SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant |X| Filed by a party other than the Registrant |_| Check the appropriate box: |_| Preliminary proxy statement |_| Confidential, For use of the |X| Definitive proxy statement Commission only (as permitted |_| Definitive additional materials by Rule 14a-6(e)(2)) |_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 Titan Pharmaceuticals, Inc. (Name of Registrant as Specified in Its Charter) Titan Pharmaceuticals, Inc. (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of filing fee (Check the appropriate box): |X| No fee required. |_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:(1) - -------------------------------------------------------------------------------- (1) Set forth the amount on which the filing fee is calculated and state how it was determined. (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- |_| Fee paid previously with preliminary materials: |_| Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- ii TITAN PHARMACEUTICALS, INC. 400 Oyster Point Boulevard Suite 505 South San Francisco, California 94080 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To be held August 28, 2000 To the Shareholders of Titan Pharmaceuticals, Inc. Notice is hereby given that the Annual Meeting of the Shareholders of Titan Pharmaceuticals, Inc. (the "Company") will be held on August 28, 2000 at 9:00 a.m. local time at the offices of the Company, 400 Oyster Point Boulevard, Suite 505, South San Francisco, California 94080. The meeting is called for the following purpose: 1. To elect a board of eight directors; 2. To approve an amendment to the Company's 1998 Stock Option Plan to (i) increase the number of shares available thereunder from 1,000,000 to 2,500,000 and (ii) modify the provisions for automatic grants to directors. 3. To approve the appointment of Ernst & Young LLP as the independent auditors of the Company; and 4. To consider and take action upon such other matters as may properly come before the meeting or any adjournment or adjournments thereof. The close of business on July 14, 2000 has been fixed as the record date for the determination of shareholders entitled to notice of, and to vote at, the meeting. The stock transfer books of the Company will not be closed. A list of the shareholders entitled to vote at the meeting may be examined at the Company's offices during the ten-day period preceding the meeting. All shareholders are cordially invited to attend the meeting. Whether or not you expect to attend, you are respectfully requested by the Board of Directors to sign, date and return the enclosed proxy promptly. Shareholders who execute proxies retain the right to revoke them at any time prior to the voting thereof. A return envelope which requires no postage if mailed in the United States is enclosed for your convenience. By Order of the Board of Directors, Louis R. Bucalo, M.D. Chairman, President and Chief Executive Officer Dated: July 31, 2000 TITAN PHARMACEUTICALS, INC. 400 Oyster Point Boulevard Suite 505 South San Francisco, California 94080 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Titan Pharmaceuticals, Inc. (the "Company") for the Annual Meeting of Shareholders to be held at the offices of the Company, 400 Oyster Point Boulevard, Suite 505, South San Francisco, California 94080 on August 28, 2000, at 9:00 a.m. and for any adjournment or adjournments thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. Any shareholder giving such a proxy has the power to revoke it at any time before it is voted. Written notice of such revocation should be forwarded directly to the Secretary of the Company, at the above stated address. If the enclosed proxy is properly executed and returned, the shares represented thereby will be voted in accordance with the directions thereon and otherwise in accordance with the judgment of the persons designated as proxies. Any proxy on which no direction is specified will be voted in favor of the actions described in this Proxy Statement and for the election of the nominees set forth under the caption "Election of Directors." The approximate date on which this Proxy Statement and the accompanying form of proxy will first be mailed or given to the Company's shareholders is July 31, 2000. Your vote is important. Accordingly, you are urged to sign and return the accompanying proxy card whether or not you plan to attend the meeting. If you do attend, you may vote by ballot at the meeting, thereby canceling any proxy previously given. VOTING SECURITIES Only holders of shares of Common Stock, $.001 par value per share (the "Shares") of record at the close of business on July 14, 2000 are entitled to vote at the meeting. On the record date, the Company had outstanding and entitled to vote 25,835,136 Shares. For purposes of voting at the meeting, each Share is entitled to one vote upon all matters to be acted upon at the meeting. A majority in interest of the outstanding Shares represented at the meeting in person or by proxy shall constitute a quorum. The affirmative vote of a plurality of the Shares so represented is necessary to elect the nominees for election as directors and the affirmative vote of a majority of the Shares so represented, excluding broker non-votes, is necessary to approve and ratify the amendment to the 1998 Stock Option Plan and the appointment of Ernst & Young LLP, independent certified public accountants as the independent auditors of the Company. Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business. If a shareholder, present in person or by proxy, abstains on any matter, the shareholder's shares will not be voted on such matter. Thus, an abstention from voting on any matter has the same legal effect as a vote "against" the matter even though the shareholder may interpret such action differently. Except for determining the presence or absence of a quorum for the transaction of business, broker non-votes are not counted for any purpose in determining whether a matter has been approved. PRINCIPAL SHAREHOLDERS The following table sets forth, as of July 14, 2000, certain information concerning the beneficial ownership of the Shares by (i) each shareholder known by the Company to own beneficially five percent or more of the outstanding Shares; (ii) each director and each nominee for director of the Company; (iii) each executive officer of the Company; and (iv) all executive officers and directors of the Company as a group, and their percentage ownership and voting power. - -------------------------------------------------------------------------------- Percent of Shares Shares Beneficially Beneficially Name and Address of Beneficial Owner (1) Owned (2) Owned - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Louis R. Bucalo, M.D........................ 1,226,905(3) 4.7% - -------------------------------------------------------------------------------- Ernst-Gunter Afting, M.D., Ph.D............. 29,000(4) * - -------------------------------------------------------------------------------- Richard C. Allen, Ph.D...................... 367,684(5) 1.4% - -------------------------------------------------------------------------------- Victor J. Bauer, Ph.D....................... 73,894(6) * - -------------------------------------------------------------------------------- Sunil Bhonsle............................... 512,368(7) 2.0% - -------------------------------------------------------------------------------- Eurelio M. Cavalier......................... 12,500(4) * - -------------------------------------------------------------------------------- Robert E. Farrell........................... 246,700(8) * - -------------------------------------------------------------------------------- Michael K. Hsu.............................. 52,167(9) * - -------------------------------------------------------------------------------- Hubert Huckel, M.D.......................... 141,500(10) * - -------------------------------------------------------------------------------- Ley S. Smith................................ -- * - -------------------------------------------------------------------------------- Jan Wallace, M.D............................ -- * - -------------------------------------------------------------------------------- Konrad M. Weis, Ph.D........................ 103,401(11) * - -------------------------------------------------------------------------------- Lindsay A. Rosenwald, M.D. 787 Seventh Avenue, 48th Floor New York, NY 10019 1,527,255(12) 5.9% - -------------------------------------------------------------------------------- All executive officers and directors as a 2,771,119 10.7% group (12) persons........................ - -------------------------------------------------------------------------------- - --------------------------- *Less than one percent. (1) Unless otherwise indicated, the address of such individual is c/o Titan Pharmaceuticals, Inc., 400 Oyster Point Boulevard, Suite 505, South San Francisco, California 94080. (2) In computing the number of shares beneficially owned by a person and the percentage ownership of a person, shares of common stock of the Company subject to options held by that person that are currently exercisable or exercisable within 60 days are deemed outstanding. Such shares, however, are not deemed outstanding for purposes of computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock. (3) Includes 926,674 shares issuable upon exercise of outstanding options. (4) Represents shares issuable upon exercise of outstanding options. (5) Includes 362,684 shares issuable upon exercise of outstanding options. (6) Includes 68,894 shares issuable upon exercise of outstanding options. (7) Includes 495,368 shares issuable upon exercise of outstanding options. 2 (8) Includes 170,614 shares issuable upon exercise of outstanding options. (9) Includes 37,166 shares issuable upon exercise of outstanding options. (10) Includes (i) 5,000 shares issuable upon exercise of outstanding options and (ii) 100,000 shares held by a family partnership for which Dr. Huckel serves as general partner. (11) Includes 36,617 shares issuable upon exercise of warrants and outstanding options. (12) Includes (i) 45,042 shares held by each of June Street Corporation and Huntington Street Corporation, companies wholly-owned by Dr. Rosenwald; (ii) 580,853 shares held by a fund for which a wholly-owned company of Dr. Rosenwald's serves as investment manager; (iii) an aggregate of 296,377 shares held by two funds for which the same wholly-owned company serves as general partner; and (iv) 17,961 shares issuable upon exercise of warrants. Does not include shares owned by Dr. Rosenwald's wife and his children's trusts, as to which he disclaims beneficial ownership. The foregoing information is derived from a Schedule 13G/A filed on behalf of Dr. Rosenwald on February 14, 2000. EXECUTIVE OFFICERS The following sets forth the names and ages of our executive officers, their respective positions and offices, and their respective principal occupations or employments during the last five years. Name Age Office - ---- --- ------ Louis R. Bucalo, M.D........... 41 Chairman, President and Chief Executive Officer Sunil Bhonsle.................. 50 Executive Vice President and Chief Operating Officer Richard C. Allen, Ph.D......... 57 Executive Vice President, Cell Therapy Robert E. Farrell.............. 50 Executive Vice President and Chief Financial Officer Jan Wallace, M.D............... 59 Executive Vice President, Clinical Development and Regulatory Affairs Louis R. Bucalo, M.D. is a founder of Titan and has served as our President and Chief Executive Officer since January 1993. Dr. Bucalo has served as a director of Titan since March 1993 and was elected Chairman of the Board of Directors in January 2000. From July 1990 to April 1992, Dr. Bucalo was Associate Director of Clinical Research at Genentech, Inc., a biotechnology company. Dr. Bucalo holds an M.D. from Stanford University and a B.A. in biochemistry from Harvard University. Sunil Bhonsle joined Titan as Executive Vice President and Chief Operating Officer in September 1995. Mr. Bhonsle served in various positions, including Vice President and General Manager-Plasma Supply and Manager-Inventory and Technical Planning, at Bayer Corporation from July 1975 until April 1995. Mr. Bhonsle holds an M.B.A. from the University of California at Berkeley and a B.Tech. in chemical engineering from the Indian Institute of Technology. Richard C. Allen, Ph.D., joined Titan as Executive Vice President in August 1995. From January 1995 until it was merged into Titan in March 1999, he also served as President and Chief Executive Officer of Theracell. From June 1991 until December 1994, Dr. Allen was Vice President and General Manager of the Neuroscience Strategic Business Unit of Hoechst-Roussel Pharmaceuticals, Inc. Dr. Allen holds a Ph.D. in medicinal chemistry and a B.S. in pharmacy from the Medical College of Virginia. 3 Robert E. Farrell joined Titan as Executive Vice President and Chief Financial Officer in September 1996. Mr. Farrell was employed by Fresenius USA, Inc. from 1991 until August 1996 where he served in various capacities, including Vice President Administration, Chief Financial Officer and General Counsel. His last position was Corporate Group Vice President. Mr. Farrell holds a B.A. from University of Notre Dame and a J.D. from Hastings College of Law, University of California. Jan Wallace, M.D., joined us in March 2000. From March 1998 until joining Titan, Dr. Wallace served as Senior Vice President, Clinical and Regulatory Affairs, for Elan Pharmaceuticals. From May 1992 until March 1998, he served as Vice President, Clinical and Regulatory Affairs, of Athena Neurosciences, Inc. Prior thereto, Dr. Wallace spent approximately five years at Warren-Lambert/Parke Davis, employed in various executive positions. ELECTION OF DIRECTORS At the meeting, eight directors will be elected by the shareholders to serve until the next Annual Meeting of Shareholders or until their successors are elected and shall qualify. It is intended that the accompanying proxy will be voted for the election, as directors, of the eight persons named below, unless the proxy contains contrary instructions. The Company has no reason to believe that any of the nominees will not be a candidate or will be unable to serve. However, in the event that any of the nominees should become unable or unwilling to serve as a director, the persons named in the proxy have advised that they will vote for the election of such person or persons as shall be designated by the Management. The following sets forth the names and ages of the eight nominees for election to the Board of Directors, their respective principal occupations or employments during the past five years and the period during which each has served as a director of the Company. Name Age Director Since - ---- --- -------------- Louis R. Bucalo, M.D. (1) 41 March 1993 Victor Bauer, Ph.D. 64 November 1997 Ernst-Gunter Afting, M.D., Ph.D. (2)(3) 57 May 1996 Eurelio M. Cavalier(1) 67 September 1998 Michael K. Hsu (2) 51 March 1993 Hubert Huckel, M.D. (1)(2)(3) 68 October 1995 Konrad M. Weis, Ph.D. (1)(3) 71 March 1993 Ley S. Smith (1) 66 July 2000 - ----------------- (1) Member of Executive Committee (2) Member of Audit Committee (3) Member of Compensation Committee Louis R. Bucalo, M.D., see biographical information set forth above under "Executive Officers." Victor J. Bauer, Ph.D., joined us in February 1997, and currently serves as Executive Director of Corporate Development. From April 1996 until its merger into Titan, Dr. Bauer also served as a director and Chairman of Theracell. From December 1992 until February 1997, Dr. Bauer was a self-employed consultant to companies in the pharmaceutical and biotechnology industries. Prior to that time, Dr. Bauer was with Hoechst-Roussel Pharmaceuticals Inc., where he served as President from 1988 through 1992. Ernst-Gunter Afting, M.D., Ph.D., has served as the President of the GSF-National Center for Environment and Health, a government research center in Germany, since 1995. From 1984 until 1995, Dr. Afting was employed in various capacities by the Hoechst Group, serving as Divisional Head of the 4 Pharmaceuticals Division of the Hoechst Group from 1991 to 1993 and as President and Chief Executive Officer of Roussel Uclaf (a majority stockholder of Hoechst AG) in Paris from 1993 until 1995. Eurelio M. Cavalier was employed in various capacities by Eli Lilly & Co. from 1958 until his retirement in 1994, serving as Vice President Sales from 1976 to 1982 and Group Vice President U.S. Pharmaceutical Business Unit from 1982 to 1993. Mr. Cavalier currently serves on the Boards of Directors of DataChem, Inc., ProSolv, Inc. and St. Vincent Hospital. He serves on the Advisory Board of COR Therapeutics and Indiana Heart Institute. Michael K. Hsu is currently a General Partner of EndPoint Merchant Group, a merchant bank specializing in making investments into the healthcare and life science industries. Mr. Hsu has served as Director-Corporate Finance of National Securities Corp. from November 1995 through April 1998, and from November 1994 through October 1995 served with Coleman & Company Securities in the same capacity. Mr. Hsu previously held various executive positions with Steinberg and Lyman Health Care Company, Ventana Venture Growth Fund and Asian Pacific Venture Group (Thailand). Hubert Huckel, M.D., served in various positions with The Hoechst Group from 1964 until his retirement in December 1992. At the time of his retirement, Dr. Huckel was Chairman of the Board of Hoechst-Roussel Pharmaceuticals, Inc., Chairman and President of Hoechst-Roussel Agri-Vet Company and a member of the Executive Committee of Hoechst Celanese Corporation. He currently serves on the Board of Directors of Thermogenesis, Corp. and Gynetics, Inc. Konrad M. Weis, Ph.D., is the former President, Chief Executive Officer and Honorary Chairman of Bayer Corporation. Dr. Weis serves as a director of PNC Equity Management Company, Michael Baker Corporation, Visible Genetics, Inc. and Demegen, Inc. Ley S. Smith served in various positions with The Upjohn Company and Pharmacia & Upjohn from 1958 until his retirement in November 1997. From 1991 to 1993 he served as Vice Chairman of the Board of The Upjohn Company, and from 1993 to 1995 he was President and Chief Operating Officer of The Upjohn Company. At the time of his retirement, Mr. Smith was Executive Vice President of Pharmacia & Upjohn, and President of Pharmacia & Upjohn's U.S. Pharma Product Center. He currently serves on the Board of Directors of BioStar, Inc., MDS, Inc., Crescendo Pharmaceuticals, Illuminis and is a member of the Regional Board of National City Corp. Director Compensation During 1999, non-employee directors received annual options to purchase 10,000 shares of common stock vesting quarterly in lieu of cash compensation for the Board of Directors meetings, and were reimbursed for their expenses in attending such meetings. Directors are not precluded from serving the Company in any other capacity and receiving compensation therefor. In addition, directors are entitled to receive options ("Director Options") pursuant to our 1998 Stock Option Plan. See "Amendment to 1998 Stock Option Plan" for a description of the proposed changes to the terms of Director Options. In August 1999, each of our current directors received Director Options to purchase 5,000 shares of common stock at an exercise price of $9.063 per share. We are a party to a consulting agreement with Dr. Afting pursuant to which he receives fees of $7,000 annually. The Company is party to a consulting agreement with Dr. Jaffe, a director of Titan who is not standing for reelection this year, pursuant to which he receives fees of $35,000 annually. 5 Board Committees and Designated Directors The Board of Directors has an Executive Committee, a Compensation Committee and an Audit Committee. The Executive Committee exercises all the power and authority of the Board of Directors in the management of Titan between Board meetings, to the extent permitted by law. The Compensation Committee makes recommendations to the Board concerning salaries and incentive compensation for our officers and employees and administers our stock option plans. The Audit Committee assists the Board in overseeing Titan's financial and accounting operations by reviewing (i) its system of internal controls and its financial reporting process, (ii) the results and scope of the audit, (iii) its processes for monitoring compliance with laws and regulations, and (iv) the Company's business practices. The Board of Directors met four times during 1999 and also took action by unanimous written consent. The Executive Committee met one time and also took action by unanimous written consent, and the Compensation Committee and Audit Committee each met one time. Each of our current directors attended at least 75% of the aggregate of (i) the meetings of the Board of Directors and (ii) meetings of any Committees of the Board on which such person served which were held during the time such person served. EXECUTIVE COMPENSATION The following summary compensation table sets forth the aggregate compensation awarded to, earned by, or paid to the Chief Executive Officer and to executive officers whose annual compensation exceeded $100,000 for the fiscal year ended December 31, 1999 (collectively, the "named executive officers") for services during the fiscal years ended December 31, 1999, 1998 and 1997: Summary Compensation Table - -------------------------------------------------------------------------------- Name and Principal Position Year Salary Bonus - -------------------------------------------------------------------------------- Annual Compensation - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Louis R. Bucalo, M.D. 1999 $222,013 $0 1998 $243,100 $0 President and Chief Executive Officer 1997 $231,525 $58,721(1) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Sunil Bhonsle 1999 $180,100 $0 Executive Vice President and 1998 $194,800 $0 Chief Operating Officer 1997 $190,991 $68,370(1) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1999 $180,475 $0 Richard C. Allen, Ph.D. 1998 $197,800 $0 Executive Vice President (2) 1997 $193,984 $77,096(1) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Robert E. Farrell 1999 $173,425 $0 Executive Vice President and 1998 $190,400 $0 Chief Financial Officer 1997 $186,665 $18,500 - -------------------------------------------------------------------------------- - ----------- (1) A portion of the bonus paid in 1997 pertains to fiscal 1995. (2) Dr. Allen also served as President and Chief Executive Officer of Theracell until Theracell merged with and into Titan in March 1999, and President and Chief Operating Officer of ProNeura during these periods. Until March 1999, Dr. Allen received his entire salary from Theracell. Dr. Allen's bonus in 1997 included $20,000 paid by Titan. 6 Option Grants in Last Fiscal Year The following table contains information concerning the stock option grants made to the named executive officers during the fiscal year ended December 31, 1999. No stock appreciation rights were granted to these individuals during such year.
- ------------------------------------------------------------------------------------------------ % of Total Number of Options Potential Realizable Securities Granted to Exercise Value at Assumed Underlying Employees of Base Annual Rate of Stock Options in Fiscal Price Expiration Price Appreciation Name Granted Year ($/Sh) (1) Date for Option Terms - ------------------------------------------------------------------------------------------------ Individual Grant 5% 10% - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Louis R. Bucalo 75,100 4.70% $3.625 01/04/2009 $163,002 $413,078 - ------------------------------------------------------------------------------------------------ Louis R. Bucalo 28,000 1.75% $3.688 02/04/2009 $64,942 $164,576 - ------------------------------------------------------------------------------------------------ Louis R. Bucalo(2) 27,531 1.72% $0.080 03/10/2009 $180,003 $287,930 - ------------------------------------------------------------------------------------------------ Louis R. Bucalo 5,000 0.31% $9.063 08/30/2009 $28,498 $72,220 - ------------------------------------------------------------------------------------------------ Louis R. Bucalo 400,000 25.05% $12.750 11/24/2009 $3,207,363 $8,128,087 - ------------------------------------------------------------------------------------------------ Sunil Bhonsle 55,600 3.48% $3.625 01/04/2009 $126,754 $321,219 - ------------------------------------------------------------------------------------------------ Sunil Bhonsle 21,000 1.32% $3.688 02/04/2009 $48,707 $123,432 - ------------------------------------------------------------------------------------------------ Sunil Bhonsle 184,000 11.52% $12.750 11/24/2009 $1,475,387 $3,738,920 - ------------------------------------------------------------------------------------------------ Richard C. Allen 41,200 2.58% $3.625 01/04/2009 $93,925 $238,025 - ------------------------------------------------------------------------------------------------ Richard C. Allen 21,000 1.32% $3.688 02/04/2009 $48,707 $123,432 - ------------------------------------------------------------------------------------------------ Richard C. Allen (2) 100,617 6.30% $0.08 03/10/2009 $657,854 $1,052,290 - ------------------------------------------------------------------------------------------------ Richard C. Allen 132,000 8.27% $12.750 11/24/2009 $1,058,430 $2,682,269 - ------------------------------------------------------------------------------------------------ Robert E. Farrell 26,300 1.65% $3.625 01/04/2009 $59,957 $151,943 - ------------------------------------------------------------------------------------------------ Robert E. Farrell 21,000 1.32% $3.688 02/04/2009 $48,707 $123,432 - ------------------------------------------------------------------------------------------------ Robert E. Farrell 66,000 4.13% $12.750 11/24/2009 $529,215 $1,341,134 - ------------------------------------------------------------------------------------------------
- ---------------- (1) The exercise price may be paid in cash, in shares of common stock valued at the fair market value on the exercise date or through a cashless exercise procedure involving a same-day sale of the purchase shares. We may also finance the option exercise by loaning the optionee sufficient funds to pay the exercise price for the purchased shares, together with any federal and state income tax liability incurred by the optionee in connection with such exercise. (2) Represents substitute options issued in connection with the merger of Theracell into Titan. Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table sets forth information concerning option exercises and option holdings for the fiscal year ended December 31, 1999 with respect to the named executive officers. No stock appreciation rights were exercised during such year or were outstanding at the end of that year. 7
- ------------------------------------------------------------------------------------------------------------------------------------ Shares Acquired on Name Exercise Exercisable Unexercisable Exercisable Unexercisable - ------------------------------------------------------------------------------------------------------------------------------------ Number of Securities Value of Unexercised Underlying Unexercised in-the-Money Options at Options at FY-End FY-End (1) - ------------------------------------------------------------------------------------------------------------------------------------ Louis R. Bucalo -0- 754,130 473,044(2) $9,937,731 $3,439,758(2) - ------------------------------------------------------------------------------------------------------------------------------------ Sunil Bhonsle -0- 403,678 231,621(2) $5,590,912 $1,863,912(2) - ------------------------------------------------------------------------------------------------------------------------------------ Richard C. Allen -0- 308,515 153,169(2) $4,868,737 $1,168,360(2) - ------------------------------------------------------------------------------------------------------------------------------------ Robert E. Farrell 21,000 170,966 94,234 $2,085,619 $ 768,650 - ------------------------------------------------------------------------------------------------------------------------------------
- --------------- (1) Based on the fair market value of our common stock at year-end, $19.000 per share, less the exercise price payable for such shares. (2) A portion of employee's options are immediately exercisable. Upon the employee's cessation of service, we have the right to repurchase any shares acquired pursuant to said grant. Our right to repurchase shares expires in equal monthly installments over the five year period commencing on the date of grant. Options to which our repurchase right has not expired are deemed unexercisable for purposes of this table. Employment Contracts, Termination of Employment and Change-in-Control Arrangements We are a party to an employment agreement with Dr. Bucalo expiring in February 2003 which provides for a base annual salary of $210,000, subject to annual increases of 5% and bonuses of up to 25% at the discretion of the Board of Directors. In the event of the termination of the agreement with Dr. Bucalo, other than for reasons specified therein, we are obligated to make severance payments equal to his base annual salary for the greater of the balance of the term of the agreement or 18 months. Employment agreements with each of Dr. Allen, Mr. Bhonsle and Mr. Farrell provide for a base annual salary of $185,000 subject to automatic annual increases based on increases in the consumer price index, and bonuses of up to 20% at the discretion of the Board of Directors. In the event the employee's employment is terminated other than for "good cause" (as defined), we are obligated to make severance payments equal to the base annual salary for six months. All of the agreements contain confidentiality provisions. In order to preserve our cash resources, we have determined, and the executives agreed, that the 1999 salaries of Drs. Bucalo and Allen and Messrs. Bhonsle and Farrell would be at $219,000, $178,000, $178,000 and $171,000, respectively. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers, directors and persons who beneficially own more than 10% of a registered class of the Company's equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Such executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms filed by such reporting persons. Based solely on the Company's review of such forms furnished to the Company and written representations from certain reporting persons, the Company believes that all filing requirements applicable to the Company's executive officers, directors and greater than 10% beneficial owners were complied with, except for Form 4s for Robert Farrell and Hubert Huckel reporting the exercise of options and a Form 3 for Jan Wallace which were filed up to two months late. 8 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The goal of the Company's executive compensation policy is to ensure that an appropriate relationship exists between executive compensation and the creation of shareholder value, while at the same time attracting, motivating and retaining executive officers. The Compensation Committee's informal executive compensation philosophy (which applies generally to all executive officers of the Company, including the President and Chief Executive Officer) considers a number of factors, which may include: o providing levels of compensation competitive with companies in comparable industries which are at a similar stage of development and in the Company's geographic area; o integrating the compensation of the executive officers of the Company with the achievement of performance goals; o rewarding above average corporate performance; and o recognizing and providing incentive for individual initiative and achievement. The executive officers receive base salaries pursuant to the terms of their employment agreements with the Company. See "Executive Compensation -- Employment Contracts, Termination of Employment and Change-in-Control Arrangements." However, during fiscal 1999, the executive officers agreed to a reduction in their base salaries in order to preserve the Company's cash position, with the understanding that their compensation for the year would be weighted toward bonus compensation contingent upon the Company achieving certain business and financial objectives. During fiscal 1999, the annual option grants to the Company's executive officers reflected the Company's recognition of the milestones the executive officers assisted the Company in achieving during the year. The Compensation Committee also endorses the position that equity ownership by the executive officers of the Company is beneficial in aligning their interests with those of the shareholders, especially in the enhancement of shareholder value by providing the executive officers with longer-term incentives. Bonus awards are determined based on a range of measures and internal targets set before the start of each fiscal year and in part by comparison to the compensation of executive officers of comparable biotechnology and pharmaceutical companies. The Compensation Committee considers the Company's performance under these measures and uses its subjective judgment and discretion in approving individual compensation. The Compensation Committee has implemented its policy on longer-term compensation to executive officers, including the chief executive officer, generally by granting to an executive officer upon joining the Company stock options with vesting over a period of 48 months commencing from the date of grant but requiring at least 12 months of employment for any option to vest. During fiscal 1997, the Compensation Committee made a determination to implement an annual option grant program to executive officers to be based upon the findings in the Radford Associates-Biotechnology Compensation Survey, 1997. During fiscal 1998, the first annual option grants based on the results of such survey were made. Hubert Huckel, M.D. Marvin Jaffe, M.D. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the year ended December 31, 1999, the members of the Company's Compensation Committee were Drs. Huckel, Widder and Jaffe. Dr. Jaffe received consulting fees from the Company of $35,000. See "Certain Transactions" and "Director Compensation." 9 STOCK PRICE PERFORMANCE PRESENTATION The following chart compares the cumulative total shareholder return on the Company's Shares with the cumulative total shareholder return of (i) the Amex Market Index and (ii) a peer group index consisting of companies reporting under the Standard Industrial Classification Code 2834 (Pharmaceutical Preparations): COMPARE CUMULATIVE TOTAL RETURN AMONG TITAN PHARMACEUTICALS, INC., AMEX MARKET INDEX AND SIC CODE INDEX [The following table was depicted as a line graph in the printed material.] 01/18/96 12/31/96 12/31/97 12/31/98 12/31/99 TITAN PHARMACEUTICALS, INC 100.00 129.41 88.24 59.80 298.04 PEER GROUP INDEX 100.00 115.16 167.33 237.34 213.53 AMEX MARKET INDEX 100.00 104.68 125.96 124.24 154.90 - ----------------- * Assumes $100 invested on January 18, 1996 and assumes dividends reinvested. Measurement points are at the last trading day of the fiscal years ended December 31, 1996, 1997, 1998 and 1999. The material in this chart is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended or the 1934 Act, whether made before or after the date of this proxy statement and irrespective of any general incorporation language in such filing. 10 CERTAIN TRANSACTIONS In June and July of 1997, Dr. Hubert Huckel, a director of Titan, received an aggregate of $155,000 in consulting fees for services rendered in connection with our consummation of the Zomaril (iloperidone) license. Dr. Huckel was paid pursuant to a consulting agreement which provided for the payment of fees based upon a percentage of the consideration paid by us upon completion of a licensing transaction with Dr. Huckel's assistance. The consulting agreement expired by its terms in January 1998. In January 1999, we completed a private placement of 2,254,545 shares of our common stock. Dr. Hubert Huckel and Mr. Michael Hsu, directors of Titan, participated in the offering by purchasing 100,000 and 5,272 shares, respectively. We believe that all of the transactions set forth above were made on terms no less favorable to us than could have been obtained from unaffiliated third parties. We have adopted a policy that all future transactions, including loans, between us and our officers, directors, principal stockholders and their affiliates must be approved by a majority of the Board of Directors, including a majority of the independent and disinterested outside directors on the Board of Directors. AMENDMENTS TO 1998 STOCK OPTION PLAN At the Annual Meeting, the shareholders are being asked to approve amendments to the Company's 1998 Stock Option Plan (the "1998 Plan") in order to (i) increase the number of shares reserved for issuance thereunder by 1,500,000 shares, from 1,000,000 shares to 2,500,000 shares of Common Stock and (ii) modify the provisions for automatic grants to directors. The 1998 Plan was adopted by the Board of Directors on July 10, 1998 and approved by the shareholders at the annual meeting on July 24, 1998. On April 28, 2000 and July 28, 2000, the Board of Directors adopted the proposed amendments to the 1998 Plan and recommends that the shareholders approve such amendments. The affirmative vote of persons holding at least a majority of the outstanding Shares is required for approval of the amendments to the 1998 Plan. Summary of the Plan Under the 1998 Plan, 1,000,000 Shares are authorized for issuance, employees, officers and directors of, and consultants or advisers to, the Company and any subsidiary corporations are eligible to receive incentive stock options ("incentive options") within the meaning of Section 422 of the Code and/or options that do not qualify as incentive options ("non-qualified options"). The 1998 Plan, which expires in June 2008, is administered by the Board of Directors or a committee of the Board of Directors. The purposes of the 1998 Plan are to ensure the retention of existing executive personnel, key employees, directors, consultants and advisors who are expected to contribute to the Company's future growth and success and to provide additional incentive by permitting such individuals to participate in the ownership of the Company, and the criteria to be utilized by the Board of Directors or the committee in granting options pursuant to the 1998 Plan, will be consistent with these purposes. The 1998 Plan provides for automatic grants of options to certain directors in the manner set forth below under "Directors' Options." Options granted under the 1998 Plan may be either incentive options or non-qualified options. Incentive options granted under the 1998 Plan are exercisable for a period of up to 10 years from the date of grant at an exercise price which is not less than the fair market value of the Shares on the date of the grant, except that the term of an incentive option granted under the 1998 Plan to a shareholder owning more than 10% of the outstanding voting power may not exceed five years and its exercise price may not be less than 110% of the fair market value of the shares on the date of grant. To the extent that the aggregate fair market value, as of the date of grant, of the Shares for which incentive options become 11 exercisable for the first time by an optionee during the calendar year exceeds $100,000, the portion of such option which is in excess of the $100,000 limitation will be treated as a nonqualified option. Options granted under the 1998 Plan to officers, directors or employees of the Company may be exercised only while the optionee is employed or retained by the Company or within 90 days of the date of termination of the employment relationship or directorship. However, options which are exercisable at the time of termination by reason of death or permanent disability of the optionee may be exercised within 12 months of the date of termination of the employment relationship or directorship. Upon the exercise of an option, payment may be made by cash, by surrender of Shares having a fair market value equal to the purchase price, by provisions for cashless exercise or by any other means that the Board of Directors or the committee determines. No options may be granted under the 1998 Plan after June 2008. Options may be granted only to such employees, officers and directors of, and consultants and advisors to, the Company or any subsidiary of the Company as the Board of Directors or the committee shall select from time to time in its sole discretion, provided that only employees of the Company or a subsidiary of the Company shall be eligible to receive incentive options. An optionee may be granted more than one option under the 1998 Plan. The Board of Directors or the committee will, in its discretion, determine (subject to the terms of the 1998 Plan) who will be granted options, the time or times at which options shall be granted, and the number of Shares subject to each option, whether the options are incentive options or nonqualified options, and the manner in which options may be exercised. In making such determination, consideration may be given to the value of the services rendered by the respective individuals, their present and potential contributions to the success of the Company and its subsidiaries and such other factors deemed relevant in accomplishing the purpose of the 1998 Plan. The 1998 Plan may be amended or terminated by the Board at any time. No amendment or termination may adversely affect any outstanding option without the written consent of the optionee. The 1998 Plan provides for the automatic grant of stock options to purchase Shares to directors of the Company who beneficially own less than 10% of the outstanding Shares ("Eligible Directors"). Eligible Directors of the Company are granted Director Options to purchase 10,000 shares of Common Stock on the date they are first elected or appointed a director (an "Initial Director Option"). Currently, commencing on the day immediately following the date of the annual meeting of shareholders, each Eligible Director, other than directors who received an Initial Director Option since the last annual meeting, are granted Director Options to purchase 5,000 shares of Common Stock ("Automatic Grant") on the day immediately following the date of each annual meeting of shareholders, as long as such director is a member of the Board of Directors. The exercise price for each Share subject to a Director Option shall be equal to the fair market value of the Common Stock on the date of grant. Director Options are exercisable in full one year following the date of grant and expire the earlier of 10 years after the date of grant or 90 days after the termination of the director's service on the Board of Directors. Proposed Amendments to the 1998 Plan In April 2000, the Board approved an increase in the number of Shares of Common Stock available for issuance under the 1998 Plan from 1,000,000 Shares to 2,500,000 Shares. The following table reflects, as of July 14, 2000, the number of Shares authorized for issuance under the 1998 Plan, the aggregate number of options granted prior to July 14, 2000, the number of options exercised, the number of Shares currently subject to outstanding options, and the number of Shares available for issuance in connection with the grant of future options to purchase Shares under the 1998 Plan. 12 - -------------------------------------------------------------------------------- Shares Options Shares Subject Available for Shares Granted (Net Options to Outstanding Grant of Authorized of Forfeitures) Exercised Options Future Options - -------------------------------------------------------------------------------- 1,000,000 1,064,550(1) 122,236 1,000,000 0 - -------------------------------------------------------------------------------- (1) Includes 64,550 shares underlying options granted to employees which are subject to approval by the shareholders of the amendments to the Plan. As of July 14, 2000, no Shares remained available for issuance under the 1998 Plan. 1,435,450 Shares would be available for future issuance upon the exercise of future option grants if shareholder approval of the proposed amendment is obtained. On July 14, 2000, the closing price of our Shares was $36.188 per share. The Board has also approved the following modifications to the terms of the Director Options: Rather than an annual grant of 5,000 Shares on the day following the annual meeting which vests in full one year from the date of grant, Eligible Directors will receive bi-annual grants of 15,000 Shares commencing on the date following the earlier of the (i) 2000 Annual Meeting of Shareholders or (ii) the first annual meeting of shareholders after their election to the Board. Such options will vest in 48 equal monthly installments commencing on the date of grant. In addition, Eligible Directors will receive annual grants of 5,000 Shares for each Committee on which they serve, which options will vest in 12 equal monthly installments. Lastly, Eligible Directors who have received an Initial Director Option during the same year in which a bi-annual grant is being made to the Board shall not be precluded from receiving such bi-annual grant. Other than the increase in the number of Director Options which they may be eligible for in their roles as directors, the proposed amendments will not result in new benefits accruing to the named executive officers. In addition, the number of Shares underlying options that could be granted to the named executive officers and other Company employees if this proposal is approved is indeterminable at this time. The remaining terms and conditions of the 1998 Plan remain unchanged by the proposed amendment. APPOINTMENT OF INDEPENDENT AUDITORS Our Management recommends the appointment of Ernst & Young LLP, independent certified public accountants, as our independent auditors. Ernst & Young LLP has been the Company's auditors for the past three fiscal years and has no direct or indirect financial interest in the Company. A representative of Ernst & Young LLP is expected to be present at the Annual Meeting of Shareholders with the opportunity to make a statement if he or she desires to do so, and shall be available to respond to appropriate questions. 13 GENERAL Our Management does not know of any matters other than those stated in this Proxy Statement which are to be presented for action at the meeting. If any other matters should properly come before the meeting, it is intended that proxies in the accompanying form will be voted on any such other matters in accordance with the judgment of the persons voting such proxies. Discretionary authority to vote on such matters is conferred by such proxies upon the persons voting them. We will bear the cost of preparing, printing, assembling and mailing the proxy, Proxy Statement and other material which may be sent to shareholders in connection with this solicitation. It is contemplated that brokerage houses will forward the proxy materials to beneficial owners at our request. In addition to the solicitation of proxies by use of the mails, officers and regular employees of we may solicit proxies without additional compensation, by telephone or telegraph. We do not expect to pay any compensation for the solicitation of proxies. We will provide without charge to each person being solicited by this Proxy Statement, on the written request of any such person, a copy of our Annual Report on Form 10-K for the year ended December 31, 1999 (as filed with the Securities and Exchange Commission) including the financial statements thereto. All such requests should be directed to Sunil Bhonsle, 400 Oyster Point Boulevard, Suite 505, South San Francisco, California 94080. SHAREHOLDER PROPOSALS The Annual Meeting of Shareholders for the fiscal year ending December 31, 2000 is expected to be held in July 2001. All proposals intended to be presented at our next Annual Meeting of Shareholders must be received at our executive office no later than April 25, 2001, for inclusion in the Proxy Statement and form of proxy related to that meeting. By Order of the Board of Directors, Louis R. Bucalo, M.D., Dated: July 31, 2000 Chairman, President and Chief Executive Officer 14 APPENDIX A TITAN PHARMACEUTICALS, INC. AMENDED 1998 STOCK OPTION PLAN 1. Purpose. The purpose of this plan (the "Plan") is to secure for Titan Pharmaceuticals, Inc. (the "Company") and its shareholders the benefits arising from capital stock ownership by employees, officers and directors of, and consultants or advisors to, the Company who are expected to contribute to the Company's future growth and success. Except where the context otherwise requires, the term "Company" shall include all present and future subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from time to time (the "Code"). Those provisions of the Plan which make express reference to Section 422 shall apply only to Incentive Stock Options (as that term is defined in the Plan). 2. Type of Options and Administration. (a) Types of Options. Options granted pursuant to the Plan shall be authorized by action of the Board of Directors of the Company (or a Committee designated by the Board of Directors) and may be either incentive stock options ("Incentive Stock Options") meeting the requirements of Section 422 of the Code or non-statutory options which are not intended to meet the requirements of Section 422 of the Code. (b) Administration. The Plan will be administered by a committee (the "Committee") appointed by the Board of Directors of the Company, whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive. The delegation of powers to the Committee shall be consistent with applicable laws or regulations (including, without limitation, applicable state law and Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3")). The Committee may in its sole discretion grant options to purchase shares of the Company's Common Stock, $.001 par value per share ("Common Stock") and issue shares upon exercise of such options as provided in the Plan. The Committee shall have authority, subject to the express provisions of the Plan, to construe the respective option agreements and the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the respective option agreements, which need not be identical, and to make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. No director or person acting pursuant to authority delegated by the Board of Directors shall be liable for any action or determination under the Plan made in good faith. (c) Applicability of Rule 16b-3. Those provisions of the Plan which make express reference to Rule 16b-3 shall apply to the Company only at such time as the Company's Common Stock is registered under the Exchange Act, subject to the last sentence of Section 3(b), and then only to such persons as are required to file reports under Section 16(a) of the Exchange Act (a "Reporting Person"). 3. Eligibility. (a) General. Options may be granted to persons who are, at the time of grant, employees, officers or directors of, or consultants or advisors to, the Company or any subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the Code ("Participants") provided, that Incentive Stock Options may only be granted to individuals who are employees of the Company (within the meaning of Section 3401(c) of the Code). A person who has been granted an option may, if he or she is otherwise eligible, be granted additional options if the Committee shall so determine. (b) Grant of Options to Reporting Persons. The selection of a director or an officer who is a Reporting Person (as the terms "director" and "officer" are defined for purposes of Rule 16b-3) as a recipient of an option, the timing of the option grant, the exercise price of the option and the number of shares subject to the option shall be determined either (i) by the Board of Directors, (ii) by a committee consisting of two or more directors having full authority to act in the matter, each of whom shall be an "Independent Director" as defined by Rule 1.62-27 of the Code or (iii) pursuant to provisions for automatic grants set forth in Section 3(c) below. (c) Directors' Options. Directors of the Company who are not stockholders of the Company owning in excess of 10% of the outstanding Common Stock of the Company ("Eligible Directors") will be granted a Director Option to purchase 10,000 shares of Common Stock on the date that such person is first elected or appointed a director ("Initial Director Option"). Commencing on the day immediately following the earlier of (i) the date of the annual meeting of stockholders for the Company's fiscal year ending December 31, 1999, or (ii) the first annual meeting of stockholders following their election to the Board, each Eligible Director will receive an automatic bi-annual grant ("Automatic Bi-Annual Grant") of a Director Option to purchase 15,000 shares of Common Stock. In addition, each Eligible Director will receive an automatic annual grant on the day immediately following the date of the annual meeting of stockholders for each committee of the Board on which they serve ("Committee Grant"). The exercise price for each share subject to a Director Option shall be equal to the fair market value of the Common Stock on the date of grant. Initial Director Options shall become exercisable in full twelve months from the date such options are granted and Automatic Bi-Annual Grants shall vest in 48 equal monthly installments commencing on the date of grant. Committee Grants shall vest in 12 equal monthly installments commencing on the date of grant. All Director Options will expire the earlier of 10 years after the date of grant or 90 days after the termination of the director's service on the Board. 4. Stock Subject to Plan. The stock subject to options granted under the Plan shall be shares of authorized but unissued or reacquired Common Stock. Subject to adjustment as provided in Section 15 below, the maximum number of shares of Common Stock of the Company which may be issued and sold under the Plan is 2,500,000 shares. If an option granted under the Plan shall expire, 2 terminate or is cancelled for any reason without having been exercised in full, the unpurchased shares subject to such option shall again be available for subsequent option grants under the Plan. 5. Forms of Option Agreements. As a condition to the grant of an option under the Plan, each recipient of an option shall execute an option agreement in such form not inconsistent with the Plan as may be approved by the Board of Directors. Such option agreements may differ among recipients. 6. Purchase Price. (a) General. The purchase price per share of stock deliverable upon the exercise of an option shall be determined by the Board of Directors at the time of grant of such option; provided, however, that in the case of an Incentive Stock Option, the exercise price shall not be less than 100% of the Fair Market Value (as hereinafter defined) of such stock, at the time of grant of such option, or less than 110% of such Fair Market Value in the case of options described in Section 11(b). "Fair Market Value" of a share of Common Stock of the Company as of a specified date for the purposes of the Plan shall mean the closing price of a share of the Common Stock on the principal securities exchange (including the Nasdaq National Market) on which such shares are traded on the day immediately preceding the date as of which Fair Market Value is being determined, or on the next preceding date on which such shares are traded if no shares were traded on such immediately preceding day, or if the shares are not traded on a securities exchange, Fair Market Value shall be deemed to be the average of the high bid and low asked prices of the shares in the over-the-counter market on the day immediately preceding the date as of which Fair Market Value is being determined or on the next preceding date on which such high bid and low asked prices were recorded. If the shares are not publicly traded, Fair Market Value of a share of Common Stock (including, in the case of any repurchase of shares, any distributions with respect thereto which would be repurchased with the shares) shall be determined in good faith by the Board of Directors. In no case shall Fair Market Value be determined with regard to restrictions other than restrictions which, by their terms, will never lapse. (b) Payment of Purchase Price. Options granted under the Plan may provide for the payment of the exercise price by delivery of cash or a check to the order of the Company in an amount equal to the exercise price of such options, by surrender of shares having a Fair Market Value equal to the purchase price, or by any other means, including pursuant to provisions for cashless exercise, which the Board of Directors or Committee determines are consistent with the purpose of the Plan and with applicable laws and regulations (including, without limitation, the provisions of Rule 16b-3 and Regulation T promulgated by the Federal Reserve Board). 7. Option Period. Subject to earlier termination as provided in the Plan, each option and all rights thereunder shall expire on such date as determined by the Board of Directors and set forth in the applicable option agreement, provided, that such date shall not be later than 10 years after the date on which the option is granted. 3 8. Exercise of Options. Each option granted under the Plan shall be exercisable either in full or in installments at such time or times and during such period as shall be set forth in the option agreement evidencing such option, subject to the provisions of the Plan. Subject to the requirements in the immediately preceding sentence, if an option is not at the time of grant immediately exercisable, the Board of Directors may (i) in the agreement evidencing such option, provide for the acceleration of the exercise date or dates of the subject option upon the occurrence of specified events, and/or (ii) at any time prior to the complete termination of an option, accelerate the exercise date or dates of such option. 9. Nontransferability of Options. No option granted under this Plan shall be assignable or otherwise transferable by the optionee except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. An option may be exercised during the lifetime of the optionee only by the optionee. In the event an optionee dies during his employment by the Company or any of its subsidiaries, or during the three-month period following the date of termination of such employment, his option shall thereafter be exercisable, during the period specified in the option agreement, by his executors or administrators to the full extent to which such option was exercisable by the optionee at the time of his death during the periods set forth in Section 10 or 11(d). 10. Effect of Termination of Employment or Other Relationship. Except as provided in Section 11(d) with respect to Incentive Stock Options and except as otherwise determined by the Committee at the date of grant of an Option, and subject to the provisions of the Plan, an optionee may exercise an option at any time within three months following the termination of the optionee's employment or other relationship with the Company or within one year if such termination was due to the death or disability of the optionee but, except in the case of the optionee's death, in no event later than the expiration date of the Option. If the termination of the optionee's employment is for cause or is otherwise attributable to a breach by the optionee of an employment or confidentiality or non-disclosure agreement, the option shall expire immediately upon such termination. The Board of Directors shall have the power to determine what constitutes a termination for cause or a breach of an employment or confidentiality or non-disclosure agreement, whether an optionee has been terminated for cause or has breached such an agreement, and the date upon which such termination for cause or breach occurs. Any such determinations shall be final and conclusive and binding upon the optionee. 11. Incentive Stock Options. Options granted under the Plan which are intended to be Incentive Stock Options shall be subject to the following additional terms and conditions: 4 (a) Express Designation. All Incentive Stock Options granted under the Plan shall, at the time of grant, be specifically designated as such in the option agreement covering such Incentive Stock Options. (b) 10% Shareholder. If any employee to whom an Incentive Stock Option is to be granted under the Plan is, at the time of the grant of such option, the owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code), then the following special provisions shall be applicable to the Incentive Stock Option granted to such individual: (i) The purchase price per share of the Common Stock subject to such Incentive Stock Option shall not be less than 110% of the Fair Market Value of one share of Common Stock at the time of grant; and (ii) The option exercise period shall not exceed five years from the date of grant. (c) Dollar Limitation. For so long as the Code shall so provide, options granted to any employee under the Plan (and any other incentive stock option plans of the Company) which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such options, in the aggregate, become exercisable for the first time in any one calendar year for shares of Common Stock with an aggregate Fair Market Value, as of the respective date or dates of grant, of more than $100,000. (d) Termination of Employment, Death or Disability. No Incentive Stock Option may be exercised unless, at the time of such exercise, the optionee is, and has been continuously since the date of grant of his or her option, employed by the Company, except that: (i) an Incentive Stock Option may be exercised within the period of three months after the date the optionee ceases to be an employee of the Company (or within such lesser period as may be specified in the applicable option agreement), provided, that the agreement with respect to such option may designate a longer exercise period and that the exercise after such three-month period shall be treated as the exercise of a non-statutory option under the Plan; (ii) if the optionee dies while in the employ of the Company, or within three months after the optionee ceases to be such an employee, the Incentive Stock Option may be exercised by the person to whom it is transferred by will or the laws of descent and distribution within the period of one year after the date of death (or within such lesser period as may be specified in the applicable option agreement); and (iii) if the optionee becomes disabled (within the meaning of Section 22(e)(3) of the Code or any successor provisions thereto) while in the employ of the Company, the Incentive Stock Option may be exercised within the period of one year after the date the optionee ceases to be such an employee because of such disability (or within such lesser period as may be specified in the applicable option agreement). 5 For all purposes of the Plan and any option granted hereunder, "employment" shall be defined in accordance with the provisions of Section 1.421-7(h) of the Income Tax Regulations (or any successor regulations). Notwithstanding the foregoing provisions, no Incentive Stock Option may be exercised after its expiration date. 12. Additional Provisions. (a) Additional Option Provisions. The Board of Directors may, in its sole discretion, include additional provisions in option agreements covering options granted under the Plan, including without limitation restrictions on transfer, repurchase rights, rights of first refusal, commitments to pay cash bonuses, to make, arrange for or guaranty loans or to transfer other property to optionees upon exercise of options, or such other provisions as shall be determined by the Board of Directors; provided, that such additional provisions shall not be inconsistent with any other term or condition of the Plan and such additional provisions shall not cause any Incentive Stock Option granted under the Plan to fail to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. (b) Acceleration, Extension, Etc. The Board of Directors may, in its sole discretion, (i) accelerate the date or dates on which all or any particular option or options granted under the Plan may be exercised or (ii) extend the dates during which all, or any particular, option or options granted under the Plan may be exercised; provided, however, that no such extension shall be permitted if it would cause the Plan to fail to comply with Section 422 of the Code or with Rule 16b-3 (if applicable). 13. General Restrictions. (a) Investment Representations. The Company may require any person to whom an Option is granted, as a condition of exercising such option, to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the Common Stock subject to the option or award, for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws, or with covenants or representations made by the Company in connection with any public offering of its Common Stock, including any "lock-up" or other restriction on transferability. (b) Compliance With Securities Law. Each Option shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such option upon any securities exchange or automated quotation system or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with the issuance or purchase of shares thereunder, such option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval, or satisfaction of such condition shall have been effected or obtained on conditions acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification, or to satisfy such condition. 6 14. Rights as a Stockholder. The holder of an option shall have no rights as a stockholder with respect to any shares covered by the option (including, without limitation, any rights to receive dividends or non-cash distributions with respect to such shares) until the date of issue of a stock certificate to him or her for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 15. Adjustment Provisions for Recapitalizations, Reorganizations and Related Transactions. (a) Recapitalizations and Related Transactions. If, through or as a result of any recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, (i) the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities of the Company, or (ii) additional shares or new or different shares or other non-cash assets are distributed with respect to such shares of Common Stock or other securities, an appropriate and proportionate adjustment shall be made in (x) the maximum number and kind of shares reserved for issuance under or otherwise referred to in the Plan, (y) the number and kind of shares or other securities subject to any then outstanding options under the Plan, and (z) the price for each share subject to any then outstanding options under the Plan, without changing the aggregate purchase price as to which such options remain exercisable. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 15 if such adjustment (i) would cause the Plan to fail to comply with Section 422 of the Code or with Rule 16b-3 or (ii) would be considered as the adoption of a new plan requiring stockholder approval. (b) Reorganization, Merger and Related Transactions. All outstanding Options under the Plan shall become fully exercisable for a period of sixty (60) days following the occurrence of any Trigger Event, whether or not such Options are then exercisable under the provisions of the applicable agreements relating thereto. For purposes of the Plan, a "Trigger Event" is any one of the following events: (i) the date on which shares of Common Stock are first purchased pursuant to a tender offer or exchange offer (other than such an offer by the Company, any Subsidiary, any employee benefit plan of the Company or of any Subsidiary or any entity holding shares or other securities of the Company for or pursuant to the terms of such plan), whether or not such offer is approved or opposed by the Company and regardless of the number of shares purchased pursuant to such offer; (ii) the date the Company acquires knowledge that any person or group deemed a person under Section 13(d)-3 of the Exchange Act (other than the Company, any Subsidiary, any employee benefit plan of the Company or of any Subsidiary or any entity holding shares of Common Stock or other securities of the Company for or pursuant to the terms of any such plan or any individual or entity or group or affiliate thereof which acquired its beneficial ownership interest prior to the date the Plan was adopted by the Board), in a transaction or series of transactions, has become the beneficial owner, directly or indirectly (with beneficial ownership determined as provided in Rule 13d-3, or any successor rule, under the Exchange Act), of securities of 7 the Company entitling the person or group to 30% or more of all votes (without consideration of the rights of any class or stock to elect directors by a separate class vote) to which all stockholders of the Company would be entitled in the election of the Board of Directors were an election held on such date; and (iii) the date of approval by the stockholders of the Company of an agreement (a "reorganization agreement") providing for: (A) The merger of consolidation of the Company with another corporation where the stockholders of the Company, immediately prior to the merger or consolidation, do not beneficially own, immediately after the merger or consolidation, shares of the corporation issuing cash or securities in the merger or consolidation entitling such stockholders to 80% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all stockholders of such corporation would be entitled in the election of directors or where the members of the Board of Directors of the Company, immediately prior to the merger or consolidation, do not, immediately after the merger or consolidation, constitute a majority of the Board of Directors of the corporation issuing cash or securities in the merger or consolidation; or (B) The sale or other disposition of all or substantially all the assets of the Company. (c) Board Authority to Make Adjustments. Any adjustments under this Section 15 will be made by the Board of Directors, whose determination as to what adjustments, if any, will be made and the extent thereof will be final, binding and conclusive. No fractional shares will be issued under the Plan on account of any such adjustments. 16. Merger, Consolidation, Asset Sale, Liquidation, etc. (a) General. In the event of any sale, merger, transfer or acquisition of the Company or substantially all of the assets of the Company in which the Company is not the surviving corporation, and provided that after the Company shall have requested the acquiring or succeeding corporation (or an affiliate thereof), that equivalent options shall be substituted and such successor corporation shall have refused or failed to assume all options outstanding under the Plan or issue substantially equivalent options, then any or all outstanding options under the Plan shall accelerate and become exercisable in full immediately prior to such event. The Committee will notify holders of options under the Plan that any such options shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the options will terminate upon expiration of such notice. (b) Substitute Options. The Company may grant options under the Plan in substitution for options held by employees of another corporation who become employees of the Company, or a subsidiary of the Company, as the result of a merger or consolidation of the employing corporation with the Company or a subsidiary of the Company, or as a result of the acquisition by the Company, or one of its subsidiaries, of property or stock of the employing 8 corporation. The Company may direct that substitute options be granted on such terms and conditions as the Board of Directors considers appropriate in the circumstances. 17. No Special Employment Rights. Nothing contained in the Plan or in any option shall confer upon any optionee any right with respect to the continuation of his or her employment by the Company or interfere in any way with the right of the Company at any time to terminate such employment or to increase or decrease the compensation of the optionee. 18. Other Employee Benefits. Except as to plans which by their terms include such amounts as compensation, the amount of any compensation deemed to be received by an employee as a result of the exercise of an option or the sale of shares received upon such exercise will not constitute compensation with respect to which any other employee benefits of such employee are determined, including, without limitation, benefits under any bonus, pension, profit-sharing, life insurance or salary continuation plan, except as otherwise specifically determined by the Board of Directors. 19. Amendment of the Plan. (a) The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect; provided, however, that if at any time the approval of the stockholders of the Company is required under Section 422 of the Code or any successor provision with respect to Incentive Stock Options, the Board of Directors may not effect such modification or amendment without such approval; and provided, further, that the provisions of Section 3(c) hereof shall not be amended more than once every six months, other than to comport with changes in the Code, the Employer Retirement Income Security Act of 1974, as amended, or the rules thereunder. (b) The modification or amendment of the Plan shall not, without the consent of an optionee, affect his or her rights under an option previously granted to him or her. With the consent of the optionee affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify (i) the terms and provisions of the Plan and of any outstanding Incentive Stock Options granted under the Plan to the extent necessary to qualify any or all such options for such favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under Section 422 of the Code and (ii) the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. 20. Withholding. (a) The Company shall have the right to deduct from payments of any kind otherwise due to the optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan. Subject to the prior approval of the Company, which may be withheld by the Company in its sole discretion, the optionee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company to 9 withhold shares of Common Stock otherwise issuable pursuant to the exercise of an option or (ii) by delivering to the Company shares of Common Stock already owned by the optionee. The shares so delivered or withheld shall have a Fair Market Value equal to such withholding obligation as of the date that the amount of tax to be withheld is to be determined. An optionee who has made an election pursuant to this Section 20(a) may only satisfy his or her withholding obligation with shares of Common Stock which are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements. (b) The acceptance of shares of Common Stock upon exercise of an Incentive Stock Option shall constitute an agreement by the optionee (i) to notify the Company if any or all of such shares are disposed of by the optionee within two years from the date the option was granted or within one year from the date the shares were issued to the optionee pursuant to the exercise of the option, and (ii) if required by law, to remit to the Company, at the time of and in the case of any such disposition, an amount sufficient to satisfy the Company's federal, state and local withholding tax obligations with respect to such disposition, whether or not, as to both (i) and (ii), the optionee is in the employ of the Company at the time of such disposition. (c) Notwithstanding the foregoing, in the case of a Reporting Person whose options have been granted in accordance with the provisions of Section 3(b) herein, no election to use shares for the payment of withholding taxes shall be effective unless made in compliance with any applicable requirements of Rule 16b-3. 21. Cancellation and New Grant of Options, Etc. The Board of Directors shall have the authority to effect, at any time and from time to time, with the consent of the affected optionees, (i) the cancellation of any or all outstanding options under the Plan and the grant in substitution therefor of new options under the Plan covering the same or different numbers of shares of Common Stock and having an option exercise price per share which may be lower or higher than the exercise price per share of the cancelled options or (ii) the amendment of the terms of any and all outstanding options under the Plan to provide an option exercise price per share which is higher or lower than the then-current exercise price per share of such outstanding options. 22. Effective Date and Duration of the Plan. (a) Effective Date. The Plan shall become effective when adopted by the Board of Directors, but no Incentive Stock Option granted under the Plan shall become exercisable unless and until the Plan shall have been approved by the Company's stockholders. If such stockholder approval is not obtained within twelve months after the date of the Board's adoption of the Plan, no options previously granted under the Plan shall be deemed to be Incentive Stock Options and no Incentive Stock Options shall be granted thereafter. Amendments to the Plan not requiring stockholder approval shall become effective when adopted by the Board of Directors; amendments requiring stockholder approval (as provided in Section 21) shall become effective when adopted by the Board of Directors, but no Incentive Stock Option granted after the date of such amendment shall become exercisable (to the extent that such amendment to the Plan was required to enable the Company to grant such Incentive Stock Option to a particular optionee) unless and until such amendment shall have been approved by the Company's stockholders. If 10 such stockholder approval is not obtained within twelve months of the Board's adoption of such amendment, any Incentive Stock Options granted on or after the date of such amendment shall terminate to the extent that such amendment to the Plan was required to enable the Company to grant such option to a particular optionee. Subject to this limitation, options may be granted under the Plan at any time after the effective date and before the date fixed for termination of the Plan. (b) Termination. Unless sooner terminated in accordance with Section 16, the Plan shall terminate upon the earlier of (i) the close of business on the day next preceding the tenth anniversary of the date of its adoption by the Board of Directors, or (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise or cancellation of options granted under the Plan. If the date of termination is determined under (i) above, then options outstanding on such date shall continue to have force and effect in accordance with the provisions of the instruments evidencing such options. 23. Provision for Foreign Participants. The Board of Directors may, without amending the Plan, modify awards or options granted to participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters. 24. Governing Law. The provisions of this Plan shall be governed and construed in accordance with the laws of the State of Delaware without regard to the principles of conflicts of laws. Adopted by the Board of Directors on June 10, 1998. 11 PROXY TITAN PHARMACEUTICALS, INC. ANNUAL MEETING OF STOCKHOLDERS This Proxy is Solicited on Behalf of the Board of Directors The undersigned hereby appoints Dr. Louis R. Bucalo or Sunil Bhonsle as proxy to represent the undersigned at the Annual Meeting of Shareholders to be held at 400 Oyster Point Boulevard, Suite 505, South San Francisco, California 94080 on August 28, 2000 at 9:00 a.m., local time, and at any adjournments thereof, and to vote the shares of Common Stock or Preferred Stock the undersigned would be entitled to vote if personally present, as indicated below. 1. Election of Directors FOR all nominees listed below |_| WITHHOLDING AUTHORITY |_| (except as marked to the to vote for all nominees listed contrary below) below Louis R. Bucalo, M.D., Ernst-Gunter Afting, Victor J. Bauer, Ph.D., Eurelio Cavalier, Michael K. Hsu, Hubert Huckel, M.D., Ley S. Smith and Konrad M. Weis, Ph.D. (INSTRUCTION: To withhold authority to vote for any individual nominee, print that nominee's name on the line provided below.) - -------------------------------------------------------------------------------- 2. Approval of the amendments to the 1998 Stock Option Plan. FOR |_| AGAINST |_| ABSTAIN |_| - -------------------------------------------------------------------------------- 3. Approval of the appointment of Ernst & Young LLP as independent auditors. FOR |_| AGAINST |_| ABSTAIN |_| The shares of Common Stock represented by this proxy will be voted as directed; however, if no direction is given, the shares of Common Stock will be voted FOR the election of the nominees, FOR approval of the amendment to the 1998 Stock Option Plan and FOR the approval of the appointment of Ernst & Young LLP as the independent auditors of the Company. If any other business is presented at the meeting, this proxy will be voted by those named in this proxy in their best judgment. At the present time, the Board of Directors knows of no other business to be presented at the meeting. DATED: , 2000 ---------------------- ---------------------------------- Signature ---------------------------------- Signature if held jointly (Please date, sign as name appears at the left, and return promptly. If the shares are registered in the names of two or more persons, each person should sign. When signing as Corporate Officer, Partner, Executor, Administrator, Trustee or Guardian, please give full title. Please note any changes in your address alongside the address as it appears in the proxy.)