<PAGE> 1
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 (AMENDMENT NO. )
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
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Amarillo Biosciences, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) 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 (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:
- --------------------------------------------------------------------------------
<PAGE> 2
AMARILLO BIOSCIENCES, INC.
800 WEST 9TH AVENUE
AMARILLO, TEXAS 79101
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Amarillo Biosciences, Inc. (the
"Company") will be held in the Wellington Room of Wellington Square, I-40 and
Georgia, Amarillo, Texas on the 12th day of May, 1998 at 10:00 A.M., local time,
for the following purposes:
1. To elect eight Directors to serve until the next Annual Meeting and
until their respective successors are elected and qualify.
2. To consider and vote upon amendments to the Company's 1996 Employee
Stock Option Plan to increase by 190,000 the number of shares of Common Stock
reserved for issuance thereunder.
3. To consider and vote upon amendments to the Company's Outside
Director and Advisor Stock Option Plan to increase by 60,000 the number of
shares of Common Stock reserved for issuance thereunder.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record as of the close of business on March 26,
1998 are entitled to receive notice of and to vote at the meeting. A list of
such stockholders shall be open to the examination of any stockholder during
ordinary business hours, for a period of ten days prior to the meeting, at the
principal executive offices of the Company, 800 West 9th Avenue, Amarillo,
Texas.
BY ORDER OF THE BOARD OF DIRECTORS
EDWARD L. MORRIS
Secretary
Amarillo, Texas
April 15, 1998
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN
ENVELOPE.
<PAGE> 3
AMARILLO BIOSCIENCES, INC.
800 WEST 9TH AVENUE
AMARILLO, TEXAS 79101
----------------
PROXY STATEMENT
The accompanying Proxy is solicited by and on behalf of the Board of
Directors of Amarillo Biosciences, Inc. a Texas corporation (the "Company"), for
use only at the Annual Meeting of Stockholders to be held in the Wellington Room
of Wellington Square, I-40 and Georgia, Amarillo, Texas on the 12th day of May,
1998, at 10:00 A.M., local time, and at any adjournments thereof. The
approximate date on which this Proxy Statement and the accompanying Proxy were
first given or sent to security holders was April 15, 1998.
Each Proxy executed and returned by a stockholder may be revoked at any
time thereafter, by written notice to that effect to the Company, attention of
the Secretary, prior to the Annual Meeting, or to the Chairman, or the
Inspectors of Election, at the Annual Meeting, or by the execution and return of
a later-dated proxy, except as to any matter voted upon prior to such
revocation.
The Proxies in the accompanying form will be voted in accordance with the
specifications made and where no specifications are given, such Proxies will be
voted FOR the nominees for election as directors named herein, and for proposals
two and three, regarding amendments to the Company's stock option plans. In the
discretion of the proxy holders, the Proxies will also be voted FOR or AGAINST
such other matters as may properly come before the meeting. The management of
the Company is not aware that any other matters are to be presented for action
at the meeting. All three proposals will be determined by a plurality of the
votes of the shares of common stock, par value $.01 per share (the "Common
Stock"), present in person or represented by proxy at the Annual Meeting and
entitled to vote. Accordingly, in the case of shares that are present or
represented at the Meeting for quorum purposes, not voting such shares for a
particular proposal, including by withholding authority on the Proxy, will not
operate to prevent the passage of such proposal if it otherwise receives a
plurality of the votes. Votes will be counted manually by an election judge, who
will be the Company's Secretary or an Assistant Secretary, and who will execute
an affidavit certifying the vote as to each proposal.
VOTING SECURITIES
The Board of Directors has fixed the close of business on March 26, 1998 as
the record date for the determination of stockholders entitled to receive notice
of and to vote at the Annual Meeting. The issued and outstanding stock of the
Company on March 26, 1998 consisted of 5,414,232 shares of Common Stock, each
entitled to one vote. A quorum of the stockholders is constituted by the
presence, in person or by proxy, of holders of record of Common Stock,
representing a majority of the number of votes entitled to be cast.
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 1, 1998, by each person who is known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock.
1
<PAGE> 4
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ------------------------------------ ------------------ -------------
<S> <C> <C>
Hayashibara Biochemical Laboratories, Inc. ........................... 1,232,856 22.8%
Dr. Joseph M. Cummins................................................. 684,784(1) 12.7%
Mesa, Inc. ........................................................... 315,120 5.8%
Mochida Pharmaceutical Co., Ltd. ..................................... 300,000 5.5%
</TABLE>
- ------------
(1) Includes an aggregate of 343,918 shares of Common Stock held by Joseph
Cummins as trustee under certain trusts for the benefit of his children and
9,590 shares owned by Dr. Cummins' wife.
SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth, as of March 1, 1998, beneficial ownership
of shares of Common Stock of the Company by each director, each of certain
executive officers and all directors and executive officers as a group.
<TABLE>
<CAPTION>
TOTAL NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY COMMON STOCK
NAME OWNED OWNED
- ---- ---------------------- -------------
<S> <C> <C>
Joseph Cummins....................................................... 684,784(1) 12.7%
Dennis Moore......................................................... 149,616 2.8%
James Cook........................................................... 66,600(2) 1.2%
Katsuaki Hayashibara................................................. 48,240 1.0%
Stephen Chen......................................................... 1,800 *
Thomas D'Alonzo...................................................... 1,000 *
Brian McLean......................................................... -- --
James Page........................................................... -- --
Total Group (all directors and executive 952,040 17.6%
officers - 8 persons)...........................................
</TABLE>
- --------------
* Less than 1%
(1) Includes an aggregate of 343,918 shares of Common Stock held by Joseph
Cummins as trustee under certain trusts for the benefit of his children and
9,590 shares owned by Dr. Cummins' wife.
(2) All of such shares are owned jointly with Mr. Cook's wife.
PROPOSAL ONE
ELECTION OF DIRECTORS
Eight directors will be elected at the meeting to hold office until the
next Annual Meeting of Stockholders and until their respective successors are
elected and qualify. The By-Laws of the Company permit the Board of Directors to
fix the number of directors at no less than one nor more than thirty persons and
the Board of Directors has fixed the number of directors at eight persons. The
Proxies solicited by this proxy statement may not be voted for a greater number
of persons than the number of nominees named. It is intended that these Proxies
will be voted for the following nominees, but the holders of these Proxies
reserve discretion to cast votes for individuals other than the nominees for
director named below in the event of the unavailability of any such nominee. The
Company has no reason to believe that any of the nominees will become
unavailable for
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<PAGE> 5
election. Set forth below are the names of the nominees, the principal
occupation of each, the year in which first elected a director of the Company
and certain other information concerning each of the nominees.
The name of, and certain information with respect to, all directors,
executive officers and all persons nominated or chosen to become a director are
as follows (all of the following have been nominated to serve as directors):
<TABLE>
<CAPTION>
DIRECTOR
NAME AND AGE SINCE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS
------------ -------- --------------------------------------------
<S> <C> <C>
Joseph Cummins, DVM, PhD (1)(3), 55............ 1984 Chairman of the Board of the Company since
June 1984. Has served as President of the
Company since December 1994 and as Chief
Financial Officer since October 1997. Received
a PhD degree in microbiology from the
University of Missouri in 1978 and a doctor of
veterinary medicine degree from Ohio State
University in 1966.
Thomas D'Alonzo (1)(2), 54..................... 1997 Joined Pharmaceutical Product Development,
Inc. as President and Chief Operating Officer
and member of the Board of Directors in
October 1996. Previously served as President
and Chief Executive Officer of Genvec, Inc., a
gene therapy biotech company from 1993 to
1996. Held various management positions
including President with Glaxo, Inc. from 1983
to 1993. Serves on the Board of Directors of
Goodmark, Inc., a publicly traded company
listed on NASDAQ.
Stephen Chen, PhD (2)(4), 48................... 1996 President and Chief Executive Officer of STC
International, Inc., a health care investment
firm, since May 1992. From August 1989 to
May 1992, Director of Pharmaceutical Research
and Development for the Ciba Consumer
Pharmaceuticals Division of Ciba-Geigy.
James Cook (1)(3), 63.......................... 1988 President and Chief Executive Officer of the
First National Bank of Arvada since January
1992 and from April 1987 to December 1991,
Executive Vice President of First National Bank
of Amarillo.
Katsuaki Hayashibara (3)(4), 54................ 1994 Named Director of the Overseas Business
Development Division of Hayashibara
Company, Ltd. in January 1997. Served as
Director of Research and Development for
Hayashibara Biochemical Laboratories, Inc.
since 1988.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR
NAME AND AGE SINCE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS
------------ -------- --------------------------------------------
<S> <C> <C>
Brian McLean, MD (3), 38....................... 1996 Partner in a New York venture capital firm. From
1991 to 1996, staff anesthesiologist with Tarzana
Regional Medical Center. Received a MBA
degree in 1992 and an MD degree in 1987 from UCLA
Dennis Moore, DVM (1)(4), 51................... 1986 Doctor of veterinary medicine since 1972 and was in
private practice from 1972 to 1995. Management of
personal investments since 1995.
James Page, MD (1)(2), 71...................... 1996 Prior to retiring in 1991 as a Vice President with
Adria Laboratories, Inc., held various upper
management level positions with Carter Wallace,
Inc., Merck Sharpe & Dohme Research Laboratories
and Wyeth Laboratories.
</TABLE>
- -------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Finance Committee.
(4) Member of the Audit Committee.
PROPOSAL TWO
APPROVAL OF AMENDMENTS TO
THE COMPANY'S 1996 EMPLOYEE STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders will be asked to consider
and vote upon an amendment to the Company's 1996 Employee Stock Option Plan (the
"Stock Option Plan"). The amendment was adopted by the Company's Board of
Directors on December 14, 1997, subject to shareholder approval.
The purpose of the amendment is to increase the number of shares of the
Company's Common Stock reserved for issuance under the Stock Option Plan from
200,000 to 390,000. This amendment will involve an increase of 190,000 shares of
Common Stock available for distribution.
The purpose of the Stock Option Plan is to closely associate the interests
of the management of the Company and its subsidiaries and affiliates with those
of the shareholders by reinforcing the relationship between participants'
rewards and shareholder gains, provide management with an equity ownership in
the Company commensurate with Company performance, maintain competitive
compensation levels, and provide an incentive to management for continuous
employment with the Company. The Board of Directors believes that this increase
is necessary for the Company to remain competitive in the recruitment,
motivation and retention of its employees, and recommends that the shareholders
approve this proposal.
The shares awarded to employees of the Company under the Stock Option Plan
come from authorized but unissued shares of Common Stock. Without the 190,000
shares that are the subject of this proposal, there are a total of 200,000
shares of the Company's Common Stock authorized for issuance upon the exercise
of options granted under the Stock Option Plan. As of March 31, 1998, no shares
of Common Stock had been purchased upon the exercise of options issued under the
Stock Option Plan and a total of 48,500 shares of Common Stock were subject to
outstanding options that have been granted pursuant to the Stock Option Plan.
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<PAGE> 7
Description of the Stock Option Plan
Following is a summary description of the Stock Option Plan:
General. The purpose of the Stock Option Plan is to serve as an incentive
to employees for continuous employment with the Company, to maintain competitive
compensation levels for employees and to more closely align the interests of
shareholders and employees of the Company.
Awards under the Stock Plan are in the form of incentive stock options
("ISOs"), as defined in Section 422 of the Internal Revenue Code of 1986, as
amended. Limited stock appreciation rights ("Limited Rights") relating to such
ISOs may be granted. At present, an aggregate of 200,000 shares of Common Stock
are reserved for issuance upon the exercise of ISOs granted under the Stock
Option Plan. If the amendments described herein are approved, an aggregate of
390,000 shares of Common Stock will be reserved for issuance upon the exercise
of ISOs under the Stock Option Plan.
Administration. The Stock Option Plan is administered by a committee of at
least two directors of the Company (the "Committee"), which has the authority in
its sole discretion to grant ISOs and Limited Rights to eligible employees, to
determine the timing and amount of such awards, to impose limitations,
restrictions and conditions upon such awards and to interpret the Stock Option
Plan and related rules and agreements.
Eligibility. Employees of the Company are eligible to receive grants of
options under the Stock Option Plan. Directors who are not otherwise employed by
the Company are not considered to be "employees" of the Company for purposes of
the Stock Option Plan. As of March 31, 1998, approximately seven (7) employees
were eligible to receive grants under the Stock Option Plan.
Options. All ISOs granted to employees who do not possess more than 10% of
the total combined voting power of all classes of stock of the Company will be
exercisable at a price equal to 100% of the fair market value of a share of
Common Stock on the date of grant and will vest at the rate of 20% per year,
commencing on the first anniversary of the date of grant. All ISOs granted to
greater than 10% shareholders will be exercisable at a price equal to 110% of
the fair market value of a share of Common Stock on the date of grant and will
vest at the rate of 25% per year, commencing on the first anniversary of the
date of grant. The aggregate fair market value of the shares covered by ISOs
granted under the Stock Plan that become exercisable by a holder for the first
time in any calendar year is subject to a $100,000 limit. The maximum number of
shares of Common Stock with respect to which ISOs may be granted in any one year
to any employee shall not exceed 50,000.
ISOs granted to employees who are not 10% shareholders must be exercised
prior to the expiration of ten years from the date of grant and ISOs granted to
10% shareholders must be exercised prior to the expiration of five years from
the date of grant. ISOs are exercisable only during the holder's employment,
and, in the case of involuntary termination of the employee, for a period of up
to 90 days after the termination of such holder's employment to the extent the
ISOs were exercisable at the date of termination or become exercisable within
the 90 days after termination of employment. However, in the case of the
termination of an optionee's employment by reason of his disability or
retirement, the ISOs held by him may be exercised for a period of 36 months
after such termination to the extent the ISOs were exercisable at the date of
termination. In the case of the death of an optionee, any ISO exercisable on the
date of the employee's death may be exercised by the employee's estate or
beneficiaries if such exercise occurs within the remaining term of the option
but in no event after one year after the employee's death. The Stock Plan
provides that ISOs may not be transferred other than by will or the laws of
descent and distribution.
Concurrently with or subsequent to the award of any ISO, the Committee may
award a Limited Right with respect to each ISO permitting the optionee to be
paid the appreciation on the Common Stock in lieu of (but
5
<PAGE> 8
not in addition to) exercising the ISO. A Limited Right is fully exercisable and
must be exercised immediately preceding or simultaneously with a Change in
Control (as defined in the Stock Option Plan), except that if a Change of
Control occurs without notice to the holder of the Limited Right or an
opportunity by the holder of the Limited Right to exercise it, the Limited Right
must be exercised as soon as practicable after the Change of Control occurs.
Any shares of Common Stock subject to an option which has been terminated
unexercised or expires shall again be available for issuance under the Stock
Option Plan, except that shares subject to an option which are not issued
because the optionee has elected to be paid upon the exercise of a related
Limited Right shall not again be available for issuance under the Stock Option
Plan.
Amendments and Termination. The Committee may amend, alter or terminate the
Stock Option Plan at any time. However, without shareholder approval no such
amendment, alteration or termination may be made that (i) increases the number
of shares of Common Stock issuable under the Stock Option Plan, (ii) extends the
period during which any award may be granted or exercised, or (iii) extends the
term of the Stock Option Plan.
Federal Income Tax Consequences. The grant of an ISO has no immediate
federal income tax consequences to the optionee or the Company. The exercise of
an ISO while the optionee is an employee or within three months after
termination of employment generally has no immediate tax consequences to the
Company or the optionee. If the optionee is subject to the alternative minimum
tax, however, the exercise of an ISO would result in an increase in the
optionee's alternative minimum taxable income equal to the excess of the fair
market value of the shares at the time of exercise over the exercise price. If
an optionee holds the shares acquired pursuant to the exercise of an ISO for the
required holding period, the optionee generally recognizes long-term capital
gain or loss upon a subsequent sale of the shares in the amount of the
difference between the amount realized upon the sale and the exercise price of
the shares. In such a case, the Company is not entitled to a deduction in
connection with the grant or exercise of the ISO or the sale of shares acquired
pursuant to such exercise. If, however, an optionee exercises an ISO more than
three months after termination of employment or disposes of the shares prior to
the expiration of the required holding period, the optionee generally recognizes
ordinary income equal to the excess of the fair market value of the shares on
the date of exercise over the exercise price of the shares, and the excess
generally would be treated as long-term or short-term capital gain. The required
holding period is the longer of two years from the date the option was granted
and one year after the date of issuance of the shares upon the exercise of the
option.
Option Grants. The following table sets forth, as of March 31, 1998, the
total number of unexercised options granted under the Stock Option Plan to the
Company's Chairman of the Board, President and Chief Executive Officer and all
employees, including all current officers who are not executive officers, as a
group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO AVERAGE PER SHARE
NAME OPTIONS GRANTED EXERCISE PRICE
- ---- ---------------- -----------------
<S> <C> <C>
Joseph M. Cummins................................................. 14,500 $4.91(1)
All current employees as a group [eight (8) persons].............. 48,500 $4.60
</TABLE>
- --------------
(1) The average fair market value of the Common Stock on the date of grant was
$4.46.
Over the term of the Stock Option Plan, up to March 31, 1998, a total of
63,500 options had been granted and 15,000 options had been canceled.
Options outstanding under the Stock Option Plan have expiration dates
ranging from August 8, 2001 to September 7, 2007.
6
<PAGE> 9
The amendment to the Stock Option Plan, which has been adopted by the
Company's Board of Directors and which will be voted upon by the shareholders at
the annual meeting of the Company, is as follows:
Section 1.05, Aggregate Limitation on Awards, Subparagraph (a): In the
second sentence of this Subparagraph, the number "two hundred thousand
(200,000)" shall be amended to read, "three hundred ninety thousand (390,000)."
The foregoing amendment shall become effective on the date approved by the
holders of a majority of the shares of Common Stock present in person or by
proxy and entitled to vote at the 1998 annual meeting of Shareholders of ABI.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE COMPANY
1996 EMPLOYEE STOCK OPTION PLAN.
PROPOSAL THREE
APPROVAL OF AMENDMENT TO
THE COMPANY'S OUTSIDE DIRECTOR AND ADVISOR STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders will be asked to consider
and vote upon an amendment to the Company's Outside Director and Advisor Stock
Option Plan (the "Directors Plan"). The amendment was adopted by the Company's
Board of Directors on December 14, 1997, subject to shareholder approval.
The purpose of the amendment is to increase the number of shares of the
Company's Common Stock reserved for issuance under the Directors Plan from
150,000 to 210,000. This amendment will involve an increase of 60,000 shares of
Common Stock available for distribution.
The purpose of the Directors Plan is to closely associate the interests of
the outside directors and scientific advisors of the Company and its
subsidiaries and affiliates with those of the shareholders by reinforcing the
relationship between participants' rewards and shareholder gains, provide
outside directors and scientific advisors with an equity ownership in the
Company commensurate with Company performance, and provide an incentive to
outside directors and scientific advisors for continuous association with the
Company. The Board of Directors believes that this increase is necessary for the
Company to remain competitive in the recruitment, motivation and retention of
its outside directors and scientific advisors and recommends that the
shareholders approve this proposal.
The shares of Common Stock of the Company under the Directors Plan come
from authorized but unissued shares of Common Stock. Without the 60,000 shares
that are the subject of this proposal, there are a total of 150,000 shares of
the Company's Common Stock authorized for issuance upon the exercise of options
granted under the Directors Plan. As of May 31, 1998, no shares of Common Stock
had been purchased upon the exercise of options issued under the Directors Plan
and a total of 140,000 shares of Common Stock were subject to outstanding
options that have been granted pursuant to the Directors Plan.
Description of the Directors Plan
Following is a summary description of the Directors Plan:
General. The purpose of the Directors Plan is to provide an incentive to
outside directors and members of the Company's Scientific Advisory Board
("Advisors") for continuous association with the Company and
7
<PAGE> 10
to reinforce the relationship between participants' rewards and shareholder
gains. As of March 31, 1998, approximately seven outside directors and seven
Advisors were eligible to receive grants under the Directors Plan.
Awards under the Directors Plan are in the form of so-called non-qualified
stock options and Limited Rights relating to such options. At present, an
aggregate of 150,000 shares of Common Stock are reserved for issuance upon
exercise of options granted under the Directors Plan. If the amendments
described herein are approved, an aggregate of 210,000 shares of Common Stock
will be reserved for issuance upon the exercise of stock options under the
Directors Plan. Options under the Directors Plan may be granted only to
directors or Advisors who are not officers or employees of the Company.
Administration. The Directors Plan is administered by a Committee
consisting of at least two directors of the Company which has the authority, in
its sole discretion, to interpret the Directors Plan, to adopt, amend and
rescind rules and regulations relating to the Directors Plan, to designate the
directors and Advisors eligible to participate in the Directors Plan, grant
awards provided in the Directors Plan, and to otherwise administer the Plan.
Options. Under the Directors Plan, each Outside Director is automatically
granted an option to purchase 10,000 shares of Common Stock on the date such
person becomes an Outside Director, and each Advisor is automatically granted an
option to purchase 5,000 shares of Common Stock on the date such person first
becomes an Advisor. The Directors Plan provides that the Committee shall have
the authority to designate Directors and Scientific Advisors eligible to
participate in the Directors Plan, to grant awards provided in the Directors
Plan as determined by the Committee, and to impose such restrictions,
limitations and conditions upon such awards as the Committee shall deem
appropriate. All options granted under the Directors Plan will be exercisable at
a price equal to 100% of the fair market value of a share of Common Stock on the
date of grant and will vest at the rate of 20% per year, commencing on the first
anniversary of the date of grant. Options must be exercised prior to the
expiration of ten years from date of grant.
Amendments and Termination. The Committee may without action by the
shareholders amend the Directors Plan or awards thereunder in response to
changes in securities or other applicable laws or to comply with stock exchange
rules or requirements. Without shareholder approval, the Committee may not
extend the period during which an option or Limited Right may be exercised or
extend the term of the Directors Plan. The Company is required to obtain
shareholder approval of other amendments, including any increase in the number
of shares of Common Stock issuable under the Directors Plan, to the extent
required by applicable laws or the exchange on which the Common Stock is listed.
Transferability. Unless otherwise provided in an agreement with the
optionee, options under the Directors Plan may not be transferred other than by
will or the laws of descent and distribution. If the option agreement so
provides, options and Limited Rights may be transferred by the holder to
Permitted Transferees (generally a member of the optionee's immediate family,
trusts for the benefit of such family members and family partnerships) so long
as there is no consideration for the transfer. The provisions of the Directors
Plan relating to exercisability of outstanding options after the optionee's
termination of association with the Company by virtue of his death, disability
or involuntary termination and the exercise of Limited Rights are the same as
the provisions of the Stock Option Plan relating thereto.
Federal Income Tax Consequences. The grant of a non-qualified stock option
does not result in taxable income to the holder of the option, or in a deduction
by the Company. The tax consequences are determined generally at the time the
optionee exercises the non-qualified stock option. Upon the exercise of a
non-qualified stock option, the optionee recognizes ordinary income in an amount
equal to the difference between the fair market value of the Company's Common
Stock on the date of exercise and the exercise price of the option. The
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<PAGE> 11
Company is entitled to a deduction in an amount equal to the amount that was
includable in the optionee's gross income.
Option Grants. The following table sets forth, as of March 31, 1998, the
total number of unexercised options granted under the Directors Plan to all
current directors of the Company who are not executive officers as a group, each
nominee for election as a director and each other person who received or is to
receive five percent (5%) of such options. Pursuant to the terms of the Plan,
options may only be granted to outside directors and Advisors.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO AVERAGE PER SHARE
NAME OPTIONS GRANTED EXERCISE PRICE
- ---- ---------------- ------------------
<S> <C> <C>
All current directors who are not executive officers
(seven persons)....................................................... 105,000 $4.60
Each other person who received or is to receive 5% of the
options under the Directors Plan: None
</TABLE>
Over the term of the Directors Plan, up to March 31, 1998, a total of
140,000 options had been granted and no options had been canceled.
Options outstanding under the Directors Plan have expiration dates ranging
from August 8, 2006 to September 7, 2007.
The amendment to the Directors Plan, which has been adopted by the
Company's Board of Directors and which will be voted upon by the shareholders at
the annual meeting of the Company, is as follows:
Section 1.04, Aggregate Limitation on Awards, Subparagraph (a): In the
second sentence of this Subparagraph, the number "one hundred fifty thousand
(150,000)" shall be changed to read "two hundred ten thousand (210,000)."
The foregoing amendment shall become effective on the date approved by the
holders of a majority of the shares of Common Stock present in person or by
proxy and entitled to vote at the 1998 annual meeting of shareholders of ABI.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE COMPANY
DIRECTOR AND ADVISOR STOCK OPTION PLAN.
COMPLIANCE WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires directors and officers of the Company and persons who
own more than 10 percent of the Company's Common Stock to file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of changes in ownership of the Common Stock. Directors,
officers and more than 10 percent shareholders are required by the Exchange Act
to furnish the Company with copies of all Section 16(a) forms they file.
During 1996, Hayashibara Biochemical Laboratories, Inc., a 10% shareholder
of the Company, did not file a Form 4 (Statement of Changes in Beneficial
Ownership) within the time required by Section 16(a) of the Exchange Act. The
subject transaction was reported on the Form 5 statement for 1997, Schedule 13G
was
9
<PAGE> 12
timely filed in 1996, and the holdings were correctly reported in the Company's
1996 10-KSB, and in the 1996 Annual Report to Shareholders and Proxy Statement.
Other than mentioned above, to the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and written
representations that no other reports were required during the year ended
December 31, 1997, all filings applicable to its directors, officers and more
than 10 percent beneficial owners were timely filed.
BOARD OF DIRECTORS
The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of the Company, although it
is not involved in day-to-day operating details. Members of the Board are kept
informed of the Company's business by various reports and documents sent to them
as well as by operating and financial reports made at Board and Committee
meetings. Nine meetings of the Board of Directors, and four meetings of the
Executive Committee of the Board of Directors, were held during 1997. The only
incumbent director who attended fewer than 75% of the meetings of the Board of
Directors, and meetings of Committees of the Board on which he served, was Brian
McLean.
AUDIT COMMITTEE AND COMPENSATION COMMITTEE
The Company has standing Audit and Compensation Committees of the Board of
Directors.
The Audit Committee consists of Stephen Chen, Katsuaki Hayashibara and
Dennis Moore. The function of the Audit Committee is to serve as an advisory
committee to the Board of Directors of the Company; to review financial
statements and other reports prepared by the Company and any reports or other
communications rendered by the Company's independent certified public accounts
and to coordinate with the accountants any matters raised from time to time by
the accountants; to meet with the representative of the Company's independent
certified public accountants at least annually; and to take under advisement any
matters referred by the accountants. The Audit Committee met one time during
1997.
The Compensation Committee consists of Stephen Chen, Thomas D'Alonzo, and
James Page. The function of the Compensation Committee is to serve as an
advisory committee to the Board of Directors of the Company regarding all
matters of director, officer and employee compensation, and to report to the
Board of Directors from time to time as they might deem necessary, with any
recommendations for changes in level of compensation or fringe benefits for
officers, directors or employees; and to serve as an executive committee of the
Board of Directors of the Company with full authority to administer and to
effectuate the terms and provisions of the Company's 1996 Employee Stock Option
Plan and the Company's Outside Director and Advisor Stock Option Plan, and when
acting in such capacity, the Compensation Committee constitutes the "Committee"
referred to in each respective Plan, and has full authority to discharge all
discretionary and non- discretionary duties assigned to the "Committee" in each
respective Plan. The Compensation Committee met two times in 1997.
The Company does not have a nominating committee.
10
<PAGE> 13
DIRECTORS' FEES AND COMPENSATION DURING 1997
<TABLE>
<CAPTION>
Cash Compensation Security Grants
------------------------------- ---------------
NUMBER OF
SECURITIES
MEETING CONSULTING UNDERLYING
NAME FEES (1) FEES (2) OPTIONS
- ---- -------- ---------- ---------------
<S> <C> <C> <C>
Stephen Chen, Ph.D. $ 4,000 $ 41,400 5,000
James Cook 4,000 5,000 5,000
Thomas D'Alonzo 3,000 2,000 15,000
Katsuaki Hayashibara 4,000 -- 5,000
Brian McLean, M.D. 3,000 1,000 5,000
Dennis Moore, D.V.M. 4,000 8,200 5,000
James Page, M.D. 4,000 5,400 5,000
</TABLE>
- ------------
(1) Each director receives a fee of $1,000 for in-person attendance at each
regular directors' meeting, and $250 for participating in a regularly
scheduled directors' meeting by conference telephone, but does not receive
any additional compensation for service on committees of the Board of
Directors. Officers of the Company do not receive additional compensation
for serving as directors.
(2) Each director receives $1,200 per day for employment on special projects
or assignments, prorated for partial days.
EXECUTIVE COMPENSATION
The following table presents the compensation paid by the Company to the
named executive officers for 1995 through 1997.
<TABLE>
<CAPTION>
SUMMARY EXECUTIVE COMPENSATION TABLE
Annual Compensation
------------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER COMPENSATION
- --------------------------- ---- ------ ----- ------------------
<S> <C> <C> <C> <C>
Dr. Joseph Cummins, Chairman
of the Board, President and Chief
Executive Officer.................... 1997 $ 120,000 $ 20,000 $ 12,000 (3)
1996 120,000 -- 252,000 (4)
1995 120,000 500 --
Charles Hughes, Executive Vice-
President and Chief Financial
Officer (1).......................... 1997 147,435 (2) -- 10,333 (3)
1996 75,000 10,000 157,575 (5)
1995 75,000 -- --
</TABLE>
- --------------------
(1) Mr. Hughes terminated his employment with the Company on September 8,
1997.
(2) Includes both 1997 salary, and all severance payments.
(3) Represents a Company contribution to the Simplified Employee Pension Plan.
(4) Represents the value of 30,000 shares of Common Stock issued at $5.00 per
share and payment of withholding tax requirements in settlement of
restricted stock grants and a Company contribution of $12,000 to the
Simplified Employee Pension Plan.
(5) Represents the value of 19,000 shares of Common Stock issued at $5.00 per
share and payment of withholding tax requirements in settlement of
restricted stock grants and a Company contribution of $7,500 to the
Simplified Employee Pension Plan.
11
<PAGE> 14
OPTION GRANTS IN 1997
The following table sets forth certain information relating to options
granted in 1997 to the executive officers named above, to purchase shares of
Common Stock of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (#) IN 1997 ($/SH) DATE
- ---- ----------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Joseph Cummins........................... 7,000 30.4% $4.27 (1) 09/07/2002
- --------------
</TABLE>
(1) The fair market value of the Common Stock on the date of the grant was
$3.875 per share.
AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1997
AND YEAR-END OPTION VALUES
The following table sets forth information for the executive officers named
above, regarding the exercise of options during 1997 and unexercised options
held at the end of 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF VALUE OF UNEXERCISED
COMMON STOCK UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($) (1)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ ------------ --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Cummins -- -- -- / 14500 -- / 6860
</TABLE>
- ------------
(1) Calculated based on the closing price of the Common Stock ($5.25) as
reported by NASDAQ on December 31, 1997.
CERTAIN TRANSACTIONS
The Company has relied significantly on HBL, the largest shareholder of the
Company, for a substantial portion of its capital requirements. From 1989 to
1996, HBL provided an aggregate of $9,000,000 of funding pursuant to a Joint
Development and Manufacturing/Supply Agreement (the "Development Agreement"),
purchased from the Company an aggregate of 661,620 shares of Common Stock for a
total purchase price of $2,444,300 and made loans to the Company aggregating
$3,600,000, of which $1,000,000 loaned after March 31, 1996 was repaid
simultaneously with the consummation of the IPO. As of December 31, 1997, the
outstanding amount of the Company's indebtedness to HBL (including accrued
interest) was $2,691,356. HBL owns 1,232,856 shares, approximately 23% of the
Company's Common Stock. In addition to the Development Agreement, HBL and the
Company are parties to various license and manufacturing and supply agreements
pursuant to which the Company licenses certain technology to or from HBL and HBL
supplies formulations of its IFN[alpha] to the Company.
Pursuant to a Stock Purchase Agreement entered into in September 1987
between the Company and Mesa, Inc. ("Mesa"), which owns 315,120 shares of Common
Stock, the Company has agreed that for as long as Mesa is a shareholder of the
Company, the Company shall not without the prior written approval of Mesa engage
in any repurchase or redemption of its issued and outstanding shares of Common
Stock, unless such repurchase or redemption is offered, pro rata, to all then
existing shareholders.
12
<PAGE> 15
During the years ended December 31, 1997 and 1996, the Company paid $88,000
and $81,600, respectively, for legal services rendered by Morris, Moore, Moss
and Douglass, P.C. Edward Morris, the Secretary of the Company, is a member of
such firm.
Although the Company believes that the foregoing transactions were on terms
no less favorable to the Company than would have been available from
unaffiliated third parties in arm's length transactions, there can be no
assurance that this is the case. All future transactions and loans between the
Company and its officers, directors and 5% shareholders will be on terms no less
favorable to the Company than could be obtained from independent third parties.
There can be no assurance, however, that future transactions or arrangements
between the Company and its affiliates will be advantageous, that conflicts of
interest will not arise with respect thereto or that if conflicts do arise, that
they will be resolved in favor of the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP serve as the Company's independent public accountants. A
representative of that firm is expected to be present at the annual
shareholders' meeting, will have an opportunity to make a statement if he
desires to do so, and is expected to be available to respond to appropriate
questions.
STOCKHOLDER PROPOSALS
Stockholders may present proposals for inclusion in the Company's proxy
statement for the 1999 annual meeting of stockholders provided they are received
by the Company no later than December 17, 1998, and are otherwise in compliance
with applicable Securities and Exchange Commission regulations.
GENERAL
So far as is now known, there is no business other than that described
above to be presented for action by the stockholders at the meeting, but it is
intended that the proxies will be voted upon any other matters and proposals
that may legally come before the meeting and any adjournments thereof in
accordance with the discretion of the persons named therein.
COST OF SOLICITATION
The cost of solicitation of proxies will be borne by the Company. It is
expected that the solicitations will be made primarily by mail, but regular
employees or representatives of the Company may also solicit proxies by
telephone or telegraph and in person, and arrange for brokerage houses and other
custodians, nominees and fiduciaries to send proxy material to the principals at
the expense of the Company.
EDWARD L. MORRIS
Secretary
13
<PAGE> 16
8888 COMMON STOCK PROXY
AMARILLO BIOSCIENCES, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Revoking any such prior appointment, the undersigned, a stockholder of
Amarillo Biosciences, Inc., hereby appoints Joseph M. Cummins and James Cook,
and each of them, attorneys and agents of the undersigned with full power of
substitution, to vote all shares of the Common Stock of the undersigned in
said Company at the Annual Meeting of Stockholders of said Company to be held
in the Wellington Room, Wellington Square, I-40 and Georgia, Amarillo, Texas
on May 12, 1998 at 10:00 A.M. local time and at any adjournments thereof,
as fully and effectually as the undersigned could do if personally present and
voting, hereby approving, ratifying and confirming all that said attorneys
and agents or their substitutes may lawfully do in place of the undersigned
as indicated below.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS (1), (2) AND
(3), AND WILL BE VOTED IN THE DISCRETION OF THE PROXY HOLDERS ON OTHER MATTERS
TO PROPERLY COME BEFORE THE MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
IF HELD JOINTLY
NOTE: Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such if a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
<PAGE> 17
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
AMARILLO BIOSCIENCES, INC.
MAY 12, 1998
o Please Detach and Mail in the Envelope Provided o
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Please mark your
votes as in
[X] this example.
FOR AGAINST ABSTAIN
1. Election of FOR WITHHELD Nominees: Stephen Chen 2. Approval of amendments to the [ ] [ ] [ ]
Directors: James Cook 1996 Employee Stock Option Plan
[ ] [ ] Joseph Cummins
Tom D'Alonzo 3. Approval of amendments to the [ ] [ ] [ ]
(INSTRUCTION: To withhold authority Katsuaki Hayashibara Outside Director and Advisor
to vote for any individual nominee, Brian McLean Stock Option Plan
write that nominee's name in the Dennis Moore
space provided below) James Page 4. Upon any other matters which may properly come before
the meeting or any adjournments thereof.
-----------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Signature Signature Dated: , 1998
------------------------------------- ------------------------------------- ---------------
IF HELD JOINTLY
NOTE: Please sign exactly as name appears above. When shares are held by joint tenants, both should sign. When signing as attorney,
as executor, administrator, trustee or guardian, please give full title as such. If a corporation please sign in full
corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized
person.
</TABLE>
