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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
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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))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
Isis Pharmaceuticals, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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ISIS PHARMACEUTICALS, INC.
2292 FARADAY AVENUE
CARLSBAD, CA 92008
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1998
TO THE STOCKHOLDERS OF ISIS PHARMACEUTICALS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Isis
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), will be held on
Friday, May 22, 1998, at 2:00 p.m. at the Company's offices at 2292 Faraday
Avenue, Carlsbad, California 92008, for the following purposes:
1. To elect three directors to serve for a three-year term and until
their successors are duly elected and qualified.
2. To approve an increase in the number of shares authorized for issuance
under the Company's 1989 Stock Option Plan (the "1989 Plan") from
8,200,000 to 10,200,000, to extend the term of the 1989 Plan until
January 31, 2008, and to make changes to the stockholder approval
requirements of the 1989 Plan.
3. To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending December 31, 1998.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 30, 1998 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment thereof.
By Order of the Board of Directors
B. Lynne Parshall
Secretary
Carlsbad, California
April 13, 1998
ALL STOCKHOLDERS 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 THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR 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 FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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ISIS PHARMACEUTICALS, INC.
2292 Faraday Avenue
Carlsbad, CA 92008
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of Isis
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on May 22, 1998, at 2:00 p.m. (the
"Annual Meeting"), or at any adjournment thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting. The Annual Meeting will
be held at the Company's offices at 2292 Faraday Avenue, Carlsbad, California
92008.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, facsimile, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
The Company intends to mail this proxy statement and accompanying proxy card
on or about April 13, 1998, to all stockholders entitled to vote at the Annual
Meeting.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company no later
than December 14, 1998 in order to be included in the proxy statement and proxy
relating to such annual meeting.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March 30,
1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on March 30, 1998, the Company had outstanding and entitled to
vote 26,794,335 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 2292
Faraday Avenue, Carlsbad, California 92008, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and Bylaws provide that
the Board of Directors shall be divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in the size of the Board) will serve for the remainder of the full
term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors presently has nine members. Stephen K. Carter
resigned from the Board on March 17, 1997. On June 6, 1997, Burkhard Blank was
elected by the Board to fill the vacancy created by Dr. Carter's resignation.
There are three directors in the class whose term of office expires in 1998.
All of the nominees for election to this class, Burkhard Blank, Stanley T.
Crooke and Mark B. Skaletsky, are currently directors of the Company. If elected
at the Annual Meeting, each of the nominees would serve until the 2001 annual
meeting and until his successor is elected and has qualified, or until his
earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the Annual Meeting. Shares
represented by executed proxies will be voted, if authority to do so is not
withheld, for the election of the three nominees named below. In the event that
any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as the Board of Directors may propose. Each person nominated for
election has agreed to serve if elected, and the Board has no reason to believe
that any nominee will be unable to serve.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING
BURKHARD BLANK, M.D., age 42, has served as a director of the Company since
June 1997. Dr. Blank joined Boehringer Ingelheim GmbH in 1986 and was named to
his current position, head of the Project Management Division, in 1993. Dr.
Blank also serves on the Board of Directors at Cambridge Neuroscience, Inc., a
biopharmaceutical company. Pursuant to the terms of an agreement, Boehringer
Ingelheim International GmbH ("BII") is entitled to designate a representative
reasonably satisfactory to the Company for election to the Company's Board of
Directors. Dr. Blank is BII's representative.
STANLEY T. CROOKE, M.D., Ph.D., age 53, was a founder of the Company and has
been its Chief Executive Officer and a director since January 1989 and served as
its President from January 1989 to May 1994. He was elected Chairman of the
Board in February 1991. From 1980 until January 1989, Dr. Crooke was employed by
SmithKline Beckman Corporation, a pharmaceutical company, most recently as
President of Research and Development of Smith Kline & French Laboratories. Dr.
Crooke is Chairman of the Board of GeneMedicine, Inc., and a director of SIBIA
Neurosciences, Inc. ("SIBIA"), both biopharmaceutical companies, and EPIX
Medical, Inc., ("EPIX") a developer of magnetic resonance imaging contrast
agents. He is also an adjunct professor of pharmacology at the Baylor College of
Medicine and the University of California, San Diego.
MARK B. SKALETSKY, age 49, has served as a director since January 1989.
Since May 1993, Mr. Skaletsky has been President and Chief Executive Officer of
GelTex Pharmaceuticals, Inc., a biopharmaceutical company. From April 1988 to
February 1993, Mr. Skaletsky was employed by Enzytech, Inc., a biopharmaceutical
company, in a variety of positions, including Chairman of the Board and Chief
Executive Officer from April 1988 to February 1993; Enzytech, Inc. was acquired
by Alkermes, Inc. Mr. Skaletsky is a director of Charles River Labs and
LeukoSite, Inc., both biopharmaceutical companies, the Biotechnology Industry
Organization ("BIO"), an industry organization, and the Massachusetts
Biotechnology Council.
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DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
DANIEL L. KISNER, M.D., age 51, has served as a director of the Company
since March 1991, Chief Operating Officer of the Company since February 1993 and
President since May 1994. He was Executive Vice President of the Company from
March 1991 until May 1994. From December 1988 until March 1991, he was Division
Vice President of Pharmaceutical Development for Abbott Laboratories, a
pharmaceutical company. He is also a director of Anesta Corporation, a drug
delivery company.
LARRY SOLL, Ph.D., age 55, has served as a director of the Company since
July 1992. He was Chairman of the Board of Directors of Synergen, Inc., a
biopharmaceutical company, from 1986 to December 1994 and Chief Executive
Officer of Synergen from April 1993 to May 1994. Dr. Soll is a trustee of
INVESCO Global Health Sciences, a closed-end investment fund, a director of the
INVESCO Family of Mutual Funds, an open-ended mutual fund, and was a director of
ImmuLogic Pharmaceuticals Corporation, a biopharmaceutical company until
February 1997.
JOSEPH H. WENDER, age 53, has served as a director of the Company since
January 1994. Mr. Wender is currently Senior Director of the Financial
Institutions Group at Goldman, Sachs & Co., an investment banking firm. He
joined Goldman, Sachs & Co. in 1971 and became a General Partner of that firm in
1982 and a Limited Partner in 1992.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
ALAN C. MENDELSON, age 50, has served as a director of the Company since
January 1989. He has been a partner of Cooley Godward LLP since January 1980.
Mr. Mendelson served as Acting General Counsel at Cadence Design Systems, Inc.,
an electronic design automation software company, from November 1995 to June
1996. He is also a director of CoCensys, Inc., a biopharmaceutical company, and
Acuson Corporation, an ultrasound equipment manufacturer.
WILLIAM R. MILLER, age 69, has served as a director of the Company since
March 1991. In January 1991, he retired as Vice Chairman of the Board of
Directors of Bristol-Myers Squibb Company, which position he had held since
1985. He is Vice Chairman of the Board of Trustees of the Cold Spring Harbor
Laboratory. Mr. Miller is also Chairman of the Board of SIBIA and Vion
Pharmaceuticals, Inc., both biopharmaceutical companies. He is a director of
ImClone Systems, Inc., a biopharmaceutical company, St. Jude Medical, Inc., a
diversified medical device company, Transkaryotic Therapies, Inc., a
biopharmaceutical company, Westvaco Corporation, a paper/packaging/specialty
chemicals manufacturer, and Xomed Surgical Products, Inc., a medical device
company.
CHRISTOPHER F. O. GABRIELI, age 38, has served as a director of the Company
since May 1994. He was a founder of the Company and previously served as a
director from January 1989 to May 1992. He is currently a Manager of the general
partners of Bessemer Venture Partners II L.P., Bessemer Venture Partners III
L.P., and Bessemer Venture Partners IV L.P. related venture capital partnerships
(collectively "Bessemer"), where he has worked since 1986. He is on the Board of
EPIX, where he serves as Chairman, and several privately held healthcare
companies.
BOARD COMMITTEES AND MEETINGS
During 1997, the Board of Directors held six meetings. The Board has an
Audit and Financing Committee, a Compensation Committee and a Nominating
Committee.
The Audit and Financing Committee recommends engagement of the Company's
independent auditors and approves services performed by such auditors, including
the review and evaluation of the Company's accounting system and its system of
internal controls in connection with the Company's annual audit. The Audit and
Financing Committee also reviews the Company's balance sheet and statements of
operations and cash flows for each interim period, and any changes in accounting
policy that have occurred during the interim period, and assists the management
of the Company in reviewing financing opportunities for the Company, in making
recommendations to the Board, and in implementing financing projects as approved
by the Board. The Audit and Financing Committee is composed of Messrs. Mendelson
(Chairman), Wender and Skaletsky and met eight times during 1997.
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The Compensation Committee makes recommendations concerning executive
salaries and incentive compensation, awards stock options, bonus stock and
rights to purchase restricted stock under the Company's 1989 Stock Option Plan,
administers the Company's Employee Stock Purchase Plan and otherwise determines
executive compensation levels and performs such other functions regarding
compensation as the Board may delegate. The Compensation Committee is composed
of Messrs. Skaletsky (Chairman), Miller and Wender and met two times during
1997.
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Company's Board of Directors and committees
thereof. The Nominating Committee will consider nominees recommended by
stockholders. See "Information Concerning Solicitation and Voting - Stockholder
Proposals." The Nominating Committee is composed of two non-employee directors:
Mr. Mendelson and Dr. Soll. The Nominating Committee did not meet during the
year.
During 1997, all directors, other than Drs. Carter and Blank, attended at
least 80% of the meetings of the Board and the committees on which they served,
held during the period for which they were directors or committee members.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of the Company's Common Stock to file with
the Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations from its officers
and directors that no other reports were required, during 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent stockholders were satisfied.
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PROPOSAL 2
AMENDMENT OF THE 1989 STOCK OPTION PLAN TO INCREASE SHARES
In June 1989, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1989 Stock Option Plan (the "1989 Plan").
In February 1998, the Board approved an amendment to the 1989 Plan, subject to
stockholder approval, to increase the number of shares authorized for issuance
under the 1989 Plan by 2,000,000 to an aggregate of 10,200,000 shares, to extend
the term of the 1989 Plan until January 31, 2008, and to make changes to the
stockholder approval requirements of the 1989 Plan.
Stockholders are requested in this Proposal 2 to approve the increase in the
number of shares authorized for issuance under the 1989 Plan, the extension of
the plan term and the changes to the stockholder approval requirements. The
affirmative vote of the holders of a majority of the shares present in person or
represented by proxy and entitled to vote at the Annual Meeting will be required
to approve the 1989 Plan, as amended. Abstentions will be counted toward the
tabulation of votes cast and will have the same effect as negative votes. Broker
non-votes are not counted for any purpose in determining whether this matter has
been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 1989 Plan, as amended, are outlined below.
PURPOSE
The 1989 Plan was adopted to provide a means by which employees (including
officers) and directors of and consultants to the Company may be given an
opportunity to benefit from increases in value of the Common Stock of the
Company through the granting of incentive and supplemental (or nonstatutory)
stock options, stock bonuses and rights to purchase restricted stock
(collectively, the "Stock Awards"). Incentive stock options granted under the
1989 Plan are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Supplemental stock options granted under the 1989 Plan are intended not
to qualify as incentive stock options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of incentive and supplemental
stock options. As of December 31, 1997, options to purchase an aggregate of
6,097,056 shares had been granted and were outstanding under the 1989 Plan,
options to purchase an aggregate of 1,398,791 shares had been exercised under
the 1989 Plan, and 704,225 shares remained available for grant thereunder.
ADMINISTRATION
The 1989 Plan authorizes the Board of Directors of the Company to administer
the 1989 Plan or to delegate administration to a committee. The Board has
delegated administration of the 1989 Plan to the Compensation Committee of the
Board, and the Compensation Committee has delegated administration of the 1989
Plan to the Non-Management Stock Option Committee with respect to certain option
grants to certain employees, none of whom is subject to Section 16 of the
Exchange Act. Each person serving on the Compensation Committee is a
"non-employee director" within the meaning of Rule 16b-3 of the Exchange Act and
an "outside director" within the meaning of Section 162(m) of the Code. As used
herein with respect to the 1989 Plan, the "Board" refers to the Compensation
Committee and the Non-Management Stock Option Committee as well as to the Board
of Directors itself.
The Board has the power to construe and interpret the 1989 Plan and, subject
to the provisions of the 1989 Plan, to select the persons to whom stock awards
are to be made, to designate the number of shares to be covered by each Stock
Award, to determine whether an option is an incentive stock option or a
supplemental stock option, to establish vesting schedules, to specify the
exercise price and the type of consideration to be paid to the Company upon
exercise or purchase, and, subject to certain restrictions, to specify any other
terms.
ELIGIBILITY
Incentive stock options may be granted under the 1989 Plan only to key
employees (including officers) of the Company. Key employees (including
officers), directors and consultants are eligible to receive Stock Awards other
than incentive stock options under the 1989 Plan.
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No incentive stock option may be granted under the 1989 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, unless the option exercise price is at least 110% of the fair market
value of the stock subject to the option on the date of grant, and the term of
the option does not exceed five years from the date of grant. In addition, the
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which such options are exercisable for the first
time by an optionee during any calendar year may not exceed $100,000. Further,
the 1989 Plan contains a per-employee, per-calendar year limitation equal to
294,873 shares.
STOCK SUBJECT TO THE 1989 PLAN
Subject to stockholder approval of this Proposal 2, 10,200,000 shares are
reserved for issuance under the 1989 Plan. If Stock Awards granted under the
1989 Plan expire or otherwise terminate without being exercised, the Common
Stock not purchased pursuant to such Stock Awards again becomes available for
issuance under the 1989 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
1989 Plan. Individual option grants may be more restrictive as to any or all of
the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options under
the 1989 Plan may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant, and in some cases may not
be less than 110% of such fair market value (see "Eligibility" above). The
exercise price of supplemental stock options under the 1989 Plan may not be less
than 85% of the fair market value. The Company has routinely granted options at
100% of the fair market value. At February 27, 1998, the closing price of the
Common Stock as reported on the Nasdaq National Market was $13.4375 per share.
The exercise price of options granted under the 1989 Plan must be paid
either: (i) in cash at the time the option is exercised; or (ii) at the
discretion of the Board, (a) pursuant to a deferred payment arrangement or (b)
in any other form of legal consideration acceptable to the Board. Since 1991,
the Board has not authorized any form of payment for option exercise other than
cash or pursuant to a "same-day sale" program developed pursuant to Regulation T
of the Federal Reserve Board.
Transferability. Under the 1989 Plan, an incentive stock option may not be
transferred by the optionee other than by will or by the laws of descent and
distribution. Supplemental stock options may be transferred for limited estate
planning purposes or by will or the laws of descent and distribution.
Option Exercise. Options granted under the 1989 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the 1989 Plan typically vest at the rate of
25% per year after year one and 2.08% per month thereafter during the optionee's
employment or service as a consultant or director. Shares covered by options
granted in the future under the 1989 Plan may be subject to different vesting
terms. The Board has the power to accelerate the time during which an option may
be exercised. In addition, options granted under the 1989 Plan may permit
exercise prior to vesting. To date, the Company has not granted options which
permit exercise prior to vesting.
Term. The maximum term of options under the 1989 Plan is ten years, except
that in certain cases the maximum term is five years (see "Eligibility"). With
certain exceptions, options under the 1989 Plan terminate three months after the
optionee ceases to render services to the Company.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1989 Plan or subject to
any Stock Award granted under the 1989 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1989 Plan and the Stock
Awards outstanding thereunder will be appropriately adjusted as to the class and
the maximum number of shares, the maximum number of shares which may be granted
to an employee during a calendar year and price per share of stock subject to
the 1989 Plan and such Stock Awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1989 Plan provides that, in the event of a dissolution or liquidation of
the Company, or of a specified type of merger or other corporate reorganization,
to the extent permitted by law, any surviving corporation will be required to
either assume any Stock Awards outstanding under the 1989 Plan or substitute
similar Stock Awards
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for those outstanding under the 1989 Plan, or such outstanding Stock Awards will
continue in full force and effect. In the event that any surviving corporation
declines to assume or continue the Stock Awards outstanding under the 1989 Plan,
or to substitute similar Stock Awards, then, with respect to Stock Awards held
by persons then performing services as employees or as consultants or directors
for the Company, the time during which such Stock Awards may be exercised will
be accelerated and the Stock Awards terminated if not exercised during such
time.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1989 Plan without stockholder
approval or ratification at any time or from time to time. Subject to
stockholder approval of this Proposal 2, unless sooner terminated, the 1989 Plan
will terminate on January 31, 2008 (instead of December 31, 2000).
The Board may also amend the 1989 Plan at any time or from time to time.
Subject to stockholder approval of this Proposal 2, no amendment will be
effective unless approved by the stockholders of the Company within 12 months
before or after its adoption by the Board if such amendment requires stockholder
approval in order to comply with Rule 16b-3, Section 422(b) of the Code or any
Nasdaq or securities exchange requirements. Prior to the proposed amendment, a
plan amendment required approval by the stockholders of the Company within 12
months before or after its adoption by the Board if the amendment would: (i)
modify the requirements as to eligibility for participation (to the extent such
modification requires stockholder approval in order for the Plan to satisfy
Section 422(b) of the Code, if applicable, or Rule 16b-3 of the Exchange Act);
(ii) increase the number of shares reserved for Stock Awards under the Plan; or
(iii) modify any other provision of the Plan in any other way if such
modification requires stockholder approval in order to comply with Rule 16b-3 or
satisfy the requirements of Section 422(b) of the Code.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1989 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or whose stock is subject to forfeiture under Section
16(b) of the Exchange Act.
Supplemental Stock Options. Supplemental stock options granted under the
1989 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a supplemental stock option. Upon exercise of a supplemental stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code, and the
satisfaction of a tax-reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee 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 exercise of the option. Such gain or loss will be
long-term, mid-term or short-term depending on how long the stock was held.
Slightly different rules apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
Stock Bonuses and Restricted Stock. Stock bonuses and restricted stock
purchases granted under the 1989 Plan have the following federal income tax
consequences:
Upon acquisition of the stock, the recipient normally will recognize taxable
ordinary income equal to the excess of the stock's fair market value over the
purchase price, if any. 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 recipient elects to be taxed on receipt of
the stock. With respect to employees, the Company is generally required to
withhold from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Generally, the Company will be entitled to a
business expense deduction equal to the taxable ordinary income realized by the
optionee. Upon disposition of the stock, the optionee 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,
mid-term or short-term depending on how long the stock was held. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
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Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain employees in a taxable year to the extent that compensation exceeds $1
million for such employee. It is possible that compensation attributable to
stock options, stock bonuses and restricted stock purchases, when combined with
all other types of compensation received by a covered employee from the Company,
may cause this limitation to be exceeded in any particular year. Certain kinds
of compensation, including qualified "performance-based compensation," are
disregarded for purposes of the deduction limitation.
The table under Stock Option Grants and Exercises presents certain
information with respect to options granted under the 1989 Plan for 1997.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception in 1989.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Board will reconsider whether
or not to retain that firm. Even if the selection is ratified, the Board in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if the Board determines that such a change would be
in the best interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
8
11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of February 27, 1998 by: (i) each
director and nominee for director; (ii) each executive officer named in the
Summary Compensation Table under "Executive Compensation--Compensation of
Executive Officers;" (iii) all directors and executive officers of the Company
as a group; and (iv) all those known by the Company to be beneficial owners of
more than five percent of its Common Stock.
BENEFICIAL OWNERSHIP(1)
----------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL(2)
------------------- ----------------- -------------------
Boehringer Ingelheim International GmbH(3)......... 2,412,607 9.0
Binger Strasse 173
D-55216 Ingelheim Am Rhein
GERMANY
Novartis AG(4)..................................... 2,257,053 8.4
Lichtstrasse 35
CH-4002, Basel
SWITZERLAND
Christopher F. O. Gabrieli(5)...................... 1,687,944 6.2
83 Walnut Street
Wellesley Hills, MA 02181
Bessemer Venture Partners(6)....................... 1,536,465 5.6
1025 Old Country Road
Westbury, NY 11590
Burkhard Blank(7).................................. -- --
Stanley T. Crooke(8)............................... 1,277,677 4.7
Daniel L. Kisner(9)................................ 403,916 1.5
Alan C. Mendelson(10).............................. 27,527 *
William R. Miller(11).............................. 46,500 *
Mark B. Skaletsky(12).............................. 32,500 *
Larry Soll(13)..................................... 46,500 *
Joseph H. Wender(14)............................... 54,750 *
B. Lynne Parshall(15).............................. 259,257 *
All directors and executive officers as a group
(10 persons)(16)................................. 3,835,571 13.6
* Less than one percent
(1) This table is based upon information supplied by directors, executive
officers and principal stockholders and Schedule 13Ds and 13Gs filed with
the SEC. Unless otherwise indicated in the footnotes to this table and
subject to community property laws where applicable, each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned.
(2) Applicable percentage ownership is based on 26,760,742 shares of Common
Stock outstanding on February 27, 1998.
(3) Includes 4,000 shares held of record by Prof. Christoph Hohbach, a former
director of the Company, and for which BII has sole voting and investment
power.
9
12
(4) Novartis AG, a corporation registered in Switzerland, is the successor of
Ciba-Geigy Limited in which 2,219,000 shares are currently registered. All
shares of Common Stock of the Company that are owned by Novartis AG as
successor of Ciba-Geigy Limited will be transferred to Novartis Produkte
AG, a corporation registered in Switzerland and a wholly-owned subsidiary
of Novartis AG. Also includes 38,053 shares held by Novartis Corporation,
a New York corporation (formerly known as Ciba-Geigy Corporation), that is
a wholly-owned subsidiary of Novartis AG.
(5) Includes 759,566 shares held of record by Bessemer Venture Partners II
L.P. ("BVP II"), 335,485 shares held of record by Bessemer Venture
Partners III L.P. ("BVP III") and 350 shares held of record by the
Gabrieli Family Foundation ("GFF"). Also includes 434,639 shares issuable
upon exercise of Class A Warrants held of record by BVP III and 1,123
shares issuable upon exercise of Class A Warrants held of record by GFF.
Mr. Gabrieli is a Manager of Deer II & Co. LLC, the general partner of BVP
II, and of Deer III & Co. LLC, the general partner of BVP III, and
disclaims beneficial ownership of the shares held of record by or issuable
to BVP II and BVP III except to the extent of his respective interests
therein. Mr. Gabrieli is a trustee of GFF and disclaims beneficial
ownership of the shares held of record by or issuable to GFF. Also
includes an aggregate of 1,610 shares and an aggregate of 5,165 shares
issuable upon exercise of Class A Warrants held of record by seven
stockholders who have agreed to vote such shares as directed by BVP III;
Mr. Gabrieli also disclaims beneficial ownership of such shares. Also
includes 2,246 shares issuable upon exercise of Class A Warrants held by
Mr. Gabrieli and 32,916 shares issuable upon exercise of options held by
Mr. Gabrieli that are exercisable on or before April 28, 1998.
(6) Includes 759,566 shares held of record by BVP II, 335,485 shares held of
record by BVP III and 434,639 shares issuable upon exercise of Class A
Warrants held of record by BVP III. Also includes an aggregate of 1,610
shares and an aggregate of 5,165 shares issuable upon exercise of Class A
Warrants held of record by seven stockholders who have agreed to vote such
shares as directed by BVP III; BVP III disclaims beneficial ownership of
such shares.
(7) Excludes shares beneficially owned by BII. Dr. Blank does not, directly or
indirectly, have or share voting power or investment power over the shares
beneficially owned by BII.
(8) Includes 159,173 shares issuable upon exercise of options held by Dr.
Crooke that are exercisable on or before April 28, 1998 and 9,004 shares
issuable upon exercise of options held by his wife that are exercisable on
or before April 28, 1998. Dr. Crooke disclaims beneficial ownership of the
shares issuable upon exercise of options held by his wife.
(9) Includes 399,916 shares issuable upon exercise of options held by Dr.
Kisner that are exercisable on or before April 28, 1998 and an aggregate
of 4,000 shares issuable upon exercise of options which Dr. Kisner
transferred to his son and daughter that are exercisable on or before
April 28, 1998.
(10) Includes an aggregate of 620 shares held in trust by Mr. Mendelson's wife
for his sons and 22,000 shares issuable upon exercise of options held by
Mr. Mendelson that are exercisable on or before April 28, 1998. Mr.
Mendelson disclaims beneficial ownership of the shares held in trust by
his wife for his sons.
(11) Includes 4,500 shares issuable upon exercise of options held by Mr. Miller
that are exercisable on or before April 28, 1998.
(12) Includes 11,500 shares issuable upon exercise of options held by Mr.
Skaletsky that are exercisable on or before April 28, 1998.
(13) Includes 46,500 shares issuable upon exercise of options held by Dr. Soll
that are exercisable on or before April 28, 1998.
(14) Includes 23,750 shares issuable upon exercise of options held by Mr.
Wender that are exercisable on or before April 28, 1998.
(15) Includes 235,125 shares issuable upon exercise of options held by Ms.
Parshall that are exercisable on or before April 28, 1998, and an aggregate
of 4,000 shares issuable upon exercise of options which Ms. Parshall
transferred to her daughters that are exercisable on or before April 28,
1998.
(16) Includes shares described in the notes above, as applicable.
10
13
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
In the fiscal year ended December 31, 1997, each director of the Company who
is not otherwise an employee of the Company (a "Non-Employee Director") received
a fee of $15,000 (except that Dr. Carter received $3,750 and Dr. Blank received
$7,500); no additional compensation is paid for attendance at Board or committee
meetings. For 1997, the total compensation paid to Non-Employee Directors was
$101,250. The members of the Board of Directors are also reimbursed for their
expenses incurred in connection with attendance at Board meetings in accordance
with Company policy.
Each Non-Employee Director also receives stock option grants under the 1992
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). Only
Non-Employee Directors are eligible to receive options under the Directors'
Plan. Option grants under the Directors' Plan are non-discretionary. On July 1
of each year (or the next business day should such date be a weekend or
holiday), each Non-Employee Director is automatically granted under the
Directors' Plan an option to purchase 4,000 shares of Common Stock of the
Company. In addition, each new Non-Employee Director is granted an option to
purchase 18,000 shares of the Company's Common Stock upon initial election to
the Board of Directors. The exercise price of all such stock options granted is
equal to 100% of the fair market value of the Common Stock on the date such
option is granted.
In 1997, the Company granted options to purchase an aggregate of 46,000
shares of stock to Non-Employee Directors pursuant to automatic grants under the
Directors' Plan, including a grant of 18,000 shares granted to Dr. Blank upon
being elected to the Board of Directors. The fair market value of the Common
Stock on the date of these grants (and the exercise price of such options) was
$14.375 per share for all but the option to purchase 18,000 shares granted to
Dr. Blank, the exercise price of which was $15.50 per share (based in each case
on the closing sales price reported in the Nasdaq National Market on the date of
grant). As of February 27, 1998, none of these options had vested.
COMPENSATION OF EXECUTIVE OFFICERS AND OTHER EMPLOYEES
The following table shows for the fiscal years ending December 31, 1997,
1996 and 1995, certain compensation paid by the Company, including salary,
bonuses, stock options, and certain other compensation, to its Chief Executive
Officer and each of its two other most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 in the year ended December
31, 1997:
11
14
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
-------------------------------- --------------
Securities
Name and Other Annual Underlying All Other
Principal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($)(1)(2) (#) ($)(3)
- ----------------- ------- ------- ------- ------------ -------------- --------------
Stanley T. Crooke 1997 310,008 169,531 0 22,500 0
Chairman and 1996 280,344 98,119 0 40,000 0
Chief Executive 1995 262,000 116,001 0 50,000 0
Officer
Daniel L. Kisner 1997 272,712 122,724 0 18,000 0
President and 1996 257,280 77,185 0 25,000 0
Chief Operating 1995 242,719 92,112 0 30,000 0
Officer
B. Lynne Parshall 1997 250,344 112,653 0 17,000 0
Executive Vice 1996 236,171 70,851 0 16,000 0
President & Chief 1995 214,743 67,745 0 85,000(4) 0
Financial Officer
- -----------
(1) As permitted by rules promulgated by the SEC, no amounts are shown where
such amounts constitute perquisites and do not exceed the higher of 10% of
the sum of the amount in the Salary and Bonus column and $50,000.
(2) None of the persons listed in the table held restricted stock as of
December 31, 1997.
(3) Does not include excess group term life insurance premiums which do not
exceed, for any individual, $3,000 and which were paid on the same basis
as was offered to all salaried employees.
(4) Includes 60,000 options granted in connection to Ms. Parshall's promotion
to Executive Vice President on 12-14-95.
12
15
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1989 Plan. As
of February 27, 1998, options to purchase a total of 6,758,081 shares had been
granted and were outstanding under the 1989 Plan and, subject to stockholder
approval of Proposal 2, options to purchase 1,971,359 shares remained available
for grant thereunder.
The following tables show for the fiscal year ended December 31, 1997
certain information regarding options granted to, exercised by and held at year
end by each of the executive officers named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable
-------------------------------------------------------- Value at Assumed
Number of % of Total Annual Rates of
Securities Options Stock Price
Underlying Granted to Appreciation for
Options Employees Base Aggregate Option Term(3)
Granted in Fiscal Price Dollar Expiration -------------------
Name (#)(1) Year(2) ($/Sh) Value Date 5%($) 10%($)
- ---------------- ---------- ----------- ---------- --------- ----------- -------- ---------
Stanley T. Crooke 22,500 2.20 18.00 405,000 12-31-06 254,614 645,191
Daniel L. Kisner 18,000 1.76 18.00 324,000 12-31-06 203,691 516,153
B. Lynne Parshall 17,000 1.66 18.00 306,000 12-31-06 192,375 487,478
All Executive
Officers as a
Group 57,500 1,035,000
All Non-Executive
Officer Directors
as a Group(4) 46,000 681,500
All Non-Executive
Officer Employees
as a Group(5) 966,828 16,312,156
- ---------------
(1) Options granted in 1997 vest over a four-year period: 25% after the first
year and 2.08% per month thereafter.
(2) Based on options to purchase an aggregate of 1,024,328 shares granted in
1997. Represents the number of options granted under the 1989 Plan in 1997
and is not necessarily indicative of the number of options that will be
granted in the future.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant.
(4) All such options were granted under the 1992 Non-Employee Directors' Stock
Option Plan.
(5) Includes an option to purchase 35,000 shares granted under the 1989 Plan
to a consultant, which option expired on December 31, 1997.
13
16
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at FY-End
FY-End(#) ($)(2)
Shares Value ------------- -------------
Acquired on Realized Exercisable/ Exercisable/
Name Exercise(#) ($)(1) Unexercisable Unexercisable
- ---------------- ------------ -------- ------------- -------------
Stanley T. Crooke 0 0 15,000/0 $56,813/$0
1,642/0 $6,219/$0
29,500/500 $95,359/$1,616
0/25,000 $0/$146,313
24,000/6,000 $133,500/$33,375
14,583/10,417 $121,221/$86,591
14,583/10,417 $121,221/$86,591
19,166/20,834 $0/$0
0/22,500 $0/$0
Daniel L. Kisner 0 0 170,000/0 $1,971,696/$0
4,167/0 $19,012/$0
0/50,000 $0/$153,125
22,125/375 $89,883/$1,523
0/25,000 $0/$160,398
23,750/1,250 $132,109/$6,953
63,000/27,000 $326,813/$140,063
8,750/6,250 $72,734/$51,953
8,750/2,250 $72,734/$51,953
7,979/17,021(3) $0/$0
0/18,000 $0/$0
B. Lynne Parshall 0 0 20,000/0 $76,250/$0
59,728/0 $391,965/$0
0/47,500(4) $0/$145,469
17,700/300 $71,906/$1,219
0/25,000 $0/$160,938
16,000/4,000 $89,000/$22,250
4,751/6,250 $39,493/$51,953
3,167/4,167 $26,326/$34,638
24,000/36,000 $0/$0
7,666/8,334 $0/$0
0/17,000 $0/$0
- --------------------
(1) Fair market value of the Company's Common Stock on the date of exercise
minus the exercise price.
(2) Fair market value of the Company's Common Stock at December 31, 1997
($12.3125) multiplied by the applicable number of shares minus the
aggregate exercise price of the options for such number of shares.
(3) Includes options to purchase an aggregate of 4,000 shares transferred to
Dr. Kisner's son and daughter.
(4) Includes options to purchase an aggregate of 4,000 shares transferred to
Ms. Parshall's daughters.
14
17
COMPENSATION COMMITTEE REPORT(1)
The Compensation Committee of the Board of Directors (the "Committee")
consists of Mark B. Skaletsky (Chairman), William R. Miller and Joseph H.
Wender, none of whom have ever been officers or employees of the Company. The
Committee is responsible for setting and administering the Company's policies
governing employee compensation and administering the Company's employee benefit
plans, including the 1989 Plan and the Employee Stock Purchase Plan. The
Committee evaluates the performance of management and determines compensation
policies and levels. The full Board of Directors reviews the Committee's
recommendations regarding the compensation of executive officers.
The Company's executive compensation programs are designed to attract and
retain executives capable of leading the Company to meet its business objectives
and to motivate them to enhance long-term stockholder value. Annual compensation
for the Company's executive officers consists of three elements: cash salary, a
cash incentive bonus and stock option grants.
As in previous years, the Committee reviewed historical and current salary,
bonus and stock award information for other comparable companies in similar
geographic areas and at similar stages of growth and development. The group of
comparable companies is not necessarily the same as the companies included in
the market indices included in the performance graph in this proxy statement.
The Committee also reviewed a variety of industry surveys which provided
additional information about short- and long-term executive compensation. The
Committee reviews this information throughout the year when and as it becomes
available. Based in part on this information, the Committee generally sets
salaries, including that of the Chief Executive Officer, at levels comparable to
competitive companies of comparable size in similar industries. The Company's
management by objective bonus program is tied to both individual and Company
performance. The total size of the bonus pool is based upon the Company's
performance in meeting its performance objectives for the year, taking into
account changes discussed and agreed to by the Committee during the course of
the year. Individual bonus amounts are based on a combination of corporate
performance and individual performance.
The Company uses its stock option program to further align the interests of
stockholders and management by creating common incentives related to the
possession by management of a substantial economic interest in the long-term
appreciation of the Company's Common Stock. New options are granted to existing
members of management on an annual basis to provide a continuing financial
incentive. The size of option grant is related to the executive's position and
performance in the previous year.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
executive officers in 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 has determined that stock options granted under
the 1989 Plan with an exercise price at least equal to the fair market value of
the Company's Common Stock on the date of grant will be treated as
performance-based compensation.
1997 was a year in which the Company continued to advance development of its
drug candidates. It completed Phase III clinical trials for fomivirsen (ISIS
2922), its compound to treat cytomegalovirus-induced retinitis in AIDS patients.
The Company entered into an agreement granting CIBA Vision exclusive worldwide
distribution rights for ISIS 2922. Under the terms of this agreement, Isis
received a $5 million upfront payment and is eligible to receive an additional
$15 million in pre-commercial fees and milestone payments through the time of
regulatory approval in the U.S. and Europe. The Company also completed
preclinical development and filed an IND for ISIS 13312, a second generation
antisense compound to treat CMV retinitis. Following its Phase IIa study, the
Company also began large scale, pivotal-quality trials of ISIS 2302, a compound
directed against Crohn's disease and four other possible indications: ulcerative
colitis; psoriasis; rheumatoid arthritis, and renal transplant rejection.
Isis also initiated Phase II clinical trials for ISIS 3521, an anticancer
compound, in August 1997, following safety and efficacy results from Phase I
clinical trials which produced antitumor activity in patients with ovarian and
lung cancer and lymphoma. Isis also completed Phase I clinical trials on ISIS
5132, an anticancer compound, in June 1997. After evaluating data from this
study regarding the safety, pharmacokinetics, and potential antitumor activity
of ISIS 5132, Isis initiated Phase II clinical trials for this drug in November
1997. Isis also began Phase I clinical trials on ISIS 2503, another anticancer
compound.
- ------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933, as amended (the
"1933 Act"), or the Exchange Act.
15
18
Isis' research continued to proceed well. The Company's patenting strategy
continued to bear fruit with nearly 50 additional patents issued in 1997. The
Company's relationships with its collaborative partners have continued
positively. In 1997, the Company received an aggregate of $4 million in
milestone payments from Novartis for the start of Phase II studies for each of
ISIS 3521 and ISIS 5132.
The Company completed a $25 million private debt financing in October 1997,
with an institutional investor on favorable terms.
The Company continued its focus on manufacturing scale-up by forging
successful relationships with industry vendors which, in combination with Isis'
efforts, significantly decreased the cost and increased the scale of
manufacturing in 1997 while also improving the quality and precision of
purification and analytical methods.
The Compensation Committee approved a 17% salary increase for Dr. Crooke for
1998. This increase in salary for Dr. Crooke, and his option award, resulted
from an industry-wide analysis of Dr. Crooke's cash compensation and stock
option position. In 1997, the Company met or exceeded most of its performance
objectives. The Committee continues to believe that a significant cash bonus
program to reward performance is an appropriate method of executive
compensation. The Committee approved a bonus of $169,531 for Dr. Crooke, which
was 156% of the 35% bonus guideline for the CEO under the Company's management
by objective (MBO) program, based on the Company performing at the level of 125%
of its achievement of objectives, and Dr. Crooke performing at 125% of his
achievement of personal objectives. In December 1997, the Committee amended
options to purchase an aggregate of 55,000 shares to extend the option terms for
an additional five years. In January 1998, the Committee also approved an option
for 70,000 shares of stock for Dr. Crooke, which is within the guidelines for
the CEO under Isis' annual stock option grant program.
Mark B. Skaletsky, Chairman
William R. Miller
Joseph H. Wender
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, during the fiscal year ended December 31, 1997, the
Company's Compensation Committee was composed of Messrs. Skaletsky, Miller and
Wender.
16
19
PERFORMANCE MEASUREMENT COMPARISON(1)
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG ISIS PHARMACEUTICALS
THE NASDAQ COMPOSITE INDEX (TOTAL RETURN)
THE AMEX BIOTECH INDEX
[GRAPHIC OMITTED]
- ------------------------------------------------------------------------------------------
Dec. 1992 Dec. 1993 Dec. 1994 Dec. 1995 Dec. 1996 Dec. 1997
- ------------------------------------------------------------------------------------------
Isis 100 73 43 142 195 133
- ------------------------------------------------------------------------------------------
NASDAQ Composite Index 100 116 112 158 193 236
- ------------------------------------------------------------------------------------------
AMEX BIOTECH Index 100 68 48 78 85 95
- ------------------------------------------------------------------------------------------
The above table and chart assume $100 invested on December 31, 1991 in the
Company's Common Stock, the NASDAQ Composite Index (Total Return) and the AMEX
Biotech Index. Total return assumes reinvestment of dividends.
- -------------
(1) This Section is not "soliciting material," is not deemed filed with the
SEC and is not to be incorporated by reference in any filing of the
Company under the 1933 Act or the Exchange Act.
17
20
CERTAIN TRANSACTIONS
In June 1997, the Company borrowed an additional $6.4 million under a
$40 million line of credit made available under the terms of its collaborative
agreement with BII. The funds will be used for the purpose of funding research
and development costs associated with the collaboration. Borrowings under the
line of credit bear interest at the seven year U.S. interbanking rate plus 2.0%,
determined at the time each advance is made. Interest payments are due twice
each year with principal repayment due seven years after the advance date. The
principal may be repaid in cash or stock, at the Company's option. If the
Company elects to repay the loan in shares of Isis Common Stock, repayment will
be made at a share price equal to 90% of the average market value over the 20
trading days preceding the maturity date. The balance under this line of credit
as of December 31, 1997 was $22.6 million.
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
B. Lynne Parshall
Secretary
April 13, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO: B. LYNNE PARSHALL, SECRETARY, ISIS
PHARMACEUTICALS, INC., 2292 FARADAY AVENUE, CARLSBAD, CALIFORNIA 92008.
18
21
ISIS PHARMACEUTICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 22, 1998
The undersigned hereby appoints STANLEY T. CROOKE and B. LYNNE PARSHALL,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Isis Pharmaceuticals,
Inc. (the "Company") which the undersigned may be entitled to vote at the
Annual Meeting of Stockholders of the Company to be held at the Company's
offices at 2292 Faraday Avenue, Carlsbad, California 92008 on Friday, May 22,
1998 at 2:00 p.m., and at any and all 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.
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.
(Continued on other side) SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
ISIS PHARMACEUTICALS, INC.
MAY 22, 1998
Please Detach and Mail in the Envelope Provided
A [X] PLEASE MARK YOUR VOTES
AS IN THIS EXAMPLE.
FOR all nominees WITHHOLD THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
listed at right (except AUTHORITY THE NOMINEES FOR DIRECTOR LISTED BELOW
as marked to the to vote for all
contrary below). nominees listed at right Nominees: Burkhard Blank
Proposal 1: to elect Stanley T. Crooke
three directors [ ] [ ] Mark B. Skaletsky
to hold office
until the 2001 Annual Meeting of Stockholders.
To withhold authority to vote for any nominee(s),
write such nominee(s) name(s) below:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR PROPOSALS 2 AND 3.
Proposal 2: To approve an increase in the number of shares authorized for
issuance under the Company's 1989 Stock Option Plan (the "1989 Plan") from
8,200,000 to 10,200,000, to extend the term of the 1989 Plan until January 31,
2008, and to make changes to the stockholder approval requirements of the
1989 Plan.
[ ] FOR [ ] AGAINST [ ]ABSTAIN
Proposal 3: To ratify the selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ]ABSTAIN
Please vote, date and promptly return this proxy in the enclosed return
envelope which is postage prepaid if mailed in the United States.
SIGNATURE ____________ DATE _______ SIGNATURE __________________ DATE ________
(SIGNATURE IF HELD JOINTLY)
NOTE: Please sign exactly as your name appears hereon. If the 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 title. If
signer is a partnership, please sign in partnership name by authorized
person.
