PHARMOS CORPORATION
2 Innovation Drive
Alachua, FL 32615
(904) 462-1210
----------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------------------------------------------
NOTICE IS HEREBY GIVEN, that the Annual Meeting of the Stockholders of
Pharmos Corporation (the "Company") will be held in New York, New York at 9:00
a.m. on January 13, 1998 at the Waldorf Astoria, 301 Park Avenue, New York, NY
10022, (i) for the election of Directors of the Company to hold office until the
next annual meeting of the stockholders and until their successors are duly
elected and qualified; (ii) to increase the authorized shares of the Company's
common stock, par value $.03 (the "Common Stock"), to 75,000,000 shares; (iii)
to adopt the incentive and non-qualified stock option plan; and (iv) to transact
such other business as may properly come before the meeting or any adjournment
or adjournments thereof.
The Board of Directors has fixed the close of business on December 2, 1997
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting.
If you do not expect to be personally present at the meeting, but wish your
stock to be voted for the business to be transacted thereat, the Board of
Directors requests that you fill in, sign and date the enclosed proxy and
promptly return it by mail in the postage paid envelope provided.
BY ORDER OF THE BOARD OF DIRECTORS
Haim Aviv, Ph.D.
Chairman of the Board
December 3, 1997
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE
ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE>
PHARMOS CORPORATION
2 Innovation Drive
Alachua, FL 32615
(904) 462-1210
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To be held on January 13, 1998
INTRODUCTION
The Annual Meeting is called to elect members of the Board of Directors, to
increase the authorized shares of Common Stock to 75,000,000 shares and to adopt
the incentive and non-qualified stock option plan. The Meeting, however, will be
open for the transaction of such other business as may properly come before it
although, as of the date of this proxy statement, management does not know of
any other business that will come before the Annual Meeting. If any other
matters do come before the Annual Meeting, the persons named in the enclosed
form of proxy are expected to vote said proxy in accordance with their judgment
on such matters.
This proxy statement and the accompanying proxy card are first being mailed
to stockholders on or about December 3, 1997. A copy of the Annual Report for
the fiscal year ended December 31, 1996, which includes audited financial
statements, is included herewith for those stockholders of record as of December
2, 1997, the record date for the Annual Meeting.
The solicitation of proxies in the accompanying form is made by, and on
behalf of, the Board of Directors, and no compensation will be paid therefor.
There will be no solicitation of proxies other than by mail or personal
solicitation by officers and employees of the Company. The Company will make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of proxy material to the beneficial owners of
shares held of record by such persons, and such persons will be reimbursed for
reasonable expenses incurred by them in connection therewith. A stockholder
executing the accompanying proxy has the power to revoke it at any time prior to
the exercise thereof by filing with the Secretary of the Company: (i) a duly
executed proxy bearing a later date; or (ii) a written instrument revoking the
proxy.
With regard to the election of Directors, votes may be cast in favor of or
withheld from each nominee. Abstention and "Broker Non-votes" (as defined below)
are counted for purposes of determining whether a quorum is present at the
Annual Meeting, but do not represent votes cast with respect to any proposal.
However, the proposed amendment to the Restated Articles of Incorporation (Item
No. 2) requires the affirmative vote of a majority of the shares entitled to
vote; therefore, with respect to that proposal, abstentions and Broker Non-votes
have the effect of a "no" vote. "Broker Non-votes" are shares held by a broker
or nominee for which an executed proxy is received by the Company, but are not
voted as to one or more proposals
<PAGE>
because instructions have not been received from the beneficial owners or
persons entitled to vote and the broker or nominee does not have discretionary
voting power.
VOTING SECURITIES
The Board of Directors has fixed the close of business on December 2,
1997 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Annual Meeting.
As of November 1, 1997, the outstanding capital stock of the Company
consisted of 34,118,368 shares of Common Stock. Each holder of Common Stock is
entitled to one vote for each share of Common Stock held by him or her at the
close of business on the record date.
The shares for which the accompanying proxy is solicited will be voted
providing the proxy is executed and returned by the stockholder prior to the
Annual Meeting.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of November 1, 1997 by (i)
each person who was known by the Company to own beneficially more than 5% of any
class of the Company's Stock, (ii) each of the Company's Directors, and (iii)
all current Directors and executive officers of the Company as a group. Except
as otherwise noted, each person listed below has sole voting and dispositive
power with respect to the shares listed next to such person's name.
Amount
Name and Address of of Beneficial Percentage
Beneficial Ownership Ownership of Total (1)
-------------------- --------- ------------
Grace Brothers Ltd.(2) 1,887,077 5.2%
1560 Sherman Avenue
Suite 900
Evanston, IL 60201
Elliott Associates, L.P.(3) 701,770 2.0%
712 Fifth Avenue, 36th Fl.
New York, NY 10019
Haim Aviv, Ph.D.(4) 1,104,805 3.1%
c/o Pharmos Ltd.
Kiryat Weitzman
Rehovot, Israel
3
<PAGE>
Marvin P. Loeb(5) 288,990 *
Trimedyne, Inc.
2810 Barranca Road
Irvine, CA 92714
E. Andrews Grinstead III(6) 99,072 *
Hybridon, Inc.
620 Memorial Drive
Cambridge, MA 02139
Stephen C. Knight, M.D.(6) 6,667 *
Epix Medical Inc.
71 Rogers Street
Cambridge, MA 02142
David Schlachet(6) 6,667 *
Strauss Holdings Ltd.
16 Bazel Street
Petach-Tikva, Israel 49510
Fredric D. Price 1,750 *
AMBI Inc.
771 Old Saw Mill River
Road
Tarrytown, NY 10591
Mony Ben Dor 0 0
The Israel Corporation
4 Weizman St.
Tel-Aviv 61336, Israel
All Directors and 1,599,845 4.5%
Executive Officers
as a group
(9 persons)(7)
- ----------------------------
* Indicates ownership of less than 1%.
(1) Based on 34,118,368 shares of Common Stock outstanding, plus each
individual's currently exercisable warrants or options. Assumes that no
other individual will exercise any warrants and/or options.
(2) Information determined according to a Schedule 13G filed with the
Securities and Exchange Commission.
(3) Information determined according to a Schedule 13D filed with the
Securities and Exchange Commission. Includes 280,708 shares of Common Stock
held by Westgate International, L.P.
(4) Includes 276,153 shares of Common Stock held in the name of Avitek Ltd., of
which Dr. Aviv is the Chairman of the Board of Directors and the principal
stockholder, and, as such, shares the right to vote and dispose of such
shares. Also includes currently exercisable options to purchase 255,376
shares of Common Stock.
4
<PAGE>
(5) Held jointly with his wife. Also includes currently exercisable options to
purchase 43,334 shares of Common Stock. Does not include shares held by his
adult children, his grandchildren or a trust for the benefit of his
grandchildren.
(6) Consists of currently exercisable options to purchase Common Stock.
(7) Based on the number of shares of Common Stock outstanding, plus 411,116
currently exercisable warrants and/or options held by the Directors and
executive officers.
5
<PAGE>
ITEM 1 - ELECTION OF DIRECTORS
Six Directors are to be elected at the Annual Meeting to hold office until
the next annual meeting of stockholders and until their successors have been
duly elected and qualified. The election of Directors requires the affirmative
vote of a plurality of shares cast of Common Stock voting together present or
represented at a meeting at which a quorum (one-third (1/3) of the outstanding
shares of Common Stock) is present or represented. Abstention and Broker
Non-votes are counted for purposes of determining whether a quorum is present,
but do not represent votes cast with respect to any proposal. It is the
intention of the persons named in the accompanying proxy form to vote FOR the
election of the six persons named in the table below as Directors of the
Company, unless authority to do so is withheld. Proxies cannot be voted for a
greater number of persons than the nominees named. In the event that any of the
below listed nominees for Director should become unavailable for election for
any presently unforeseen reason, the persons named in the accompanying proxy
form have the right to use their discretion to vote for a substitute.
The following table sets forth the name, age and position of each Director
and executive officer:
Name Age Position
- ---- --- --------
Haim Aviv, Ph.D. 57 Chairman, Chief Executive Officer, Acting
Chief Financial Officer, Chief Scientist
and Director
Marvin P. Loeb 71 Director
E. Andrews Grinstead III 52 Director
Stephen C. Knight, M.D. 37 Director
David Schlachet 52 Director
Fredric D. Price 51 Director
Mony Ben Dor 52 Director
Gad Riesenfeld, Ph.D. 53 President and Chief Operating Officer
Anat Biegon, Ph.D. 43 Vice President/Research and Development
6
<PAGE>
Haim Aviv, Ph.D., is Chairman, Chief Executive Officer, Acting Chief
Financial Officer, Chief Scientist and a Director of the Company and co-founded
in 1990, Pharmos Corporation, a New York corporation ("Old Pharmos"), which
merged into the Company on October 29, 1992 (the "Merger"). Dr. Aviv also served
as Chairman, Chief Executive Officer, Chief Scientist and a Director of Old
Pharmos prior to the Merger. Dr. Aviv was the co-founder in 1980 of
Bio-Technology General Corp. ("BTG"), a publicly-traded company engaged in the
development of products using recombinant DNA, its General Manager and Chief
Scientist from 1980 to 1985, and a Director and Senior Scientific Consultant
until August 1993. Prior to that time, Dr. Aviv was a professor of molecular
biology at the Weizmann Institute of Science. Dr. Aviv is the principal
stockholder of Avitek Ltd., a stockholder of the Company. Dr. Aviv is also an
officer and/or significant stockholder of several privately-held Israeli
pharmaceutical and venture capital companies and was recently appointed Chairman
of the Israel National Committee for biotechnology.
E. Andrews Grinstead, III, a Director of the Company since 1991, is
Chairman and Chief Executive Officer of Hybridon, Inc., a publicly-held
biotechnology company. Mr. Grinstead joined Hybridon in 1991. From 1987 to
October 1990, he was Managing Director and group head of the life sciences group
at Paine Webber, Inc. From 1986 to 1987, Mr. Grinstead was Managing Director and
group head of the life sciences group at Drexel Burnham Lambert. From 1984 to
1986, he was a Vice President at Kidder, Peabody & Co., Inc., where he developed
the life sciences corporate finance specialty group. Prior to his seven years on
Wall Street, Mr. Grinstead served in a variety of operational and executive
positions with Eli Lilly & Company, most recently as general manager of
Venezuelan Pharmaceutical, Animal Health and Agricultural Chemical Operations.
Since 1991, Mr. Grinstead has served as a Director of EcoScience Corporation, a
development-stage company engaged in the development of biopesticides. Since
1994, Mr. Grinstead has served as a member of the Board of Trustees for the
Albert B. Sabine Vaccine Foundation, a 501(c)(3) charitable foundation dedicated
to disease prevention. Mr. Grinstead was appointed to the President's Council of
the National Academy of Sciences and the Institute of Medicine in 1992.
Marvin P. Loeb, a Director, was Chairman of the Board of the Company (then
known as Pharmatec, Inc.) from December 1982 through October 1992. He has been
Chairman of Trimedyne, Inc. (and its subsidiaries), a publicly-held company
engaged in the manufacture of lasers, optical fibers and laser delivery systems,
since April 1981; a Director of Gynex Pharmaceuticals, Inc., from April 1986
until its merger with and into Biotechnology General Corporation in 1993, a
publicly-held company engaged in the development and commercialization of
pharmaceutical products; a Director of Petrogen, Inc., a privately-held company
engaged in the genetic engineering of bacteria for cleanup of oil waste and
toxic waste, from April 1987 to April 1992 (Chairman from November 1980 to
December 1982 and from July 1983 to April 1987); Chairman of Automedix Sciences,
Inc., an inactive, publicly-held company engaged in the development of products
for treating cancer and other diseases, from September 1980 to August 1995;
Chairman of Cardiomedics, Inc., a privately-held company engaged in the
manufacturing of heart assist devices, from May 1986; Chairman of Xtramedics,
Inc., a publicly-held company developing a feminine hygiene product, from
November 1986 to February 1994 and a Director of Xtramedics from November 1986
until May 1994; Chairman
7
<PAGE>
of Ultramedics, Inc., an inactive, privately-held company developing blood
treatment products, since November 1988; and President and Director of Marvin P.
Loeb & Co. since 1965, and Master Health Services, Inc. since 1972, both of
which are family-held companies engaged in licensing of inventions and financial
consulting.
Stephen C. Knight, M.D., a Director of the Company since November 10, 1994,
is Vice President, Corporate Development and Strategic Planning, of Epix
Medical, Inc. Prior to joining Epix Medical in July 1996, Dr. Knight was a
Senior Consultant in the Healthcare Industries at Arthur D. Little, Inc. While
at Arthur D. Little, Dr. Knight specialized in mergers and acquisitions,
strategic planning, and valuation in the pharmaceutical industry. Prior to
joining Arthur D. Little, Dr. Knight worked as a consultant at APM, Inc. Dr.
Knight has performed medical research at the National Institutes of Health, AT&T
Bell Laboratories, and Yale and Columbia Universities. Dr. Knight received an
M.D. from the Yale University School of Medicine and an MPPM from the Yale
School of Organization and Management.
David Schlachet, a Director of the Company since December 15, 1994, is Vice
President of the Strauss Group and C.E.O. of Strauss Holdings (Strauss Holdings
incorporates the activities of the Group, comprised of its core business, the
food industry, and other holdings in the area of commercial T.V., retail chains
and investment banking). On June 1, 1997, Mr. Schlachet was elected Chairman of
the Board of Elite Industries Ltd. when the Strauss Group acquired control of
Elite, one of the largest food companies in Israel, with operations in Western
and Eastern Europe. Elite is a leader in the Israeli coffee, chocolate,
confectionery and salty snack markets. Mr. Schlachet was Vice President of
Finance and Administration at the Weizmann Institute of Science in Rehovot,
Israel, from 1990 to December 1996. Mr. Schlachet was responsible for the
Institute's administration and financial activities, including personnel, budget
and finance, funding, investments, acquisitions and collaboration with the
industrial and business communities. From 1989 to 1990, Mr. Schlachet was
President and Chief Executive Officer of Yeda Research and Development Co.,
Ltd., a marketing and licensing company at the Weizmann Institute of Science.
Mr. Schlachet is a Director of Taya Investment Company Ltd., an Israeli
publicly-held investment company.
Fredric D. Price, a Director of the Company since August 1996, is President
and Chief Executive Officer and member of the Board of Directors of AMBI Inc., a
publicly-traded health care company engaged in the development and marketing of
nutrition products and therapeutic agents that may be useful against infectious
diseases. He is also a member of the Executive Committee (and Secretary) of the
Board of Directors of the New York Biotechnology Association. From July 1991 to
September 1994, he was Vice President Finance & Administration and Chief
Financial Officer of Regeneron Pharmaceuticals, Inc. For the five years prior to
joining Regeneron, he was the President of FxFDP, a consulting practice that
provided strategic planning, market development, and new product introduction
services to pharmaceutical and other health care businesses. From 1973 to 1986,
he worked for Pfizer Pharmaceuticals, where he was Vice President, responsible
for both the Pfipharmecs Division and the Controllers's Department for all of
Pfizer Pharmaceuticals. Mr. Price received a Bfrom Dartmouth College in 1967 and
an MBA in 1969 from the Wharton School of the University of Pennsylvania.
8
<PAGE>
Mony Ben Dor is Vice President of The Israel Corporations, Ltd. and
Chairman of two publicly traded subsidiaries: H.L. Finance and Leasing and
Albany Bonded International Trade. He is also a director of a number of
subsidiary companies of Israel Chemicals Ltd. From 1992 to 1997, Mr. Ben Dor was
Vice President of Business Development for Clal Industries Ltd. (a subsidiary of
Clal Israel), which is one of the leading investment groups in Israel. He was
actively involved in the acquisition of companies including Jaffora Ltd. and a
portfolio of pharmaceutical companies including Pharmaceutical Resources Inc.
and Finetech Ltd. He served as a director representing Clal Industries in all of
the acquired companies as well as other companies of Clal Industries. Prior to
his position at Clal Industries Ltd., Mr. Ben Dor served as Business Executive
at the Eisenberg Group of companies.
Gad Riesenfeld, Ph.D., was named President in February 1997 and Chief
Operating Officer in March 1995 and served as Executive Vice President from
December 1994 to February 1997. He had been the Vice President of Corporate
Development and General Manager of Florida Operations since October 1992 and was
employed by Pharmos Ltd. from March 1992 until the Merger. Prior thereto, he was
engaged in free-lance consulting relating to the commercialization of
intellectual property, primarily in the pharmaceutical and medical fields. From
March 1990 through May 1991 Dr. Riesenfeld was a Director and Manager of
Kamapharm Ltd., a private company specializing in human blood products. Prior
thereto, from May 1986, he was Managing Director of Galisar Ltd., a private
company involved in extracorporeal blood therapy.
Anat Biegon, Ph.D., was named Vice President of Research and Development in
December 1994. Dr. Biegon became head of Research and Development for the
Company in 1994. From 1992 to 1994, Dr. Biegon was a director in Pharmos Ltd.'s
Department of Pharmacology. From 1991 to 1992, she was a Staff Physiologist at
the University of California at Berkeley's Lawrence Berkeley Laboratory,
Division of Research Medicine and Radiation Biophysics. From 1990 to 1991, Dr.
Biegon was a Research Associate Professor in the Department of Psychiatry at New
York University Medical Center. From 1988 to 1990, she was an Associate
Professor in the Department of Neurobiology at the Weizmann Institute of
Science.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the 1996 fiscal year, there were four meetings of the Board of
Directors. A quorum of Directors was present, either in person or by telephonic
hookup, for all of the meetings. Actions were also taken during the year by the
unanimous written consent of the Directors.
The members of the Audit Committee are Messrs. Loeb and Grinstead. Actions
of the Audit Committee were taken during the year by the unanimous written
consent of the Directors. The Audit Committee has been delegated the
responsibility of reviewing with the independent auditors the plans and results
of the audit engagement, reviewing the adequacy, scope and results of the
internal accounting controls and procedures, reviewing the degree of
independence of the
9
<PAGE>
auditors, reviewing the auditor's fees and recommending the engagement of the
auditors to the full Board of Directors.
The Compensation and Stock Option Committee consists of Messrs. Loeb and
Grinstead. Actions of the Compensation and Stock Option Committee were taken
during the year by the unanimous written consent of the Directors. The
Compensation and Stock Option Committee has the full power and authority to
interpret the provisions and supervise the administration of the Company's stock
option plans and to grant options outside of these plans and the authority to
review all matters relating to personnel of the Company.
The Board of Directors does not have a standing nominating committee.
The following table summarizes the total compensation of the Chief
Executive Officer of the Company for 1996 and the two previous years, as well as
all other executive officers of the Company who received compensation in excess
of $100,000 for 1996. Stock options have been adjusted for the Reverse Share
Split.
Summary Compensation Table
<TABLE>
<CAPTION>
Name/ Annual Compensation Long Term
Principal Position Compensation
-------------------------------------------------------------------------------------------------
Restricted Stock
Stock Underlying
Year Salary Bonus Other Awards ($) Options
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Haim Aviv, Ph.D. 1996 $236,453 $ 27,435(1)
Chairman, Chief 1995 200,230 20,551(1) 324,376
Executive Officer, 1994 195,476 $25,750(4)
Acting Chief
Financial Officer,
and Chief Scientist
Gad Riesenfeld, Ph.D. 1996 150,000 43,798(2)
President and Chief 1995 136,664 32,481(2) 79,333
Operating Officer 1994 110,000 40,828(2) 29,333
Alan M. Mark 1996 150,000(3) 75,000(5)
Acting Chief
Financial Officer(6)
Anat Biegon, Ph.D. 1996 85,516 26,515(1)
Vice President of
Research and
Development
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
S. Colin Neill(6) 1996 119,000(3) 10,000(5)
Acting Vice 1995 109,375(3)
President/Finance
and Administration,
Chief Financial
Officer
</TABLE>
- ----------
(1) Consists of contributions to insurance premiums, car allowance and car
expenses.
(2) Consists of housing allowance, contributions to insurance premiums, and car
allowance.
(3) Consists of non-employee compensation.
(4) These amounts represent the value of 94,115 shares of Old Pharmos common
stock (equal to 18,000 shares of Common Stock, as adjusted) issued in 1990,
subject to forfeiture in the amount of 75%, 50%, 25% and 0%, respectively,
on each anniversary of grant until four years after grant. ( No dividends
have been paid to date on these shares). The market value of these 18,000
equivalent shares as of December 31, 1995 was $26,438.
(5) Consists of warrants to purchase common stock.
(6) Acted as Acting Chief Financial Officer from July 1996 to [April/May] 1997,
replacing Mr. S. Colin Neill who provided consulting services to the
Company through September 1996.
The following tables set forth information with respect to the named
executive officers concerning the grant and exercise of options during the last
fiscal year and unexercised options held as of the end of the fiscal year.
Option Grants for the Year
Ended December 31, 1996:
None(1)
- ----------
(1) On February 12, 1997, the Company issued warrants to purchase an aggregate
of 1,055,000 shares of common stock at an exercise price of $1.59 per share
to 17 employees of the Company. Of such warrants, 250,000 were issued to
Dr. Aviv, 175,000 were issued to Dr. Riesenfeld and 125,000 were issued to
Dr. Biegon. Such warrants become exercisable in increments of 25% each on
February 12, 1998, February 12, 1999, February 12, 2000 and February 12,
2001. All of such warrants expire on February 12, 2007.
Aggregated Option Exercises
for the Year Ended December 31, 1996
and Option Values as of December 31, 1996:
<TABLE>
<CAPTION>
Name Number of Value Number of Unexercised Value of Unexercised In-the-
Shares Realized Options at December 31, 1996 Money Options at December
Acquired on 31, 1996(1)
Exercise
----------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Haim Aviv, Ph.D. 0 0 198,376 126,000 $ -0- $ -0-
Gad Riesenfeld, 0 0 43,600 35,733 -0- -0-
Ph.D.
Anat Biegon, Ph.D. 0 0 24,320 26,213 -0- -0-
Alan Mark 0 0 0 75,000(2) -0- 64,500
</TABLE>
11
<PAGE>
(1) Based upon closing price on December 31, 1996 as reported on the Nasdaq
SmallCap Market and the exercise price per option.
(2) Consents of warrants to purchase common stock.
12
<PAGE>
REPORT OF COMPENSATION COMMITTEE
The following report of the Compensation Committee is provided solely to
the shareholders of the Company pursuant to the requirements of Schedule 14A
promulgated under the Securities Exchange Act of 1934, and shall not be deemed
to be "filed" with the Securities and Exchange Commission for the purpose of
establishing statutory liability. This Report shall not be deemed to be
incorporated by reference in any document previously or subsequently filed with
the Securities and Exchange Commission that incorporates by reference all or any
portion of this Proxy Statement.
The Compensation and Stock Option Committee of the Board of Directors
establishes the general compensation policies of the Company, establishes the
compensation plans and specific compensation levels for executive officers, and
administers the 1992 Incentive and Non-Qualified Stock Option Plan as well as
the Company's other Stock Option Plans. The Compensation and Stock Option
Committee is composed of two independent, non-employee Directors who have no
interlocking relationships as defined by the Securities and Exchange Commission
other than as described below (see "Compensation Committee Interlocks and
Insider Participation").
The Compensation and Stock Option Committee, being responsible for
overseeing and approving executive compensation and grants of stock options, is
in a position to appropriately balance the current cash compensation
considerations with the longer-range incentive-oriented growth outlook
associated with stock options. The main objectives of the Company's compensation
structure include rewarding individuals for their respective contributions to
the Company's performance, providing executive officers with a stake in the
long-term success of the Company and providing compensation policies that will
attract and retain qualified executive personnel.
The Compensation and Stock Option Committee believes that the chief
executive officer's (CEO) compensation should be heavily influenced by Company
performance. Although Dr. Aviv's existing agreements with the Company (see
"Employment/Consulting Contracts/Directors' Compensation") provide for a base
level of salary and consulting compensation, the Committee determines the
appropriate level of bonuses and increases, if any, based in large part on
Company performance. The Committee also considers the salaries of CEOs of
comparably-sized companies and their performance.
Stock options are granted to the CEO, as to other executives, primarily
based on the executive's ability to influence the Company's long-term growth.
The Compensation and Stock Option Committee has adopted similar policies
with respect to compensation of other officers of the Company. The Committee
establishes base salaries that are within the range of salaries for persons
holding similarly responsible positions at other companies. In addition, the
Committee considers factors such as relative Company performance, the
individual's past performance and future potential in establishing the base
salaries of executive officers.
13
<PAGE>
As with the CEO, the number of options granted to the other officers is
determined by the subjective evaluation of the executive's ability to influence
the Company's long-term growth. All options are granted at no less than the
current market price. Since the value of an option bears a direct relationship
to the Company's stock price, it is an effective incentive for managers to
create value for stockholders. The Committee therefore views stock options as an
important component of its long-term, performance-based compensation philosophy.
Members of the Compensation and
Stock Option Committee
Marvin P. Loeb
E. Andrews Grinstead III
14
<PAGE>
EMPLOYMENT/CONSULTING CONTRACTS/DIRECTORS' COMPENSATION
Haim Aviv, Ph.D. In addition to serving as Chairman of the Board, Chief
Executive Officer and Acting Chief Financial Officer of the Company, Dr. Aviv
has provided consulting services under a consulting agreement with an initial
three-year term ended May 3, 1993. The term automatically renews for additional
one-year periods unless either the Company or Dr. Aviv terminates the agreement
at least 90 days prior to a scheduled expiration date. The agreement has been
renewed on an annual basis and presently expires on May 3, 1998. Dr. Aviv is
entitled to severance pay equal to 25% of his salary in the event of termination
or non-renewal without cause. Under the agreement, Dr. Aviv is required to
render certain consulting services to the Company and in consideration
therefore, Dr. Aviv is entitled to receive $170,000 per year, subject to yearly
increases and review.
The Company's subsidiary, Pharmos Ltd., employs Dr. Aviv as its Chief
Executive Officer under an employment agreement with Dr. Aviv pursuant to which
Dr. Aviv receives $50,000 per year, subject to yearly increases and review. Dr.
Aviv is required to devote at least 50% of his business time and attention to
the business of Pharmos, Ltd. and to serve on its Board of Directors.
Gad Riesenfeld, Ph.D. In October 1992, Old Pharmos entered into a one-year
employment agreement with Dr. Riesenfeld, which is automatically renewable for
successive one-year terms unless either party gives three months prior notice of
non-renewal. Under the Agreement, Dr. Riesenfeld devotes his full time to
serving as President of the Company. Dr. Riesenfeld's annual gross salary is
$150,000.
Directors' Compensation. In 1996, Directors did not receive any
compensation for service on the Board or for attending Board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation and Stock Option Committee are Messrs. Loeb
and Grinstead. Prior to the Merger (October 1992), Mr. Loeb was Chairman of the
Board of the Company. There were no interlocks on the Compensation and Stock
Option Committee in 1996.
15
<PAGE>
PERFORMANCE GRAPH
The following graph compares the Company's cumulative stockholder's return
for the five year period ended December 31, 1996 with the cumulative total
return of the NASDAQ Equity Market Index and the NASDAQ Pharmaceuticals Index
over the same period.
[The following table was represented by a line chart in the printed material.]
December 31,
-----------------------------------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
NASDAQ Stock Market US 100 116.38 133.60 130.60 184.69 227.16
NASDAQ Pharmaceuticals 100 83.22 74.17 55.83 102.13 102.42
Pharmos Corp. Stock 100 85.71 56.25 9.60 10.49 10.49
16
<PAGE>
TRANSACTIONS AND/OR INDEBTEDNESS WITH MANAGEMENT
None.
SECTION 16 FILINGS
No person who, during the fiscal year ended December 31, 1996, was a
director, officer or beneficial owner of more than ten percent of the Company's
Common Stock [which is the only class of securities of the Company registered
under Section 12 of the Securities Exchange Act of 1934 (the "Act")], a
"Reporting Person" failed to file on a timely basis, reports required by Section
16 of the Act during the most recent fiscal year. The foregoing is based solely
upon a review by the Company of Forms 3 and 4 during the most recent fiscal year
as furnished to the Company under Rule 16a-3(d) under the Act, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and any representation received by the Company from any reporting
person that no Form 5 is required.
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ITEM 2 - PROPOSAL TO AMEND RESTATED ARTICLES OF INCORPORATION
The Company's Restated Articles of Incorporation (the "Restated Articles")
currently authorize the issuance of up to 50,000,000 shares of Common Stock. The
Board of Directors of the Company has approved, subject to stockholder approval,
an amendment (the "Amendment") to the Restated Articles to increase the number
of authorized shares of Common Stock to 75,000,000. The additional authorized
shares of Common Stock, if and when issued, would have the same rights and
privileges as the shares of Common Stock recently authorized. A copy of the
proposed amendment to the Restated Articles is set forth in Appendix A.
As of November 1, 1997, there were 34,118,368 shares of Common Stock
outstanding, or 39,970,526 shares taking into account exercise of all
outstanding stock options and warrants. In addition, if the proposed new
incentive and non-qualified stock option plan is adopted by the Company's
stockholders (see Item No. 3, below) at the Annual Meeting of Stockholders, an
additional 600,000 shares of Common Stock will be reserved for issuance.
The additional shares of Common Stock authorized by the Amendment, which
are not necessary to satisfy the obligations discussed above, could be issued at
the direction of the Board of Directors from time to time for any proper
corporate purpose, including, without limitation, the acquisition of other
businesses, the raising of additional capital for use in the Company's business,
a split of or dividend on then outstanding shares or in connection with any
employee stock plan or program. The holders of shares of Common Stock do not
presently have preemptive rights to subscribe for any of the Company's
securities and holders of Common Stock will not have any such rights to
subscribe for the additional Common Stock proposed to be authorized. Any future
issuances of authorized shares of Common Stock may be authorized by the Board of
Directors without further action by the stockholders.
Although the Board of Directors will issue Common Stock only when required
or when the Board considers such issuance to be in the best interests of the
Company, the issuance of additional Common Stock may, among other things, have a
dilutive effect on the earnings per share (if any) and on the equity and voting
rights of stockholders. Furthermore, since Nevada law requires the vote of a
majority of shares of each class of stock in order to approve certain mergers
and reorganizations, the proposed amendment could permit the Board to issue
shares to persons supportive of management's position. Such persons might then
be in a position to vote to prevent a proposed business combination which is
deemed unacceptable to the Board, although perceived to be desirable by some
stockholders, including, potentially, a majority of stockholders. This could
provide management with a means to block any majority vote which might be
necessary to effect a business combination in accordance with applicable law,
and could enhance the ability of Directors of the Company to retain their
positions. Additionally, the presence of such additional authorized but unissued
shares of Common Stock could discourage unsolicited business combination
transactions which might otherwise be desirable to stockholders.
Except for (i) shares of Common Stock reserved for issuance under the
Company's stock option plans (including the proposed 1997 Plan) and other
non-plan stock options, (ii) 4,427,681 shares of Common Stock which the Company
would be required to issue upon the
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exercise of outstanding warrants, and (iii) shares of Common Stock reserved for
issuance upon conversion of the outstanding shares of convertible Series B
preferred stock (3,260 shares of convertible Series B preferred stock are
outstanding as of November 1, 1997), the Board of Directors has no current plans
to issue additional shares of Common Stock. However, the Board believes that the
benefits of providing it with the flexibility to issue shares without delay for
any proper business purpose, including as an alternative to an unsolicited
business combination opposed by the Board, outweigh the possible disadvantages
of dilution and discouraging unsolicited business combination proposals and that
it is prudent and in the best interests of stockholders to provide the advantage
of greater flexibility which will result from the Amendment.
The Amendment requires the affirmative vote of a majority of the shares
entitled to vote at the Annual Meeting. The Board of Directors recommends a vote
FOR the Amendment to the Company's Restated Articles of Incorporation. Unless
they are otherwise directed by the stockholders, the proxies intend to vote FOR
this proposal.
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ITEM 3 - PROPOSAL TO ADOPT THE INCENTIVE AND NON-QUALIFIED STOCK
OPTION PLAN
The Company's 1983, 1984, 1986 and 1988 Incentive Stock Option Plans (the
"Incentive Plans"), which are virtually identical, provide for the issuance,
pursuant to the exercise of stock options granted thereunder, of an aggregate of
225,000 shares of Common Stock. The Company's Non-Qualified Stock Option Plan
(the "Non-Qualified Plan"), which was approved by the Directors, provides for
the issuance, pursuant to the exercise of stock options under the Non-Qualified
Plan, of a maximum of 175,000 shares of Common Stock. The Company's 1991 Stock
Option Plan (the "1991 Plan"), adopted by Old Pharmos, provides for the
issuance, pursuant to the exercise of stock options granted thereunder, of a
maximum of 56,062 shares of Common Stock. The Company's 1992 Stock Option Plan
(the "1992 Plan") provides for the issuance, pursuant to the exercise of stock
options granted thereunder, of a maximum of 750,000 shares of Common Stock.
Incentive Stock Options may only be granted to employees of the Company.
Non-Qualified Stock Options may be granted to employees, Directors, consultants,
advisers and contractors of the Company. The Incentive Plans, the Non-Qualified
Plan, the 1991 Plan and the 1992 Plan are sometimes referred to herein as the
"Prior Plans".
The Board of Directors has adopted, subject to stockholder approval, the
1997 Incentive and Non-Qualified Stock Option Plan ("1997 Plan") which, in most
material respects, is similar to the Prior Plans. The annual meeting will
consider whether to approve the 1997 Plan. The full text of the 1997 Plan is
appended to this Joint Proxy Statement as Appendix B, and the following summary
is qualified in its entirety by reference to the 1997 Plan.
The purpose of the 1997 Plan is to allow Directors, officers, key employees
and consultants of the Company and its subsidiaries to increase their
proprietary interest in, and to encourage such employees to remain in the employ
of, or maintain their relationship with, such entities. It is intended that
options granted under the 1997 Plan will qualify either as incentive stock
options under Section 422 of the Code or an non-qualified options. Options
granted under the 1997 Plan will only be exercisable for Common Stock.
The 1997 Plan will be administered by a committee appointed by the Board of
Directors (the "Compensation Committee"). Members of the Compensation Committee
will not be eligible to receive options while they are members except to the
extent otherwise permitted under the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934. The Compensation Committee will designate the
persons to receive options, the number of shares subject to the options and the
terms of the options, including the option price and the duration of each
option, subject to certain limitations.
The maximum number of shares of Common Stock available for issuance under
the 1997 Plan is 600,000 shares, subject to adjustment in the event of stock
splits, stock dividends, mergers, consolidations and the like. Common Stock
subject to options granted under the 1997 Plan that expire or terminate will
again be available for options to be issued under the 1997 Plan.
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The price at which shares of Common Stock may be purchased upon exercise of
an incentive stock option must be at least 100% of the fair market value of
Common Stock on the date the option is granted (or at least 110% of fair market
value in the case of a person holding more than 10% of the outstanding shares of
Common Stock (a "10% Stockholder")).
The aggregate fair market value (determined at the time the option is
granted) of Common Stock with respect to which incentive stock options are
exercisable for the first time in any calendar year by an optionee under the
1997 Plan or any other plan of the Company or a subsidiary, shall not exceed
$100,000. The Compensation Committee will fix the time or times when, and the
extent to which, an option is exercisable, provided that no option will be
exercisable earlier than one year or later than ten years after the date of
grant (or five years in the case of a 10% Stockholder). The option price is
payable in cash or by check. However, the Board of Directors may grant a loan to
an employee, pursuant to the loan provision of the 1997 Plan, for the purpose of
exercising an option or may permit the option price to be paid in shares of
Common Stock at the then current fair market value, as defined in the 1997 Plan.
Upon termination of an optionee's employment or consultancy, all options
held by such optionee will terminate, except that any option that was
exercisable on the date employment or consultancy terminated may, to the extent
then exercisable, be exercised within three months thereafter (or one year
thereafter if the termination is the result of permanent and total disability of
the holder), and except such three month period may be extended by the
Compensation Committee in its discretion. If an optionee dies while he is an
employee or a consultant or during such three-month period, the option may be
exercised within one year after death by the decedent's estate or his legatees
or distributees, but only to the extent exercisable at the time of death.
The 1997 Plan provides that outstanding options shall vest and become
immediately exercisable in the event of a "sale" of the Company, including (i)
the sale of more than 75% of the voting power of the Company in a single
transaction or a series of transactions, (ii) the sale of substantially all
assets of the Company, (iii) approval by the stockholders of a reorganization,
merger or consolidation, as a result of which the stockholders of the Company
will own less than 50% of the voting power of the reorganized, merged or
consolidated company.
The Board of Directors may amend, suspend or discontinue the 1997 Plan, but
it must obtain stockholder approval to (i) increase the number of shares subject
to the 1997 Plan, (ii) change the designation of the class of persons eligible
to receive options, (iii) decrease the price at which options may be granted,
except that the Board may, without stockholder approval accept the surrender of
outstanding options and authorize the granting of new options in substitution
therefor specifying a lower exercise price that is not less than the fair market
value of Common Stock on the date the new option is granted, (iv) remove the
administration of the 1997 Plan from the Compensation Committee, (v) render any
member of the Compensation Committee eligible to receive an option under the
1997 Plan while serving thereon, or (vi) amend the 1997 Plan in such a manner
that options issued under it intend to be incentive stock options, fail to meet
the requirements of Incentive Stock Options as defined in Section 422 of the
Code.
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Under current federal income tax law, the grant of incentive stock options
under the 1997 Plan will not result in any taxable income to the optionee or any
deduction for the Company at the time the options are granted. The optionee
recognizes no gain upon the exercise of an option. However the amount by which
the fair market value of Common Stock at the time the option is exercised
exceeds the option price is an "item of tax preference" of the optionee, which
may cause the optionee to be subject to the alternative minimum tax. If the
optionee holds the shares of Common Stock received on exercise of the option at
least one year from the date of exercise and two years from the date of grant,
he will be taxed at the time of sale at long-term capital gains rates, if any,
on the amount by which the proceeds of the sale exceed the option price. If the
optionee disposes of the Common Stock before the required holding period is
satisfied, ordinary income will generally be recognized in an amount equal to
the excess of the fair market value of the shares of Common Stock at the date of
exercise over the option price, or, if the disposition is a taxable sale or
exchange, the amount of gain realized on such sale or exchange if that is less.
If, as permitted by the 1997 Plan, the Board of Directors permits an optionee to
exercise an option by delivering already owned shares of Common Stock valued at
fair market value) the optionee will not recognize gain as a result of the
payment of the option price with such already owned shares. However, if such
shares were acquired pursuant to the previous exercise of an option, and were
held less than one year after acquisition or less than two years from the date
of grant, the exchange will constitute a disqualifying disposition resulting in
immediate taxation of the gain on the already owned shares as ordinary income.
It is not clear how the gain will be computed on the disposition of shares
acquired by payment with already owned shares.
The Company is currently in discussions with several emerging
pharmaceutical and biotechnology companies about potential business and/or
product consolidations, joint ventures, acquisitions, mergers or other business
combinations. If any such transaction is consummated, the existence of these
additional outstanding stock options under the 1997 Plan could have the effect
of reducing the aggregate consideration received by existing stockholders in
such transaction.
The affirmative vote of a plurality of shares cast of Common Stock voting
together present or represented at a meeting at which a quorum (one-third (1/3)
of the outstanding shares of Common Stock) is required for approval of the 1997
Plan. Abstention and Broker Non-votes are counted for purposes of determining
whether a quorum is present, but do not represent votes cast with respect to any
proposal. The Board of Directors believes that, in the competitive market for
highly qualified personnel, it is critical for companies to offer a variety of
benefits in order to attract, retain and motivate key employees of outstanding
ability. Accordingly, the Board of Directors recommends a vote FOR adoption of
the 1997 Plan. Unless they are otherwise directed by the stockholders, the
proxies intend to vote FOR this proposal.
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INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed Price Waterhouse LLP as its independent public
accountants to examine the financial statements of the Company for the current
fiscal year. The selection of Price Waterhouse LLP was approved by the Board of
Directors prior to their appointment. Price Waterhouse LLP has advised the
Company that they do not have any material financial interests in, or any
connection with (other than as independent auditors, tax advisors and management
consultants), the Company.
Price Waterhouse LLP is expected to be present at the Annual Meeting and
will have the opportunity to make a statement, if they desire to do so, and they
are expected to be available to respond to appropriate questions.
STOCKHOLDERS' PROPOSALS FOR 1998
ANNUAL MEETING OF STOCKHOLDERS
Proposals which stockholders intend to present at the 1998 annual meeting
of stockholders must be received by the Company by June 1, 1998 to be eligible
for inclusion in the proxy material for that meeting.
ANNUAL REPORT ON FORM 10-K
Upon sending a written request to Pharmos Corporation, 2 Innovation Drive,
Alachua, FL 32615, Attention: Acting President, stockholders may obtain, free of
charge, a copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, and any amendments thereto, as filed with the
Securities and Exchange Commission.
OTHER MATTERS
As of the date of this Proxy Statement, the only business which management
expects to be considered at the Annual Meeting is the election of Directors and
the adoption of the incentive and non-qualified stock option plan. If any other
matters come before the meeting, the persons named in the enclosed form of proxy
are expected to vote the proxy in accordance with their best judgment on such
matters.
BY ORDER OF THE BOARD OF DIRECTORS
HAIM AVIV, PH.D.
Chairman of the Board
Dated: December 3, 1997
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Appendix A
Amendment to Article 4 of Restated Articles of Incorporation
------------------------------------------------------------
The first paragraph of Article 4 shall be replaced by the following
paragraph:
"The total number of shares of stock which the corporation shall have
authority to issue is seventy six million two hundred fifty thousand
(76,250,000), of which stock seventy five million (75,000,000) shares of the par
value of three cents ($0.03) each, amounting in the aggregate to one million
five hundred thousand dollars ($1,500,000), shall be Common Stock, and of which
one million two hundred fifty thousand (1,250,000) shares of the par value of
three cents ($0.03) each, amounting in the aggregate to thirty seven thousand
five hundred dollars ($37,500), shall be Preferred Stock."
<PAGE>
Appendix B
PHARMOS CORPORATION
a Nevada corporation
1997 Incentive and Non-Qualified Stock Option Plan
--------------------------------------------------
1. Purpose. The purposes of this 1997 Incentive and Non-Qualified Stock
Option Plan are to attract and retain the best available personnel, to provide
additional incentive to the Employees, Consultants and Outside Directors of
Pharmos Corporation, a Nevada corporation (the "Company"), and to promote the
success of the Company's business.
Options granted hereunder may, consistent with the terms of this Plan, be
either Incentive Stock Options or Nonstatutory Stock Options, at the discretion
of the Committee and as reflected in the terms of the written option agreement.
2. Definitions. As used in this Plan, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder.
(c) "Commission" means the United States Securities and Exchange
Commission.
(d) "Committee" means the Committee appointed by the Board or otherwise
determined in accordance with Section 4(a) of this Plan.
(e) "Common Stock" means the common stock of the Company, par value $0.03
per share.
(f) "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting services and is compensated for such
consulting services; provided that the term Consultant shall not include
directors who are not compensated for their services or are paid only a
director's fee by the Company.
(g) "Continuous Status as an Employee, Consultant or Outside Director"
means the absence of any interruption or termination of service as an Employee,
Consultant or Outside Director, as applicable. Continuous Status as an Employee,
Consultant or Outside Director shall not be considered interrupted in the case
of sick leave or military leave, any other leave provided pursuant to a written
policy of the Company in effect at the time of determination, or any other leave
of absence approved by the Board or the Committee; provided that such leave is
for a period of not more than the greatest of (i) 90 days, (ii) the date of the
resumption of such service upon the expiration of such leave which is guaranteed
by contract or statute or is provided in a written policy of the Company which
was in effect upon the commencement of such leave, or (iii) such period of leave
as may be determined by the Board or the Committee in its sole discretion.
(h) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3), or any successor definition adopted by the Commission, provided the
person is also an "outside director" under Section 162(m) of the Code.
<PAGE>
(i) "Employee" means any person employed by the Company or any Parent or
Subsidiary of the Company, including employees who are also officers or
directors or both of the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder.
(k) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, and the
rules and regulations promulgated thereunder.
(l) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(m) "Option" means a stock option granted pursuant to this Plan.
(n) "Optioned Stock" means the Common Stock subject to an Option.
(o) "Optionee" means an Employee, Consultant or Outside Director who
receives an Option.
(p) "Outside Director" means any member of the Board of Directors of the
Company who is not an Employee or Consultant.
(q) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this Pharmos Corporation 1997 Stock Option Plan, as
amended from time to time.
(s) "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as such rule is amended from time to time and
as interpreted by the Commission.
(t) "Securities Act" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations promulgated thereunder.
(u) "Share" means a share of the Common Stock, as adjusted in accordance
with Section of this Plan.
(v) "Subsidiary" means a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Code.
3. Scope of Plan. Subject to the provisions of Section 10 of this Plan, and
unless otherwise amended by the Board and approved by the stockholders of the
Company as required by law, the maximum aggregate number of Shares issuable
under this Plan is 600,000, and such Shares are hereby made available and shall
be reserved for issuance under this Plan. The Shares may be authorized but
unissued, or reacquired, Common Stock.
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<PAGE>
If an Option shall expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares subject thereto shall
(unless this Plan shall have terminated) become available for grants of other
Options under this Plan.
4. Administration of Plan.
(a) Procedure. This Plan shall be administered by the Committee appointed
pursuant to this Section 4(a). The Committee shall consist of two or more
Outside Directors appointed by the Board, but all Committee members must be
Disinterested Persons. If the Board fails to appoint such persons, the Committee
shall consist of all Outside Directors who are Disinterested Persons.
(b) Powers of Committee. Subject to the provisions of this Plan, the
Committee shall have full and final authority in its discretion to: (i) grant
Incentive Stock Options and Nonstatutory Stock Options, (ii) determine, upon
review of relevant information and in accordance with Section below, the Fair
Market Value of the Common Stock; (iii) determine the exercise price per share
of Options to be granted, in accordance with this Plan, (iv) determine the
Employees and Consultants to whom, and the time or times at which, Options shall
be granted, and the number of shares to be represented by each Option; (v)
cancel, with the consent of the Optionee, outstanding Options and grant new
Options in substitution therefor; (vi) interpret this Plan; (vii) accelerate or
defer (with the consent of Optionee) the exercise date of any Option; (viii)
prescribe, amend and rescind rules and regulations relating to this Plan; (ix)
determine the terms and provisions of each Option granted (which need not be
identical) by which Options shall be evidenced and, with the consent of the
holder thereof, modify or amend any provisions (including without limitation
provisions relating to the exercise price and the obligation of any Optionee to
sell purchased Shares to the Company upon specified terms and conditions) of any
Option; (x) require withholding from or payment by an Optionee of any federal,
state or local taxes; (xi) appoint and compensate agents, counsel, auditors or
other specialists as the Committee deems necessary or advisable; (xii) correct
any defect or supply any omission or reconcile any inconsistency in this Plan
and any agreement relating to any Option, in such manner and to such extent the
Committee determines to carry out the purposes of this Plan, and; (xiii)
construe and interpret this Plan, any agreement relating to any Option, and make
all other determinations deemed by the Committee to be necessary or advisable
for the administration of this Plan.
A majority of the Committee shall constitute a quorum at any meeting, and
the acts of a majority of the members present, or acts unanimously approved in
writing by the entire Committee without a meeting, shall be the acts of the
Committee. A member of the Committee shall not participate in any decisions with
respect to himself under this Plan.
(c) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Optionees and
any other holders of any Options granted under this Plan.
5. Eligibility.
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<PAGE>
(a) Options may be granted to any Employee, Consultant or Outside Director
as the Committee may from time to time designate, provided that Incentive Stock
Options may be granted only to Employees. In selecting the individuals to whom
Options shall be granted, as well as in determining the number of Options
granted, the Committee shall take into consideration such factors as it deems
relevant in connection with accomplishing the purpose of this Plan. Subject to
the provisions of Section above, an Optionee may, if he or she is otherwise
eligible, be granted an additional Option or Options if the Committee shall so
determine.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. Notwithstanding
such designations, if and to the extent that the aggregate Fair Market Value of
the Shares with respect to which Options designated as Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
(under all plans of the Company) exceeds $100,000, such options shall be treated
as Nonstatutory Stock Options. For purposes of this Section 5(b), Options shall
be taken into account in the order in which they are granted, and the Fair
Market Value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(c) This Plan shall not confer upon any Optionee any right with respect to
continuation of employment by or the rendition of services to the Company or any
Parent or Subsidiary, nor shall it interfere in any way with his or her right or
the right of the Company or any Parent or Subsidiary to terminate his or her
employment or services at any time, with or without cause. The terms of this
Plan or any Options granted hereunder shall not be construed to give any
Optionee the right to any benefits not specifically provided by this Plan or in
any manner modify the Company's right to modify, amend or terminate any of its
pension or retirement plans.
6. Term of Plan. This Plan shall become effective upon its adoption by the
Board of Directors of the Company (such adoption to include the approval of at
least two Outside Directors) subject to the approval thereof by vote of the
holders of a majority of the outstanding shares of the Company present, or
represented, and entitled to vote at a meeting to be duly held in accordance
with the applicable laws of the State of Nevada. Such meeting shall be held
within twelve months of the adoption of the Plan by the Board of Directors. The
Plan shall terminate no later than October 31, 2007. No grants shall be made
under this Plan after the date of termination of this Plan. Any termination,
either partially or wholly, shall not affect any Options then outstanding under
this Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the Committee as
follows:
(i) In the case of an Incentive Stock Option granted to any Employee, the
per Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant, but if granted to an Employee who, at the time of
the grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the
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<PAGE>
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant.
(ii) With respect to (i) above, the per Share exercise price is subject to
adjustment as provided in Section 10 below. For purposes of this Section 7(a),
if an Option is amended to reduce the exercise price, the date of grant of such
option shall thereafter be considered to be the date of such amendment.
(b) Fair Market Value. The "Fair Market Value" of the Common Stock shall be
determined by the Committee in its discretion; provided, that if the Common
Stock is listed on a stock exchange, the Fair Market Value per Share shall be
the closing price on such exchange on the date of grant of the Option as
reported in the Wall Street Journal (or, (i) if not so reported, as otherwise
reported by the exchange, and (ii) if not reported on the date of grant, then on
the last prior date on which a sale of the Common Stock was reported); or if not
listed on an exchange but traded on the National Association of Securities
Dealers Automated Quotation SmallCap Market System ("NASDAQ"), the Fair Market
Value per Share shall be the closing price per share of the Common Stock for the
date of grant, as reported in the Wall Street Journal (or, (i) if not so
reported, as otherwise reported by NASDAQ, and (ii) if not reported on the date
of grant, then on the last prior date on which a sale of the Common Stock was
reported); or, if the Common Stock is otherwise publicly traded, the mean of the
closing bid price and asked price for the last known sale.
(c) Consideration. The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Committee (and in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (i) cash; (ii)
check; (iii) the Optionee's personal interest bearing full recourse promissory
note with such terms and provisions as the Committee may authorize (provided
that no person who is not an Employee of the Company may purchase Shares with a
promissory note); (iv) other Shares of Common Stock which (X) either have been
owned by the Optionee for more than six (6) months on the date of surrender or
were not acquired directly or indirectly from the Company, and (Y) have a Fair
Market Value on the date of surrender (determined without regard to any
limitations on transferability imposed by securities laws) equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (v) any combination of such methods of payment; or (vi) such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable laws.
(d) Withholding. No later than the date as of which an amount first becomes
includable in the gross income of the Optionee for Federal income tax purposes
with respect to an option, the Optionee shall pay to the Company (or other
entity identified by the Committee), or make arrangements satisfactory to the
Company or other entity identified by the Committee regarding the payment of,
any Federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount required in order for the Company to obtain
a current deduction. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock, including
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<PAGE>
Common Stock underlying the subject option, provided that any applicable
requirements under Section 16 of the Exchange Act are satisfied so as to avoid
liability thereunder. The obligations of the Company under this Plan shall be
conditional upon such payment or arrangements, and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Optionee.
8. Options.
(a) Term of Option. The term of each Option granted shall be for a period
of no more than ten (10) years from the date of grant thereof or such shorter
term as may be provided in the Option agreement. However, in the case of an
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter time as may be
provided in the Option Agreement.
(b) Exercise of Options.
(i) Procedure for Exercise; Rights as a Stockholder. Any Option granted
under this Plan shall be exercisable at such times and under such conditions as
determined by the Committee, including performance criteria with respect to the
Company and/or the Optionee, and as shall otherwise be permissible under the
terms of this Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Committee, consist of any
consideration and method of payment allowable under Section 7 of this Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. If the
exercise of an Option is treated in part as the exercise of an Incentive Stock
Option and in part as the exercise of a Nonstatutory Stock Option, the Company
shall issue a separate stock certificate evidencing the Shares treated as
acquired upon exercise of an Incentive Stock Option and a separate stock
certificate evidencing the Shares treated as acquired upon exercise of a
Nonstatutory Stock Option and shall identify each such certificate accordingly
in its stock transfer records. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section of this Plan.
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Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of this
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(ii) Method of Exercise. An Optionee may exercise an Option, in whole or in
part, at any time during the option period by the Optionee's giving written
notice of exercise on a form provided by the Committee (if available) to the
Company specifying the number of shares of Common Stock subject to the Option to
be purchased. Such notice shall be accompanied by payment in full of the
purchase price by cash or check or such other form of payment as the Company may
accept. If approved by the Committee, payment in full or in part may also be
made (A) by delivering Common Stock already owned by the Optionee having a total
Fair Market Value on the date of such delivery equal to the exercise price of
the subject Option; (B) by the execution and delivery of a note or other
evidence of indebtedness (and any security agreement thereunder) satisfactory to
the Committee; (C) by authorizing the Company to retain shares of Common Stock
which would otherwise be issuable upon exercise of the Option having a total
Fair Market Value on the date of delivery equal to the exercise price of the
subject Option; (D) by the delivery of cash by a broker-dealer to whom the
Optionee has submitted an irrevocable notice of exercise (in accordance with
Part 220, Chapter II, Title 12 of the Code of Federal Regulations, so-called
"cashless" exercise); or (E) by any combination of the foregoing. In the case of
an Incentive Stock Option, the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject to
the Option may be authorized only at the time the Option is granted. No shares
of Common Stock shall be issued until full payment therefor has been made. An
Optionee shall have all of the rights of a stockholder of the Company holding
the class of Common Stock that is subject to such Option (including, if
applicable, the right to vote the shares and the right to receive dividends),
when the Optionee has given written notice of exercise, has paid in full for
such shares and such shares have been recorded on the Company's official
stockholder records as having been issued or transferred.
(iii) Termination of Status as an Employee, Consultant or Outside Director.
If an Optionee's Continuous Status as an Employee, Consultant or Outside
Director (as the case may be) is terminated for any reason whatever, such
Optionee may, but only within such period of time as provided in the Option
agreement, after the date of such termination (but in no event later than the
date of expiration of the term of such Option as set forth in the Option
agreement and determined by the Committee), exercise the Option to the extent
that such Employee, Consultant or Outside Director was entitled to exercise it
at the date of such termination pursuant to the terms of the Option agreement.
To the extent that such Employee, Consultant or Outside Director was not
entitled to exercise the Option at the date of such termination, or if such
Employee, Consultant or Outside Director does not exercise such Option (which
such Employee, Consultant or Outside Director was entitled to exercise) within
the time specified in the Option agreement, the Option shall terminate.
(iv) Company Loan or Guarantee. Upon the exercise of any Option and subject
to the pertinent Option agreement and the discretion of the Committee, the
Company may at
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the request of the Optionee; (A) lend to the Optionee, with recourse, an amount
equal to such portion of the option exercise price as the Committee may
determine; or (B) guarantee a loan obtained by the Optionee from a third-party
for the purpose of tendering the option exercise price.
9. Non-transferability of Options. An Option granted hereunder shall by its
terms not be sold, pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or the laws of descent and distribution. An
Option may be exercised during the Optionee's lifetime only by the Optionee.
10. Adjustments Upon Changes in Capitalization or Merger.
(a) Capitalization. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock which have been authorized for
issuance under this Plan but as to which no Options have yet been granted or
which have been returned to this Plan upon cancellation or expiration of an
Option, and the number of shares of Common Stock subject to each outstanding
Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock of the Company or the payment of a stock dividend with respect
to the Common Stock. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, each Option will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Committee and give each Optionee the right to exercise his or her Option as to
all or any part of the Optioned Stock, including Shares as to which the Option
would not otherwise be exercisable.
(c) Sale or Merger. "Sale" means: (i) sale (other than a sale by the
Company) of securities entitled to more than 75% of the voting power of the
Company in a single transaction or a related series of transactions; or (ii)
sale of substantially all of the assets of the Company; or (iii) approval by the
stockholders of the Company of a reorganization, merger or consolidation of the
Company, as a result of which the persons who were the stockholders of the
Company immediately prior to such reorganization, merger or consolidation do not
own securities immediately after the reorganization, merger or consolidation
entitled to more than 50% of the voting power of the reorganized, merged or
consolidated company. Immediately prior to a Sale, each Optionee may exercise
his or her Option as to all Shares then subject to the Option, regardless of any
vesting conditions otherwise expressed in the Option. Voting power, as used in
this Section 10(c), shall refer to those securities entitled to vote generally
in the election of directors, and securities of the Company not entitled to vote
but which are convertible into, or
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exercisable for, securities of the Company entitled to vote generally in the
election of directors shall be counted as if converted or exercised, and each
unit of voting securities shall be counted in proportion to the number of votes
such unit is entitled to cast.
(d) Purchased Shares. No adjustment under this Section 10 shall apply to
any purchased Shares already deemed issued at the time any adjustment would
occur.
(e) Notice of Adjustments. Whenever the purchase price or the number or
kind of securities issuable upon the exercise of the Option shall be adjusted
pursuant to Section 10, the Company shall give each Optionee written notice
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, and the method by which such adjustment was
calculated.
(f) Certain Cash Payments. If an Optionee would not be permitted to
exercise an Option or any portion thereof (for purposes of this subsection (f)
only, each such Option being referred to as a "Subject Option") or dispose of
the Shares received upon the exercise thereof without loss or liability (other
than a loss or liability for the exercise price, applicable withholding or any
associated transactional cost), or if the Board determines that the Optionee may
not be permitted to exercise the same rights or receive the same consideration
with respect to the Sale of the Company as a stockholder of the Company with
respect to any Subject Options or portion thereof or the Shares received upon
the exercise thereof, then notwithstanding any other provision of this Plan and
unless the Committee shall provide otherwise in an agreement with such Optionee
with respect to any Subject Options, such Optionee shall have the right, whether
or not the Subject Option is fully exercisable or may be otherwise realized by
the Optionee, by giving notice during the 60-day period from and after a Sale to
the Company, to elect to surrender all or part of any Subject Options to the
Company and to receive cash, within 30 days of such notice, in an amount equal
to the amount by which the "Sale Price" (as defined herein) per share of Common
Stock on the date of such election shall exceed the amount which the Optionee
must pay to exercise the Subject Options per share of Common Stock under such
Subject Options (the "Spread") multiplied by the number of shares of Common
Stock granted under the Subject Options as to which the right granted hereunder
shall be applicable and shall have been exercised; provided, however, that if
the end of such 60- day period from and after a Sale is within six months of the
date of grant of a Subject Option held by an Optionee (except an Optionee who
has deceased during such six month period) who is an officer or director of the
Company (within the meaning of Section 16(b) of the Exchange Act), such Subject
Option shall be canceled in exchange for a payment to the Optionee, effective on
the day which is six months and one day after the date of grant of such Subject
Option, equal to the Spread multiplied by the number of shares of Common Stock
granted under the Subject Option. With respect to any Optionee who is an officer
or director of the Company (within the meaning of Section 16(b) of the Exchange
Act), the 60-day period shall be extended, if necessary, to include the "window
period" of Rule 16(b)-3 which first commences on or after the date of the Sale,
and the Committee shall have sole discretion, if necessary, to approve the
Optionee's exercise hereunder and the date on which the Spread is calculated may
be adjusted, if necessary, to a later date if necessary to avoid liability to
such Optionee under Section 16(b). For purposes of the Plan, "Sale Price" means
the higher of (a) the highest reported sales price
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of a share of Common Stock in any transaction reported on the principal exchange
on which such shares are listed or on NASDAQ during the 60-day period prior to
and including the date of a Sale or (b) if the Sale is the result of a tender or
exchange offer or a corporate transaction, the highest price per share of Common
Stock paid in such tender or exchange offer or a corporate transaction, except
that, in the case of Incentive Stock Options, such price shall be based only on
the Fair Market Value of the Common Stock on the date such Incentive Stock
Option is exercised. To the extent that the consideration paid in any such
transaction described above consists all or in part of securities or other
non-cash consideration, the value of such securities or other non-cash
consideration shall be determined in the sole discretion of the Committee.
(g) Mitigation of Excise Tax. If any payment or right accruing to an
Optionee under this Plan (without the application of this Section), either alone
or together with other payments or rights accruing to the Optionee from the
Company or an affiliate ("Total Payments") would constitute a "parachute
payment" (as defined in Section 280G of the Code and regulations thereunder),
the Committee may in each particular instance determine to (i) reduce such
payment or right to the largest amount or greatest right that will result in no
portion of the amount payable or right accruing under the Plan being subject to
an excise tax under Section 4999 of the Code or being disallowed as a deduction
under Section 280G of the Code, or (ii) take such other actions, or make such
other arrangements or payments with respect to any such payment or right as the
Committee may determine in the circumstances. Any such determination shall be
made by the Committee in the exercise of its sole discretion, and such
determination shall be conclusive and binding on the Optionee. The Optionee
shall cooperate as may be requested by the Committee in connection with the
Committee's determination, including providing the Committee with such
information concerning such Optionee as the Committee may deem relevant to its
determination.
11. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date on which the Committee makes the determination granting
such Option. Notice of the determination shall be given to each Employee,
Consultant or Outside Director to whom an Option is so granted within a
reasonable time after the date of such grant. If the Committee cancels, with the
consent of Optionee, any Option granted under this Plan, and a new Option is
substituted therefor, the date that the canceled Option was originally granted
shall be the date used to determine the earliest date for exercising the new
substituted Option under Section 7 so that the Optionee may exercise the
substituted Option at the same time as if the Optionee had held the substituted
Option since the date the canceled Option was granted.
12. Amendment and Termination of Plan.
(a) Amendment and Termination. The Board or the Committee may amend, waive
or terminate this Plan from time to time in such respects as it shall deem
advisable; provided that, to the extent necessary to comply with Rule 16b-3 or
with Section 422 of the Code (or any other successor or applicable law or
regulation), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as is required by the applicable law, rule
or regulation.
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(b) Effect of Amendment or Termination. Any such amendment or termination
of this Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the
Committee, which agreement must be in writing and signed by the Optionee and the
Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act, the
Exchange Act, and the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
14. Restrictions on Shares. Shares of Common Stock issued upon exercise of
an Option shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the grant. The Company shall not be required to
issue or deliver any certificates for shares of Common Stock, cash or other
property prior to (a) the listing of such shares on any stock exchange (or other
public market) on which the Common Stock may then be listed (or regularly
traded), (b) the completion of any registration or qualification of such shares
under federal or state law, or any ruling or regulation of any government body
which the Committee determines to be necessary or advisable, and (c) the
satisfaction of any applicable withholding obligation in order for the Company
or an affiliate to obtain a deduction with respect to the exercise of an Option.
The Company may cause any certificate for any share of Common Stock to be
delivered to be properly marked with a legend or other notation reflecting the
limitations on transfer of such Common Stock as provided in this Plan or as the
Committee may otherwise require. The Committee may require any person exercising
an Option to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares shall not be delivered, but shall be rounded to the next lower whole
number of shares.
15. Stockholder Rights. No person shall have any rights of a stockholder as
to shares of Common Stock subject to an Option until, after proper exercise of
the Option or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued or transferred.
Subject to the preceding Section and upon exercise of the Option or any portion
thereof, the Company will have thirty (30) days in which to issue the shares,
and the Optionee will not be treated as a stockholder for any purpose whatsoever
prior to such issuance. No adjustment shall be made for cash
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dividends or other rights for which the record date is prior to the date such
shares are recorded as issued or transferred in the Company's official
stockholder records, except as provided herein or in an agreement.
16. Best Efforts To Register. If there has been a public offering, the
Company may register under the Securities Act the Common Stock delivered or
deliverable pursuant to Options on Commission Form S-8 if available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available to effect such
registration), in accordance with the rules and regulations governing such
forms, as soon as such forms are available for registration to the Company for
this purpose. The Company will, if it so determines, use its good faith efforts
to cause the registration statement to become effective as soon as possible and
will file such supplements and amendments to the registration statement as may
be necessary to keep the registration statement in effect until the earliest of
(a) one year following the expiration of the option period of the last Option
outstanding, (b) the date the Company is no longer a reporting company under the
Exchange Act and (c) the date all Optionees have disposed of all shares
delivered pursuant to any Option. The Company may delay the foregoing actions at
any time and from time to time if the Committee determines in its discretion
that any such registration would materially and adversely affect the Company's
interests or if there is no material benefit to Optionees.
17. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to permit the exercise of all Options outstanding under this Plan.
The inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained for any
reason.
18. Option Agreements. Options shall be evidenced by written Option
agreements in such form as the Committee shall approve.
19. Information to Optionees. To the extent required by applicable law, the
Company shall provide to each Optionee, during the period for which such
Optionee has one or more Options outstanding, copies of all annual reports and
other information which are provided to all stockholders of the Company. Except
as otherwise noted in the foregoing sentence, the Company shall have no
obligation or duty to affirmatively disclose to any Optionee, and no Optionee
shall have any right to be advised of, any material information regarding the
Company or any Parent or Subsidiary at any time prior to, upon or otherwise in
connection with, the exercise of an Option.
20. Funding. Benefits payable under this Plan to any person shall be paid
directly by the Company. The Company shall not be required to fund or otherwise
segregate assets to be used for payment of benefits under this Plan.
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21. Indemnification. In addition to such other rights of indemnification as
they may have as directors or as members of the Committee, the members of the
Committee shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with this Plan or any option
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding; provided that within 60 days after institution of any such
action, suit or proceeding a Committee member shall in writing offer the Company
the opportunity, at its own expense, to handle and defend the same. The
foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may be
entitled under the Company's Certificate of Incorporation or by-laws, by
contract, as a matter of law, or otherwise.
22. Controlling Law. This Plan shall be governed by the laws of the State
of Nevada applicable to contracts made and performed wholly in Nevada between
Nevada residents.
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