<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:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MEDICAL SCIENCE SYSTEMS, 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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
LOGO
MEDICAL SCIENCE SYSTEMS, INC.
4400 MACARTHUR BOULEVARD, SUITE 980
NEWPORT BEACH, CA 92660
May 4, 1998
TO OUR STOCKHOLDERS:
You are invited to attend the Annual Meeting of Stockholders of Medical
Science Systems, Inc. (the "Company"), which will be held at 9:00 a.m. on June
9, 1998 at the Sheraton Hotel located at 4545 MacArthur Boulevard, Newport
Beach, California 92660.
At this important meeting, you will be asked to vote on the election of
directors and the approval of an amendment to the 1996 Equity Incentive Plan.
Your Board of Directors unanimously recommends to the stockholders of the
Company that they vote FOR the nominees to the Board of Directors and FOR the
amendment to the 1996 Equity Incentive Plan.
Your vote is important to the Company. Whether or not you plan to attend
the meeting, please return a completed proxy card in the enclosed envelope. If
you do attend the meeting and wish to vote in person, you may withdraw your
proxy and vote your shares personally.
We look forward to seeing you at the meeting.
Sincerely,
Paul J. White,
President & CEO
<PAGE> 3
LOGO
MEDICAL SCIENCE SYSTEMS, INC.
4400 MACARTHUR BOULEVARD, SUITE 980
NEWPORT BEACH, CA 92660
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 1998
The Annual Meeting of the Stockholders of Medical Science Systems, Inc.
(the "Company") will be held at 9:00 a.m. PDT on June 9, 1998, at the Sheraton
Hotel located at 4545 MacArthur Boulevard, Newport Beach, California 92660, for
the following purposes:
1. To elect five directors of the Company. Management's nominees for
election are:
Paul J. White Kenneth S. Kornman
Michael G. Newman Thomas A. Moore
Ronald A. LaRosa
2. To approve an amendment to the 1996 Equity Incentive Plan to increase
the number of shares of the Company's common stock authorized for
issuance under such Plan by an additional 300,000 shares.
3. To transact such other business as may properly come before the meeting
and any adjournment thereof.
Stockholders of record at the close of business on April 24, 1998 will
receive this notice and are entitled to vote at the meeting.
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY
IN THE ENCLOSED REPLY ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
Michael G. Newman, Secretary
Dated: May 4, 1998
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE> 4
MEDICAL SCIENCE SYSTEMS LOGO
MEDICAL SCIENCE SYSTEMS, INC.
4400 MACARTHUR BOULEVARD, SUITE 980
NEWPORT BEACH, CA 92660
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 1998
This Proxy Statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors of Medical Science Systems, Inc. ("MSS"
or the "Company") of proxies to be used at the Annual Meeting of Stockholders
(the "Annual Meeting") which will be held on June 9, 1998, at 9:00 a.m., Pacific
Daylight Time, at the Sheraton Hotel located at 4545 MacArthur Boulevard,
Newport Beach, California 92660, or at any adjournment or postponement thereof,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders. This Proxy Statement and the Proxy were first mailed to
stockholders on or about May 4, 1998. A copy of the Company's Annual Report to
Stockholders for 1997 accompanies this Proxy Statement.
The entire cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailing this Proxy Statement, the Proxy and any
additional soliciting material furnished to stockholders, will be borne by the
Company. Arrangements may be made with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy materials to the beneficial
owners of stock, and such persons may be reimbursed for their expenses.
The Company's principal executive offices are located at 4400 MacArthur
Boulevard, Suite 980, Newport Beach, CA 92660.
VOTING RIGHTS
The close of business on April 24, 1998 was the record date for
stockholders entitled to notice of and to vote at the Annual Meeting (the
"Record Date"). As of that date, the Company had outstanding
shares of Common Stock. All of the outstanding shares of Common Stock on the
Record Date are entitled to vote at the Annual Meeting.
REVOCATION OF PROXIES
Any person giving a proxy has the power to revoke it at any time before its
exercise. A proxy may be revoked by filing with the Secretary of the Company at
the Company's principal executive offices as set forth above an instrument of
revocation or a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. Subject to any such revocation, all shares
represented by properly executed proxies will be voted in accordance with
specifications on the enclosed proxy. If no such specifications are made,
proxies will be voted FOR the election of the five nominees for director and FOR
the amendment to the 1996 Equity Incentive Plan. Management does not know of any
matters to be presented at this Annual Meeting other than those set forth in
this Proxy Statement and in the Notice accompanying this Proxy
<PAGE> 5
Statement. If other matters should properly come before the meeting, the proxy
holders will vote on such matters in accordance with their best judgment.
Abstentions and broker non-votes are each included in the determination of the
number of shares present for quorum purposes. Abstentions are counted in
tabulations of the votes cast on proposals presented to stockholders, whereas
broker non-votes are not counted for purposes of determining whether a proposal
has been approved.
PROPOSAL NO. 1
NOMINATION AND ELECTION OF DIRECTORS
Five directors are to be elected at the 1998 Annual Meeting, each to serve
until the next annual meeting of stockholders and until his successor shall be
elected and qualified, or until his earlier death, resignation or removal. The
five candidates receiving the highest number of affirmative votes of the shares
entitled to vote at the Annual Meeting will be elected directors of the Company.
If any nominee is not available for election (a contingency the Company
does not now foresee) it is the intention of the Board of Directors to recommend
the election of a substitute nominee, and proxies in the accompanying form will
be voted for the election of any substitute nominee, unless authority to vote
such proxies in the election of directors has been withheld. Unless you request
on your proxy form that voting of your proxy be withheld for any one or more of
the following nominees for director, your proxy will be voted for the election
of the five nominees listed below.
INFORMATION WITH RESPECT TO NOMINEES
The names of and certain information with respect to the persons nominated
by the Board of Directors for election as directors are included below.
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
Paul J. White, J.D., L.L.M.(1)......... 41 President, Chief Executive Officer and 1994
Chairman of the Board of Directors
Kenneth S. Kornman, DDS, Ph.D. ........ 50 Chief Scientific Officer and Director 1986
Michael G. Newman, DDS................. 50 Executive Vice President, Secretary and 1986
Director
Thomas A. Moore(1,2)................... 47 Director 1997
Ronald A. LaRosa(1,2).................. 40 Director 1997
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Directors are elected to serve until the next annual meeting of shareholders.
Directors serve without cash compensation or other remuneration, but may receive
discretionary grants of stock options under the Company's stock option plans.
Officers are elected by the Board of Directors and serve until their
successors are appointed by the Board of Directors. Biographical resumes of each
officer and director are set forth below.
Paul J. White, J.D., L.L.M. Mr. White joined the Company as President in
1994. Prior to joining the Company, Mr. White was managing partner of White &
Resnick, Irvine, California, a mid-size law firm servicing emerging companies.
Mr. White was a business and corporate attorney and consultant to emerging
health care companies for 15 years. Mr. White holds a B.A. (History/Political
Science) from State University of New York at Brockport, a J.D. from
Southwestern University and an L.L.M. (Taxation) from the University of San
Diego.
Kenneth S. Kornman, D.D.S., Ph.D. Dr. Kornman is a co-founder, officer and
director of the Company and currently serves as Chief Scientific Officer and
Director. Prior to founding the Company in 1986, he was a Department Chair and
Professor at The University of Texas Health Science Center at San Antonio. He
has also been a consultant and scientific researcher for many of the major oral
care and pharmaceutical
2
<PAGE> 6
companies. Dr. Kornman currently holds academic appointments at The University
of Texas Health Science Center and Harvard University. Dr. Kornman holds six
patents in the pharmaceutical area, has published two books and more than 100
articles and abstracts and has lectured and consulted worldwide on the transfer
of technology to clinical practice. Dr. Kornman holds a B.A. in Economics from
Duke University. He obtained a D.D.S. from Emory University. Dr. Kornman also
holds an M.S. (Periodontics) and a Ph.D. (Microbiology) from the University of
Michigan.
Michael G. Newman, D.D.S. Dr. Newman is a co-founder, officer and director
of the Company and currently serves as Executive Vice President, Secretary and
Director. Prior to founding the Company in 1986, he was an adjunct Professor and
former Director of the Periodontal Microbiology Laboratory at the University of
California at Los Angeles (UCLA) and was president of the American Academy of
Periodontology. Dr. Newman is currently a member of the American College of
Dentists. Dr. Newman currently holds an academic appointment at UCLA. Dr. Newman
has published more than 200 articles and abstracts and is the co-author of four
books on microbiology, periodontitis and oral infections. Dr. Newman holds a
B.A. and a D.D.S. from the University of California at Los Angeles.
Thomas A. Moore. Mr. Moore became a director of the Company in 1997. Mr.
Moore is the Chief Executive Officer and President of Nelson Communications
Inc., one of the largest providers of health care marketing services in the
United States. Prior to joining NCI as President in 1996, Mr. Moore was
President of Procter & Gamble's $3 billion worldwide prescription and
over-the-counter health care business and Group Vice President of the Procter &
Gamble Company. He joined Procter & Gamble in 1973 and held positions of
increasing responsibility in the company's cleaning products, beauty care,
Richardson-Vicks and personal care divisions. He is Chairman of the American
Health Foundation -- a non-profit organization that researched the nutritional
and environmental factors in cancer and other diseases. Mr. Moore holds a B.A.
(History) from Princeton University.
Ronald A. LaRosa, M.B.A. Mr. LaRosa became a director of the Company in
1997, after completion of the public offering. Mr. LaRosa is the President and
Chief Executive Officer of Delta Technical Coatings, Inc. ("Delta"), a
privately-owned consumer product marketing company. Mr. LaRosa has been with
Delta for over five years. Prior to joining Delta, Mr. LaRosa worked for over
eleven years with various subsidiaries of The Mennon Company, a $600 million
consumer products company. Mr. LaRosa's various job capacities included Vice
President Finance, Controller, Director of Controls and Director International
Finance. Mr. LaRosa is a member of both the American Institute of Certified
Public Accountants and the New Jersey Society of Certified Public Accountants.
Mr. LaRosa holds a B.S. (Accounting) and an M.B.A. (Finance) from Fairleigh
Dickinson University.
MEETINGS AND COMMITTEES OF THE COMPANY'S BOARD. During 1997, there were
four (4) meetings of the Board of Directors of the Company. The Company has
standing Audit and Compensation Committees, each of which met one (1) time in
1997. Each director attended or participated in at least 75% of the aggregate of
(i) the total number of Board meetings held during the 1997 fiscal year and (ii)
the total number of meetings held during such year by each Committee on which he
served. The Audit Committee, currently consisting of Messrs. Moore and LaRosa,
recommends to the Board, subject to stockholder approval, the engagement of the
independent auditors and reviews the independence of the auditors and the scope
and results of the Company's procedures for the adequacy of its system of
internal accounting controls.
3
<PAGE> 7
The following table provides certain summary information concerning the
compensation paid or accrued by the Company and its subsidiaries, to or on
behalf of the Company's Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company whose salary and bonus for
the 1997 fiscal year was in excess of $100,000, for services rendered in each of
the fiscal years ended December 31, 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------ ---------------------------------
AWARDS PAYOUTS
----------------------- -------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS (#) ($) ($)
------------------ ---- ------- ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul J. White................ 1997 185,367 -0- 11,639** -0- -0- -0- -0-
CEO, President 1996 138,332 -0- -0- -0- -0- -0- -0-
1995 102,226 -0- -0- -0- -0- -0- -0-
Kenneth S. Kornman........... 1997 166,408 -0- 8,720** -0- -0- -0- -0-
Chief Scientific 1996 154,886 -0- -0- -0- -0- -0- -0-
Officer 1995 103,735 -0- 23,797* -0- -0- -0- -0-
Michael G. Newman............ 1997 188,283 -0- 8,720** -0- -0- -0- -0-
Executive Vice 1996 141,695 -0- -0- -0- -0- -0- -0-
President, Secretary 1995 121,536 -0- 23,797* -0- -0- -0- -0-
U. Spencer Allen............. 1997 41,703 -0- -0- -0- -0- -0- -0-
Chief Financial 1996 -0- -0- -0- -0- -0- -0- -0-
Officer and Treasurer 1995 -0- -0- -0- -0- -0- -0- -0-
Jeanne Ambruster............. 1997 71,722 -0- -0- -0- -0- -0- -0-
Vice President 1996 -0- -0- -0- -0- -0- -0- -0-
1995 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
- ---------------
* These amounts reflect contributions made to the Company's profit sharing
plan.
** These amounts reflect car allowance and life insurance premiums.
4
<PAGE> 8
DIRECTOR COMPENSATION. Directors of the Company serve without cash
compensation or other remuneration
The following table provides information concerning each grant of options
to purchase the Company's Common Stock made during the year ended December 31,
1997 to the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED GRANTED TO EMPLOYEES EXERCISE OR BASE EXPIRATION
NAME (#) IN FISCAL YEAR PRICE($/SH) DATE
---- -------------------- -------------------- ---------------- ----------
<S> <C> <C> <C> <C>
Paul J. White........ 10,000 $4.07 12/31/06
15,000 3.8% $5.50 5/29/07
20,000* $5.50 10/01/02
Kenneth S. Kornman... 10,000 $4.07 12/31/06
25,125 5.3% $5.50 5/29/07
20,000* $5.50 10/01/02
Michael G. Newman.... 10,000 $4.07 12/31/06
12,000 3.3% $5.50 5/29/07
20,000* $5.50 10/01/02
U. Spencer Allen..... 50,000 $3.70 1/05/07
38,896 13.5% $5.00 5/29/07
10,000* $5.50 10/01/02
Jeanne Ambruster..... 50,000 $3.70 2/09/07
16,500 10.1% $5.00 5/29/07
10,000* $5.50 10/01/02
</TABLE>
- ---------------
* Warrants purchased as part of a debt/warrant offering in 1997.
The following table sets forth the number of stock options and stock
appreciation rights exercised during the 1997 fiscal year by each of the Named
Executive Officers and the year-end value of unexercised options, both vested
and unvested.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END(#) AT FY-END($)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Paul J. White.............. -0- -0- 18,051/ $ 57,346/
6,949 $ 18,554
Kenneth S. Kornman......... -0- -0- 28,176/ $ 90,556/
6,949 $ 18,554
Michael G. Newman.......... -0- -0- 15,051/ $ 47,506/
6,949 $ 18,554
U. Spencer Allen........... -0- -0- 54,169/ $164,692/
34,727 $ 84,387
Jeanne Ambruster........... -0- -0- 30,385/ $ 87,861/
36,115 $ 87,759
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and
5
<PAGE> 9
greater than ten-percent stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
Company's officers, directors and greater than ten-percent stockholders for the
1997 fiscal year were fulfilled.
EMPLOYMENT CONTRACTS AND CHANGE OF EMPLOYMENT ARRANGEMENTS
In January, 1996, the Company entered into employment contracts with Mr.
Paul J. White and Drs. Kenneth S. Kornman and Michael G. Newman. For the period
from January, 1997 through July, 1997, Mr. White and Drs. Kornman and Newman
each received an annual base salary of $200,000. For the period from August,
1997 through December, 1997, the annual base salary of Mr. White, the Chief
Executive Officer and President, was reduced to $140,000. Mr. White's annual
base salary for fiscal year 1998 was increased to $170,000. For the period from
August, 1997 through December, 1997, the annual base salaries of Drs. Kornman
and Newman were reduced to $135,000 each. Drs. Kornman's and Newman's annual
base salary for fiscal year 1998 were increased to $165,000 each. Each of the
employment contracts with Mr. White and Drs. Kornman and Newman has a five year
term (beginning in January, 1996) which is automatically renewed for an
additional twelve months unless six months prior written notice is given by
either party. Each employment agreement provides for a $600 per month automobile
allowance and a $100,000 life insurance policy.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a current or former employee of
the Company. No executive officer of the Company served on the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee. There is no family relationship between or among the Directors and
Executive Officers.
6
<PAGE> 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of April 1, 1998, the Company has issued 5,540,895 shares of Common
Stock to 529 holders of record. The following table sets forth certain
information regarding the beneficial ownership of shares of the Company Common
Stock as of April 1, 1998 by (i) each of the Company's directors and executive
officers, (ii) each person who beneficially owns more than 5% of the outstanding
shares of Common Stock, and (iii) all directors and officers of the Company as a
group. Unless otherwise indicated, the shareholders listed below possess all the
beneficial ownership and voting rights of the shares and may be reached at 4400
MacArthur Boulevard, Suite 980, Newport Beach 92660.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
NAME BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
---- ------------------ ---------------------
<S> <C> <C>
Paul J. White(2)................................. 1,063,723 19.04%
Kenneth S. Kornman(3)............................ 1,058,848 18.92%
100 N.E. Loop 410
San Antonio, Texas
Michael G. Newman(4)............................. 1,014,723 18.18%
Thomas A. Moore(5)............................... 134,054 2.42%
41 Madison Avenue, Ste. 27
New York, New York 10010
U. Spencer Allen(6).............................. 99,126 1.77%
Jeanne Ambruster(7).............................. 66,500 1.19%
3100 N. West St., Bldg. A
Flagstaff, Arizona 86004
Ronald A. LaRosa................................. 7,500 *
231 S. Francisco Place
Anaheim Hills, California 92807
All Officers and Directors as a Group (7
persons)(8).................................... 3,444,474 58.82%
</TABLE>
- ---------------
* Less than one percent.
(1) Percentage of ownership for each holder is based on 5,540,895 shares of
Common Stock outstanding on April 1, 1998 together with applicable options
and warrants for such shareholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes shares over which the holder has voting or investment
power, subject to community property laws. Shares of Common Stock subject to
options and warrants that are currently exercisable or exercisable within 60
days are deemed to be beneficially owned by the person holding the option or
warrants for computing such person's percentage, but are not treated as
outstanding for computing the percentage of any other person.
(2) Mr. Paul J. White and Mrs. Suzette White, as trustees of the White Family
Trust, have voting power over 958,723 of such shares. The White Family Trust
was established for the benefit of members of the White family, including
Mr. White. Includes 60,000 shares held in irrevocable trusts created for the
benefit of the White's children. Mr. White disclaims beneficial ownership of
such shares. Includes 25,000 shares issuable pursuant to options exercisable
within 60 days of April 1, 1998, at exercise prices between $4.07 and $5.50
per share and 20,000 shares pursuant to warrants which are immediately
exercisable at an exercise price of $5.50 per share.
(3) Includes 918,723 shares held in Rocklyn, Ltd., a Texas limited partnership
created for the benefit of the Kornman family, including Mr. Kornman.
Includes 35,125 shares issuable pursuant to options exercisable within 60
days of April 1, 1998, at exercise prices between $4.07 and $5.50 per share
and 20,000 shares issuable pursuant to warrants which are immediately
exercisable at an exercise price of $5.50 per share.
(4) Mr. Michael G. Newman and Mrs. Susan L. Newman, as trustees of the Newman
Family Trust, have voting power over 776,723 of such shares. The Newman
Family Trust was created for the benefit of the family of Michael G. Newman
and Mrs. Susan L. Newman. Mr. and Mrs. Newman, as general partners
7
<PAGE> 11
of The Michael and Susan Newman Family L.P., a Delaware limited partnership,
have voting power over 196,000 shares included therein. Mr. Newman disclaims
beneficial ownership of such shares. Includes 22,000 shares issuable
pursuant to options exercisable within 60 days of April 1, 1998, at exercise
prices between $4.07 and $5.50 per share and 20,000 shares issuable pursuant
to warrants which are immediately exercisable at an exercise price of $5.50
per share.
(5) Includes 35,000 shares issuable pursuant to options which are exercisable
within 60 days of April 1, 1998, at exercise prices between $4.07 and $5.50
per share and 15,000 shares issuable pursuant to warrants which are
immediately exercisable at an exercise price of $5.50 per share.
(6) Includes 300 shares held by Mr. Allen's spouse in which he disclaims any
beneficial ownership and includes 88,896 shares issuable pursuant to options
which are exercisable within 60 days of April 1, 1998, at exercise prices
between $4.07 and $5.50 per share and 10,000 shares issuable pursuant to
warrants which are immediately exercisable at an exercise price of $5.50 per
share.
(7) Includes 56,500 shares issuable pursuant to options which are exercisable
within 60 days of April 1, 1998, at exercise prices between $4.07 and $5.50
per share and 10,000 shares issuable pursuant to warrants which are
immediately exercisable at an exercise price of $5.50 per share.
(8) Includes all shares deposited in trust by the officers and directors of the
Company, in which shares such officers and directors disclaim any beneficial
ownership interest.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
NOMINEES TO THE BOARD OF DIRECTORS.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO THE 1996 EQUITY INCENTIVE PLAN
The stockholders are being asked to approve an amendment to the 1996 Equity
Incentive Plan (the "Plan"). The Company's Board of Directors and stockholders
previously adopted and approved the Plan. On February 26, 1998, the Board of
Directors authorized that the Plan be amended, subject to stockholder approval,
to increase the number of shares reserved for issuance thereunder by 300,000
shares, bringing the total number of shares issuable under the Plan to 1,300,000
shares.
At the Annual Meeting, the stockholders are being requested to consider and
approve the proposed amendment to the Plan to increase the number of shares of
Common Stock reserved for issuance thereunder by 300,000 shares, bringing the
total number of shares issuable under the Plan to 1,300,000 shares. The
amendment to increase the number of shares issuable under the Plan will enable
the Company to continue its policy of employee stock ownership as a means to
attract and retain highly qualified personnel, to motivate high levels of
performance and to recognize key employee accomplishments.
STOCKHOLDER APPROVAL. The approval of the amendment to the Plan requires
the affirmative vote of a majority of the shares represented, in person or by
proxy, and voting at the Annual Meeting (which shares voting affirmatively also
constitute at least a majority of the required quorum).
1996 EQUITY INCENTIVE PLAN
The Company's 1996 Equity Incentive Plan (the "Plan") was originally
adopted by the Board of Directors and shareholders on June 28, 1996. The Plan is
administered solely by the Compensation Committee (the "Committee") of the Board
of Directors, which consists solely of non-employee Directors. The Committee has
broad authority in administering an interpreting the Plan.
The purpose of the Plan is to enable the Company to attract, retain and
motivate employees by providing for or increasing their proprietary interests in
the Company and, in the case of non-employee Directors, to attract such
Directors and further align their interests with those of the Company's
stockholders by providing for or increasing their proprietary interests in the
Company. Under the Plan, officers, directors, employees, consultants and
advisors of the Company are eligible to receive options to purchase Common
Stock, stock appreciation rights or stock awards provided the grantee rendered
bona fide services to the Company not in
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connection with the offer and sale of securities in a capital-raising
transaction. The Company's Common Stock has no par value, and the closing price
of the Common Stock on the NASDAQ SmallCap Market on April , 1998 was $
per share.
The aggregate number of shares that may be issued pursuant to the grant of
awards under the Plan was 1,000,000 subject to adjustment for certain
circumstances such as a stock exchange reorganization, recapitalization, stock
split, reverse stock split, stock dividend or other capital change or
adjustment. At the Annual Meeting, the stockholders are being requested to
consider and approve the proposed amendment to the Plan to increase the number
of shares of Common Stock reserved for issuance thereunder by 300,000 shares,
bringing the total number of shares issuable under the Plan to 1,300,000 shares.
The Board of Directors approved such amendment, subject to shareholder approval,
on February 26, 1998.
AWARDS TO EMPLOYEES
Options granted under the Plan may be options intended to qualify as
incentive stock options ("ISOs") under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), or options not intended to so qualify (the
"Non-Qualified Stock Options" or "NQSOs"). Stock appreciation rights ("SARs"),
restricted stock awards ("RSAs") and stock bonus awards ("SBAs") may also be
granted to employees under the Plan. ISOs, NQSOs, SARs, RSAs and SBAs may
collectively be referred to as "Awards."
An Award to an employee may permit the employee to pay all or part of the
purchase price of the shares issuable pursuant thereto, and/or to pay all or
part of such employee's tax withholding obligation with respect to such
issuance, by (i) delivering previously owned shares of capital stock of the
Company or (ii) reducing the number of shares otherwise issuable pursuant to the
Award. If an Award granted to an employee permitted the employee to pay for the
shares issuable pursuant thereto with previously owned shares, the employee
would be able to exercise the Award in successive transactions, known as
pyramiding, to acquire a large number of shares with no more investment than the
original shares granted pursuant to the Award.
Upon the grant of an Award under the Plan, the person receiving the grant
must enter into a written agreement with the Company that contains terms,
provisions and conditions that are consistent with the Plan and have been
determined from time to time by the Compensation Committee. ISOs and NQSOs
granted under the Plan may not expire later than 10 years after the date of
grant, except that an ISO granted to an individual owning (after the application
of the family and other attribution rules of Section 424(b) of the Code), at the
time the ISO was granted, more than 10% of the total combined voting power of
all classes of stock of the Company or of any of its subsidiaries (a "10%
Shareholder"), may not expire later than five years from the date the option is
granted. The exercise price of an NQSO shall not be less than 85% of the Fair
Market Value of the shares on the date of grant. The exercise price of an ISO
shall not be less than 100% of the Fair Market Value of the shares on the date
of grant or 110% of the Fair Market Value of the shares on the date of grant in
the case of a 10% shareholder. The purchase price of shares sold pursuant to an
RSA will be at least 85% of the Fair Market Value of the shares on the date of
grant. The Plan currently provides that the maximum number of shares of Common
Stock that may be issued pursuant to all Awards under the Plan is 750,000,
subject to the amendment to be approved by the stockholders.
An Award granted under the Plan to an employee may include a provision
terminating the Award upon termination of employment under certain circumstances
or accelerating the receipt of benefits upon the occurrence of specified events,
such as change of control of the Company or a dissolution, liquidation, merger,
reclassification, sale of substantially all of the property and assets of the
Company or other significant corporate transaction.
FEDERAL INCOME TAX TREATMENT FOR THE PLAN
NQSOS AND SARS. There are no Federal income tax consequences to either the
optionees or to the Company on the grant of a NQSO. On the exercise of a NQSO,
the optionee has taxable ordinary income equal to the excess of fair market
value of the Shares received on the exercise date over the option price of the
Shares. The optionee's tax basis for the Shares acquired upon exercise of a NQSO
is increased by the amount of such taxable income. The Company will be entitled
to a Federal income tax deduction in an
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amount equal to such excess. Upon the sale of the Shares acquired by exercise of
a NQSO, the optionee will realize long-term or short-term capital gain or loss
depending upon his or her holding period for such Shares. Similar tax
consequences result for the Company upon the exercise of an SAR. An SAR results
in ordinary compensation income to the recipient.
ISOS. An optionee who receives an ISO will not be treated as receiving
taxable income upon the grant of the option or upon the exercise of the option,
provided the exercise occurs, in general, during employment or within three
months after termination of employment. However, any appreciation in share value
after the date of grant will be an item of tax preference at the time of
exercise in determining liability for the alternative minimum tax. If stock
acquired pursuant to an ISO is not sold or otherwise disposed of within two
years from the date of grant of the option nor within one year after the date of
exercise, any gain or loss resulting from disposition of the stock will be
treated as long-term capital gain or loss. If stock acquired upon exercise of an
ISO is disposed of prior to the expiration of such holding periods (a
"disqualifying disposition"), the optionee will realize ordinary income in the
year of such disposition in an amount equal to the excess of the fair market
value of the stock on the date of exercise over the exercise price or, if less,
the excess of the amount realized on the disqualifying disposition over the
exercise price. Any remaining gain will be taxed at capital gains rates.
The Company will not be entitled to any deduction as a result of the grant
or exercise of an ISO, or on a later disposition of the stock received, except
that in the event of a disqualifying disposition the Company will be entitled to
a deduction equal to the amount of ordinary income realized by the optionee.
RSAS AND BSAS. The Company may grant RSAs and/or BSAs at a discount from
their fair market value at grant. The recipient will recognize compensation
income (and the Company will be entitled to a deduction for compensation) at the
time that the restrictions, if any, lapse in the amount of the difference
between the price that the recipient paid and the then fair market value.
Recipients may, within 30 days of receipt of RSAs, elect to limit the amount of
compensation by including in income the difference between the fair market value
at the time of grant and the amount paid. Any subsequent gain over the value at
the time of grant would be capital gain for the recipient and would not be
deductible by the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENT TO THE PLAN.
STOCKHOLDERS' PROPOSALS
In order to be considered for inclusion in the proxy statement and proxy
relating to that meeting, proposals of stockholders or nominations of directors
that are intended to be presented at the 1999 Annual Meeting of Stockholders of
the Company must be received by the Company no later than 80 days prior to the
date of the Annual Meeting; provided, however, if the Company does not publicly
announce the date of its annual meeting at least 90 days prior to the meeting,
any proposal or nomination must be received within ten days after the public
announcement. Proposals and nominations must comply with the requirements
established in Article II, Sections 8 and 9, respectively, of the Bylaws.
OTHER MATTERS
The Board of Directors knows of no other matter to be acted upon at the
meeting. However, if any other matter is properly brought before the meeting,
the persons named in the accompanying form of Proxy will vote thereon in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Paul J. White, Chairman
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PROXY
MEDICAL SCIENCE SYSTEMS, INC.
ANNUAL MEETING OF STOCKHOLDERS -- JUNE 9, 1998
The undersigned stockholder(s) of Medical Science Systems, Inc. (the
"Company") hereby appoints Paul J. White and U. Spencer Allen, and severally, as
proxies, with full power of substitution, to vote all the shares of Common Stock
of the Company which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders to be held at the Sheraton Hotel located at 4545
MacArthur Boulevard, Newport Beach, California 92660, on June 9, 1998, at 9:00
a.m. PDT time, as instructed on the reverse, and upon all matters which may
properly be considered at such meeting or any adjournment thereof.
ITEM 1: ELECTION OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
[ ] [ ] WITHHELD
FOR AUTHORITY
Paul J. White Kenneth S. Kornman
Michael G. Newman Thomas A. Moore
Ronald LaRosa
</TABLE>
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, DRAW A
LINE THROUGH OR STRIKE OUT THAT NOMINEE'S NAME AS SET FORTH ABOVE.
(Continued on the other side)
<PAGE> 15
ITEM 2: AMENDMENT OF THE COMPANY'S 1996 EQUITY INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 3: To consider and act upon any other matter which may properly come before
the meeting or any adjournment thereof; all as more particularly
described in the Proxy Statement dated May 4, 1998, relating to such
meeting, receipt of which is hereby acknowledged.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR the nominees listed in Proposal 1 and FOR Proposal 2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AND MAY BE REVOKED PRIOR TO ITS EXERCISE
I PLAN TO ATTEND MEETING [ ]
Dated:
-----------------------------------------
-----------------------------------------
Signature(s)
Note: Please sign as name appears hereon.
Joint owners must each sign. When signing
as attorney-in-fact, executor,
administrator, trustee or guardian,
please give full title as such.
