Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6 (e) (2))
[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, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11. (Set forth the amount on which
the filing fee is calculated and state how it was determined.)
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule O-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:
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(2) Form, Schedule or Registration statement No.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
SPECTRASCIENCE, INC.
3650 Annapolis Lane, Suite 101
Minneapolis, MN 55447-5434
Tel: (612) 509-9999 Fax: (612) 509-9805
email: [email protected]
website: www.spectrascience.com
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 18, 1999
--------------------------------------------
To the Shareholders of SPECTRASCIENCE, Inc.:
You are cordially invited to attend our Annual Meeting of Shareholders
to be held on Friday, June 18, 1999, at 3:30 p.m. local time, at The Radisson
Hotel & Conference Center, 3131 Campus Drive, Plymouth, Minnesota 55441, Tel:
(612) 559-6600, Fax: (612) 559-1053, for the following purposes:
1. To elect four (4) persons to serve as directors until the next
Annual Meeting of Shareholders or until their respective
successors shall be elected and qualified.
2. To consider and act upon any other matters that may properly
come before the Annual Meeting or any adjournment thereof.
Only shareholders of record at the close of business on May 27, 1999
are 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, 1998, a Proxy Statement and a Proxy Card accompany this formal
Notice of Meeting. These materials are first being mailed to shareholders on or
about May 28, 1999.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
YOU ARE URGED TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE IN THE ENVELOPE PROVIDED. THIS WILL SAVE THE COMPANY ADDITIONAL
EXPENSES ASSOCIATED WITH SOLICITING PROXIES AS WELL AS ENSURE THAT YOUR SHARES
ARE REPRESENTED. IF YOU DO ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND
VOTE YOUR SHARES IN PERSON.
By Order of the Board of Directors
Chester E. Sievert, Jr.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CORPORATE SECRETARY
Dated: May 27, 1999
<PAGE>
SPECTRASCIENCE, INC.
3650 ANNAPOLIS LANE, SUITE 101
MINNEAPOLIS, MINNESOTA 55447-5434
------------------------------
PROXY STATEMENT
------------------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 18, 1999
This Proxy Statement and the accompanying Proxy are being furnished to
shareholders (the "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 (the
"Annual Meeting"), for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting is to be held on Friday, June
18, 1999, at 3:30 p.m. local time, at The Radisson Hotel & Conference Center,
3131 Campus Drive, Plymouth, Minnesota 55441, Tel: (612) 553-6600, Fax: (612)
559-1053.
This Proxy Statement, the accompanying Proxy and the Company's Annual
Report for the fiscal year ended December 31, 1998, are first being mailed to
Shareholders of the Company on or about May 28, 1999. The Annual Report 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 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 27, 1999
are entitled to execute proxies or to vote at the Annual Meeting. As of that
date there were 5,296,720 outstanding shares of the Company's common stock, par
value $.25 per share ("Common Stock"), the only outstanding voting securities of
the Company. 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 Meeting
and any other matters that may properly come before the Annual Meeting. A
majority of the outstanding shares entitled to vote are required to constitute a
quorum at the Annual 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
Page 1
<PAGE>
mentioned in the foregoing Notice of Meeting. If a Shareholder abstains from
voting as to any proposal, then the shares held by such Shareholder shall be
deemed present at the Annual Meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such proposal but shall not
be deemed to have been voted in favor of such proposal. If a broker returns a
"non-vote" proxy, indicating a lack of authority to vote on a proposal, then the
shares covered by such non-vote shall be deemed present at the Annual Meeting
for purposes of determining a quorum, but not present for purposes of
calculating the vote with respect to such proposal.
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 WILL BE VOTED
"FOR" PROPOSALS 1 AND 2 SET FORTH IN THE NOTICE OF MEETING.
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 May 14, 1999, by each of our
directors, each executive officer named in the Summary Compensation Table set
forth under the caption "Executive Compensation and Other Benefits" below, each
person or entity known by us to own beneficially more than five percent of the
Common Stock, and all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Percent of Class
Name and Address of Beneficial Owner Beneficial Ownership Beneficially Owned(9)
- ------------------------------------- -------------------- ---------------------
<S> <C> <C>
Perkins Capital Management, Inc. and
The Perkins Opportunity Fund(1) 553,987 10.4%
Reggeborgh Beheer BV(2) 559,000 10.3%
Nathaniel S. Thayer(3) 497,438 9.3%
Brian T. McMahon(4) 453,486 8.0%
Chester E. Sievert, Jr.(5) 54,412 1.0%
Ching-Meng Chew(6) 23,333 0.4%
Henry M. Holterman(7) 21,000 0.4%
Officers and Directors as a Group(8) 1,049,669 18.0%
</TABLE>
- -----------------
(1) Includes 353,987 shares owned by Perkins Capital Management, Inc. and
200,000 shares owned by The Perkins Opportunity Fund (collectively,
"Perkins"). The shares beneficially owned by Perkins Capital Mangement,
Inc. also include 18,333 shares issuable upon exercise of warrants held by
Perkins or their clients within 60 days of May 14, 1999. The address of
Perkins is 730 East Lake Street, Wayzata, MN 55391-1769.
(2) Includes 434,000 shares held by Reggeborgh Beheer BV and 125,000 shares
issuable upon the exercise of warrants that are exercisable within 60 days
of May 14, 1999. The address of Reggeborgh Beheer BV is Postbox 319,
Industrieweg 12, 7460 AH Rijssen, The Netherlands.
(3) Includes (a) 454,238 shares owned by Mr. Thayer, (b) 43,000 shares
issuable upon exercise of options that are exercisable within 60 days of
May 14, 1999 and (c) 200 shares held in a joint account in which Mr.
Thayer has a 50% beneficial interest. Mr. Thayer, a non-employee director
of the Company, is a partner of the law firm of Blais Cunningham & Crowe
Chester, and his address is 150 Main Street, P.O. Box 1325, Pawtucket, RI
02862.
(4) Includes (a) 47,133 shares owned by Mr. McMahon's estate, and (b) 406,353
shares issuable upon exercise of options that are exercisable within 60
days of May 14, 1999. Mr. McMahon was Chairman
Page 2
<PAGE>
of the Board and Chief Executive Officer of the Company at the time of his
death in December 1998, and his address is 3650 Annapolis Lane, Suite 101,
Minneapolis, MN 55447-5434.
(5) Includes 54,412 shares issuable upon exercise of options that are
exercisable within 60 days of May 14, 1999. Excludes 150,000 shares
issuable upon exercise of options that will vest upon the successful
completion of various milestones related to the clinical studies on the
Optical Biopsy(TM) System ("OBS"), the filing of a Pre-Market Approval
("PMA") application with the United States Food and Drug Administration
("FDA") and final FDA product approval. Mr. Sievert is the President and
Chief Executive Officer of the Company, and his address is 3650 Annapolis
Lane, Suite 101, Minneapolis, Minnesota 55447-5434.
(6) Includes 23,333 shares issuable upon exercise of options that are
exercisable within 60 days of May 14, 1999. Mr. Chew resigned from his
position with the Company in July 1998, and his address is 3650 Annapolis
Lane, Suite 101, Minneapolis, Minnesota 55447-5434.
(7) Includes 21,000 shares issuable upon exercise of options that are
exercisable within 60 days of May 14, 1999. Mr. Holterman is a
non-employee director of the Company, and his address is the same as the
address of Reggeborgh Beheer BV (included in footnote (2) above), where he
is the Managing Director.
(8) Includes 509,171 shares owned by all directors and executive officers (5
persons) and 548,098 shares issuable upon exercise of options held by all
directors and executive officers (5 persons) that are exercisable within
60 days of May 14, 1999. Excludes 150,000 shares issuable upon exercise of
options held by Mr. Sievert upon the successful completion of various
milestones as described in footnote (5) above.
(9) Based upon 5,296,720 shares of common stock outstanding on May 14, 1999.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors has nominated the four persons named below to
serve as directors of the Company until the next annual meeting of Shareholders
or until their earlier death, resignation or removal from office. Two of the
four nominees are presently members of the Board of Directors and have consented
to serve another term as a director if re-elected. If any of the nominees should
be unavailable to serve for any reason, 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. The Board of Directors has no reason to believe that
any nominee will be unable or unwilling to serve as a director if elected.
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.
Director/Officer
Name Age Title Since
- ---- --- ----- -----
Chester E. Sievert, Jr. 47 President, Chief Executive 1998
Officer, and Corporate Secretary
Henry M. Holterman 43 Director 1992
Page 3
<PAGE>
Nathaniel S. Thayer 74 Director 1992
Johan A.P.M. De Hond 45
- -----------------------------
CHESTER E. SIEVERT, JR. was appointed Chief Executive Officer on
January 5, 1999, after the sudden death of Mr. Brian McMahon, our former
Chairman and Chief Executive Officer, in December 1998. Mr. Sievert began
serving as Vice President of Development in November 1996. He was appointed
Executive President of Development and Operations in July 1997, and was
appointed President and Chief Operating Officer in March 1998. Prior to joining
the Company, Mr. Sievert founded and was the president of two medical product
companies, ReTech, Inc. from 1980 to 1986, and FlexMedics Corporation from 1986
to 1995. As a former academic scientist on staff at the University of Minnesota
College of Medicine and the Veterans Administration Medical Center, Mr. Sievert
published extensively in the fields of gastroenterology, urology and fiber
optics. Mr. Sievert has a Bachelor of Science Degree in Comparative Physiology
from the University of Minnesota.
HENRY M. HOLTERMAN has been the Managing Director of Reggeborgh Beheer
BV, a company located in the Netherlands that invests in companies and owns
property projects generally located in the Netherlands, since 1991. 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, located in Pawtucket, Rhode Island, since 1969.
JOHAN A.P.M. DE HOND has been with Hospital Sophia in Zwolle, and
Hospital Diaconesse in Meppel, The Netherlands, since 1992 as a Senior
Urologist. Dr. de Hond completed his medical education in 1979 as a graduate of
the University of Utrecht, also in The Netherlands. Dr. de Hond's background
includes speciality training in surgery as well as urology.
BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE FOUR NOMINEES
LISTED ABOVE, AS DIRECTORS OF THE COMPANY.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1998, the Board of Directors
held four meetings and adopted resolutions by unanimous written action on two
occasions (as permitted under Minnesota Statutes Section 302A.239). Each of the
directors attended all of the meetings of the Board of Directors, with the
exeption of Mr. Thayer who was unable to attend one meeting, and applicable
committees held while each was a director during such fiscal year. The Board of
Directors has an Audit Committee and a Compensation Committee.
The members of the Audit Committee during the fiscal year ended
December 31, 1998 were Messrs. Holterman and Thayer. The functions of the Audit
Committee are (i) to review the
Page 4
<PAGE>
internal and external financial reporting of the Company, (ii) to review the
scope of the independent audit, and (iii) to consider comments by the auditors
regarding internal controls and accounting procedures and management's response
to those comments. The Audit Committee met one time during the fiscal year ended
December 31, 1998, primarily to review the Company's internal and external
financial reporting practices.
The members of the Compensation Committee during the fiscal year ended
December 31, 1998 were Messrs. Holterman and Thayer. The functions of the
Compensation Committee are to review and approve (i) the salaries of all
directors and officers of the Company, (ii) all bonus awards, annual or
otherwise, for all officers and employees of the Company, and (iii) all stock
option grants for directors, officers, and employees of the Company, as well as
stock option grants for others outside of the Company. The Compensation
Committee met two times during the fiscal year ended December 31, 1998.
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 non-employee director $500 for
each Board of Directors' meeting and committee meeting attended and reimburses
each such director for reasonable travel and out-of-pocket expenses for
attendance at these meetings.
AUTOMATIC OPTION GRANT. Pursuant to the Company's 1991 Stock Plan (the
"1991 Plan"), as amended, each non-employee director is entitled to receive an
option to purchase 10,000 shares of Common Stock when first elected to the Board
of Directors. Prior to October 1996, non-employee directors were entitled to
receive an initial option grant of 25,000 shares of Common Stock. Additionally,
each non-employee director is entitled to receive an automatic grant of options
to purchase 5,000 shares of Common Stock upon re-election to the Board each year
the 1991 Plan is in effect. The exercise price of the option is based on the
greater of (a) the prevailing market price (defined as the closing price) of the
Common Stock on the date of grant or (b) the average of the closing prices of
the Common Stock for the ten trading days immediately prior to the date of
grant.
The options granted to non-employee directors under the 1991 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 become fully exercisable one year after the date of grant.
EXECUTIVE OFFICERS
Other than Mr. Sievert, there are no additional executive officers of
the Company at this time.
EXECUTIVE COMPENSATION AND OTHER BENEFITS
The following table shows the cash and non-cash compensation for each
of the last three fiscal years, compensation awarded, paid to, or earned by the
Company's Chief Executive Officer and for all executive officers whose salary
and bonuses exceeded $100,000 for that year (the "Named Executive Officers"):
Page 5
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Awards
-------------------------------------- ------------------------------------------------
Other
Annual Restricted Securities All Other
Compen- Stock Underlying LTIP Compen-
Name and Principal Position Year Salary Bonus sation(1) Award(s) Option/s SARs Payouts sation(11)
- --------------------------- ---- ------ ----- --------- -------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chester E. Sievert, Jr. 1998 $110,000 $ -- $6,000 -- 145,000(2) -- $ 3,300
President and Chief 1997 92,500 15,000 6,000 -- 85,000(3) -- 1,712
Executive Officer 1996 11,987 -- 1,000 -- 17,079(4) -- --
Brian T. McMahon (5) 1998 131,855 -- 6,005 -- 206,667(2) -- 30,000
1997 137,496 34,374 6,307 -- 289,605(6) -- 2,062
1996 137,496 27,500 8,279 -- 50,000(7) -- 1,317
Ching-Meng Chew (8) 1998 62,006 14,250 4,175 -- 37,500(2) -- 33,175
1997 95,000 16,500 6,575 -- 25,000(9) -- 2,850
1996 82,500 3,822 6,585 -- 15,000(10) -- 1,157
</TABLE>
(1) Other Annual Compensation primarily involves a car allowance of $500 per
month for each of the Named Executive Officers. Mr. McMahon received
$2,129 in medical benefits in 1996, but did not receive paid medical
benefits in 1997 or 1998.
(2) Details of these option grants are provided in the following table
entitled "Option Grants in Last Fiscal Year."
(3) Includes a ten-year stock option for 50,000 shares, which will vest in its
entirety upon the successful completion of the clinical studies on the OBS
and the filing with the FDA of a pre-market notification package and final
FDA product approval; and a ten-year stock option for 35,000 shares,
vesting one-third per year over three years. Both options have an exercise
price of $3.9125 per share. On May 14, 1999, Mr. Sievert held total stock
options for 297,079 shares.
(4) Includes a ten-year stock option for 15,000 shares, vesting one-third per
year over three years at an exercise price of $4.9875 per share, and a
ten-year option for 2,079 shares at an exercise price of $7.75 per share,
which is fully vested.
(5) Mr. McMahon held the titles of Chairman and Chief Executive Officer until
his sudden death in December 1998. A total of 289,379 unvested options
were forfeited at the time of his death. On May 14, 1999, Mr. McMahon's
estate held total stock options for 406,353 shares, all of which will
expire on or before December 9, 2000.
(6) Mr. McMahon previously held two fully-vested five-year stock options, one
for 50,000 shares exercisable at $2.50 per share and one for 150,000
shares exercisable at $3.00 per share. Both options expired unexercised in
1997. Mr. McMahon was granted new ten-year options, each vesting one-third
per year over three years as follows: (a) 50,000 shares at $3.7625 per
share, (b) 189,065 shares at $3.7813 per share, and (c) 50,000 shares at
$4.7625 per share.
(7) Represents a ten-year stock option for 50,000 shares, vesting one-third
per year over three years, at an exercise price of $7.00 per share.
(8) Mr. Chew resigned as Vice President Finance and Administration, Chief
Financial Officer, Secretary and Treasurer of the Company as of July 31,
1998. A total of 27,800 vested options were exercised in October 1998
prior to their expiration. A total of 71,387 options were forfeited as a
result of his resignation. On May 14, 1999, Mr. Chew held total stock
options for 23,333 shares.
(9) Represents a ten-year stock option for 25,000 shares, vesting one-third
per year over three years, at an exercise price of $4.7625 per share.
(10) Represents a ten-year stock option for 15,000 shares, vesting one-third
per year over three years, at an exercise price of $7.00 per share.
(11) All Other Compensation includes amounts contributed to the SPECTRASCIENCE
Savings and Retirement Plan, which qualifies as a Section 401(k) Plan
under the Internal Revenue Code of 1986, as amended.
Page 6
<PAGE>
OPTION AND STOCK APPRECIATION RIGHTS
The following table sets forth information concerning individual grants
of stock options under the 1991 Plan made to each of the Named Executive
Officers. No stock appreciation rights ("SARs") were granted or exercised for
the year ended December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------
Potential Realizable
Number of % of Total Options Value at Assumed
Securities Granted to Annual Rates of Stock
Underlying Employees in Exercise or Base Price Appreciation for
Name Options Granted # Fiscal Year Price ($/Sh)(8) Expiration Date Option Term(9)
- ---- ----------------- ----------- --------------- --------------- ----------------------
5% 10%
----------------------
<S> <C> <C> <C> <C> <C> <C>
Chester E. Sievert, Jr. 45,000 (1) 9.0% $4.0833 01/23/2000 $398,121 $1,008,916
50,000 (2) 10.0% $4.4930 08/04/2000
50,000 (2) 10.0% $4.4930 08/04/2000
Brian T. McMahon (3) 100,000 (4) 20.1% $4.0833 05/28/2000 $626,796 $1,588,423
106,667 (5) 21.4% $5.5156 01/23/2000
Ching-Meng Chew (6) 37,500 (7) 7.5% $4.0833 01/23/2000 $96,299 $ 244,040
</TABLE>
(1) Represents a ten-year stock option for 45,000 shares granted pursuant to
the 1991 Plan. Of these shares, 6,000 shares vest immediately, with the
remainder vesting one-third per year over three years.
(2) Mr. Sievert was granted two ten-year options, each for 50,000 shares,
which will vest in their entirety upon the following milestones: (i)
50,000 shares upon the successful filing with the FDA of a pre-market
approval notification submission relating to the OBS, and (ii) 50,000
shares upon the written conditional approval by the FDA of the pre-market
approval application to market the OBS.
(3) Mr. McMahon died suddenly in December 1998. A total of 289,379 unvested
options were forfeited at the time of his death, including 80,000 options
listed herein. As of December 31, 1998, Mr. McMahon's estate held total
stock options for 406,353 shares, all of which will expire on or before
December 9, 2000.
(4) Represents a ten-year stock option for 100,000 shares, of which 20,000
shares vest immediately and the remainder vest one-third per year over
three years.
(5) Mr. McMahon previously held a fully-vested five-year stock option for
116,667 shares exercisable at $3.00 per share. A total of 10,000 shares
were exercised in May 1998, and the remainder expired unexercised in May
1998. Mr. McMahon was also granted a ten-year option in May 1998 for
106,667 shares at $5.5156 per share, vesting immediately.
(6) Mr. Chew resigned from the Company as of July 31, 1998. A total of 71,387
options, including 32,500 options listed herein, were forfeited as a
result of his resignation. As of December 31, 1998, Mr. Chew held total
stock options for 23,333 shares.
(7) Represents a ten-year stock option for 37,500 shares, of which 5,000
shares vest immediately and the remainder vest one-third per year over
three years.
(8) The exercise price was determined based on the greater of (a) the
prevailing market price (defined as the closing price) of the Common Stock
on the date of grant or (b) the average of the closing prices of the
Common Stock for the ten trading days immediately prior to the date of
grant.
(9) Potential realizable value is net of the exercise price, but before taxes
associated with exercise. Potential realizable value is based on an
assumption that the market price of the stock appreciates at the stated
rate, compounded annually, from the date of grant until the end of the
ten-year option term, multiplied by the number of options granted. These
values are calculated based on regulations promulgated by the Securities
and Exchange Commission and do not reflect the Company's estimate of
future stock price appreciation. There can be no assurance that the actual
stock price appreciation over the ten-year option term will be at the
assumed 5% or 10% levels, or at any other defined level.
Page 7
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning
individual exercises of stock options during the year ended December 31, 1998
and the value of unexercised stock options as of December 31, 1998 for each of
the Named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of unexercised
Shares Underlying In-the-Money
acquired on (1)Value Unexercised Options/SARs Options/SARs
exercise realized at Fiscal Year end At Fiscal Year end(2)(3)
----------- -------- --------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Chester E. Sievert, Jr. (4) -- -- 29,745 217,334 $45,978 $383,474
Brian T. McMahon (5) 43,333 $129,999 406,353 -- $737,743 --
Ching-Meng Chew (6) 27,800 $109,463 23,333 -- $19,896 --
</TABLE>
- ------------------
(1) Value calculated by taking the difference between the market value per
share of the Common Stock and the exercise price on the date of exercise,
and multiplying this difference by the number of option shares exercised.
(2) Upon the exercise of an option, the optionee must pay the exercise price
in cash or stock. Stock options are "in-the-money" if the closing 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 31, 1998
was $6.00 per share. The value of the options is calculated by taking the
difference between the exercise price and the closing bid price on
December 31, 1998, and multiplying this difference by the number of option
shares. When the exercise price was higher than the market value of the
Common Stock, the option was not "in-the-money."
(3) Does not include the number or value of unexercisable options granted
subsequent to December 31, 1998. No SARs were held by any of the Named
Executive Officers on December 31, 1998.
(4) "In-the-money" options include 27,666 shares which are exercisable and
217,334 shares which are unexercisable.
(5) "In-the-money" options include 373,020 which are exercisable and no shares
which are unexercisable.
(6) "In-the-money" options include 13,333 shares which are exercisable and no
shares which are unexercisable.
CHANGE-IN-CONTROL ARRANGEMENTS
The Company entered into a Severance Agreement with each of Messrs.
McMahon and Chew on November 26, 1996 and with Mr. Sievert on May 21, 1997,
providing for severance pay in the event of a "Change in Control" as defined in
each Severance Agreement. The Severance Agreements for Messrs. Chew and McMahon
are no longer in effect. Each Severance Agreement provides for severance pay if
their employment is terminated, either voluntarily or involuntarily, during the
three-year period following a Change in Control. The severance payment is to be
equal to full compensation for one year for Mr. Sievert; and payment will be
made in a lump sum upon termination. In addition to the severance payment, the
Severance Agreement provides for the following benefits upon a Change in
Control:
* 18 months of life, accident and health and dental insurance benefits
Page 8
<PAGE>
* 12 months of out-placement services
* complete coverage for fiduciary liability and directors' and officers'
insurance for a period of six years after a Change in Control
* indemnification for any losses that might result from actions taken in
good faith before the "Date of Termination" as defined in the Severance
Agreement
* reimbursement for all legal fees and expenses incurred as a result of
termination, except to the extent such payment would constitute an
excess "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986
* all benefits under the SPECTRASCIENCE Savings and Retirement Plan, or
any successor to such plan and any other plan or arrangement relating
to retirement benefits
* all benefits and rights under any and all of the Company's stock
purchase, restricted stock grant and stock option plans or programs, or
any successor to any such plans or programs, which shall be in addition
to, and not reduced by, any other amounts payable under the Severance
Agreement
* immediate vesting of all outstanding but unvested options
If there had been a Change in Control for the fiscal year ended
December 31, 1998, and the employment of Mr. Sievert had been immediately
terminated, Mr. Sievert would have been entitled to receive, pursuant to the
terms of the Severance Agreement, a lump sum payment upon termination of
$162,000. Mr. Chew would have been entitled to a lump sum payment of $136,000
prior to his resignation in July 1998, and Mr. McMahon would have been entitled
to a lump sum payment of $396,989 prior to his death in December 1998.
All stock option agreements outstanding under the 1991 Plan provide for
the accelerated vesting of options immediately prior to a Change in Control,
except in certain cases where the optionee is terminated for "cause" or resigns
without "good reason."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, executive
officers and persons who are beneficial owners of more than 10% of the Common
Stock to file initial reports of ownership and reports of changes in ownership
of Common Stock and any other equity securities of the Company with the
Securities and Exchange Commission, and to furnish us with copies of all Section
16(a) reports they file. To the best of the Company's knowledge, based upon a
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the year ended
December 31, 1998, all Section 16(a) filing requirements applicable to the
Company'sofficers, directors, and 10% shareholders were satisfied with the
exception of one late filing of a Form 4 for each of Messrs. Holterman, Thayer,
and Sievert. Each of the late Form 4s were related to grants of stock options
that were pending compensation committee approval at the time of Mr. McMahon's
death.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no material transactions between the Company and its
directors or executive officers for the fiscal year ended December 31, 1998.
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<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, based upon the recommendation of its Audit
Committee, has appointed Ernst & Young LLP as independent auditors to audit the
financial statements of the Company for the current fiscal year ending December
31, 1999 and to provide other appropriate accounting services. Ernst & Young LLP
has audited the financial statements of the Company for the fiscal years ended
December 31, 1991 through December 31, 1998. Representatives of Ernst & Young
LLP will be present at the Annual Meeting, will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions from Shareholders.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
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. Any shareholder proposals that may properly be presented at the
2000 Annual Meeting of Shareholders must be prepared in accordance with all
applicable rules of the Securities and Exchange Commission and must be received
by the Secretary of SPECTRASCIENCE, Inc. at the Company's executive offices in
Minneapolis, Minnesota, no later than December 20, 1999 for inclusion in the
Company's proxy statement for the 1999 Annual Meeting of Shareholders.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
The Company knows of no matters other than those referred to in the
accompanying Notice of Meeting 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
to vote the proxies in accordance with their judgment regarding the best
interests of the Company.
It is important that Proxies be returned promptly with instructions
as to voting. Shareholders who do not expect to attend the Annual Meeting in
person are urged to mark, sign, date and send in the Proxies by return mail.
By Order of the Board of Directors
Chester E. Sievert, Jr.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CORPORATE SECRETARY
Dated: May 27, 1999
Page 10
<PAGE>
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE
- ----- BOARD OF DIRECTORS
SPECTRASCIENCE, INC. The undersigned, having received a Notice of
3650 Annapolis Lane, Suite 101 Annual Meeting of Shareholders and
Minneapolis, MN 55447-5434 accompanying Proxy Statement, hereby
appoints Chester E. Sievert, Jr. as proxy,
with the power of substitution, and hereby
authorizes him to represent and to vote as
designated below, all the shares of Common
Stock of SPECTRASCIENCE, Inc. which the
undersigned is entitled to vote at the
Annual Meeting of Shareholders to be held on
June 18, 1999, or any adjournment thereof.
- ------------------------------
1. ELECTION OF DIRECTORS
FOR all nominees listed below WITHHOLD AUTHORITY to vote for all
(EXCEPT AS MARKED TO THE CONTRARY BELOW) nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
CHESTER E. SIEVERT, JR. HENRY M. HOLTERMAN
NATHANIEL S. THAYER JOHAN P.A.M. DE HOND
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE)
(CONTINUED FROM OTHER SIDE)
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1.
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
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
------------------------------------
SIGNATURE
DATED:__________________________, 1999
PLEASE VOTE, SIGN, DATE AND RETURN THE ------------------------------------
PROXY CARD USING THE ENCLOSED ENVELOPE SIGNATURE IF HELD JOINTLY
