<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] 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 Section 240.14a-11(c) or 240.14a-12
</TABLE>
Bionutrics, 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 Rule 14a-6(i)(4) 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
BIONUTRICS, INC.
2425 E. CAMELBACK ROAD, SUITE 650
PHOENIX, ARIZONA 85016
-------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FOR THE YEAR ENDED OCTOBER 31, 1997
TO BE HELD ON MARCH 26, 1998
-------------------------------------------------------------
The Annual Meeting of Stockholders of Bionutrics, Inc., a Nevada
corporation (the "Company"), will be held at 2:00 p.m. (local time), on March
26, 1998, at the Ritz Carlton, 2401 E. Camelback Road, Phoenix, Arizona 85016,
for the following purposes:
1. To elect three directors for a three-year term expiring in 2001.
2. To approve an amendment to the 1996 Stock Option Plan (the "1996
Plan") to increase the shares of the Company's Common Stock that may be issued
pursuant to the 1996 Plan to 2,850,000 shares from 1,900,000 shares.
3. To ratify the appointment of Deloitte & Touche LLP as the
independent auditors of the Company for the fiscal year ending October 31, 1998.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on February 11,
1998 are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
To assure your representation at the meeting, however, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she previously has returned a
proxy.
Sincerely,
George E. Duck, Jr.
Secretary
Phoenix, Arizona
February 27, 1998
<PAGE> 3
BIONUTRICS, INC.
2425 E. CAMELBACK ROAD, SUITE 650
PHOENIX, ARIZONA 85016
-------------------------------------------------------------
PROXY STATEMENT
-------------------------------------------------------------
VOTING AND OTHER MATTERS
GENERAL
The enclosed proxy is solicited on behalf of Bionutrics, Inc., a Nevada
corporation (the "Company"), by the Company's board of directors (the "Board of
Directors") for use at the Annual Meeting of Stockholders to be held at 2:00
p.m. (local time), on March 26, 1998 (the "Meeting"), or at any adjournment
thereof, for the purposes set forth in this Proxy Statement and in the
accompanying Notice of Annual Meeting of Stockholders. The Meeting will be held
at the Ritz Carlton, 2401 E. Camelback Road, Phoenix, Arizona 85016.
These proxy solicitation materials were first mailed on or about
February 27, 1998, to all stockholders entitled to vote at the Meeting.
VOTING SECURITIES AND VOTING RIGHTS
Stockholders of record at the close of business on February 11, 1998
(the "Record Date"), are entitled to notice of and to vote at the Meeting. On
the Record Date, there were issued and outstanding 17,905,588 shares of the
Company's Common Stock, $.001 par value per share (the "Common Stock").
The presence, in person or by proxy, of the holders of a majority of
the total number of shares of Common Stock outstanding constitutes a quorum for
the transaction of business at the Meeting. Each stockholder voting at the
Meeting, either in person or by proxy, may cast one vote per share of Common
Stock held on all matters to be voted on at the Meeting. Assuming that a quorum
is present, the affirmative vote of a majority of the shares of Common Stock of
the Company present in person or represented by proxy at the Meeting and
entitled to vote is required: (i) to elect three directors for a three-year term
expiring in 2001; (ii) to amend the 1996 Stock Option Plan (the "1996 Plan") to
increase the shares of the Company's Common Stock that may be issued pursuant to
the 1996 Plan to 2,850,000 shares from 1,900,000 shares; and (iii) to ratify the
appointment of Deloitte & Touche LLP as the independent auditors of the Company
for the fiscal year ending October 31, 1998.
Votes cast by proxy or in person at the Meeting will be tabulated by
the election inspectors appointed for the Meeting and will determine whether a
quorum is present. The election inspectors will treat abstentions as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum but as unvoted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
VOTING OF PROXIES
When a proxy is properly executed and returned, the shares it
represents will be voted at the Meeting as directed. If no specification is
indicated, the shares will be voted: (i) "for" the election of the nominees set
forth in this Proxy Statement; (ii) "for" the amendment to the 1996 Plan to
increase the shares of the Company's Common Stock that may be issued pursuant to
the 1996 Plan to 2,850,000 shares from 1,900,000 shares; and (iii) "for" the
ratification of the appointment of Deloitte & Touche LLP as the independent
auditors of the Company for the fiscal year ending October 31, 1998.
<PAGE> 4
REVOCABILITY OF PROXIES
Any person giving a proxy may revoke the proxy at any time before its
use by delivering to the Company written notice of revocation or a duly executed
proxy bearing a later date or by attending the Meeting and voting in person.
SOLICITATION
The cost of this solicitation will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for expenses incurred in forwarding
solicitation materials to such beneficial owners. Proxies also may be solicited
by certain of the Company's directors and officers, personally or by telephone
or telegram, without additional compensation.
ANNUAL REPORT AND OTHER MATTERS
The 1997 Annual Report to Stockholders, which was mailed to
stockholders with or preceding this Proxy Statement, contains financial and
other information about the activities of the Company but is not incorporated
into this Proxy Statement and is not to be considered a part of these proxy
soliciting materials. The information contained in the "Report of the
Compensation Committee of the Board of Directors" below and "Company Performance
Graph" below shall not be deemed "filed" with the Securities and Exchange
Commission (the "SEC") or subject to Regulations 14A or 14C or to the
liabilities of Section 18 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
The Company will provide, without charge to each stockholder of record
as of the Record Date, a copy of the Company's annual report on Form 10-K/A for
the year ended October 31, 1997, as filed with the SEC. Any exhibits listed in
the Form 10-K/A report also will be furnished upon request at the actual expense
incurred by the Company in furnishing such exhibit. Any such requests should be
directed to the Company's Secretary at the Company's executive offices set forth
in this Proxy Statement.
2
<PAGE> 5
SECURITY OWNERSHIP OF
PRINCIPAL STOCKHOLDERS, DIRECTORS
AND NAMED EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock on February 11, 1997 by: (i) each
director and each nominee for director; (ii) the Named Executive Officers (as
defined herein) set forth in the Summary Compensation Table under the section
entitled "EXECUTIVE COMPENSATION;" (iii) all directors and executive officers of
the Company as a group; and (iv) each person known by the Company to be the
beneficial owner of more than five percent of the Common Stock.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY
OWNED
NAME OF BENEFICIAL OWNER (1) (2) PERCENT
- --------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Ronald H. Lane, Ph.D.(3) ...................... 3,885,252 21.7%
George E. Duck, Jr.(4) ........................ 16,667 *
D. Michael Wells(5) ........................... 434,883 2.4
Stephen H. Friedman(6) ........................ 50,000 *
Steven Chabre ................................. 0 *
Richard M. Feldheim(7) ........................ 937,515 5.2
Ian R. Ferrier, M.D., Ph.D.(8) ................ 190,248 1.1
Steve Henig, Ph.D.(9) ......................... 673,999 3.8
C. Everett Koop, M.D., Sc.D.(10) .............. 203,333 1.1
William McCormick(11) ......................... 827,500 4.6
Milton Okin(12) ............................... 547,583 3.1
Frederick B. Rentschler(13) ................... 189,425 1.1
Winston A. Salser, Ph.D.(14) .................. 900,360 5.0
Executive officers and directors as a group
(16 persons) ................................ 8,712,142 45.5%
OTHER 5% STOCKHOLDERS:
Lipogenics, Inc.(15) .......................... 1,202,886 6.7%
Bali Holdings LLC(16) ......................... 1,400,000 7.8%
</TABLE>
*Denotes less than a 1% interest in the Company
(1) Except as indicated, and subject to community property laws when
applicable, the persons named in the table above have sole voting and
investment power and with respect to all shares of Common Stock shown
as beneficially owned by them.
(2) Includes shares of Common Stock issuable to the identified person
pursuant to stock options or warrants that may be exercised within 60
days after February 11, 1997. In calculating the percentage of
ownership, such shares are deemed to be outstanding for the purpose of
computing the percentage of shares of Common Stock owned by such
person, but are not deemed to be outstanding for the purpose of
computing the percentage of shares of Common Stock owned by any other
stockholders.
3
<PAGE> 6
(3) Represents shares held of record by R.H. Lane Limited Partnership of
which Dr. Lane is a general partner. He shares voting power over these
shares with Richard M. Feldheim, a general partner. Dr. Lane disclaims
beneficial ownership of 686,000 shares held by such partnership for the
benefit of other partners and 900,000 shares held by the partnership
for the benefit of his wife. Includes 253,333 shares of Common Stock
issuable upon exercise of stock options.
(4) Includes 16,667 shares of Common Stock issuable upon exercise of stock
options.
(5) Includes 36,667 shares of Common Stock issuable upon exercise of stock
options.
(6) Includes 50,000 shares of Common Stock issuable upon exercise of stock
options.
(7) Includes 133,280 shares held of record by Millrich Corporation, a
company controlled by Mr. Feldheim, 19,826 shares held of record by
Abby's, Inc., a corporation controlled by Mr. Feldheim, 395,076 shares
held of record by the R. M. Feldheim Limited Partnership of which Mr.
Feldheim is the general partner, and 386,000 shares held by R.H. Lane
Limited Partnership of which Mr. Feldheim is a general partner. Does
not include 3,245,919 shares held by R.H. Lane Limited Partnership for
the benefit of other partners. He shares voting power over the shares
held by Millrich Corporation, Abby's, Inc. and R.H. Lane Limited
Partnership. Includes 3,333 shares of Common Stock issuable upon
exercise of Stock Options.
(8) Includes 25,000 shares held by Mr. Ferrier's wife, of which he
disclaims beneficial ownership. Also includes 75,966 shares held by
Bogart Delafield Ferrier, Inc. over which Mr. Ferrier shares voting
power. Includes 3,333 shares of Common Stock issuable upon exercise of
Stock Options.
(9) Represents 560,522 shares and 110,144 shares issuable upon exercise of
an option held by Hunt-Wesson, Inc., of which Mr. Henig disclaims
beneficial ownership. Includes 3,333 shares of Common Stock issuable
upon exercise of Stock Options.
(10) Includes 183,333 shares of Common Stock issuable upon exercise of Stock
Options.
(11) Includes 550,000 shares issuable upon exercise of warrants. Also
includes 50,000 shares held by Mr. McCormick's wife and 25,000 shares
held by Mr. McCormick's minor children, of which shares he disclaims
beneficial ownership. Also includes 3,333 shares of Common Stock
issuable upon exercise of Stock Options.
(12) Includes 3,333 shares of Common Stock issuable upon exercise of Stock
Options.
(13) The shares are held of record by the Frederick B. Rentschler Trust.
Includes 3,333 shares of Common Stock issuable upon exercise of Stock
Options.
(14) Includes 114,300 shares held by the Salser Partnerships Nos. 1, 2, and
3. Mr. Salser shares voting power with respect to these shares with
other family members. Also includes 3,333 shares of Common Stock
issuable upon exercise of Stock Options.
(15) The address of Lipogenics is 2425 E. Camelback Road, Suite 650,
Phoenix, Arizona 85016. Lipogenics is a wholly owned subsidiary of the
Company, and as such for consolidation purposes these shares are
classified as treasury shares.
(16) The address of Bali Holdings LLC is 970 Douglas Road, Batavia, Illinois
60510. The members of the management committee are three U.S. citizens
residing in Illinois and Connecticut. A member of the limited liability
company includes John R. Palmer, an executive officer of the Company.
4
<PAGE> 7
PROPOSAL TO ELECT DIRECTORS
NOMINEES
The Company's Restated Articles of Incorporation provide that the
number of directors shall be fixed from time to time by resolution of the Board
of Directors or stockholders. Presently, the number of directors is fixed at ten
and that number of directors is divided into three classes, with one class
standing for election each year for three-year terms. The Board of Directors has
nominated Ronald H. Lane, Ph.D., Michael Wells, and William M. McCormick for
re-election as Class I directors for three-year terms expiring in 2001 or until
their respective successors are elected and qualified. The terms of the initial
Class I directors are to expire in 1997 or until their successors are duly
elected and qualified. The Board of Directors is not proposing a nominee for a
fourth Class I director. Accordingly, after the election of directors, a vacancy
will exist on the Board of Directors, which, as with all other vacancies, may be
filled by a vote of a majority of the directors then in office. The Annual
Meeting for the election of directors is held in the calendar year immediately
following the fiscal year end.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for each of the nominees named above. In the event that any of
the nominees is unable or declines to serve as a director at the time of the
Meeting, the proxies will be voted for a nominee, if any, designated by the
current Board of Directors to fill the vacancy. It is not expected that any of
the nominees will be unable or will decline to serve as a director.
The Board of Directors recommends a vote "For" the nominees named
herein.
The following table sets forth certain information regarding the
directors and nominees for directors of the Company:
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION EXPIRES
---- --- -------- -------
<S> <C> <C> <C>
Ronald H. Lane, Ph.D.(2) 53 Chairman of the Board, Chief Executive 1997
Officer and President
D. Michael Wells(2) 48 President of Nutrition Technology 1997
Corporation and Director
William M. McCormick(2) 57 Director 1997
Richard M. Feldheim(3) 57 Director 1998
Steve Henig, Ph.D.(1)(4) 55 Director 1998
C. Everett Koop, M.D., Sc.D. 81 Director 1999
Milton Okin(2) 82 Director 1999
Frederick Rentschler(1)(4) 58 Director 1999
Winston A. Salser, Ph.D. 58 Director 1998
</TABLE>
(1) Member of the Compensation Committee.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee.
(4) Member of the Senior Committee.
5
<PAGE> 8
RONALD HOWARD LANE, PH.D. has served as Chairman of the Board, Chief
Executive Officer and President of the Company since December 1994 and its
predecessor, NutraGenics (Delaware) since April 1994 and served as President and
Chief Executive Officer of LipoGenics from July 1992 to October 1997. Dr. Lane
received a Ph.D. and post-doctorate NIH fellowship from the University of
Wisconsin (Madison) in Neurophysiology and is responsible for directing
Bionutrics' corporate development and growth. Dr. Lane spearheaded the
development of the technology at LipoGenics and has been employed previously
with Norcap Financial Corporation, The National Western Group, Inc. (an
investment company), and Taylor Pierson Corporation.
D. MICHAEL WELLS has served as President of Nutrition Technology
Corporation since November 1996. He also has served as director of the Company
and its predecessor NutraGenics (Delaware) since December 1994 and served as
Secretary and Treasurer of the Company and NutraGenics (Delaware) from April
1994 to October 1996. Mr. Wells served as a director of LipoGenics from July
1992 until October 1996. He served as General Manager of Zapata Protein (USA),
Inc. from 1995 to 1996 and is an inventor of portions of the technology. Mr.
Wells was previously employed by Riviana Foods, Inc. of Houston, Texas as a
General Manager of their Abbeville, Louisiana rice milling operations. Mr. Wells
received a B.S. in chemistry from Southeastern Oklahoma State University and
undertook graduate work in physical organic chemistry at East Texas State
University. Previously, Mr. Wells was employed as Director of Technical Affairs
for Conway Oil and Division Quality Assurance Manager for Safeway Stores, Inc.,
which included new product development management.
WILLIAM M. MCCORMICK has been a member of the Board of Directors since
May 1996. Mr. McCormick was President and Chief Executive Officer of PennCorp
Financial Group, Inc., a NYSE company, from 1990 to 1995 and was a director from
1990 until 1997. Prior thereto, Mr. McCormick was employed by the American
Express Company. His titles ranged from Senior Vice President Finance, Systems &
Operations of the American Express International Banking Corporation to
President of American Express' Travel Related Services Company. Mr. McCormick
then spent five years as Chairman and CEO of Fireman's Fund Insurance. After
graduating from Yale, Mr. McCormick spent his early years in investment banking
and management consulting with Donaldson, Lufkin & Jenrette and McKinsey &
Company, Inc., respectively.
RICHARD M. FELDHEIM has been a director of the Company since October
1995. He served as a director, Secretary and Chief Financial Officer of
LipoGenics from July 1992 until October 1996. Mr. Feldheim has served as
Chairman and Co-Chief Executive Officer of Abby's, a restaurant chain in Oregon
since 1991. He was in private place as a lawyer prior thereto, has previously
been employed with Goldman Sachs & Co.; Donaldson, Lufkin & Jenrette; J. Aron
Company; and Price Waterhouse, and was President of Norcap Financial
Corporation. Mr. Feldheim received a B.S., B.A., a Master's Degree in
Accounting, and a J.D. from the University of Arizona, as well as an LL.M. in
Taxation from New York University. He is a Certified Public Accountant.
STEVE HENIG, PH.D. has been a member of the Board of Directors since
October 1995 and served as a director of LipoGenics from August 1992 until
October 1996. He has served as Senior Vice President of Technology and Marketing
Services for Hunt-Wesson, Inc. since 1992. He joined Hunt-Wesson in 1983 as Vice
President of Research and Development. His previous position was Vice President
of Corporate Research & Development and Corporate Engineering for Land O'Lakes,
Inc. in Minneapolis, Minnesota. Prior to that he held positions with Pillsbury
Company and General Foods Corporation. Dr. Henig received his Bachelor of
Science Degree in Chemical Engineering and a Master of Science Degree in Food
and Biotechnology from the Technion-Israel Institute of Technology. He earned
his Ph.D. Degree in Food Science from Rutgers University, New Brunswick, New
Jersey.
6
<PAGE> 9
C. EVERETT KOOP, M.D., SC.D. is the former Surgeon General of the
United States and has been a member of the Board of Directors since October
1995. Dr. Koop's past and present committee and board of director elections
include the World Health Organization, Pan American Health Organization,
American College of Surgeons, National Library of Medicine, Association of
Military Surgeons of the United States, Biopure Corporation, Neurocrine, Aprex,
and the Carnegie Council. Faculty appointments include Professor of Pediatrics
at University of Pennsylvania School of Medicine, Elizabeth DeCamp McInery
Professor, Dartmouth, Senior Scholar of C. Everett Koop Institute at Dartmouth,
and Distinguished Scholar at Carnegie Foundation for the Advancement of
Teaching. Dr. Koop's hospital and administrative appointments include President
of the Children's Hospital of Philadelphia and Pediatric Surgical Consultant of
the U.S. Naval Hospital of Philadelphia. Dr. Koop received an M.D. at Cornell
University Medical College and a Sc.D. from the University of Pennsylvania
(Medicine).
MILTON OKIN has been a member of the Board of Directors since October
1995. Mr. Okin has many years of diet and health food development experience,
having created Weight Watchers low calorie foods that he subsequently sold to
Weight Watchers International. Mr. Okin developed a unique all natural Vitamin C
from acerola berry grown in plantations in Puerto Rico and Florida. The acerola
operation was sold to Booker McConnell Ltd. of England in 1978. Mr. Okin has
owned and operated a chain of health food related retail stores including
outlets in Sears Roebuck and Company, and presently owns a mail order vitamin
and health products business in Hastings, N.Y. Mr. Okin is a biochemist graduate
of New York City College with graduate research at Mount Sinai Hospital in
lipids, cholesterol and vitamins.
FREDERICK B. RENTSCHLER has been a member of the Board of Directors
since October 1995 and served as a director of LipoGenics from January 1993
until October 1996. He is Chairman of the Board of the Salk Institute in La
Jolla, California. He serves on the board of directors and compensation
committee of International Game Technology, a NYSE company. He served as
President and Chief Executive Officer of Beatrice Companies from 1987 to 1990,
having completed a leveraged buyout of Beatrice Companies in 1986 with the firm
of Kohlberg, Kravis, Roberts & Company. Prior to Beatrice, Mr. Rentschler was
employed as President/Chief Executive Officer of Armour-Dial and subsequently
had the same responsibility at Hunt-Wesson. Following his retirement from
Beatrice, he served as President/Chief Executive Officer of Northwest Airlines
and remains on their Board of Directors. Mr. Rentschler's current affiliations
in addition to the Salk Institute include: ESCAgenetics Corporation, Woods Hole
Oceanographic Institution (Massachusetts), and Hamilton Foundry and Machine
Company. In addition, he is President of the Heard Museum National Advisory
Board (Arizona), and a member of the Alumni Board of Vanderbilt University and
Advisory Board of Canned Foods, Inc. (California). Mr. Rentschler received his
B.A. in Economics and History from Vanderbilt University and MBA from Harvard
Business School.
WINSTON A. SALSER, PH.D. has served as a member of the Board of
Directors since October 1995, served as a director of LipoGenics from August
1992 until October 1996 and is Chairman of Bionutrics' Scientific Advisory
Board. Dr. Salser has been a Professor of Molecular Biology at the University of
California, Los Angeles since 1968. Dr. Salser was the founding President of
Amgen, Inc. and formed its Scientific Advisory Board. He received a B.S. from
the University of Chicago in physics, a Ph.D. from the Massachusetts Institute
of Technology in molecular biology, and was a Helen Hay Whitney Foundation
Postdoctoral Fellow.
7
<PAGE> 10
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's bylaws authorize the Board of Directors to appoint among
its members one or more committees composed of one or more directors. As of
February 11, 1998, the Board of Directors had appointed the following standing
committees: a Compensation Committee; an Executive Committee; an Audit
Committee; and a Senior Committee.
Compensation Committee. The Compensation Committee reviews and acts on
matters relating to compensation levels and benefit plans for key executives of
the Company. The Compensation Committee also reviews the succession planning for
key executive personnel, monitors employee relations issues and oversees senior
management structure. The Committee held three meetings during the fiscal year
ended October 31, 1997.
Executive Committee. The Company's Executive Committee held four
meetings during the fiscal year ended October 31, 1997. The Executive Committee
acts as a liaison between management and the Board of Directors. At times the
Board of Directors empowers the Executive Committee to take certain actions on
behalf of the Board of Directors between regularly scheduled meetings.
Audit Committee. The Company's Audit Committee held one meeting during
the fiscal year ended October 31, 1997. The Audit Committee reviews the annual
financial statements and significant accounting issues and the scope of the
audit with the Company's independent auditors and is available to discuss with
the auditors any other audit related matters that may arise during the year.
Senior Committee. The Senior Committee's function is to administer the
1996 Plan. The 1996 Plan requires that the Senior Committee be comprised of two
or more disinterested directors. The Senior Committee held three meetings during
the fiscal year ended October 31, 1997.
The Board of Directors of the Company held a total of seven meetings
during the fiscal year ended October 31, 1997. Dr. C. Everett Koop attended
fewer than 75% of the aggregate of (i) the total number of meetings of the Board
of Directors, and (ii) the total number of meetings held by all committees of
the Board on which he was a member.
DIRECTOR COMPENSATION AND OTHER INFORMATION
The Company pays all of its Board members a fee of $1,000 plus
reimbursement for expenses for each Board meeting attended. No options were
granted to members of the Board of Directors for the fiscal year ended October
31, 1997.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth the total compensation received for
services rendered in all capacities to the Company for the fiscal years ended
October 31, 1996 and 1997 by the Company's Chief Executive Officer, and its four
most highly compensated executive officers whose aggregate cash compensation
exceeded $100,000 (together the "Named Executive Officers").
8
<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------
Annual Compensation Awards
-------------------------------------------------- --------------------------------
Restricted
Other Annual Stock Securities All Other
Name and Compensation Award(s) Underlying Compensation
Principal Position Year Salary ($) Bonus($) ($)(1) ($) Options (#) ($)(2)
- ------------------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald H. Lane, Ph.D
Chief Executive Officer and 1997 $202,296 $250,000(3) -- -- -- $ 4,000
President ....................... 1996 $211,756 $250,000 $167,884(4) -- 760,000 --
George E. Duck, Jr.(5)
Vice President of Finance, 1997 $125,962 $ 31,490(3) -- -- 25,000 $ 39,329
Secretary and Treasurer ......... 1996 $ 5,208 $ 20,000 -- -- 50,000 --
Stephen H. Friedman
Executive Vice President, 1997 $199,903(3) $ 54,979(3) -- -- -- $ 23,500
Bionutrics Health Products, Inc. 1996 $ 74,100(6) $ 22,917 -- -- 150,000 --
D. Michael Wells
President of Nutrition Technology 1997 $150,000 $ 37,500(3) -- -- -- $ 4,000
Corporation ..................... 1996 $ 15,000(6) -- -- -- 110,000 --
Steven Chabre(7) 1997 $ 93,269 $ 23,317(3) -- -- 200,000 $ 45,045
President of Bionutrics Health 1996 -- -- -- -- -- --
Products, Inc. ..................
</TABLE>
(1) Other annual compensation did not exceed the lesser of $50,000 or 10%
of the total salary and bonus for any of the Named Executive Officers
except as noted.
(2) Represents moving expenses except as to Dr. Lane and Mr. Wells, in
which case directors' fees.
(3) Represents accrued but not yet paid bonuses except for Mr. Friedman of
which $27,896 is accrued but not yet paid.
(4) Reflects a promissory note in the amount of $147,000 and accrued
interest owed to the Company by Dr. Lane that was converted to
compensation.
(5) Mr. Duck joined the Company in October 1996.
(6) Includes consulting fees for services performed prior to joining the
Company.
(7) Mr. Chabre served as President of Bionutrics Health Products, Inc.
until January, 1998 and remains as a consultant with the Company.
9
<PAGE> 12
OPTION GRANTS
The following table represents the options granted to the Named
Executive Officers in the last fiscal year and the value of such options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------- Potential Realizable
% Value at Assumed
Number of of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise or Option Term(1)
Options Employees in Base Price Expiration -----------------------
Granted(#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
George E. Duck, Jr .................. 25,000(1) 4.36% $8.75 10/24/02 $ 60,437 $ 133,549
Steven Chabre ....................... 200,000(1) 34.90% $9.13 6/13/02 $504,490 $1,114,791
</TABLE>
(1) The options granted vest ratably over three years, commencing on the
first anniversary of the applicable grant date.
(2) Calculated from a base price equal to the exercise price of each
option, which was the fair market value of the Common Stock on the date
of grant. The amounts represent only certain assumed rates of
appreciation. Actual gains, if any, on stock option exercises and
Common Stock holdings cannot be predicted, and there can be no
assurance that the gains set forth on the table will be achieved.
OPTION AND HOLDINGS
The following table represents certain information respecting the
options held by the Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End (#) at Fiscal Year-End ($)(1)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Ronald H. Lane, Ph.D ... 253,333 506,667 $ 696,666 $1,393,334
George E. Duck, Jr ..... 16,667 58,333 45,834 91,666
Stephen H. Friedman .... 50,000 100,000 137,500 275,000
D. Michael Wells ....... 36,667 73,333 100,834 201,666
Steven Chabre .......... -- 200,000 -- --
</TABLE>
(1) Calculated based on $7.75, which was the closing sales price of the
Common Stock as quoted on the Nasdaq Bulletin Board on October 31, 1997
multiplied by the number of applicable shares in-the-money less the
total exercise price.
10
<PAGE> 13
EMPLOYMENT AGREEMENTS
As of January 6, 1997, the Company entered into an Employment Agreement
(the "Agreement") with Mr. Stephen Friedman. The Agreement will expire on
January 5, 1999. Unless the Company terminates the Agreement by giving written
notice to Mr. Friedman not less than six months prior to January 5, 1999, the
Agreement will automatically renew for an additional two years through January
5, 2001. Subject to annual review by the Board of Directors, the Agreement
provides for a base salary of $200,000 and entitles Mr. Friedman to participate
in the 1996 Stock Option Plan and other generally available benefit programs.
Subject to approval of the Board, Mr. Friedman will receive an annual bonus of
up to 25% of his base salary.
The Agreement contains certain restrictive covenants pursuant to which
Mr. Friedman has agreed not to compete with the Company or to solicit any
clients or employees of the Company for a period of one year after his
employment ceases. In the event that the Company terminates Mr. Friedman's
agreement without cause, as such term is defined in the Agreement, Mr. Friedman
shall be entitled to a severance payment in the amount of $50,000 payable within
30 days after the date on which his employment terminates. In the event that the
agreement is terminated for cause, Mr. Friedman shall not be entitled to any
severance or continued benefits under the Agreement.
Mr. Friedman's Employment Agreement also contains a "change of control"
provision that provides that in the event his services are terminated as a
result of a "change of control," any unvested options to acquire the Company's
Common Stock will immediately vest and become exercisable notwithstanding the
provisions of the options. The term "change in control" shall be deemed to have
occurred if and when (i) certain persons, acting alone or in concert with
others, acquire beneficial ownership of 15% or more of the combined voting power
of the Company's outstanding voting securities unless approved by a certain
number of non-affiliated Board members or shareholders; (ii) during the period
of the Agreement, individuals who, at the beginning of such period, constituted
the Board of Directors, cease to constitute the majority thereof (unless any new
Board members are unanimously approved by the Board members then still in
office); (iii) certain reorganizations, mergers, consolidations, liquidations,
or sales of all or substantially all the Company's assets occur unless consented
to by the Board of Directors; or (iv) a tender offer or exchange offer is made
whereby the effect of such offer is to take over and control the Company and
such offer is consummated for the ownership of securities of the Company
representing 20% or more of the combined voting power of the Company's
outstanding voting securities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended October 31, 1997, the Company's
Compensation Committee consisted of Messrs. Frederick Rentschler and Steve
Henig. Mr. Henig serves as an executive officer of Hunt-Wesson, a shareholder of
the Company that holds an option granted in 1992 to purchase 110,144 shares of
the Company's Common Stock for an aggregate of $150,000.
PROPOSAL TO AMEND THE COMPANY'S 1996 STOCK OPTION PLAN
The Board of Directors has approved a proposal to amend the Company's
1996 Stock Option Plan, subject to approval by the Company's stockholders. The
amendment to the 1996 Plan will increase the number of shares of Common Stock
which may be issued pursuant to the 1996 Plan to 2,850,000 from 1,900,000
shares. The Board of Directors recommends a vote "For" the proposed amendment to
the 1996 Plan.
The 1996 Plan is intended to promote the interests of the Company by
providing key employees, including officers and directors, consultants and other
independent contractors who provide valuable services to the Company with the
opportunity to acquire, or otherwise increase, their proprietary interest in the
Company as an incentive to remain in service to the Company. Presently, the
number of shares of Common Stock with respect to which options may be issued
under the 1996 Plan is 1,900,000. Through October 31, 1997, the Company has
granted options covering 1,794,433 shares of Common Stock previously reserved
for issuance under the 1996 Plan.
11
<PAGE> 14
1996 STOCK OPTION PLAN
GENERAL
The 1996 Plan is a Grant Program. The Grant Program provides for the
granting of options to acquire Common Stock of the Company ("Options"), the
direct granting of the Common Stock of the Company ("Stock Awards"), the
granting of stock appreciation rights ("SARs"), or the granting of other cash
awards ("Cash Awards") (Stock Awards, SARs and Cash Awards are collectively
referred to herein as "Awards"). Options and Awards under the 1996 Plan may be
issued to executives, key employees, and others providing valuable services to
the Company and its subsidiaries. The Options issued may be incentive stock
options or nonqualified stock options. The Company believes that the Grant
Program represents an important factor in attracting and retaining executives
and other key employees and constitutes a significant part of the compensation
program for employees.
If any change is made in the stock subject to the 1996 Plan, or subject
to any Option or SAR granted under the 1996 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
1996 Plan provides that appropriate adjustments will be made as to the maximum
number of shares subject to the 1996 Plan and the number of shares and exercise
price per share of stock subject to outstanding Options. An optionholder will
not have any of the rights of a stockholder with respect to optioned shares
until such holder exercises the Option.
ELIGIBILITY AND ADMINISTRATION
Options and Awards may be granted only to persons ("Eligible Persons")
who at the time of grant are either (i) key personnel (including officers and
directors) of the Company or subsidiaries of the Company, or (ii) consultants
and independent contractors who provide valuable services to the Company or to
subsidiaries of the Company. Options that are incentive stock options may be
granted only to key personnel of the Company (and its subsidiaries) who are also
employees of the Company (or its subsidiaries).
The Eligible Persons under the Grant Program are divided into two
groups, and there will be a separate administrator (a "Plan Administrator") for
each group. One group consists of Eligible Persons who are executive officers
and directors of the Company and all persons who own 10% or more of the
Company's issued and outstanding stock. The power to administer the Grant
Program with respect to those persons may be vested either with the Board of
Directors or with a committee comprised of two or more "Non-Employee Directors"
(as such term is defined under Rule 16(b)(3)(i) promulgated under the 1934 Act)
who are appointed by the Board (the "Senior Committee"). The Senior Committee,
in its sole discretion, may require approval of the Board of Directors for
specific grants of Options or Awards under the Grant Program. Members of the
Senior Committee may participate in the Grant Program as permitted by the Rules.
The second group consists of Eligible Persons who are not executive officers or
directors of the Company and those who do not own 10% or more of the Company's
issued and outstanding stock. The power to administrate the Grant Program with
respect to the second group of Eligible Persons may be vested exclusively with
the Board of Directors of the Company or with a committee of two or more
directors. Each Plan Administrator will determine (a) which of the Eligible
Persons in its group will be granted Options and Awards, (b) the amount and
timing of such grant, and (c) such other terms and conditions as may be imposed
by the Plan Administrator consistent with the 1996 Plan.
To the extent that granted Options are incentive stock options, the
terms and conditions of those Options must be consistent with the qualification
requirements set forth in the Internal Revenue Code of 1986, as amended (the
"Code"). The maximum number of shares of stock with respect to which Options or
Awards may be granted to any employee during the term of the 1996 Plan may not
exceed 25% of the shares of stock covered by the 1996 Plan.
12
<PAGE> 15
EXERCISE OF OPTIONS
The expiration date, maximum number of shares purchasable and the other
provisions of the Options, including vesting provisions and authorizing the
grant of reload options, are established at the time of grant. Options may be
granted for terms of up to 10 years. Options vest and thereby become exercisable
in whole or in one or more installments at such time as may be determined by the
Plan Administrator upon the grant of the Options. However, a Plan Administrator
has the discretion to provide for the automatic acceleration of the vesting of
any Options or Awards granted under the Discretionary Grant Program in the event
of a "Change in Control" (as defined in the 1996 Plan).
The exercise prices of Options are determined by the Plan
Administrator, but if the option is intended to be an incentive stock option, it
may not be less than 100% (110% if the option is granted to a stockholder who at
the time the option is granted owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its
subsidiaries) of the fair market value of the Common Stock at the time of the
grant.
Options or awards granted pursuant to the Grant Program may be
assigned, encumbered or otherwise transferred by the optionholder or grantee if
specifically allowed by the Plan Administrator upon the grant of such Option or
Award. If any optionholder ceases to be employed by the Company for a reason
other than death, such optionholder may, within three months after the
termination of such employment, exercise some or all of the vested incentive
stock options held by such employee. However, termination for cause terminates
all Options held by such employee.
Under the 1996 Plan, Options which are not incentive stock options and
which are outstanding at the time an optionholder's service to the Company
terminates will remain exercisable for such period of time thereafter as
determined by the Plan Administrator at the time of grant of such Options.
However, if the optionholder is discharged for cause, all Options held by such
optionholder will terminate.
AWARDS
The Plan Administrators also may grant Awards to Eligible Persons under
the 1996 Plan. Awards may be granted in the form of SARs, Stock Awards or Cash
Awards. Through October 31, 1997, no Stock Awards have been granted under the
1996 Plan.
Awards granted in the form of SARs entitle the recipient to receive a
payment equal to the appreciation in market value of a stated number of shares
of Common Stock from the price stated in the award agreement to the market value
of the Common Stock on the date first exercised or surrendered. The Plan
Administrators may determine, consistent with the 1996 Plan, such terms,
conditions, restrictions and limitations, if any, on any SARs.
Awards granted in the form of Stock Awards entitle the recipient to
receive Common Stock directly. Awards granted in the form of cash entitle the
recipient to receive direct payments of cash depending on the market value or
the appreciation of the Common Stock or other securities of the Company. The
Plan Administrators may determine such other terms, conditions and limitations,
if any, on any Awards.
The 1996 Plan provides that it is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Common
Stock, stock awards or any other type of award. To the extent permitted by
applicable law, the Company may issue any other options, warrants, or awards
other than pursuant to the 1996 Plan without stockholder approval.
DURATION AND MODIFICATION
The 1996 Plan will remain in force until October 31, 2006. The Board of
Directors of the Company at any time may amend the 1996 Plan except that,
without the approval by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of the Company, the Board of Directors may
not (i) increase, except in the case
13
<PAGE> 16
of certain organic changes to the Company, the maximum number of shares of
Common Stock subject to the 1996 Plan, (ii) reduce the exercise price at which
Options may be granted or the exercise price for which any outstanding Option
may be exercised, (iii) extend the term of the 1996 Plan, (iv) change the class
of persons eligible to receive Options or Awards under the 1996 Plan, or (v)
materially increase the benefits accruing to participants under the 1996 Plan.
In addition, the Board may not, without the consent of the optionholder, take
any action that disqualifies any Option previously granted under the 1996 Plan
for treatment as an incentive stock option or that adversely affects or impairs
the rights of the optionholder of any outstanding Option. Notwithstanding the
foregoing, the Board of Directors may amend the 1996 Plan from time to time as
it deems necessary in order to meet the requirements of any amendments to Rule
16b-3 under the 1934 Act without the consent of the stockholders of the Company.
REASONS FOR AND EFFECT OF THE PROPOSED AMENDMENT AND RESTATEMENT
The Board of Directors believes that the approval of the proposed
amendment to the 1996 Plan is necessary to achieve the purposes of the 1996 Plan
and to promote the welfare of the Company and its stockholders generally. The
Board of Directors believes that the proposed amendment to the 1996 Plan will
aid the Company in attracting and retaining directors, officers and key
employees and motivating such persons to exert their best efforts on behalf of
the Company. In addition, the Company expects that the proposed amendment will
further strengthen the identity of interest of the directors, officers and key
employees with that of the stockholders.
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
Certain options granted under the 1996 Plan will be intended to qualify
as incentive stock options under Code Section 422. Accordingly, there will be no
taxable income to an employee when an incentive stock option is granted to him
or her when that option is exercised. The amount by which the fair market value
of the shares at the time of exercise exceeds the option price generally will be
treated as an item of preference in computing the alternate minimum taxable
income of the optionholder. If an optionholder exercises an incentive stock
option and does not dispose of the shares within either two years after the date
of the grant of the option or one year after the date the shares were
transferred to the optionholder, any gain realized upon disposition will be
taxable to the optionholder as a capital gain. If the optionholder does not
satisfy the applicable holding periods, however, the difference between the
option price and the fair market value of the shares on the date of exercise of
the option will be taxed as ordinary income, and the balance of the gain, if
any, will be taxed as capital gain. If the shares are disposed of before the
expiration of the one-year or two-year periods and the amount realized is less
than the fair market value of the shares at the date of exercise, the employee's
ordinary income is limited to the amount realized less the option exercise price
paid. The Company will be entitled to a tax deduction only to the extent the
optionholder has ordinary income upon the sale or other disposition of the
shares received when the option was exercised.
Certain other options issued under the 1996 Plan, including options
issued automatically to the non-employee members of the Board of Directors, will
be nonqualified options. The income tax consequences of nonqualified options
will be governed by Code Section 83. Under Code Section 83, the excess of the
fair market value of the shares of the Common Stock acquired pursuant to the
exercise of any option over the amount paid for such stock (hereinafter referred
to as "Excess Value") must be included in the gross income of the optionholder
in the first taxable year in which the Common Stock acquired by the optionholder
is not subject to a substantial risk of forfeiture. In calculating Excess Value,
fair market value will be determined on the date that the substantial risk of
forfeiture expires, unless a Section 83(b) election is made to include the
Excess Value in income immediately after the acquisition, in which case fair
market value will be determined on the date of the acquisition. Generally, the
Company will be entitled to a federal income tax deduction in the same taxable
year that the optionholder recognizes income. The Company will be required to
withhold income tax with respect to income reportable pursuant to Code Section
83 by an optionholder. The basis of the shares acquired by an optionholder will
be equal to the option price of those shares plus any income recognized pursuant
to Code Section 83. Subsequent sales of the acquired shares will produce capital
gain or loss. Such capital gain or loss will be long term if the stock has been
held for one year from the date of the substantial risk of forfeiture lapsed,
or, if a Section 83(b) election is made, one year from the date the shares were
acquired.
14
<PAGE> 17
COMPLIANCE WITH SECTION 16 OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on the Company's review of the copies of such forms
received by it during the fiscal year ended October 31, 1997, and written
representations that no other reports were required, the Company believes that
each person who, at any time during such fiscal year, was a director, officer or
beneficial owner of more than 10% of the Company's Common Stock complied with
all Section 16(a) filing requirements during such fiscal year or prior fiscal
years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
C. Everett Koop, M.D., entered into an agreement with the Company on
October 31, 1995 to serve on the Board of Directors of the Company and in
return, received options exercisable within three years to purchase 180,000
shares of the Company's restricted Common Stock at a price of $1.50 per share.
In consideration for consulting services rendered or to be rendered to
the Company, William M. McCormick, a director, was granted a warrant in May 1996
for the purchase of 200,000 shares of restricted common stock at the price of
$2.50 per share. He also was granted unvested warrants for the purchase of
400,000 shares that become exercisable at the rate of 50,000 shares per quarter
commencing in August 1996 and ending May 1998. The exercise price of such
warrants is $2.50 per share for the first 100,000 shares and $4.00 per share for
the remaining 300,000 shares. All warrants have 10 year exercise periods upon
becoming exercisable. Mr. McCormick's responsibilities under the consulting
arrangement are assisting the Company in raising capital, representing the
Company with investors and brokerage firms and assisting in the development of
the Company.
The shareholders of LipoGenics approved a merger of a wholly owned
subsidiary of Bionutrics with and into LipoGenics wherein LipoGenics survived
the merger and became a wholly owned subsidiary of Bionutrics. The consideration
paid by Bionutrics in the merger was 2,092,743 restricted shares of Common Stock
of Bionutrics. The shareholders of LipoGenics received the shares of Bionutrics
in a nontaxable exchange. The effect of the merger ended the royalty obligations
to LipoGenics under a License Agreement and resulted in Bionutrics acquiring
full rights to the LipoGenics' technology. The merger was completed in October
1996. The directors of LipoGenics were directors of the Company at the time of
the merger and all LipoGenics' shareholders were also shareholders of the
Company. The directors of the Company who were directors of Lipogenics were
Ronald Lane, Michael Wells, Richard Feldheim and Ian Ferrier. LipoGenics and the
Company were under common control as a result of the December 1994 merger of the
Company and NutraGenics (Delaware). NutraGenics (Delaware) was formed pursuant
to a rights offering in April 1994 to all shareholders of LipoGenics.
In June 1997, the Company issued 21,428 shares of restricted Common
Stock at $7 per share to Dr. Salser, a director, as reimbursement for $149,996
in research expenses.
In connection with a forward triangular merger of a subsidiary of
Nutrition Technology with InCon on October 31, 1997, the Company issued a total
of 1,400,000 shares of restricted Common Stock to the sole shareholder of InCon,
a limited liability company one of whose members is John R. Palmer, an executive
officer of the Company. Mr. Palmer has a beneficial interest in 180,000 of such
shares and pursuant to his employment agreement is entitled to incentive
compensation keyed to excess profits of InCon. Also in connection with the
merger the Company acquired certain business opportunities and by license
agreement certain technology of entities related to InCon. Under such license
agreement, an affiliate of Mr. Palmer is entitled to royalties for the greater
of five years or four years after the start of commercial production of the
initial product.
15
<PAGE> 18
All future transactions, including any loans from the Company to its
officers or directors, will be approved by a majority of the Board of Directors,
including a majority of the disinterested members of the Board of Directors, and
will be on terms no less favorable to the Company than can be obtained from
unaffiliated third parties.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
OVERVIEW AND PHILOSOPHY
The Company's Board of Directors has appointed a Compensation Committee
(the "Committee") consisting entirely of non-management directors, which made
decisions on compensation of the Company's executives during fiscal 1997. The
Compensation Committee makes every effort to ensure that the compensation plan
is consistent with the Company's values and is aligned with the Company's
business strategy and goals.
The Company's compensation program for executive officers consists
primarily of base salary, bonus, and long-term incentives in the form of stock
options. Executives also participate in various other benefit plans, including
medical and retirement plans, which generally are available to all employees of
the Company.
The Company's philosophy is to pay base salaries to executives at
levels that enable the Company to attract, motivate, and retain highly qualified
executives. The bonus program is designed to reward individuals for performance
based on the Company's financial results as well as the achievement of personal
and corporate objectives that contribute to the long-term success of the Company
in building stockholder value. Stock option grants are intended to result in
minimal or no rewards if stock price does not appreciate, but may provide
substantial rewards to executives as stockholders benefit from stock price
appreciation.
The Company follows a subjective and flexible approach rather than an
objective or formulaic approach to compensation. Various factors (as discussed
herein) receive consideration without any particular weighting or emphasis on
any one factor. In establishing compensation for the year ended October 31,
1997, the Committee took into account, among other things, the financial results
of the Company, the achievement of corporate and product development goals,
compensation paid in prior years, and compensation of executive officers
employed by companies of similar size in similar industries.
BASE SALARY AND ANNUAL INCENTIVES
Base salaries for executive positions are established relative to the
Company's corporate and financial performance and comparable positions in
similarly sized companies. From time to time, the Company may use competitive
surveys and outside consultants to help determine the relative competitive pay
levels. The Company targets base pay at the level required to attract and retain
highly qualified executives. In determining salaries, the Committee also will
take into account individual experience and performance, salary levels relative
to other positions with the Company, and specific needs particular to the
Company. The Committee's evaluation of the above factors is subjective and the
Committee does not assign a particular weight to any one factor.
Annual incentive awards are based on the Company's financial
performance and the efforts of its executives. Performance is measured based on
the successful achievement of corporate and product development goals and on the
achievement of personal goals. The Company awarded bonuses to its officers based
on the Company's achievement of established milestones.
STOCK OPTION GRANTS
The Company strongly believes in tying executive rewards directly to
the long-term success of the Company and increases in stockholder value through
grants of executive stock options. Stock option grants also will enable
executives to develop and maintain a significant stock ownership position in the
Company's Common Stock. The
16
<PAGE> 19
amount of options granted takes into account options previously granted to an
individual. The Company granted options to acquire 25,000 and 200,000 shares of
Common Stock to George E. Duck and Steven Chabre, respectively, during the year
ended October 31, 1997.
OTHER BENEFITS
Executive officers are eligible to participate in benefit programs
designed for all full-time employees of the Company. These programs include
medical insurance, a qualified retirement program allowed under Section 401(k)
of the Internal Revenue Code, and life insurance coverage.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Committee evaluates the various factors described above in
evaluating the base salary and other compensation of Ronald Lane, the Company's
President and Chief Executive Officer. The Committee's evaluation of Dr. Lane's
base salary is subjective, with no particular weight assigned to any one factor.
The Committee believes that Dr. Lane's base salary is competitive with the base
salary paid to chief executive officers of comparable companies. Dr. Lane also
was awarded a bonus for the fiscal year. The amount of the bonus was based on
the Company's achievement of established milestones and for his efforts in
furthering the corporate goals.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993 and
effective in 1994, generally disallows a tax deduction to public companies for
compensation in excess of $1 million paid to each of the corporation's chief
executive officer and four other most highly compensated executive officers.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met.
The Company currently intends to structure the performance-based
portion of the compensation of its executive officers in a manner that complies
with Section 162(m).
Compensation Committee
Frederick Rentschler
Steve Henig
17
<PAGE> 20
COMPANY PERFORMANCE GRAPH
The following line graph compares cumulative total stockholder return,
assuming reinvestment of dividends, for: (i) the Common Stock; (ii) the Nasdaq
Combined Composite Index (the "Index"); and (iii) the Nasdaq Pharmaceutical
Index (the "Pharmaceutical Index").
The graph assumes an investment of $100 in each of the Company's Common
Stock, the Index, and the Pharmaceutical Index on October 31, 1995. The
Company's shares were traded on the Nasdaq Bulletin Board during the period
shown. The Company became a reporting company under Section 12 of the Exchange
Act in March 1997. The graph covers the period from October 31, 1995 through
October 31, 1997. Trading prior to October 31, 1995 was limited and reliable
information is not available.
The calculation of cumulative stockholder return on the Company's
Common Stock does not include reinvestment of dividends because the Company did
not pay dividends during the measurement period. The performance shown is not
necessarily indicative of future performance.
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENT ON 10/31/95)
<TABLE>
<CAPTION>
Total Return Analysis
10/31/95 10/31/96 10/31/97
-------- -------- --------
<S> <C> <C> <C>
Bionutrics ................... $100 $419 $388
Nasdaq Composite (US) ........ $100 $129 $130
Nasdaq Pharmaceutical ........ $100 $120 $133
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (303) 494-5471. Data
from Bloomberg Financial Markets
18
<PAGE> 21
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP, independent
public accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending October 31, 1998 and recommends that
stockholders vote in favor of the ratification of such appointment. In the event
of a negative vote on such ratification, the Board of Directors will reconsider
its selection. The Board of Directors anticipates that representatives of
Deloitte & Touche LLP will be present at the Meeting, will have the opportunity
to make a statement if they desire, and will be available to respond to
appropriate questions.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals that are intended to be presented by stockholders
at the annual meeting of stockholders of the Company for the fiscal year ending
October 31, 1998, to be included in the proxy statement and form of proxy
relating to such meeting, must be received by the Company no later than October
27, 1998.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Meeting.
If any other matters properly come before the Meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Board of Directors may recommend.
Dated: February 27, 1998
19
<PAGE> 22
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
BIONUTRICS, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned
stockholder of BIONUTRICS, INC., a Nevada corporation (the "Company"), hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement of the Company, each dated February 23, 1998, and hereby appoints
Ronald H. Lane and George E. Duck, Jr., and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1998 Annual Meeting
of Stockholders of the Company, to be held on March 26, 1998, at 2:00 p.m.,
local time, at the Ritz Carlton, 2401 E. Camelback Road, Phoenix, Arizona 85016,
and at any adjournment or adjournments thereof, and to vote all shares of Common
Stock that the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below.
1. ELECTION OF DIRECTORS:
[ ] FOR the three nominees listed below, except as indicated
[ ] WITHHOLD AUTHORITY to vote for the three nominees listed below
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below:
Ronald H. Lane, Ph.D., D. Michael Wells, and William M. McCormick
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE 1996 STOCK OPTION PLAN (THE "1996
PLAN") TO INCREASE THE SHARES OF THE COMPANY'S COMMON STOCK THAT MAY BE ISSUED
PURSUANT TO THE 1996 PLAN TO 2,850,000 SHARES FROM 1,900,000 SHARES.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
3. PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING OCTOBER 31, 1998.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
and upon such other matters that may properly come before the meeting or any
adjournment or adjournments thereof.
(Continued on reverse side)
<PAGE> 23
(Continued from reverse side)
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, FOR THE ELECTION OF DIRECTORS; FOR THE AMENDMENT TO THE COMPANY'S
1996 STOCK OPTION PLAN; FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY; AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
A majority of such attorneys or
substitutes as shall be present and
shall act at said meeting or a
adjournment of adjournments thereof
(or if only one shall be present and
act, then that one) shall have and
may exercise all of the powers of
said attorneys-in-fact hereunder.
--------------------------------------------------------
SIGNATURE
--------------------------------------------------------
SIGNATURE
(This Proxy should be dated, signed
by the stockholder(s) exactly as
his or her name appears hereon, and
returned promptly in the enclosed
envelope. Persons signing in a
fiduciary capacity should so
indicate. If shares are held by
joint tenants or as community
property, both stockholders should
sign.)
