-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GNTo0PZuI5itvDtq2fgll0AHWukjwZKX3sRrooBHYQJRRI/5K27UtQbwgMA9kVvg jPUV3STbGx/jQeYPpSL1ng== 0000936392-97-001670.txt : 19971218 0000936392-97-001670.hdr.sgml : 19971218 ACCESSION NUMBER: 0000936392-97-001670 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19971217 EFFECTIVENESS DATE: 19971217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEPOTECH CORP CENTRAL INDEX KEY: 0000931686 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 330387911 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-8 SEC ACT: SEC FILE NUMBER: 333-42459 FILM NUMBER: 97739708 BUSINESS ADDRESS: STREET 1: 10450 SCIENCE CENTER DRIVE STREET 2: STE 100 CITY: SAN DIEGO STATE: CA ZIP: 92037 BUSINESS PHONE: 6196252424 MAIL ADDRESS: STREET 1: 10450 SCIENCE CENTER DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92121 S-8 1 FORM S-8 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1997 REGISTRATION NO. 333- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM S-8 REGISTRATION STATEMENT Under The Securities Act of 1933 ------------------ DEPOTECH CORPORATION (Exact name of Registrant as specified in its charter) ------------------ CALIFORNIA 33-0387911 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 10450 SCIENCE CENTER DRIVE SAN DIEGO, CALIFORNIA 92121 (Address of principal executive offices) (Zip code) ------------------ 1997 SUPPLEMENTAL STOCK OPTION PLAN (Full title of the Plan) ------------------ EDWARD L. ERICKSON PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR DEPOTECH CORPORATION 10450 SCIENCE CENTER DRIVE, SAN DIEGO, CALIFORNIA 92121 (619) 625-2424 (Telephone number, including area code, of agent for service) ------------------ CALCULATION OF REGISTRATION FEE
Proposed Proposed Title of Maximum Maximum Securities Amount Offering Aggregate Amount of to be to be Price Offering Registration Registered Registered(1) per Share Price Fee ---------- ------------- --------- --------- ------------ 1997 SUPPLEMENTAL STOCK OPTION PLAN Common Stock, no par value 141,000 shares $13.50 (2) $1,903,500 (2) $561.53
(1) This Registration Statement shall also cover any additional shares of Common Stock which become issuable under the 1997 Supplemental Stock Option Plan by reason of any stock dividend, stock split, recapitalization or any other similar transaction without receipt of consideration which results in an increase in the number of outstanding shares of Common Stock of DepoTech Corporation. (2) Calculated solely for purposes of this offering under Rule 457(h) of the Securities Act of 1933, as amended, on the basis of the average of the high and low selling prices per share of Common Stock of DepoTech Corporation on December 15, 1997, as reported on the Nasdaq National Market. 2 PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE DepoTech Corporation (the "Registrant") hereby incorporates by reference into this Registration Statement the following documents previously filed with the Securities and Exchange Commission (the "SEC"): (a) The Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed with the SEC on March 31, 1997; (b) The Registrant's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1997, June 30, 1997, September 30, 1997, filed with the SEC on May 14, 1997, August 14, 1997, and November 14, 1997, respectively; and (c) The Registrant's Registration Statement No. 0-26862 on Form 8-A filed with the SEC on September 26, 1995 in which the terms, rights and provisions applicable to the Registrant's Common Stock are described. All reports and definitive proxy or information statements filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act") after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold shall be deemed to be incorporated by reference into this Registration Statement and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein or in any subsequently filed document which also is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement. ITEM 4. DESCRIPTION OF SECURITIES Not applicable. ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL Not applicable. ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS (a) Section 317 of the California General Corporation Law provides for the indemnification of officers and directors of the Company against expenses, judgments, fines and amounts paid in settlement under certain conditions and subject to certain limitations. (b) Article VI of the Bylaws of the Company provides that the Company shall have power to indemnify any person who is or was an agent of the Company as provided in Section 317 of the California General Corporation Law. The rights to indemnity thereunder continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of the person. In addition, expenses incurred by a director or officer II-2 3 in defending a civil or criminal action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Company (or was serving at the Company's request as a director or officer of another corporation) shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company as authorized by the relevant section of the California General Corporation Law. (c) Article IV of the Company's Articles of Incorporation provides that the liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent permissible under California law. Accordingly, a director will not be liable for monetary damages for breach of duty to the Company or its shareholders in any action brought by or in the right of the Company. However, a director remains liable to the extent required by law (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the Company or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the Company or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the Company or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Company or its shareholders, (vi) for any act or omission occurring prior to the date when the exculpation provision became effective and (vii) for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors. The effect of the provisions in the Articles of Incorporation is to eliminate the rights of the Company and its shareholders (through shareholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of duty as a director, including breaches resulting from negligent behavior in the context of transactions involving a change of control of the Company or otherwise, except in the situations described in clauses (i) through (vii) above. These provisions will not alter the liability of directors under federal securities laws. (d) Pursuant to authorization provided under the Articles of Incorporation, the Company has entered into indemnification agreements with each of its directors and officers. Generally, the indemnification agreements attempt to provide the maximum protection permitted by California law as it may be amended from time to time. Moreover, the indemnification agreements provide for certain additional indemnification. Under such additional indemnification provisions, however, an individual will not receive indemnification for judgments, settlements or expenses if he or she is found liable to the Company (except to the extent the court determines he or she is fairly and reasonably entitled to indemnity for expenses), for settlements not approved by the Company or for settlements and expenses if the settlement is not approved by the court. The indemnification agreements provide for the Company to advance to the individual any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending any such action, suit or proceeding. In order to receive an advance of expenses, the individual must submit to the Company copies of invoices presented to him or her for such expenses. Also, the individual must repay such advances upon a final judicial decision that he or she is not entitled to indemnification. The Company's Bylaws contain a provision of similar effect relating to advancement of expenses to a director or officer, subject to an undertaking to repay if it is ultimately determined that indemnification is unavailable. (e) The Registrant maintains a directors' and officers' liability insurance policy that, subject to certain limitations, terms and conditions, will insure the directors and officers of the Registrant against losses arising from wrongful acts (as defined by the policy) in his or her capacity as a director or officer. ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED Not applicable. ITEM 8. EXHIBITS II-3 4 Exhibit No. Exhibit - ----------- ------- 4 Instruments Defining Rights of Stockholders. Reference is made to Registrant's Registration Statement No. 0-26862 on Form 8-A, which is incorporated herein by reference pursuant to Item 3(d) of this Registration Statement. 5 Opinion and Consent of Brobeck, Phleger & Harrison LLP. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in Exhibit 5. 24 Power of Attorney. Reference is made to page II-5 of this Registration Statement. 99.1 1997 Supplemental Stock Option Plan. 99.2 Form of Notice of Grant of Stock Option. 99.3 Form of Stock Option Agreement. ITEM 9. UNDERTAKINGS A. The undersigned Registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "1933 Act"), (ii) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement, and (iii) to include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; provided, however, that clauses (1)(i) and (1)(ii) shall not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are incorporated by reference into this Registration Statement; (2) that for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold upon the termination of the Registrant's 1997 Supplemental Stock Option Plan. B. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the 1933 Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the 1934 Act that is incorporated by reference into this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers or controlling persons of the Registrant pursuant to the indemnity provisions summarized in Item 6 or otherwise, the Registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. II-4 5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California on December 17, 1997. DEPOTECH CORPORATION By: /s/ Edward L. Erickson ------------------------------------- Edward L. Erickson President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned officers and directors of DepoTech Corporation, a California corporation, do hereby constitute and appoint Edward L. Erickson and Dane S. McGowan and each of them, the lawful attorneys-in-fact and agents, with full power and authority to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or either one of them, determine may be necessary or advisable or required to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules or regulation or requirements of the Securities and Exchange Commission in connection with this Registration Statement. Without limiting the generality of the foregoing power and authority, the powers granted include the power and authority to sign the names of the undersigned officers and directors in the capacities indicated below to this Registration Statement, to any and all amendments, both pre-effective and post-effective, and supplements to this Registration Statement and to any and all instruments or documents filed as part of or in conjunction with this Registration Statement or amendments or supplements thereto, and each of the undersigned hereby ratifies and confirms all that said attorneys and agents, or either one of them, shall do or cause to be done by virtue hereof. This Power of Attorney may be signed in several counterparts. IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signatures Title Date - ---------- ----- ---- /s/ Edward L. Erickson President, Chief Executive Officer December 17, 1997 - ----------------------------- and Director (Principal Edward L. Erickson Executive Officer)
II-5 6
Signatures Title Date - ---------- ----- ---- /s/ Dana S. McGowan Vice President and December 17, 1997 - ----------------------------- Chief Financial Officer Dana S. McGowan (Principal Financial and Accounting Officer) /s/ Roger C. Davisson Director December 17, 1997 - ----------------------------- Roger C. Davisson /s/ George W. Dunbar, Jr. Director December 17, 1997 - ----------------------------- George W. Dunbar, Jr. /s/ Stephen B. Howell Director December 17, 1997 - ----------------------------- Stephen B. Howell /s/ Fred A. Middleton Director December 17, 1997 - ----------------------------- Fred A. Middleton /s/ Peter Preuss Director December 17, 1997 - ----------------------------- Peter Preuss /s/ Pieter J. Strijkert Director December 17, 1997 - ----------------------------- Pieter J. Strijkert
II-6 7 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS TO FORM S-8 UNDER SECURITIES ACT OF 1933 DEPOTECH CORPORATION 8 EXHIBIT INDEX Exhibit No. Exhibit - ------- ------- 4 Instruments Defining Rights of Stockholders. Reference is made to Registrant's Registration Statement No. 0-26862 on Form 8-A, which is incorporated herein by reference pursuant to Item 3(d) of this Registration Statement. 5 Opinion and Consent of Brobeck, Phleger & Harrison LLP. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in Exhibit 5. 24 Power of Attorney. Reference is made to page II-5 of this Registration Statement. 99.1 1997 Supplemental Stock Option Plan. 99.2 Form of Notice of Grant of Stock Option. 99.3 Form of Stock Option Agreement. II-7 EX-5 2 EXHIBIT 5 1 EXHIBIT 5 Opinion of Brobeck, Phleger & Harrison LLP December 17, 1997 DepoTech Corporation 10450 Science Center Drive San Diego, CA 92121 Re: DepoTech Corporation (the "Company") Registration Statement for Registration of 141,000 Shares of Common Stock Ladies and Gentlemen: We refer to your registration on Form S-8 (the "Registration Statement") under the Securities Act of 1933, as amended, of 141,000 shares of Common Stock for issuance under the Company's 1997 Supplemental Stock Option Plan. We advise you that, in our opinion, when such shares have been issued and sold pursuant to the applicable provisions of the Company's 1997 Supplemental Stock Option Plan, and in accordance with the Registration Statement, such shares will be validly issued, fully paid and non-assessable shares of the Company's Common Stock. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ Brobeck, Phleger & Harrison LLP BROBECK, PHLEGER & HARRISON LLP EX-23.1 3 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to the 1997 Supplemental Stock Option Plan of DepoTech Corporation of our report dated January 29, 1997, with respect to the financial statements of DepoTech Corporation incorporated by reference in its Annual Report (Form 10-K) for the year ended December 31, 1996, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP San Diego, California December 15, 1997 EX-99.1 4 EXHIBIT 99.1 1 DEPOTECH CORPORATION EXHIBIT 99.1 1997 SUPPLEMENTAL STOCK OPTION PLAN ARTICLE ONE GENERAL I. PURPOSE OF THE PLAN A. This 1997 Supplemental Stock Option Plan is intended to promote the interests of DepoTech Corporation, a California corporation, by authorizing an additional reserve of shares of the Corporation's common stock for issuance through long-term option grants to be made from time to time to individuals in the employ or service of the Corporation (or any Parent or Subsidiary) who are neither officers of the Corporation nor members of the Board and who are not otherwise Section 16 Insiders. B. The Plan shall become effective immediately upon adoption by the Board on October 14, 1997. C. This Plan shall supplement the authorized share reserve under the Corporation's 1995 Stock Option/Stock Issuance Plan, and share issuances under this Plan shall not reduce or otherwise affect the number of shares of the Corporation's common stock available for issuance under the 1995 Stock Option/Stock Issuance Plan. In addition, share issuances under the 1995 Stock Option/Stock Issuance Plan shall not reduce or otherwise affect the number of shares of the Corporation's common stock available for issuance under this Plan. D. Capitalized terms shall have the meanings assigned to such terms in the attached Appendix. II. ADMINISTRATION OF THE PLAN A. The Plan Administrator shall have full power and discretion (subject to the express provisions of the Plan) to establish such rules and regulations as it may deem appropriate for the proper administration of the Plan and to make such determinations under, and issue such interpretations of, the provisions of the Plan and any outstanding option grants thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any outstanding option thereunder. B. The individuals serving as Plan Administrator shall serve for such period as the Board may determine and shall be subject to removal by the Board at any time. C. Service as Plan Administrator shall constitute service as a Board member, and each Board member serving as Plan Administrator shall accordingly be entitled to full 2 indemnification and reimbursement as a Board member for such service. No individual serving as Plan Administrator shall be liable for any act or omission made in good faith with respect to the Plan or any option granted under the Plan. III. ELIGIBILITY A. The persons eligible to participate in the Plan shall be limited to those Employees and independent consultants and advisors in the service of the Corporation (or any Parent or Subsidiary) who are neither officers of the Corporation nor members of the Board and who are not otherwise Section 16 Insiders at the time of the option grant. B. The Plan Administrator shall have full authority to determine which eligible individuals are to receive option grants under the Plan, the time or times when such grants are to be made, the number of shares to be covered by each such grant, the time or times when each granted option is to become exercisable and the maximum term for which the option may remain outstanding. All options granted under the Plan shall be Non-Statutory Options. IV. STOCK SUBJECT TO THE PLAN A. Shares of Common Stock shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of Common Stock or from reacquired shares of Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock reserved for issuance over the term of the Plan shall be limited to 141,000 shares, subject to adjustment from time to time in accordance with the provisions of this Section IV of Article One. B. Should one or more outstanding options under this Plan expire or terminate for any reason prior to exercise in full (including any option cancelled in accordance with the cancellation-regrant provisions of Section III of Article Two), then the shares subject to the portion of each option not so exercised shall be available for subsequent issuance under the Plan. Should the exercise price of an outstanding option under the Plan be paid with shares of Common Stock, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised, and not by the net number of shares of Common Stock actually issued to the holder of such option. C. Should any change be made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, then appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan and (ii) the number and/or class of securities and price per share in effect under each option outstanding under the Plan. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. 2. 3 ARTICLE TWO OPTION GRANT PROGRAM I. OPTION TERMS Options granted under the Plan shall be authorized by action of the Plan Administrator and shall be evidenced by one or more instruments in the form approved by the Plan Administrator; provided, however, that each such instrument shall comply with the terms and conditions specified below. All such granted options shall be Non-Statutory Options. A. Exercise Price. 1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the grant date. 2. Full payment of the exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the forms specified below: a. cash or check made payable to the Corporation's order, b. shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or c. through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation in connection with such purchase and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. 3. 4 Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. B. Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing such option. No option shall have a maximum term in excess of ten (10) years. During the lifetime of the Optionee, the option shall be exercisable only by the Optionee and shall not be assignable or transferable except for a transfer of the option effected by will or by the laws of inheritance following the Optionee's death. C. Effect of Termination of Service. 1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death: a. Any option outstanding at the time of the Optionee's cessation of Service for any reason shall remain exercisable for such limited period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. b. Any option exercisable in whole or in part by the Optionee at the time of death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. c. During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable post-Service exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any otherwise exercisable shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding for any and all shares for which the option is not otherwise at that time exercisable. d. Should the Optionee's Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding. 4. 5 2. The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: a. extend the period of time for which the option is to remain exercisable following Optionee's cessation of Service or death from the limited period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or b. permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments for which the option would have become exercisable had the Optionee continued in Service. D. Shareholder Rights. An Optionee shall have none of the rights of a shareholder with respect to any option shares until such person shall have exercised the option and paid the exercise price for the purchased shares. II. CORPORATE TRANSACTION/CHANGE IN CONTROL A. In the event of any Corporate Transaction, each option outstanding at the time but not otherwise fully exercisable shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall NOT become exercisable on such an accelerated basis if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation (or parent thereof) or (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Corporate Transaction on the shares for which the option is not otherwise at that time exercisable (the excess of the Fair Market Value of those shares over the exercise price payable for such shares) and provides for subsequent payout in accordance with the same exercise/vesting schedule applicable to those option shares or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. B. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). C. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation 5. 6 of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments to reflect such Corporate Transaction shall also be made to (i) the number and/or class of securities available for issuance under the Plan following the consummation of such Corporate Transaction and (ii) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same. D. The Plan Administrator shall have full power and authority to grant options under the Plan which will automatically accelerate in the event the Optionee's Service subsequently terminates by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Corporate Transaction in which those options are assumed and do not otherwise accelerate. Any options so accelerated shall remain exercisable for fully-vested shares until the earlier of (i) the expiration of the option term or (ii) the expiration of the one (1)-year period measured from the effective date of the Involuntary Termination. E. The Plan Administrator shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to provide for the automatic acceleration of one or more outstanding options in connection with a Change in Control so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. The accelerated option shall remain exercisable for fully-vested shares until the expiration or sooner termination of the option term. Alternatively, the Plan Administrator may condition such option acceleration upon the termination of the Optionee's Service by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of the Change in Control. Each option so accelerated shall remain exercisable for fully-vested shares until the earlier of (i) the expiration of the option term or (ii) the expiration of the one (1)-year period measured from the effective date of the Involuntary Termination. F. The grant of options under the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. III. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected Optionees, the cancellation of any or all outstanding options under the Plan and to grant in substitution new options under the Plan covering the same or different numbers of shares of Common Stock but with an exercise price per share not less than the Fair Market Value of the Common Stock on the new grant date. ARTICLE THREE 6. 7 MISCELLANEOUS I. FINANCING A. The Plan Administrator may permit any Optionee to pay the option exercise price under the Plan by delivering a promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. Promissory notes may be authorized with or without security or collateral. In all events, the maximum credit available to the Optionee may not exceed the sum of (i) the aggregate option exercise price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee in connection with the option exercise. B. The Plan Administrator may, in its discretion, determine that one or more such promissory notes shall be subject to forgiveness by the Corporation in whole or in part upon such terms as the Plan Administrator may deem appropriate. II. AMENDMENT OF THE PLAN The Board has complete and exclusive power and authority to amend or modify the Plan in any or all respects whatsoever. However, no such amendment or modification shall adversely affect rights and obligations with respect to stock options at the time outstanding under the Plan, unless the affected Optionees consent to such amendment. III. TAX WITHHOLDING The Corporation's obligation to deliver shares of Common Stock upon the exercise of stock options under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income tax and employment tax withholding requirements. IV. EFFECTIVE DATE AND TERM OF PLAN A. This Plan shall become effective immediately upon approval by the Board at the October 14, 1997 Board meeting and shall not be subject to shareholder approval. B. The Plan shall terminate upon the earliest of (i) October 13, 2007, (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise of options under the Plan or (iii) the termination of all outstanding options in connection with a Corporate Transaction. If the date of termination is determined under clause (i) above, then all option grants outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the instruments evidencing those grants. V. USE OF PROCEEDS 7. 8 Any cash proceeds received by the Corporation from the sale of shares pursuant to option grants under the Plan shall be used for general corporate purposes. VI. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any option under the Plan, and the issuance of Common Stock upon the exercise of the stock options granted hereunder shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options granted under it and the Common Stock issued pursuant to it. B. No shares of Common Stock or other assets shall be issued or delivered under this Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any securities exchange on which the Common Stock is then listed for trading. VII. NO EMPLOYMENT/SERVICE RIGHTS Nothing in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause. 8. 9 APPENDIX The following definitions shall be in effect under the Plan: A. BOARD shall mean the Corporation's Board of Directors. B. CHANGE IN CONTROL shall mean a change in ownership or control of the Corporation effected through either of the following transactions: - the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's shareholders which the Board does not recommend such shareholders to accept, or - a change in the composition of the Board over a period of twenty four (24) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination. C. CODE shall mean the Internal Revenue Code of 1986, as amended. D. COMMON STOCK shall mean the Corporation's common stock. E. CORPORATE TRANSACTION shall mean either of the following shareholder-approved transactions to which the Corporation is a party: - a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction; or - the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. A-1. 10 F. CORPORATION shall mean DepoTech Corporation, a California corporation, and any corporate successor to all or substantially all of the assets or voting stock of DepoTech Corporation which shall by appropriate action adopt the Plan. H. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. I. EXERCISE DATE shall mean the date on which the Corporation shall have received written notice of the option exercise. J. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: - If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. - If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. K. INVOLUNTARY TERMINATION shall mean the termination of the Service of any individual which occurs by reason of: - such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or - such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits A-2. 11 and target bonus under any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent. L. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure by the Optionee of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by the Optionee adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee or other person in the Service of the Corporation (or any Parent or Subsidiary). M. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422. N. OPTIONEE shall mean any person to whom an option is granted under the Plan. O. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. P. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability of the Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. Q. PLAN shall mean the Corporation's 1997 Supplemental Stock Option Plan, as set forth in this document. R. PLAN ADMINISTRATOR shall mean either the Board or a committee of the Board acting in its administrative capacity under the Plan. S. PLAN EFFECTIVE DATE shall mean October 14, 1997, the date on which the Plan was adopted by the Board. U. SECTION 16 INSIDER shall mean an officer or director of the Corporation subject to the short-swing profit restrictions of Section 16 of the Securities Exchange Act of 1934, as amended. A-3. 12 V. SERVICE shall mean the performance of services to the Corporation (or any Parent or Subsidiary) by any person in the capacity of an Employee or an independent consultant or advisor, except to the extent otherwise specifically provided in the applicable stock option agreement. W. STOCK EXCHANGE shall mean either the American Stock Exchange or the New York Stock Exchange. X. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A-4. EX-99.2 5 EXHIBIT 99.2 1 DEPOTECH CORPORATION EXHIBIT 99.2 NOTICE OF GRANT OF STOCK OPTION Notice is hereby given of the following option grant (the "Option") to purchase shares of the Common Stock of DepoTech Corporation (the "Corporation"): OPTIONEE: _________________________________________________ GRANT DATE: _______________________________________________ VESTING COMMENCEMENT DATE: ________________________________ EXERCISE PRICE: $___________________________ per share NUMBER OF OPTION SHARES: ___________________ shares EXPIRATION DATE: __________________________________________ TYPE OF OPTION: Non-Statutory Stock Option EXERCISE SCHEDULE: The Option shall become exercisable for twenty-five percent (25%) of the Option Shares upon Optionee's completion of one (1) year of Service measured from the Vesting Commencement Date and shall become exercisable for the balance of the Option Shares in thirty-six (36) successive equal monthly installments upon Optionee's completion of each additional month of Service over the thirty-six (36) month period measured from the first anniversary of the Vesting Commencement Date. In no event shall the Option become exercisable for any additional Option Shares after Optionee's cessation of Service. Optionee understands and agrees that the Option is granted subject to and in accordance with the terms of the DepoTech Corporation 1997 Supplemental Stock Option Plan (the "Plan"). Optionee further agrees to be bound by the terms of the Plan and the terms of the Option as set forth in the Supplemental Stock Option Agreement (the "Option Agreement") attached hereto as Exhibit A. Optionee hereby acknowledges receipt of a copy of the official prospectus for the Plan in the form attached hereto as Exhibit B. A copy of the Plan is available upon request made to the Corporate Secretary at the Corporation's principal offices. No Employment or Service Contract. Nothing in this Notice or in the attached Option Agreement or in the Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee's Service at any time for any reason, with or without cause. 2 Definitions. All capitalized terms in this Notice shall have the meaning assigned to them in this Notice or in the attached Option Agreement. ____________________, 199__ Date DEPOTECH CORPORATION By: __________________________________ Title: __________________________________ _________________________________________ OPTIONEE Address: ________________________________ _________________________________________ ATTACHMENTS EXHIBIT A - SUPPLEMENTAL STOCK OPTION AGREEMENT EXHIBIT B - PLAN SUMMARY AND PROSPECTUS 2. 3 EXHIBIT A STOCK OPTION AGREEMENT 4 DEPOTECH CORPORATION STOCK OPTION AGREEMENT RECITALS A. The Board has adopted the Plan for the purpose of providing additional incentive to selected Employees, consultants and other independent advisors to continue in the Service of the Corporation (or any Parent or Subsidiary). B. Optionee is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of the Plan in connection with the Corporation's grant of an option to Optionee. C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix. NOW, THEREFORE, it is hereby agreed as follows: 1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term specified in Paragraph 2 at the Exercise Price. 2. OPTION TERM. This option shall have a term of ten (10) years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6. 3. LIMITED TRANSFERABILITY. This option shall be neither transferable nor assignable by Optionee other than by will or by the laws of descent and distribution following Optionee's death and may be exercised, during the Optionee's lifetime, only by the Optionee. 4. DATES OF EXERCISE. This option shall become exercisable for the Option Shares in one or more installments as specified in the Grant Notice. As the option becomes exercisable for such installments, those installments shall accumulate, and the option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5 or 6. 5. CESSATION OF SERVICE. The option term specified in Paragraph 2 shall terminate (and this option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable: (a) Should Optionee cease to remain in Service for any reason (other than death, Permanent Disability or Misconduct) while this option is outstanding, then Optionee shall have a thirty (30)-day period (commencing with the date of such cessation of Service) during which to exercise this option, but in no event shall this option be exercisable at any time after the Expiration Date. 5 (b) Should Optionee die while this option is outstanding, then the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of inheritance shall have the right to exercise this option. Such right shall lapse, and this option shall cease to be outstanding, upon the earlier of (A) the expiration of the twelve (12)- month period measured from the date of Optionee's death or (B) the Expiration Date. (c) Should Optionee cease Service by reason of Permanent Disability while this option is outstanding, then Optionee shall have a period of six (6) months (commencing with the date of such cessation of Service) during which to exercise this option. In no event shall this option be exercisable at any time after the Expiration Date. (d) During the limited period of post-Service exercisability, this option may not be exercised in the aggregate for more than the number of Option Shares for which the option is exercisable at the time of Optionee's cessation of Service. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any otherwise exercisable Option Shares for which the option has not been exercised. To the extent this option is not exercisable for one or more Option Shares at the time of Optionee's cessation of Service, this option shall immediately terminate and cease to be outstanding with respect to those shares. (e) Should Optionee's Service be terminated for Misconduct, then this option shall terminate immediately and cease to remain outstanding. 6. SPECIAL ACCELERATION OF OPTION. (a) In the event of a Corporate Transaction, this option, to the extent outstanding at such time but not otherwise fully exercisable, shall automatically accelerate so that this option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all of the Option Shares at the time subject to this option and may be exercised for any or all of those Option Shares as fully-vested shares of Common Stock. However, this option shall not become exercisable on such an accelerated basis if and to the extent: (i) this option is, in connection with the Corporate Transaction, to be assumed by the successor corporation (or parent thereof) or (ii) this option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Corporate Transaction on the Option Shares for which this option is not otherwise at that time exercisable (the excess of the Fair Market Value of such Option Shares over the aggregate Exercise Price payable for such shares) and provides for subsequent pay-out in accordance with the same exercise/vesting schedule in effect for those Option Shares pursuant to the option exercise schedule set forth in the Grant Notice. 2. 6 (b) Immediately following the Corporate Transaction, this option, to the extent not previously exercised, shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) in connection with the Corporate Transaction. (c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same. (d) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or class of securities subject to this option and (ii) the Exercise Price in order to reflect such change and thereby preclude any dilution or enlargement of benefits hereunder. 8. SHAREHOLDER RIGHTS. The holder of this option shall not have any shareholder rights with respect to the Option Shares until such person shall have exercised the option, paid the Exercise Price and become a holder of record of the purchased shares. 9. MANNER OF EXERCISING OPTION. (a) In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions: (i) Execute and deliver to the Corporation a Notice of Exercise for the Option Shares for which the option is exercised. (ii) Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms: (A) cash or check made payable to the Corporation; 3. 7 (B) a promissory note payable to the Corporation, but only to the extent authorized by the Plan Administrator in accordance with Paragraph 13; (C) shares of Common Stock held by Optionee (or any other person or persons exercising the option) for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or (D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons exercising the option) shall concurrently provide irrevocable instructions (I) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (II) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. Except to the extent the sale and remittance procedure is utilized in connection with the option exercise, payment of the Exercise Price must accompany the Notice of Exercise delivered to the Corporation in connection with the option exercise. (iii) Furnish to the Corporation appropriate documentation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option. (iv) Make appropriate arrangements with the Corporation (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state and local income and employment tax withholding requirements applicable to the option exercise. (b) As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or any other person or persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto. (c) In no event may this option be exercised for any fractional shares. 10. COMPLIANCE WITH LAWS AND REGULATIONS. 4. 8 (a) The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such exercise and issuance. (b) The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Corporation, however, shall use its best efforts to obtain all such approvals. 11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee's assigns and the legal representatives, heirs and legatees of Optionee's estate. 12. NOTICES. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on the Grant Notice. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 13. FINANCING. The Plan Administrator may, in its absolute discretion and without any obligation to do so, permit Optionee to pay the Exercise Price for the purchased Option Shares by delivering a promissory note. The terms of any such promissory note (including the interest rate, the requirements for collateral and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. 14. CONSTRUCTION. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option. 15. GOVERNING LAW. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules. 5. 9 EXHIBIT I NOTICE OF EXERCISE I hereby notify DepoTech Corporation (the "Corporation") that I elect to purchase ______________ shares of the Corporation's Common Stock (the "Purchased Shares") at the option exercise price of $__________ per share (the "Exercise Price") pursuant to that certain option (the "Option") granted to me under the Corporation's 1997 Supplemental Stock Option Plan on _______________________ , 199__. Concurrently with the delivery of this Exercise Notice to the Corporation, I shall hereby pay to the Corporation the Exercise Price for the Purchased Shares in accordance with the provisions of my agreement with the Corporation (or other documents) evidencing the Option and shall deliver whatever additional documents may be required by such agreement as a condition for exercise. Alternatively, I may utilize the special broker-dealer sale and remittance procedure specified in my agreement to effect payment of the Exercise Price. ____________________, 199__ Date _________________________________________ Optionee Address:_________________________________ _________________________________________ Print name in exact manner it is to appear on the stock certificate: _________________________________________ Address to which certificate is to be sent, if different from address above: _________________________________________ _________________________________________ Social Security Number: _________________________________________ Employee Number: _________________________________________ 6. 10 APPENDIX The following definitions shall be in effect under the Agreement: A. AGREEMENT shall mean this Supplemental Stock Option Agreement. B. BOARD shall mean the Corporation's Board of Directors. C. CODE shall mean the Internal Revenue Code of 1986, as amended. D. COMMON STOCK shall mean the Corporation's common stock. E. CORPORATE TRANSACTION shall mean either of the following shareholder-approved transactions to which the Corporation is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. F. CORPORATION shall mean DepoTech Corporation, a California corporation. G. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. H. EXERCISE DATE shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the Agreement. I. EXERCISE PRICE shall mean the exercise price per share as specified in the Grant Notice. J. EXPIRATION DATE shall mean the date on which the option expires as specified in the Grant Notice. K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall determined in accordance with the following provisions: A-1. 11 - If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. - If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. L. GRANT DATE shall mean the date of grant of the option as specified in the Grant Notice. M. GRANT NOTICE shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby. N. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by Optionee adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of Optionee or other person in the Service of the Corporation (or any Parent or Subsidiary). O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422. P. NOTICE OF EXERCISE shall mean the notice of exercise in the form attached hereto as Exhibit I. Q. OPTION SHARES shall mean the number of shares of Common Stock subject to the option as specified in the Grant Notice. R. OPTIONEE shall mean the person to whom the option is granted as specified in the Grant Notice. A-2. 12 S. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. T. PERMANENT DISABILITY shall mean the inability of Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which is expected to result in death or has lasted or can be expected to last for a continuous period of twelve (12) months or more. U. PLAN shall mean the Corporation's 1997 Supplemental Stock Option Plan. V. PLAN ADMINISTRATOR shall mean either the Board or a committee of the Board acting in its administrative capacity under the Plan. W. SERVICE shall mean the Optionee's performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee or a consultant or independent advisor. X. STOCK EXCHANGE shall mean the American Stock Exchange or the New York Stock Exchange. Y. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A-3. 13 EXHIBIT B PLAN SUMMARY AND PROSPECTUS 14 EMPLOYEES & CONSULTANTS DEPOTECH CORPORATION --------------------------------------- 1997 SUPPLEMENTAL STOCK OPTION PLAN PLAN SUMMARY AND PROSPECTUS --------------------------------------- The date of this Prospectus is October 31, 1997 15 TABLE OF CONTENTS
Page INFORMATION ON THE 1997 SUPPLEMENTAL OPTION PLAN................................................................ 1 QUESTIONS AND ANSWERS ABOUT THE PLAN............................................................................ 1 GENERAL PLAN PROVISIONS................................................................................... 1 3. What is the basic structure of the Plan?........................................................ 1 4. When did the Plan become effective?............................................................. 1 5. Who administers the Plan?....................................................................... 1 6. Who is eligible to participate in the Plan?..................................................... 2 7. How many shares of Common Stock may be issued under the Plan?................................... 2 8. What happens if there is a change in the Corporation's capital structure?....................... 2 9. Can the Plan be amended or terminated?.......................................................... 2 GRANT OF OPTIONS.......................................................................................... 3 10. How are options granted under the Plan?......................................................... 3 11. What type of options may be granted under the Plan?............................................. 3 12. How is the exercise price determined?........................................................... 3 13. How is the fair market value of the Common Stock determined?.................................... 3 14. Can the Corporation cancel my option and grant me a new option?................................. 3 15. Can I assign or transfer my option?............................................................. 3 16. When do I acquire the rights of a shareholder?.................................................. 3 EXERCISE OF OPTIONS....................................................................................... 4 17. When may I exercise my option?.................................................................. 4 18. When will my option terminate?.................................................................. 4 19. How do I exercise my option?.................................................................... 4 20. How do I pay the exercise price?................................................................ 4 EARLY TERMINATION OF OPTIONS.............................................................................. 4 21. What happens to my options if my service terminates?............................................ 4 22. What happens to my options if I am discharged for Misconduct?................................... 5 23. What happens to my options if I die or become disabled?......................................... 5 24. What happens to my options if the Corporation is acquired or merged?............................ 5 25. What happens to my options that are assumed upon a Corporate Transaction?....................... 6 26. What happens to my options if there is a change in control of the Corporation?.................................................................................... 6 DISPOSITION OF OPTION SHARES.............................................................................. 7 27. When can I sell my shares?...................................................................... 7 MISCELLANEOUS ........................................................................................... 7 28. Do I have the right to remain in the Corporation's service until my options under the Plan become exercisable? ................................................................... 7 29. Are there any circumstances which would cause me to lose my rights with respect to an option?........................................................................... 7 30. Does the Plan restrict the authority of the Corporation to grant or assume options outside of the Plan?............................................................................ 7 31. Does the grant of an option under the Plan affect my eligibility to participate in other plans of the Corporation?................................................................. 8 32. What is a parent corporation?................................................................... 8 33. What is a subsidiary corporation?............................................................... 8 34. Is the Plan subject to ERISA?................................................................... 8
i. 16 QUESTIONS AND ANSWERS ON FEDERAL TAX CONSEQUENCES............................................................... 8 NON-STATUTORY OPTIONS..................................................................................... 8 T1. Will the grant of a Non-Statutory Option result in Federal income tax liability to me?.......................................................................................... 8 T2. Will the exercise of a Non-Statutory Option result in Federal income tax liability to me?.......................................................................................... 8 T3. Will I recognize additional income when I sell shares acquired under a Non- Statutory Option?............................................................................... 9 T4. What are the consequences of paying the exercise price of a Non-Statutory Option in the form of shares of Common Stock previously acquired upon the exercise of employee options or through open-market purchases?.................................. 9 T5. What are the Federal tax consequences to the Corporation?....................................... 9 FEDERAL TAX RATES......................................................................................... 9 T6. What are the applicable Federal tax rates?...................................................... 9 CORPORATE INFORMATION AND ANNUAL PLAN INFORMATION............................................................... 10
ii. 17 THIS DOCUMENT CONSTITUTES PART OF THE OFFICIAL PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. INFORMATION ON THE 1997 SUPPLEMENTAL OPTION PLAN DepoTech Corporation, a California corporation (the "Corporation"), is offering shares of its common stock (the "Common Stock") to eligible individuals in the Corporation's service pursuant to option grants made under the DepoTech Corporation 1997 Supplemental Stock Option Plan (the "Plan"). The purpose of the Plan is to offer the individuals in the employ of the Corporation who are neither officers of the Corporation nor members of the Corporation's Board of Directors (the "Board") a continuing opportunity to acquire an ownership interest in the Corporation as an incentive for such persons to remain in the Corporation's service. Unless the context indicates otherwise, all references to the Corporation in this Plan Summary and Prospectus include DepoTech Corporation and its parent and subsidiary corporations, whether now existing or subsequently established. QUESTIONS AND ANSWERS ABOUT THE PLAN This Plan Summary and Prospectus sets forth in question and answer format the principal terms of the option grants which may be made from time to time under the Plan to eligible individuals. GENERAL PLAN PROVISIONS 1. WHAT IS THE BASIC STRUCTURE OF THE PLAN? The Plan is an equity program under which eligible individuals will be granted options which will provide them with the right to purchase shares of Common Stock at a fixed price per share over their period of service with the Corporation. 2. WHEN DID THE PLAN BECOME EFFECTIVE? The Plan became effective on October 14, 1997 (the "Effective Date") upon adoption by the Board. 3. WHO ADMINISTERS THE PLAN? The Plan will be administered by the Compensation Committee of the Board. Such committee is comprised of two (2) or more non-employee Board members appointed by the Board, and each member will serve for so long as the Board deems appropriate and may be removed by the Board at any time. The Compensation Committee in its capacity as administrator of the Plan will be referred to in this document as the "Plan Administrator." The Plan Administrator will have full authority to determine the persons who are to be granted options under the Plan, the time or times when such option grants are to be made, the number of shares to be subject to each such grant, the time or times when each option is to become exercisable and the maximum period for which the option is to remain outstanding. 4. WHO IS ELIGIBLE TO PARTICIPATE IN THE PLAN? Employees, consultants and other independent advisors in the Corporation's service who are neither officers of the Corporation nor members of the Board are eligible to participate in the Plan. However, the actual persons to whom option grants are to be made under such program will be determined by the Plan Administrator in its sole discretion. 18 5. HOW MANY SHARES OF COMMON STOCK MAY BE ISSUED UNDER THE PLAN? The maximum number of shares of Common Stock issuable over the term of the Plan may not exceed 141,000 shares, subject to adjustment for certain changes in the Corporation's capital structure. The Common Stock will be made available either from authorized but unissued shares of Common Stock or from shares of Common Stock reacquired by the Corporation, including shares repurchased on the open market. Should one or more outstanding options under the Plan expire or terminate for any reason prior to exercise in full, the shares of Common Stock subject to the portion of each such option not so exercised will be available for subsequent issuance under the Plan. There are no limitations on the number of shares of Common Stock for which an eligible individual may be granted options over the term of the Plan. 6. WHAT HAPPENS IF THERE IS A CHANGE IN THE CORPORATION'S CAPITAL STRUCTURE? In the event of a Recapitalization, appropriate adjustments will automatically be made to (i) the maximum number and/or class of securities issuable under the Plan and (ii) the number and/or class of securities and the exercise price per share in effect under each outstanding option. The adjustments to such outstanding options will preclude the dilution or enlargement of the rights and benefits available under those options. For purposes of the Plan, a RECAPITALIZATION is any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration. 7. CAN THE PLAN BE AMENDED OR TERMINATED? Yes. The Board has exclusive authority to amend or modify the Plan in any and all respects. However, no amendment or modification may, without the holder's consent, adversely affect such individual's rights and obligations under his or her outstanding options under the Plan. The Plan will terminate upon the earliest to occur of (i) October 13, 2007, (ii) the date on which all shares available for issuance under the Plan have been issued or (iii) the termination of all outstanding options in connection with a Corporate Transaction (see the "Early Termination of Options" section below). Should the Plan terminate on October 13, 2007, then all options outstanding under the Plan at that time will continue to have force and effect in accordance with the provisions of the agreements evidencing those options. GRANT OF OPTIONS 8. HOW ARE OPTIONS GRANTED UNDER THE PLAN? The Plan Administrator will have complete discretion (subject to the limitations of the Plan) to determine when and to whom options will be granted and the terms of each such option grant. The grant will be evidenced by one or more documents (collectively, the "Option Agreement") executed by the Corporation and the optionee. 9. WHAT TYPE OF OPTIONS MAY BE GRANTED UNDER THE PLAN? All options granted under the Plan will be non-statutory options ("Non-Statutory Options") which do not qualify as incentive stock options under Section 422 of the Internal Revenue Code (the "Code"). 2. 19 10. HOW IS THE EXERCISE PRICE DETERMINED? The exercise price of an option will be determined by the Plan Administrator. However, the exercise price of an option will not be less than one hundred percent (100%) of the fair market value of the Common Stock on the grant date. 11. HOW IS THE FAIR MARKET VALUE OF THE COMMON STOCK DETERMINED? The fair market value per share of Common Stock on any relevant date under the Plan will be the closing selling price per share on that date as reported on the Nasdaq National Market. If the Common Stock is not traded on that day, the fair market value will be the closing selling price per share on the last preceding date for which such quotation exists. Stock prices are reported daily in most major newspapers. 12. CAN THE CORPORATION CANCEL MY OPTION AND GRANT ME A NEW OPTION? Yes. The Plan Administrator has the authority to cancel outstanding options and to issue new options in replacement, but your consent will be required in connection with your participation in any such cancellation/regrant program. The new options can cover the same or a different number of shares of Common Stock and will have an exercise price per share based upon the fair market value of the Common Stock on the new grant date. In addition, it is likely that the new options will have a vesting schedule based on the new grant date, without any credit provided for the period the cancelled options were outstanding. 13. CAN I ASSIGN OR TRANSFER MY OPTION? No. Your option generally cannot be assigned or transferred, except by the provisions of your will or the laws of inheritance following your death. However, your option may be assigned in whole or in part pursuant to a court order issued in connection with marital dissolution or separation proceedings. 14. WHEN DO I ACQUIRE THE RIGHTS OF A SHAREHOLDER? You will not have any shareholder rights with respect to the option shares. You will not acquire shareholder rights until you exercise the option, pay the exercise price and become a holder of record of the purchased shares. EXERCISE OF OPTIONS 15. WHEN MAY I EXERCISE MY OPTION? Your option will become exercisable in a series of installments over the period that you remain in the Corporation's service. The exercise schedule applicable to your option will be determined by the Plan Administrator at the time of grant and will be set forth in the Option Agreement. You may exercise your option at any time for the shares for which your option is exercisable, provided you do so before the option terminates. 16. WHEN WILL MY OPTION TERMINATE? No option granted under the Plan may have a term in excess of ten (10) years. The actual expiration date of your option will be set forth in the Option Agreement. Your option may, however, terminate prior to its designated expiration date in the event of your termination of service or upon the occurrence of certain other events. See the "Early Termination of Options" section below. 17. HOW DO I EXERCISE MY OPTION? 3. 20 To exercise your option, you must provide the Corporation with written notice of the exercise in which you indicate the number of shares to be purchased under your option. The notice must be accompanied by payment of the exercise price for the purchased shares, together with appropriate proof that the person exercising the option (if other than yourself) has the right to effect such exercise. You will be required to satisfy all applicable income and employment tax withholding requirements at that time. For information about such tax withholding, see the "Questions and Answers on Federal Tax Consequences" section below. 18. HOW DO I PAY THE EXERCISE PRICE? The exercise price may be paid in cash or check payable to the Corporation or in shares of Common Stock. Any such shares will be valued at fair market value on the exercise date and must have been held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes (generally a six (6)-month period). Cashless exercises are also permitted. To use this procedure, you must provide irrevocable instructions to a Corporation-designated brokerage firm to effect the immediate sale of the shares of Common Stock purchased under your option and to pay over to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable withholding taxes. Concurrently with such instructions, you must also direct the Corporation to deliver the certificates for the purchased shares to the brokerage firm in order to complete the sale. EARLY TERMINATION OF OPTIONS 19. WHAT HAPPENS TO MY OPTIONS IF MY SERVICE TERMINATES? After your termination of service, you will have a limited period of time in which to exercise your outstanding options for any shares of Common Stock for which those options are exercisable on the date your service terminates. The length of this period will be set forth in your Option Agreement and will generally not exceed thirty (30) days. However, your option will in all events terminate on the specified expiration date of the option term. To the extent your options are not exercisable for one or more option shares at the time of your termination of service, your options will immediately terminate and cease to be outstanding with respect to those shares. Unless your Option Agreement specifically provides otherwise, you will be deemed to continue in service for so long as you render services on a periodic basis to the Corporation, whether as (i) an employee, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance, or (ii) a consultant or other independent advisor. The Plan Administrator has the discretion to extend the period during which you may exercise one or more of your options following your termination of service and/or to permit such options to be exercised not only with respect to the number of shares of Common Stock for which your options are at that time exercisable but also with respect to one or more additional installments for which your options would have become exercisable had you continued in service. You will be notified in writing in the event the Plan Administrator decides to provide you with any of these additional benefits. 20. WHAT HAPPENS TO MY OPTIONS IF I AM DISCHARGED FOR MISCONDUCT? Should you be discharged from service for Misconduct, all of your outstanding options will immediately terminate. For purposes of the Plan, MISCONDUCT includes (i) any act of fraud, embezzlement or dishonesty, (ii) any unauthorized use or disclosure of confidential information or trade secrets of the Corporation or (iii) any other intentional misconduct adversely affecting the business or affairs of the Corporation in a material 4. 21 manner. However, the foregoing list is not inclusive of all the acts or omissions which may be considered as grounds for dismissal or discharge of any individual in the Corporation's service. 21. WHAT HAPPENS TO MY OPTIONS IF I DIE OR BECOME DISABLED? If you die while any of your options are outstanding, the personal representative of your estate or the person or persons to whom the options are transferred by the provisions of your will or the laws of inheritance following your death may exercise each of those options for any or all shares of Common Stock for which the option was exercisable on the date your service with the Corporation terminated, less any shares you may have subsequently purchased prior to your death. The right to exercise each such option will lapse upon the earlier of (i) the expiration of the option term or (ii) the first anniversary of the date of your death. If your service terminates because you become permanently disabled, you will normally have a period of six (6) months from such termination date during which to exercise your options for any or all of the shares of Common Stock for which those options were exercisable at the time of your termination. In no event, however, may you exercise any option after the expiration of the option term. For purposes of the Plan, you will be deemed to be permanently disabled if you are unable to perform any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) consecutive months or more. 22. WHAT HAPPENS TO MY OPTIONS IF THE CORPORATION IS ACQUIRED OR MERGED? In the event of a Corporate Transaction, all outstanding options under the Plan will automatically accelerate so that each such option will, immediately prior to the effective date of the Corporate Transaction, become exercisable for all the shares of Common Stock at the time subject to that option and may be exercised for any or all of those shares as fully vested shares. However, an outstanding option will NOT become exercisable on such an accelerated basis, if and to the extent: (i) the option is assumed by the successor corporation, (ii) such option is replaced with a cash incentive program which preserves the option spread existing at the time of the Corporate Transaction on any shares for which the option is not otherwise at that time exercisable and provides for subsequent payout in accordance with the same exercise/vesting schedule applicable to those option shares or (iii) such acceleration of the option is subject to other limitations imposed by the Plan Administrator in the Option Agreement. All outstanding options under the Plan will, to the extent not assumed by the successor corporation (or its parent corporation), terminate and cease to be outstanding immediately following the completion of the Corporate Transaction. A CORPORATE TRANSACTION will be deemed to occur upon (i) a merger in which securities possessing more than 50% of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such merger or (ii) a sale, transfer or other disposition of all or substantially all the assets of the Corporation in liquidation or dissolution of the Corporation. 23. WHAT HAPPENS TO MY OPTIONS THAT ARE ASSUMED UPON A CORPORATE TRANSACTION? Each option under the Plan which is assumed by the successor corporation (or its parent corporation) will, immediately after the Corporate Transaction, be appropriately adjusted to apply to the number and class of securities which would have been issued to the optionee in consummation of the Corporate Transaction had the option been exercised immediately prior to the Corporate Transaction. Appropriate adjustments will also be made to the exercise price payable per share, provided the aggregate exercise price for the option shares will remain the same. 5. 22 The Plan Administrator may grant options which automatically accelerate in the event the optionee's service terminates through an Involuntary Termination effected within a designated period (not to exceed eighteen (18) months) following the effective date of any Corporate Transaction if such options do not otherwise accelerate at that time. Any option so accelerated will remain exercisable until the earlier of (i) the expiration of the option term or (ii) the end of the one-year period measured from the date of the Involuntary Termination. You should review your Option Agreement to determine whether the option you hold will in fact accelerate upon such an Involuntary Termination. AN INVOLUNTARY TERMINATION will be deemed to occur upon (i) the optionee's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct or (ii) such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her duties and level of responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target bonus under any corporate performance-based bonus or incentive programs) by more than 15% or (C) a relocation of such individual's place of employment by more than 50 miles, provided and only if such change, reduction or relocation is effected by the Corporation without the optionee's consent. 24. WHAT HAPPENS TO MY OPTIONS IF THERE IS A CHANGE IN CONTROL OF THE CORPORATION? The Plan Administrator may provide for the automatic acceleration of one or more outstanding options under the Plan upon the occurrence of a Change in Control so that each such option will, immediately prior to the effective date of such Change in Control, become exercisable for all the shares of Common Stock at the time subject to that option and may be exercised for any or all of those shares as fully vested shares. Any option so accelerated will remain exercisable for fully vested shares until the expiration or sooner termination of the option term. Alternatively, the Plan Administrator may condition such acceleration upon the termination of the optionee's service through an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of the Change in Control, so that each such option will, immediately upon such termination, become exercisable for all the shares of Common Stock at the time subject to that option and may be exercised for any or all of those shares as fully vested shares. Any option accelerated in connection with such an Involuntary Termination will remain exercisable for fully vested shares until the earlier of (i) the expiration of the option term or (ii) the expiration of the one-year period measured from the date of the Involuntary Termination. You should review your Option Agreement to determine whether the option you hold will accelerate upon a Change in Control or upon your Involuntary Termination following the Change in Control. A CHANGE IN CONTROL will be deemed to occur in the event (i) any person (or related group of persons) directly or indirectly acquires beneficial ownership of securities possessing more than 50% of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's shareholders which the Board does not recommend such shareholders to accept or (ii) there is a change in the composition of the Board over a period of 24 consecutive months or less such that a majority of the Board ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. DISPOSITION OF OPTION SHARES 25. WHEN CAN I SELL MY SHARES? 6. 23 You may sell your shares of Common Stock at any time. MISCELLANEOUS 26. DO I HAVE THE RIGHT TO REMAIN IN THE CORPORATION'S SERVICE UNTIL MY OPTIONS UNDER THE PLAN BECOME EXERCISABLE? No. Nothing in the Plan or in any option grant under the Plan is intended to provide any person with the right to remain in the Corporation's service for any specific period, and both you and the Corporation will each have the right to terminate your service at any time and for any reason, with or without cause. 27. ARE THERE ANY CIRCUMSTANCES WHICH WOULD CAUSE ME TO LOSE MY RIGHTS WITH RESPECT TO AN OPTION? Yes. The grant of options under the Plan and the issuance of Common Stock under those options are subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan and the securities issuable thereunder. It is possible that the Corporation could be prevented from granting options or from issuing shares of Common Stock under the Plan in the event one or more required approvals or permits were not obtained. 28. DOES THE PLAN RESTRICT THE AUTHORITY OF THE CORPORATION TO GRANT OR ASSUME OPTIONS OUTSIDE OF THE PLAN? No. The Plan does not limit the authority of the Corporation to grant options outside of the Plan or to grant options to, or assume the options of, any person in connection with the acquisition of the business and assets of any firm, corporation or other business entity. 7. 24 29. DOES THE GRANT OF AN OPTION UNDER THE PLAN AFFECT MY ELIGIBILITY TO PARTICIPATE IN OTHER PLANS OF THE CORPORATION? No. Option grants made under the Plan do not in any way affect, limit or restrict your eligibility to participate in any other stock plan or other compensation or benefit plan or program maintained by the Corporation. 30. WHAT IS A PARENT CORPORATION? A corporation is a parent corporation if such corporation owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of the Corporation's outstanding securities. 31. WHAT IS A SUBSIDIARY CORPORATION? A corporation is a subsidiary corporation if the Corporation owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of the outstanding securities of that corporation. 32. IS THE PLAN SUBJECT TO ERISA? The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) or Section 401(a) of the Code. QUESTIONS AND ANSWERS ON FEDERAL TAX CONSEQUENCES The following is a general description of the Federal income tax consequences of option grants under the Plan. State and local tax treatment, which is not discussed below, may vary from such Federal income tax treatment. You should consult with your own tax advisor as to the tax consequences of your particular transactions under the Plan. NON-STATUTORY OPTIONS T1. WILL THE GRANT OF A NON-STATUTORY OPTION RESULT IN FEDERAL INCOME TAX LIABILITY TO ME? No. T2. WILL THE EXERCISE OF A NON-STATUTORY OPTION RESULT IN FEDERAL INCOME TAX LIABILITY TO ME? You will recognize ordinary income in the year in which the Non-Statutory Option is exercised in an amount equal to the excess of (i) the fair market value of the purchased shares on the exercise date over (ii) the exercise price paid for those shares. This income will be reported by the Corporation on your W-2 wage statement for the year of exercise (or on a Form 1099 if you are not an employee), and you will be required to satisfy the tax withholding requirements applicable to this income. 8. 25 T3. WILL I RECOGNIZE ADDITIONAL INCOME WHEN I SELL SHARES ACQUIRED UNDER A NON-STATUTORY OPTION? Yes. You will recognize a capital gain to the extent the amount realized upon the sale of such shares exceeds their fair market value at the time you recognized the ordinary income with respect to their acquisition. A capital loss will result to the extent the amount realized upon the sale is less than such fair market value. The gain or loss will be long-term if the shares are held for more than one year prior to the disposition. (Please see Question T6 below for the tax rates applicable to capital gain.) The holding period normally starts at the time the Non-Statutory Option is exercised. T4. WHAT ARE THE CONSEQUENCES OF PAYING THE EXERCISE PRICE OF A NON-STATUTORY OPTION IN THE FORM OF SHARES OF COMMON STOCK PREVIOUSLY ACQUIRED UPON THE EXERCISE OF EMPLOYEE OPTIONS OR THROUGH OPEN-MARKET PURCHASES? You will not recognize any taxable income to the extent the shares of Common Stock received upon the exercise of the Non-Statutory Option equal in number the shares of Common Stock delivered in payment of the exercise price. For Federal income tax purposes, these newly-acquired shares will have the same basis and capital gain holding period as the delivered shares. The additional shares of Common Stock received upon the exercise of the Non-Statutory Option will have to be reported as ordinary income for the year of exercise in an amount equal to their fair market value on the exercise date. These additional shares will have a tax basis equal to such fair market value and a capital gain holding period measured (in general) from the exercise date. T5. WHAT ARE THE FEDERAL TAX CONSEQUENCES TO THE CORPORATION? The Corporation will be entitled to an income tax deduction equal to the amount of ordinary income you recognize in connection with the exercise of the Non-Statutory Option. The deduction will, in general, be allowed for the taxable year of the Corporation in which you recognize such ordinary income. FEDERAL TAX RATES T6. WHAT ARE THE APPLICABLE FEDERAL TAX RATES? Effective for the 1997 calendar year, the maximum federal tax rate on ordinary income in excess of $271,050 ($135,525 for a married taxpayer filing a separate return) is 39.6%. The applicable $271,050 or $135,525 threshold is subject to cost-of-living adjustments in taxable years beginning after December 31, 1997. Certain limitations are imposed upon a taxpayer's itemized deductions, and the personal exemptions claimed by the taxpayer are subject to phase-out. These limitations may result in the taxation of ordinary income at an effective top marginal rate in excess of 39.6%. Short-term capital gains are subject to the same tax rates as ordinary income. The following table summarizes the long-term capital gains tax rates applicable to the sale or disposition of capital assets after July 28, 1997:
Holding Period Capital Gains Tax Rate -------------- ---------------------- More than 1 year but not more than 18 months 28% (15% for individuals not subject to the 28% tax rate on their ordinary income) More than 18 months 20% (10% for individuals not subject to the 28% tax rate on their ordinary income)
9. 26 Beginning in 2001, capital gain recognized on the sale or disposition of capital assets held for more than five (5) years by individuals not subject to the 28% tax rate on their ordinary income will be subject to tax at a rate of 8%. Beginning in 2006, capital gain recognized on the sale or disposition of capital assets held for more than five (5) years by individuals subject to the 28% tax rate on their ordinary income will be taxed at a rate of 18%, provided the holding period for such property begins after December 31, 2000. However, any capital gain recognized on the sale or disposition of shares of stock acquired pursuant to the exercise of an employee stock option under the Plan will NOT be eligible for the 18% tax rate unless the option is granted after December 31, 2000. For the tax year ending December 31, 1997, itemized deductions are reduced by 3% of the amount by which the taxpayer's adjusted gross income for the year exceeds $121,200 ($60,600 for a married taxpayer filing a separate return). However, the reduction may not, exceed 80% of the total itemized deductions (excluding medical expenses, casualty and theft losses, and certain investment interest expense) claimed by the taxpayer. The applicable $121,200 or $60,600 threshold is subject to cost-of-living adjustments in taxable years beginning after December 31, 1997. In addition, the deduction for personal exemptions claimed by the taxpayer is reduced by 2% for each $2,500 ($1,250 for a married taxpayer filing a separate return) or fraction thereof by which the taxpayer's adjusted gross income for the year exceeds a specified threshold amount. The applicable thresholds for 1997 are $181,800 for married taxpayers filing joint returns (and in certain instances, surviving spouses), $151,500 for heads of households, $121,200 for single taxpayers and $90,900 for married taxpayers filing separate returns. Accordingly, the deduction is completely eliminated for any taxpayer whose adjusted gross income for the year exceeds the applicable threshold amount by more than $122,500. The threshold amounts will be subject to cost-of-living adjustments in taxable years beginning after December 31, 1997. CORPORATE INFORMATION AND ANNUAL PLAN INFORMATION DepoTech Corporation is a California corporation which maintains its principal executive offices at 10450 Science Center Drive, San Diego, California 92121. The telephone number at the executive offices is (619) 625-2424. You may contact the Corporation at this address or telephone number for further information concerning the Plan and its administration. A copy of the Corporation's Annual Report to Shareholders for the most recent fiscal year will be furnished to each participant in the Plan, and additional copies will be furnished without charge to each participant upon written or oral request to the Corporate Secretary of the Corporation at its principal executive offices or upon telephoning the Corporation at its principal executive offices. In addition, any person receiving a copy of this Prospectus may obtain without charge, upon written or oral request to the Corporate Secretary, a copy of any of the documents listed below, which are hereby incorporated by reference into this Prospectus, other than certain exhibits to such documents: (a) The Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 filed with the SEC on March 31, 1997; (b) The Corporation's Quarterly Report on Form 10-Q for the fiscal quarters ended March 31, 1997, June 30, 1997 and September 30, 1997, filed with the SEC on May 14, 1997, August 14, 1997 and November 14, 1997, respectively; and (c) The Corporation's Registration Statement No. 0-26862 on Form 8-A filed with the SEC on September 26, 1995 pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, 10. 27 in which there is described the terms, rights and provisions applicable to the Corporation's outstanding Common Stock. The Corporation will also deliver to each participant in the Plan who does not otherwise receive such materials a copy of all reports, proxy statements and other communications distributed to the Corporation's shareholders. 11. EX-99.3 6 EXHIBIT 99.3 1 EXHIBIT 99.3 DEPOTECH CORPORATION STOCK OPTION AGREEMENT RECITALS A. The Board has adopted the Plan for the purpose of providing additional incentive to selected Employees, consultants and other independent advisors to continue in the Service of the Corporation (or any Parent or Subsidiary). B. Optionee is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of the Plan in connection with the Corporation's grant of an option to Optionee. C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix. NOW, THEREFORE, it is hereby agreed as follows: 1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term specified in Paragraph 2 at the Exercise Price. 2. OPTION TERM. This option shall have a term of ten (10) years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6. 3. LIMITED TRANSFERABILITY. This option shall be neither transferable nor assignable by Optionee other than by will or by the laws of descent and distribution following Optionee's death and may be exercised, during the Optionee's lifetime, only by the Optionee. 4. DATES OF EXERCISE. This option shall become exercisable for the Option Shares in one or more installments as specified in the Grant Notice. As the option becomes exercisable for such installments, those installments shall accumulate, and the option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5 or 6. 5. CESSATION OF SERVICE. The option term specified in Paragraph 2 shall terminate (and this option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable: (a) Should Optionee cease to remain in Service for any reason (other than death, Permanent Disability or Misconduct) while this option is outstanding, then Optionee shall have a thirty (30)-day period (commencing with the date of such cessation 2 of Service) during which to exercise this option, but in no event shall this option be exercisable at any time after the Expiration Date. (b) Should Optionee die while this option is outstanding, then the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of inheritance shall have the right to exercise this option. Such right shall lapse, and this option shall cease to be outstanding, upon the earlier of (A) the expiration of the twelve (12)- month period measured from the date of Optionee's death or (B) the Expiration Date. (c) Should Optionee cease Service by reason of Permanent Disability while this option is outstanding, then Optionee shall have a period of six (6) months (commencing with the date of such cessation of Service) during which to exercise this option. In no event shall this option be exercisable at any time after the Expiration Date. (d) During the limited period of post-Service exercisability, this option may not be exercised in the aggregate for more than the number of Option Shares for which the option is exercisable at the time of Optionee's cessation of Service. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any otherwise exercisable Option Shares for which the option has not been exercised. To the extent this option is not exercisable for one or more Option Shares at the time of Optionee's cessation of Service, this option shall immediately terminate and cease to be outstanding with respect to those shares. (e) Should Optionee's Service be terminated for Misconduct, then this option shall terminate immediately and cease to remain outstanding. 6. SPECIAL ACCELERATION OF OPTION. (a) In the event of a Corporate Transaction, this option, to the extent outstanding at such time but not otherwise fully exercisable, shall automatically accelerate so that this option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all of the Option Shares at the time subject to this option and may be exercised for any or all of those Option Shares as fully-vested shares of Common Stock. However, this option shall not become exercisable on such an accelerated basis if and to the extent: (i) this option is, in connection with the Corporate Transaction, to be assumed by the successor corporation (or parent thereof) or (ii) this option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Corporate 2. 3 Transaction on the Option Shares for which this option is not otherwise at that time exercisable (the excess of the Fair Market Value of such Option Shares over the aggregate Exercise Price payable for such shares) and provides for subsequent pay-out in accordance with the same exercise/vesting schedule in effect for those Option Shares pursuant to the option exercise schedule set forth in the Grant Notice. (b) Immediately following the Corporate Transaction, this option, to the extent not previously exercised, shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) in connection with the Corporate Transaction. (c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same. (d) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or class of securities subject to this option and (ii) the Exercise Price in order to reflect such change and thereby preclude any dilution or enlargement of benefits hereunder. 8. SHAREHOLDER RIGHTS. The holder of this option shall not have any shareholder rights with respect to the Option Shares until such person shall have exercised the option, paid the Exercise Price and become a holder of record of the purchased shares. 9. MANNER OF EXERCISING OPTION. (a) In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions: (i) Execute and deliver to the Corporation a Notice of Exercise for the Option Shares for which the option is exercised. 3. 4 (ii) Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms: (A) cash or check made payable to the Corporation; (B) a promissory note payable to the Corporation, but only to the extent authorized by the Plan Administrator in accordance with Paragraph 13; (C) shares of Common Stock held by Optionee (or any other person or persons exercising the option) for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or (D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons exercising the option) shall concurrently provide irrevocable instructions (I) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (II) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. Except to the extent the sale and remittance procedure is utilized in connection with the option exercise, payment of the Exercise Price must accompany the Notice of Exercise delivered to the Corporation in connection with the option exercise. (iii) Furnish to the Corporation appropriate documentation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option. (iv) Make appropriate arrangements with the Corporation (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state and local income and employment tax withholding requirements applicable to the option exercise. 4. 5 (b) As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or any other person or persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto. (c) In no event may this option be exercised for any fractional shares. 10. COMPLIANCE WITH LAWS AND REGULATIONS. (a) The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such exercise and issuance. (b) The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Corporation, however, shall use its best efforts to obtain all such approvals. 11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee's assigns and the legal representatives, heirs and legatees of Optionee's estate. 12. NOTICES. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on the Grant Notice. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 13. FINANCING. The Plan Administrator may, in its absolute discretion and without any obligation to do so, permit Optionee to pay the Exercise Price for the purchased Option Shares by delivering a promissory note. The terms of any such promissory note (including the interest rate, the requirements for collateral and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. 5. 6 14. CONSTRUCTION. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option. 15. GOVERNING LAW. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules. 6. 7 EXHIBIT I NOTICE OF EXERCISE I hereby notify DepoTech Corporation (the "Corporation") that I elect to purchase _________ shares of the Corporation's Common Stock (the "Purchased Shares") at the option exercise price of $__________ per share (the "Exercise Price") pursuant to that certain option (the "Option") granted to me under the Corporation's 1997 Supplemental Stock Option Plan on __________________, 199__. Concurrently with the delivery of this Exercise Notice to the Corporation, I shall hereby pay to the Corporation the Exercise Price for the Purchased Shares in accordance with the provisions of my agreement with the Corporation (or other documents) evidencing the Option and shall deliver whatever additional documents may be required by such agreement as a condition for exercise. Alternatively, I may utilize the special broker-dealer sale and remittance procedure specified in my agreement to effect payment of the Exercise Price. ____________________, 199__ Date _________________________________________ Optionee Address:_________________________________ _________________________________________ Print name in exact manner it is to appear on the stock certificate: _________________________________________ Address to which certificate is to be sent, if different from address above: _________________________________________ _________________________________________ Social Security Number: _________________________________________ Employee Number: _________________________________________ 7. 8 APPENDIX The following definitions shall be in effect under the Agreement: A. AGREEMENT shall mean this Supplemental Stock Option Agreement. B. BOARD shall mean the Corporation's Board of Directors. C. CODE shall mean the Internal Revenue Code of 1986, as amended. D. COMMON STOCK shall mean the Corporation's common stock. E. CORPORATE TRANSACTION shall mean either of the following shareholder-approved transactions to which the Corporation is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. F. CORPORATION shall mean DepoTech Corporation, a California corporation. G. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. H. EXERCISE DATE shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the Agreement. I. EXERCISE PRICE shall mean the exercise price per share as specified in the Grant Notice. J. EXPIRATION DATE shall mean the date on which the option expires as specified in the Grant Notice. K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall determined in accordance with the following provisions: A-1. 9 - If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. - If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. L. GRANT DATE shall mean the date of grant of the option as specified in the Grant Notice. M. GRANT NOTICE shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby. N. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by Optionee adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of Optionee or other person in the Service of the Corporation (or any Parent or Subsidiary). O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422. P. NOTICE OF EXERCISE shall mean the notice of exercise in the form attached hereto as Exhibit I. Q. OPTION SHARES shall mean the number of shares of Common Stock subject to the option as specified in the Grant Notice. R. OPTIONEE shall mean the person to whom the option is granted as specified in the Grant Notice. A-2. 10 S. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. T. PERMANENT DISABILITY shall mean the inability of Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which is expected to result in death or has lasted or can be expected to last for a continuous period of twelve (12) months or more. U. PLAN shall mean the Corporation's 1997 Supplemental Stock Option Plan. V. PLAN ADMINISTRATOR shall mean either the Board or a committee of the Board acting in its administrative capacity under the Plan. W. SERVICE shall mean the Optionee's performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee or a consultant or independent advisor. X. STOCK EXCHANGE shall mean the American Stock Exchange or the New York Stock Exchange. Y. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A-3. -----END PRIVACY-ENHANCED MESSAGE-----