committee, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time
by the Board. The Board may retain the authority to concurrently administer the Plan with the
Committee and may, at any time, revest in the Board some or all of the powers previously delegated.
(ii) Section 162(m) and Rule 16b-3 Compliance. In the sole discretion of the Board, the
Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of
the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. In
addition, the Board or the Committee, in its sole discretion, may (1) delegate to a committee of
one or more members of the Board who need not be Outside Directors the authority to grant Stock
Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such Stock Award or (b) not
persons with respect to whom the Company wishes to comply with Section 162(m) of the Code, and/or
(2) delegate to a committee of one or more members of the Board who need not be Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not then subject to
Section 16 of the Exchange Act.
(d) Delegation to an Officer. The Board may delegate to one or more Officers of the Company
the authority to do one or both of the following (i) designate Officers and Employees of the
Company or any of its Subsidiaries to be recipients of Stock Awards and the terms thereof, and (ii)
determine the number of shares of Common Stock to be subject to such Stock Awards granted to such
Officers and Employees of the Company; provided, however, that the Board resolutions regarding such
delegation shall specify the total number of shares of Common Stock that may be subject to the
Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself
or herself. Notwithstanding anything to the contrary in this Section 3(d), the Board may not
delegate to an Officer authority to determine the Fair Market Value of the Common Stock pursuant to
Section 2(t)(ii) above.
(e) Effect of Boards Decision. All determinations, interpretations and constructions made by
the Board in good faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.
(f) Cancellation and Re-Grant of Stock Awards. Neither the Board nor any Committee shall have
the authority to: (i) reprice any outstanding Stock Awards under the Plan,
10.
or (ii) cancel and re-grant any outstanding Stock Awards under the Plan, unless the
shareholders of the Company have approved such an action within twelve (12) months prior to such an
event.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11(a) relating to Capitalization
Adjustments, the number of shares of Common Stock that may be issued pursuant to Stock Awards shall
not exceed, in the aggregate, four million six hundred thirty-seven thousand five hundred
twenty-seven (4,637,527) shares of Common Stock (including shares underlying Stock Awards issued
pursuant to the Prior Plan).
(b) Reversion of Shares to the Share Reserve. Any shares of Common Stock subject to
outstanding awards granted under the Prior Plan that would otherwise have reverted to the share
reserve of the Prior Plan shall revert to and again become available for issuance under this Plan.
If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, or if any shares of Common Stock issued to a Participant pursuant to
a Stock Award are forfeited to or repurchased by the Company, including, but not limited to, any
repurchase or forfeiture caused by the failure to meet a contingency or condition required for the
vesting of such shares, then the shares of Common Stock not issued under such Stock Award, or
forfeited to or repurchased by the Company, shall revert to and again become available for issuance
under the Plan. If any shares subject to a Stock Award are not delivered to a Participant because
such shares are withheld for the payment of taxes, the number of shares that are not delivered to
the Participant shall remain available for issuance under the Plan. If the exercise price of any
Stock Award is satisfied by tendering shares of Common Stock held by the Participant (either by
actual delivery or attestation), then the number of shares so tendered shall remain available for
issuance under the Plan. Notwithstanding anything to the contrary in this Section 4(b), subject to
the provisions of Section 11(a) relating to Capitalization Adjustments the aggregate maximum number
of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options
shall be four million six hundred thirty-seven thousand five hundred twenty-seven (4,637,527)
shares of Common Stock plus the amount of any increase in the number of shares that may be
available for issuance pursuant to Stock Awards pursuant to Section 4(a).
(c) Source of Shares. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the Company on the open
market.
5. Eligibility.
(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to
Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors
and Consultants.
(b) Ten Percent Shareholders. A Ten Percent Shareholder shall not be granted an Incentive
Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of
the Fair Market Value of the Common Stock on the date of grant and the Option is not exercisable
after the expiration of five (5) years from the date of grant.
11.
(c) Section 162(m) Limitation on Annual Grants. Subject to the provisions of Section 11(a)
relating to Capitalization Adjustments, at such time as the Company may be subject to the
applicable provisions of Section 162(m) of the Code, no Employee shall be eligible to be granted
Stock Awards whose value is determined by reference to an increase over an exercise or strike price
of at least one hundred percent (100%) of the Fair Market Value of the Common Stock on the date the
Stock Award is granted covering more than five hundred thousand (500,000) shares of Common Stock
during any calendar year.
(d) Consultants. A Consultant shall not be eligible for the grant of a Stock Award if, at the
time of grant, a Form S-8 Registration Statement under the Securities Act (Form S-8) is not
available to register either the offer or the sale of the Companys securities to such Consultant
because of the nature of the services that the Consultant is providing to the Company, because the
Consultant is not a natural person, or because of any other rule governing the use of Form S-8.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. All Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate
certificate or certificates shall be issued for shares of Common Stock purchased on exercise of
each type of Option. The provisions of separate Options need not be identical; provided, however,
that each Option Agreement shall include (through incorporation of provisions hereof by reference
in the Option or otherwise) the substance of each of the following provisions:
(a) Term. The Board shall determine the term of an Option; provided, however, that subject
to the provisions of Section 5(b) regarding Ten Percent Shareholders, no Incentive Stock Option
shall be exercisable after the expiration of ten (10) years from the date of grant.
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions of Section 5(b)
regarding Ten Percent Shareholders, the exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option in a manner
consistent with the provisions of Section 424(a) of the Code.
(c) Exercise Price of a Nonstatutory Stock Option. The exercise price of each Nonstatutory
Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set
forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution
for another option in a manner consistent with the provisions of Section 424(a) of the Code.
12.
(d) Consideration. The purchase price of Common Stock acquired pursuant to the exercise of an
Option shall be paid, to the extent permitted by applicable law and as determined by the Board in
its sole discretion, by any combination of the methods of payment set forth below. The Board shall
have the authority to grant Options that do not permit all of the following methods of payment (or
otherwise restrict the ability to use certain methods) and to grant Options that require the
consent of the Company to utilize a particular method of payment. The methods of payment permitted
by this Section 6(d) are:
(i) by cash or check;
(ii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve
Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check)
by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
(iii) by delivery to the Company (either by actual delivery or attestation) of shares of
Common Stock;
(iv) according to a deferred payment or similar arrangement with the Optionholder; provided,
however, that interest shall compound at least annually and shall be charged at the minimum rate of
interest necessary to avoid (i) the imputation of interest income to the Company and compensation
income to the Optionholder under any applicable provisions of the Code and (ii) the treatment of
the Option as a variable award for financial accounting purposes; or
(v) in any other form of legal consideration that may be acceptable to the Board.
(e) Transferability of Options. The Board may, in its sole discretion, impose such
limitations on the transferability of Options as the Board shall determine. In the absence of such
a determination by the Board to the contrary, the following restrictions on the transferability of
Options shall apply:
(i) Restrictions on Transfer. An Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder.
(ii) Domestic Relations Orders. Notwithstanding the foregoing, an Option may be transferred
pursuant to a domestic relations order.
(iii) Beneficiary Designation. Notwithstanding the foregoing, the Optionholder may, by
delivering written notice to the Company, in a form provided by or otherwise satisfactory to the
Company, designate a third party who, in the event of the death of the Optionholder, shall
thereafter be entitled to exercise the Option.
(f) Vesting Generally. The total number of shares of Common Stock subject to an Option may
vest and therefore become exercisable in periodic installments that may or may not be equal. The
Option may be subject to such other terms and conditions on the time or times
13.
when it may or may not be exercised (which may be based on performance or other criteria) as
the Board may deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this Section 6(f) are subject to any Option provisions governing the minimum number
of shares of Common Stock as to which an Option may be exercised.
(g) Termination of Continuous Service. In the event that an Optionholders Continuous Service
terminates (other than upon the Optionholders death or Disability), the Optionholder may exercise
his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of
the date of termination of Continuous Service) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of the Optionholders Continuous
Service (or such longer or shorter period specified in the Option Agreement) or (ii) the expiration
of the term of the Option as set forth in the Option Agreement. If, after termination of
Continuous Service, the Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall terminate.
(h) Extension of Termination Date. An Optionholders Option Agreement may provide that if the
exercise of the Option following the termination of the Optionholders Continuous Service (other
than upon the Optionholders death or Disability or upon a Change in Control) would be prohibited
at any time solely because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of a period of three (3) months after the termination of the Optionholders Continuous
Service during which the exercise of the Option would not be in violation of such registration
requirements or (ii) the expiration of the term of the Option as set forth in the Option Agreement.
(i) Disability of Optionholder. In the event that an Optionholders Continuous Service
terminates as a result of the Optionholders Disability, the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of
termination of Continuous Service), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination of Continuous Service (or such longer or
shorter period specified in the Option Agreement) or (ii) the expiration of the term of the Option
as set forth in the Option Agreement. If, after termination of Continuous Service, the
Optionholder does not exercise his or her Option within the time specified herein or in the Option
Agreement (as applicable), the Option shall terminate.
(j) Death of Optionholder. In the event that (i) an Optionholders Continuous Service
terminates as a result of the Optionholders death or (ii) the Optionholder dies within the period
(if any) specified in the Option Agreement after the termination of the Optionholders Continuous
Service for a reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by the Optionholders
estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionholders death, but only within the period
ending on the earlier of (i) the date eighteen (18) months following the date of death (or such
longer or shorter period specified in the Option Agreement) or (ii) the expiration of the term of
such Option as set forth in the Option Agreement. If, after the
14.
Optionholders death, the Option is not exercised within the time specified herein or in the
Option Agreement (as applicable), the Option shall terminate.
(k) Early Exercise. The Option may include a provision whereby the Optionholder may elect at
any time before the Optionholders Continuous Service terminates to exercise the Option as to any
part or all of the shares of Common Stock subject to the Option prior to the full vesting of the
Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in
favor of the Company or to any other restriction the Board determines to be appropriate. The
Company shall not be required to exercise its repurchase option until at least six (6) months (or
such longer or shorter period of time necessary to avoid a charge to earnings for financial
accounting purposes) have elapsed following exercise of the Option unless the Board otherwise
specifically provides in the Option.
7. Provisions of Stock Awards other than Options.
(a) Stock Purchase Awards. Each Stock Purchase Award Agreement shall be in such form and
shall contain such terms and conditions as the Board shall deem appropriate. At the Boards
election, shares of Common Stock may be (i) held in book entry form subject to the Companys
instructions until any restrictions relating to the Stock Purchase Award lapse or (ii) evidenced by
a certificate, which certificate shall be held in such form and manner as determined by the Board.
The terms and conditions of Stock Purchase Award Agreements may change from time to time, and the
terms and conditions of separate Stock Purchase Award Agreements need not be identical, provided,
however, that each Stock Purchase Award Agreement shall include (through incorporation of the
provisions hereof by reference in the agreement or otherwise) the substance of each of the
following provisions:
(i) Purchase Price. At the time of the grant of a Stock Purchase Award, the Board will
determine the price to be paid by the Participant for each share subject to the Stock Purchase
Award. To the extent required by applicable law, the price to be paid by the Participant for each
share of the Stock Purchase Award will not be less than the par value of a share of Common Stock.
(ii) Consideration. At the time of the grant of a Stock Purchase Award, the Board will
determine the consideration permissible for the payment of the purchase price of the Stock Purchase
Award. The purchase price of Common Stock acquired pursuant to the Stock Purchase Award shall be
paid either: (A) in cash or by check at the time of purchase, (B) at the discretion of the Board,
according to a deferred payment or other similar arrangement with the Participant, (C) by past
services rendered to the Company or (D) in any other form of legal consideration that may be
acceptable to the Board in its sole discretion and permissible under applicable law.
(iii) Vesting. Shares of Common Stock acquired under a Stock Purchase Award may be subject to
a share repurchase right or option in favor of the Company in accordance with a vesting schedule to
be determined by the Board.
(iv) Termination of Participants Continuous Service. In the event that a Participants
Continuous Service terminates, the Company shall have the right, but not the
15.
obligation, to repurchase or otherwise reacquire, any or all of the shares of Common Stock
held by the Participant that have not vested as of the date of termination under the terms of the
Stock Purchase Award Agreement. At the Boards election, the price paid for all shares of Common
Stock so repurchased or reacquired by the Company may be at the lesser of: (A) the Fair Market
Value on the relevant date, or (B) the Participants original cost for such shares. The Company
shall not be required to exercise its repurchase or reacquisition option until at least six (6)
months (or such longer or shorter period of time necessary to avoid a charge to earnings for
financial accounting purposes) have elapsed following the Participants purchase of the shares of
stock acquired pursuant to the Stock Purchase Award unless otherwise determined by the Board or
provided in the Stock Purchase Award Agreement.
(v) Transferability. Rights to purchase or receive shares of Common Stock granted under a
Stock Purchase Award shall be transferable by the Participant only upon such terms and conditions
as are set forth in the Stock Purchase Award Agreement, as the Board shall determine in its sole
discretion, and so long as Common Stock awarded under the Stock Purchase Award remains subject to
the terms of the Stock Purchase Award Agreement.
(b) Stock Bonus Awards. Each Stock Bonus Award Agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem appropriate. At the Boards election,
shares of Common Stock may be (i) held in book entry form subject to the Companys instructions
until any restrictions relating to the Stock Bonus Award lapse or (ii) evidenced by a certificate,
which certificate shall be held in such form and manner as determined by the Board. The terms and
conditions of Stock Bonus Award Agreements may change from time to time, and the terms and
conditions of separate Stock Bonus Award Agreements need not be identical, provided, however, that
each Stock Bonus Award Agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Consideration. A Stock Bonus Award may be awarded in consideration for (A) past services
actually rendered to the Company or an Affiliate, or (B) any other form of legal consideration that
may be acceptable to the Board in its sole discretion and permissible under applicable law.
(ii) Vesting. Shares of Common Stock awarded under the Stock Bonus Award Agreement may be
subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the
Board.
(iii) Termination of Participants Continuous Service. In the event a Participants
Continuous Service terminates, the Company may receive via a forfeiture condition, any or all of
the shares of Common Stock held by the Participant which have not vested as of the date of
termination of Continuous Service under the terms of the Stock Bonus Award Agreement.
(iv) Transferability. Rights to acquire shares of Common Stock under the Stock Bonus Award
Agreement shall be transferable by the Participant only upon such terms and conditions as are set
forth in the Stock Bonus Award Agreement, as the Board shall determine in
16.
its sole discretion, so long as Common Stock awarded under the Stock Bonus Award Agreement
remains subject to the terms of the Stock Bonus Award Agreement.
(c) Stock Unit Awards. Each Stock Unit Award Agreement shall be in such form and shall
contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of
Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate
Stock Unit Award Agreements need not be identical, provided, however, that each Stock Unit Award
Agreement shall include (through incorporation of the provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:
(i) Consideration. At the time of grant of a Stock Unit Award, the Board will determine the
consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock
subject to the Stock Unit Award. The consideration to be paid (if any) by the Participant for each
share of Common Stock subject to a Stock Unit Award may be paid in any form of legal consideration
that may be acceptable to the Board in its sole discretion and permissible under applicable law.
(ii) Vesting. At the time of the grant of a Stock Unit Award, the Board may impose such
restrictions or conditions to the vesting of the Stock Unit Award as it, in its sole discretion,
deems appropriate.
(iii) Payment. A Stock Unit Award may be settled by the delivery of shares of Common Stock,
their cash equivalent, any combination thereof or in any other form of consideration, as determined
by the Board and contained in the Stock Unit Award Agreement.
(iv) Additional Restrictions. At the time of the grant of a Stock Unit Award, the Board, as
it deems appropriate, may impose such restrictions or conditions that delay the delivery of the
shares of Common Stock (or their cash equivalent) subject to a Stock Unit Award after the vesting
of such Stock Unit Award.
(v) Dividend Equivalents. Dividend equivalents may be credited in respect of shares of Common
Stock covered by a Stock Unit Award, as determined by the Board and contained in the Stock Unit
Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted
into additional shares of Common Stock covered by the Stock Unit Award in such manner as determined
by the Board. Any additional shares covered by the Stock Unit Award credited by reason of such
dividend equivalents will be subject to all the terms and conditions of the underlying Stock Unit
Award Agreement to which they relate.
(vi) Termination of Participants Continuous Service. Except as otherwise provided in the
applicable Stock Unit Award Agreement, such portion of the Stock Unit Award that has not vested
will be forfeited upon the Participants termination of Continuous Service.
(d) Stock Appreciation Rights. Each Stock Appreciation Right Agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate. The terms and
conditions of Stock Appreciation Right Agreements may change from time to time, and the terms and
conditions of separate Stock Appreciation Right Agreements need not be identical; provided,
however, that each Stock Appreciation Right Agreement shall include
17.
(through incorporation of the provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
(i) Strike Price and Calculation of Appreciation. Each Stock Appreciation Right will be
denominated in shares of Common Stock equivalents. The appreciation distribution payable on the
exercise of a Stock Appreciation Right will be not greater than an amount equal to the excess of
(A) the aggregate Fair Market Value (on the date of the exercise of the Stock Appreciation Right)
of a number of shares of Common Stock equal to the number of share of Common Stock equivalents in
which the Participant is vested under such Stock Appreciation Right, and with respect to which the
Participant is exercising the Stock Appreciation Right on such date, over (B) an amount (the strike
price) that will be determined by the Board at the time of grant of the Stock Appreciation Right.
(ii) Vesting. At the time of the grant of a Stock Appreciation Right, the Board may impose
such restrictions or conditions to the vesting of such Stock Appreciation Right as it, in its sole
discretion, deems appropriate.
(iii) Exercise. To exercise any outstanding Stock Appreciation Right, the Participant must
provide written notice of exercise to the Company in compliance with the provisions of the Stock
Appreciation Right Agreement evidencing such Stock Appreciation Right.
(iv) Payment. The appreciation distribution in respect to a Stock Appreciation Right may be
paid in Common Stock, in cash, in any combination of the two or in any other form of consideration,
as determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such
Stock Appreciation Right.
(v) Termination of Continuous Service. In the event that a Participants Continuous Service
terminates, the Participant may exercise his or her Stock Appreciation Right (to the extent that
the Participant was entitled to exercise such Stock Appreciation Right as of the date of
termination) but only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Participants Continuous Service (or such longer or shorter
period specified in the Stock Appreciation Right Agreement) or (ii) the expiration of the term of
the Stock Appreciation Right as set forth in the Stock Appreciation Right Agreement. If, after
termination, the Participant does not exercise his or her Stock Appreciation Right within the time
specified herein or in the Stock Appreciation Right Agreement (as applicable), the Stock
Appreciation Right shall terminate.
(e) Other Stock Awards. Other forms of Stock Awards valued in whole or in part by reference
to, or otherwise based on, Common Stock may be granted either alone or in addition to Stock Awards
provided for under Section 6 and the preceding provisions of this Section 7. Subject to the
provisions of the Plan, the Board shall have sole and complete authority to determine the persons
to whom and the time or times at which such Other Stock Awards will be granted, the number of
shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock
Awards and all other terms and conditions of such Other Stock Awards.
18.
8. Covenants of the Company.
(a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of Common Stock required to satisfy such Stock Awards.
(b) Securities Law Compliance. The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be required to grant
Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards;
provided, however, that this undertaking shall not require the Company to register under the
Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority that counsel for the Company deems necessary for the
lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and
until such authority is obtained.
9. Use of Proceeds from Sales of Common Stock.
Proceeds from the sale of shares of Common Stock pursuant to Stock Awards shall constitute
general funds of the Company.
10. Miscellaneous.
(a) Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate
the time at which a Stock Award may first be exercised or the time during which a Stock Award or
any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock
Award stating the time at which it may first be exercised or the time during which it will vest.
(b) Shareholder Rights. No Participant shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award
unless and until such Participant has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.
(c) No Employment or Other Service Rights. Nothing in the Plan, any Stock Award Agreement or
other instrument executed thereunder or any Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in the capacity in
effect at the time the Stock Award was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or without notice and with or without
cause, (ii) the service of a Consultant pursuant to the terms of such Consultants agreement with
the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of the state in which
the Company or the Affiliate is incorporated, as the case may be.
(d) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market
Value (determined at the time of grant) of Common Stock with respect to which
19.
Incentive Stock Options are exercisable for the first time by any Optionholder during any
calendar year (under all plans of the Company and any Affiliates) exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof that exceed such limit (according to the order
in which they were granted) shall be treated as Nonstatutory Stock Options, notwithstanding any
contrary provision of the applicable Option Agreement(s).
(e) Investment Assurances. The Company may require a Participant, as a condition of
exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances
satisfactory to the Company as to the Participants knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably satisfactory to the Company
who is knowledgeable and experienced in financial and business matters and that he or she is
capable of evaluating, alone or together with the purchaser representative, the merits and risks of
exercising the Stock Award and (ii) to give written assurances satisfactory to the Company stating
that the Participant is acquiring Common Stock subject to the Stock Award for the Participants own
account and not with any present intention of selling or otherwise distributing the Common Stock.
The foregoing requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition of Common Stock
under the Stock Award has been registered under a then currently effective registration statement
under the Securities Act or (ii) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the circumstances under the then
applicable securities laws. The Company may, upon advice of counsel to the Company, place legends
on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited to, legends restricting the
transfer of the Common Stock.
(f) Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement,
the Company may, in its sole discretion, satisfy any federal, state or local tax withholding
obligation relating to a Stock Award by any of the following means (in addition to the Companys
right to withhold from any compensation paid to the Participant by the Company) or by a combination
of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of
Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in
connection with the Stock Award; or (iii) by such other method as may be set forth in the Stock
Award Agreement.
(g) Electronic Delivery. Any reference herein to a written agreement or document shall
include any agreement or document delivered electronically or posted on the Companys intranet.
(h) Performance Stock Awards. A Stock Award may be granted, may vest, or may be exercised
based upon service conditions, upon the attainment during a Performance Period of certain
Performance Goals, or both. The length of any Performance Period, the Performance Goals to be
achieved during the Performance Period, and the measure of whether and to what degree such
Performance Goals have been attained shall be conclusively determined by the Board in its sole
discretion. The maximum benefit to be received by any individual in any calendar year attributable
to Stock Awards described in this Section 10(h) shall not exceed the value of one hundred thousand
(100,000) shares of Common Stock.
20.
11. Adjustments upon Changes in Common Stock; Corporate Transactions.
(a) Capitalization Adjustments. If any change is made in, or other events occur with respect
to, the Common Stock subject to the Plan or subject to any Stock Award after the effective date of
the Plan set forth in Section 14 without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend
in property other than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the receipt of
consideration by the Company (each a Capitalization Adjustment)), the Plan shall be appropriately
adjusted in: (i) the class(es) and maximum number of securities subject to the Plan pursuant to
Sections 4(a) and 4(b), (ii) the class(es) and maximum number of securities that may be issued
pursuant to the exercise of Incentive Stock Options pursuant to Section 4(b), (iii) the maximum
number of securities that may be awarded to any person pursuant to Sections 5(c) and 10(h) and (iv)
the class(es) and number of securities and price per share of stock subject to outstanding Stock
Awards. The Board shall make such adjustments, and its determination shall be final, binding and
conclusive. (Notwithstanding the foregoing, the conversion of any convertible securities of the
Company shall not be treated as a transaction without receipt of consideration by the Company.)
(b) Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company,
all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares
of Common Stock not subject to the Companys right of repurchase) shall terminate immediately prior
to the completion of such dissolution or liquidation, and the shares of Common Stock subject to the
Companys repurchase option may be repurchased by the Company notwithstanding the fact that the
holder of such Stock Award is providing Continuous Service, provided, however, that the Board may,
in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or
no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously
expired or terminated) before the dissolution or liquidation is completed but contingent on its
completion.
(c) Corporate Transaction. The following provisions shall apply to Stock Awards in the event
of a Corporate Transaction unless otherwise provided in a written agreement between the Company or
any Affiliate and the holder of the Stock Award:
(i) Stock Awards May Be Assumed. In the event of a Corporate Transaction, any surviving
corporation or acquiring corporation (or the surviving or acquiring corporations parent company)
may assume or continue any or all Stock Awards outstanding under the Plan or may substitute similar
stock awards for Stock Awards outstanding under the Plan (including but not limited to, awards to
acquire the same consideration paid to the shareholders of the Company pursuant to the Corporate
Transaction), and any reacquisition or repurchase rights held by the Company in respect of Common
Stock issued pursuant to Stock Awards may be assigned by the Company to the successor of the
Company (or the successors parent company, if any), in connection with such Corporate Transaction.
A surviving corporation or acquiring corporation may choose to assume or continue only a portion
of a Stock Award or substitute a similar stock award for only a portion of a Stock Award. The
terms of any assumption, continuation or substitution shall be set by the Board in accordance with
the provisions of Section 3.
21.
(ii) Stock Awards Held by Current Participants. In the event of a Corporate Transaction in
which the surviving corporation or acquiring corporation (or its parent company) does not assume or
continue such outstanding Stock Awards or substitute similar stock awards for such outstanding
Stock Awards, then with respect to Stock Awards that have not been assumed, continued or
substituted and that are held by Participants whose Continuous Service has not terminated prior to
the effective time of the Corporate Transaction (referred to as the Current Participants), the
vesting of such Stock Awards (and, if applicable, the time at which such Stock Awards may be
exercised) shall (contingent upon the effectiveness of the Corporate Transaction) be accelerated in
full to a date prior to the effective time of such Corporate Transaction as the Board shall
determine (or, if the Board shall not determine such a date, to the date that is five (5) days
prior to the effective time of the Corporate Transaction), and such Stock Awards shall terminate if
not exercised (if applicable) at or prior to the effective time of the Corporate Transaction, and
any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall
lapse (contingent upon the effectiveness of the Corporate Transaction).
(iii) Stock Awards Held by Persons other than Current Participants. In the event of a
Corporate Transaction in which the surviving corporation or acquiring corporation (or its parent
company) does not assume or continue such outstanding Stock Awards or substitute similar stock
awards for such outstanding Stock Awards, then with respect to Stock Awards that have not been
assumed, continued or substituted and that are held by persons other than Current Participants, the
vesting of such Stock Awards (and, if applicable, the time at which such Stock Award may be
exercised) shall not be accelerated and such Stock Awards (other than a Stock Award consisting of
vested and outstanding shares of Common Stock not subject to the Companys right of repurchase)
shall terminate if not exercised (if applicable) prior to the effective time of the Corporate
Transaction; provided, however, that any reacquisition or repurchase rights held by the Company
with respect to such Stock Awards shall not terminate and may continue to be exercised
notwithstanding the Corporate Transaction.
(iv) Payment for Stock Awards in Lieu of Exercise. Notwithstanding the foregoing, in the
event a Stock Award will terminate if not exercised prior to the effective time of a Corporate
Transaction, the Board may provide, in its sole discretion, that the holder of such Stock Award may
not exercise such Stock Award but will receive a payment, in such form as may be determined by the
Board, equal in value to the excess, if any, of (A) the value of the property the holder of the
Stock Award would have received upon the exercise of the Stock Award, over (B) any exercise price
payable by such holder in connection with such exercise.
(d) Change in Control. A Stock Award may be subject to additional acceleration of vesting and
exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement
for such Stock Award or as may be provided in any other written agreement between the Company or
any Affiliate and the Participant, but in the absence of such provision, no such acceleration shall
occur.
12. Amendment of the Plan and Stock Awards.
(a) Amendment of Plan. Subject to the limitations, if any, of applicable law, the Board at
any time, and from time to time, may amend the Plan. However, except as provided in
22.
Section 11(a) relating to Capitalization Adjustments, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval is necessary to
satisfy applicable law.
(b) Shareholder Approval. The Board, in its sole discretion, may submit any other amendment
to the Plan for shareholder approval, including, but not limited to, amendments to the Plan
intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from the limit on corporate deductibility
of compensation paid to Covered Employees.
(c) Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible Employees with the
maximum benefits provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) No Impairment of Rights. Rights under any Stock Award granted before amendment of the
Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent
of the affected Participant and (ii) such Participant consents in writing.
(e) Amendment of Stock Awards. The Board, at any time and from time to time, may amend the
terms of any one or more Stock Awards, including, but not limited to, amendments to provide terms
more favorable than previously provided in the Stock Award Agreement, subject to any specified
limits in the Plan that are not subject to Board discretion; provided, however, that the rights
under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests
the consent of the affected Participant and (ii) such Participant consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the
Plan is adopted by the Board or approved by the shareholders of the Company, whichever is earlier.
No Stock Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights
and obligations under any Stock Award granted while the Plan is in effect except with the written
consent of the affected Participant.
14. Effective Date of Plan.
This Plan (as an amendment and restatement of the Prior Plan) shall become effective on the
date that the Plan is adopted by the Board, but no Stock Award shall be exercised (or, in the case
of a Stock Purchase Award, Stock Bonus Award, Stock Unit Award, or Other Stock Award shall be
granted) unless and until the Plan has been approved by the shareholders of the
23.
Company, which approval shall be within twelve (12) months before or after the date the Plan
is adopted by the Board.
15. Choice of Law.
The law of the State of California shall govern all questions concerning the construction,
validity and interpretation of this Plan, without regard to such states conflict of laws rules.
24.
PROXY
ARADIGM CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 2006
The undersigned hereby appoints V. BRYAN LAWLIS and THOMAS C. CHESTERMAN, and each of them, as
attorneys and proxies of the undersigned, with full power of substitution, to vote all shares of
stock of Aradigm Corporation that the undersigned may be entitled to vote at the 2006 Annual
Meeting of Shareholders of Aradigm Corporation to be held at Aradigm Corporations offices located
at 3929 Point Eden Way, Hayward, California on Thursday, May 18, 2006 at 9:00 a.m. local time, and
at any and all postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the following matters and
in accordance with the following instructions, with discretionary authority as to any and all other
matters that may properly come before the meeting.
þ Please mark votes as in this example.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND A VOTE FOR PROPOSALS
2 and 3.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED IN
PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF
SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
|
|
|
|
|
|
|
|
|
1.
|
|
To elect (01) Frank H.
Barker, (02) Igor Gonda,
(03) Stephen O. Jaeger, (04)
V. Bryan Lawlis and (05)
Virgil D. Thompson as
directors to hold office
until the next annual
meeting of shareholders and
until their successors are
elected.
|
|
FOR ALL NOMINEES
WITHHELD FROM ALL NOMINEES
FOR ALL NOMINEES
EXCEPT:
|
o
o
o
|
|
|
|
|
|
|
|
|
|
2.
|
|
To
approve the Aradigm
Corporation 2005 Equity
Incentive Plan, as amended
and restated, to increase
the aggregate number of
shares of Common Stock
authorized for issuance
under such plan by 2,000,000
shares.
|
|
FOR
o
|
|
AGAINST
o
|
|
ABSTAIN
o |
|
|
|
|
|
|
|
|
|
3.
|
|
To
ratify the selection
of Ernst & Young LLP as
Aradigms independent
auditors for the fiscal year
ending December 31, 2006.
|
|
FOR
o
|
|
AGAINST
o
|
|
ABSTAIN
o |
Please vote, date and promptly return this proxy in the enclosed return envelope which is
postage prepaid if mailed in the United States.
Please sign exactly as your name appears hereon. If stock is registered in the names of two
or more persons, each should sign. Executors, administrators, trustees, guardians and
attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate
name and have a duly authorized officer sign, stating that if signer is a partnership, please sign
in partnership name by authorized person.
|
|
|
|
|
|
|
Signature:
|
|
|
|
Date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
|
|
Date |
|
|
|
|
|
|
|
|
|