SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[x] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SpectraScience, Inc. (formerly GV Medical, Inc.)
(Name of Registrant as Specified in Its Charter)
Brian T. McMahon, President and CEO
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[x] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
(wire transferred 5/25/95)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
SPECTRASCIENCE, INC.
5909 BAKER ROAD, SUITE 580
MINNETONKA, MINNESOTA 55345
NOTICE AND PROXY STATEMENT FOR
ANNUAL SHAREHOLDERS' MEETING
TO BE HELD JUNE 29, 1995
To the Shareholders of SpectraScience, Inc.
The Annual Shareholders' Meeting of SpectraScience, Inc. (the "Company")
will be held at the Radisson Plaza Hotel which is located at 35 South 7th
Street in Minneapolis, Minnesota 55402 on Thursday, June 29, 1995 at 3:30 p.m.,
local time, for the following purposes:
1. To elect three (3) persons to serve as directors until the next Annual
Shareholder's Meeting or until their respective successors shall be elected and
qualified;
2. To ratify certain amendments to the Company's Amended and Restated 1991
Stock Option Plan;
3. To act upon any other matters that may properly come before the meeting
or any adjournment thereof.
The Company's Board of Directors has fixed the close of business on May 19,
1995 as the record date for the determination of shareholders entitled to
receive notice of and to vote at the meeting and any adjournment thereof. A copy
of the Company's Annual Report for the fiscal year ended December 31, 1994, a
Proxy Statement and a proxy card accompany this notice. These materials are
first being sent to shareholders on or about May 30, 1995.
By the Order of the Board of Directors
/s/ Brian T. McMahon
Brian T. McMahon
May 19, 1995 Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES.
SPECTRASCIENCE, INC.
5909 BAKER ROAD, SUITE 580
MINNETONKA, MINNESOTA 55345
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 29, 1995
This Proxy Statement and the accompanying proxy card are being
furnished to shareholders of SpectraScience, Inc., a Minnesota corporation
("SpectraScience" or the "Company"), in connection with the solicitation of
proxies on the behalf of the Board of Directors of the Company for use at the
annual meeting of shareholders and at any adjournment(s) thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.
The Annual Meeting will be held at the Radisson Plaza Hotel, 35 South 7th
Street, Minneapolis, Minnesota 55402 on June 29, 1995, at 3:30 p.m., local time.
This Proxy Statement, the accompanying Proxy Card and the Company's Form 10-KSB
for the fiscal year ended December 31, 1994, are first being mailed to
shareholders of the Company on or about May 30, 1995. The Form 10-KSB is not to
be considered a part of the Company's proxy-solicitation materials.
SOLICITATION AND REVOCATION OF PROXIES
The costs and expenses of solicitation of proxies will be paid by the
Company. In addition to the use of the mail, proxies may be solicited by
officers, directors and employees of the Company by telephone, facsimile or in
person, but such persons will not be specifically compensated for such services.
The Company may reimburse brokerage firms and others for expenses in forwarding
proxy materials to the beneficial owners of the Company's Common Stock.
Proxies in the form enclosed are solicited on behalf of the Board of
Directors. All proxies delivered pursuant to this solicitation are revocable at
any time at the option of the persons executing them by giving written notice to
the Secretary of the Company, by delivering a later dated proxy or by voting in
person at the Annual Meeting.
QUORUM AND VOTING RIGHTS
Only shareholders of record at the close of business on May 19, 1995
are entitled to execute proxies or to vote at the annual meeting. As of said
date there were outstanding 2,785,348 shares of the Company's Common Stock, par
value $.25 per share ("Common Stock"). Each holder of Common Stock is entitled
to one vote for each share held with respect to the matters mentioned in the
foregoing Notice of Annual Meeting of Shareholders and any other matters that
may properly come before the meeting. A majority of the outstanding shares
entitled to vote are required to constitute a quorum at the meeting. The
affirmative vote of a majority of the Common Stock present, in person or by
proxy, and entitled to vote at the annual meeting, is required to approve the
matters mentioned in the foregoing Notice of Annual Meeting. Proxies indicating
abstention from a vote and broker non-votes will be counted toward determining
whether a quorum is present at the meeting. Proxies indicating broker non-votes
will not be counted toward determining if a majority of the Common Stock present
has voted affirmatively. Proxies indicating abstentions from a vote will not be
counted toward determining if a majority of the Common Stock has voted
affirmatively for Proposal 1, but will be counted as "no" votes for purposes of
Proposal 2.
All properly executed proxies delivered pursuant to this solicitation
and not revoked will be voted at the Annual Meeting in accordance with the
directions given. If no specific instructions are given with regard to the
matters to be voted upon, the shares represented by a signed proxy card will be
voted in favor of the proposals set forth in the Notice of Meeting and in favor
of the election as directors of the nominees for directors listed in this Proxy
Statement. Broker non-votes on such proposals are treated as shares with respect
to which voting power has been withheld by the beneficial holders of those
shares and, therefore, as shares not entitled to vote on such proposals.
OWNERSHIP OF VOTING SECURITIES BY PRINCIPAL HOLDERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the common stock as of March 1, 1995, by: (i) persons
known to the Company to be beneficial owners of more than 5% of the Common
Stock; (ii) each of the Company's directors, each nominee for director, and by
each executive officer set forth in the compensation table; and (iii) the
officers and directors of the Company as a group. Except as otherwise indicated,
the Company believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares.
<TABLE>
<CAPTION>
Amount and
Title of Nature of Beneficial Percent
Beneficial Owner Class Ownership of Class
<S> <C> <C> <C>
Reggeborgh Beheer BV Common 184,000 6.6%
Postbox 319, Industrieweg 12
7460 AH Rijssen
The Netherlands
Brian T. McMahon Common 180,000(1) 6.1%
Henry M. Holterman Common 31,000(2) 1.1%
Nathaniel S. Thayer Common 483,638(3) 14.8%
Officers and Directors as a Group Common
(3 persons) 694,638(4) 20.0%
</TABLE>
(1) Includes 180,000 shares issuable upon exercise of options held by Mr.
McMahon that are exercisable within 60 days of March 1, 1995.
(2) Includes 31,000 shares issuable upon exercise of options held by Mr.
Holterman that are exercisable within 60 days of March 1, 1995.
(3) Includes 28,000 shares issuable upon exercise of options held by Mr.
Thayer that are exercisable within 60 days of March 1, 1995, and an
additional 1,200 shares held in a trust for the benefit of a party not
related to himself of which he acts as a trustee and has sole voting
power. Mr. Thayer is a beneficial owner of 200 shares held in a joint
account with another individual who owns a 50% interest in the 400
shares held in the account.
(4) Includes 239,000 shares issuable upon exercise of options held by all
officers and directors that are exercisable within 60 days of March 1,
1995.
PROPOSAL 1:
ELECTION OF DIRECTORS
Pursuant to the Company's Bylaws, the authorized number of directors of
the Company has been set at five. The Board of Directors has nominated the three
persons named below to serve as directors of the Company until the next regular
meeting of shareholders or until their earlier death, resignation or removal
from office. Each of the three nominees is presently a member of the Board of
Directors and has consented to serve another term as a director if re-elected.
If any of the nominees should be unavailable to serve for any reason (which is
not anticipated), the Board of Directors may designate a substitute nominee or
nominees (in which case the persons named on the enclosed Proxy Card will vote
all valid proxies for the election of such substitute nominee or nominees),
allow the vacancy or vacancies to remain open until a suitable candidate or
candidates are located, or by resolution provide for a lesser number of
directors.
INFORMATION ABOUT NOMINEES
The names of the nominees, their ages, the year in which each first
became a director and their principal occupations is set forth below. The Board
of Directors recommends that shareholders vote FOR the proposal to elect the
three nominees listed below as directors of the Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
<S> <C> <C> <C>
Brian T. McMahon 41 President, Chief Executive Officer and 1993
Director
Henry M. Holterman 39 Managing Director of Reggeborgh BV 1992
Nathaniel S. Thayer 70 Partner of Blais Cunningham & Crowe Chester 1992
</TABLE>
OTHER INFORMATION ABOUT NOMINEES
BRIAN T. MCMAHON was elected Director, President and Chief Executive Officer in
May, 1993, and assumed the position of Acting Chairman of the Board upon the
resignation of Mr. Daryl Yurek on May 27, 1994. Mr. McMahon joined the Company
in the capacity of Vice President and Chief Operating Officer in July, 1992, and
prior to this, served as an independent consultant to the Company since May,
1992. Mr. McMahon held a succession of marketing, business development and sales
management positions during a 10 year career with a prominent angioplasty
company, SCIMED Life Systems. SCIMED emerged to become a market share leader in
the interventional cardiology sector. Mr. McMahon was Director of Marketing and
Business Development during this period.
HENRY M. HOLTERMAN is Managing Director of Reggeborgh Beheer BV, a Holland
investment group that invests in companies and owns property projects generally
located in Holland. Mr. Holterman is a charter accountant, and from 1987 to
1991, was group controller for Transport Development Group PLC and the Dutch
Holding Company ETOM NV. From 1984 to 1988, Mr. Holterman was the President of
the Board of Directors of LETO Recycling, a Swedish-Dutch company involved in
recycling chemical waste.
NATHANIEL S. THAYER has been a partner in the law firm of Blais Cunningham &
Crowe Chester since 1969.
BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended December 31, 1994, the Board of Directors
held three meetings. Each of the directors attended at least 75% of all of the
meetings of the Board of Directors and applicable committees held while each was
a director during such fiscal year. The directors received compensation of $500
per meeting and reasonable travel expenses for attendance at these meetings.
Committees established by the Board include the Audit Committee and the
Compensation Committee.
The members of the Audit Committee during the fiscal year ended
December 31, 1994 were Messrs. Holterman and Thayer. The function of the Audit
Committee is to review the internal and external financial reporting of the
Company, the scope of the independent audit and to consider comments by the
auditors regarding internal controls and accounting procedures and management's
response to those comments.
The members of the Compensation Committee presently consists of Messrs.
Holterman and Thayer. The function of the Compensation Committee is to recommend
the compensation for those officers who are also directors and for senior
management, and to review senior management's objectives and to make
recommendations to the Board regarding the administration of and the grant of
options under the Amended and Restated 1991 Stock Option Plan (the "Plan"). The
Compensation Committee met once during the fiscal year ended December 31, 1994.
The Company does not have a nominating committee of the Board of Directors.
REMUNERATION OF MEMBERS OF THE BOARD OF DIRECTORS
DIRECTORS' FEES. The Company pays each director who is not an employee
of the Company $500 for each Board meeting and committee meeting attended and
reimburses each director for out-of-pocket expenses.
AUTOMATIC OPTION GRANT. Pursuant to the Plan, as amended and approved
by shareholders in May 13, 1993, each non-employee director received an option
to purchase 25,000 (pre-split) shares of Common Stock. Additionally, they are
entitled to receive an automatic grant of options to purchase 3,000 (pre-split)
shares of Common Stock subsequent to re-election each year the Plan is in effect
at the then prevailing market price at the time of the grant.
As of December 31, 1994, the Company had outstanding non-qualified
stock options to its outside directors based upon years of service as follows:
Number of Shares Exercise Expiration
Director Subject to Option Price Date
Henry M. Holterman 25,000 $3.00 2001
3,000 $3.00 2002
3,000 $3.00 2003
Nathaniel S. Thayer 25,000 $3.00 2002
3,000 $3.00 2003
On October 1, 1994, the Board of Directors voted to amend the 1991
Stock Option Plan to increase the aggregate number of stock options available
for issuance to all participants from 460,000 shares to 1,000,000 shares, to
increase the initial grant of options to each non-employee director from 25,000
shares (pre-split) to 25,000 shares (post-split), to increase the annual grant
of options to non-employee directors from 3,000 shares (pre-split) to 3,000
shares (post-split), to increase the aggregate number of options issuable to a
non-employee director and to the non-employee directors as a group from 50,000
shares (pre-split) and 200,000 shares (pre-split), respectively, to 50,000
shares (post-split) and 200,000 shares (post-split), respectively, and to revise
the date on which such annual grant is made.
Accordingly, on October 14, 1994, the outstanding options to purchase
53,000 shares (pre-split) of Common Stock were canceled and options for 53,000
shares (post-split) were issued bearing an option price of $3.00 per share, an
amount at least equal to the Common Stock's then fair market value. Also on such
date, each of the non-employee directors was granted an option to purchase an
additional 3,000 shares.
The options granted to non-employee directors under the Plan expire ten
years from the date of grant (subject to earlier termination in the event of
death), are not transferable (except by will or the laws of descent and
distribution), and are fully exercisable six months after the date of grant.
Refer to page 8 of this Proxy Statement for a discussion of the proposal to
amend the Plan to (a) increase the number of options which can be granted to all
Plan participants, (b) increase the number of options subject to the automatic
grant feature of the Plan, (c) modify the date the options are granted to
non-employee directors, and (d) allow options to be granted on a pro-rata basis
for non-employee directors who are not directors for a full twelve months.
EXECUTIVE COMPENSATION AND OTHER BENEFITS
The following information is given with respect to remuneration of
Brian T. McMahon who serves as Chief Executive officer. None of the other
employees of the Company received a total annual salary and bonus in excess of
$100,000 for the fiscal year ended December 31, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Awards
Other
Annual Restricted
Name and Compen- Stock Options/
Principal Position Year Salary ($) Bonus ($) sation ($) Award(s)($) SAR's (#)
<S> <C> <C> <C> <C> <C> <C>
Brian T. McMahon, 1994 $110,000 N/A $20,976(2) N/A 350,000(4)
President, Chief 1993 104,494 N/A N/A(3) N/A 150,000(4)
Executive Officer and 1992 54,305 N/A N/A(3) N/A 200,000(4)
Director (1)
</TABLE>
(1) Mr. McMahon was elected President, Chief Executive Officer and Director
of the Company on May 13, 1993, and assumed the position of Acting
Chairman of the Board upon the resignation of Mr. Yurek on May 27, 1994.
Prior to his election, Mr. McMahon was the Company's Executive Vice
President and Chief Operating Officer. Mr. McMahon's Employment and
Severance Agreement with the Company, dated September 30, 1992, was
attached as Exhibit 10.23 to the Company's Form 10-KSB for the fiscal
year ended December 31, 1992.
(2) On June 30, 1994, the Company had a 1 for 5 reverse stock split which
had the effect of dividing the stock options granted under the 1991
Stock Option Plan and increasing the exercise price by a factor of five.
On October 14, 1994, Mr. McMahon's 50,000 shares of non-qualified
options (pre-split) were canceled and reissued for the same number of
shares (post-split) at $2.50. The fair market value at the date of
reissuance was $2.75 which resulted in $12,500 (50,000 shares x $.25) of
compensation expense. Additional perquisites include a $5,400 automobile
allowance.
(3) The aggregate amount of perquisites and other personal benefits,
securities, or property is less than $50,000 or 10% of the total of
annual salary and bonus for the Named Executive(s).
(4) In 1992, the Named Executive received 150,000 shares of incentive stock
options and 50,000 shares of non qualified options under the Company's
1991 Stock Option Plan expiring in five years. In 1993, the Named
Executive received an additional 150,000 shares of incentive stock
option expiring in five years. In 1994, the Company had a 1 for 5
reverse stock split. On October 14, 1994, the Named Executive's non
qualified and incentive stock options were increased so that the number
of post-split shares equaled the number of pre-split shares.
OPTION/SAR GRANTS DURING FISCAL YEAR
The following table sets forth information concerning individual grants
of stock options made to Named Executive(s) having cash compensation in excess
of $100,000 during the year ended December 31, 1994:
<TABLE>
<CAPTION>
Individual Grants
% of Total Market
Options Granted Exercise Price on
Options to Employees or Base Price Date of Grant Expiration
Granted # in Fiscal Year(3) (U.S. $/Sh)(4) (U.S. $/Sh) Date
<S> <C> <C> <C> <C> <C> <C>
Brian T. McMahon 150,000(1) 37% $3.00 $2.75 May 13, 1998
Brian T. McMahon 150,000(1) 37% $3.00 $2.75 Sept. 30, 1997
Brian T. McMahon 50,000(2) 12% $2.50 $2.75 Sept. 30, 1997
</TABLE>
(1) The incentive stock options were granted pursuant to the Company's 1991
Stock Option Plan. The options vest one third on each anniversary from
the date of grant and are incentive stock options.
(2) The non-qualified stock options were granted pursuant to the Company's
1991 Stock Option Plan. Mr. McMahon's 50,000 shares of non-qualified
options are 60% vested due to certain vesting acceleration features.
(3) The Company canceled and reissued 350,000 options of Mr. McMahon and
53,000 options of the non-employee directors. The Company issued
options to eligible participants in excess of the limits under the
Company's 1991 Stock Option Plan for aggregate amounts and the amount
for each non-employee director. Management seeks shareholder
ratification of amendments to the 1991 Stock Option Plan to increase
the number of shares issuable.
(4) Mr. McMahon had 50,000 shares of non-qualified options and 300,000
shares of incentive stock options which were subsequently canceled and
reissued at $2.50 and $3.00 per share, respectively on October 14,
1994.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning
individual exercises of stock options during the year ended December 31, 1994
and the value of unexercised stock options as of December 31, 1994 for the Named
Executive. No shares were acquired through the exercise of options by the Named
Executive during 1994.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of unexercised
unexercised in-the-money
options/SARs options/SARs
Shares at FY-end (#) at FY-end ($)
acquired on Value realized exercisable/ exercisable/
Name exercise (#)(1) ($) unexercisable unexercisable(2)
<S> <C> <C> <C> <C>
Brian T. McMahon N/A N/A 180,000/170,000 0/0(1)
</TABLE>
(1) Upon the exercise of an option, the Optionee must pay the exercise
price in cash or stock.
(2) These amounts represent the difference between the exercise price of
the in-the-money options and the market price of the Company's Common
Stock on December 31, 1994. The closing price of the Company's Common
Stock on that day was $2.00. Options are "in-the-money" if the market
value of the shares covered thereby is greater than the option exercise
price or "strike price."
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company's officers and directors and persons who are beneficial
owners of more than 10% of the Company's Common Stock ("10% beneficial owners")
are required to file reports of their holdings and transactions in the Company's
common stock with the Securities and Exchange Commission and to furnish the
Company with copies of such reports. Based solely upon its review of the copies
the Company has received or upon written representations from certain reporting
persons, the Company believes that no such persons failed to file any of such
forms on a timely basis or any of the forms required by Section 16(a) during the
most recent fiscal year, and that, during the year ended December 31, 1994, all
Section 16(a) filing requirements applicable to its officers, directors, and 10%
shareholders were complied with.
RELATED TRANSACTIONS
In October 1993, the Company entered into a consulting agreement with
Strategic Business Development Inc. (SBDI) a wholly-owned corporation of Stephen
M. Fry, Ph.D., who at that time was a Director of the Company. Under the
agreement, SBDI was to provide technical and management consulting services to
the Company in the areas of research and development, quality assurance,
regulatory affairs and manufacturing. Under the arrangement, the Company paid a
total of $41,567 and $70,860 to SBDI during 1994 and 1993, respectively,
including reimbursement for travel and entertainment expenses.
On May 27, 1994, the Company entered into a Severance and Settlement
Agreement with Mr. Yurek, the former Chairman of the Board of Directors and an
employee. The agreement gave Mr. Yurek a lump sum severance amount and he
retained the rights to stock options that had been vested as of May 27, 1994,
along with certain other nominal obligations of the Company and Mr. Yurek.
On July 1, 1994, the Company had a 1 for 5 reverse stock split which
had the effect of dividing the stock options granted under the 1991 Stock Option
Plan and increasing the exercise price by a factor of five.
On October 14, 1995, the non-employee directors held options to
purchase 53,000 (pre-split) shares of Common Stock which were canceled, and
options to purchase 53,000 (post-split) shares of Common Stock were issued at a
purchase price of $3.00 per share, which amount was at least equal to the then
fair market value of the Common Stock. In addition, the two non-employee
directors each received options to purchase an additional 3,000 shares of Common
Stock at a price of $3.00 per share.
Mr. McMahon held 50,000 shares of non-qualified pre-split options under
the Company's 1991 Stock Option Plan which were subsequently canceled and
reissued for the same number of shares (post-split) at $2.50. The exercise price
was at least 85% of the fair market value on October 14, 1994, the date of the
reissuance. In addition, 300,000 shares of pre-split incentive stock options
held by Mr. McMahon were canceled and incentive stock options for the same
number of shares were reissued at $3.00 per share which was at least 100% of the
fair market value on October 14, 1994, the date of reissuance.
PROPOSAL 2:
RATIFICATION OF AMENDMENTS TO THE AMENDED AND RESTATED
1991 STOCK OPTION PLAN
INTRODUCTION
On July 10, 1991, the Board of Directors adopted the Company's 1991
Stock Option Plan (the "Plan") which was subsequently approved by the
Shareholders. On September 30, 1992, the Board amended and restated the Plan to,
among other things, increase the number of shares issuable under the Plan, which
amendment was ratified by the Shareholders on May 13, 1993. The purpose of the
Plan is to (a) improve individual performance by providing long-term incentives
and rewards to employees and consultants of the Company, (b) assist the Company
in attracting, retaining and motivating employees and consultants with
experience and ability, and (c) associate the interests of such employees and
consultants with those of the Company's shareholders. A summary description of
the terms of the Plan is set forth below; however, the summary is qualified in
its entirety by the terms of the Plan, a copy of which may be obtained from the
Company.
The Plan provides for the grant of options to key employees,
consultants, officers and directors, including non-employee directors of the
Company, of (i) options to purchase Common Stock that qualify as "incentive
stock options" within the meaning of Section 422 of the Code ("Incentive
Options") and (ii) options to purchase Common Stock that do not qualify as such
Incentive Options ("Non-Qualified Options"). Incentive Options and Non-Qualified
Options are collectively referred to as "Options".
AMENDMENTS
The Board of Directors has determined that the aggregate number of
option shares available for issuance to all participants under the Plan and to
the non-employee directors is inadequate to attract and retain qualified
employees, non-employee directors and consultants. Accordingly, on October 1,
1994, the Board of Directors resolved, subject to shareholder ratification, to
(a) increase the aggregate number of shares available for increase to all Plan
Participants from 460,000 shares to 1,000,000 shares, (b) increase the initial
automatic grant of options to non-employee directors from 25,000 shares
(pre-split) to 25,000 shares (post-split), (c) increase the automatic annual
grant from 3,000 shares (pre-split) to 3.000 shares (post-split), and (d) to
increase the aggregate number of options which may be granted to each
non-employee director and to non-employee directors as a group from 50,000
(pre-split) and 200,000 (pre-split), respectively, to 50,000 (post-split) and
200,000 (post-split), respectively. The Board of Directors further resolved,
subject to shareholder ratification, to allow Options to be granted on a
pro-rata basis for non-employee directors who do not serve the entire twelve
months. As amended, the Plan now provides that if a non-employee director is a
director of the Company between six and twelve months, that individual is to
receive 100% of the Options available for that year. If a non-employee director
is a director of the Company for less than six months, that individual is to
receive 50% of the Options available for that year. Prior to the amendment, the
Plan was silent as to how to award Options to non-employee directors who do not
serve a full twelve month period. Additionally, it was resolved by the Board of
Directors, subject to shareholder ratification, to change the Option award date
from the date of the Annual Meeting to January 1 of each fiscal year to coincide
with the start of the Company's fiscal year.
The Company has issued options under the Plan to non-employee
directors, officers, other employees and consultants to purchase 700,000 shares
of the Company's Common Stock. The shareholders have previously approved the
issuance of options to purchase 460,000 shares. The amendment will cover the
options already issued and permit the Company to issue options to purchase an
additional 300,000 shares to attract and retain key employees and consultants.
The exercise price of granted options ranges from $2.50 to $11.25 per share. Mr.
McMahon has vested options to purchase 180,000 shares and unvested options to
purchase 170,000 shares. At the present time he is the only executive officer of
the Company.
SUMMARY OF THE PLAN
GENERAL. The Compensation Committee makes recommendations to the Board
as to the type, number and terms of Options to be granted under the Plan. The
Plan is formally administered by the Board of Directors (the "Committee"), which
selects the participants to be granted Options under the Plan, establishes the
amount of the grants to the participants, and prescribes discretionary terms and
conditions of each grant not otherwise fixed under the Plan.
The Plan will terminate on July 10, 2001, unless sooner terminated by
action of the Board of Directors. No Options will be granted after termination
of the Plan. Prior to ratification of the October 1, 1994 amendment of the Plan,
the maximum number of shares of Common Stock reserved for issuance under the
Options is 460,000. In the event of any reorganization, merger,
recapitalization, stock dividend, stock split or similar change in the corporate
structure or shares of the Company, appropriate adjustments will be made to the
number and kind of shares reserved under the Plan and under outstanding Options
and to the exercise price of outstanding Options. The Board of Directors may
amend the Plan in any respect without stockholder approval, unless stockholder
approval is then required by federal securities or tax laws or the rules of any
applicable stock exchange. No right or interest in any Option may be assigned or
transferred by a participant, except by will or the laws of descent and
distribution, or subjected to any lien or otherwise encumbered.
OPTIONS. The exercise price for Non-Qualified Options is determined by
the Compensation Committee and may be less than the fair market value of the
Common Stock on the day the Non-Qualified Options are granted. Incentive Options
must be granted with an exercise price equal to the fair market value of the
Common Stock on the date the Incentive Options are granted, except that
Incentive Options granted to persons owning stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or any
subsidiary may not be granted at less than 110% of the fair market value on the
date of grant. In determining the fair market value of the Company's Common
Stock, the Committee will use the mean between the high and low sale prices of
the Common Stock as reported by the NASDAQ System as of the date of grant.
Pursuant to the Plan, prior to ratification of the October 1, 1994 amendment of
the Plan, each non-employee director is automatically granted a non-qualified
option to purchase 25,000 shares (pre-split) of the Company's Common Stock upon
becoming a director and a non-qualified option to purchase 3,000 shares
(pre-split) of the Company's Common Stock at the date of the Annual Meeting each
year such non-employee director serves as a director of the Company. The
aggregate number of options to be granted to a non-employee director and to the
non-employee directors as a group is not to exceed 50,000 shares (pre-split) and
200,000 shares (pre-split), respectively, Such automatic option grants have an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant.
Payment of an option exercise price may be made either in cash or by
transfer from the participant to the Company of previously acquired shares of
Common Stock having an aggregate fair market value on the date of exercise equal
to the payment required, subject to the right of the Committee to reject a
participant's election to pay the option exercise price with such previously
acquired shares. The Committee may, in its sole discretion, determine, either at
the time of grant or exercise of an Option, to make a short-term, interest-free
loan to a participant of the funds necessary to pay the option exercise price
and any withholding obligations due upon such exercise. Options may not be
transferred other than by will or the laws of descent and distribution, and
during the lifetime of an optionee may be exercised only by the optionee.
Options may be exercised in whole or in installments, as determined by the
Committee. Incentive Options will have a maximum term fixed by the Committee,
not to exceed 10 years from the date of grant or, in the case of Incentive
Options granted to persons owning stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiary,
five years from the date of grant. For Incentive Options, the aggregate fair
market value (determined as of the time the Incentive Option is granted) of
shares of Common Stock with respect to which Incentive Options become
exercisable for the first time by the participant under the Stock Incentive Plan
during any calendar year may not exceed $100,000. Non-Qualified Options have a
maximum term fixed by the Committee, not to exceed 15 years from the date of
grant.
TERMINATION OF EMPLOYMENT. All Options granted to employees under the
Plan must be exercised (a) within 90 days of termination of employment or
rendering services to the Company in the case of voluntary or involuntary
resignation, other than for cause, or (b) within six months of termination in
the case of death or disability. All Options granted to non-employee directors
under the Plan (i) are forfeited if the director is removed for cause, (ii) must
be exercised within one year if the director dies while serving as a director,
or (iii) must be exercised within 90 days if the director resigns, fails to be
re-elected or is removed by reason of disability.
CHANGE IN CONTROL OF THE COMPANY. In the case of a "Change in Control"
of the Company, all outstanding Options will become immediately exercisable in
full; provided, however, that if a Change in Control occurs, in connection with
any business combination in which the Company is not the surviving corporation,
the Committee, in its sole discretion, may determine, with respect to Options
which have been outstanding for more than one year, that participants holding
such outstanding Options will receive for each share of Common Stock subject to
such Options cash in an amount equal to the excess of the fair market value of
such shares immediately prior to the effective date of such business combination
over the exercise price per share of such Options.
For purposes of the Plan, a "Change in Control" of the Company will be
deemed to have occurred, among other things, upon (i) the sale or other
disposition of substantially all of the assets of the Company, (ii) the approval
by the Company's shareholders of a plan or proposal for the liquidation or
dissolution of the Company, (iii) an event that would be required to be reported
in response to Item 1(a) of the Current Report on Form 8-K pursuant to Section
13 or 15(d) of the Exchange Act, (iv) any person becoming the beneficial owner
of 50% or more of the combined voting power of the Company's outstanding
securities, or (v) a change in the composition of the Board such that the
individuals who constitute the Board as of the effective date of the Plan cease
for any reason to constitute at least the majority thereof (with exceptions for
individuals who are nominated or otherwise approved by the current Board).
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based
on current statutes, regulations and interpretations. The description does not
include state or local income tax consequences. In addition, the description is
not intended to address specific tax consequences applicable to an individual
participant who receives Options under the Plan.
INCENTIVE OPTIONS. There will not be any federal income tax
consequences to either the participant or the Company as a result of the grant
to an employee of an Incentive Option under the Plan. The exercise by a
participant of an Incentive Option also will not result in any federal income
tax consequences to the Company or the participant, except that (i) an amount
equal to the excess of the fair market value of the shares acquired upon
exercise of the Incentive Option, determined at the time of exercise, over the
amount paid for the shares by the participant will be includable in the
participant's alternative minimum taxable income for purposes of the alternative
minimum tax, and (ii) the participant may be subject to an additional excise tax
if any amounts are treated as excess parachute payments (see explanation below).
Special rules will apply if previously acquired shares of Common Stock are
permitted to be tendered in payment of an Option exercise price.
If the participant disposes of the Stock Incentive Option shares
acquired upon exercise of the Incentive Option, the federal income tax
consequences will depend upon how long the participant has held the shares. If
the participant does not dispose of the shares within two years after the
Incentive Option was granted, nor within one year after the participant
exercised the Incentive Option and the shares were transferred to the
participant, then the participant will recognize a long-term capital gain or
loss. The amount of the long-term capital gain or loss will be equal to the
difference between (i) the amount the participant realized on disposition of the
shares, and (ii) the option price at which the participant acquired the shares.
The Company is not entitled to any compensation expense deduction under these
circumstances.
If the participant does not satisfy both of the above holding period
requirements (a "disqualifying disposition"), then the participant will be
required to report as ordinary income, in the year the participant disposes of
the shares, the amount by which the lesser of (i) the fair market value of the
shares at the time of exercise of the Incentive Option (or, for directors,
officers or greater than 10 percent stockholders of the Company, generally the
fair market value of the shares six months after the date of exercise, unless
such persons file an election under Section 83(b) of the Code within 30 days of
exercise), or (ii) the amount realized on the disposition of the shares, exceeds
the option price for the shares. The Company will be entitled to a compensation
expense deduction in an amount equal to the ordinary income includable in the
taxable income of the participant. This compensation income may be subject to
withholding. The remainder of the gain recognized on the disposition, if any, or
any loss recognized on the disposition, will be treated as long-term or
short-term capital gain or loss, depending on the holding period.
NON-QUALIFIED OPTIONS. Neither the participant nor the Company incurs
any federal income tax consequences as a result of the grant of a Non-Qualified
Option. Upon exercise of a Non-Qualified Option, a participant will recognize
ordinary income, subject to withholding, on the "Includability Date" in an
amount equal to the difference between (i) the fair market value of the shares
purchased, determined on the Includability Date, and (ii) the consideration paid
for the shares. The Includability Date generally will be the date of exercise of
the Non-Qualified Option. However, the Includability Date for participants who
are officers, directors or greater-than-10 percent stockholders of the Company
will generally occur six months later, unless such persons file an election
under Section 83(b) of the Code within 30 days of the date of exercise to
include as ordinary income the amount realized upon exercise of the
Non-Qualified Option. The participant may be subject to an additional excise tax
if any amounts are treated as excess parachute payments (see explanation below).
Special rules will apply if previously acquired shares of Common Stock are
permitted to be tendered in payment of an Option exercise price.
At the time of a subsequent sale or disposition of any shares of Common
Stock obtained upon exercise of a Non-Qualified Option, any gain or loss will be
a capital gain or loss. Such capital gain or loss will be long-term capital gain
or loss if the sale or disposition occurs more than one year after the
Includability Date and short-term capital gain or loss if the sale or
disposition occurs one year or less after the Includability Date.
In general, the Company will be entitled to a compensation expense
deduction in connection with the exercise of a Non-Qualified Option for any
amounts includable in the taxable income of the participant as ordinary income,
provided the Company complies with any applicable withholding requirements.
EXCISE TAX ON PARACHUTE PAYMENTS. The Code also imposes a 20% excise
tax on the recipient of "excess parachute payments," as defined in the Code and
denies tax deductibility to the Company on excess parachute payments. Generally,
parachute payments are payments in the nature of compensation to employees of a
company who are officers, stockholders, or highly compensated individuals, which
payments are contingent upon a change in ownership or effective control of the
company, or in the ownership of a substantial portion of the assets of the
company. For example, acceleration of the exercisability of Options upon a
change in control of the Company may constitute parachute payments, and in
certain cases, "excess parachute payments."
BOARD OF DIRECTORS RECOMMENDATIONS.
The Board of Directors recommends that the shareholders vote FOR
approval of the amendments to the Plan. The affirmative vote of a majority of
shares of Common Stock present in person or by proxy at the Annual Meeting,
assuming a quorum is present, is necessary for approval. Unless a contrary
choice is specified, proxies solicited by the Board of Directors will be voted
FOR approval of the amendments to the Plan.
INDEPENDENT PUBLIC ACCOUNTANTS
At the annual meeting, Ernst and Young, independent auditors that have
audit the financial statements of the Company for the four years ended December
31, 1994, will be present at the Annual Meeting. They will have an opportunity
to make a statement if they desire to do so and will be available to respond to
appropriate questions from the shareholders. The Board of Directors has not yet
selected independent public accountants for calendar 1995.
SHAREHOLDERS' PROPOSALS
The rules of the Securities and Exchange Commission permit shareholders
of a company, after timely notice to the company, to present proposals for
shareholder action in the company's proxy statement where such proposals are
consistent with applicable law, pertain to matter appropriate for stockholder
action and are not properly omitted by company action in accordance with the
proxy rules. Shareholder proposals prepared in accordance with the proxy rules
must be received by the Secretary of SpectraScience, Inc. at the Company's
executive offices in Minnetonka, Minnesota, no later than November 30, 1995 for
inclusion in its proxy statement.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors of the Company knows of no matters other than
those referred to in the accompanying Notice of Annual Meeting of Stockholders
which properly may come before the Annual Meeting. However, if any other matter
should be properly presented for consideration and voting at the Annual Meeting
or any adjournments thereof, it is the intention of the persons named as proxies
on the enclosed form of Proxy Card to vote the Proxy Cards in accordance with
their judgment of what is in the best interest of the Company.
It is important that proxies be returned promptly with instructions as to
voting. Shareholders who do not expect to attend the meeting in person are urged
to mark, sign, date and send in the proxies by return mail.
By the Order of the Board of Directors:
/s/ Brian T. McMahon
Brian T. McMahon
May 19, 1995 Secretary
SPECTRASCIENCE, INC.
5909 BAKER ROAD, SUITE 580
MINNETONKA, MINNESOTA 55345
BALLOT
ANNUAL SHAREHOLDER MEETING
FISCAL 1994
The undersigned hereby votes, as designated below, all of the shares of common
stock of SpectraScience, Inc. held of record by the undersigned on May 19, 1995,
at the Annual Meeting of Shareholders to be held on June 29, 1995.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below
(except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY
to vote for all nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME)
BRIAN T. MCMAHON HENRY M. HOLTERMAN NATHANIEL S. THAYER
2. RATIFICATION OF AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED 1991 STOCK
OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued, and to be completed and signed on the reverse side)
(Continued from the other side)
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: _______________________ , 1995
______________________________________
Signature
______________________________________
Signature if held jointly
Number of shares held on May 19, 1995:
______________________________________
