SONUS PHARMACEUTICALS, INC.
22026 20TH AVENUE S.E.
BOTHELL, WASHINGTON 98021
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 27, 2000
TO THE STOCKHOLDERS OF SONUS PHARMACEUTICALS, INC.:
The 2000 Annual Meeting of Stockholders of SONUS Pharmaceuticals, Inc.
(the "Company") will be held at the Washington Athletic Club, 1325 Sixth Avenue,
Seattle, Washington, on April 27, 2000, at 9:00 A.M., for the following purposes
as more fully described in the accompanying Proxy Statement:
(1) To elect the following five (5) nominees to serve as
directors until the next annual meeting of stockholders or
until their successors are elected and have qualified:
Michael A. Martino Robert E. Ivy
George W. Dunbar, Jr. Dwight Winstead
Christopher S. Henney, Ph.D., D.Sc.
(2) To approve the adoption of the Company's 2000 Stock
Incentive Plan which authorizes the issuance of 500,000
shares of Common Stock plus, as of the last day of each
calendar year under the Plan, an additional number of
shares equal to four percent (4%) of the shares of the
Company's Common Stock outstanding as of such date;
(3) To ratify the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year
ending December 31, 2000; and
(4) To transact such other business as may properly come
before the meeting or any adjournment or postponement
thereof.
Only stockholders of record at the close of business on March 3, 2000
will be entitled to vote at the meeting or any adjournment or postponement
thereof.
By Order of the Board of Directors
Michael A. Martino
President and Chief Executive Officer
March 15, 2000
YOUR VOTE IS IMPORTANT. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING YOU SHOULD COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. Any
stockholder present at the meeting may withdraw his or her proxy and vote
personally on each matter brought before the meeting. Stockholders attending the
meeting whose shares are held in the name of a broker or other nominee who
desire to vote their shares at the meeting should bring with them a proxy or
letter from that firm confirming their ownership of shares.
SONUS PHARMACEUTICALS, INC.
22026 20TH AVENUE S.E.
BOTHELL, WASHINGTON 98021
---------------
PROXY STATEMENT
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INTRODUCTION
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of SONUS Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), for use at its 2000 Annual Meeting
of Stockholders ("Annual Meeting") to be held on April 27, 2000, at 9:00 A.M.,
at the Washington Athletic Club, 1325 Sixth Avenue, Seattle, Washington. This
Proxy Statement and the accompanying proxy are being mailed to stockholders on
or about March 22, 2000. The Company has retained the services of Corporate
Investor Communications, Inc. to assist in soliciting proxies from brokers and
nominees for the Annual Meeting. The estimated costs for these services is
$4,500 and will be borne by the Company. It is contemplated that this
solicitation of proxies will be made primarily by mail; however, if it should
appear desirable to do so in order to ensure adequate representation at the
meeting, directors, officers and employees of the Company may communicate with
stockholders, brokerage houses and others by telephone, telegraph or in person
to request that proxies be furnished and may reimburse banks, brokerage houses,
custodians, nominees and fiduciaries for their reasonable expenses in forwarding
proxy materials to the beneficial owners of the shares held by them. All
expenses incurred in connection with this solicitation shall be borne by the
Company.
Holders of shares of Common Stock of the Company ("stockholders") who
execute proxies retain the right to revoke them at any time before they are
voted. Any proxy given by a stockholder may be revoked or superseded by
executing a later dated proxy, by giving notice of revocation to the Secretary,
SONUS Pharmaceuticals, Inc., 22026 20th Avenue S.E., Bothell, Washington 98021
in writing prior to or at the meeting or by attending the meeting and voting in
person. A proxy, when executed and not so revoked, will be voted in accordance
with the instructions given in the proxy. If a choice is not specified in the
proxy, the proxy will be voted "FOR" the nominees for election of directors
named in this Proxy Statement, "FOR" the approval of the 2000 Stock Incentive
Plan, and "FOR" the ratification of Ernst & Young LLP as the Company's
independent auditors.
VOTING SECURITIES
The shares of Common Stock, $.001 par value, constitute the only
outstanding class of voting securities of the Company. Only the stockholders of
the Company of record as of the close of business on March 3, 2000 (the "Record
Date") will be entitled to vote at the meeting or any adjournment or
postponement thereof. As of the Record Date, there were 9,151,689 shares of
Common Stock outstanding and entitled to vote. No shares of the Company's
preferred stock, $0.001 par value, were outstanding. A majority of shares
entitled to vote represented in person or by proxy will constitute a quorum at
the meeting. Each stockholder is entitled to one vote for each share of Common
Stock held as of the Record Date. Abstentions and broker non-votes are each
included in the determination of the number of shares present and voting for the
purpose of determining whether a quorum is present. Abstentions will be treated
as shares present and entitled to vote for purposes of any matter requiring the
affirmative vote of a majority or other proportion of the shares present and
entitled to vote. With respect to shares relating to any proxy as to which a
broker non-vote is indicated on a proposal, those shares will not be considered
present and entitled to vote with respect to any such proposal. Abstentions or
broker non-votes or other failures to vote will have no effect in the election
of directors, who will be elected by a plurality of the affirmative votes cast.
With respect to any matter brought before the Annual Meeting requiring the
affirmative vote of a majority or other proportion of the outstanding shares, an
abstention or broker non-vote will have the same effect as a vote against the
matter being voted upon.
All stockholders entitled to vote at the Annual Meeting may cumulate the
votes in the election of directors. With cumulative voting, each stockholder is
entitled to a number of votes as shall equal the number of votes which the
stockholder would be entitled to cast for the election of directors with respect
to the stockholder's shares of
stock multiplied by the number of directors to be elected by the stockholders,
and each stockholder may cast all of such votes for a single director or may
distribute them among the number to be voted for, or for any two or more of them
as the stockholder may see fit. In order to cumulate votes, stockholders must
attend the meeting and vote in person or make arrangements with their own
proxies. Otherwise, the proxies solicited by the Board of Directors confer
discretionary authority in the proxy holders to cumulate votes so as to elect
the maximum number of nominees.
PROPOSAL ONE
ELECTION OF DIRECTORS
Currently, there are five (5) members of the Board of Directors.
Directors are elected at each annual stockholders' meeting to hold office until
the next annual meeting or until their successors are elected and have
qualified. Unless otherwise instructed, the proxy holders named in the enclosed
proxy will vote the proxies received by them for the five (5) nominees named
below. All of the nominees presently are directors of the Company.
If any nominee becomes unavailable for any reason before the election,
the enclosed proxy will be voted for the election of such substitute nominee or
nominees, if any, as shall be designated by the Board of Directors. The Board of
Directors has no reason to believe that any of the nominees will be unavailable
to serve.
Under Delaware law, the five (5) nominees receiving the highest number
of votes will be elected as directors at the Annual Meeting. As a result,
proxies voted to "Withhold Authority," which will be counted, and broker
non-votes, which will not be counted, will have no practical effect.
The names and certain information concerning the five (5) nominees for
election as directors are set forth below. THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW.
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Michael A. Martino 44 President, Chief Executive Officer and
Director
George W. Dunbar, Jr. 53 Director, Co-Chairman of the Board
Christopher S. Henney, Ph.d., D.Sc. 59 Director
Robert E. Ivy 66 Director, Co-Chairman of the Board
Dwight Winstead 51 Director
Michael A. Martino joined the Company in September 1998 as President,
Chief Operating Officer and a director and was appointed Chief Executive Officer
in July 1999. From 1983 to 1998, Mr. Martino held numerous positions of
increasing responsibility in strategic planning, business development, marketing
and sales, and general management with Mallinckrodt, Inc., a global healthcare
products company, including serving as Vice President and General Manager of the
Nuclear Medicine Division where he was responsible for annual revenues of
approximately $250 million. Mr. Martino holds a B.A. in business from Roanoke
College and an M.B.A. from Virginia Polytechnic Institute.
George W. Dunbar, Jr. was elected as a director of the Company in
November 1997 and co-chairman of the board in July 1999. Mr. Dunbar is currently
acting President and Chief Exectuvie Officer of CytoTherapeutics, Inc. and
StemCells, Inc. From 1991 until 1999, Mr. Dunbar was President, Chief Executive
Officer and a director of Metra Biosystems, Inc., a company developing new
diagnostics and medical devices for detection and management of bone and joint
diseases. From 1988 until 1991, he was the Vice President of Licensing and
Business Development for The Ares-Serono Group, a Swiss health care company.
From 1974 until 1987, he held various senior management positions with Amersham
International, a health care and life sciences company, where he most recently
served as Vice President for its Life Sciences business in North America. Mr.
Dunbar also serves as a director of LJL Biosystems, Quidel Corporation,
Competitive Technologies, Inc., and The Valley Medical Center Foundation. Mr.
Dunbar holds a B.S. in electrical engineering and an M.B.A. from Auburn
University and sits on the Auburn School of Business M.B.A. Advisory Board.
2
Christopher S. Henney, Ph.D., D.Sc. was elected as a director of the
Company in February 1999. Since May 1995, Dr. Henney has been President, Chief
Executive Officer and a director of Dendreon Corporation, a biotechnology
company. From 1989 to 1995, Dr. Henney served as Executive Vice President,
Scientific Director and a director of ICOS and from 1981 to 1989 he served as a
director, Vice Chairman and Scientific Director of Immunex. Immunex and ICOS are
each biotechnology companies that were co-founded by Dr. Henney. Dr. Henney
received his Ph.D. in experimental pathology and a D.Sc. in immunology from the
University of Birmingham. Dr. Henney has held faculty positions at Johns Hopkins
University, the University of Washington and the Fred Hutchinson Cancer Research
Center, where he was the first Head of Basic Immunology. He is the author of
more than 200 published articles in the field of immunology and has been editor
of a number of scientific journals and has served on several scientific advisory
boards. He is a former section editor of Journal of Immunology and chairman of
the American Cancer Society's Advisory Committee on Immunology and
Immunotherapy. Dr. Henney is also serves as a director of Techne Corporation.
Robert E. Ivy was elected as a director of the Company in February 1999
and co-chairman of the board in July 1999. Since October 1999, Mr. Ivy has been
the President of Insight, Inc. From 1987 until 1999, Mr. Ivy served as Chief
Executive Officer, President and Chairman of the Board of Ribi ImmunoChem, a
biopharmaceutical company, which was acquired by Corixa Corporation in October
1999. Prior to joining Ribi ImmunoChem, Mr. Ivy served as President, Chief
Executive Officer and a director of Oncogene Science, Inc.; President, Chief
Executive Officer and a director of Berlex Laboratories, Inc. (a subsidiary of
Schering A.G.); and President of the U.S.V. Pharmaceutical Division of Revlon
Health Care Group. Mr. Ivy began his career with G.D. Searle & Co. in sales
and marketing rising to the position of Vice President, Marketing and
Sales. Mr. Ivy holds a B.S. in Chemistry and Biology from Northwestern
University and attended Northwestern University Medical School.
Dwight Winstead has served as a director of the Company since July 1995.
In May 1997, Mr. Winstead became President of Owen Healthcare, Inc., a hospital
pharmacy management company and a subsidiary of Cardinal Health, Inc. From 1991
to 1997, Mr. Winstead served as Executive Vice President of VHA, Inc., a
performance improvement company serving more than 1,200 health care
organizations in the United States. Prior to his promotion to Executive Vice
President, Mr. Winstead served in various capacities of VHA Supply Company, a
subsidiary of VHA, Inc., including Vice President, Sales and Marketing, Senior
Vice President, Chief Operating Officer and President from 1987 to 1991. Prior
to joining VHA, Inc. in 1984, Mr. Winstead served in a variety of materials
management and sales positions at several companies, including Ortho Instruments
and Worthington Diagnostics. Mr. Winstead holds a B.S. from Delta State
University.
OTHER EXECUTIVE OFFICER
John T. Flaherty, M.D. joined the Company in May 1999 as Senior Vice
President and Chief Medical Officer. Dr. Flaherty joined the Company from Merck
& Co., Inc. where he was Senior Clinical Scientist in Outcomes Research and
Management for cardiovascular products. From 1992 to 1997, Dr. Flaherty was
Executive Director of Clinical Development at Merck. Prior to joining Merck, he
was an Associate Professor of Medicine at John Hopkins University School of
Medicine. Dr. Flaherty received a bachelor's degree in materials science and
engineering from the Massachusetts Institute of Technology and an M.D. from Duke
University School of Medicine. He is a fellow of the American College of
Cardiology and has published more than 100 articles in scientific journals.
3
BOARD MEETINGS AND ATTENDANCE
The Board of Directors of the Company held 9 meetings during the fiscal
year ended December 31, 1999. Each incumbent director attended at least
seventy-five percent (75%) of the aggregate of the number of meetings of the
Board and the number of meetings held by all committees of the Board on which he
served except for George W. Dunbar, Jr., who attended six of the nine Board
meetings. There are no family relationships among any of the directors or
executive officers of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee is presently comprised of three (3) directors
selected by the Board of Directors of the Company. The members of the Audit
Committee are Robert E. Ivy, Christopher S. Henney, Ph.D., D.Sc, and George W.
Dunbar, Jr.. The Audit Committee is authorized to handle all matters which it
deems appropriate regarding the Company's independent accountants and to
otherwise communicate and act upon matters relating to the review and audit of
the Company's books and records, including the scope of the annual audit and the
accounting methods and systems to be utilized by the Company. In addition, the
Audit Committee also makes recommendations to the Board of Directors with
respect to the selection of the Company's independent accountants. The Audit
Committee held four meetings during the fiscal year ended December 31, 1999.
The Compensation Committee is presently comprised of two (2) directors
selected by the Board of Directors of the Company. The members of the
Compensation Committee are Dwight Winstead and George W. Dunbar, Jr. The
functions of the Compensation Committee include advising the Board of Directors
on officer and employee compensation. The Board of Directors, based on input
from the Compensation Committee, establishes the annual compensation rates for
the Company's executive officers. The Compensation Committee held four meetings
during the fiscal year ended December 31, 1999.
The Board of Directors does not have a nominating committee. Instead,
the Board of Directors, as a whole, identifies and screens candidates for
membership on the Company's Board of Directors.
4
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation received for the fiscal year
ended December 31, 1999, by the Company's Chief Executive Officer and its other
executive officers (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards -
Annual Compensation Securities
------------------------ Underlying All Other
Name and Position Year Salary Bonus (1) Options Compensation
- -------- -------- ---- ------ --------- ------- ------------
Michael A. Martino (2) 1999 $250,000 $ -- -- $ 19,608
President, Chief 1998 54,968 -- 200,000 50,209
Executive Officer and 1997 -- -- -- --
Director
John Flaherty, M.D. (3) 1999 114,488 -- 80,000 31,803
Senior Vice President 1998 -- -- -- --
and Chief Medical 1997 -- -- -- --
Officer
Gregory Sessler (4) 1999 190,000 -- 120,000 --
Senior Vice President, 1998 190,000 -- 21,500 --
Strategic Market 1997 165,000 41,250 16,150 --
Development and Chief
Financial Officer
Steven C. Quay, M.D., Ph.D. (5) 1999 205,833 -- 405,000 174,167
Former Chief Executive 1998 380,000 -- 19,700 --
Officer 1997 360,000 112,500 33,500 --
- ------------------
(1) Bonus earned for the applicable fiscal year pursuant to Company's
Executive Incentive Compensation Plan, which provides for bonuses to be
paid on a percentage of salary provided that certain objectives are met.
The percentage of salary and objectives to be met are approved by the
Compensation Committee of the Board.
(2) Mr. Martino joined the Company in September 1998. Other compensation
includes a signing bonus of $40,000 and relocation expenses of $10,209
in 1998 and relocation expenses of $19,608 in 1999.
(3) Mr. Flaherty joined the Company in May 1999 at an annual salary of
$190,000. Other compensation represents relocation expenses in 1999.
(4) Mr. Sessler resigned his position with the Company in March 2000.
(5) Mr. Quay resigned as Chief Executive Officer in July 1999 and is
currently a part-time employee of the Company. Other compensation
represents consideration paid to Mr. Quay in connection with his
resignation as Chief Executive Officer.
5
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value at
Number % of Total Assumed Annual
of Options Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise or for Option Term (3)
Options in Fiscal Base Price -------------------------
Name Granted Year (1) ($/Share) Expiration Date (2) 5% 10%
- ---------------------------------------------------------------------------------------------------------------------------
Michael A. Martino -- -- -- -- -- --
John T. Flaherty, M.D 30,000 4.0 6.0625 05/10/09 114,380 289,862
50,000 6.6 3.9688 10/08/09 124,797 316,262
Gregory Sessler 120,000 15.8 5.9375 02/11/09 448,087 1,135,542
Steven C. Quay, M.D., Ph.D 400,000 52.7 5.9375 02/11/09 1,493,625 3,785,139
5,000 0.7 6.75 07/21/09 21,225 53,789
(1) Options to purchase an aggregate of 758,760 shares of Common Stock were
granted to employees, including the Named Executive Officers, during the
year ended December 31, 1999.
(2) Options granted have a term of 10 years, subject to earlier termination
in certain events related to termination of employment.
(3) In accordance with the rules and regulations of the Securities and
Exchange Commission, such gains are based on assumed rates of annual
compound stock appreciation of 5% and 10% from the date on which the
options were granted over the full term of the options. The rates do not
represent the Company's estimate or projection of future Common Stock
prices, and no assurance can be given that the rates of annual compound
stock appreciation assumed will be achieved.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised in-the-Money
Shares Unexercised Options at Fiscal Year-End Options at Fiscal Year-End (1)
Acquired Value -------------------------------------- ---------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------
Michael A. Martino -- $ -- 62,500 137,500 $ -- $ --
John Flaherty, M.D -- -- -- 80,000 -- --
Gregory Sessler -- -- 79,984 138,134 77,405 --
Steven C. Quay, M.D., Ph.D -- -- 569,090 415,376 140,456 --
(1) Market value of underlying securities at year-end minus the exercise
price of "in-the-money" options. The closing sale price for the
Company's Common Stock as of December 31, 1999 on the Nasdaq National
Market was $2.50.
6
DIRECTOR'S FEES
During 1999, the Company's non-employee directors received cash
compensation in the amount of $3,750 per quarter for service on the Company's
Board of Directors. All directors may be reimbursed for certain expenses
incurred for meetings of the Board of Directors which they attended.
On May 12, 1995, the Company adopted a Stock Option Plan for Directors.
Under the Directors' Plan, continuing directors receive an option grant covering
5,000 shares upon re-election at the Company's Annual Meeting of Stockholders.
In addition to option grants under the Director Plan, in July 1999, each of the
Company's directors received an option grant covering 5,000 shares under the
Company's Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Plan - 1991. The exercise price of option grants to directors is equal to the
fair market value of the Company's Common Stock at the time of grant and the
options are fully vested upon grant.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company entered into an employment arrangement with Michael A.
Martino on September 15, 1998, which provides that Mr. Martino will act as the
Company's President and Chief Operating Officer and was appointed as a member of
the Company's Board of Directors. Mr. Martino received an initial stock option
grant to purchase up to 200,000 shares of Common Stock of the Company, subject
to a vesting schedule over time, and a one time payment of $40,000 upon
commencement of employment. Mr. Martino receives an annual base salary of
$250,000 and an annual bonus of up to 35% of his annual base salary upon the
achievement of certain performance goals determined by the Board of Directors.
The employment arrangement may be terminated by Mr. Martino or the Company at
any time. In the event Mr. Martino's employment is terminated by the Company
without cause in circumstances not covered by the Change-in-Control Agreement
described below, the Company will continue to pay Mr. Martino's base salary for
a period of 12 months plus the number of months remaining in his first year of
employment.
The Company has entered into Change-in-Control Agreements with each of
Messrs. Martino, Sessler and Flaherty. Each of the Agreements provides that upon
termination of employment within 12 months following a Change of Control, as
defined in the Agreements, either voluntarily for good reason or involuntarily
without cause, the Company will pay the employee accrued and unpaid base salary,
declared and unpaid incentive compensation and a severance payment equal the
employee's highest annual base salary in effect within 12 months of termination
multiplied by 2.99. Each of the Agreements has a maximum term of three years.
On August 25, 1999, the Company entered into an agreement for part-time
employment and mutual release with Steven C. Quay, M.D., Ph.D. The agreement has
a term of thirty-six (36) months and provides that Dr. Quay will provide
services for up to 144 hours per quarter prior to December 31, 1999 and up to 80
hours per calendar quarter during the remaining term of the agreement. In
consideration for services under the agreement, Dr. Quay received an amount
equal to the amount he would have received under his previous employment
agreement through December 31, 1999, which equaled $174,167, and will receive
$250 per hour during the remaining term.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely upon its review of the copies of reports furnished to the
Company, or written representations that no annual Form 5 reports were required,
the Company believes that all filing requirements under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),applicable to
its directors, officers and any persons holding ten percent (10%) or more of the
Company's Common Stock were made with respect to the Company's fiscal year ended
December 31, 1999.
7
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Set forth below is certain information as of the Record Date regarding
the beneficial ownership of the Company's Common Stock by (i) any person who was
known by the Company to own more than five percent (5%) of the voting securities
of the Company, (ii) all directors and nominees, (iii) each of the Named
Executive Officers identified in the Summary Compensation Table, and (iv) all
current directors and executive officers as a group.
Amount and Nature of
Name and Address of Beneficial Owners Beneficial Ownership (1) Percent of Class
- ------------------------------------- ------------------------ ----------------
Steven C. Quay, M.D., Ph.D. (2)
Debra L. Quay....................... 1,713,591 17.8%
c/o SONUS Pharmaceuticals, Inc.
22026 20th Avenue SE
Bothell, Washington 98021
Abbott Laboratories (3)...... 843,802 8.7%
100 Abbott Park Road
Abbott Park, Illinois 60064
Aperture Associates, L.P. (4)
Horsley Bridge Partners, Inc. ...... 659,647 7.2%
505 Montgomery Street
San Francisco, California 94111
Daiichi Pharmaceutical Co., Ltd. ... 462,857 5.1%
14-10, Nihonbashi 3-chome,
Chuo-ku, Tokyo 103, Japan
Michael A. Martino (5)....... 130,400 1.4%
Gregory Sessler (6).......... 181,027 1.9%
John Flaherty (7)............ 16,940 *
George W. Dunbar, Jr. (8).... 22,633 *
Christopher S. Henney, Ph.D., D.Sc. (9)... 17,633 *
Robert E. Ivy (10)........... 17,633 *
Dwight Winstead (11)......... 32,633 *
All current executive officers and
directors as a group (7 persons)
(12)....................... 418,899 4.4%
- -----------------
*Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options and warrants currently exercisable, or exercisable
within 60 days of the Record Date, are deemed outstanding for computing
the percentage of the person holding such options but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Includes (i) 1,221,335 shares owned by Dr. Steven C. Quay and Debra L.
Quay, and (ii) 492,256 shares subject to stock options exercisable
within 60 days of the Record Date.
(3) Includes 500,000 shares subject to warrants exercisable within 60 days
of the Record Date.
(4) Information is based on reports filed with the Securities and Exchange
Commission. Includes 12,123 shares subject to warrants exercisable
within 60 days of the Record Date.
(5) Includes 126,400 shares subject to options exercisable within 60 days of
the Record Date.
8
(6) Includes 157,016 shares subject to options exercisable within 60 days of
the Record Date.
(7) Includes 16,940 shares subject to options exercisable within 60 days of
the Record Date.
(8) Includes 22,633 shares subject to options exercisable within 60 days of
the Record Date.
(9) Includes 17,633 shares subject to options exercisable within 60 days of
the Record Date.
(10) Includes 17,633 shares subject to options exercisable within 60 days of
the Record Date.
(11) Includes 32,633 shares subject to options exercisable within 60 days of
the Record Date.
(12) Includes directors' and executive officers' shares listed above.
9
REPORT OF THE COMPENSATION COMMITTEE
The following report is submitted by the Compensation Committee of the
Board of Directors with respect to the executive compensation policies
established by the Compensation Committee and recommended to the Board of
Directors and compensation paid or awarded to executive officers for the fiscal
year ended December 31, 1999.
The Compensation Committee recommends for approval by the Board of
Directors the annual salary, bonus and other benefits, including incentive
compensation awards, of the Company's senior management and recommends new
employee benefit plans and changes to existing plans. The Compensation Committee
met four times in 1999 and is presently comprised entirely of directors who are
not, and were not formerly, officers or employees of the Company.
COMPENSATION POLICIES AND OBJECTIVES
The Company's executive compensation policy is designed to attract and
retain exceptional executives by offering compensation for superior performance
that is highly competitive with other well-managed organizations in the health
care industry. The Compensation Committee measures executive performance on an
individual and corporate basis.
There are three components to the Company's executive compensation
program, and each is consistent with the stated philosophy as follows:
- Base Salary. Base salaries for executives and other key
employees are determined by individual financial and
non-financial performance, position in salary range and general
economic conditions of the Company. For purposes of
administering base pay, all executive positions are evaluated
and placed in appropriate salary grades. Salary range levels are
reviewed on an annual basis to ensure competitiveness with a
peer group of other health care companies. In recommending
salaries for executive officers, the Compensation Committee (i)
reviews the historical performance of the executives, and (ii)
reviews specific information provided by Towers Perrin, a
compensation consulting firm, with respect to the
competitiveness of salaries paid to the Company's executives.
- Annual Bonus. Annual bonuses for executives and other key
employees are tied directly to the Company's financial
performance as well as individual performance, and can be paid
in cash or stock options. The purpose of annual cash bonuses are
to reward executives for achievements of corporate, financial
and operational goals. When certain objective and subjective
performance goals are not met, annual bonuses would be reduced
or not paid. Philosophically, the Board of Directors believes
annual bonuses should be weighted toward stock or stock
equivalents until such time as the Company generates positive
cash flow.
- Long-Term Incentives. The purpose of these plans is to create an
opportunity for executives and other key employees to share in
the enhancement of stockholder value through stock options. The
overall goal of this component of pay is to create a strong link
between the management of the Company and its stockholders
through management stock ownership and the achievement of
specific corporate financial measures that result in the
appreciation of Company share price. Stock options are awarded
if individual goals are achieved or exceeded. The Compensation
Committee generally has followed the practice of granting
options annually on terms which provide that the options become
exercisable with respect to 25% of the shares purchasable under
the option after one year and in monthly installments over a
three year period thereafter. However, the plans also provide
for accelerated vesting of up to 50% of the shares awarded based
upon the percentage of aggregated achievement of corporate
goals. The Compensation Committee believes that this feature not
only provides an employee retention factor but also makes longer
term growth in share prices important for those receiving
options.
10
FISCAL YEAR 1999 COMPENSATION
Mr. Martino's cash compensation paid in 1999 was $250,000. No cash
bonuses were paid pursuant to the Company's Executive Incentive Compensation
Plan for 1999.
The Company is required to disclose its policy regarding qualifying
executive compensation deductibility under Section 162(m) of the Internal
Revenue Code of 1986, as amended, which provides that, for purposes of the
regular income tax and the alternative minimum tax, the otherwise allowable
deduction for compensation paid or accrued with respect to a covered employee of
a public corporation is limited to no more than $1 million per year. It is not
expected that the compensation to be paid to the Company's executive officers
for fiscal 1999 will exceed the $1 million limit per officer. The Company's
stock option plans are structured so that any compensation deemed paid to an
executive officer when he exercises an outstanding option under the plans, with
an exercise price equal to the fair market value of the option shares on the
grant date, will qualify as performance-based compensation that will not be
subject to the $1 million limitation.
The Compensation Committee of the
Board of Directors
George W. Dunbar
Dwight Winstead
Notwithstanding anything to the contrary set forth in the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the foregoing Report and
the performance graph on page 12 shall not be incorporated by reference into any
such filings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1999, the Company's Board of
Directors, based upon the recommendations of the Compensation Committee,
established the levels of compensation for the Company's executive officers.
11
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative stockholder
return on the Company's Common Stock with the cumulative total return of the
Nasdaq Pharmaceutical Index and the Nasdaq Stock Market - U.S. Index for the
period that commenced October 12, 1995, the date on which the Company's Common
Stock was first registered under the Exchange Act, and ended on December 31,
1999.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG SONUS PHARMACEUTICALS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
10/12/95 12/95 3/96 6/96 9/96 12/96 3/97 6/97 9/97
SONUS PHARMACEUTICALS, INC. 100 175 229 289 271 425 377 402 600
NASDAQ STOCK MARKET (U.S.) 100 104 109 118 122 128 121 143 167
NASDAQ PHARMACEUTICAL 100 122 127 123 126 122 116 125 140
12/97 3/98 6/98 9/98 12/98 3/99 6/99 9/99 12/99
SONUS PHARMACEUTICALS, INC. 473 350 176 104 96 107 74 47 36
NASDAQ STOCK MARKET (U.S.) 157 184 189 171 221 247 270 277 399
NASDAQ PHARMACEUTICAL 126 139 128 121 161 176 179 205 300
*$100 INVESTED ON 10/12/95 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
12
PROPOSAL TWO
APPROVAL OF THE 2000 STOCK INCENTIVE PLAN
INTRODUCTION
The Board of Directors adopted the 2000 Stock Incentive Plan (the "2000
Plan") in February 2000.
Approval of the 2000 Plan will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock present or
represented at the annual meeting of stockholders and entitled to vote thereat.
Proxies solicited by management for which no specific direction is included will
be voted FOR the approval of the 2000 Plan and the total number of shares
issuable thereunder.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 2000
PLAN.
The principal features of the 2000 Plan are summarized below, but the
summary is qualified in its entirety by reference to the 2000 Plan itself which
is attached hereto as Exhibit A.
2000 PLAN TERMS
The 2000 Plan provides for the grant by the Company of options and/or
rights to purchase shares of Common Stock of the Company to its officers,
directors, key employees, consultants and other business persons having
important business relationships with the Company, or any parent or subsidiary
corporation of the Company. The number of shares of Common Stock available under
the 2000 Plan will initially be 500,000 shares and shall increase as of the last
day of each calendar year during the term of the 2000 Plan, commencing December
31, 2000, by an additional number of shares equal to four percent (4%) of the
Company's Common Stock outstanding as of such date, subject to adjustment.
Notwithstanding the foregoing, the maximum number of shares issuable under the
2000 Plan shall be limited to 5,000,000 shares. As of the Record Date,
approximately seven (7) executive officers and directors of the Company and
approximately fifty (50) other employees were eligible to participate. The
purpose of the 2000 Plan is to enable the Company to attract and retain persons
of ability as employees, officers, directors and consultants and to motivate
such persons by providing them with an equity participation in the Company. The
Company does not expect to grant directors options in excess of those granted
under the Stock Option Plan for Directors, but reserves the right to grant such
options if necessary to attract or retain qualified directors. The 2000 Plan
expires February 2010, unless terminated earlier by the Board of Directors.
The 2000 Plan provides that it is to be administered by the Board of
Directors or a committee appointed by the Board. Presently, the Company's Board
of Directors administers the 2000 Plan (the "Administrator"). The Administrator
has broad discretion to determine the persons entitled to receive options and/or
rights to purchase under the 2000 Plan, the terms and conditions on which
options and/or rights to purchase are granted and the number of shares subject
thereto. The Administrator also has discretion to determine the nature of the
consideration to be paid upon the exercise of an option and/or right to purchase
granted under the 2000 Plan. Such consideration may generally consist of cash or
shares of Common Stock of the Company or, in the case of rights to purchase, a
promissory note.
Options granted under the 2000 Plan may be either "incentive stock
options," within the meaning of Section 422 of the Internal Revenue Code, or
"nonqualified stock options," as determined by the Administrator. Options may be
granted under the 2000 Plan for terms of up to ten (10) years. The exercise
price of incentive stock options must be at least equal to the fair market value
of the Common Stock of the Company as of the date of grant and the exercise
price of nonqualified stock options must be at least equal to 85% of the fair
market value of the Common Stock of the Company on the date of grant. No
optionee may be granted incentive stock options under the 2000 Plan to the
extent that the aggregate fair market value (determined as of the date of grant)
of the shares of Common Stock with respect to which incentive options are
exercisable for the first time by the optionee during any calendar year would
exceed $100,000. Further, no optionee may be granted options or rights to
purchase in excess of 400,000 shares in any year. Options granted under the 2000
Plan to officers, employees, directors, or consultants of the Company are
nontransferable other than upon death by will and the laws of descent and
distribution, and
13
generally may be exercised only while the optionee is employed or retained by
the Company or within three to six months after termination for any reason, with
the exact date of expiration to be determined by the Administrator.
Upon the occurrence of a consolidation or merger in which the Company is
not the surviving corporation, the sale of substantially all of the Company's
assets and certain other similar events (a "Change-of-Control Event"), the 2000
Plan provides that the 2000 Plan itself and all outstanding options shall
terminate unless provision is made in writing for the continuance of the 2000
Plan and for the assumption of outstanding options and rights to purchase
previously granted. If provision for the assumption of outstanding options and
rights to purchase is not made in connection with a Change-of-Control Event,
then notice shall be provided to all participants and all outstanding options
and rights to purchase shall be accelerated. In the event that the outstanding
shares of Common Stock while the 2000 Plan is in effect are increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of merger, consolidation or
reorganization in which the Company is the surviving corporation, or of a
recapitalization, stock split, combination of shares, reclassification,
reincorporation, stock dividend or of another change in the corporate structure
of the Company, appropriate adjustments will be made by the Board of Directors
to the aggregate number and kind of shares subject to the 2000 Plan and the
number and kind of shares and the price per share subject to outstanding
incentive options, nonqualified options and rights to purchase in order to
preserve, but not to increase, the benefits to persons then holding incentive
options, nonqualified options or rights to purchase.
Payment for shares upon exercise of an option or upon issuance of
restricted stock must be made in full at the time of exercise, or issuance with
respect to restricted stock. The form of consideration payable upon exercise of
an option or purchase of restricted stock shall, at the discretion of the
Administrator, be (i) by tender of United States dollars in cash, check or bank
draft; (ii) subject to any legal restriction against the Company's acquisition
or purchase of the Company's shares of Common Stock, shares of Common Stock,
which shall be deemed to have a value equal to the aggregate fair market value
of such shares determined on the date of exercise or purchase, (iii) by the
issuance of a promissory note acceptable to the Administrator; or (iv) pursuant
to other methods described in the 2000 Plan.
NEW PLAN BENEFITS
The Company believes that the benefits or amounts that will be received
by any participant under the 2000 Plan cannot be determined. The Company also
believes that the benefits or amounts that would have been received by any
person or group of persons under the 2000 Plan in fiscal year ended December 31,
1999, if the 2000 Plan had been in effect during that period, cannot be
determined. The Company expects to grant options to officers, directors and
other employees of the Company.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF 2000 PLAN
The following is a summary of certain federal income tax consequences of
participation in the 2000 Plan. The summary should not be relied upon as being a
complete statement of all possible federal income tax consequences. Federal tax
laws are complex and subject to change. Participation in the 2000 Plan may also
have consequences under state and local tax laws which vary from the federal tax
consequences described below. For such reasons, the Company recommends that each
participant consult his or her personal tax advisor to determine the specific
tax consequences applicable to him or her.
Incentive Options. No taxable income will be recognized by an optionee
under the 2000 Plan upon either the grant or the exercise of an incentive
option. Instead, a taxable event will occur upon the sale or other disposition
of the shares acquired upon exercise of an incentive option, and the tax
treatment of the gain or loss realized will depend upon how long the shares were
held before their sale or disposition. If a sale or other disposition of the
shares received upon the exercise of an incentive option occurs more than (i)
one year after the date of exercise of the option and (ii) two years after the
date of grant of the option, the holder will recognize long-term capital gain or
loss at the time of sale equal to the full amount of the difference between the
proceeds realized and the exercise price paid. However, a sale, exchange, gift
or other transfer of legal title of such stock (other than certain transfers
upon the optionee's death) before the expiration of either of the one-year or
two-year periods described above will constitute a "disqualifying disposition."
A disqualifying disposition involving a sale or exchange will result in ordinary
income to the optionee in an amount equal to the lesser of (i) the fair market
value of the stock on the date of exercise minus the exercise price or (ii) the
amount realized on disposition minus the exercise price. If the
14
amount realized in a disqualifying disposition exceeds the fair market value of
the stock on the date of exercise, the gain realized in excess of the amount
taxed as ordinary income as indicated above will be taxed as capital gain. A
disqualifying disposition as a result of a gift will result in ordinary income
to the optionee in an amount equal to the difference between the exercise price
and the fair market value of the stock on the date of exercise. Any loss
realized upon a disqualifying disposition will be treated as a capital loss.
Capital gains and losses resulting from disqualifying dispositions will be
treated as long-term or short-term depending upon whether the shares were held
for more or less than the applicable statutory holding period (which currently
is more than one year for long-term capital gains). The Company will be entitled
to a tax deduction in an amount equal to the ordinary income recognized by the
optionee as a result of a disposition of the shares received upon exercise of an
incentive option.
The exercise of an incentive option may result in items of "tax
preference" for purposes of the "alternative minimum tax." Alternative minimum
tax is imposed on an individual's income only if the amount of the alternative
minimum tax exceeds the individual's regular tax for the year. For purposes of
computing alternative minimum tax, the excess of the fair market value on the
date of exercise of the shares received on exercise of an incentive option over
the exercise price paid is included in alternative minimum taxable income in the
year the option is exercised. An optionee who is subject to alternative minimum
tax in the year of exercise of an incentive option may claim as a credit against
the optionee's regular tax liability in future years the amount of alternative
minimum tax paid which is attributable to the exercise of the incentive option.
This credit is available in the first year following the year of exercise in
which the optionee has regular tax liability.
Nonqualified Options. No taxable income is recognized by an optionee
upon the grant of a nonqualified option. Upon exercise, however, the optionee
will recognize ordinary income in the amount by which the fair market value of
the shares purchased, on the date of exercise, exceeds the exercise price paid
for such shares. The income recognized by the optionee who is an employee will
be subject to income tax withholding by the Company out of the optionee's
current compensation. If such compensation is insufficient to pay the taxes due,
the optionee will be required to make a direct payment to the Company for the
balance of the tax withholding obligation. The Company will be entitled to a tax
deduction equal to the amount of ordinary income recognized by the optionee,
provided that certain reporting requirements are satisfied. If the exercise
price of a nonqualified option is paid by the optionee in cash, the tax basis of
the shares acquired will be equal to the cash paid plus the amount of income
recognized by the optionee as a result of such exercise. If the exercise price
is paid by delivering shares of Common Stock of the Company already owned by the
optionee or by a combination of cash and already-owned shares, there will be no
current taxable gain or loss recognized by the optionee on the already-owned
shares exchanged (however, the optionee will nevertheless recognize ordinary
income to the extent that the fair market value of the shares purchased on the
date of exercise exceeds the price paid, as described above). The new shares
received by the optionee, up to the number of the old shares exchanged, will
have the same tax basis and holding period as the optionee's basis and holding
period in the old shares. The balance of the new shares received will have a tax
basis equal to any cash paid by the optionee plus the amount of income
recognized by the optionee as a result of such exercise, and will have a holding
period commencing with the date of exercise. Upon the sale or disposition of
shares acquired pursuant to the exercise of a nonqualified option, the
difference between the proceeds realized and the optionee's basis in the shares
will be a capital gain or loss and will be treated as long-term capital gain or
loss if the shares have been held for more than the applicable statutory holding
period (which is currently more than one year for long-term capital gains).
Restricted Stock. If no Section 83(b) election is made and repurchase
rights are retained by the Company, a taxable event will occur on each date the
participant's ownership rights vest (e.g., when the Company's repurchase rights
expire) as to the number of shares that vest on that date, and the holding
period for capital gain purposes will not commence until the date the shares
vest. The participant will recognize ordinary income on each date shares vest in
an amount equal to the excess of the fair market value of such shares on that
date over the amount paid for such shares. Any income recognized by a
participant who is an employee will be subject to income tax withholding by the
Company out of the optionee's current compensation. If such compensation is
insufficient to cover the amount to be withheld, the participant will be
required to make a direct payment to the Company for the balance of the tax
withholding obligation. The Company is entitled to a tax deduction in an amount
equal to the ordinary income recognized by the participant. The participant's
basis in the shares will be equal to the purchase price, if any, increased by
the amount of ordinary income recognized.
If a Section 83(b) election is made within 30 days after the date of
transfer, or if no repurchase rights are retained by the Company, then the
participant will recognize ordinary income on the date of purchase in an amount
15
equal to the excess of the fair market value of such shares on the date of
purchase over the purchase price paid for such shares.
TAX WITHHOLDING
Under the 2000 Plan, the Company has the power to withhold, or require a
participant to remit to the Company, an amount sufficient to satisfy Federal,
state and local withholding tax requirements with respect to any options
exercised or restricted stock granted under the 2000 Plan. To the extent
permissible under applicable tax, securities, and other laws, the Committee may,
in its sole discretion, permit a participant to satisfy an obligation to pay any
tax to any governmental entity in respect of any option or restricted stock up
to an amount determined on the basis of the highest marginal tax rate applicable
to such participant, in whole or in part, by (i) directing the Company to apply
shares of Common Stock to which the participant is entitled as a result of the
exercise of an option or as a result of the lapse of restrictions on restricted
stock, or (ii) delivering to the Company shares of Common Stock owned by the
participant.
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION OF THE BOARD
Approval of this Proposal Two to adopt the 2000 Plan requires the
affirmative vote of the holders of a majority of the shares of Common Stock of
the Company present or represented by proxy and entitled to vote at the Annual
Meeting (voting together as a single class). Proxies solicited by management for
which no specific direction is included will be voted "FOR" the adoption of the
2000 Plan. THE BOARD DEEMS PROPOSAL TWO TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF THE
ADOPTION OF THE 2000 PLAN.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 2000, and recommends that stockholders vote for ratification
of such appointment. In the event of a negative vote on such ratification, the
Board of Directors will reconsider its selection.
Ernst & Young LLP has audited the Company's financial statements
annually since inception. Its representatives are expected to be present at the
meeting with the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at the 2001
Annual Meeting of Stockholders and presentation in the Company's Proxy Statement
with respect to such meeting should arrange for such proposal to be delivered to
the Company at its principal place of business no later than 120 days prior to
mailing in order to be considered for inclusion in the Company's proxy statement
relating to that meeting. Matters pertaining to such proposals, including the
number and length thereof, eligibility of persons entitled to have such
proposals included and other aspects are regulated by the Securities Exchange
Act of 1934, Rules and Regulations of the Securities and Exchange Commission and
other laws and regulations to which interested persons should refer. The Company
anticipates that its next annual meeting will be held in April 2001.
Proxies submitted to the Company will confer discretionary authority to
vote on matters proposed by stockholders if a proponent of a proposal fails to
notify the Company at least 45 days prior to the month and day of mailing of the
prior year's proxy statement, then the Company will be allowed to use its
discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement.
With respect to the Company's 2001 Annual Meeting of Stockholders, if
the Company is not provided notice of a stockholder proposal, which the
stockholder has not previously sought to include in the Company's proxy
statement, by February 6, 2001, the Company will be allowed to use is voting
authority as described above.
16
OTHER MATTERS
Management is not aware of any other matters to come before the meeting.
If any other matter not mentioned in this Proxy Statement is brought before the
meeting, the proxy holders named in the enclosed Proxy will have discretionary
authority to vote all proxies with respect thereto in accordance with their
judgment.
By Order of the Board of Directors
Michael A. Martino
President and Chief Executive Officer
March 15, 2000
The Annual Report to Stockholders of the Company for the fiscal year
ended December 31, 1999 is being mailed concurrently with this Proxy Statement
to all stockholders of record as of March 3, 2000. The Annual Report is not to
be regarded as proxy soliciting material or as a communication by means of which
any solicitation is to be made.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1999 WILL BE
PROVIDED TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR
RELATIONS, SONUS PHARMACEUTICALS, INC., 22026 20TH AVENUE S.E., BOTHELL,
WASHINGTON 98021.
17
EXHIBIT A
SONUS PHARMACEUTICALS, INC.
2000 STOCK INCENTIVE PLAN
This 2000 STOCK INCENTIVE PLAN (the "Plan") is hereby established and
adopted this 9th day of February, 2000 (the "Effective Date") by Sonus
Pharmaceuticals, Inc., a Delaware corporation (the "Company").
ARTICLE 1
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
ability to attract, motivate and retain the services of qualified employees,
officers, directors, consultants and other service providers (to the extent
qualifying under Article 3 hereof) upon whose judgment, initiative and efforts
the successful conduct and development of the Company's business largely
depends, and (b) to provide additional incentives to such persons or entities to
devote their utmost effort and skill to the advancement and betterment of the
Company, by providing them an opportunity to participate in the ownership of the
Company and thereby have an interest in the success and increased value of the
Company.
ARTICLE 2
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CAUSE. "Cause" means, with respect to the termination of a
Participant's employment, termination of such employment by the Company for any
of the following reasons:
(a) The continued refusal or omission by the Participant to
perform any material duties required of him by the Company if such duties are
consistent with duties customary for the position held with the Company;
(b) Any material act or omission by the Participant involving
malfeasance or gross negligence in the performance of Participant's duties to,
or material deviation from any of the policies or directives of, the Company;
(c) Conduct on the part of Participant which constitutes the
breach of any statutory or common law duty of loyalty to the Company; or
(d) Any illegal act by Participant which materially and adversely
affects the business of the Company or any felony committed by Participant, as
evidenced by conviction thereof, provided that the Company may suspend
Participant with pay while any allegation of such illegal or felonious act is
investigated.
2.5 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of more than fifty percent (50%) of the outstanding
securities of the Company; (ii) a merger or consolidation in which the Company
is not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated; (iii) the
sale, transfer or other disposition of all or substantially all of the assets of
the Company; (iv) a complete liquidation or dissolution of the Company; or (v)
any reverse merger in which the Company is the surviving entity but in which
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately prior to
such merger.
2.6 CODE. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.7 COMMITTEE. "Committee" means a committee of two or more members of
the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.8 COMMON STOCK. "Common Stock" means the Common Stock, $0.001 par
value of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.9 DISABILITY. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.10 EFFECTIVE DATE. "Effective Date" means February 9, 2000, which was
the date on which the Plan was originally adopted by the Board.
2.11 EXERCISE PRICE. "Exercise Price" means the purchase price per share
of Common Stock payable upon exercise of an Option.
2.12 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on
a Nasdaq market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the closing sale price on the date of valuation
on such Nasdaq market system or principal stock exchange
2
on which the Common Stock is then listed or admitted to trading, or, if no
closing sale price is quoted on such day, then the Fair Market Value shall be
the closing sale price of the Common Stock on such Nasdaq market system or such
exchange on the next preceding day on which a closing sale price is quoted.
(b) If the Common Stock is not then listed or admitted to trading
on a Nasdaq market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the average of the closing bid and asked prices
of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of evaluation, which determination
shall be conclusive and binding on all interested parties.
2.13 INCENTIVE OPTION. "Incentive Option" means any Option designated
and qualified as an "incentive stock option" as defined in Section 422 of the
Code.
2.14 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
2.15 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member
of the National Association of Securities Dealers, Inc.
2.16 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is
not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Stockholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.17 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement"
means an Option Agreement with respect to a Nonqualified Option.
2.18 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.19 OPTION. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.20 OPTION AGREEMENT. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.21 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.22 PARTICIPANT. "Participant" means an individual or entity who holds
an Option, a Right to Purchase or Restricted Stock under the Plan.
2.23 PURCHASE PRICE. "Purchase Price" means the purchase price per share
of Restricted Stock payable upon acceptance of a Right to Purchase.
3
2.24 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.25 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.26 SERVICE PROVIDER. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.27 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means the
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
2.28 10% STOCKHOLDER. "10% Stockholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
ARTICLE 3
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Subject to Section 3.4, officers and other key
employees of the Company or of an Affiliated Company (including members of the
Board if they are employees of the Company or of an Affiliated Company) are
eligible to receive Incentive Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Subject to Section 3.4,
officers and other key employees of the Company or of an Affiliated Company,
members of the Board (whether or not employed by the Company or an Affiliated
Company), and Service Providers are eligible to receive Nonqualified Options or
Rights to Purchase under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Rights to Purchase or Options in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 400,000 shares.
3.4 RESTRICTIONS. Notwithstanding anything contained in this Plan to the
contrary, including, without limitation, Sections 3.1 and 3.2 above, (i) no
Incentive Options shall be issued under the Plan; and (ii) no director or
officer of the Company or any Affiliated Company shall be eligible to receive
any Incentive Option, Nonqualified Option or Right to Purchase, or any right to
receive the same, pursuant to this Plan unless and until this Plan has been
approved by the affirmative vote of holders of a majority of the outstanding
shares of the Company's Common Stock.
4
ARTICLE 4
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. The number of shares of Common Stock
that may be issued under the Plan shall be equal to the sum of (a) 500,000
shares, plus (b) as of the last day of each calendar year during the term of the
Plan, commencing December 31, 2000, an additional number of shares equal to four
percent (4%) of the shares of the Company's Common Stock outstanding as of such
date, subject to adjustment as to the number and kind of shares pursuant to
Section 4.2 hereof. Notwithstanding the previous sentence, the maximum number of
shares issuable under the Plan shall be 5,000,000. For purposes of this
limitation, in the event that (a) all or any portion of any Option or Right to
Purchase granted or offered under the Plan can no longer under any circumstances
be exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or
Stock Purchase Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option or such Right to Purchase, or the shares so
reacquired, shall again be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
ARTICLE 5
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, vesting provisions relating to such Option, the Exercise Price
per share, and whether the Option is an Incentive Option or Nonqualified Option.
As soon as is practical following the grant of an Option, an Option Agreement
shall be duly executed and delivered by or on behalf of the Company to the
Optionee to whom such Option was granted. Each Option Agreement shall be in such
form and contain such additional terms and conditions, not inconsistent with the
provisions of this Plan, as the Administrator shall, from time to time, deem
desirable, including, without limitation, the imposition of any rights of first
refusal and resale obligations upon any shares of Common Stock acquired pursuant
to an Option Agreement. Each Option Agreement may be different from each other
Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered
by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
5
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Option is granted is a 10% Stockholder on the date of grant,
the Exercise Price shall not be less than 110% of Fair Market Value on the date
the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee, which
surrendered shares shall be valued at Fair Market Value as of the date of such
exercise; (d) the Optionee's promissory note in a form and on terms acceptable
to the Administrator; (e) the cancellation of indebtedness of the Company to
the Optionee; (f) the waiver of compensation due or accrued to the Optionee
for services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby
the NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of
payment as shall be permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and termination of each
Option shall be as fixed by the Administrator, but no Option may be exercisable
more than ten (10) years after the date it is granted. An Incentive Option
granted to a person who is a 10% Stockholder on the date of grant shall not be
exercisable more than five (5) years after the date it is granted.
5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the Administrator, any Option may be
assigned or transferred in any manner which such Option is permitted to be
assigned or transferred under the Code.
5.8 RIGHTS AS STOCKHOLDER. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a Stockholder with respect to any
shares covered by an Option until such
6
Option has been duly exercised and certificates representing shares purchased
upon such exercise have been issued to such person.
ARTICLE 6
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights
with respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions,
payment of the Purchase Price upon acceptance of a Right to Purchase Restricted
Stock may be made, in the discretion of the Administrator, by: (a) cash; (b)
check; (c) the surrender of shares of Common Stock owned by the Offeree that
have been held by the Offeree for at least six (6) months, which surrendered
shares shall be valued at Fair Market Value as of the date of such exercise; (d)
the Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 RIGHTS AS A STOCKHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a Stockholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company in accordance
with the terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement or by the Administrator.
In the event of termination of a Participant's employment, service as a director
of the Company or Service Provider status for any reason whatsoever (including
death or disability), the Stock Purchase Agreement may provide, in the
7
discretion of the Administrator, that the Company shall have the right,
exercisable at the discretion of the Administrator, to repurchase (i) at the
original Purchase Price, any shares of Restricted Stock which have not vested as
of the date of termination, and (ii) at Fair Market Value, any shares of
Restricted Stock which have vested as of such date, on such terms as may be
provided in the Stock Purchase Agreement.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be assignable
or transferable except by will or the laws of descent and distribution or as
otherwise provided by the Administrator.
ARTICLE 7
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted and Rights to Purchase shall be offered, the number of
shares to be represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise thereof; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be entitled to
exercise a Participant's rights under any Option or Right to Purchase under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or release or waive any
repurchase rights of the Company with respect to Restricted Stock; (h) to extend
the exercise date of any Option or acceptance date of any Right to Purchase; (i)
to provide for rights of first refusal and/or repurchase rights; (j) to amend
outstanding Option Agreements and Stock Purchase Agreements to provide for,
among other things, any change or modification which the Administrator could
have provided for upon the grant of an Option or Right to Purchase or in
furtherance of the powers provided for herein; and (k) to make all other
determinations necessary or advisable for the administration of the Plan, but
8
only to the extent not contrary to the express provisions of the Plan. Any
action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of the
Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
ARTICLE 8
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL. In order to preserve a Participant's rights in
the event of a Change in Control of the Company (i) the time period relating to
the exercise or realization of all outstanding Options and Rights to Purchase
shall automatically accelerate immediately prior to consummation of such Change
in Control if the Administrator does not take the action described in subitem
(C) of this Section 8.1 and (ii) with respect to Options and Rights to Purchase,
the Administrator in its discretion may, at any time an Option or Right to
Purchase is granted, or at any time thereafter, take one or more of the
following actions: (A) provide for the purchase of each Option or Right to
Purchase for an amount of cash or other property that could have been received
upon the exercise of the Option or Right to Purchase had the Option been
currently exercisable, (B) adjust the terms of the Options and Rights to
Purchase in a manner determined by the Administrator to reflect the Change in
Control, (C) cause the Options and Rights to Purchase to be assumed, or new
rights substituted therefor, by another entity, through the continuance of the
Plan and the assumption of outstanding Options and Rights to Purchase, or the
substitution for such Options and Rights to Purchase of new options and new
rights to purchase of comparable value covering shares of a successor
corporation, with appropriate adjustments as to the number and kind of shares
and Exercise Prices, in which event the Plan and such Options and Rights to
Purchase, or the new options and rights to purchase substituted therefor, shall
continue in the manner and under the terms so provided or (D) make such other
provision as the Committee may consider equitable. If the Administrator does not
take any of the forgoing actions, all Options and Rights to Purchase shall
terminate upon the consummation of the Change in Control and the Administrator
shall cause written notice of the proposed transaction to be given to all
Participants not less than fifteen (15) days prior to the anticipated effective
date of the proposed transaction.
ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any
9
Participant under an outstanding Option Agreement or Stock Purchase Agreement
without such Participant's consent. The Board may alter or amend the Plan to
comply with requirements under the Code relating to Incentive Options or other
types of options which give Optionee more favorable tax treatment than that
applicable to Options granted under this Plan as of the date of its adoption.
Upon any such alteration or amendment, any outstanding Option granted hereunder
may, if the Administrator so determines and if permitted by applicable law, be
subject to the more favorable tax treatment afforded to an Optionee pursuant to
such terms and conditions.
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to
Purchase then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10
CANCELLATION & RECISSION
10.1 NON-COMPETITION. Unless an Option Agreement specifies otherwise,
the Administrator may cancel, rescind, suspend, withhold or otherwise limit or
restrict any unexpired, unpaid, or deferred Options at any time if the
Participant in nor in compliance with all applicable provisions of the Option
Agreement and the Plan, or if the Participant engages in any "Adverse Activity."
For purposes of this Section 10, "Adverse Activity" shall include: (i) the
disclosure to anyone outside the Company, or the use in other than the Company's
business, without prior written authorization from the Company, of any
confidential information or material relating to the business of the Company,
acquired by the Participant either during or after employment with the Company;
(ii) the failure or refusal to disclose promptly and to assign to the Company
all right, title and interest in any invention or idea, patentable or not, made
or conceived by the Participant during employment by the Company, relating in
any manner to the actual or anticipated business, research or development work
of the Company; or (iii) activity that results in termination of the
Participant's employment for Cause.
10.2 AGREEMENT UPON EXERCISE. Upon exercise, payment or delivery
pursuant to an Option Agreement, the Participant shall certify in a manner
acceptable to the Company that he or she is in compliance with the terms and
conditions of the Plan. In the event a Participant fails to comply with the
provisions of paragraphs (i)-(iii) of Section 10.1 prior to, or during the six
(6) months after, any exercise, payment or delivery pursuant to an Option
Agreement, such exercise, payment or delivery may be rescinded within two years
thereafter. In the event of any such rescission, the Participant shall pay to
the Company the amount of any gain realized or payment received as a result of
the exercise, payment or delivery, in such manner and on such terms and
conditions as may be required, and the Company shall be entitled to set-off
against the amount of any such gain any amount owed to the Participant by the
Company.
10
ARTICLE 11
TAX WITHHOLDING
11.1 WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable Federal, state, and local tax withholding requirements with
respect to any Options exercised or Restricted Stock issued under the Plan. To
the extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem appropriate, permit a Participant to satisfy his or her obligation
to pay any such tax, in whole or in part, up to an amount determined on the
basis of the highest marginal tax rate applicable to such Participant, by (a)
directing the Company to apply shares of Common Stock to which the Participant
is entitled as a result of the exercise of an Option or as a result of the
purchase of or lapse of restrictions on Restricted Stock or (b) delivering to
the Company shares of Common Stock owned by the Participant. The shares of
Common Stock so applied or delivered in satisfaction of the Participant's tax
withholding obligation shall be valued at their Fair Market Value as of the date
of measurement of the amount of income subject to withholding.
ARTICLE 12
MISCELLANEOUS
12.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits
under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other
disposition shall be without effect.
12.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Participant to be
consideration for, or an inducement to, or a condition of, the employment of any
Participant. Nothing contained in the Plan shall be deemed to give the right to
any Participant to be retained as an employee of the Company or any Affiliated
Company or to interfere with the right of the Company or any Affiliated Company
to discharge any Participant at any time.
12.3 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
12.4 ANNUAL REPORTS. During the term of this Plan, the Company will
furnish to each Participant copies of annual financial reports that the Company
distributes generally to its stockholders.
11
PROXY SONUS PHARMACEUTICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF THE STOCKHOLDERS -- APRIL 27, 2000
The undersigned hereby nominates, constitutes and appoints Michael A. Martino
and John T. Flaherty, and each of them individually, the attorney, agent and
proxy of the undersigned, with full power of substitution, to vote all stock of
SONUS PHARMACEUTICALS, INC. which the undersigned is entitled to represent and
vote at the 2000 Annual Meeting of Stockholders of the Company to be held at the
Washington Athletic Club, 1325 Sixth Avenue, Seattle, Washington, on April 27,
2000, at 9:00 A.M., and at any and all adjournments or postponements thereof, as
fully as if the undersigned were present and voting at the meeting, as follows:
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1, 2 AND 3
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all nominees listed below
(except as marked to the contrary below)
Election of the following nominees as directors: Michael A. Martino, George W.
Dunbar, Jr., Christopher S. Henney, Ph.D., D.Sc., Robert E. Ivy and Dwight
Winstead.
(INSTRUCTIONS: To withhold authority to vote for any nominee, print that
nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. Approve the adoption of the Company's 2000 Stock Inventive Plan:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification of Ernst & Young LLP as independent auditors:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, on such other business as may properly come before the
meeting or any adjournment thereof.
Important -- Please sign and date on the other side and return promptly.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. WHERE NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED "FOR" THE
ELECTION OF THE DIRECTORS NAMED ON THE REVERSE SIDE OF THIS PROXY, "FOR" THE
ADOPTION OF THE 2000 STOCK INCENTIVE PLAN, AND "FOR" RATIFICATION OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS. THIS PROXY CONFERS DISCRETIONARY AUTHORITY TO
CUMULATE VOTES FOR ANY AND ALL OF THE NOMINEES FOR ELECTION OF DIRECTORS FOR
WHICH AUTHORITY TO VOTE HAS NOT BEEN WITHHELD.
Date , 2000
(Signature of stockholder)
PLEASE SIGN YOUR NAME
EXACTLY AS IT APPEARS
HEREON. EXECUTORS,
ADMINISTRATORS, GUARDIANS,
OFFICERS OF CORPORATIONS AND
OTHERS SIGNING IN A
FIDUCIARY CAPACITY SHOULD
STATE THEIR FULL TITLES AS
SUCH.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND
RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.