Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Cheung Laboratories, 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)(l) and 0-11.
1) Title of Each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
-----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Fee paid previously with preliminary materials.
[ ] 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:
<PAGE>
Cheung Laboratories, Inc.
10220-I Old Columbia Rd.
Columbia, MD 21046
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 31, 1998
The Annual Meeting of Shareholders of Cheung Laboratories, Inc., a Maryland
corporation (the "Company"), will be held at 10:00 a.m. on March 31, 1998 at The
Columbia Inn, 10207 Wincopin Circle, Columbia, Maryland, for the following
purposes:
1) To approve an amendment to the Company's by-laws adopting a
staggered board of directors.
2) To elect seven directors;
3) To ratify the appointment of Stegman & Company as auditors to
examine the Company's accounts for the fiscal year ending
September 30, 1998;
4) To amend the Company's Articles of Incorporation to increase the
number of authorized shares to 100,000,000 shares.
5) To amend the Company's Articles of Incorporation to change the
Company's name to Celsion Corporation or variations thereof
approved by the Directors.
6) To approve an employee stock option plan.
7) To transact such other business as may properly come before the
meeting or any and all adjournments thereof.
All shareholders are cordially invited to attend the meeting, although only
shareholders of record at the close of business on [recorddate] will be entitled
to vote.
A Proxy Statement explaining the matters to be acted upon at the meeting
follows. Please read it carefully.
BY ORDER OF THE BOARD OF DIRECTORS,
February __, 1998 John Mon, Secretary
================================================================================
YOUR VOTE IS IMPORTANT-PLEASE SIGN, DATE, AND RETURN YOUR PROXY CARD
================================================================================
Shareholders are urged to date, sign and return the enclosed Proxy card in the
envelope provided, which requires no postage if mailed in the United States.
Your prompt return of the Proxy card will help assure a quorum at the meeting
and avoid additional Company expense for further solicitation.
<PAGE>
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of Proxies
by the Board of Directors of Cheung Laboratories, Inc. a Maryland corporation
(the "Company"), for use at the Annual Meeting of Shareholders of the Company to
be held at The Columbia Inn, 10207 Wincopin Circle, Columbia, Maryland, at 10:00
a.m. on March 31, 1998 and at any and all adjournments of such meeting.
If the enclosed Proxy card is properly executed and returned in time to be voted
at the meeting, the shares represented will be voted in accordance with the
instructions contained therein. Executed Proxies that contain no instructions
will be voted for the nominees for directors indicated herein and for the
proposals on the agenda.
Shareholders who execute Proxies for the Annual Meeting may revoke their proxies
at any time prior to their exercise, by delivering written notice of revocation
to the Company, by delivering a duly executed Proxy bearing a later date, or by
attending the meeting and voting in person. Written notice of revocation should
be mailed to Spencer J. Volk, President, Cheung Laboratories, Inc., 10220-I Old
Columbia Rd., Columbia, Maryland, 21046-1705.
The cost of the meeting, including the cost of preparing and mailing this Proxy
Statement and Proxy, will be borne by the Company. The Company may, in addition,
use the services of its directors, officers and employees to solicit Proxies,
personally or by telephone, but at no additional salary or compensation. The
Company also requests banks, brokers and others who hold shares of the Company
in nominee names to distribute annual reports and Proxy soliciting materials to
beneficial owners and shall reimburse such banks and brokers for reasonable
out-of-pocket expenses which they may incur in so doing.
The Company's executive offices are located at 10220-I Old Columbia Rd.,
Columbia, Maryland, 21046-1705.
VOTING RIGHTS AND VOTE REQUIRED
Only shareholders of record at the close of business on [recorddate] will be
entitled to vote at the Annual Meeting. On the record date, the Company had
outstanding 34,116,625 common shares, $.01 par value per share. Each issued
common share entitles its record owner to one vote on each matter to be voted
upon at the meeting. The Company has no other class of shares outstanding.
Cumulative voting is not permitted under the Articles of Incorporation of the
Company.
The presence in person or by Proxy of the holders of common shares representing
a majority of the total voting power of the Company which are entitled to be
voted at the Annual Meeting is necessary in order to constitute a quorum for the
meeting. The seven nominees receiving the highest number of votes will be
elected directors. If a quorum is present, the approval of each of the other
Proposals set forth in this Proxy Statement requires the affirmative vote of the
holders of at least a majority of the voting power present and entitled to vote
at the Annual Meeting except for Proposals 1, 4 and 5 which require an
affirmative vote of a majority of the current issued and outstanding shares of
the Company.
The Board of Directors unanimously recommends an affirmative vote for each of
the Proposals set forth in this Proxy Statement. It is the intent of each of the
members of the Board of Directors to vote his shares in favor of each of the
Proposals contained in this Proxy Statement.
The date of this Proxy Statement is February __, 1998.
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the members of the
Company's Board of Directors and its executive officers, and sets forth the
position with the Company held by each:
Name Age Position
- ---- --- --------
Augustine Y. Cheung 50 Chairman of the Board of Directors, Chief Scientific
Officer
Spencer J. Volk 64 President, Chief Executive Officer and Director
John Mon 45 Secretary, Treasurer/General Manager and Director
Warren C. Stearns 57 Acting Chief Financial Officer and Director
Max E. Link 57 Director
Walter B. Herbst 60 Director
Mel D. Soule 49 Director
The Board of Directors presently maintains an Audit Committee and a Compensation
Committee. In January of 1998 the Company created a Research and Development
Oversight Committee. Messrs. Stearns and Soule comprise the current Audit
Committee. The Audit Committee held no meetings during fiscal 1997. Messrs. Volk
and Herbst comprise the current Compensation Committee. The Compensation
Committee held two meetings during fiscal 1997. Messrs. Cheung, Soule and Herbst
comprise the Research and Development Oversight Committee.
Augustine Y. Cheung. Dr. Cheung has since 1982 served as the Chairman of the
Board of Directors of the Company. Dr. Cheung was the founder of the Company,
was President from 1982 to 1986 and Chief Executive Officer from 1982 to 1996.
From 1982 to 1985, Dr. Cheung was a Research Associate Professor of the
Department of Electrical Engineering and Computer Science at George Washington
University and from 1975 to 1981 was a Research Associate Professor and
Assistant Professor at the Institute for Physical Science and Technology and the
Department of Radiation Therapy at the University of Maryland. Dr. Cheung holds
a Ph.D. and Masters degree from University of Maryland. Dr. Cheung is the
brother-in-law of John Mon.
Spencer J. Volk. Mr. Volk has been a director, President, and Chief Executive
Officer of the Company since May 22, 1997. From 1994 to 1996, Mr. Volk was
President and Chief Operating Officer of Sunbeam International. From 1991 to
1993, Mr. Volk was the President and Chief Executive Officer of the Liggett
Group, Inc. From 1989 to 1991, he was the President and COO of Church and Dwight
(Arm and Hammer), and from 1984 to 1986, he was President and CEO of Tropicana
Products, Inc. Prior to that, he spent thirteen years at Pepsico, ultimately as
Senior Vice President for the Western Hemisphere. Mr. Volk holds an Honors BA in
Economics and Math from Queens University in Ontario, Canada and a BA in
Economics from Royal Military College in Ontario, Canada. Mr. Volk replaced Mr.
Verle D. Blaha who resigned from the Company effective April 23, 1997.
John Mon. Mr. Mon has served as Treasurer/General Manager of the Company since
1989, and Secretary and a director since June 1997. From 1986 to 1988, Mr. Mon
was responsible for the FDA regulatory approval for the Microfocus 1000. Between
1983 to 1986 he was an economist with the U.S. Department of Commerce in charge
of forecasting business sales, inventory and prices for all business sectors in
the estimation of Gross National Product. Mr. Mon holds a B.S. degree from the
University of Maryland. Mr. Mon is the brother-in-law of Dr. Cheung.
Warren C. Stearns. Mr. Stearns has been a director of the Company since January
19, 1997 and acting Chief Financial Officer for the Company since April 24,
1997. Mr. Stearns has provided financial consulting services to many companies
for more than the past five years. Mr. Stearns has been and currently is
President of Stearns Management Company, a capital advisory firm, since 1989.
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<PAGE>
Prior to 1989, Mr. Stearns acted as vice president of Stearns Management
Company. Mr. Stearns is an Assistant Secretary for Anthony Riker, Ltd. He holds
an M.B.A. degree from Harvard University and a B.A. degree from Amherst College.
Mel D. Soule. Mr. Soule has been a director of the Company since May 28, 1997.
From 1994 through 1997, Mr. Soule was the president and chief executive officer
of Grace Biomedical Division, a subsidiary of the W.R. Grace & Co. From 1993
through 1994, Mr. Soule was the director of commercial planning for the
Washington Research Center of W.R. Grace & Co. From 1992 to 1993, Mr. Soule was
a senior development manager for W.R. Grace & Co. Mr. Soule holds an MBA degree
from Wilmington College and a BA from the University of Massachusetts.
Walter B. Herbst. Mr. Herbst has been a director of the Company since May 28,
1997. Mr. Herbst has been and currently is chief executive officer of Herbst
Lazar Bell, Inc. ("HLB"), the engineering firm he founded in 1962. Mr. Herbst
also serves as a faculty fellow in industrial design at the Northwestern
University McCormick School of Engineering and Applied Sciences. Mr. Herbst
holds a BFA in Industrial Design from the University of Illinois and a Master of
Management from the Kellogg Graduate School of Northwestern University.
Max E. Link. Dr. Link has been a director of the Company since September 23,
1997. Dr. Link currently provides consulting and advisory services to a number
of pharmaceutical and biotechnology companies. From 1993 to 1994 he served as
Chief Executive Officer of Corange, Ltd., a medical diagnostics company acquired
by Hoffman-LaRoche. From 1971 to 1993 Dr. Link served in numerous positions with
Sandoz Pharma AG culminating in his appointment as chairman of the board of
directors in 1992. Dr. Link serves on the board of directors of the following
publicly held companies: Human Genome Sciences; Alexion Pharmaceuticals; Cell
Therapeutics; Access Pharmaceuticals; Protein Design Laboratories; Osiris
Therapeutics; Procept, Inc.; Discovery Laboratories Inc. and Cytrx Corp. Dr.
Link holds a PhD in economics from the University of St. Gallens (Switzerland).
The Board of Directors conducted four meetings during the year ended September
30, 1997. All members attended at least 75% of the Board of Directors meetings
held during their tenure in 1997 with the exception of Joseph Colino who did not
attend the one meeting held in 1997 prior to his resignation. Additional actions
were taken by unanimous consent resolutions.
Scientific Advisory Board
The Company currently has a scientific advisory board ("SAB") comprised of
individuals listed below. The purpose of the SAB is to assist management of the
Company in identifying technology trends and business opportunities within the
Company's industry. The SAB members operate as consultants and not as officers
or directors of the Company. The following persons serve on the SAB:
Augustine Cheung, PhD. Dr. Cheung serves as the Chairman of the SAB and as the
Company's Chief Scientific Officer. Dr. Cheung's background is set forth above.
Mel D. Soule. Mr. Soule serves as Co-Chairman of the SAB. Mr. Soule's background
is set forth above.
Michael Davidson, M.D. Dr. Davidson currently practices medicine and is the
Chief Executive Officer of Chicago Center for Clinical Trials. Dr. Davidson
specializes in designing and implementing clinical trials. Dr. Davidson consults
with the Company in connection with establishing clinical trials and on FDA
regulatory matters.
Mark Dewhirst, PhD. Dr. Dewhirst currently serves as a Professor of Radiology
and Oncology and the Director of the Tumor Microcirculation Laboratories in the
Department of Radiation & Oncology at Duke University. Dr. Dewhirst consults
with the Company in connection with research on temperature sensitive liposomes.
Donald Kapp, M.D., D.V.M. Dr. Kapp currently serves as Professor of Radiation
Oncology at Stanford University. Dr. Kapp consults with the Company in
connection with conducting clinical studies.
-3-
<PAGE>
Gerald Wolf, M.D. Dr. Wolf currently serves as the Director for the Center of
Imaging and Pharmaceutical Research at Massachusetts General Hospital. Dr. Wolf
consults with the Company on matters relating to focused heat energy for tumor
ablation.
Gloria Li, PhD. Dr. Li currently serves as the Director of the Radiation Biology
Laboratory at Memorial Sloan-Kettering Hospital. Dr. Li consults with the
Company on heat shock and gene therapy.
Arnold Melman, M.D. Dr. Melman currently serves as the Chairman of the
Department of Urology at Albert Einstein College of Medicine. Dr. Melman
consults with the Company on clinical studies in urology.
Robert Barnett, M.D. Dr. Barnett currently the Surveyor for the American College
of Surgeons and is the former President of the Maryland chapter of the American
Cancer Society. Dr. Barnett consults with the Company on issues relating to
oncological surgeons.
Donald Beard. Mr. Beard is a retired businessman and is the former senior
program manager for the United States Department of Energy. Mr. Beard consults
with the Company in connection with technology and business development matters.
Thomas Ripley, PhD. Dr. Ripley currently serves as Director of Operations, Grace
Biomedical at W.R. Grace & Co. Dr. Ripley consults with the Company on
technology and business development.
Mays Swicord, PhD. Dr. Swicord currently serves as Director of Research at
Motorola Corporation. Dr. Swicord consults with the Company on the biological
effects of microwave technology.
Claude Tihon, PhD. Dr. Tihon currently serves as the Chief Executive Officer of
Conti-Med, Inc. Dr. Tihon consults with the Company in connection with
urological devices and regulation.
David Needham, PhD. Dr. Needham currently serves as the Director of Cell and
Micro-carrier Research and an Associate Professor in the Duke University
Department of Mechanical Engineering and Materials Science. Dr. Needham consults
with the Company in connection with research on temperature sensitive liposomes.
All members of the SAB serve at the discretion of the Board of
Directors. Each member of the SAB other than Messrs. Swicord and Wolf received
an option to purchase 5,000 Shares of the Company common stock at the time they
were appointed.
The options are exercisable for a five year term at $.50 per share. In
addition for each 12 months served by the member, they will receive options to
purchase 3,000 shares of common stock at the market price of the Company's stock
on the date of grant. Such options will be exercisable for a five year term. On
consulting matters undertaken by the SAB, members are compensated at the rate of
$125 per hour or a total of $1,000 per day together with expenses.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the National Association of Securities Dealers. Officers, directors, and
greater than ten-percent shareholders are required by Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on a review of the copies of such forms furnished
to the Company between October 1, 1996, and September 30, 1997, on year-end
reports furnished to the Company after September 30, 1997, and on
representations that no other reports were required, the Company has determined
that during the last fiscal year all applicable 16(a) filing requirements were
met except as follows:
Spencer J. Volk was appointed as Chief Executive Officer and a director
of the Company on May 22, 1997, and thereby became subject to Section 16(a)
reporting requirements at such time. Mr. Volk was granted 500,000 common shares
of the Company. Mr. Volk filed a Form 3 on June 3, 1997. The Form 3 should have
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<PAGE>
been filed on or before June 2, 1997. Mr. Volk filed a Form 5 on January 6,
1998. The Form 5 should have been filed on or before November 14, 1997.
Walter B. Herbst was appointed to be a director of the Company as of
May 28, 1997, and thereby became subject to Section 16(a) reporting
requirements. Mr. Herbst filed a Form 3 on June 30, 1997. The Form 3 should have
been filed on or before June 9, 1997.
Mel D. Soule was appointed to be a director of the Company as of May
28, 1997, and thereby became subject to Section 16(a) reporting requirements.
Mr. Soule filed a Form 3 on June 10, 1997. The Form 3 should have been filed on
or before June 9, 1997.
Max E. Link was appointed to be a director of the Company as of
September 23, 1997, and thereby became subject to Section 16(a) reporting
requirements. Dr. Link acquired an option to purchase 50,000 common shares of
the Company on September 23, 1997. Dr. Link filed a Form 3 on October 14, 1997.
The Form 3 should have been filed on or before October 3, 1997.
John Mon, Treasurer and General Manager of the Company, acquired an
option to purchase 200,000 common shares of the Company on April 1, 1997. Mr.
Mon filed a Form 4 reporting the transaction on June 30, 1997. The Form 4 should
have been filed on or before May 10, 1997.
Warren C. Stearns filed a Form 5 reporting certain exempt transactions
on or about December 23, 1997. The Form should have been filed on or before
November 14, 1997. On June 23, 1997 Stearns Management Company acquired a note
convertible into shares of the Company. Although Mr. Stearns disclaims
beneficial ownership of shares held by Stearns Management Company, Mr. Stearns
was required to report such acquisition on a Form 4 which would have been due by
July 10, 1997. The acquisition was reported on the Form 5 referred to above.
EXECUTIVE COMPENSATION.
Summary Compensation.
- ---------------------
The following table sets forth the aggregate cash compensation paid for
services rendered to the Company in all capacities during the last three fiscal
years to the Company's Chief Executive Officer and to each of the Company's
other executive officers where annual salary and bonus for the most recent
fiscal year exceeded $100,000.
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<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
====================================================================================================================================
<CAPTION>
Annual Compensation Long-Term Compensation Awards
------------------- -----------------------------
Other Annual All Other
Name and Principal Fiscal Compensation Restricted Stock Stock Options Compensation
Position Year Salary ($) Bonus ($) ($) Awards ($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Augustine Y. 1997 $125,000 $2,120(1)
Cheung, Chairman of ---------------------------------------------------------------------------------------------------------------
the Board of 1996 $125,000 $2,120(1) 400,000(2)
Directors ---------------------------------------------------------------------------------------------------------------
1995 $125,000 $3,250(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Spencer J. Volk, 1997 $96,923(5) $281,995(1)(6)
President and Chief
Executive Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Verle D. Blaha, 1997 $177,100(3) $1,182(1)
Former President & ---------------------------------------------------------------------------------------------------------------
Chief Executive 1996 $81,000 $2,120(1) 400,000(4)
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Warren C. Stearns, 1997 $266,666(7) $1,461(1)
Acting Chief ---------------------------------------------------------------------------------------------------------------
Financial Officer 1996 $66,753 (7)
====================================================================================================================================
</TABLE>
(1) In each of fiscal years 1995, 1996, and 1997, Dr. Cheung received 2,000
common shares for his services as a director. Mr. Blaha received 2,000
shares for his service as a director in fiscal 1996 and 1,112 shares
for his services in fiscal 1997. Mr. Volk received 701 shares for his
service as a director in fiscal 1997. Mr. Stearns received 1,375 shares
for his service as a director in fiscal 1997.
(2) In fiscal 1996, Dr. Cheung received an option to purchase 400,000
shares at $0.35 per share, exercisable on or before May 16, 2001.
(3) Mr. Blaha resigned as the President and Chief Executive Officer of the
Company on April 23, 1997.
(4) The Company granted an option to purchase 400,000 shares of Common
Stock, with an exercise price of $.41 per share, to New Opportunities,
Ltd., a company affiliated with Mr. Blaha.
(5) Mr. Volk became President and Chief Executive Officer of the Company on
May 22, 1997.
(6) Mr. Volk received 500,000 shares in fiscal 1997 pursuant to his
employment agreement and has the right to receive up to 1,400,000
additional shares if the Company meets certain financing goals during
his tenure and if he is employed by the Company after one year. In
October, 1997 Mr. Volk received 250,000 shares of this amount.
(7) Amounts listed as annual compensation for Mr. Stearns consists of fees
paid to Stearns Management Company ("SMC"). During fiscal 1996,
assignees of SMC also received warrants with anti-dilution rights to
purchase 4.6875% of the Company's common stock.
There are no option, retirement, pension, or profit sharing plans for
the benefit of the Company's officers, directors, and employees. The Company
does provide health insurance coverage for its employees. The Board of Directors
may recommend and adopt additional programs in the future for the benefit of
officers, directors, and employees.
Option Grants in Fiscal 1997
During fiscal 1997, no options were granted to the named executive
officers listed in the Summary Compensation Table.
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<PAGE>
Aggregated Option Exercises and Year-End Option Values in 1997.
- ---------------------------------------------------------------
The following table summarizes for each of the named executive officers
of the Company the number of stock options, if any, exercised during 1997, the
aggregate dollar value realized upon exercise, the total number of unexercised
options held at September 30, 1997 and the aggregate dollar value of
in-the-money unexercised options, if any, held at September 30, 1997. Value
realized upon exercise is the difference between the fair market value of the
underlying shares on the exercise date and the exercise price of the option. The
value of unexercised, in-the-money options at September 30, 1997 is the
difference between its exercise price and the fair market value of the
underlying shares on September 30, 1997, which was $1.00 per share based on the
closing bid price of the common shares on September 30, 1997. The underlying
options have not been and may never be exercised; and actual gains, if any, on
exercise will depend on the value of the common shares on the actual date of
exercise. There can be no assurance that these values will be realized.
Aggregated Option Exercises in Fiscal 1997 and Year-End Option Values
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
9/30/97 9/30/97
------- -------
Shares Acquired
Name on Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
($)
<S> <C> <C> <C> <C> <C> <C>
Augustine Y. Cheung 0 $0 400,000 0 $260,000 $0
Spencer J. Volk 0 $0 0 0 $0 $0
Verle D. Blaha 0 $0 400,000 0 $260,000 $0
Warren C. Stearns 0 $0 1,978,743 0 $1,438,762 $0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Long-Term Incentive Plan Awards in 1997.
- ----------------------------------------
The Company has no "long-term incentive plan".
Future Benefits or Pension Plan Disclosure in 1997.
- ---------------------------------------------------
The Company has no such benefit plans. The Company intends to establish
a stock option plan in 1998 if shareholders approve it pursuant to this proxy
statement.
Director Compensation.
- ----------------------
During 1997, the Company paid to each outside board members $1,000 per
board or committee meeting attended. Each director receives an automatic grant
of 2,000 common shares for each full year served or the pro rata portion if less
than one year.
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements.
- ------------------------------------------------------------------------
On May 22, 1997, Spencer J. Volk became the President and Chief
Executive Officer of the Company. The Company and Mr. Volk have entered into an
employment agreement, dated May 11, 1997, with an initial annual salary of
$240,000, which will increase to $360,000 per annum upon the successful raising
of $5,000,000 through public or private offerings. In addition, Mr. Volk was
awarded 500,000 common shares upon execution of the employment agreement and may
earn up to an additional 1,400,000 shares based on the Company's ability to
raise additional capital and Mr. Volk's continued employment. Mr. Volk, as of
October, 1997, received 250,000 of such shares.
Additionally, Warren C. Stearns, an officer and director of the
Company, receives compensation through Stearns Management Company, which has an
exclusive advisory services arrangement with the Company, cancelable on 10 days
notice. See "Certain Relationships and Related Transactions--SMC Contract."
-7-
<PAGE>
Other than as set forth above, there are no employment contracts,
termination of employment or change in control arrangements.
Stock Option Plans.
The Company does not currently have any stock option plan. The Company
has committed to Mr. Volk to set aside 2,000,000 shares for option grants to
directors, employees and consultants. Options for 280,000 of such shares have
been granted. The Company anticipates adopting, subject to shareholder approval,
a formal option plan during fiscal year 1998 for a total of 2,000,000 shares.
Report of the Compensation Committee on Executive Compensation
The Company formed a Compensation Committee in June 1997, consisting of
Spencer J. Volk, an employee director, and Walter B. Herbst, a non-employee
director. The Committee is responsible for establishing and administering the
compensation policies applicable to the Company's officers and key personnel.
The committee's responsibilities include, establishing general compensation
policy and, except as prohibited by applicable law, taking any and all action
that the Board could take relating to the compensation of employees, directors
and other parties. The Committee also evaluates the performance of and makes
compensation recommendations for senior management, including the Chief
Executive Officer.
Executive Compensation Philosophy
The Company attempts to design executive compensation to achieve two
principal objectives. First, the program is intended to be fully competitive so
that the Company may attract, motivate and retain talented executives. Second,
the program is intended to create an alignment of interests between the
Company's executives and shareholders such that a significant portion of each
executive's compensation varies with business performance.
The Committee's philosophy is to pay competitive annual salaries,
coupled with an incentive system that pays more than competitive total
compensation for superior performance reflected in increases in the Company's
stock price. The incentive system consists of annual compensation and stock
compensation.
Based on assessments by the Board and the Committee, the Committee
believes that the Company's compensation program for the Named Executive
Officers has the following characteristics that serve to align executive
interests with long-term shareholder interests:
a. Emphasizes "at risk" pay such as options and grants of
restricted stock.
b. Emphasizes long-term compensation such as options and
restricted stock awards.
c. Rewards financial results and promotion of Company objectives
rather than individual performance against individual
objectives.
Annual Salaries
Salary ranges and increases for executives, including the Chief
Executive Officer and the other named executive officers, are established
annually (unless subject to longer term contracts) based on competitive data.
Within those ranges, individual salaries vary based upon the individual's work
experience, performance, level of responsibility, impact on the business, tenure
and potential for advancement within the organization. Annual salaries for
newly-hired executives are determined at time of hire taking into account the
above factors other than tenure.
Long-Term Incentives
The grant of restricted stock or options to key employees encourages
equity ownership and closely aligns management interests with the interests of
shareholders. The amount and nature of any option or restricted stock award is
determined by the Committee on a case by case basis, depending upon the
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<PAGE>
individual's perceived future benefit to the Company and the perceived need to
provide additional incentive to align performance with the objectives of the
shareholders.
Company Performance and Chief Executive Officer Pay
The compensation of Spencer J. Volk was established prior to
organization of the Compensation Committee. The Committee believes that Spencer
J. Volk's compensation package aligns his interests with those of the
shareholders.
SHAREHOLDER RETURN PERFORMANCE GRAPH
Federal regulation requires that a proxy statement relating to the annual
election of directors include a line graph comparing cumulative total
shareholder return on common shares with the cumulative total return of (1)
NASDAQ Combined Index and (2) a published industry or line-of-business index.
The performance comparison appears below.
The Board of Directors and its Compensation Committee recognize that the market
price of shares is influenced by many factors, only one of which is Company
performance. The share price performance shown on the graph is not necessarily
indicative of future price performance.
Comparison of Cumulative Total Return
Total Returns Assume Reinvestment of Dividends (1)
[GRAPHIC OMITTED]
Data Points:
9/30/94 9/30/95 9/30/96 9/30/97
------- ------- ------- -------
Cheung Laboratories 100 473 300 309
Nasdaq Health 100 106 139 139
Nasdaq Composite (US) 100 137 161 221
(1) The Company has paid no dividends.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information regarding shares of voting
securities of the Company beneficially owned as of December 31, 1997 by: (i)
each person known by the Company to beneficially own 5% or more of the
outstanding voting securities; (ii) by each director or nominee for director,
(iii) by each person named in the summary compensation table and (iv) by all
officers and directors as a group.
Name and Addresses of Officers, Amount of Percentage of
Directors and Principal Shareholders Common Shares* Voting Securities(1)*
- ------------------------------------ -------------- ---------------------
Augustine Y. Cheung (2)(3) 6,671,408 20.1%
10220-I Old Columbia Road
Columbia, MD 21046-1705
Spencer J. Volk (2)(4) 994,603 3.0%
10220-I Old Columbia Road
Columbia, MD 21046-1705
John Mon (2)(5) 767,212 2.3%
10220-I Old Columbia Road
Columbia, MD 21046-1705
Warren C. Stearns (2)(6) 1,501,490 4.4%
175 Old Sutton Road
Barrington Hills, IL 60010
Walter B. Herbst (2)(7) 225,252 **
355 North Canal Street
Chicago, IL 60606
Mel D. Soule (2)(8) 78,811 **
2812 Eaglesmere Court
Ellicott City, MD 21042
Max E. Link (2)(9) 50,038 **
Tobelhofstr. 30
8044 Zurich
Switzerland
Gao Yu Wen 4,000,000 13.7%
Zhongshan Economic Committee
Sun Wen Road E.
shiqi zhongshan Guangdong
China
Executive Officers and Directors as a 10,288,814 29.1%
group (7 individuals)
================================================================================
* Assumes exercise of all options held by listed security holders which
can be exercised within 60 days from December 31, 1997.
** Less than 1%.
(1) Except as noted, the above table does not give effect to an aggregate
of approximately 14,960,351 common shares underlying outstanding stock
options and warrants, convertible securities, obligations to issue
shares or warrants that are contingent on future offerings. Outstanding
warrants and options entitle the holders thereof to no voting rights.
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<PAGE>
(2) Director or Executive Officer.
(3) Includes 400,000 shares underlying an option exercisable commencing May
16, 1995 through May 16, 2001 at $0.35 per share. At December 31, 1997
4,878,050 common shares were pledged by Dr. Cheung to secure certain
notes of the Company which were subsequently satisfied.
(4) Includes 250,000 shares earned by Mr. Volk pursuant to his employment
agreement subsequent to the end of the fiscal year. Does not include an
additional 1,150,000 shares of common stock that have been committed to
and may be earned by Mr. Volk pursuant to his employment agreement upon
the occurrence of certain events.
(5) Includes 400,000 shares underlying an option to Mr. Mon exercisable
commencing May 16, 1996 through May 16, 2001 at $0.35 per share and
200,000 shares underlying an option exercisable commencing April 1,
1997 through March 31, 2002 at $0.41 per share.
(6) Includes 41,271 shares owned by Stearns Management Company, of which
Mr. Stearns is President; includes warrants to acquire 164,849 shares
held by Charles A. Stearns; includes warrants to acquire 194,443 shares
held by Warren R. Stearns; and includes warrants to acquire 1,099,552
shares held by Anthony Riker, Ltd., of which Mr. Stearns is Assistant
Secretary. Mr. Stearns disclaims beneficial ownership of the shares
underlying the warrants held by Charles A. Stearns, Warren R. Stearns,
and Anthony Riker, Ltd. Does not include warrants held by SMC which are
exercisable if and when the Company completes a series of private
and/or public offerings for not less than $8,000,000 in the aggregate.
Those warrants will total a number of shares equal to approximately
$16,750 divided by the average price per share in those offerings.
(7) Includes 35,000 shares underlying options exercisable beginning June
16, 1997 and ending June 16, 2002 at a price of $.41 per share and
20,000 shares underlying options to HLB exercisable beginning October
31, 1997 and ending October 30, 2002 at a price of $1.00 per share.
Includes 41,864 shares owned by HLB. Mr. Herbst disclaims beneficial
ownership of shares owned by HLB.
(8) Includes 50,000 shares underlying an option to Mr. Soule exercisable
commencing May 1, 1997 through April 30, 2002 at $0.41 per share.
(9) Does not include 150,000 shares underlying an option exercisable at
$.75 per share which vest as to 50,000 shares on December 31 of 1998,
1999 and 2000.
Changes in Control
The Company knows of no arrangement, including the pledge by any person
of securities of the Company, which may at a subsequent date result in change of
control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SMC Contract
On May 28, 1996, the Company entered into a consulting agreement with
Stearns Management Company ("SMC"). Warren C. Stearns, an officer and a member
of the Board of Directors, is President of SMC. Additionally, the George T.
Horton Trust, which is a secured creditor of the Company, is an equity owner of
SMC. Pursuant to the Agreement, SMC has an exclusive arrangement to render
advisory services involving solicitation of outside capital, restructuring the
Company, business plans, marketing, selection of advisory personnel, adding
additional directors, and sale of shares by insiders. The agreement is
terminable upon 10 days written notice or otherwise stays in effect for one year
or until a registration statement covering a public offering of the Company's
securities is declared effective by the SEC.
In exchange for such services, during the fiscal year ended September
30, 1996, SMC was paid approximately $66,753 in fees and for reimbursement of
expenses and the Company agreed to grant to assignees of SMC a warrant to
purchase, in the aggregate, a 4.6875% interest in the equity of the Company as
of the next registered public offering of common shares of the Company. The
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<PAGE>
warrants, all of which are exercisable at $0.41 per share as adjusted, contain
anti-dilution provisions and are exercisable for five years and renewable for an
additional five years. Mr. Stearns is paid a per diem expense of $1,500 per day
or $190 per hour and reimbursement for expenses at cost plus 20%. During the
fiscal year ended September 30, 1997, fees to SMC totalled $266,666. The Company
has not received an invoice for 1997 expenses for which SMC will seek
reimbursement.
George T. Horton Trust Loan
The Company is obligated under a secured note to the George T. Horton
Trust for $220,000, which bears interest at 1% per month, and was payable
December 15, 1997, and is secured by equipment and software for APA technology.
George T. Horton Trust is an equity owner of SMC, the President of which, Warren
C. Stearns, is also an officer and director of the Company. SMC has an exclusive
advisory services agreement with the Company. The Company has paid $70,000 of
the principal of this note and the note holder has agreed to convert $100,000 of
principal into common shares of the Company at the rate of $.50 per share. The
remaining principal of $50,000 accrues interest at the rate of 17% per annum and
can be converted, on 15 days notice, into common shares having a market value of
200% of the loan balance.
Herbst LaZar Bell, Inc.
In September 1996, the Company retained the engineering firm of Herbst
LaZar Bell, Inc., of Chicago, Illinois, to assist in the adaptation of the APA
technology into the Deep Focused Heat Systems. Walter B. Herbst, a director of
the Company, is the founder and chief executive officer of HLB. HLB, with a team
of engineers specializing in systems engineering and industrial design, will
serve as the primary engineering resource for the Company. The Company will be
required to pay HLB engineering fees. The fees are determined on a project by
project basis. During fiscal 1997, the Company paid HLB a total of $71,332.
Townhouse Lease
The Company leases from Dr. Augustine Y. Cheung, Chairman of the Board,
and John Mon, an officer and director, on a month to month basis a townhouse
near its corporate offices in Columbia, Maryland for $900 per month, plus
utilities. The housing is used for visiting executives.
Promissory Notes
From 1987 through 1995, the Company borrowed money from related
parties. In 1996, the Company formalized such borrowings by executing promissory
notes to the following related parties:
An unsecured term note, dated June 30, 1994, payable to Dr. Cheung,
accruing interest at the rate of ten percent (10%) per annum, in the principal
amount of $42,669. The principal and accrued interest shall be due and payable
on its maturity date on June 30, 1998. The principal balance of such note at
December 31, 1997 was $28,650.
An unsecured term note, dated January 26, 1987, payable to Dr. Cheung,
accruing interest at the rate of twelve percent (12%) per annum, in the
principal amount of $78,750. The principal and accrued interest shall be due and
payable on its maturity date, which has been extended to January 26, 1999. The
principal balance of such note at December 31, 1997 was $68,750.
The Company also may have the obligation to execute a promissory note
payable to Charles C. Shelton in the face amount of $50,000. The Company has
certain offsets available against Mr. Shelton so the final amount to be due
under this promissory note is still under negotiation.
Redemption Agreement
On February 16, 1995, Gao Yu Wen executed a subscription agreement with
the Company to purchase 20,000,000 shares of Common Stock at $0.50 per share or
$10,000,000. The price was paid by paying $2,000,000 cash and property, and
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<PAGE>
transferring to the Company 9.5% of the outstanding equity of Aestar Fine
Chemical Company ("Aestar"). On June 6, 1996 the Company and Gao entered into a
Redemption Agreement wherein the Company renounced any interest in Aestar and
Gao agreed that upon delivery by the Company of $2,200,000 to Gao, he would
return the 20,000,000 shares of the Company. The promise to pay $2,200,000 by
November 30, 1996, was secured by all 20,000,000 shares. On October 23, 1996,
the Company and Mr. Gao executed an Amendment by which the terms of the
Redemption Agreement were modified. Under the terms of the First Amendment, Mr.
Gao agreed to immediately convey to the Company certificates representing 16
million shares. The $2,200,000 payment was reduced to $2,160,000 and the timing
was extended until December 31, 1996, with an additional three months period at
a penalty of 3/4% per month. On October 23, 1996, Mr. Gao conveyed the 16
million shares to the Company. Such shares were subsequently cancelled. The
Company may have had the obligation to repurchase the remaining 4,000,000 shares
of the Company for $2,160,000 on or before November 30, 1997, which it did not
do.
In a related transaction, on April 26, 1995, the Company entered into
an Investment Agreement with Gao whereby the Company transferred $700,000 to Gao
to invest as agent of the Company at the rate of no less than 17% per annum. Gao
repaid $190,000 by September 30, 1996. The remaining amount has been forgiven as
part of the Rescission Agreement.
Rescission of Ardex Acquisition
On or about March 31, 1995, the Company invested $400,000 in Ardex
Equipment, LLC ("Ardex"), and paid $50,000 to Charles C. Shelton and Joseph
Colino, who were then directors of the Company, in exchange for a 19.25%
interest in Ardex. In 1996, the Company received $50,000 distribution from
Ardex. On August 2, 1996, the Company and Ardex entered into a binding Letter of
Intent rescinding the Company's investment in Ardex (the "Rescission"). Pursuant
to the Rescission, the Company was to receive a 5-year negotiable promissory
note for $350,000 bearing interest at 8% per annum. Interest only is paid until
the principal becomes due. Principal is due upon the first of the following
events to occur: (i) completion of public or private offerings by Ardex in the
aggregate of $1,500,000 or more; (ii) 90 days following the year end in which
sales have been or exceed $3,000,000; (iii) Ardex having a cash balance of
$800,000 or more from operations; or (iv) five years from the date of the note.
The note was to be secured by a limited guarantee of Charles C. Shelton, Joseph
Colino and John Kohlman only to the extent of their interest in Ardex and their
options in the Company. In addition, Mr. Shelton was to execute a promissory
note for $15,000; Mr. Colino was to execute a note for $22,500; and Mr. Kohlman
was to execute a note for $12,000. These notes were to have been secured by the
same security as the Ardex note. Under the terms of the Rescission, all of the
previously mentioned notes and ancillary documents were to have been executed on
or before August 31, 1996, but none have been delivered to the Company as of the
date hereof. The Company is continuing with its efforts to obtain the documents
contemplated by the Rescission. In the event that the Company is unable to
effect a satisfactory resolution of this matter, the Company intends to commence
litigation. Pursuant to an oral agreement between the Company and Charles
Shelton, a director and officer of the Company, Charles C. Shelton, P.A., a
business affiliated with Charles Shelton, billed the Company for reimbursement
of expenses.
The Company is intending to pursue litigation to resolve this and other
disputes it has with Messrs Shelton, Kohlman and Colino.
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<PAGE>
PROPOSAL NO. 1:
STAGGERED BOARD OF DIRECTORS
The shareholders are being asked to vote on a proposal to amend the
Company's bylaws. Under the current bylaws, each director serves a one year
term, and the entire Board of Directors is up for election each year. Under the
proposed amendment, each director would be elected to a three year term, and at
each annual meeting approximately one-third of the Board of Directors would be
up for election. To transition to the new terms of office, approximately
one-third of the directors elected at the current annual meeting would be
elected to a one-year term, one-third to a two year term and the remaining third
to a three year term. At future annual meetings, directors would be elected to
three year terms. A copy of the proposed amendment is attached to this Proxy
Statement as an Appendix.
Management of the Company has proposed the amendment to facilitate
continuity of management in the Company's future operations. With a staggered
Board of Directors, it is likely that at least two-thirds of the directors
serving immediately following an annual meeting will have had prior experience
in management of the Company. Current management believes that this is desirable
as the Company begin commercialization of its technologies and development of a
corporate culture.
The existence of a staggered Board of Directors may also have the
effect of discouraging hostile take-over attempts. A person or group acquiring a
majority of the common shares could not be assured of having a majority of the
Board of Directors until the second annual shareholders meeting following the
acquisition. As a result, a person or group seeking control of the Company may
determine to not make an offer for control, or to offer a lower price than might
otherwise occur, due to the delays and uncertainty of obtaining control.
Vote Required
The affirmative vote of a majority of the currently issued and
outstanding shares of the Company is required in order to approve Proposal 1.
The Board of Directors unanimously recommends a vote FOR Proposal 1.
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<PAGE>
PROPOSAL NO. 2:
ELECTION OF DIRECTORS
Pursuant to the Articles of Incorporation and the Bylaws of the
Company, the Board of Directors may include up to nine members. Prior to
adoption of the amendments described in Proposal 1, at each annual shareholders
meeting, directors are elected for a one year term. Accordingly, the directors
elected at this meeting will serve until the annual meeting to be held in 1999,
and until their successors are elected and qualified. However, if Proposal 1 is
adopted, the directors elected at this meeting will be elected for terms of 1, 2
or 3 years as described below. The persons named in the enclosed form of Proxy
will vote the shares represented by such Proxy FOR the election of the four
nominees for director named below. The nominees are:
Name of Nominee Age Current Position
Augustine Y. Cheung++ 50 Chairman of the Board of
Directors
Spencer J. Volk++ 64 Director
John Mon* 45 Director
Warren C. Stearns* 57 Director
Max E. Link++ 57 Director
Walter B. Herbst+ 60 Director
Mel D. Soule+ 49 Director
* If Proposal 1 is adopted, the position on the Board held by
this director will be designated as a Class I director and the
term of the director elected to this position will expire with
the annual meeting to be held in 1999.
+ If Proposal 1 is adopted, the position on the Board held by
this director will be designated as a Class II director and
the term of the director elected to this position will expire
with the annual meeting to be held in 2000.
++ If Proposal 1 is adopted, the position on the Board held by
this director will be designated as a Class III director and
the term of the director elected to this position will expire
with the annual meeting to be held in 2001.
Biographical information regarding the above persons is set forth above under
the caption "Directors and Executive Officers".
Vote Required
Pursuant to the terms of the Company's Articles of Incorporation, as amended,
every holder of Common Shares voting for the election of directors is entitled
to one vote for each share of Common Shares owned. A shareholder may vote each
share once for one nominee to each of the director positions being filled, and
there is no cumulative voting.
Proxies solicited hereby (other than Proxies in which the vote is withheld as to
one or more nominees) will be voted for the candidates standing for election as
directors nominated by the board. If any nominee is unable to serve, the shares
represented by all valid proxies will be voted for election of such substitute
as the Board may recommend. At this time, the Board knows of no reason why any
nominee might be unavailable to serve.
The Board of Directors unanimously recommends a vote FOR each of the
director nominees.
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PROPOSAL NO. 3:
RATIFICATION OF THE APPOINTMENT OF
STEGMAN & COMPANY AS AUDITORS
FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1998
The Board of Directors, upon the recommendation of the Audit Committee,
has appointed Stegman & Company to examine the financial statements of the
Company for the fiscal year ending September 30, 1998, and solicits the
ratification of this appointment by the shareholders. Neither such firm nor any
of its members nor any of their associates has or has had during the past four
years any financial interest in the Company, direct or indirect, or any
relationship with the Company other than in connection with their duties as
auditors and accountants.
Representatives of Stegman & Company are expected to be present at the
Annual Meeting to respond to shareholders' questions and to make any statements
they consider appropriate.
Vote Required
The affirmative vote of the holders of outstanding Common Shares
representing a majority of the voting power which is present or represented by
Proxy and entitled to vote at the Annual Meeting of Shareholders is required in
order to approve Proposal 3.
The Board of Directors unanimously recommends a vote FOR Proposal 3.
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PROPOSAL NO. 4:
TO APPROVE A PROPOSED AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION INCREASING THE AUTHORIZED SHARES.
The shareholders are being asked to vote on a proposal to increase the
number of authorized shares from 51,000,000 shares to 100,000,000 shares of $.01
par value.
Management has proposed the increased authorization to facilitate
future financings which management believes will be necessary to carry out the
Company's proposed business plan. Substantially all of the currently authorized
shares are either outstanding or reserved for potential issuance on exercise of
outstanding warrants, options or other convertible securities.
All of the currently authorized shares are of a single class with equal
rights as to voting, distributions and liquidation. Under Maryland law and the
Company's existing Articles of Incorporation, the Board of Directors may
classify authorized but unissued shares and grant preferential rights to any
such newly classified shares. If additional shares are authorized, they will
also be subject to classification by the Board of Directors without shareholder
vote. Any preferential class of shares created by the Board of Directors could,
among other things, require payment of dividend on such class prior to payment
to the common shares, give holders of such class a preferential right to the
Company's assets on liquidation, give the holders special voting power in the
election of directors and could be convertible into common stock at either a
fixed or variable rate.
Vote Required
The affirmative vote of a majority of the currently issued and
outstanding shares of the Company is required in order to approve Proposal 4.
The Board of Directors unanimously recommends a vote FOR Proposal 4.
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<PAGE>
PROPOSAL NO. 5:
TO APPROVE A PROPOSED AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION CHANGING THE NAME OF THE COMPANY
TO CELSION CORPORATION OR VARIATIONS THEREON SELECTED
BY THE BOARD OF DIRECTORS
The shareholders are being asked to vote on a proposal to change the
name of the Company to "Celsion Corporation" or variations thereon selected by
the Board of Directors. Management has proposed the name change so that the name
of the Company more accurately reflects the Company's business.
Vote Required
The affirmative vote of a majority of the currently issued and
outstanding shares of the Company is required for approval of the amendments to
the Articles of Incorporation.
The Board of Directors unanimously recommends a vote FOR Proposal 5.
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PROPOSAL NO. 6:
TO APPROVE OMNIBUS STOCK OPTION PLAN
The shareholders are being asked to approve the Omnibus Stock Option
Plan (the "Plan"). The Plan is applicable to the Company's key employees,
directors and consultants. The purpose of the Plan is to encourage and reward
key contributors to the Company's business by giving them an opportunity to
share in any future success of the Company without burdening the Company's cash
resources. The Plan authorizes stock options for the employees, directors and
consultants to acquire the Company's common shares.
The Plan authorizes the grant of options to purchase up to 2,000,000
common shares. The Company has committed to allow Spencer J. Volk to nominate
the recipients of 1,720,000 of such shares, subject to Board or committee
approval.
The following summary provides a description of the significant
provisions of the Plan. However, such summary is qualified in its entirety by
reference to the full text of the Plan.
Eligibility to participate in the Plan is limited to employees,
directors and consultants of the Company and its subsidiaries. The Plan
terminates ten years after its approval by the shareholders. The term of each
option may not exceed ten years. Options will not be transferable except upon
death and, in such event, transferability will be effected by will or by the
laws of descent and distribution. Options issued under the Plan may be either
Incentive Stock Options qualified under Section 422 of the Internal Revenue Code
or non-qualified options. Only employees of the Company or its subsidiaries are
eligible to receive Incentive Stock Options.
The Plan will be administered by the Compensation Committee. Subject to
the terms and conditions of the Plan, the Committee has full and final authority
in its absolute discretion: (a) to select the persons to whom options will be
granted; (b) to determine the number of shares subject to any option; (c) to
determine the time when options will be granted; (d) to determine the option
price; (e) to determine the time when each option may be exercised; (f) to
determine at the time of grant of an option whether and to what extent such
option is an Incentive Stock Option; (g) to prescribe the form of the option
agreements; and (h) to construe and interpret the Plan, and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
Incentive Stock Options under the Plan may not be granted at less than
100% of fair market value at the time of the grant. Incentive Stock Options
granted to employees who own more than 10% of the Company's outstanding common
stock will be granted at not less than 110% of fair market value for a term of
five years. The aggregate market value of stock for which Incentive Stock
Options are exercisable during any calendar year by an individual is limited to
$100,000, but the value may exceed $100,000 for which options may be granted to
an individual. The foregoing restrictions on price and exercise value do not
apply to non-qualified options issued under the Plan.
In the event of any future recapitalization, split-up or consolidation
of shares, the number of shares and exercise price shall be proportionately
adjusted.
Vote Required
The affirmative vote of the holders of outstanding Common Shares
representing a majority of the voting power which is present or represented by
Proxy and entitled to vote at the Annual Meeting of Shareholders is required in
order to approve Proposal No. 6.
The Board of Directors unanimously recommends a vote FOR Proposal 6.
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<PAGE>
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Shareholders may submit proposals appropriate for shareholder action at
the Company's Annual Meeting to be held in 1999 consistent with the regulations
of the Securities and Exchange Commission. For proposals to be considered for
inclusion in the Proxy Statement for the 1999 Annual Meeting, they must be
received by the Company no later than December 31, 1998. Such proposals should
be directed to Cheung Laboratories, Inc., Attention: John Mon, Secretary,
10220-I Old Columbia Road, Columbia, Maryland, 21046-1705.
OTHER BUSINESS
The Board of Directors in not aware of any business to come before the
meeting other than those matters described above in this Proxy Statement. If,
however, any other matters should properly come before the meeting, it is
intended that holders of the Proxies will act in accordance with their judgment
on such matters.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report of the Company for the year ended September 30, 1997,
including audited financial statements for the year then ended, is enclosed with
this Proxy Statement. The Annual Report is not deemed part of this Proxy
soliciting material and the financial statements contained in the Report are not
incorporated herein by reference. The Company's Form 10-K for the period ended
September 30, 1997 may be obtained without charge, by writing the Company,
Attention: Investor Relations, 10220-I Old Columbia Road, Columbia, Maryland,
21046-1705.
BY ORDER OF THE BOARD OF DIRECTORS
John Mon, Secretary
February __, 1998
Columbia, Maryland
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Appendix A
CHEUNG LABORATORIES, INC.
Amendment to By-Laws
ARTICLE II, "DIRECTORS" is amended as follows:
Section 2. "NUMBER AND TENURE" is amended to read, in its entirety, as follows:
-------------------
Section 2. NUMBER
------
The number of Directors shall be seven (7), which number may be altered
by a majority of the entire Board of Directors, provided that it shall never be
less than three (3) nor more than nine (9). The number of Directors may be
increased or decreased by the affirmative vote of not less than two-thirds (2/3)
of the entire Board of Directors, but the action may not affect the tenure of
office of any Director.
Section 2.5 is inserted to read as follows:
Section 2.5. Election. The Board of Directors shall be divided into
three classes (designated as Class I, Class II or Class III), each class to be
as nearly equal in number as possible. The term of office of directors of the
initial Class I directors will expire at the first annual meeting of
shareholders after their election, that of the initial Class II directors will
expire at the second annual meeting after their election, and that of the
initial Class III directors will expire at the third annual meeting after their
election. At each annual meeting following such classification and division of
the members of the Board of Directors, a number of directors equal to the number
of directorships in the class whose term expires at the time of such meeting
shall be elected to hold office until the third succeeding annual meeting of
shareholders of the Corporation.
Each Director shall hold office for the class term for which he is
elected and until his successor shall be elected and qualified. Notwithstanding
anything herein to the contrary, any Director may be removed from office at any
time by the vote or written consent of shareholders representing not less than
two-thirds of the issued and outstanding stock entitled to vote.
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PROXY PROXY
CHEUNG LABORATORIES, INC.
Annual Meeting of Shareholders -- March 31, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned hereby appoints Augustine Y. Cheung and Spencer J. Volk
as Proxies, with the power to appoint a substitute, and hereby authorizes them
to represent and vote, as designated below, all of the Common Shares of CHEUNG
LABORATORIES, INC. which the undersigned is entitled to vote at the 1998 Annual
Meeting of Shareholders of the Company and at any and all adjournments thereof,
with respect to the matters set forth below and described in the Notice of
Annual Meeting and Proxy Statement dated February _____, 1998.
1. To approve a proposed amendment to the Company's by-laws adopting a staggered
Board of Directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To elect directors
[ ] FOR ALL NOMINEES LISTED (Except as marked to contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees below
INSTRUCTIONS: To withhold authority to vote for any nominee, strike a line
through the nominee's name:
Spencer J. Volk Augustine Y. Cheung Warren C. Stearns Walter B. Herbst
Mel D. Soule Max E. Link John Mon
3. To ratify the appointment of Stegman & Co. as auditors to examine the
Company's accounts for the fiscal year ending September 30, 1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To approve a proposed amendment to the Company's Articles of
Incorporation increasing the number of authorized shares to 100,000,000
shares of $.01 par value.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. To approve a proposed amendment to the Company's Articles of
Incorporation changing the name of the to Celsion Corporation or
variations thereon selected by the Board of Directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. To approve an omnibus stock option plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, to transact such other business as may properly come before
the meeting or any and all adjournments thereof.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no indication is made, this
Proxy will be voted FOR Proposals 1 through 6.
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Dated: ________________________, 1998
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by an authorized
person.
Signature _____________________ Signature if held jointly ____________________
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PLEASE MARK, SIGN AND DATE. FOLD AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED PRE-PAID ENVELOPE.
================================================================================
-23-
CHEUNG LABORATORIES, INC.
OMNIBUS STOCK OPTION PLAN
ARTICLE I
Purpose
The purpose of the Omnibus Stock Option Plan (the "Plan") is
to enable Cheung Laboratories, Inc. (the "Company") to offer employees and
directors of, and consultants to, the Company and its subsidiaries, options to
acquire equity interests in the Company, thereby attracting, retaining and
rewarding such persons, and strengthening the mutuality of interests between
such persons and the Company's stockholders.
ARTICLE II
Definitions
For purposes of the Plan, the following terms shall have the
following meanings:
2.1 "Award" shall mean an award under the Plan of any Stock
Option.
2.2 "Board" shall mean the Board of Directors of the
Company.
2.3 "Change of Control" shall mean the occurrence of any one
of the following: (i) the Company enters into an agreement of reorganization,
merger or consolidation pursuant to which the Company or a Subsidiary is not the
surviving corporation, (ii) the Company sells substantially all its assets to a
purchaser other than a Subsidiary, or (iii) other than in a transaction that has
been approved by the Board, shares of stock of the Company representing in
excess of 50% of the total combined voting power of all outstanding classes of
stock of the Company or Parent are acquired, in one transaction or a series of
transactions, by a single purchaser or group of related purchasers.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
2.5 "Committee" shall mean the Compensation Committee of the
Board consisting of two or more Directors of the Company. If the Board has not
established a Compensation Committee, the Committee shall consist of the Board
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2.6 "Common Stock" shall mean the Common stock, $.01 par
value, of the Company.
2.7 "Consultant" shall mean any individual who is a
consultant to the Company or a Subsidiary.
2.8 "Director" shall mean any individual who is a member of
the Board or the Board of Directors of a Subsidiary.
2.9 "Disability" shall mean a disability that results in the
termination of a Participant's employment with the Company or a Subsidiary, as
determined pursuant to standard Company procedures.
2.10 "Fair Market Value" for purposes of the Plan, unless
otherwise required by any applicable provision of the Code or any regulations
issued thereunder, shall mean, as of any date, the average of the high and low
sales prices of a share of Common Stock as reported on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or, if not listed or traded on any such exchange, the Nasdaq Stock Market
("Nasdaq"), or, if such sales prices are not available, the average of the bid
and asked prices per share reported on Nasdaq, or, if such quotations are not
available, the fair market value as determined by the Board, which determination
shall be conclusive.
2.11 "Incentive Stock Option" shall mean any Stock Option
awarded under the Plan intended to be and designated as an "Incentive Stock
Option" within the meaning of Section 422 of the Code.
2.12 "Non-Qualified Stock Option" shall mean any Stock
Option awarded under the Plan that is not an Incentive Stock Option.
2.13 "Participant" shall mean an employee, Director or
Consultant to whom an Award has been made pursuant to the Plan.
2.14 "Stock Option" or "Option" shall mean any option to
purchase shares of Common Stock granted pursuant to Article VI.
2.15 "Subsidiary" shall mean any subsidiary of the Company,
80% or more of the voting stock of which is owned, directly or indirectly, by
the Company.
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2.16 "Termination for Cause" shall mean a Termination of
Employment that has been designated as a "termination for cause" pursuant to
standard Company procedures.
2.17 "Termination of Employment" shall mean a termination of
employment with, or service as a Director or Consultant of, the Company and all
of its Subsidiaries for reasons other than a military or personal leave of
absence granted by the Company or any Subsidiary.
ARTICLE III
Administration
3.1 The Committee. The Plan shall be administered and
interpreted by the Committee.
3.2 Awards. The Committee shall have full authority to grant
Stock Options, pursuant to the terms of the Plan, to persons eligible under
Article V. In particular, the Committee shall have the authority:
(a) to select the persons to whom Stock Options
may from time to time be granted hereunder;
(b) to determine whether and to what extent
Incentive Stock Options and Non-Qualified Stock Options, or any combination
thereof, are to be granted hereunder to one or more persons eligible to receive
Awards under Article V;
(c) to determine the number of shares of Common
Stock to be covered by each such Award granted hereunder; and
(d) to determin e the terms and conditions, not
inconsistent with the terms of the Plan, of any Award granted hereunder
(including, but not limited to, the option price, the term of the option, and
any provision affecting the exercisability or acceleration of, any Award).
3.3 Guidelines. Subject to Article VII hereof, 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.
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The Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any Award granted in the manner and to the
extent it shall deem necessary to carry the Plan into effect. Notwithstanding
the foregoing, no action of the Committee under this Section 3.3 shall impair
the rights of any Participant without the Participant's consent, unless
otherwise required by law.
3.4 Decisions Final. Any decision, interpretation or other
action made or taken in good faith by the Committee arising out of or in
connection with the Plan shall be final, binding and conclusive on the Company,
all Participants and their respective heirs, executors, administrators,
successors and assigns.
ARTICLE IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of Common
Stock which may be issued under the Plan shall be 2,000,000 shares of Common
Stock (subject to any increase or decrease pursuant to Section 4.2), which may
be either authorized and unissued Common Stock or issued Common Stock reacquired
by the Company. If any Option granted under the Plan shall expire, terminate or
be cancelled for any reason without having been exercised in full, the number of
unpurchased shares shall again be available for the purposes of the Plan.
4.2 Changes. In the event of any merger, reorganization,
consolidation, recapitalization, dividend (other than a dividend or its
equivalent which is credited to a Participant or a regular cash dividend), stock
split, or other change in corporate structure affecting the Common Stock, such
substitution or adjustment shall be made in the maximum aggregate number of
shares which may be issued under the Plan, 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.
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ARTICLE V
Eligibility
5.1 Employees. Officers and other employees of the Company
and its Subsidiaries are eligible to be granted Awards under the Plan.
5.2 Directors and Consultants. Directors and Consultants are
eligible to be granted Awards under the Plan, provided that Directors and
Consultants who are not employees of the Company or a Subsidiary may not be
granted Incentive Stock Options.
ARTICLE VI
Stock Options
6.1 Options. Each Stock Option granted under the Plan shall
be either an Incentive Stock Option or a Non-Qualified Stock Option.
6.2 Grants. The Committee shall have the authority to grant
to any person eligible under Article V one or more Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options. To the extent that
any Stock Option does not qualify as an Incentive Stock Option (whether because
of its provisions or the time or manner of its exercise or otherwise), such
Stock Option or the portion thereof which does not qualify as an Incentive Stock
Option shall constitute a separate Non-Qualified Stock Option.
6.3 Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of the Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be exercised, so as to disqualify the Plan
under Section 422 of the Code, or, without the consent of the Participants
affected, to disqualify any Incentive Stock Option under such Section 422.
6.4 Terms of Options. 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:
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(a) Stock Option Contract. Each Stock Option
shall be evidenced by, and subject to the terms of, a Stock Option Contract
executed by the Company and the Participant. The Stock Option Contract shall
specify whether the Option is an Incentive Stock Option or a Non-Qualified Stock
Option, the number of shares of Common Stock subject to the Stock Option, the
option price, the option term, and the other terms and conditions applicable to
the Stock Option.
(b) Option Price. Subject to section (l) below,
the option price per share of Common Stock purchasable upon exercise of a Stock
Option shall be determined by the Committee at the time of grant but shall be
not less than 100% of the Fair Market Value of the Common Stock on the date of
grant if the Stock Option is intended to be an Incentive Stock Option.
(c) Option Term. Subject to section (l) below,
the term of each Stock Option shall be fixed by the Committee, but no Stock
Option shall be exercisable more than ten years after the date it is granted.
(d) Exercisability. Stock Options shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee at the time of grant; provided, however,
that the Committee may waive any installment exercise or waiting period
provisions, in whole or in part, at any time after the date of grant, based on
such factors as the Committee shall deem appropriate in its sole discretion.
(e) Method of Exercise. Subject to such
installment exercise and waiting period provisions as may be imposed by the
Committee, Stock Options may be exercised in whole or in part at any time during
the option term by giving written notice of exercise to the Company specifying
the number of shares of Common Stock to be purchased and the option price
therefor. The notice of exercise shall be accompanied by payment in full of the
option price in such form as the Committee may accept and, if requested, by the
representation described in Section 9.2. The option price may be paid in cash or
check acceptable to the Company or by any other consideration as the Committee
deems acceptable. Unless otherwise determined by the Committee in its sole
discretion at or after grant, if there is an established trading market in the
Common Stock, payment in full or in part may be made in the form of Common Stock
duly owned by the Participant (and for which the Participant has good title free
and clear of any liens and encumbrances), based on the Fair Market Value of the
Common Stock on the last trading date preceding payment. Upon payment in full of
the option price, as provided herein, a stock certificate or stock certificates
representing the number of shares of Common Stock to which the Participant is
entitled shall be issued and delivered to the Participant. A Participant shall
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<PAGE>
not be deemed to be the holder of Common Stock, or to have the rights of a
holder of Common Stock, with respect to shares subject to the Option, unless and
until a stock certificate or stock certificates representing such shares of
Common Stock are issued to such Participant.
(f) Death. If a Participant's employment by the
Company or a Subsidiary terminates by reason of death, unless otherwise
determined by the Committee at the time of grant, any Stock Option held by such
Participant which was exercisable at the date of death may be exercised by the
legal representative of the Participant's estate at any time or times during the
period beginning on the date of death and ending one year after the date of
death or until the expiration of the stated term of such Stock Option, whichever
period is shorter, and any Stock Option not exercisable at the date of death
shall be forfeited.
(g) Disability. If a Participant's employment
by the Company or a Subsidiary terminates by reason of Disability, unless
otherwise determined by the Committee at the time of grant, any Stock Option
held by such Participant which was exercisable on the date of such Termination
of Employment may thereafter be exercised by the Participant at any time or
times during the period beginning on the date of such termination and ending one
year after the date of such termination or until the expiration of the stated
term of such Stock Option, whichever period is shorter, and any Stock Option not
exercisable on the date of such Termination of Employment shall be forfeited. If
an Incentive Stock Option is exercised after the expiration of the exercise
period that applies for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination of Employment. In the event of
a Termination of Employment by reason of retirement or for any reason other than
death, Disability or Termination for Cause, unless otherwise determined by the
Committee at the time of grant, any Stock Option held by such Participant which
was exercisable on the date of such Termination of Employment may be exercised
by the Participant at any time or times during the period beginning on the date
of such Termination of Employment and ending one month after such date or until
the expiration of the stated term of such Stock Option, whichever period is
shorter, and any Stock Option not exercisable on the date of such Termination of
Employment shall be forfeited.
(i) Termination for Cause. In the event of a
Termination for Cause, any Stock Option held by the Participant which was not
exercised prior to the date of such Termination for Cause shall be forfeited.
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<PAGE>
(j) Change of Control. The Committee shall have
the discretion to determine, with respect to each Award, whether the Option will
contain a provision accelerating the vesting of the Option upon a Change of
Control.
(k) Incentive Stock Option Limitations. To the
extent that the aggregate Fair Market Value (determined as of the date of grant)
of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by the Participant during any calendar year under
the Plan and/or any other stock option plan of the Company or any subsidiary or
parent corporation (within the meaning of Section 424 of the Code) exceeds
$100,000, such Options shall be treated as Options which are not Incentive Stock
Options.
Should the foregoing provisions not be necessary in
order for the Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend the Plan accordingly,
without the necessity of obtaining the approval of the stockholders of the
Company.
(l) Ten-Percent Stockholder Rule. Notwithstanding
any other provision of the Plan to the contrary, no Incentive Stock Option shall
be granted to any person who, immediately prior to the grant, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company, unless the option price is at least 110% of the
Fair Market Value of the Common Stock on the date of grant and the Option, by
its terms, expires no later than five years after the date of grant.
ARTICLE VII
Termination or Amendment
7.1 Termination or Amendment of the Plan. The Committee may
at any time amend, discontinue or terminate the Plan or any part thereof
(including any amendment deemed necessary to ensure that the Company may comply
with any regulatory requirement referred to in Article IX); provided, however,
that, unless otherwise required by law, the rights of a Participant with respect
to Awards granted prior to such amendment, discontinuance or termination, may
not be impaired without the consent of such Participant and, provided further,
without the approval of the Company's stockholders, no amendment may be made
that would (i) materially increase the aggregate number of shares of Common
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<PAGE>
Stock that may be issued under the Plan (except by operation of Section 4.2);
(ii) materially modify the requirements as to eligibility to participate in the
Plan; or (iii) materially increase the benefits accruing to Participants.
7.2 Amendment of Awards. The Committee may amend the terms
of any Award theretofore granted, prospectively or retroactively, but, subject
to Article IV, no such amendment or other action by the Committee shall impair
the rights of any holder without the holder's consent. The Committee may also
substitute new Stock Options for previously granted Stock Options having higher
option prices.
ARTICLE VIII
Unfunded Plan
8.1 Unfunded Status of Plan. The Plan is intended to
constitute an "unfunded" plan for incentive compensation. With respect to any
payment not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those of a
general creditor of the Company.
ARTICLE IX
General Provisions
9.1 Nonassignment. Except as otherwise provided in the Plan,
Awards made hereunder and the rights and privileges conferred thereby shall not
be sold, transferred, assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of such Award, right or privilege contrary to
the provisions hereof, or upon the levy of any attachment or similar process
thereon, such Award and the rights and privileges conferred hereby shall
immediately terminate and the Award shall immediately be forfeited to the
Company.
9.2 Legend. The Committee may require each person acquiring
shares pursuant to an Award under the Plan to represent to the Company in
writing that the Participant is acquiring the shares without a view to
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distribution thereof. The stock certificates representing such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All certificates representing shares of Common Stock
delivered under the Plan 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 or stock market upon which the Common Stock is then listed or
traded, any applicable Federal or state securities law, and any applicable
corporate law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
9.3 Other Plans. Nothing contained in the Plan shall prevent
the Board from adopting other or additional compensation arrangements, subject
to stockholder approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases.
9.4 No Right to Employment. Neither the Plan nor the grant
of any Award hereunder shall give any Participant or other employee any right
with respect to continuance of employment by the Company or any Subsidiary, nor
shall there be a limitation in any way on the right of the Company or any
Subsidiary by which a Participant is employed to terminate such Participant's
employment at any time. Neither the Plan nor the grant of any Award hereunder
shall give any Director or Consultant any right with respect to continued
service as a director or consultant, nor shall the Plan impose any limitation on
the right of the Company to terminate a Consultant's services at any time or
constitute evidence of any agreement or understanding by the Company's
stockholders that the Company will nominate any director for reelection.
9.5 Withholding of Taxes. The Company shall have the right
to reduce the number of shares of Common Stock otherwise deliverable pursuant to
the Plan by an amount that would have a Fair Market Value equal to the amount of
all Federal, state and local taxes required to be withheld, or to deduct the
amount of such taxes from any cash payment otherwise to be made to the
Participant. In connection with such withholding, the Committee may make such
arrangements as are consistent with the Plan as it may deem appropriate.
9.6 Listing and Other Conditions.
(a) If the Common Stock is listed on a national
securities exchange, the issuance of any shares of Common Stock pursuant to an
Award shall be conditioned upon such shares being listed on such exchange. The
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<PAGE>
Company shall have no obligation to issue such shares unless and until such
shares are so listed, and the right to exercise any Option shall be suspended
until such listing has been effected.
(b) If at any time counsel to the Company shall
be of the opinion that any sale or delivery of shares of Common Stock pursuant
to an Award is or may in the circumstances be unlawful or result in the
imposition of excise taxes under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such sale
or delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as amended, or
otherwise with respect to shares of Common Stock or Awards, and the right to
exercise any Option shall be suspended until, in the opinion of such counsel,
such sale or delivery shall be lawful or shall not result in the imposition of
excise taxes.
(c) Upon termination of any period of suspension
under this Section 9.6, any Award affected by such suspension which shall not
then have expired or terminated shall be reinstated as to all shares available
before such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension shall
extend the term of any Option.
9.7 Governing Law. The Plan and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
State of Utah.
9.8 Construction. Wherever any words are used in the Plan in
the masculine gender they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply, and wherever any
words are used herein in the singular form they shall be construed as though
they were also used in the plural form in all cases where they would so apply.
9.9 Liability of the Board and the Committee. No member of
the Board or the Committee nor any employee of the Company or any of its
subsidiaries shall be liable for any act or action hereunder, whether of
omission or commission, by any other member or employee or by any agent to whom
duties in connection with the administration of the Plan have been delegated or,
except in circumstances involving bad faith, gross negligence or fraud, for
anything done or omitted to be done by himself.
9.10 Other Benefits. No payment pursuant to an Award under
the Plan shall be deemed compensation for purposes of computing benefits under
any retirement plan of the Company or any Subsidiary nor affect any benefits
under any other benefit plan now or hereafter in effect under which the
availability or amount of benefits is related to the level of compensation.
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9.11 Costs. The Company shall bear all expenses incurred in
administering the Plan, including expenses of issuing Common Stock upon the
exercise of Options granted.
9.12 Severability. If any part of the Plan shall be
determined to be invalid or void in any respect, such determination shall not
affect, impair, invalidate or nullify the remaining provisions of the Plan which
shall continue in full force and effect.
9.13 Successors. The Plan shall be binding upon and inure to
the benefit of any successor or successors of the Company.
9.14 Headings. Article and section headings contained in the
Plan are included for convenience only and are not to be used in construing or
interpreting the Plan.
ARTICLE X
Effective Date of Plan and Amendments
10.1 The Plan as amended hereby shall be effective as of the
earlier of (i) the date of first issuance of any Award under the Plan and (ii)
the date of its approval by the Company's stockholders ("Stockholder Approval);
provided, that any issuance of an Award prior to Stockholder Approval will be
subject to Stockholder Approval being obtained within one year of the date of
the Plan as amended hereby was approved by the Company's board of directors.
ARTICLE XI
Term of Plan
11.1 No Stock Option shall be granted pursuant to the Plan
on or after the tenth anniversary of its original approval by the Company's
stockholders, but Awards granted prior to such tenth anniversary may extend
beyond that date.
As adopted by the Board of Directors on January , 1998 and
approved by the stockholders on _________, 1998.
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A True Copy.
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Secretary
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