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.
(Name of Registrant as Specified in Its Charter)
(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).
[ ] $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:
COMMON STOCK, $.25 PAR VALUE
(2) Aggregate number of securities to which transactions applies:
10,000,000
(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.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 28, 1996
------------------------------
To the Shareholders of SpectraScience, Inc.:
The Annual Meeting of Shareholders of SpectraScience, Inc. (the
"Company") will be held at the Sheraton Park Place Hotel, 1500 Park Place
Boulevard, Minneapolis, Minnesota 55416, Tel: (612) 542-8600, on Thursday, March
28, 1996 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 Meeting of Shareholders or until their
respective successors shall be elected and qualified;
2. To increase the number of authorized shares of the Common
Stock from 4,000,000 to 10,000,000;
3. To ratify certain amendments to the Company's Amended and
Restated 1991 Stock Option Plan;
4. To act upon any other matters that may properly come
before the meeting or any adjournment thereof.
Only Shareholders of record at the close of business on February 1,
1996 are entitled to receive notice of and to vote at the meeting and any
adjournment thereof. A copy of the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, a Proxy Statement and a Proxy Card
accompany this notice. These materials are first being sent to Shareholders on
or about February 23, 1996.
All Shareholders are cordially invited to attend the meeting. However,
to assure your representation at the meeting, you are urged to mark, sign, date
and return the enclosed Proxy Card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any Shareholder attending
the meeting may vote in person even if he or she has returned a Proxy Card.
By Order of the Board of Directors
5909 Baker Road, Suite 580,
Minnetonka, Minnesota 55345
Tel: (612) 931-9000 Ching-Meng Chew
February 22, 1996 Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE
IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES.
THANK YOU FOR ACTING PROMPTLY
SPECTRASCIENCE, INC.
5909 BAKER ROAD, SUITE 580
MINNETONKA, MINNESOTA 55345
------------------------------
PROXY STATEMENT
------------------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 28, 1996
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 behalf of the Board of Directors of the Company for use at the Annual
Meeting of Shareholders and at any adjournment(s) thereof ("Annual Meeting"),
for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders ("Notice of Meeting"). The Annual Meeting will be held at the
Sheraton Park Place Hotel, 1500 Park Place Boulevard, Minneapolis, Minnesota
55416, Tel: (612) 542-8600, on Thursday, March 28, 1996 at 3:30 p.m. local time.
This Proxy Statement, the accompanying Proxy Card and the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995, are
first being mailed to Shareholders of the Company on or about February 23, 1996.
The Annual Report on 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 borne 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 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 February 1,
1996 are entitled to execute proxies or to vote at the Annual Meeting. As of
said date there were 2,933,348 outstanding shares of the 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 of Shareholders. 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 Proposals 1 or 2, but will be counted as "no" votes for
purposes of Proposal 3.
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 as "FOR" for purposes of Proposals 1 and 2 set forth in the Notice of
Meeting, but as "AGAINST" for purposes of Proposal 3. 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 February 14, 1996, 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 Name and Address of Nature of Beneficial Percent
Class Beneficial Owner Ownership of Class
----- ---------------- --------- --------
<S> <C> <C> <C>
Common Reggeborgh Beheer BV 184,000 6.3%
Postbox 319, Industrieweg 12
7460 AH Rijssen, Netherlands
Common Perkins Capital Management, Inc 558,205(1) 19.4%
730 East Lake Street,
Wayzata, MN 55391-1769
Common Brian T. McMahon 350,000(2) 10.7%
Common Henry M. Holterman 36,000(3) 1.2%
Common Nathaniel S. Thayer 487,238(4) 16.4%
Common Officers and Directors as a Group 873,238(5) 26.0%
(3 persons)
</TABLE>
(1) The Company relied upon information obtained from Schedule 13G under
the Securities Exchange Act of 1934, filed by Perkins Capital
Management, Inc. ("Perkins") on or about February 1, 1996. The number
of shares of Common Stock beneficially owned by Perkins is 558,205,
which includes 359,766 shares for which Perkins has sole voting power.
(2) Includes 350,000 shares issuable upon exercise of options held by Mr.
McMahon that are exercisable within 60 days of February 14, 1996.
(3) Includes 36,000 shares issuable upon exercise of options held by Mr.
Holterman that are exercisable within 60 days of February 14, 1996.
(4) Includes 33,000 shares issuable upon exercise of options held by Mr.
Thayer that are exercisable within 60 days of February 14, 1996. Mr.
Thayer owns 454,238 shares of Common Stock, which includes 200 shares
where Mr. Thayer is a beneficial owner of 50% interest in 400 shares
held in a joint account.
(5) Includes 419,000 shares issuable upon exercise of options held by all
officers and directors that are exercisable within 60 days of February
14, 1996.
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 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 are set forth below.
<TABLE>
<CAPTION>
Name Age Term Title Director Since
- ---- --- ---- ----- --------------
<S> <C> <C> <C> <C>
Brian T. McMahon 42 1995/96 President, Chief Executive Officer and 1993
Director
Henry M. Holterman 40 1995/96 Director 1992
Nathaniel S. Thayer 71 1995/96 Director 1992
</TABLE>
- ---------------------------------
BRIAN T. MCMAHON was elected Director, President and Chief Executive Officer in
May, 1993, and assumed the position of Acting Chairman of the Board on May 27,
1994. Mr. McMahon joined the Company in the capacity of Executive 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 medical device company, SCIMED Life
Systems, Inc., a wholly-owned subsidiary of Boston Scientific Corporation (NYSE:
BSX), his last position there being the Director of Marketing and Business
Development.
HENRY M. HOLTERMAN is Managing Director of Reggeborgh Beheer BV, a company
located in Netherlands that invests in companies and owns property projects
generally located in Netherlands. Mr. Holterman is a chartered 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, 1995, the Board of Directors
held three meetings. Each of the directors, other than Mr. Holterman, 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. Mr. Holterman
was unable to attend the Board meeting on December 21, 1995 due to illness. 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, 1995 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 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, 1995.
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 June, 1995, each non-employee director is entitled to receive an
option to purchase 25,000 shares of Common Stock when first elected to the Board
of Directors. Additionally, each non-employee director is entitled to receive an
automatic grant of options to purchase 3,000 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.
On October 4, 1995, the Board of Directors voted to increase the annual
grant of options to non-employee directors from 3,000 shares to 5,000 shares,
and on December 21, 1995, the Board of Directors voted to amend the Plan to
increase the aggregate number of stock options available for issuance to all
participants from 1,000,000 shares to 1,500,000 shares. Such amendments to the
1991 Plan are subject to ratification by the Shareholders pursuant to Proposal 3
below.
Accordingly, on October 13, 1995, each of the non-employee directors
was granted an option to purchase 5,000 shares of Common Stock.
As of December 31, 1995, the Company had outstanding non-qualified
stock options to its non-employee directors based upon years of service as
follows:
<TABLE>
<CAPTION>
Number of Shares Exercise Expiration
Director Subject to Option Price Date
-------- ----------------- ----- ----
<S> <C> <C> <C>
Henry M. Holterman 25,000 $3.00 2002
3,000 $3.00 2003
3,000 $3.00 2004
5,000 $4.75 2005
Nathaniel S. Thayer 25,000 $3.00 2003
3,000 $3.00 2004
5,000 $4.75 2005
</TABLE>
- ------------------------------------
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.
Please refer to "Ratification of Amendments to the Amended and Restated 1991
Stock Option Plan" on page 7 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, and (b) increase the number of options subject
to the automatic grant feature of the Plan.
EXECUTIVE COMPENSATION AND OTHER BENEFITS
The following information is given with respect to remuneration of
Brian T. McMahon who serves as President and Chief Executive Officer. None of
the other employees of the Company received a total annual salary and bonus in
excess of $100,000 for the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
--------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------------- ------------------------ -----------------------
Other Securities
Annual Restricted Underlying All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary ($) Bonus ($) sation ($) Award(s)($) SAR's (#) Payments($) sation ($)
- ------------------ ---- ---------- --------- ---------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian T. McMahon, 1995 $146,490 N/A $8,580(2) N/A 150,000(6) N/A N/A
President, Chief 1994 $110,000 N/A $20,976(3) N/A 350,000(5) N/A N/A
Executive Officer and 1993 $104,494 N/A N/A(4) N/A 150,000(5) N/A N/A
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 on May 27, 1994. Prior to his election, Mr.
McMahon was the Company's Executive Vice President and Chief Operating
Officer since July 1992.
(2) This included a $5,400 automobile allowance, $2,838 medical benefit,
and other fringe benefits.
(3) On June 30, 1994, the Company had a 1 for 5 reverse stock split which
had the effect of reducing the number of stock options granted while
increasing the exercise price by a factor of five. On October 14, 1994,
Mr. McMahon's 50,000 shares of non-qualified pre-split options were
canceled and reissued for 50,000 post-split shares 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.
(4) 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.
(5) In 1992, Mr. McMahon received incentive stock options for 150,000
shares and non-qualified stock options for 50,000 shares under the Plan
expiring in five years. In 1993, Mr. McMahon received incentive stock
options for an additional 150,000 shares expiring in five years. On
June 30, 1994, the Company had a 1 for 5 reverse stock split. On
October 14, 1994, these stock options were canceled and replaced with
non-qualified stock options for 50,000 shares and incentive stock
options for 300,000 shares at $2.50 and $3.00 per share, respectively.
(6) In 1995, Mr. McMahon received incentive stock options for 150,000
shares. On December 31, 1995, the total number of stock options that
Mr. McMahon held was 500,000. On January 24, 1996, Mr. McMahon received
an additional incentive stock option for 50,000 shares, expiring in ten
years, vesting one-third per year over 3 years, at an exercise price of
$7.00 per share. The total number of stock options that Mr. McMahon
held on February 14, 1996 was 550,000.
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, 1995.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
----------------------------------------------------------------------------------
% of Total Market
Options Granted Exercise Price on
Name and Options to Employees or Base Price Date of Grant Expiration
Principal Position Granted # in Fiscal Year (U.S. $/Sh) (U.S. $/Sh) Date
- ------------------ --------- -------------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
Brian T. McMahon 150,000(1) 62.5% $3.00 $3.00 April 12, 2000
- ----------------------------
</TABLE>
(1) The five-year incentive stock options were granted pursuant to the
Plan. One third of the options vests on each anniversary date from the
date of grant, so that all the options are vested by the third
anniversary date.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The following table sets forth certain information concerning
individual exercises of stock options during the year ended December 31, 1995
and the value of unexercised stock options as of December 31, 1995 for the Named
Executive. No shares were acquired through the exercise of options by the Named
Executive during 1995.
<TABLE>
<CAPTION>
Number of Value of unexercised
unexercised in-the-money
options/SARs options/SARs
Shares at FY-end (#) at FY-end ($)
acquired on Value realized exercisable/ exercisable/
Name exercise (#)(1) ($) unexercisable unexercisable(1)
- ---- ------------ --- ------------- -------------
<S> <C> <C> <C> <C>
Brian T. McMahon N/A N/A 350,000/ $1,468,750/
150,000 $618,750
</TABLE>
- -----------------------
(1) Upon the exercise of an option, the Optionee must pay the exercise
price in cash or stock. For the purpose of evaluating the value of the
stock options, the fair market value would be the closing bid price,
which is the realistic price at which the Common Stock can be readily
sold. Stock options are "in-the-money" if the bid price for the Common
Stock is greater than the exercise price of the stock options. The
closing bid price for the Common Stock on December 29, 1995 (last
business day of the fiscal year) was $7.125 per share. The value of the
options is calculated by taking the difference between the exercise
price and the closing bid price, and multiplying this difference by the
number of option shares.
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 Common Stock ("10% Shareholders") are
required to file reports of their holdings and transactions in the 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. In addition, the Company believes that no filings on Form 5
were required for such persons. The Company believes that during the year ended
December 31, 1995, all Section 16(a) filing requirements applicable to its
officers, directors, and 10% Shareholders were complied with.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1993, the Company entered into a consulting agreement with
Strategic Business Development Inc. ("SBDI") a wholly-owned corporation of Mr.
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. No payments were
made to SBDI in 1995 and the Company does not anticipate any future payments to
be made to SBDI.
On May 27, 1994, the Company entered into a Severance and Settlement
Agreement with Mr. Daryl F. Yurek, the former Chairman of the Board of Directors
and a former 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.
The options were all exercised in the first and second quarters of 1995. No
other payments were made to Mr. Yurek in 1995, and the Company does not
anticipate any future payments to be made to Mr. Yurek.
BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO
ELECT THE THREE NOMINEES LISTED AS DIRECTORS OF THE COMPANY.
PROPOSAL 2
AMENDMENT OF ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
INTRODUCTION
As a result of the June 30, 1994, 1 for 5 reverse stock split, the
number of authorized shares of the Common Stock was reduced from 20,000,000 to
4,000,000. There are currently 2,933,548 shares of Common Stock which are issued
and outstanding, leaving only 1,066,452 shares of authorized but unissued shares
of Common Stock.
In 1995, the Company raised a net total of $5,491,625 through the
completion of two private placements of preferred stock, including the
conversion of bridge loans outstanding. The preferred stock and bridge loans
have attached warrants to purchase Common Stock.
The Company borrowed $300,000 in 1994, and $225,000 in 1995 through
non-interest bearing bridge loans ("Bridge Loans"). Lenders were given warrants
to purchase 174,998 shares of the Common Stock. The Bridge Loans were converted
to preferred stock in the private placement which closed on June 29, 1995.
In the private placement of preferred stock that closed on June 29,
1995, the Company raised net amounts of $1,965,000, including the conversion of
Bridge Loans, with the issuance of 674,998 shares of Series A Preferred Stock
("Preferred A"), at $3.00 per share, and warrants to purchase 225,000 shares of
Common Stock. In the private placement of preferred stock that closed on
December 28, 1995, the Company raised a net amount of $3,526,625, with the
issuance of 792,500 shares of Series B Preferred Stock ("Preferred B"), at $5.00
per share, and warrants to purchase 264,175 shares of Common Stock.
Each of the 1,467,498 shares of Preferred A and Preferred B
(collectively, the "Preferred Stock") has a par value of $1.00 and is
convertible into 1 share of Common Stock, subject to adjustment for stock
splits, recapitalizations and similar transactions. In addition, selling agents
for the Preferred Stock were given warrants to purchase a total of 132,335
shares of Common Stock. Exercise of all the outstanding warrants would require
the issuance of an additional 796,508 shares of Common Stock, which would
contribute an additional $4,900,213 to the Company. Moreover, the exercise of
all outstanding and unexercised stock options would require the issuance of
another 842,072 shares of Common Stock.
In order to issue sufficient shares of Common Stock for the conversion
of the Preferred Stock and the exercise of the outstanding warrants and options,
it will be necessary to increase the number of authorized shares of Common
Stock.
In addition, the Preferred B issued to investors on December 28, 1995,
provides that, unless the Company has available sufficient shares of authorized
Common Stock for the conversion of the Preferred Stock into Common Stock on or
before December 15, 1996, the Preferred B, which currently bears no dividend,
will commence to bear an annual dividend of 8.0%, payable quarterly.
Management also believes it desirable for the Company to have
sufficient additional authorized and unissued shares to grant new options to
existing and future key employees and to raise additional capital for the
Company if and when required.
AMENDMENT TO ARTICLES OF INCORPORATION
The proposed increase in the number of authorized shares of the Common
Stock requires an amendment to the Company's Articles of Incorporation.
Accordingly, management requests that the shareholders approve an amendment to
the Articles of Incorporation to increase the number of authorized shares of the
Common Stock from 4,000,000 to 10,000,000.
Issuance of shares of Common Stock upon the conversion of the Preferred
Stock and the exercise of the outstanding warrants and stock options (to the
extent of the 1 million shares of stock previously authorized for issuance under
the Plan) will not require any subsequent Shareholder approval. An amendment to
the Plan to permit the issuance of 1,500,000 shares (an increase of 500,000 from
the existing limit of 1,000,000) is the subject of Proposal 3 below.
The issuance of shares of Common Stock upon the conversion of the
Preferred Stock and the exercise of the warrants and stock options will dilute
the percentage holdings of the current holders of Common Stock. The exercise
price of the warrants issued in conjunction with the Bridge Loans is $3.00,
Preferred A is $5.00 and Preferred B is $9.50 per share. The exercise price of
outstanding stock options ranges from $2.50 to $11.25 per share.
BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
PROPOSAL 3
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 which was subsequently approved by the Shareholders. On
September 30, 1992, the Board amended and restated the 1991 Stock Option Plan
(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. At the June 29, 1995 Annual Meeting of Shareholders, the Shareholders
ratified further amendments to (a) increase the aggregate number of shares
available for issuance 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), (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 40,000 (pre-split) and 200,000 (pre-split), respectively, to 40,000
(post-split) and 200,000 (post-split), respectively, (e) modify the date options
are granted to non-employee directors and (f) allow options to be granted on a
pro-rata basis for non-employee directors who are not directors for a full
twelve months.
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,
which is included as an attachment to this Proxy Statement.
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".
PROPOSED AMENDMENTS
On October 4, 1995, and December 21, 1995, respectively, the Board of
Directors voted to further amend the Plan to (a) increase the annual grant of
options to non-employee directors from 3,000 to 5,000 and (b) increase the
aggregate number of stock options available for issuance to all participants
from 1,000,000 to 1,500,000 shares.
The Company has outstanding options under the Plan to non-employee
directors, officers and other employees and consultants for the purchase of
842,072 shares of the Company's Common Stock. An additional 178,000 shares
already have been issued upon the exercise of options granted under the Plan.
(The exercise price of previously granted options ranges from $2.50 to $11.25
per share.) The proposed amendments will cover the 1,020,072 shares of Common
Stock represented by outstanding and previously exercised stock options, and
permit the Company to issue options to purchase an additional 479,928 shares to
attract and retain key employees, non-employee directors and consultants. The
proposed amendments also will permit the annual issuance of options to purchase
an additional 2,000 shares of Common Stock to the current and future
non-employee directors of the Company.
The effect of the proposed change on the two current non-employee
directors for the fiscal year 1995 is as follows:
<TABLE>
<CAPTION>
Annual Stock Option
Non-Employee Director Before/After Amendment Value of Increased Option (1)
- --------------------- ---------------------- -------------------------
<S> <C> <C>
Henry M. Holterman 3,000/5,000 $4,750
Nathaniel S. Thayer 3,000/5,000 $4,750
</TABLE>
- ---------------------------------------
(1) Based upon the spread between the option exercise price of $4.75 and
the bid price on December 29, 1995, of $7.125, multiplied by 2,000
shares of Common Stock.
The following table sets forth the number of vested and unvested stock
options held by the Named Executive, the executive officers of the Company as a
group and the employees as a group as of February 14, 1996:
Holder of Options Number Vested/Unvested
- ----------------- ----------------------
Brian T. McMahon 350,000/200,000
Executive Officers (2 persons) 350,000/260,000
All Employees 373,000/275,000
- ---------------------------------------
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 amendment of the Plan, the maximum
number of shares of Common Stock reserved for issuance under the Options is
1,000,000. 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 Shareholder approval, unless Shareholder 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 Common Stock on the
date of grant, the Committee will use the closing bid price of the Common Stock,
provided, however, that this price is not less than the average closing bid
price of the prior ten trading days. Pursuant to the Plan, prior to ratification
of the October 4, 1995 amendment of the Plan, each non-employee director is
automatically granted a non-qualified option to purchase 25,000 shares of the
Common Stock upon becoming a director, and a non-qualified option to purchase
3,000 shares of the Common Stock in January each year such non-employee director
serves as a director of the Company, subject to proration for directors who
commence service during a calendar year. 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 40,000 shares and 200,000 shares, respectively. Such automatic
option grants have an exercise price equal to the fair market value of the
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.
TERMINATION OF EMPLOYMENT. All Options granted under the Plan must be
exercised no later than two years following the Optionee's termination of
employment to the Company, whether as a result of death, disability, retirement
or other cause.
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 Incentive Stock 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% Shareholders 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% Shareholders 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, Shareholders, 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' RECOMMENDATION
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 specific
instruction is given to vote "FOR" approval of the amendments of the Plan,
shares represented by a signed Proxy Card will be treated as votes "AGAINST" the
proposed amendments to the Plan.
INDEPENDENT PUBLIC ACCOUNTANTS
At the Annual Meeting, Ernst & Young LLP, independent auditors that
have audited the financial statements of the Company for the five years ended
December 31, 1995, 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 1996.
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 Shareholder
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 October 31, 1996 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 Shareholders
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 proxies in accordance with their
judgment of what is in the best interest of the Company.
It is important that Proxy Cards 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 Proxy Cards by return mail.
By Order of the Board of Directors:
/s/ Ching-Meng Chew
Ching-Meng Chew
February 22, 1996 Secretary
<TABLE>
<S> <C>
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Brian T. McMahon and Ching-Meng Chew as proxies,
SPECTRASCIENCE INC. each with the power to appoint his or her substitute, and hereby authorizes them
5909 Baker Road, Suite 580 to represent and to vote as designated below, all the shares of Common Stock of
Minnetonka, Minnesota 55345 SpectraScience, Inc. held of record by the undersigned on February 1, 1996, at
the Annual Meeting of Shareholders to be held on March 28, 1996, or any
adjournment thereof.
- --------------------------------
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all nominees
(except as marked to the contrary below) listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
BRIAN T. MCMAHON HENRY M. HOLTERMAN NATHANIEL S. THAYER
2. TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF AMENDMENTS TO THE COMPANY'S AMENDED AND RESTATED 1991 STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued, and to be signed on the other side)
(continued from other side)
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before this meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2 AND AGAINST PROPOSAL 3.
Please sign exactly as name appears below.
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 full corporate
name by President or other authorised
officer. If a partnership, please sign in
partnership name by authorized person.
------------------------------------
DATED:__________________________, 1996 Signature
PLEASE VOTE, SIGN, DATE AND RETURN THE
PROXY CARD USING THE ENCLOSED ENVELOPE
------------------------------------
Signature if held jointly
</TABLE>
SPECTRASCIENCE, INC.
1991 STOCK PLAN
(AS AMENDED AND RESTATED DECEMBER 21, 1995)
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the SpectraScience, Inc. 1991 Stock Plan (the
"Plan"). The purpose of the Plan is to enable SpectraScience, Inc. (the
"Company") and its Subsidiaries to retain and attract executives, key employees
(whether full or part-time), consultants and non-employee directors who
contribute to the Company's success by their ability, ingenuity and industry,
and to enable such individuals to participate in the long-term success and
growth of the Company by giving them a proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CAUSE" means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, or a participant's
willful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means the Committee referred to in Section 2 of the Plan.
If at any time no Committee shall be in office, then the functions of
the Committee specified in the Plan shall be exercised by the Board.
(e) "COMPANY" means, SpectraScience, Inc., a corporation organized under
the laws of the State of Minnesota (or any successor corporation).
(f) "DISABILITY" means permanent and total disability as determined by the
Committee.
'(g) "DISINTERESTED PERSON" shall have the meaning set forth in Rule 16b-3
as promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or any successor definition adopted by
the Commission.
(h) "EARLY RETIREMENT" means retirement, with consent of the Committee at
the time of retirement, from active employment with the Company and any
Subsidiary or Parent Corporation of the Company.
(i) "FAIR MARKET VALUE" means the value of the Stock on a given date as
determined by the Committee in accordance with the applicable Treasury
Department regulations under Section 422A of the Code with respect to
"incentive stock options."
(j) "INCENTIVE STOCK OPTION" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section
422A of the Code.
(k) "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option, and is intended to be and is designated as a
"Non-Qualified Stock Option."
(1) "NON-EMPLOYEE DIRECTOR" means any member of the Board who is not an
employee of the Company, any Parent Corporation or Subsidiary.
(m) "NORMAL RETIREMENT" means retirement from active employment with the
Company, any Subsidiary or Parent Corporation of the Company on or
after age 65.
(n) "PARENT CORPORATION" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if each of
the corporations (other than the Company) owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one
of the other corporations in the chain.
(o) "RETIREMENT" means Normal Retirement or Early Retirement.
(p) "STOCK" means the Common Stock, $.25 par value per share, of the
Company.
(q) "STOCK APPRECIATION RIGHT" means the right pursuant to an award granted
under Section 6 below to surrender to the Company all or a portion of a
Stock Option in exchange for an amount equal to the difference between
(i) the Fair Market Value, as of the date such Stock Option or such
portion thereof is surrendered, of the shares of Stock covered by such
Stock Option or such portion thereof, and (ii) the aggregate exercise
price of such Stock Option or such portion thereof.
(r) "STOCK OPTION" means any option to purchase shares of Stock granted
pursuant to Section 5 below.
(s) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors or by a
Committee of not less than two directors, all of whom are Disinterested Persons,
who shall be appointed by the Board of Directors of the Company and who shall
serve at the pleasure of the Board.
The Committee shall have the power and authority to grant to eligible
persons, pursuant to the terms of the Plan: (A) Stock Options or (B) Stock
Appreciation Rights.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the Company or its
Subsidiaries, and consultants and other persons having a contractual
relationship with the Company or its Subsidiaries, to whom Stock Options and/or
Stock Appreciation Rights may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options or Stock Appreciation Rights, or a combination of
the foregoing, are to be granted hereunder;
(iii) to determine the number of shares to be covered by each such award granted
hereunder;
(iv) to determine the terms and conditions, not inconsistent with the terms of
the Plan, of any award granted hereunder (including, but not limited to, any
restriction on any Stock Option or other award and/or the shares of Stock
relating thereto) and to amend such terms and conditions (including, but not
limited to, any amendment which accelerates the vesting of any award); and
(v) to determine whether, to what extent, and under what circumstances, Stock
Options may be exercised following termination of employment.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to the President and/or the Chief Executive Officer of
the Company for the purpose of selecting employees who are not officers of the
Company for purposes of (A) above.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 1,500,000 shares, subject to increase or
decrease in the event of any adjustment required in the paragraph below. Such
shares may consist, in whole or in part, of authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that have been
optioned cease to be subject to Options, are forfeited or such award otherwise
terminates without a payment being made to the participant, such shares shall
again be available for distribution in connection with future awards under the
Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split (reverse or other), other change
in corporate structure affecting the Stock, or spin-off or other distribution of
assets to shareholders, such substitution or adjustment shall be made in the
aggregate number of shares reserved for issuance under the Plan and in the
number and option price of shares subject to outstanding options granted under
the Plan as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any award shall always
be a whole number. Such adjusted option price shall also be used to determine
the amount payable by the Company upon the exercise of any Stock Appreciation
Right associated with any Option.
SECTION 4. ELIGIBILITY.
Officers, other key employees of the Company or its subsidiaries,
Non-Employee Directors and consultants and other persons having a contractual
relationship with the Company or its Subsidiaries who are responsible for or
contribute to the management, growth and/or profitability of the business of the
Company and its Subsidiaries are eligible to be granted Stock Option or Stock
Appreciation Right awards under the Plan. Except for Non-Employee Directors,
whose participation in the Plan shall be limited as provided in paragraph (k) of
Section 5, the optionees and participants under the Plan shall be selected from
time to time by the Committee, in its sole discretion, from among those
eligible, and the Committee shall determine, in its sole discretion, the number
of shares covered by each award.
SECTION 5. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after July 10, 2001.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock options, or both types of options (in each
case with or without Stock Appreciation Rights). To the extent that any option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422A of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such option as
an Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) OPTION PRICE. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant and may
not, except as provided in this paragraph or in paragraph (1) below, be less
than 85% of the Fair Market Value of the Stock on the date of the grant of the
Option unless the Option itself or such lower option price per share is approved
by the shareholders. In no event shall the option price per share of Stock
purchasable under an Incentive Stock Option be less than 100% of the Fair Market
Value of the Stock on the date of the grant of the option. If an employee owns
or is deemed to own (by reason of the attribution rules applicable under Section
425(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation or subsidiary and an Incentive
Stock Option is granted to such employee, the option price shall be no less than
110% of the Fair Market Value of the Stock on the date the option is granted.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 425(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) EXERCISABILITY. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time. Installment exercise restrictions may be based upon the lapse of time,
the attainment of specified performance goals, or a combination of each.
Notwithstanding the foregoing, unless the Stock Option Agreement provides
otherwise, any Stock Option granted under this Plan shall be exercisable in
full, without regard to any installment exercise provisions, upon the occurrence
of any of the following events: (i) dissolution or liquidation of the Company
other than in conjunction with a bankruptcy of the company or any similar
occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be the
surviving entity or (iii) the transfer of substantially all of the assets of the
Company or 75% or more of the outstanding Stock of the Company. In the event of
a transaction within (ii), the surviving entity shall issue comparable options
(i.e. having an equivalent spread between exercise price and stock fair market
value) to the holders of the Stock Options.
(d) METHOD OF EXERCISE. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by
certified or bank check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose and
applicable law, including promissory notes or a properly executed exercise
notice together with irrevocable instructions to a broker acceptable to the
Company to promptly deliver to the Company the amount of sale or loan proceeds
to pay the exercise price. As determined by the Committee, in its sole
discretion, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee (based on the Fair Market Value
of the Stock on the date the option is exercised, as determined by the
Committee); provided, however, that, in the case of an Incentive Stock Option,
the right to make a payment in the form of already owned shares may be
authorized only at the time the option is granted. If the terms of an option so
permit, or the Committee so provides, an optionee may elect to pay all or part
of the option exercise price by having the Company withhold from the shares of
Stock that would otherwise be issued upon exercise that number of shares of
Stock having a Fair Market Value equal to the aggregate option exercise price
for the shares with respect to which such election is made. No shares of Stock
shall be issued until full payment therefor has been made. An optionee shall
generally have the rights to dividends and other rights of a shareholder with
respect to shares subject to the option when the optionee has given written
notice of exercise, has paid in full for such shares, and, if requested, has
given the representation described in paragraph (a) of Section 10.
(e) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionees lifetime, only by the optionee.
(f) TERMINATION BY DEATH. If an optionees employment by the Company and
any Subsidiary or Parent Corporation terminates by reason of death, the Stock
Option may thereafter be immediately exercised, to the extent then exercisable
(or on such accelerated basis as the Committee shall determine at or after
grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of two years (or such
shorter period as the committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter.
(g) TERMINATION BY REASON OF DISABILITY. If an optionees employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after two years (or such shorter period as the
Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422A of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. If an optionees employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement, but may not be
exercised after two years (or such shorter period as Committee shall specify at
grant) from the date of such termination of employment or the expiration of the
stated term of the option, whichever period is the shorter. In the event of
termination of employment by reason of Retirement, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422A of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.
(i) OTHER TERMINATION. Unless otherwise determined by the Committee or
as set forth in paragraph (1) below, if an optionees employment by the Company,
any Subsidiary or Parent Corporation terminates for any reason other than death,
Disability or Retirement, any Stock option held by such optionee may thereafter
be exercised to the extent it was exercisable at such termination, but may not
be exercised after two years (or such shorter period as the Committee shall
specify at grant) from the date of such termination of employment or the
expiration of the stated term of the option, whichever period is the shorter;
provided, however, that if the optionees employment is terminated for Cause, all
rights under the Stock Option shall terminate and expire upon such termination.
(j) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Common Stock with
respect to which an Incentive Stock Option under this Plan or any other plan of
the Company, any subsidiary or Parent Corporation is exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000.
(k) NON-EMPLOYEE DIRECTORS. Each Non-Employee Director serving as a
director on October 1, 1994 shall, on or before October 15, 1994, surrender for
cancellations all options held by such person to purchase shares of the
Company's Common Stock (pre-split) and shall be granted options to purchase the
same number of shares of the Company's Common Stock (post-split). Each
Non-Employee Director not serving as a director on October 1, 1994 elected as
director (whether by vote of shareholders or directors) shall, upon such
election, be granted an option to purchase 25,000 shares of the Company's Common
Stock (subject to adjustment pursuant to Section 3 above).
Each Non-Employee Director serving as a director on October 1, 1994
shall, on or before October 15, 1995, be granted an option to purchase an
additional 5,000 shares of the Company's Common Stock in lieu of any 1995 annual
grant to which such director would otherwise be entitled.
Each Non-Employee Director shall automatically be granted an option to
purchase 5,000 shares of the Company's Common Stock (subject to adjustment
pursuant to Section 3 above) annually during the period such director serves on
the Board and the Plan is in effect. The date of the automatic grant shall be
January 1 if the Non-Employee Director is serving on the Board on such date, and
the date on which the Non-Employee Director commences services on the Board if
the director is elected after January 1. If a Non-Employee Director commences
service on the Board after June 30 in any year in which the Plan is in effect
then, for such year, such director shall be granted an option to purchase 2,500
shares of the Company's Common Stock (subject to adjustment pursuant to Section
3 above).
All Non-Employee Director Stock Options shall be granted at a price per
share equal to 100% of the Fair Market Value of the Company's Common Stock on
the date of grant. The term of each Non-Employee Director Stock Option shall be
ten years from the date of grant.
All such Stock Options shall be designated as Non-Qualified Stock
options and shall be subject to the same terms and provisions as are then in
effect with respect to the grant of Non-Qualified Stock Options to salaried
officers and key employees of the Company, except that (i) the term of each such
Stock Option shall be equal to ten years; (ii) each Stock Option shall become
exercisable as to all or any part of the shares subject to the Stock Option
beginning six months after the date the Stock Option is granted; and (iii) no
Stock Appreciation Rights may be granted to Non-Employee Directors in
conjunction with any Stock Options granted under this paragraph (k) or in any
other manner under this Plan. Subject to the foregoing, all provisions of this
Plan not inconsistent with the foregoing shall apply to Stock Options granted to
Non-Employee Directors. The maximum number of shares as to which Stock Options
may be granted to any individuals/Non-Employee Director under this Plan shall be
40,000 shares. The maximum aggregate number of shares as to which Stock Options
may be granted to Non-Employee Directors under this Plan shall be 200,000
shares. The number of shares reflects the June 30, 1994, 1-for-5 reverse stock
split of the Company's Common Stock and shall be further subject to adjustment
pursuant to Section 3 above.
(l) Yurek and Seiler Options. The options to be granted to Daryl F.
Yurek (1,000,000 shares) and James L. Seiler (50,000 shares) at $.50 per share
are issued pursuant to that certain financing transaction to be approved by
shareholders on or about January 30, 1992. At the time of issue, Mr. Yurek was
an employee of the Company and Mr. Seiler was a consultant to the Company.
Paragraph (i) above notwithstanding, if the Company terminates Mr. Yurek's
employment other than for cause, disability or death, then all of the Option
shares shall vest for both Yurek and Seiler and the two optionees shall continue
to have the right to exercise the Options pursuant to the terms thereof as if
Mr. Yurek's employment had continued.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Except as set forth in paragraph (k) of Section
5, Stock Appreciation Rights may be granted in conjunction with all or part of
any Stock option granted under the Plan. In the case of a Non-Qualified Stock
Option, such rights may be granted either at or after the time of the grant of
such Option. In the case of an Incentive Stock Option, such rights may be
granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock option, except that a
Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related Stock Option shall not be reduced until the exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (b) of this Section 6, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (b) of this Section 6. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the extent
the related Stock Appreciation Rights have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
applicable regulations relating to the exercise of Stock Appreciation Rights by
optionees subject to reporting responsibilities under Section 16 of the
Securities and Exchange Act of 1934, and to such terms and conditions, not
inconsistent with the provisions of the Plan, as shall be determined from time
to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 and this Section 6 of
the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall
be entitled to receive up to, but not more than, an amount in cash or shares of
Stock equal in value to the excess of the Fair Market Value of one share of
Stock over the option price per share specified in the related option multiplied
by the number of shares in respect of which the Stock Appreciation Right shall
have been exercised, with the Committee having the right to determine the form
of payment.
(iii) Stock Appreciation Rights shall be transferable only when and to
the extent that the underlying Stock Option would be transferable under Section
5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth in
Section 3 of the Plan on the number of shares of Stock to be issued under the
Plan, but only to the extent of the number of shares issued or issuable under
the Stock Appreciation Right at the time of exercise based on the value of the
Stock Appreciation Right at such time.
(v) A Stock Appreciation Right granted in connection with an Incentive
Stock Option may be exercised only if and when the market price of the Stock
subject to the Incentive Stock Option exceeds the exercise price of such Option.
SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation
or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or
from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to re-employment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 8. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option or Stock Appreciation Right
or other Stock-based award theretofore granted, without the optionees or
participant's consent, or (ii) which without the approval of the shareholders of
the Company would cause the Plan to no longer comply with rules promulgated by
the Securities and Exchange Commission under authority granted in Section 16 of
the Securities Exchange Act of 1934, as amended, Section 422A of the Code or any
other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted options,
including previously granted options having higher option prices.
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 10. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan pursuant
to any Stock-based awards shall be subject to such stock transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the securities and Exchange commission,
any stock exchange upon which the Stock is then listed, and any applicable
Federal or state securities laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
(b) Subject to paragraph (d) below, recipients of Stock-based awards
under the Plan (other than Stock Options) are not required to make any payment
or provide consideration other than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the written terms of such award so permit, a
participant may elect by written notice to the Company to satisfy part or all of
the withholding tax requirements associated with the award by (i) authorizing
the Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 10(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
(e) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that the shares of Stock received as a result of
such grant shall be subject to a repurchase right in favor of the Company,
pursuant to which the participant shall be required to offer to the Company upon
termination of employment for any reason any shares that the participant
acquired under the Plan, with the price being the then Fair Market Value of the
Stock or, in the case of a termination for Cause, an amount equal to the cash
consideration paid for the Stock, subject to such other terms and conditions as
the Committee may specify at the time of grant. The Committee may, at the time
of the grant of an award under the Plan, provide the Company with the right to
repurchase shares of Stock acquired pursuant to the Plan by any participant who,
at any time within two years after termination of employment with the Company,
directly or indirectly competes with, or is employed by a competitor of the
Company.
SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on July 11, 1991 (the date of approval by the Board
of Directors), subject to approval by a vote of the holders of a majority of the
Stock present and entitled to vote at the next Annual or Special Meeting of the
Company's shareholders and shall expire (unless terminated earlier) as of July
10, 2001. Awards may be granted under the Plan prior to shareholder approval,
provided such awards are made subject to shareholder approval.
