PHARMOS CORPORATION
99 Wood Avenue South, Suite 301
Iselin, NJ 08830
(732) 452-9556
----------------------------------------------------
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 4:30
p.m. on October 13, 1999 at The Hotel Intercontinental, 111 East 48th Street,
New York, NY 10017, (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 approve an amendment to the
Restated Articles of Incorporation; (iii) to amend the Company's 1997 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 August 16,
1999 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
August 18, 1999
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
99 Wood Avenue South, Suite 301
Iselin, NJ 08830
(732) 452-9556
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To be held on October 13, 1999
INTRODUCTION
The Annual Meeting is called to elect members of the Board of Directors, to
approve the amendment to the Restated Articles of Incorporation of the Company
to increase its authorized capital stock to 80 million, and to amend the
Company's 1997 Incentive and Non-Qualified Stock Option Plan. The Meeting 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
on or about August 18, 1999 to stockholders of record as of August 16, 1999. A
copy of the Annual Report for the fiscal year ended December 31, 1998, which
includes audited financial statements, is included herewith.
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.
"Broker Non-votes" are shares held by a broker or nominee for which an executed
proxy is received by the Company, but which shares are not voted as to one or
more proposals 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.
<PAGE>
VOTING SECURITIES
The Board of Directors has fixed the close of business on August 16, 1999
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting.
As of July 31, 1999, the outstanding capital stock of the Company consisted
of 43,696,478 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 in
accordance with the directions given, provided that 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 July 31, 1999 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.
Name and Address of Amount Percentage
Beneficial Owner of Beneficial of Total (1)
---------------- Ownership ------------
------------
Haim Aviv, Ph.D.(2) 1,348,306 3.05%
c/o Pharmos Ltd.
Kiryat Weitzman
Rehovot, Israel
Marvin P. Loeb(3) 314,386 *
Trimedyne, Inc.
2810 Barranca Road
Irvine, CA 92714
E. Andrews Grinstead III(4) 119,488 *
Hybridon, Inc.
620 Memorial Drive
Cambridge, MA 02139
Stephen C. Knight, M.D. (5) 12,083 *
Epix Medical Inc.
71 Rogers Street
Cambridge, MA 02142
2
<PAGE>
David Schlachet(6) 23,750 *
Strauss Holdings Ltd.
16 Bazel Street
Petach-Tikva, Israel 49510
Mony Ben Dor(7) 7,500 *
The Israel Corporation
4 Weizman St.
Tel-Aviv 61336, Israel
Georges Anthony Marcel, M.D., Ph.D(7) 3,750 *
c/o TMC Development
9, rue de Magdebourg
75116 Paris France
Stephan Guttmann, Ph.D 0 0
Hegenheimermattweg
CH-4123 Allschwil
Switzerland
All Directors and 2,036,846 4.57%
Executive Officers
as a Group (10 People) (8)
- ----------
* Indicates ownership of less than 1%.
(1) Based on 43,696,478 shares of Common Stock outstanding, plus each
individual's currently exercisable warrants and options. Assumes that no
other individual will exercise any warrants and/or options.
(2) 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. Also includes currently exercisable options to purchase
337,376 shares of Common Stock and currently exercisable warrants to
purchase 125,000 shares of Common Stock.
(3) Held jointly with his wife. Also includes currently exercisable options to
purchase 53,750 shares of Common Stock and currently exercisable warrants
to purchase 10,000 shares of Common Stock. Does not include shares held by
his adult children, his grandchildren or a trust for the benefit of his
grandchildren.
(4) Consists of currently exercisable options to purchase 109,488 shares of
Common Stock and currently exercisable warrants to purchase 10,000 shares
of Common Stock.
(5) Consists of currently exercisable options to purchase 7,083 shares of
Common Stock and currently exercisable warrants to purchase 5,000 shares of
Common Stock.
(6) Consists of currently exercisable options to purchase 13,750 shares of
Common Stock and currently exercisable warrants to purchase 10,000 shares
of Common Stock.
(7) Consists of currently exercisable options to purchase shares of Common
Stock.
(8) Based on the number of shares of Common Stock outstanding, plus 890,280
currently exercisable warrants and options to purchase shares of Commons
Stock held by the Directors and executive officers.
3
<PAGE>
ITEM 1 - ELECTION OF DIRECTORS
Eight 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 eight 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. 59 Chairman, Chief Executive Officer,
Chief Scientist
Marvin P. Loeb 72 Director
E. Andrews Grinstead III 53 Director
Stephen C. Knight, M.D. 39 Director
David Schlachet 53 Director
Mony Ben Dor 53 Director
Georges Anthony Marcel,
M.D., Ph.D. 58 Director
Stephan Guttmann, Ph.D 71 Director
Gad Riesenfeld, Ph.D. 55 President and Chief Operating Officer
Robert W. Cook 44 Vice President Finance and
Chief Financial Officer
4
<PAGE>
Haim Aviv, Ph.D., Chairman of the Board of Directors, Chief Executive
Officer, and Chief Scientist of the Company, co-founded Pharmos Corporation, a
New York corporation ("Old Pharmos"), in 1990 and served as Chairman, Chief
Executive Officer and Chief Scientist of Old Pharmos until its merger into the
Company on October 29, 1992 (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 is the 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, and since
1996, as a Director of Meridian Medical Technologies, Inc., a pharmaceutical and
medical device company. Since 1994, Mr. Grinstead has served as a member of the
Board of Trustees for the Albert B. Sabine Vaccine Foundation, a 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 COMC, Inc. (formerly Automedix Sciences,
Inc.), a publicly-held company engaged in the installation and management of
voice and data telecom systems, a Chairman from September 1980 to August 1995;
Chairman of Cardiomedics, Inc., a privately-held company engaged in the
manufacturing of heart assist devices, since May 1986; Chairman of Xtramedics,
Inc., (now Athena Medical Corporation), a publicly-held company developing
feminine hygiene products, and a Director from November 1986 until May 1994;
5
<PAGE>
Chairman of Ultramedics, Inc., an inactive, privately-held company which holds
stock in Cardiomedics, Inc; and President and a 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 1994, is Chief
Financial Officer and Senior Vice President of Financial Business Development at
Epix Medical, Inc. Prior to joining Epix Medical in July 1996, Dr. Knight was a
Senior Consultant 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. 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 a Master's Degree from the Yale School of Organization
and Management.
David Schlachet, a Director of the Company since 1994, is Executive Vice
President of the Strauss-Elite Group, a major food industry in Israel. In June
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, Reshet
Ltd., a commercial television network and Yeda Research and Development Ltd.
Mony Ben Dor, a Director of the Company since 1997, 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.
6
<PAGE>
Georges Anthony Marcel, M.D., Ph.D., a Director of the Company since 1998,
is President and Chief Executive Officer of TMC Development S.A., a
biopharmaceutical consulting firm based in Paris, France. Prior to founding TMC
Development in 1992, Dr. Marcel held a number of senior executive positions in
the pharmaceutical industry, including Chief Executive Officer of Amgen's French
subsidiary, Vice President of Marketing for Rhone-Poulenc Sante and Director of
Development for Roussel-Uclaf. Dr. Marcel teaches biotechnology industrial
issues and European regulatory affairs at the Faculties of Pharmacy of Paris and
Lille. Dr. Marcel is also a member of the Gene Therapy Advisory Committee at the
French Medicines Agency.
Stephan Guttmann, Ph.D., a Director of the Company since December 1998,
retired as Senior Vice President of Research and Development at Sandoz Pharma
Ltd., which merged with Ciba-Geigy in 1997 to form Novartis. Earlier in his
career, Dr. Guttmann lead Sandoz' Worldwide Pharma Research and Development.
Prior to that, at the Sandoz Pharmaceutical Chemical Research Department, Dr.
Guttmann held a variety of positions including head of the Pharmaceutical
Development and Preclinical Research departments. Dr. Guttmann has served on the
board of Systemix and the Scientific Advisory Board of Sequana Pharmaceuticals
and is currently on the board of Modex Pharmaceuticals.
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 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.
Robert W. Cook was named Vice President Finance and Chief Financial Officer
in January 1998. From May 1995 until joining the Company, he was a vice
president in GE Capital's commercial finance subsidiary, based in New York. From
1978 until 1995, Mr. Cook held a variety of corporate finance and capital
markets positions at The Chase Manhattan Bank, both in the U.S. and in several
overseas locations. He was named a managing director of Chase in January 1986.
Mr. Cook holds a degree in international finance from The American University,
Washington, D.C.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the 1998 fiscal year, there were five meetings of the Board of
Directors. Each person who served as a director in 1998 attended in excess of
75% of the aggregate of (i) the total number of meetings of the Board of
Directors held during 1998 and (ii) the total number of meetings held during
1998 by each committee of the Board of Directors on which such director
7
<PAGE>
served, except Mr. Loeb, who attended three meetings of the Board, and Messrs.
Schlachet and Ben Dor, who each attended three meetings of the Board and one
meeting of the Audit Committee. Actions were also taken during the year by the
unanimous written consent of the Directors.
The members of the Audit Committee in 1998 were David Schlachet, Mony Ben
Dor and Marvin Loeb. The Audit Committee met once in 1998. 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 auditors, reviewing the auditor's fees and recommending
the engagement of the auditors to the full Board of Directors.
In 1998, the Compensation and Stock Option Committee consisted of Messrs.
Knight 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.
8
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Stock
Name/ Restricted Underlying
Principal Position Year Salary Bonus Other Stock Options
- ------------------ ---- ------ ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Haim Aviv, Ph.D 1998 $236,347 $ 4,197(1) 100,000
Chairman, Chief Executive 1997 $227,471 $ 40,000 $ 16,119(1)
Officer, and Chief Scientist 1996 $236,453 $ 27,435(1)
Gad Riesenfeld, Ph.D 1998 $175,000 $ 25,000 $ 50,728(2) 80,000
President and Chief 1997 $175,000 $ 44,948(2)
Operating Officer 1996 $175,000 $ 43,798(2)
Robert W. Cook 1998 $165,000 $ 20,000 $ 4,800(1) 150,000
Vice President Finance and
Chief Financial Officer
Anat Biegon, Ph.D(3) 1998 $ 88,830 $ 14,396 $ 23,490(1) 60,000
Vice President of Research 1997 $ 81,873 $ 20,456 $ 27,860(1)
and Development 1996 $ 85,516 $ 26,565(1)
</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) Dr. Biegon ceased serving as an executive officer in March 1999.
The following tables set forth information with respect to the named
executive officers concerning the grant, repricing 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, 1998:
<TABLE>
<CAPTION>
Common Stock % of Total Options
Underlying Options Granted to Exercise Price
Granted Employees per Share Expiration Date
------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Haim Aviv, Ph.D 100,000 15.2% $2.78 5/18/08
Gad Riesenfeld, Ph.D 80,000 12.2% $2.78 5/18/08
Robert W. Cook 100,000 15.2% $2.00 1/1/08
50,000 7.6% $2.78 5/18/08
Anat Biegon, Ph.D 60,000 9.1% $2.78 5/18/08
</TABLE>
9
<PAGE>
Aggregated Option Exercises
for the Year Ended December 31, 1998
and Option Values as of December 31, 1998:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Number of Unexercised In-the-Money Options at
Shares Options at December 31, 1998 December 31, 1998
Acquired on Value ---------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ------- -------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Haim Aviv, Ph.D 0 0 312,376 112,000 $ -- $ --
Gad Riesenfeld, Ph.D. 0 $60,022(1) 71,333 88,000 $ -- $ --
Robert W. Cook 0 0 25,000 125,000 $ -- $ --
Anat Biegon, Ph.D. 0 0 44,533 66,000 $ -- $ --
</TABLE>
(1) Represents 43,750 shares.
10
<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, the compensation
plans and specific compensation levels for executive officers, and administers
the 1997 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, establishing 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 positions of similar responsibility at other companies. In addition, the
Committee considers factors such as
11
<PAGE>
relative Company performance, the executive's past performance and future
potential in establishing the base salaries of executive officers.
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
Stephen C. Knight, M.D.
E. Andrews Grinstead III
12
<PAGE>
EMPLOYMENT/CONSULTING CONTRACTS/DIRECTORS' COMPENSATION
Haim Aviv, Ph.D. In addition to serving as Chairman of the Board and Chief
Executive 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
expires on May 3, 2000. 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
$185,000.
Robert W. Cook. In 1998, the Company entered into a one-year employment
agreement with Mr. Cook, which is automatically renewable for successive
one-year terms unless the Company gives 90 days' prior written notice, or Mr.
Cook gives 60 days' prior written notice, of non-renewal. Under the Agreement,
Mr. Cook devotes his full time to serving as Vice President Finance and Chief
Financial Officer of the Company. Mr. Cook's annual gross salary is $175,000.
Directors' Compensation. In 1998, 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 in 1998 were
Messrs. Knight and Grinstead. There were no interlocks on the Compensation and
Stock Option Committee in 1998.
13
<PAGE>
PERFORMANCE GRAPH
The following graph compares the Company's cumulative stock-holder's return
for the five year period ended December 31, 1998 with the cumulative total
return of the NASDAQ Equity Market Index and the NASDAQ Pharmaceuticals Index
over the same period.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Composite 100.00 97.75 138.26 170.01 208.30 293.52
Nasdaq Pharmaceuticals 100.00 75.26 138.04 138.47 142.98 182.77
Pharmos Corporation 100.00 17.07 18.65 18.65 25.38 20.24
</TABLE>
TRANSACTIONS AND/OR INDEBTEDNESS WITH MANAGEMENT
None.
SECTION 16 FILINGS
No person who, during the fiscal year ended December 31, 1998, was a
director, officer or beneficial owner of more than ten percent of the Company's
Common Stock, a "Reporting Person", failed to file on a timely basis, reports
required by Section 16 of the Securities Exchange Act of 1934 (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.
14
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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 60,000,000 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 80,000,000. 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 July 31, 1999, there were 43,696,478 shares of Common Stock
outstanding, or 50,169,344 shares taking into account exercise of all
outstanding stock options and warrants. In addition, if the proposed amendment
to the 1997 Incentive and Non-Qualified Stock Option Plan is approved by the
Company's stockholders (see Item No. 3 below) at the Annual Meeting of
Stockholders, an additional 500,000 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
currently 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) 1,905,768 shares of Common Stock reserved for issuance under
the Company's stock option plans (including the 1997 Plan, as amended) and other
non-plan stock
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options, (ii) 4,537,098 shares of Common Stock which the Company would be
required to issue upon the exercise of outstanding warrants, and (iii) shares of
Common Stock issued pursuant to the Company's Equity Line of Credit Agreement,
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 UNANIMOUSLY RECOMMENDS A VOTE FOR THE AMENDMENT TO
THE COMPANY'S RESTATED ARTICLES OF INCORPORATION.
ITEM 3 - PROPOSAL TO AMEND THE INCENTIVE AND NON-QUALIFIED STOCK
OPTION PLAN
The Board of Directors has adopted, subject to stockholder approval, an
amendment (the "Amendment") to the 1997 Incentive and Non-Qualified Stock Option
Plan ("1997 Plan") authorizing the issuance of an additional 500,000 shares
under such plan, thereby increasing the aggregate number of shares issuable
under such plan from 1,000,000 to 1,500,000.
To date, options to purchase 802,000 shares of the Company's Common Stock
are outstanding under the 1997 Plan.
The adoption of the Amendment by the Board of Directors reflects a
determination by the Board that ensuring the continued availability of a
sufficient number of options available for grant under the 1997 Plan is
important to the Company's ongoing and continuing efforts to attract and retain
key senior management personnel and increase the interest of the Company's
executive officers in the Company's continuing success.
Since the granting of options under the 1997 Plan is discretionary, the
Company cannot at present determine the number of options that will be granted
in the future to any person or group of persons or the terms of any future
grant. Future option grants and the terms thereof will be determined by the
Compensation Committee in accordance with the terms of the 1997 Plan.
Set forth below is certain information concerning the 1997 Plan. A copy of
the 1997 Plan is available upon written request to the Company.
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Description of 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 is administered by a committee appointed by the Board of
Directors (the "Compensation Committee"). Members of the Compensation Committee
are 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 designates 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 1,000,000 shares (1,500,000 if the Amendment is approved),
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 are available for options to be issued under
the 1997 Plan.
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
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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.
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
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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 BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE AMENDMENT
(ITEM 3 ON THE ENCLOSED PROXY CARD) INCREASING THE NUMBER OF SHARES AUTHORIZED
FOR ISSUANCE UNDER THE 1997 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN BY
500,000 FROM 1,000,000 TO 1,500,000.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed PricewaterhouseCoopers as its independent public
accountants to examine the financial statements of the Company for the current
fiscal year. The selection of PricewaterhouseCoopers was approved by the Board
of Directors prior to their appointment. PricewaterhouseCoopers 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.
PricewaterhouseCoopers 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 2000
ANNUAL MEETING OF STOCKHOLDERS
Proposals which stockholders intend to present at the 2000 annual meeting
of stockholders must be received by the Company by August 16, 2000 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, 99 Wood Avenue
South, Suite 301, Iselin, NJ 08830, Attention: 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, 1998, and any amendments thereto, as filed
with the Securities and Exchange Commission.
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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, the
amendment of the Restated Articles of Incorporation and the amendment of the
1997 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: August 18, 1999
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Appendix A
Amendment to Article Fourth of Restated Articles of Incorporation
The first paragraph of Article Fourth shall be replaced by the following
paragraph:
"The total number of shares of stock which the corporation shall have
authority to issue is eighty-one million two hundred fifty thousand
(81,250,000), of which stock seventy five million (80,000,000) shares of the par
value of three cents ($0.03) each, amounting in the aggregate to Two Million
Four Hundred Thousand Dollars ($2,400,000), 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."
