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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
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(Name of Registrant as Specified In Its Charter)
Star Scientific, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
Star Scientific, Inc.
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
To be held October 6, 2000
____________
TO THE STOCKHOLDERS OF STAR SCIENTIFIC, INC.:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of
Stockholders of Star Scientific, Inc., a Delaware corporation (the "Company"),
will be held at the Conference Room of the Virginia Biotechnology Research Park,
located at 800 E. Leigh Street, Richmond, Virginia, on Friday, October 6, 2000,
at 10:00 A.M., local time, for the following purposes:
I. To elect four members of the Board of Directors, three to serve as
Class Two directors until the 2003 Annual Meeting and one to serve as
a Class Three director until the 2001 Annual Meeting.
II. To approve the Company's 2000 Equity Incentive Plan.
III. To approve the Company's 2000 Performance Bonus Plan.
IV. To ratify the appointment of Aidman, Piser & Company, P. A. as
independent accountants to audit the Company's 2000 financial
statements.
V. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed August 24, 2000 as the record
date for determining the holders of the Company's Common Stock entitled to
notice of and to vote at the meeting. Consequently, only holders of Common Stock
of record on the transfer books of the Company at the close of business on
August 24, 2000 will be entitled to notice of and to vote at the meeting.
We invite all stockholders to attend the meeting. To ensure that
your shares will be voted at the meeting, however, please complete, date and
sign the enclosed proxy and return it promptly. If you attend the meeting, you
may vote in person, even though you have sent in your proxy.
Esteban A. Ferrer
Secretary
Chester, Virginia
September 5, 2000
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<PAGE>
STAR SCIENTIFIC, INC.
801 Liberty Way
Chester, VA 23836
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of the
Company for use at the 2000 Annual Meeting of Stockholders to be held on Friday,
October 6, 2000. Copies of this proxy statement and the accompanying proxy are
being mailed on or about September 5, 2000, to the holders of record of the
Company's Common Stock, par value $.01 per share ("Common Stock") as of August
24, 2000 (the "Record Date"). The proxy may be revoked by a stockholder at any
time prior to its use by giving written notice of such revocation to the
Secretary of the Company or by voting in person at the meeting. The expense of
this solicitation will be paid by the Company. Some of the directors, officers
and regular employees of the Company may, without additional remuneration,
solicit proxies personally and by telephone or mail.
The persons named in the accompanying proxy will vote as set forth
under "Election of Directors" with respect to the election of directors. With
respect to the other subjects referred to in this proxy statement, the persons
named in the accompanying proxy will vote as stated in the proxy. If no
specification as to the election of directors or the other subjects is made,
shares represented by duly executed and unrevoked proxies in the enclosed form
will be voted for the election as directors of the nominees listed herein, and,
with respect to the other subjects and any other matter that may properly come
before the meeting, in the discretion of the persons voting the respective
proxies.
The holders of Common Stock of record at the close of business on the
Record Date will be entitled to one vote per share on all business of the
meeting. The presence at the meeting, in person or by proxy, of the holders of
a majority of the shares of Common Stock outstanding on the Record Date, will
constitute a quorum to conduct business at the meeting. Proxies submitted which
are marked "abstain" or "withhold authority" will be deemed present at the
meeting for purposes of determining the presence of a quorum to conduct business
at the meeting. On the Record Date, there were 58,669,040 shares of Common Stock
outstanding. Holders of Common Stock do not have cumulative voting rights.
If a quorum is present, the election of directors will be decided by a
plurality of the shares of Common Stock represented in person or by proxy at the
meeting and entitled to vote thereon. Under Delaware law, the Company's
Certificate of Incorporation and the Company's By-laws, shares represented by
proxies as to which a stockholder abstains or withholds authority from voting on
the election of directors, and shares as to which a broker indicates that it
does not have discretionary authority to vote (referred to herein as non-votes
by brokers) with respect to any or all nominee(s) for director, will not be
deemed present for purposes of voting on the election of any or all such
nominee(s) for director and therefore will have no impact on the vote on any or
all such nominee(s).
The approval of all other matters scheduled to be brought before the
meeting will require the affirmative vote of a majority of the shares of Common
Stock represented in person or by proxy at the meeting and entitled to vote
thereon. Under Delaware law, the Company's Certificate of Incorporation and the
Company's By-laws, shares represented by proxies which are marked "for",
"against" or "abstain" with respect to these other matters will be counted for
purposes of determining the vote required for approval of these other matters,
and the total number of votes cast "for" each of these other matters will
determine whether sufficient affirmative votes have been cast. An abstention
from voting on these other matters will have the same legal effect as a vote
against the matter. Shares represented by proxies which are marked "withhold
authority" (including non-votes by brokers) will not be counted for purposes of
determining whether these other matters have been approved and therefore will
have no impact on the vote on any such matter.
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
The Board of Directors is divided into three Classes. Each Class has
a three-year term. Three Class Two directors and one Class Three director have
been nominated for election at the 2000 Annual Meeting of Stockholders. The
Class Two directors will serve until the 2003 Annual Meeting of Stockholders and
until their respective successors are elected and qualify, or their earlier
resignation or removal, and the Class Three director will serve until the 2001
Annual Meeting of Stockholders and until his successor is elected and qualifies,
or his earlier resignation or removal.
Because the Board of Directors is divided into classes, only those
directors in a single class may be changed in any one year. Consequently,
changing a majority of the Board of Directors generally would require two years.
A classified Board of Directors, which may be regarded as an "anti-takeover"
provision, may make it more difficult for the Company's stockholders to change
the majority of directors and thus have the effect of maintaining continuity of
management. Pursuant to the Company's By-laws, newly created directorships
resulting from any increase in the number of directors or vacancies resulting
from death, resignation, disqualification or removal shall be filled by the
affirmative vote of a majority of the Board of Directors, and if necessary, may
be filled by less than a quorum of the Board of Directors or by the sole
remaining director. Any such newly-elected director shall remain on the Board
of Directors for the full term of the class of directors to which the director
was elected and until such director's successor is elected (unless the director
resigns or is removed before such term expires). No decrease in the number of
directors constituting the Board of Directors will shorten the term of any
incumbent director.
The persons named in the accompanying proxy intend to vote for the
election of the nominees identified below unless authority to vote for one or
more of such nominees is specifically withheld in the proxy.
The nominees for election to the Company's Board of Directors as Class
Two directors are Mark W. Johnson, Martin R. Leader, Esquire and Jonnie R.
Williams, whose terms will expire at the 2003 Annual Meeting of Stockholders.
Christopher G. Miller has been nominated for election to the Company's Board of
Directors as a Class Three director, to fill a vacancy created by action of the
Board of Directors in August 2000 to increase the size of Class Three from two
to three directors. Accordingly, his term will expire at the 2001 Annual
Meeting of Stockholders.
The Board of Directors is informed that each of the nominees is
willing to serve as a director, but if any of the nominees should decline to
serve or become unavailable for election as a director at the meeting, an event
which the Board of Directors does not anticipate, the persons named in the proxy
will vote for such nominee or nominees as may be designated by the Board of
Directors, unless the Board of Directors reduces the number of directors
accordingly.
Robert J. DeLorenzo, M.D., Ph.D., M.P.H. and Leo S. Tonkin, Esquire
currently serve as Class Three Directors and their current term in office
expires at the 2001 Annual Meeting. Malcolm L. "Mac" Bailey, Paul L. Perito,
Esquire and Elliot D. Prager, M.D. currently serve as Class One Directors and
their current term in office expires at the 2002 Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" EACH NOMINEE
NOMINEES FOR CLASS TWO DIRECTORS WITH TERMS EXPIRING AT THE 2003 ANNUAL
MEETING
Mark W. Johnson. Mr. Johnson, 36, has served as a director of the
Company since June 1999. Since January 2000, he has served as Chief Operating
Officer of innosight, LLC. From June 1999 to December 1999, Mr. Johnson served
as Senior Vice President of The Gilder Group. From 1994 to 1999, he served as a
management consultant with Booz-Allen & Hamilton, Inc. From 1988 to 1994, he
served as a nuclear power trained officer in the U.S. Navy. He also serves as a
director of the Washington Workshops Foundation. Mr. Johnson graduated from the
United States Naval Academy, and has a Masters of Science in Civil Engineering
and Engineering Mechanics from Columbia University and an MBA from the Harvard
Business School.
Martin R. Leader, Esquire. Mr. Leader, 60, has served as a director
of the Company since June 2000. He currently is a partner at the law firm of
Shaw Pittman in Washington, D.C.. Prior to his service at Shaw Pittman, Mr.
Leader was a senior partner with the law firm of Fisher Wayland Cooper Leader &
Zaragoz in Washington, D.C. from 1973 to 1999. He is currently a principal and
director of OnLineLaunch. Mr. Leader has
<PAGE>
served on the staff of the Office of Opinions and Review of the Federal
Communications Commission. Mr. Leader graduated from Tufts University and
Vanderbilt University Law School. He is a member of the District of Columbia Bar
and of the Federal Communications Bar Association.
Jonnie R. Williams. Mr. Williams, 45, has served as the Company's
Chief Executive Officer since November 1999. He has been a director of the
Company since September 1998. Mr. Williams has served as the Company's Chief
Operating Officer and Executive Vice President from October 1998 to May 1999 and
as the Company's Senior Vice President for Marketing and Product Development
from May 1999 to November 1999. Mr. Williams was a co-founder of Star Tobacco &
Pharmaceuticals, Inc. ("ST&P"), a wholly owned subsidiary of the Company,
formerly known as Star Tobacco Corporation. As a co-founder, he served in
various executive capacities at ST&P from 1990 through October 1998. He is a
principal stockholder of the Company and is also the inventor of the Company's
proprietary tobacco curing process ("StarCure(TM)") which precludes the
formation or substantially reduces tobacco specific nitrosamines ("TSNAs") in
tobacco and tobacco smoke. Mr. Williams has been involved in venture capital
start-up biotechnology companies for over a decade where he has been either a
major shareholder or a co-founder of the following companies: LaserSight,
LaserVision, VISX and APP (a New York based pharmaceutical company). Also, Mr.
Williams is a member of Regent Court Technologies, LLC, and is a principal in
Jonnie Williams Venture Capital Corp., as well as a principal in Hopkins Capital
Partners, Ltd., a closely held biotechnology company engaged in developing drugs
for the treatment of AIDS and cancer.
NOMINEE FOR CLASS THREE DIRECTOR WITH TERM EXPIRING AT THE 2001 ANNUAL
MEETING
Christopher G. Miller. Mr. Miller, 41, has served as the Company's
Acting Chief Financial Officer since April 2000. He also serves as Chief
Executive Officer of Special Opportunities Group LLC. Prior to his service at
Special Opportunities Group LLC, Mr. Miller served as Chief Financial Officer of
The Gilder Group from 1998 to 1999, Chief Executive Officer of American
Healthcare Ltd. from 1994 to 1998, Chief Executive Officer of International
Medical Care, Ltd. from 1992 to 1993, and Chief Financial Officer and Executive
Vice President of Hospital Corporation International from 1991 to 1992. Upon
his graduation from Harvard Business School, Mr. Miller was employed by Bear
Stearns Companies Inc. in New York as an Associate in Investment Banking. Mr.
Miller serves on the board of directors of XiTec, SignalQuest, Ana Mandara and
Zhou Li's Marco Polo Collections. Mr. Miller graduated from the U.S. Military
Academy at West Point in 1980 with a B.S. in Engineering and received an MBA
from Harvard Business School in 1987.
CLASS THREE DIRECTORS WITH TERMS EXPIRING AT THE 2001 ANNUAL MEETING
Robert J. DeLorenzo, M.D., Ph.D., M.P.H. Dr. DeLorenzo, 53, has
served as a director of the Company since February 1998. He served as Chairman
of the Board from February 1998 to August 2000. Dr. DeLorenzo served as the
Company's interim Chief Executive Officer from October 1998 through November
1999. Since 1985, he has served as Chairman of the Department of Neurology, the
George B. Bliley Professor of Neurology, and Professor of Pharmacology and
Toxicology and Biochemistry and Biophysics at Virginia Commonwealth University,
as well as Neurologist-in-Chief of the Medical College of Virginia Hospitals and
Director of the Molecular Neurobiology Laboratories at the Medical College of
Virginia. Prior to 1985, Dr. DeLorenzo was on the neurology faculty at Yale
University. Dr. DeLorenzo has authored over 300 original publications and has
received numerous research awards including the Jacob Javits Award from the
National Institutes of Health and the Jordi-Folch-Pi Award from the American
Society of Neurochemistry. He serves on the editorial boards of several
scientific journals and served on and chaired National Institutes of Health
Study Sections. Dr. DeLorenzo holds a Ph.D. in neuropharmacology from Yale
University, an M.D. from Yale University School of Medicine and an M.P.H. from
the Yale School of Epidemiology and Public Health.
Leo S. Tonkin, Esquire. Mr. Tonkin, 63, has served as a director of
the Company since October 1998. He is Founding Director of the Washington
Workshops Foundation, established in 1967 and serves as President of Travel
Seminars, Inc. He served as a member of the White House Conference on Youth in
1971, Special Assistant to the Chairman of the U.S. House of Representatives
Select Committee on Crime, Legal Consultant to the U.S. House of Representatives
Higher Education Subcommittee, and Executive Director of the Commissioners'
Council on Higher Education in Washington, D.C. He has served as Chairman of
the Board of Trustees of St. Thomas Aquinas College and as a Board member of
Southeastern University and Immaculata College. He is a vice president of the
London, England Federation of Youth Clubs and advisor to the Retinitis
Pigmentosa Foundation in California. Mr. Tonkin is a graduate of Johns Hopkins
University and received his law degree from Harvard Law School.
<PAGE>
CLASS ONE DIRECTORS WITH TERMS EXPIRING AT THE 2002 ANNUAL MEETING
Malcolm L. Bailey. Mr. Bailey, 55, has served as a director of the
Company since May 1998. He served as the Company's President from October 1998
through November 1999. Mr. Bailey owns the second largest tobacco-growing
operation in Virginia and has owned and served as the President of Golden Leaf
Tobacco Company, a tobacco leaf dealer, for over twenty years. Since 1994, Mr.
Bailey has owned and served as President of S&M Brands, Incorporated, a
cigarette manufacturing company. Mr. Bailey is President of the Virginia
Agricultural Growers Association, the largest trade association for flue-cured
tobacco farmers in Virginia.
Paul L. Perito, Esquire. Mr. Perito, 62, has served as the Company's
President and Chief Operating Officer since November 1999 and as the Company's
Chairman of the Board since August 2000. He has served as a director of the
Company since December 1999. Mr. Perito served as the Company's Executive Vice
President, General Counsel and Chief Ethics Officer from June 1999 through
November 1999. Mr. Perito was a partner in the law firm of Paul, Hastings,
Janofsky & Walker LLP ("PHJ&W") from July 1991 until he assumed responsibilities
at the Company. Mr. Perito currently serves as senior counsel to PHJ&W. He
served as Chief Counsel and Deputy Director of the White House Special Action
Office on Drug Abuse Prevention ("Drug Czar's Office") from 1971 to 1973. From
1970 to 1971, Mr. Perito served as Chief Counsel and Staff Director to the U.S.
House of Representatives Select Committee on Crime. Immediately prior to this
position, Mr. Perito was an Assistant United States Attorney in the Southern
District of New York, U.S. Department of Justice. Mr. Perito graduated from
Tufts University and Harvard Law School. Mr. Perito was a Rotary International
Scholar at the Victoria University of Manchester in Manchester, England and in
Lund University, Lund, Sweden in P.P.E. in 1960-61 before entering Harvard Law
School. Mr. Perito graduated from Harvard Law School (LLB/JD), as an Edward
John Noble Scholar in 1964 and was thereafter admitted to the Bar of the
Commonwealth of Massachusetts. He is also a member of the District of Columbia
Bar and is admitted to practice before numerous federal District Courts, Courts
of Appeal and the United States Supreme Court.
Elliot D. Prager, M.D. Dr. Prager, 58, has served as a director of
the Company since August 1999. From 1974 to the present, he has been a colon
and rectal surgeon at the Sansum Medical Clinic in Santa Barbara, California,
and served on its board of directors from 1980 to 1986. From 1995 to September
1999, he served as Chairman of the Residency Review Committee for Colon and
Rectal Surgery. From 1998 to the present he has served as Medical Director of
the Cottage Hospital Operating Room. He holds an appointment as Associate
Clinical Professor at the University of Southern California. Dr. Prager
graduated from Dartmouth College and holds his M.D. from Harvard Medical School.
Each independent director of the Company, as classified as such by the
Board of Directors ("Independent Directors"), is granted a stock option to
purchase up to 50,000 shares of Common Stock on the date such Independent
Director is first elected to the Board of Directors, exercisable over a three-
year period, in equal installments on each of the first three anniversaries of
the date of grant. Upon stockholder approval of the 2000 Equity Incentive Plan
(as described herein), each Independent Director will additionally receive a
stock option to purchase up to 25,000 shares of Common Stock to be granted on
each anniversary of such Director's initial election to the Board of Directors,
exercisable immediately. Each stock option granted to an Independent Director
under the Company's 2000 Equity Incentive Plan will be exercisable at a price
equal to the fair market value of the Common Stock on the date of grant (as
determined in accordance with the Plan).
Each Independent Director also receives a payment of $2,500 for his
participation in each meeting of the Board of Directors and any committee
meeting attended personally and $1,500 for his participation in each meeting of
the Board of Directors and any committee meeting attended telephonically.
Messrs. Johnson, Leader, Tonkin and Dr. Prager currently are
designated as Independent Directors. This designation is intended solely for
the purpose of clarifying which directors are entitled to compensation for their
services as directors. Directors not designated as Independent Directors
generally are those who in the past have been, or currently are being,
compensated by the Company for other services rendered, or who have waived their
right to receive director compensation. Directors who are employees receive
compensation in their capacity as Company employees, as described elsewhere in
this Prospectus.
<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS OR DIRECTOR NOMINEES
Sheldon L. Bogaz. Mr. Bogaz, 34, has served as the Company's Vice
President of Trade Operations since November 1999, and is responsible for
managing customer relationships, developing new business, and formulating and
implementing pricing and trade programs. He served as the Vice President of
Sales and Trade Operations of the Company and/or ST&P from September 1995 to
October 1999. Prior to joining ST&P in 1995, Mr. Bogaz served as a Commercial
Lender with NationsBank from 1992 to 1995. He holds a Bachelor of Science
degree in Business Administration from Virginia Commonwealth University.
David M. Dean. Mr. Dean, 40, has served as Vice President of Sales
and Marketing of the Company since November 1999 and as a director and Secretary
of ST&P since May 2000. From 1998 to October 1999, he served as a Principal of
Group Insurance Concepts of Virginia, L.L.C., an employee benefits consulting
firm and an affiliate of Northwestern Mutual Life Insurance Co. From 1984 to
1998, Mr. Dean was employed with Trigon Blue Cross Blue Shield in Richmond,
Virginia, where he held a variety of executive positions, including Vice
President of the Eastern Region from 1994 to 1996, Vice President of Sales from
1996 to 1997 and Vice President of Sales and Account Management for the Eastern
and Western Regions of Virginia from 1997 to 1998. Trigon Blue Cross Blue
Shield is the largest health insurer in Virginia. Mr. Dean is a graduate of Elon
College with a degree in Business Administration.
Board of Director Meetings and Attendance
The Board of Directors held 18 meetings during 1999. Each of the
incumbent directors attended at least 75% of the aggregate of all meetings of
the Board of Directors during the period he served thereon. The standing
committees of the Board of Directors are the Audit Committee and the
Compensation Committee.
The Audit Committee, which was formed in December 1999, has
responsibility for reviewing the Company's annual and quarterly financial
results and financial position, the scope and results of independent accountant
reviews and audits of the Company's financial statements, and the accounting
standards and principles followed in preparing the Company's financial
statements; evaluating the Company's system of internal accounting controls;
recommending to the Board of Directors the appointment of the independent
accountants; and reviewing the Company's financial reporting activities. The
members of the Audit Committee are Mr. Johnson, who serves as the Chair, Mr.
Leader and Dr. Prager.
The Compensation Committee, which was formed in December 1999, has
responsibility for (i) recommending to the Board of Directors of the Company
salaries, bonuses and other forms of compensation for executive officers of the
Company, including without limitation stock options, restricted shares and other
forms of equity compensation, (ii) considering and adopting changes in the
Company's compensation structure as applicable to all non-executive officer
employees, including, but not limited to, salaries and benefits, (iii)
recommending to the Board of Directors changes in director compensation, (iv)
performing such duties and exercising such authority as, under the terms of the
Company's 1998 Stock Option Plan (and, assuming stockholder approval, the 2000
Equity Incentive Plan and 2000 Performance Bonus Plan), may be assigned to a
committee of the Board of Directors, and (v) performing such other duties and
exercising such other authority as may be assigned from time to time to the
Committee by the Board of Directors. The members of the Compensation Committee
are Dr. Prager, who serves as the Chair, and Mr. Tonkin. Mr. Perito serves as
an ex officio member of the Compensation Committee.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires directors and executive officers and persons, if any,
owning more than ten percent of a class of the Company's equity securities to
file with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of the Company's equity and equity
derivative securities. Based solely upon a review of the copies of such reports
furnished to the Company, or written representations from reporting persons, the
Company believes that during 1999 each of Mr. Perito, Mr. Johnson and Dr. Prager
was delinquent in filing Form 3s, and each of Mr. Bailey and James A. McNulty,
the Company's former Chief Financial Officer, was delinquent in filing Form 4s,
each due to administrative oversight. Each is now in compliance with these
reporting requirements.
<PAGE>
PROPOSAL II
APPROVAL OF THE 2000 EQUITY INCENTIVE PLAN
The Board of Directors of the Company relies upon stock options to
attract and retain outstanding individuals to serve as the Company's directors,
executive officers, employees and consultants, and to align their interests with
the interests of the Company's stockholders. The primary vehicle for this form
of compensation currently is the Company's 1998 Stock Option Plan (the "1998
Plan"). On October 2, 1998, the Board of Directors adopted the 1998 Plan, which
reserves for issuance pursuant to options granted thereunder up to 4,000,000
shares of Common Stock. The Company's stockholders approved the 1998 Plan on
December 15, 1998. Amendments to the 1998 Plan were adopted by the Board of
Directors on April 12, 1999 and September 24, 1999. As of the date hereof,
options have been granted to purchase up to 3,388,406 shares of Common Stock
under the 1998 Plan. This leaves only 611,594 shares of Common Stock available
for issuance under the 1998 Plan.
Because the Company has experienced substantial growth in the last two
years, the Board of Directors is concerned that the number of shares of Common
Stock remaining available under the 1998 Plan are not sufficient to enable the
Company to attract and retain qualified individuals to serve as directors,
officers, employees or consultants. Additionally, the Board is concerned that
the 1998 Plan does not provide for the award of restricted shares, which has
become a common form of equity compensation. Finally, the Board has determined
that, in order to fairly compensate its Independent Directors, they should
receive option awards following the conclusion of each year of service as
Independent Directors. Accordingly, in August 2000 the Board adopted the 2000
Equity Incentive Plan (the "2000 Plan"). The 2000 Plan is being submitted for
stockholder approval in order to comply with certain technical requirements
applicable to companies whose stock is traded over the NASDAQ National Market
System.
Up to 1,000,000 shares of Common Stock will be available for issuance
under the 2000 Plan. In addition, the maximum number of shares of Common Stock
which may be issued and sold under the 2000 Plan automatically will be increased
from time to time by up to 4,000,000 shares of Common Stock covered by options
granted under the 1998 Plan which remain unexercised at the time of their
cancellation, expiration or termination pursuant to the terms of the 1998 Plan.
Stockholders are requested in this Proposal II to approve the 2000
Plan. The principal features of the 2000 Plan are described in summary form
below. The affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy and entitled to vote at
the meeting will be required to ratify the 2000 Plan. Abstentions will be
counted toward the tabulation of votes cast on this proposal and will have the
same effect as negative votes. Broker non-votes are counted towards a quorum,
but are not counted for any purpose in determining whether this matter has been
approved.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" APPROVAL OF THE 2000 EQUITY INCENTIVE PLAN
The principal features of the 2000 Plan are described in summary form
below. A copy of the 2000 Plan is on file with the SEC.
Summary of the 2000 Plan
General
The 2000 Plan provides for the award of options to purchase Common
Stock and/or restricted shares to directors, officers, employees and consultants
or advisors of the Company and certain affiliated entities. Both incentive stock
options and non-statutory stock options may be granted. Incentive stock options
are intended to be treated as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Administration
The 2000 Plan is administered by the Board of Directors of the
Company. Subject to the express provisions of the 2000 Plan, the Board of
Directors may delegate any or all of its powers under the Plan to a committee of
the Board which would then have the authority to administer and interpret the
2000 Plan, including the authority to determine when and to whom stock options
and/or restricted shares (collectively, "Awards") will be
<PAGE>
granted, to set the specific terms of individual Awards, and to make all other
determinations in the judgment of the Board of Directors necessary or desirable
for the administration of the 2000 Plan.
Shares Allocated
Up to 1,000,000 shares of Common Stock are available for issuance
under the 2000 Plan (which maximum number of shares of Common Stock
automatically will be increased from time to time by up to 4,000,000 shares of
Common Stock covered by options granted under the 1998 Plan which remain
unexercised at the time of their cancellation, expiration or termination
pursuant to the terms of the 1998 Plan). If stock options granted under the
2000 Plan expire or otherwise terminate without being exercised, or if
restricted shares are forfeited following their award, the shares of Common
Stock not purchased pursuant to such options or such restricted shares, as the
case may be, will again become available for issuance under the 2000 Plan.
Amendment, Modification and Termination of the 2000 Plan
The Board of Directors may at any time and from time to time amend,
modify or terminate the 2000 Plan. No amendment, modification or termination
may become effective without approval by the stockholders, if stockholder
approval is required by law, or if the Board of Directors determines that
stockholder approval is otherwise necessary or desirable. No amendment,
modification or termination of the 2000 Plan will in any manner adversely affect
any outstanding stock options or restricted shares without the consent of the
participant holding such stock options or restricted shares. With the consent
of the optionee or holder of restricted shares affected, the Board of Directors
may amend outstanding option agreements or restricted share agreements in a
manner not inconsistent with the 2000 Plan. Unless earlier terminated by the
Board of Directors, the 2000 Plan will terminate on the earlier of August 4,
2010 or the date on which all shares available for issuance under the 2000 Plan
shall have been issued (without being subject to forfeiture) pursuant to the
award of restricted shares or the exercise of stock options granted under the
2000 Plan.
Eligibility
Eligible participants in the 2000 Plan include persons who are, at the
time of grant, officers, employees or directors of, or consultants or advisors
to, the Company or any subsidiary of the Company. No individual may be granted
an incentive stock option unless such individual is an employee of the Company
or any subsidiary of the Company. No individual may be granted, in any twelve-
month period, stock options under the 2000 Plan which are exercisable with
respect to more than 500,000 shares of Common Stock.
No incentive stock option may be granted under the 2000 Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the Common Stock on the date such option is
authorized to be granted, and the term of the option does not exceed five years
from the date of grant. For incentive stock options granted under the 2000
Plan, the aggregate fair market value (determined at the time of grant) of the
shares of Common Stock with respect to which such options are exercisable for
the first time by an optionee during any calendar year (under all plans of the
Company and its affiliates) may not exceed $100,000.
Other Key Elements of the 2000 Plan
The purchase price per share of stock deliverable upon the exercise of
an option under the 2000 Plan will be not less than the fair market value of the
Common Stock on the date such option is authorized to be granted (the "Value
Date"). The term "fair market value" is defined in the 2000 Plan as (i) the
closing price of the Common Stock, as reported on NASDAQ or, if the Common Stock
is listed on a stock exchange, the principal stock exchange on which the Common
Stock is listed, on the last trading day prior to the Value Date for which a
closing price is available or (ii) if the Board of Directors determines, in the
exercise of its business judgment, that such closing price does not properly
reflect the fair market value of the Common Stock on the Value Date, then such
other price as may then be determined in good faith by the Board of Directors.
If the Common Stock is not reported on NASDAQ or listed on any stock exchange,
then the fair market value shall be determined in good faith by the Board of
Directors. As of the Record Date, the closing price of the Common Stock on the
NASDAQ National Market System was $4.00.
<PAGE>
Options under the 2000 Plan will be granted without consideration and,
except as otherwise approved by the Board of Directors with respect to non-
statutory stock options, are nontransferable except by will or the laws of
descent and distribution. The maximum term of options granted under the 2000
Plan is ten years, except that in certain cases with respect to incentive stock
options the maximum term is five years. Options granted under the 2000 Plan
generally expire within three months after termination of the optionee's
employment by the Company or any affiliate of the Company, unless (a) such
termination is due to such person's disability, in which case the option may
provide that it may be exercised at any time within one year after such
termination; (b) the optionee dies while employed by or serving as a consultant,
advisor or director of the Company or any affiliate of the Company, or within
three months after termination of such relationship, in which case the option
may provide that it may be exercised within one year of the optionee's death by
the person or persons to whom the rights to such option pass by will or by the
laws of descent and distribution; or (c) the option agreement by its terms
provides for exercise during a longer period of time following termination of
such relationship. Subject to the preceding sentence, and except as provided
under the Code with respect to incentive stock options, if at any time during
the last six months of the term of any option granted under the 2000 Plan, the
optionee is precluded from selling shares of Common Stock underlying such option
solely because of the application to such optionee of the policies contained in
the Company's "Insider Trading Compliance Manual" (or similar successor
policies), the term of such option is extended by six months beginning with the
first day such optionee is no longer so precluded.
Payment of the exercise price of an option must be in cash or, in the
sole discretion of the Board of Directors, in capital stock of the Company, or
by the surrender of other rights to purchase capital stock of the Company
(including options). The Company may, in its sole discretion, make loans to an
optionee in an amount equal to all or part of the exercise price of options held
by such optionee.
Restricted shares under the 2000 Plan may be awarded on such terms and
conditions as the Board of Directors may approve. Subject to the terms of the
2000 Plan, the Board of Directors will determine the number of restricted shares
to be awarded to each recipient and different terms and conditions may be
imposed on awards of restricted shares to the same or different recipients. The
Board of Directors also may require a recipient to remain in the employment or
service (including service as a director, advisor or consultant) of the Company
or any affiliate of the Company, for a specified minimum period of time, or else
forfeit all or a portion of such restricted shares.
All awards immediately become exercisable in full, in the case of
options, or fully vested and no longer subject to any forfeiture (unless
otherwise provided in the applicable award agreement), in the case of restricted
shares, (i) upon any merger or consolidation of the Company if the stockholders
of the Company immediately before such merger or consolidation do not own,
directly or indirectly, immediately following such merger or consolidation, more
than 50% of the combined voting power of the resulting outstanding voting
securities in substantially the same proportion as their pre-merger or pre-
consolidation ownership; (ii) upon any transfer of all or substantially all of
the business and/or assets of the Company, or assets representing over 50% of
the operating revenue of the Company; or (iii) at such time as any person who
was not, on August 4, 2000, a controlling person (as defined in Rule 405 under
the Securities Act of 1933, as amended) of the Company ("Controlling Person")
becomes either (x) the beneficial owner of over 50% of the Company's outstanding
Common Stock or the combined voting power of the Company's then outstanding
voting securities entitled to vote generally or (y) a Controlling Person.
Federal Income Tax Consequences
Stock Options
-------------
There are no federal income tax consequences to an optionee by reason
of the grant of an incentive stock option under the 2000 Plan. No income or
gain must be recognized upon the exercise of an incentive stock option unless
the option holder (i) is subject to the alternative minimum tax, (ii) is
utilizing the net issuance method of exercising his incentive stock options or
(iii) has ceased to be an employee for more than three (3) months before the
date of exercise. However, income or gain must be recognized upon the
disposition of shares obtained upon exercise of an incentive stock option. If
the shares are held for at least two years from the date of grant of the option
and one year from the date of issuance, any gain recognized on disposition of
the shares would generally be treated as a long-term capital gain for federal
income tax purposes. However, if the shares are disposed of within the periods
described in the preceding sentence (a "disqualifying disposition"), in general,
the option holder would recognize ordinary income upon such disposition equal to
the excess, if any, of (i) the lesser of (A) the fair market value of the shares
on the date of exercise and (B) the amount received by the option holder from
such disposition, over (ii) the exercise price. Currently, the federal maximum
tax rate imposed on net capital gain with respect to
<PAGE>
individuals is 28 percent (20 percent for most capital assets held for over 12
months), while the federal maximum ordinary income tax rate with respect to
individuals is 39.6 percent. Net capital gain means the excess of net long-term
capital gain over net short-term capital loss, if any. The Company will
generally not be entitled to take an income tax deduction upon the grant or
exercise of an incentive stock option, but will be entitled to a business
deduction with respect to any income recognized by an option holder upon a
disqualifying disposition (provided the Company satisfies certain reporting
requirements).
There are no federal income tax consequences to an optionee by reason
of the grant of a non-statutory stock option under the 2000 Plan. Taxable
ordinary income will normally be recognized by an optionee upon the exercise of
a non-statutory stock option in an amount equal to the excess of the fair market
value of the shares purchased on the date of exercise over the exercise price.
The Company will be entitled to a business deduction in the amount of the
ordinary income recognized by the optionee, provided the Company satisfies
certain reporting requirements. Upon disposition of such shares the optionee
will generally recognize a capital gain or loss in an amount equal to the
difference between the selling price and the sum of the amount paid for such
shares plus any amount recognized as ordinary income upon exercise of the
option. The Company will not realize any tax consequences as a result of the
disposition of shares acquired upon exercise of a non-statutory stock option.
If an option holder utilizes the net issuance method to exercise
either an incentive stock option or a non-statutory stock option, in addition to
any federal income tax consequences described above, such holder would recognize
ordinary income equal to the consideration received or deemed received by the
holder with respect to the stock options surrendered to the Company in order to
pay for such exercise. If an option holder pays the exercise price in Common
Stock, special rules would apply which could affect such holder's basis in, and
holding period of, the shares acquired upon exercise, and, consequently, the
amount and character of the gain or loss recognized by the option holder upon
subsequent disposition of such shares.
Restricted Shares
-----------------
Generally, there will be no federal income tax consequences to either
the Company or a recipient upon the award of restricted shares under the 2000
Plan which are not vested and are subject to forfeiture. A recipient will
recognize compensation income, for federal income tax purposes, to the extent
that any of the restricted shares are no longer subject to forfeiture, in an
amount equal to the fair market value of the shares that unconditionally vest at
such time less the amount paid (if any) by the recipient for such shares. The
Company generally will be entitled to a federal income tax deduction equal to
the amount of ordinary income recognized by the recipient provided the Company
meets certain reporting requirements. The Company may claim this deduction in
its tax year ending with, or immediately after, the end of the recipient's tax
year in which the recipient recognized such income. To accelerate the timing of
the tax event to the recipient, a recipient who is awarded restricted shares may
elect to recognize ordinary income in the taxable year in which the restricted
shares are awarded, in an amount equal to the fair market value of the
restricted shares received (even if such restricted shares are subject to
forfeiture) less the amount paid (if any) by the recipient for such restricted
shares. For purposes of this election, fair market value will be determined as
of the date the restricted share award is made.
Section 162(m)
--------------
Under Section 162(m) of the Code and regulations thereunder, no
federal income tax deduction by a publicly-held company is allowed for certain
types of compensation paid to certain highly compensated employees to the extent
that the amount of such compensation for a taxable year for any such individual
exceeds $1 million. Section 162(m) excludes "performance based" compensation
from its deductibility limits. Compensation realized upon the exercise of stock
options is considered "performance based" if, among other requirements, the plan
pursuant to which the options are granted has been approved by the sponsoring
company's stockholders, if it has a limit on the total number of shares that may
be covered by options issuable to any plan participant in any given period and
if the option exercise price is at least equal to the fair market value of the
underlying stock on the date of grant. The 2000 Plan meets these requirements.
Restricted shares awarded under the 2000 Plan will not be deemed to be
"performance based" compensation and therefore will not be excluded from the
Section 162(m) deductibility limits.
<PAGE>
New Plan Benefits Table
The following table sets forth the number of non-statutory stock
options that the current Independent Directors would receive annually as a
group, assuming the 2000 Plan is approved by the stockholders. The benefits
that would be received by the executive officers and employees of the Company
are not determinable at this time and are at the discretion of the Board of
Directors.
<TABLE>
<CAPTION>
Name and Position Dollar Value ($) Number of Shares
----------------- ---------------- ----------------
<S> <C> <C>
Independent Director Group (a) 100,000
</TABLE>
(a) All stock options granted under the 2000 Plan will be granted at the fair
market value of a share of Common Stock on the date of grant. The actual value,
if any, that an Independent Director may realize will depend on the excess of
the stock price over the exercise price on the date the stock option is
exercised.
PROPOSAL III
APPROVAL OF THE 2000 PERFORMANCE BONUS PLAN
The Board of Directors has approved the 2000 Performance Bonus Plan
(the "Bonus Plan"), subject to approval of the Bonus Plan by the stockholders of
the Company. The purpose of the Bonus Plan is to provide executive officers
with a meaningful incentive opportunity geared toward the achievement of
specific performance goals and is being submitted for stockholder approval to
meet the requirements for tax deductibility under Section 162(m) of the Code.
Stockholders are requested in this Proposal III to approve the Bonus
Plan. The principal features of the Bonus Plan are described in summary form
below. The affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy and entitled to vote at
the meeting will be required to ratify the Bonus Plan. Abstentions will be
counted toward the tabulation of votes cast on this proposal and will have the
same effect as negative votes. Broker non-votes are counted towards a quorum,
but are not counted for any purpose in determining whether this matter has been
approved.
Upon approval by the Company's stockholders, the Bonus Plan will
become effective as of October 6, 2000, and will remain in effect until
terminated by the Board of Directors or a committee of the Board of Directors;
provided, however, that performance goals will be submitted to the Company's
stockholders for approval every five years or as otherwise required by Section
162(m) of the Code.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" APPROVAL OF THE 2000 PERFORMANCE BONUS PLAN
The principal features of the Bonus Plan are described in summary form
below. A copy of the Bonus Plan is on file with the SEC.
Summary of the Bonus Plan
Administration
The Bonus Plan will be administered by a committee of directors
appointed by the Board of Directors, who are not current or former officers or
employees of the Company and who are "independent directors" to the extent
required by and within the meaning of Section 162(m) of the Code. Such
committee may delegate to management of the Company responsibility for day-to-
day administration of the Bonus Plan, following administrative guidelines
approved from time to time by such committee. The Board of Directors has given
the responsibility of administering the Bonus Plan to the Compensation
Committee.
Subject to the limitations of the Bonus Plan, the Compensation
Committee will from time to time: (i) select from the executive officers of the
Company, those who shall participate in the Bonus Plan, (ii) grant award
opportunities in such forms and amounts as it may determine, (iii) impose such
limitations, restrictions, and conditions upon such awards as it may deem
appropriate, (iv) adopt, amend, and rescind administrative guidelines and other
rules and regulations relating to the Bonus Plan, and (v) take all other actions
necessary or advisable for the implementation and administration of the Bonus
Plan.
The Compensation Committee, in its sole discretion, without notice, at
any time and from time to time, may modify or amend, in whole or in part, any or
all of the provisions of the Bonus Plan, or suspend or
<PAGE>
terminate it entirely; provided, however, that no such modification, amendment,
suspension, or termination may, without the consent of a participant (or his or
her beneficiary in the case of the death of the participant), reduce the right
of a participant (or his or her beneficiary, as the case may be) to a payment or
distribution under the Bonus Plan to which he or she is otherwise entitled.
Eligibility and Participation
All employees who are actively employed by the Company as executive
officers will be eligible to participate in the Bonus Plan, subject to certain
limitations. Participation in the Bonus Plan will be determined by the
Compensation Committee. Executive officers who are eligible to participate in
the Bonus Plan will be apprised of the performance goals ("Performance Goals")
and related award opportunities for the relevant Measurement Periods. For
purposes of the Bonus Plan, "Measurement Period" will mean a period of one
fiscal year and/or one fiscal quarter, as determined by the Compensation
Committee at the time the Performance Goals are established with respect to a
particular award ("Target Incentive Award") to be paid to a participant when
planned performance results are achieved.
Award Determination
The Compensation Committee must establish the Target Incentive Award
for each participating executive officer and Performance Goals for each
Measurement Period before 25% of the Measurement Period has elapsed.
Performance Goals to be used will be chosen from among the following factors, or
any combination of the following, as the Compensation Committee deems
appropriate: (a) increases in gross revenues; (b) reductions in costs; (c)
increases in earnings before income taxes, depreciation and amortization; (d)
increases in the market value of the Company's stock; (e) increases in sales of
cigarettes; (f) increases in the number of StarCure(TM) tobacco curing barns
placed on farms that supply tobacco leaf to the Company; (g) expansion of low-
TSNA tobacco processing capacity; (h) increases in sales of StarCure(TM)
tobacco; (i) agreements with third-parties for the license of the Company's
proprietary tobacco curing processes; (j) issuances of key patents; (k)
development and/or commercialization of new products; and (l) formation or
expansion of strategic alliances. The Compensation Committee may select among
the Performance Goals specified from Measurement Period to Measurement Period,
which need not be the same for each executive officer in a given year. Once
established, Performance Goals may not be changed during the relevant
Measurement Period.
At the end of each Measurement Period, awards will be computed for
each participant as determined by the Compensation Committee. Each individual
award will be based upon the achievement of Performance Goals. The amount
payable to a participant under the Bonus Plan for any fiscal year will not
exceed $2,500,000.
Termination of Employment
In the event a participant's employment is terminated, for whatever
reason, any award, in the sole discretion of the Compensation Committee, may be
reduced or eliminated to reflect the Compensation Committee's determination of
the participant's actual contribution to the achievement of the applicable
Performance Goals. However, if a participant in the Bonus Plan is in the employ
of the Company at the end of any Measurement Period, such participant shall be
entitled to the Target Incentive Awards that may be payable in respect of
Performance Goals achieved during such Measurement Period, even if subsequent to
such period the participant ceases to be employed by the Company (or any
affiliate).
Change in Control
In the event of a change in control of the Company (as defined in the
Bonus Plan), a participant as of the date of the change in control will be
entitled to the Target Incentive Awards for the Performance Goals achieved
during the Measurement Period in which the change in control occurs.
Federal Income Tax Consequences
A recipient of an award under the Bonus Plan will recognize
compensation income, for federal income tax purposes, in an amount equal to the
award. The Company generally will be entitled to a federal income tax deduction
equal to the amount of ordinary income recognized by the recipient provided the
compensation meets the requirements of Section 162(m) of the Code. The Company
may claim this deduction in its tax year ending with, or immediately after, the
end of the recipient's tax year in which the recipient recognized such income.
Under Section 162(m) of the Code and regulations thereunder, no federal income
tax deduction by a publicly held company is allowed for certain types of
compensation paid to certain highly compensated employees to the extent that the
amount of such compensation for a taxable year for any such individual exceeds
$1 million. Section 162(m)
<PAGE>
excludes "performance based" compensation from its deductibility limits.
Compensation realized upon the achievement of Performance Goals as provided in
the Bonus Plan is considered "performance based" if it meets certain
requirements. The Board of Directors believes that the Bonus Plan meets these
requirements.
PROPOSAL IV
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to stockholder ratification, the Board of Directors has
appointed the firm of Aidman, Piser & Company, P. A. ("Aidman") as independent
accountants to audit the Company's financial statements for 2000. If the
stockholders do not ratify this appointment, the appointment will be
reconsidered by the Board of Directors.
Aidman has audited the Company's financial statements since January
15, 1999. The Company has previously reported in the Company's Form 10-KSB, for
the year ended December 31, 1998, the change in principal accountants for such
fiscal year. Services provided by Aidman for the year ended December 31, 1999
included: audit of the Company's financial statements, review of the Company's
filings with the Securities and Exchange Commission, and consultation on matters
related to accounting, taxation and financial reporting. Representatives of
Aidman are expected to be present at the 2000 Annual Meeting of Stockholders, at
which they will have an opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" SUCH RATIFICATION
V
OTHER BUSINESS
The Board of Directors does not intend to present to the meeting any
business other than the matters described in this proxy statement. If any other
matter is presented to the meeting which under applicable proxy regulations need
not be included in this proxy statement or of which the Board of Directors did
not know a reasonable time before this solicitation would be presented, the
persons named in the accompanying proxy will vote proxies with respect to such
matter in accordance with their best judgment.
<PAGE>
COMPENSATION COMMITTEE REPORT
The Company did not have a Compensation Committee until after its
Annual Stockholders Meeting on December 10, 1999. Since its formation, the
Compensation Committee, comprised of Dr. Elliot D. Prager (Chair) and Leo S.
Tonkin, Esquire, has met on several occasions in order to examine the Company's
compensation structure generally, and to determine the proper levels and
components of the compensation of the Company's senior management.
The Compensation Committee anticipates adopting a number of changes to
the Company's compensation structure, and particularly to the compensation of
the Company's officers, with a view toward maximizing the deductibility of such
compensation under the Code, better aligning the interests of such officers with
the interests of the Company's stockholders and its strategic direction, and
taking into consideration the compensation of senior officers at similarly
situated companies. The Bonus Plan being submitted for stockholder approval at
the 2000 Annual Meeting is one of these changes. The Compensation Committee is
obligated to recognize and reward performance which increases shareholder value
and will exercise its discretion in determining whether or not to conform the
Company's executive compensation plans to the approach provided for in the Code.
Dr. DeLorenzo served as the Company's Chief Executive Officer from
October 1998 to November 1999. He was not employed by the Company and was not
paid a salary, cash or any other compensation in connection with his position as
Chief Executive Officer. However, in light of his unique academic and
scientific experience that senior management believed Dr. DeLorenzo would bring
to the Company, as well as his anticipated contributions to the Company, he was
granted stock options to purchase up to an aggregate of 1,000,000 shares of the
Company's common stock. Mr. Williams was elected the Company's Chief Executive
Officer in November 1999. The Committee has been evaluating the compensation of
Mr. Williams along with the Company's other executive officers. The Company's
two other executive officers during 1999 were compensated in accordance with
employment contracts which were approved by the Board of Directors. In
approving such employment contracts, the Board of Directors considered the level
of responsibility at the Company of the individuals involved, and in one case
gave strong consideration to the fact that the employment contract was an
inducement for the individual to resign his partnership at a major law firm.
Elliot D. Prager, M.D. Leo S. Tonkin, Esquire
(Chair)
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for each individual who served as
Chief Executive Officer and the other most highly compensated officers of the
Company in 1999 (collectively, the "Named Executive Officers"), certain
information concerning their compensation.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
--------------------------------------------------------------------------------------------------------------------------------
Other Annual Restricted Securities
Salary Bonus Compensation Stock Underlying All Other
Name and Principal Position Year ($) ($) ($) Award ($)/1/ Options (#) Compensation
--------------------------- ---- --- --- --- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jonnie R. Williams, 1999 2,400,000 -- -- -- -- --
Chief Executive Officer/2/ 1998 400,000 -- -- -- -- --
1997 -- -- 565,000/3/ -- -- --
Robert J. DeLorenzo, M.D., 1999 -- -- 17,800 -- 1,000,000 --
Ph.D., M.P.H. /4/ 1998 -- -- -- -- -- --
James A. McNulty, 1999 206,064 -- -- -- 200,000 --
Chief Financial Officer/5/ 1998 29,423 80,000 -- 250,000 -- $15,000/6/
Paul L. Perito, Esquire, 1999 350,432 250,000/8/ 25,000/9/ -- 1,000,000 --
Chairman, President and Chief
Operating Officer/7/
Malcolm L. Bailey/10/ 1999 118,000 -- -- -- 200,000 $ 8,304
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Company did not award any stock appreciation rights to the executive
officers or make any long-term 2000 Plan payouts in 1999, 1998 and 1997.
The value of the restricted stock has been determined by multiplying the
number of shares by the closing bid and asked prices as of the day prior to
the date of grant .
/2/ Mr. Williams was appointed Chief Executive Officer in November 1999. Mr.
Williams served as Senior Vice President of Marketing and Product
Development of the Company from May 1999 to November 1999 and served as the
Company's Chief Operating Officer and Executive Vice President from October
1998 through May 1999 .
/3/ Represents management fees paid to Mr. Williams prior to his employment
with the Company.
/4/ Dr. DeLorenzo served as the Company's Chief Executive Officer from October
1998 until November 1999. During 1998 and 1999, Dr. DeLorenzo did not
receive compensation from the Company for serving as Chief Executive
Officer. Dr. DeLorenzo received the stock options listed, reimbursement for
expenses and cash compensation of $17,800 for consulting services.
/5/ Mr. McNulty was appointed to the position of Chief Financial Officer of the
Company in October 1998 and resigned from such position in April 2000.
/6/ Represents reimbursement for temporary housing in Richmond, Virginia.
/7/ Mr. Perito was appointed as the Company's President and Chief Operating
Officer in November 1999 and Chairman in August 2000. Mr. Perito served as
the Company's Executive Vice President, General Counsel, Secretary and
Chief Ethics Officer from June 1999 until November 1999.
/8/ The Company paid Mr. Perito $250,000 in the form of a signing bonus in 1999
and a bonus of $250,000 in March 2000, based on the Company's and Mr.
Perito's performance in 1999.
/9/ Represents the difference between the price paid by Mr. Perito for
2,000,000 shares of the Company's Common Stock and the fair market value of
such stock as determined by the Company in compliance with Internal Revenue
Service regulations .
/10/ Mr. Bailey served as the Company's President from October 1998 until
November 1999.
<PAGE>
Option Grants During 1999
The following table sets forth, for each Named Executive Officer,
certain information concerning stock options granted to them during 1999. We
have never issued stock appreciation rights. Options were generally granted at
an exercise price equal to the fair market value of the Common Stock at the date
of grant. The term of each option granted is generally ten years from the date
of grant. Options may terminate before their expiration dates, if the
optionee's status as an employee or a consultant is terminated or upon the
optionee's death or disability.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Rates of Stock
Price Appreciation for
Individual Grants Option Term/1/
--------------------------- --------------------------
% of Total
Options
Granted to
Employees Exercise or Market Price
Options in Fiscal Base Price on Date of
Name Granted(#) Year ($/Sh) Grant ($) Expiration Date 5%(S) 10%($)
---- ---------- ---- ------ --------- --------------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Jonnie R. Williams -- -- -- -- -- -- --
Robert J. DeLorenzo, 500,000 20.83 2.00 2.00 3/9/09 628,895 1,593,742
M.D., Ph.D., M.P.H.
500,000 20.83 3.00 2.00 3/9/09 628,895 1,593,742
James A. McNulty 200,000 8.33 2.00 2.00 10/15/09 251,558 637,497
Paul L. Perito, Esquire 1,000,000 41.67 1.685 1.685 7/1/09 1,059,687 2,685,456
Malcolm L. Bailey 200,000 8.33 1.00 2.00 4/12/09 125,779 318,749
</TABLE>
1/ The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and
therefore are not intended to forecast possible future appreciation, if
any, of the stock price of the Company. If the Company's stock price were
in fact to appreciate at the assumed 5% or 10% annual rate for the ten year
term of these options, a $1,000 investment in the Common Stock of the
Company would be worth $1,629 and $2,594, respectively, at the end of the
term.
----------
Aggregated Option Exercises in 1999 and Year-End Option Values
The following table sets forth, for each Named Executive Officer,
certain information concerning options exercised during fiscal 1999 and the
number of shares subject to both exercisable and unexercisable stock options as
of December 31, 1999. The values for "in-the-money" options are calculated by
determining the difference between the fair market value of the securities
underlying the options as of December 31, 1999 ($8.0625 per share) and the
exercise price of the officer's options. We have never issued stock
appreciation rights.
<TABLE>
<CAPTION>
Number of Securities
Number of Underlying Unexercised Value of Unexercised In-
Shares Options at The-Money Options at
Acquired on Value December 31, 1999 December 31, 1999($)
------------------------------- -------------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jonnie R. Williams -- -- -- -- -- --
Robert J. DeLorenzo, M.D., -- -- -- 1,000,000 -- 5,562,500
Ph.D., M.P.H.
James A. McNulty -- -- 200,000 -- 1,212,500 --
Paul L. Perito, Esquire -- -- 1,000,000 -- 6,375,000 --
Malcolm L. Bailey -- -- 200,000 1,412,500 --
</TABLE>
The Company does not have a defined benefit plan or actuarial pension plan.
During 1999, the Company did not have a "long-term 2000 Plan", and the
Company did not make any "long-term incentive awards", as such terms are
defined in Item 402 of Regulation S-K. During 1999, no stock options were
exercised by any optionee.
<PAGE>
Performance Graph
The following Performance Graph compares the performance of the
Company's cumulative stockholder return with that of a broad market index (S&P
500) and a published industry index (S&P Tobacco Index) for each of the most
recent two fiscal years. The cumulative stockholder return for shares of Common
Stock is calculated assuming that $100 was invested on February 6, 1998, the
date of the merger between Eye Technology, Inc. and the Company. The total
return of each of the indices was calculated assuming $100 was invested on
December 31, 1997. The performance of the indices is shown on a total return
(dividends reinvested) basis. The Company paid no cash dividends during the
periods shown. The graph lines merely connect year-end dates and do not reflect
fluctuations between those dates.
The S&P Tobacco Index includes leaf tobacco dealers and manufacturers
of cigarettes and other tobacco products. While the Company currently derives
most of its revenues from the sale of cigarettes, its central focus is the
reduction of the range of serious health hazards associated with the use of
tobacco products. Accordingly, Star's primary corporate mission is to
demonstrate the commercial viability of less harmful tobacco products and to
encourage other tobacco manufacturers to utilize and/or license Star's
proprietary curing technology. Star is also involved in the research and
development of tobacco cessation products. For these reasons, the Company does
not believe that the S&P Tobacco Index is closely representative of the
Company's business. However, the unique nature of the Company's business does
not easily lend itself to comparison with other industry indices.
Plotpoints for Star Scientific, Inc. Proxy Statement
S&P 500 S&P Tobacco Index Star Scientific Inc.
Dec-97 100 100 100
Dec-98 128.3186 154.7216 379.2135
Dec-99 155.3098 76.04065 905.8989
<PAGE>
Employment Contracts, Termination of Employment and Change-In-Control
Arrangements
As of June 15, 1999, in consideration for Mr. Perito's resignation of
full-time employment as a senior partner of PHJ&W, the Company entered into a
three-year employment agreement with Mr. Perito, which was modified on December
1, 1999 (the "Employment Contract"), pursuant to which the Company is obligated
to pay Mr. Perito an annual salary of not less than $1,200,000 ("Base Salary").
In addition to the Base Salary, the Company has paid Mr. Perito $250,000 in the
form of a signing bonus and paid Mr. Perito a bonus of $250,000 in 2000, based
on the Company's and Mr. Perito's performance (as defined in the Employment
Contract). The Company also is obligated to maintain for the term of the
Employment Contract a term life insurance policy in the amount of $1,500,000 and
a disability insurance policy for the amount of $35,000 per month for the
benefit of Mr. Perito and/or his beneficiaries.
In June 1999, the Company sold 2,000,000 shares of Common Stock to Mr.
Perito for $1.00 per share, for which Mr. Perito delivered to the Company a
promissory note in the principal amount of $2,000,000, bearing interest at 7%
per annum (the "Note"). The interest on the Note, which is non-recourse to Mr.
Perito, is payable annually and the unpaid balance of the Note, of which 85% is
non-recourse to Mr. Perito, is payable in full on the fifth anniversary date of
the Note. Under the Employment Contract, Mr. Perito also was awarded a stock
option to purchase up to 1,000,000 shares of Common Stock, at a purchase price
of $1.685 per share, which was fully vested as of June 15, 1999. The Employment
Contract provides for Mr. Williams to provide security for the obligations of
the Company thereunder.
Upon termination by the Company of the Employment Contract without
Cause (as defined in the Employment Contract) or by Mr. Perito for Good Reason
(as defined in the Employment Contract), the Company will be obligated to pay to
Mr. Perito all salary, benefits, bonuses and other compensation that would be
due under the Employment Contract through the end of the term of the Employment
Contract. Upon termination of Mr. Perito's employment as a result of his death
or disability, the Company will be obligated to pay to Mr. Perito all salary,
benefits, bonuses and other compensation that would be due under the Employment
Contract for a period of one year from the date of such termination.
In connection with certain transactions that may result in a change in
voting control of the Company (each, a "Disposition Transaction") or certain
changes in the Company's senior management, Mr. Perito will be entitled to
terminate the Employment Contract, to a one-time termination payment of
$2,500,000 and to participate in the Disposition Transaction upon the same terms
and conditions as certain principal stockholders of the Company. The Company
also will be obligated to reimburse Mr. Perito for any taxes which may become
due as a result of the application of Section 280G of the Code to the payment
described in the preceding sentence.
Pursuant to the 1998 Plan, all options immediately become fully vested
upon (i) the acquisition (other than from the Company) by any "Person" (as the
term is used for purposes of Sections 13(d) or 14(d) of the Exchange Act) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty percent (20%) or more of the combined voting power of
the Company's then outstanding voting securities; (ii) the individuals who,
immediately after the 1998 Annual Meeting of Stockholders of the Company were
members of the Board of Directors (the "Incumbent Board"), cease for any reason
to constitute at least a majority of the Board of Directors; provided, however,
that if the election, or nomination for election by the Company's stockholders,
of any new Director was approved by a vote of at least two-thirds of the
Incumbent Board, such new Director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board; or (iii) approval by the
stockholders of the Company of (a) a merger or consolidation involving the
Company if the Company's stockholders, immediately before such merger or
consolidation, do not, as a result of such merger or consolidation, own,
directly or indirectly, more than seventy percent (70%) of the combined voting
power of the then outstanding voting securities of the corporation resulting
from such merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting securities of the Company
outstanding immediately before such merger or consolidation or (b) a complete
liquidation or dissolution of the Company or an agreement for the sale or other
disposition of all or substantially all of the assets of the Company.
Pursuant to the 2000 Plan, if approved, all options and restricted
shares immediately become fully vested upon (i) any consolidation or merger
involving the Company if the shareholders of the Company immediately before such
merger or consolidation do not own, directly or indirectly, immediately
following such merger or consolidation, more than fifty percent (50%) of the
combined voting power of the outstanding voting securities of the corporation
resulting from such merger or consolidation in substantially the same proportion
as their ownership of the combined voting power of the outstanding voting
securities of the Company immediately before such merger or consolidation; (ii)
any sale, lease, license, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the business
and/or assets of the Company or assets representing over
<PAGE>
50% of the operating revenue of the Company; or (iii) any person (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act) who is not, on the date
hereof, a Controlling Person of the Company shall become (x) the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of over 50% of
the outstanding Common Stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally or (y) a Controlling
Person of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 24, 2000 certain
information with respect to the beneficial ownership of Common Stock by each
beneficial owner of more than 5% of the Company's voting securities, each
Director and each Named Executive Officer, and all Directors, Named Executive
Officers and officers of the Company as a group, except as qualified by the
information set forth in the notes to this table.
<TABLE>
<CAPTION>
Shares
Beneficially
Name Owned/(1)/ Percentage Owned/(2)/
---- ---------- --------------------
<S> <C> <C>
Jonnie R. Williams/(3)/ 17,215,264 29.3%
801 Liberty Way
Chester, VA 23836
Irrevocable Trust #1 FBO/(4)/ 15,990,214 27.2%
Francis E. O'Donnell, M.D.
709 The Hamptons Lane
Chesterfield, MO 63017
Prometheus Pacific Growth Fund, LDC 5,202,640 8.9%
P.O. Box 1062
George Town, Grand Cayman, B.W.I.
Francis E. O'Donnell, Jr., M.D./(5)/ 3,368,362 5.7%
709 The Hamptons Lane
Chesterfield, MO 63017
Paul L. Perito, Esquire/(6)/ 3,019,000 5.1%
801 Liberty Way
Chester, VA 23836
Robert DeLorenzo, M.D., Ph.D., M.P.H./(7)/ 1,521,000 *
Malcolm L. Bailey/(8)/ 301,000 *
James A. McNulty, C.P.A./(9)/ 300,000 *
Elliot D. Prager, M.D./(10)/ 127,445 *
Mark W. Johnson/(11)/ 93,000 *
Leo S. Tonkin, Esquire/(12)/ 50,000 *
Christopher G. Miller/(13)/ 38,000 *
Martin L. Leader/(14)/ - *
All Directors, Named Executive Officers and Officers 21,526,709 36.7%
(12 Persons)/(15)/
</TABLE>
* Less than one percent.
/(1)/ Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes shares over which the
indicated beneficial owner exercises voting and/or investment power.
Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days, by October 23, 2000, are deemed outstanding
for purposes of computing the percentage ownership of the person holding
such securities, but not deemed outstanding for purposes of computing the
percentage ownership of any other person. Except as indicated, and
subject to community property laws where applicable, the persons named in
the table above have sole voting and investment power with respect to all
shares of voting stock shown as beneficially owned by them.
/(2)/ The "Percentage Owned" calculations are based on the outstanding shares
of Common Stock as of August 24, 2000.
<PAGE>
/(3)/ Includes 16,115,264 shares held by Mr. Williams. Also includes 1,100,000
shares held by Regent Court Technologies, LLC of which Mr. Williams is
deemed to have beneficial ownership by virtue of his membership in Regent
Court Technologies, LLC and over which he shares voting and investment
power with Dr. O'Donnell.
/(4)/ Includes 15,990,214 shares owned by a trust for the benefit of Francis E.
O'Donnell, Jr., M.D., over which Kathleen O'Donnell has sole voting and
investment power. Excludes 2,268,362 shares owned by a trust for the
benefit of Dr. O'Donnell's children, over which Ms. O'Donnell has sole
voting and investment power.
/(5)/ Includes 2,268,362 shares owned by a trust for the benefit of Mr.
Williams' children, over which Dr. O'Donnell has sole voting and
investment power. Also includes 1,100,000 shares held by Regent Court
Technologies, LLC of which Dr. O'Donnell is deemed to have beneficial
ownership by virtue of his membership in Regent Court Technologies, LLC
and over which he shares voting and investment power with Mr. Williams.
/(6)/ Includes 2,000,000 shares held by Mr. Perito, 1,000,000 shares which Mr.
Perito has the right to acquire upon exercise of stock options and an
aggregate of 19,000 shares held by his children or in trust for the
benefit of his children, of which Mr. Perito disclaims beneficial
ownership.
/(7)/ Includes 30,000 shares held by Dr. DeLorenzo's children, over which Dr.
DeLorenzo disclaims beneficial ownership, 270,000 shares owned jointly
with Dr. DeLorenzo's spouse and 1,000,000 shares which Dr. DeLorenzo has
the right to acquire upon exercise of stock options.
/(8)/ Includes 101,000 shares held by Mr. Bailey and 200,000 shares which Mr.
Bailey has the right to acquire upon exercise of stock options.
/(9)/ Includes 100,000 shares held by Mr. McNulty and 200,000 shares which Mr.
McNulty has the right to acquire upon exercise of stock options. Mr.
McNulty resigned as the Company's Chief Financial Officer in April 2000.
/(10)/ Includes 50,000 shares which Dr. Prager has the right to acquire upon
exercise of stock options.
/(11)/ Includes 93,000 shares which Mr. Johnson has the right to acquire upon
exercise of stock options.
/(12)/ Includes 50,000 shares which Mr. Tonkin has the right to acquire upon
exercise of stock options.
/(13)/ Includes 38,000 shares which Mr. Miller has the right to acquire upon
exercise of stock options. Excludes 25,000 shares which Mr. Miller has
the right to acquire upon exercise of stock options which are not
exercisable within 60 days.
/(14)/ Excludes 50,000 shares which Mr. Leader has the right to acquire upon
exercise of stock options which are not exercisable within 60 days.
/(15)/ Includes 2,593,000 shares which such officers and directors have the
right to acquire upon exercise of stock options. Does not include 50,000
shares which such officers and directors have the right to acquire upon
the exercise of options which are not exercisable within 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company acquired its manufacturing facility in Petersburg,
Virginia in June 1995 from a partnership comprised of Francis E. O'Donnell, Jr.,
M.D., Jonnie R. Williams, the Chief Executive Officer of the Company and Paul
Lamb, the President and Chief Executive Officer of ST&P for a note in the
principal amount of $300,000, which was subsequently reissued as three notes of
$100,000 each payable to Dr. O'Donnell, a trust for the benefit of Mr. Williams'
children and Mr. Lamb. The notes to Dr. O'Donnell and the Williams' children's
trust were paid in 1998 and the note to Mr. Lamb was paid in 1999.
Mr. Williams and Dr. O'Donnell jointly own an airplane. The Company
has utilized the airplane for business travel throughout the United States and
to Mexico to client locations that are not near airports with regularly
scheduled or frequent commercial airline services. Payments made by the Company
to Dr. O'Donnell and Mr. Williams with respect to aircraft expenses were
$442,238 in 1999 and $185,544 in 1998, and were billed at cost.
During 1998, Mr. Williams made loans to the Company on a short-term
basis at the minimum level of interest provided for by the Internal Revenue
Service. These loans amounted to $710,000 in 1998. All such loans were repaid
in full during the year in which they were made. On December 31, 1999, Mr.
Williams signed a promissory note for $1,087,806. The promissory note is
repayable on December 31, 2000 and bears interest at 5.66%.
The Company paid to Golden Leaf Tobacco Company ("Golden Leaf"), a
company owned by Malcolm L. "Mac" Bailey, a director of the Company and the
Company's President from October 1998 to November 1999, approximately $610,000
in 1999 and $60,000 in 1998 for tobacco purchases and commissions, and the
Company received $580,000 in 1999 and $165,000 in 1998 for the sale of tobacco
to Golden Leaf.
Additionally, pursuant to a consulting agreement entered into between
the Company and Mr. Bailey, Mr. Bailey agreed to provide consulting services to
the Company. The consulting agreement will expire in October 2003, unless
extended at the option of the Company. The Company is required to pay Mr.
Bailey $80,000 per year plus a commission for flue-cured tobacco processed by
Golden Leaf. For the 2000 growing season, such commission will be 8.5 cents per
pound for flue-cured tobacco processed by Golden Leaf at the Company's Chase
City, Virginia processing center.
In 1999, the Company paid $940,000 to PHJ&W with respect to various
legal matters. Mr. Perito is senior counsel and a former partner of such firm.
In 2000, the Company paid Mark W. Johnson, a director of the Company,
$100,000 for consulting services performed up until June 30, 2000. Such
services rendered by Mr. Johnson included the development of a strategic plan
for the Company and recommendations to implement such plan. In 1999, Mr.
<PAGE>
Johnson received options to purchase 43,000 shares of Common Stock at an
exercise price of $3.375 in exchange for consulting services.
In 1999, Mr. Miller received options to purchase 38,000 shares of
Common Stock at an exercise price of $3.375 in exchange for consulting services.
STOCKHOLDER INFORMATION
ANY PERSON FROM WHOM PROXIES FOR THE MEETING ARE SOLICITED MAY OBTAIN,
IF NOT ALREADY RECEIVED, FROM THE COMPANY, WITHOUT CHARGE, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1999, BY WRITTEN REQUEST ADDRESSED TO STAR SCIENTIFIC, INC., 801 LIBERTY WAY,
CHESTER, VIRGINIA 23836, ATTENTION: INVESTOR RELATIONS DEPARTMENT. THE ANNUAL
REPORT ON FORM 10-K IS NOT SOLICITING MATERIAL AND IS NOT INCORPORATED IN THIS
DOCUMENT BY REFERENCE.
FUTURE STOCKHOLDER PROPOSALS
The Company must receive at its principal office before February 14,
2001, any proposal which a stockholder wishes to submit for the 2001 Annual
Meeting of Stockholders, if the proposal is to be considered by the Board of
Directors for inclusion in the proxy materials for that meeting.
Esteban A. Ferrer
Secretary
September 5, 2000
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
STAR SCIENTIFIC, INC.
ANNUAL MEETING OF STOCKHOLDERS
October 6, 2000
10:00 a.m.
Virginia Biotechnology Research Park
800 E. Leigh Street
Richmond, Virginia
--------------------------------------------------------------------------------
Star Scientific, Inc. proxy
---------------------------------------------------------------------
This proxy is solicited by the Board of Directors for use at the Annual
Meeting on October 6, 2000.
Whether or not you expect to attend the meeting, you are urged to execute
and return this proxy, which may be revoked at any time prior to its use.
Christopher G. Miller, Paul L. Perito and Jonnie R. Williams, and each of
them, with full power of substitution, are hereby authorized to represent
and to vote the shares of Common Stock of Star Scientific, Inc. held of
record by the undersigned on August 24, 2000, as directed on the reverse
side and, in their discretion, on all other matters which may properly come
before the Annual Meeting of Stockholders to be held on October 6, 2000,
and at any adjournments, which matters were unknown to the Board of
Directors prior to making this solicitation, as if the undersigned were
present and voting at the meeting.
The shares represented by this proxy will be voted as directed by the
stockholder. Where no direction is given when the duly executed proxy is
returned, such shares will be voted FOR all items.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
See reverse for voting instructions.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(Please detach here)
The Board of Directors Recommends a Vote FOR all Items.
1. Election of directors Class Two Nominees: Class Three Nominee: [_] Vote FOR [_] To WITHHOLD
duly nominated: 01 Mark W. Johnson 04 Christopher G. Miller all nominees authority to vote
02 Martin R. Leader, Esquire (except as marked) for all nominees
03 Jonnie R. Williams
(Instructions: To withhold authority to vote for any indicated nominee, ______________________________________________
write the number(s) of the nominee(s) in the box provided to the right.) ______________________________________________
2. Approval of 2000 Plan: Approve the Company's 2000 Equity Incentive Plan. [_] For [_] Against [_] Abstain
3. Approval of Bonus Plan: Approve the Company's 2000 Performance Bonus Plan. [_] For [_] Against [_] Abstain
4. Ratification of Accountants: Ratify the appointment of Aidman, Piser &
Company, P.A. as independent accountants for 2000. [_] For [_] Against [_] Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
Address Change? Mark Box [_] Indicate changes below: Date _____________________________________
______________________________________________
______________________________________________
Signature(s) in Box
NOTE: Signature should agree with the name
stenciled hereon. When signing as executor,
administrator, trustee, guardian or attorney,
please give full title as such. For joint
accounts or co-fiduciaries, all joint owners or
co-fiduciaries should sign. For an account in
the name of two or more persons, each should
sign or if one signs, he or she should attach
evidence of authority.
</TABLE>
<PAGE>
Annex A
STAR SCIENTIFIC, INC.
2000 EQUITY INCENTIVE PLAN
1. Purpose.
-------
The purposes of the Star Scientific, Inc. 2000 Equity Incentive Plan (the
"Plan") are to provide additional incentives to those officers, key employees,
nonemployee directors and consultants of Star Scientific, Inc. and its
subsidiaries (the "Company") whose substantial contributions are essential to
the continued growth and success of the Company's business, to strengthen their
commitment to the Company, to motivate those officers, key employees,
nonemployee directors and consultants to perform their assigned responsibilities
faithfully and diligently, and to attract and retain competent and dedicated
individuals whose efforts will result in the long-term growth and profitability
of the Company. To accomplish these purposes, this Plan provides that the
Company may grant Incentive Stock Options, Non-Statutory Stock Options and
Restricted Shares (as each term is hereinafter defined).
Awards pursuant to this Plan shall be authorized by action of the Board of
Directors of the Company (or a Committee designated by the Board of Directors)
and may be (i) incentive stock options ("Incentive Stock Options") to purchase
shares of the Company's Common Stock, par value $.01 per share ("Common Stock"),
meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) non-statutory stock options to purchase shares of
Common Stock, which are not intended to meet the requirements of Code Section
422 ("Non-Statutory Stock Options" and, together with Incentive Stock Options,
"Options"), and/or (iii) shares of Common Stock awarded pursuant to the
provisions of Section 9 of this Plan ("Restricted Shares" and, together with
"Options", "Awards").
2. Administration.
--------------
This Plan will be administered by the Board of Directors of the Company, whose
construction and interpretation of the terms and provisions of this Plan shall
be final and conclusive. The Board of Directors may in its sole discretion make
Awards and authorize the Company to issue shares of Common Stock pursuant to
such Awards, as provided in, and subject to the terms and conditions of, this
Plan. The Board shall have authority, subject to the express provisions of this
Plan, to construe the respective written agreements setting forth the terms and
conditions of an Award (each, an "Award Agreement"), to prescribe, amend and
rescind rules and regulations relating to this Plan, to determine the terms and
provisions of Award Agreements, which need not be identical, to advance the
lapse of any waiting, forfeiture or installment periods and exercise dates, and
to make all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration of this Plan. The Board of
Directors may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or in any Award Agreement in the manner and to the
extent it shall deem expedient to carry this Plan into effect and it shall be
the sole and final judge of such expediency. No director shall be liable for
any action or determination taken or made in good faith under or with respect to
this Plan or any Award. The Board of Directors may, to the full extent
permitted by law, delegate any or all of its
<PAGE>
powers under this Plan to a committee (the "Committee") of two or more directors
each of whom is a Non-Employee Director (as hereinafter defined), and if the
Committee is so appointed all references in this Plan to the Board of Directors
shall mean and relate to such Committee to the extent of the powers so
delegated. For purposes of this Plan, a director or member of such Committee
shall be deemed to be a "Non-Employee Director" only if such person qualifies as
a "Non-Employee Director" within the meaning of paragraph (b)(3) of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") or any successor rule.
3. Stock Subject to Plan.
---------------------
(a) Subject to adjustment as provided in paragraph (b) of this Section 3
and Sections 12 and 13 hereof, the maximum number of shares of Common
Stock which may be issued and sold pursuant to Awards made under this
Plan is 1,000,000 shares. Such shares may be authorized and unissued
shares or may be shares issued and thereafter acquired by the Company.
If either (i) Restricted Shares are forfeited following their award
under this Plan; or (ii) Options granted under this Plan are canceled,
or expire or terminate for any reason without having been exercised in
full, the forfeited Restricted Shares, or the unpurchased shares of
Common Stock subject to any such Option, as the case may be, shall
again be available for subsequent Awards under this Plan. Restricted
Shares, Options and shares of Common Stock issuable upon exercise of
Options granted under this Plan may be subject to transfer
restrictions, repurchase rights or other restrictions as shall be
determined by the Board of Directors.
(b) The maximum number of shares of Common Stock which may be issued and
sold pursuant to Awards made under this Plan automatically will be
increased from time to time by up to 4,000,000 shares of Common Stock
covered by options granted under the Star Scientific, Inc. 1998 Stock
Option Plan ("1998 Plan") which remain unexercised at the time of
their cancellation, expiration or termination pursuant to the terms of
the 1998 Plan.
4. Eligibility.
-----------
Awards shall be made only to persons who are, at the time of grant, officers,
employees or directors of, or consultants or advisors to (provided, in the case
--------
of Incentive Stock Options, such directors or officers are then also employees
of), the Company or any Parent Corporation or Subsidiary (as defined in Section
16 hereof). A person who has been granted an Award may, if such person is
otherwise eligible, be granted an additional Award or Awards if the Board of
Directors shall so determine.
5. Award Agreements.
----------------
As a condition to the grant of an Award under this Plan, each recipient of an
Award shall sign an Award Agreement ("Award Agreement") not inconsistent with
this Plan in such form, and providing for such terms and conditions, as the
Board of Directors shall determine at the time such Award is authorized to be
granted. Such Award Agreements need not be identical but shall
2
<PAGE>
comply with, and be subject to, the terms and conditions set forth herein. No
individual may be granted, in any twelve-month period, Options under this Plan
which are exercisable with respect to more than 500,000 shares of Common Stock.
6. Options.
-------
(a) Purchase Price. The purchase price per share of Common Stock
--------------
deliverable upon the exercise of an Option (hereinafter sometimes
referred to as the "exercise price") shall be not less than the Fair
Market Value of the Common Stock as determined by the Board of
Directors on the date such Option is granted. The "Fair Market Value"
of the Common Stock on any date (the "Value Date") shall mean (i) the
closing price of the Common Stock, as reported on the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") or, if the Common Stock is listed on a stock exchange, the
principal stock exchange on which the Common Stock is listed, on the
last trading day prior to the Value Date for which a closing price is
available, or (ii) if the Board of Directors determines, in the
exercise of its business judgment, that such closing price does not
properly reflect the Fair Market Value of the Common Stock on the
Value Date, then such other price as may then be determined in good
faith by the Board of Directors. If the Common Stock is not reported
on NASDAQ or listed on any stock exchange, then the Fair Market Value
shall be determined in good faith by the Board of Directors.
(b) Duration. Each Option and all rights thereunder shall expire on such
--------
date as the Board of Directors shall determine on the date such Option
is granted, but in no event may any Option remain in effect after the
expiration of ten years from the day on which such Option is granted
(or five years in the case of Options described in paragraph (b) of
Section 8 and in Section 10 hereof), and such Option shall be subject
to earlier termination as provided in this Plan. Notwithstanding the
foregoing, except as provided under or pursuant to the Code with
respect to Incentive Stock Options, if at any time during the last six
(6) months of the term of any Option granted under this Plan, the
holder thereof is precluded from selling shares of Common Stock
underlying such Option solely by reason of the application to such
holder of the Company's Insider Trading Compliance Manual (or similar
successor policy), the term of such Option shall be deemed
automatically extended by a period equal to six (6) months beginning
with the first day during which such Option holder shall no longer be
so precluded.
(c) Transfer Restrictions. Except as otherwise approved by the Board of
---------------------
Directors, no Option granted under this Plan shall be assignable or
transferable by the person to whom it is granted, either voluntarily
or by operation of law, except by will or the laws of descent and
distribution. Accordingly, during the life of the holder thereof, an
Option shall be exercisable only by or on behalf of such person.
(d) Payment of Exercise Price. Payment of the exercise price of an Option
-------------------------
shall be in cash or, in the sole discretion of the Board of Directors,
in capital stock of the Company, by the surrender of other rights to
purchase capital stock of the Company (including Options) or by any
other lawful means. The Company may, in its sole discretion, make
loans to an Option holder in an amount equal to all or part of the
exercise price of
3
<PAGE>
Options held by such Option holder; provided, that the grant of a loan
on any occasion to one or more Option holder(s) shall not obligate the
Company to grant loans on any other occasion to such holder, or to any
other Option holder.
(e) Exercise of Options. Each Option granted under this Plan shall be
-------------------
exercisable either in full or in installments at such time or times
and during such period as shall be set forth in the Award Agreement
evidencing such Option; provided, however, that, subject to the
-------- -------
exception set forth in paragraph (b) above, (i) no Option granted
under this Plan shall have a term in excess of ten years from the date
of grant (or five years in the case of Options described in paragraph
(b) above), and (ii) the periods of time following an Option holder's
cessation of employment with the Company, any Parent Corporation or
Subsidiary, or service as an Independent Director (as defined in
Section 10 hereof), or as consultant or advisor to the Company, any
Parent Corporation or Subsidiary, or following an Option holder's
death or disability, during which an Option may be exercised, as
provided in paragraph (g) below, shall not be included for purposes of
determining the number of shares of Common Stock with respect to which
such Option may be exercised.
(f) Rights as a Stockholder. The holder of an Option shall have no rights
-----------------------
as a stockholder with respect to any shares covered by the Option
until the date of issue of a stock certificate to such person for such
shares. Except as otherwise expressly provided in the Plan, no
adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
(g) Effect of Cessation of Service. Notwithstanding anything contained in
------------------------------
this Plan to the contrary, no Option may be exercised unless, at the
time of such exercise, the recipient is, and has been continuously
since the date of grant of such person's Option, employed by
(including service as an Independent Director, consultant or advisor)
one or more of the Company, a Parent Corporation or a Subsidiary,
except that if and to the extent the applicable Award Agreement so
provides:
(i) the Option may be exercised within (a) the period of three
months after the date the holder thereof ceases to be
employed by any of the foregoing entities (or within such
lesser period as may be specified in the Award Agreement)
for any reason other than death or disability or (b) any
period, as determined by the Board in its sole discretion
after the date the holder thereof ceases to serve as an
Independent Director of or consultant or advisor to any of
the foregoing entities (or within such lesser period as may
be specified in the Award Agreement) for any reason other
than death or disability (either such period being referred
to herein as the "Applicable Exercise Period");
(ii) if the holder thereof dies while in the employ of, or
serving as an Independent Director of or consultant or
advisor to, the Company, a Parent Corporation or a
Subsidiary or within the Applicable Exercise Period after
such holder ceases to be such an employee, Independent
Director, consultant or advisor, the Option may be exercised
by the
4
<PAGE>
person to whom it is transferred by will or the laws of
descent and distribution within the period of one year
after the date of death (or within such lesser period as
may be specified in the Award Agreement); and
(iii) if the holder thereof becomes disabled (within the meaning
of Section 22(e)(3) of the Code) while in the employ of or
while serving as an Independent Director of or consultant
or advisor to the Company, a Parent Corporation or a
Subsidiary, or within the Applicable Exercise Period after
such holder ceases to be such an employee, Independent
Director, consultant or advisor, the Option may be
exercised within the period of one year after the date such
holder ceases to be such an employee or Independent
Director of, or consultant or advisor to, any of the
foregoing entities because of such disability (or within
such lesser period as may be specified in the Award
Agreement);
provided, however, that in no event may any Option be exercised after the
-------- -------
expiration date of the Option, except to the extent provided in paragraph (b)
above;
In the case of a holder of a Non-Statutory Stock Option whose relationship with
the Company or any Parent Corporation or Subsidiary changes during the term of
such Option in a manner that does not constitute a complete separation therefrom
(for example, from employee to consultant or director, or vice versa), the Board
shall have authority to determine whether or not such change constitutes a
cessation of employment or service for purposes of this paragraph.
7. Other Awards.
------------
Awards of Options may be made alone, in addition to or in tandem with Awards of
Restricted Shares under the Plan.
8. Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock Options
shall be specifically designated as Incentive Stock Options and shall be subject
to the following additional terms and conditions:
(a) Dollar Limitation. The aggregate Fair Market Value (determined as of
-----------------
the date of grant) of the Common Stock with respect to which Incentive
Stock Options granted to any employee under the Plan (and under any
other incentive stock option plans of the Company, any Parent
Corporation or Subsidiary) are exercisable for the first time shall
not exceed $100,000 in any one calendar year. In the event that
Section 422 of the Code is amended to alter the limitation set forth
therein so that following such amendment such limitation shall differ
from the limitation set forth in this paragraph (a), the limitation of
this paragraph (a) shall be automatically adjusted accordingly.
5
<PAGE>
(b) 10% Stockholder. If any employee to whom an Incentive Stock Option is
---------------
to be granted under the Plan is at the time of the grant of such
Option the owner of stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of any
Parent Corporation or any Subsidiary, then the following special
provisions shall be applicable to the Incentive Stock Option granted
to such individual:
(i) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of
the Fair Market Value thereof at the time of grant; and
(ii) The exercise period of such Incentive Stock Option shall not
exceed five years from the date of grant.
Except as modified by the preceding provisions of this Section 8, all the
provisions of the Plan applicable to Options generally shall be applicable
to Incentive Stock Options granted hereunder.
9. Restricted Shares.
-----------------
(a) Awards of Shares. Awards of Restricted Shares may be made under this
----------------
Plan on such terms and conditions as the Board of Directors may from
time to time approve. Awards of Restricted Shares may be made alone,
in addition to or in tandem with Awards of Options under this Plan.
Subject to the terms of this Plan, the Board of Directors shall
determine the number of Restricted Shares to be awarded to each
recipient and the Board of Directors may impose different terms and
conditions on a Restricted Share Award than on any other Award made to
the same recipient or other Award recipients. Each recipient of
Restricted Shares shall, except in the circumstances described in
paragraph (b) below, be issued one or more stock certificates
evidencing such Restricted Shares. Each such certificate shall be
registered in the name of such recipient, and shall bear an
appropriate legend referring to the terms and conditions applicable to
the Restricted Shares evidenced thereby.
(b) Forfeiture of Restricted Shares. In making an Award of Restricted
-------------------------------
Shares, the Board of Directors may impose a requirement that the
recipient must remain in the employment or service (including service
as a director, advisor or consultant) of the Company or any Parent
Corporation or Subsidiary for a specified minimum period of time, or
else forfeit all or a portion of such Restricted Shares. In the case
of a holder of Restricted Shares whose relationship with the Company
or any Parent Corporation or Subsidiary changes during the term of any
applicable forfeiture period in a manner that does not constitute a
complete separation therefrom (for example, from employee to
consultant or director, or vise versa), the Board shall have authority
to determine whether or not such change constitutes a cessation of
employment or service for purposes of such requirement. In the event
any such forfeiture requirement is applicable, the certificate(s)
evidencing the Restricted Shares shall be held in custody by the
Company until such Shares are no longer subject to forfeiture.
6
<PAGE>
(c) Rights as a Stockholder; Stock Dividends. Subject to any restrictions
----------------------------------------
set forth in the applicable Award Agreement, a recipient of Restricted
Shares shall have voting, dividend and all other rights of a
stockholder of the Company as of the date such Shares are issued and
registered in recipient's name (whether or not certificates evidencing
such Shares are delivered to such recipient). Except as may otherwise
be set forth in the applicable Award Agreement, stock dividends issued
with respect to Restricted Shares shall be treated as additional
Restricted Shares under the applicable Award Agreement and shall be
subject to the same terms and conditions that apply to the Restricted
Shares with respect to which such dividends are issued.
10. Automatic Grants to Independent Directors.
-----------------------------------------
(a) Automatic Grants of Options to Independent Directors. Each director of
----------------------------------------------------
the Company who is an Independent Director, as determined by the
Company (each, an "Independent Director"), shall be granted under the
Plan on the date of such person's first election to the Board of
Directors of the Company, Non-Statutory Stock Options to purchase up
to 50,000 shares of Common Stock which shall be exercisable over a
three-year period in equal installments on each of the first three
anniversaries of the date of grant. Each Independent Director will
also be granted on the anniversary of such Independent Director's
initial election to the Board, Non-Statutory Stock Options to purchase
up to 25,000 shares of Common Stock which shall be exercisable
immediately. Each such Option shall expire ten years after the date of
grant and shall be subject to earlier termination as provided in the
Plan. Notwithstanding the foregoing, if at any time during the last
six (6) months of the term of any Option granted pursuant to this
Section 10, the holder thereof is precluded from selling shares of
Common Stock underlying such Option solely by reason of the
application to such Independent Director of the policies contained in
the Company's Insider Trading Compliance Manual (or any similar
successor policies), the term of such Option shall be deemed
automatically extended by a period equal to six (6) months beginning
with the first day during which such Independent Director shall no
longer be so precluded.
(b) Plan Applicable. Except as set forth in this Section 10, all the
---------------
provisions of the Plan shall be applicable to Awards granted to
Independent Directors hereunder.
(c) Other Independent Director Compensation. Nothing in this Section 10
---------------------------------------
shall preclude the payment by the Company or any Parent Corporation or
Subsidiary to Independent Directors of any other form of compensation,
including the granting of Options or Restricted Shares pursuant to
other provisions of this Plan.
11. General Award Restrictions.
--------------------------
(a) Investment Representations. The Company may require any person to whom
--------------------------
an Award is made, as a condition of such Award, to give written
assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the
Award for such person's own account for investment and not with any
present intention of selling or otherwise distributing the same, and
to such other effects as
7
<PAGE>
the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws.
(b) Compliance With Securities Laws. Each Award shall be subject to the
-------------------------------
requirement that, if at any time counsel to the Company shall
determine that the listing, registration or qualification of the
shares of Common Stock subject to such Award upon any securities
exchange or under any state or federal law, or the consent or approval
of any governmental or regulatory body, is necessary as a condition
of, or in connection with, the issuance or purchase of such shares
thereunder, such shares may not be issued unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to the Board of
Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification.
12. Recapitalization.
----------------
In the event that the outstanding shares of Common Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of any recapitalization, reclassification, stock split, stock
dividend, combination or subdivision, appropriate adjustment shall be made in
the number and kind of shares available under this Plan and under any Options
granted under this Plan. Such adjustment to outstanding Options shall be made
without change in the total price applicable to the unexercised portion of such
Options, and a corresponding adjustment in the applicable exercise price per
share shall be made. No such adjustment shall be made which would, within the
meaning of any applicable provisions of the Code, constitute a modification,
extension or renewal of any Option or a grant of additional benefits to the
holder of an Option.
13. Reorganization or Change in Control of the Company.
--------------------------------------------------
(a) Reorganization. In case (i) the Company is merged or consolidated with
--------------
another corporation and the Company is not the surviving corporation,
(ii) all or substantially all of the assets or more than 50% of the
outstanding voting stock of the Company is acquired by any other
corporation or (iii) of a reorganization or liquidation of the
Company, the Board of Directors of the Company, or the board of
directors of any corporation assuming the obligations of the Company,
shall, as to outstanding Options, either (x) make appropriate
provision for the protection of any such outstanding Options by the
substitution on an equitable basis of appropriate stock of the
Company, or of the merged, consolidated or otherwise reorganized
corporation which will be issuable in respect of the shares of Common
Stock, provided that no additional benefits shall be conferred upon
holders of Options as a result of such substitution, and the excess of
the aggregate Fair Market Value of the shares subject to any Option
immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate Fair Market Value of the
shares subject to such Option immediately before such substitution
over the purchase price thereof, or (y) upon written notice to the
holders of Options, provide that all unexercised Options must be
exercised within a specified number of days of the date of such notice
or they will be terminated. In any such case,
8
<PAGE>
the Board of Directors may, in its discretion, accelerate the exercise
dates of outstanding Options; provided, however, that paragraph (b)
--------
shall govern acceleration of exercisability of Options with respect to
the events described in clauses (i), (ii) and (iii) of such paragraph.
(b) Change in Control. In case of (i) any consolidation or merger
-----------------
involving the Company if the shareholders of the Company immediately
before such merger or consolidation do not own, directly or
indirectly, immediately following such merger or consolidation, more
than fifty percent (50%) of the combined voting power of the
outstanding voting securities of the corporation resulting from such
merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the outstanding voting
securities of the Company immediately before such merger or
consolidation; (ii) any sale, lease, license, exchange or other
transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the business and/or assets of the
Company or assets representing over 50% of the operating revenue of
the Company; or (iii) any person (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) who is not, on the date hereof, a
"controlling person" (as defined in Rule 405 under the Securities Act
of 1933, as amended) (a "Controlling Person") of the Company shall
become (x) the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of over 50% of the Company's outstanding
Common Stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally or (y) a
Controlling Person of the Company, all outstanding Awards, regardless
of the date of such Awards, shall (A) in the case of Options,
immediately become exercisable with respect to 100% of the shares of
Common Stock subject to such Options and (B) in the case of Restricted
Shares, immediately become fully vested and no longer subject to any
forfeiture unless otherwise provided in the applicable Award
Agreement.
14. No Special Employment Rights.
----------------------------
Nothing contained in this Plan or in any Award Agreement shall confer upon any
Award recipient any right with respect to the continuation of such person's
employment by the Company (or any Parent Corporation or Subsidiary) or interfere
in any way with the right of the Company (or any Parent Corporation or
Subsidiary), subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the Award recipient from the rate in existence at the time
of the Award. Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination or cessation of employment for
purposes of this Plan or any Award shall be determined by the Board of
Directors.
15. Other Employee Benefits.
-----------------------
The amount of any compensation deemed to be received by an employee as a result
of any Award (including the exercise of an Option or the sale of shares of
Common Stock received upon such exercise or of Restricted Shares) will not
constitute "earnings" with respect to which any other employee benefits of such
employee are determined, including without limitation benefits under any
pension, profit sharing, life insurance or salary continuation plan.
9
<PAGE>
16. Definition of Subsidiary and Parent Corporation.
-----------------------------------------------
(a) Subsidiary. The term "Subsidiary" as used in this Plan shall mean any
----------
corporation in an unbroken chain of corporations beginning with the
Company if each of the corporations other than the last corporation in
the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain. For purposes of Awards of Non-Statutory
Stock Options or Restricted Shares only, the term "Subsidiary" shall
also mean any partnership or limited partnership in which the Company
or any Subsidiary controls 50% or more of the voting power of such
partnership or limited partnership, or any corporation in an unbroken
chain of Subsidiaries if each of the Subsidiaries other than the last
Subsidiary in the unbroken chain either owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one
of the other corporations or controls 50% or more of the voting power
of any such partnership or limited partnership in such chain.
(b) Parent Corporation. The term "Parent Corporation" as used in this Plan
------------------
shall mean any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of the
corporations other than the Company owns stock possessing 50% or more
of the combined voting power of all classes of stock in one of the
other corporations in such chain.
(c) Employment. The term "employment", as used in this Plan and in any
----------
Award Agreement, shall, unless the context otherwise requires, be
defined in accordance with the provisions of Section 1.421-7(h) of the
Federal Income Tax Regulations (or any successor regulations).
17. Amendment of this Plan.
----------------------
The Board of Directors may at any time and from time to time modify, amend or
terminate this Plan in any respect, except to the extent stockholder approval is
required by law. The termination or any modification or amendment of this Plan
shall not, without the consent of an Award recipient, affect such Award
recipient's rights under any Award Agreement unless such Agreement so specifies.
With the consent of the Award recipient affected, the Board of Directors may
amend outstanding Award Agreements in a manner not inconsistent with this Plan.
The Board of Directors shall have the right to amend or modify the terms and
provisions of this Plan and of any outstanding Incentive Stock Options granted
under this Plan to the extent necessary to qualify any or all such Options for
such favorable federal income tax treatment (including deferral of taxation upon
exercise) as may be afforded incentive stock options under Section 422 of the
Code.
18. Withholding.
-----------
The Company's obligation to deliver Restricted Shares awarded, or shares
deliverable upon the exercise of any Option granted under this Plan shall be
subject to the Award recipient's
10
<PAGE>
satisfaction of all applicable federal, state and local income and employment
tax withholding requirements.
19. Effective Date and Duration of this Plan.
----------------------------------------
(a) Effective Date. The Plan shall become effective when adopted by the
--------------
Board of Directors, but no Incentive Stock Option granted under the
Plan shall become exercisable unless and until the Plan shall have
been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve months after the date of the
Board's adoption of the Plan, any Incentive Stock Options previously
granted under the Plan shall terminate and no further Incentive Stock
Options shall be granted. Subject to this limitation, Options may be
granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) Termination. Unless earlier terminated by the Board of Directors, this
-----------
Plan shall terminate upon the earlier of (i) the close of business on
August 4, 2010 or (ii) the date on which all shares available for
issuance under this Plan shall have been issued pursuant to the
exercise of Options granted under this Plan and/or are no longer
subject to forfeiture pursuant to the terms of any applicable Award
Agreement. If the date of termination is determined under (i) above,
then Awards outstanding on such date shall continue to have force and
effect in accordance with the provisions of the Award Agreements
evidencing such Awards.
Adopted on August 5, 2000 by the Board of Directors
11
<PAGE>
Annex B
STAR SCIENTIFIC, INC.
2000 PERFORMANCE BONUS PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE
1.1 Establishment of the Plan. Star Scientific, Inc., a Delaware
-------------------------
corporation, hereby establishes an annual incentive compensation plan to be
known as the "Star Scientific Inc. 2000 Performance Bonus Plan", as set forth in
this document. The Plan permits the awarding of annual cash bonuses to Executive
Officers of the Company, based on the achievement of pre-established Performance
Goals.
Upon approval by the Board of Directors of the Company, subject to
approval by the Company's stockholders, the Plan shall become effective as of
the Effective Date and shall remain in effect until terminated by the Board or
Committee as provided by Section 12 hereof; provided, however, that Performance
Goals shall be submitted to the Company's stockholders for approval every five
years or as otherwise required by Section 162(m) of the Code.
1.2 Purpose. The purpose of this Plan is to motivate the Executive
-------
Officers of the Company through awards of annual cash bonuses to achieve
strategic, financial and operating objectives, which awards are intended to
qualify as performance-based compensation deductible by the Company under
section 162(m) of the Code.
SECTION 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the
meanings set forth below (unless otherwise expressly provided) and, when the
defined meaning is intended, the term is capitalized.
2.1 "Board" or "Board of Directors" means the Board of Directors of
-----------------------------
the Company.
2.2 "Change in Control" means (i) any consolidation or merger
-----------------
involving the Company if the stockholders of the Company immediately before such
merger or consolidation do not own, directly or indirectly, immediately
following such merger or consolidation, more than fifty percent (50%) of the
combined voting power of the outstanding voting securities of the corporation
resulting from such merger or consolidation in substantially the same proportion
as their ownership of such securities immediately before such merger or
consolidation; (ii) any sale, lease, license, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the business and/or assets of the Company or assets representing over 50% of
the operating revenue of the Company; or (iii) any person (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act) who is not, on the date hereof,
a "controlling person" (as defined in Rule 405 under the Securities Act of 1933,
as amended) (a "Controlling Person") of the Company shall become (x) the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
over 50% of the Company's outstanding common stock or the
<PAGE>
combined voting power of the Company's then outstanding voting securities
entitled to vote generally or (y) a Controlling Person of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
----
2.4 "Committee" means a committee of two (2) or more individuals,
---------
appointed by the Board to administer the Plan, pursuant to Section 3 hereof, who
are not current or former officers or employees of the Company and who are
"outside directors" to the extent required by and within the meaning of Section
162(m) of the Code.
2.5 "Company" means Star Scientific, Inc., a Delaware corporation
-------
(including any and all subsidiaries), and any successor thereto.
2.6 "Effective Date" means September 8, 2000, the date the Plan
--------------
becomes effective.
2.7 "Employee" means a full-time, salaried employee of the Company.
--------
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended or any successor rule.
2.9 "Executive Officers" shall mean any executive officers of the
------------------
Company designated by the Committee for purposes of qualifying payments under
the Plan for exemption from Section 162(m) of the Code.
2.10 "Final Award" means the actual award earned during a
-----------
Measurement Period by a Participant, as determined by the Committee at the end
of the Measurement Period.
2.11 "Measurement Period" shall mean a period of one fiscal year
------------------
and/or one fiscal quarter, as determined by the Committee at the time the
Performance Goals are established with respect to a particular Target Incentive
Award.
2.12 "Participant" means an Executive Officer who is actively
-----------
participating in the Plan.
2.13 "Performance Goal" means a performance goal for an Executive
----------------
Officer established by the Committee prior to the beginning of each Measurement
Period (or as soon as practicable thereafter so long as the Performance Goals
are established within the time period required by Section 162(m) of the Code).
2.14 "Plan" means the Star Scientific Inc. 2000 Performance Bonus
----
Plan.
2.15 "Target Incentive Award" means the award to be paid to a
----------------------
Participant when planned performance results are achieved, as established by the
Committee.
<PAGE>
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee may
delegate to management of the Company responsibility for day-to-day
administration of the Plan, following administrative guidelines approved from
time to time by the Committee.
Subject to the limitations of the Plan, the Committee shall: (i)
select from the Executive Officers of the Company, those who shall participate
in the Plan, (ii) grant award opportunities in such forms and amounts as it
shall determine, (iii) impose such limitations, restrictions, and conditions
upon such awards as it shall deem appropriate, (iv) interpret the Plan and
adopt, amend, and rescind administrative guidelines and other rules and
regulations relating to the Plan, and (v) make all other necessary
determinations and take all other actions necessary or advisable for the
implementation and administration of the Plan. The Committee's determinations
on matters within its authority shall be conclusive and binding upon all
parties. Any action by the Committee that would be violative of Section 162(m)
of the Code shall be void.
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 Eligibility. All Employees who are actively employed by the
-----------
Company as Executive Officers shall be eligible to participate in the Plan,
subject to the limitations contained herein.
4.2 Participation. Participation in the Plan shall be determined by
-------------
the Committee based upon the criteria set forth herein. Executive Officers who
are eligible to participate in the Plan shall be so notified in writing, and
shall be apprised of the Performance Goals and related award opportunities for
the relevant Measurement Period, as soon as is practicable.
4.3 No Right to Participate. No Participant shall at any time have
-----------------------
a right to be selected for participation in the Plan for any Measurement Period,
despite having previously participated in the Plan.
SECTION 5. AWARD DETERMINATION
5.1 Performance Goals. The Committee must establish the Target
-----------------
Incentive Award for each Executive Officer and Performance Goals for each
Measurement Period before 25% of the Management Period has elapsed. Performance
Goals to be used shall be chosen from among the following factors, or any
combination of the following, as the Committee deems appropriate: (a) increases
in gross revenues; (b) reductions in costs; (c) increases in earnings before
income taxes, depreciation and amortization; (d) increases in the market value
of the Company's stock; (e) increases in sales of cigarettes; (f) increases in
the number of StarCure(TM) tobacco curing barns placed on farms that supply
tobacco leaf to the Company; (g) expansion of low-TSNA tobacco processing
capacity; (h) increases in sales of StarCure(TM) tobacco; (i) agreements with
third-parties for the license of the Company's proprietary tobacco curing
<PAGE>
processes; (j) issuances of key patents; (k) development and/or
commercialization of new products; and (l) formation or expansion of strategic
alliances. The Committee may select among the Performance Goals specified from
Measurement Period to Measurement Period which need not be the same for each
Executive Officer in a given period.
5.2 Non-adjustment of Performance Goals. Once established,
-----------------------------------
Performance Goals shall not be changed during the relevant Measurement Period.
5.3 Final Award Determinations. At the end of each Measurement
--------------------------
Period, Final Awards shall be computed for each Participant as determined by the
Committee. Each individual award shall be based upon the achievement of
Performance Goals. The Committee retains the discretion to eliminate or decrease
the amount of the Final Award otherwise payable to a Participant. Prior to
payment of any award, the Committee shall certify in writing the extent to which
the Performance Goals and any other material terms were satisfied.
5.4 Limitations. The aggregate amount payable to a Participant
-----------
under this Plan for any fiscal year shall not exceed $2,500,000.
SECTION 6. PAYMENT OF FINAL AWARDS
6.1 Form and Timing of Payment. Final Award payments shall be
--------------------------
payable in cash as soon as practicable after the end of each Measurement Period.
6.2 Payment of Partial Awards. In the event a Participant no longer
-------------------------
meets the eligibility criteria as set forth in the Plan during the course of a
particular Measurement Period, the Committee may, in its sole discretion, pay a
partial award for the portion of the Measurement Period the Executive Officer
was a Participant, computed as determined by the Committee.
6.3 Unsecured Interest. No Participant or any other party claiming
------------------
an interest in amounts earned under the Plan shall have any interest whatsoever
in any specific asset of the Company. To the extent that any party acquires a
right to receive payments under the Plan, such right shall be equivalent to that
of an unsecured general creditor of the Company.
SECTION 7. CESSATION OR TERMINATION OF EMPLOYMENT
In the event a Participant's employment with the Company ceases or
is terminated, for whatever reason, the Final Award determined in accordance
with Section 5.3 hereof may, in the sole discretion of the Committee, be reduced
or eliminated to reflect the Participant's actual contribution to the
achievement of the applicable Performance Goals. However, if a participant in
the Bonus Plan is in the employ of the Company at the end of any Measurement
Period, such participant shall be entitled to the Target Incentive Awards that
may be payable in respect of Performance Goals achieved during such Measurement
Period, even if subsequent to such period the participant ceases to be employed
by the Company (or any affiliate).
<PAGE>
SECTION 8. RIGHTS OF PARTICIPANTS
8.1 Employment. Nothing in the Plan shall interfere with or limit
----------
in any way the right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue in the employ of
the Company.
8.2 Nontransferability. No right or interest of any Participant in
------------------
the Plan shall be assignable or transferable, or subject to any lien, directly,
by operation of law, or otherwise, including, but not limited to, execution,
levy, garnishment, attachment, pledge, and bankruptcy.
SECTION 9. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each designation will revoke all
prior designations by the same Participant and will be effective only when filed
by the Participant in writing with the Committee during his or her lifetime. In
the absence of any such designation, or if the designated beneficiary is no
longer living, benefits shall be paid to the surviving member(s) of the
following classes of beneficiaries, with preference for classes in the order
listed below:
(a) Participant's spouse (unless the parties were divorced or
legally separated by court decree);
(b) Participant's children (including children by adoption);
(c) Participant's parents (including parents by adoption); or
(d) Participant's executor or administrator.
SECTION 10. DEFERRALS
The Committee may permit a Participant to defer such Participant's
receipt of the payment of cash that would otherwise be due to such Participant
at the end of a Measurement Period, such deferral to be upon such terms and
conditions as the Committee may deem appropriate.
SECTION 11. CHANGE IN CONTROL
In the event of a Change in Control of the Company, a Participant as
of the date of the Change in Control shall be entitled to the Participant's
Target Incentive Awards for the Performance Goals achieved during the
Measurement Period in which the Change in Control occurs. Final Awards shall be
payable in cash to the Participant as soon as administratively possible, but no
later than thirty (30) days following the Change in Control.
<PAGE>
SECTION 12. TERMINATION; AMENDMENT AND MODIFICATION
The Committee, in its sole discretion, without notice, at any time
and from time to time, may modify or amend, in whole or in part, any or all of
the provisions of the Plan, or suspend or terminate it entirely; provided,
however, that no such modification, amendment, suspension, or termination may,
without the consent of a Participant (or his or her beneficiary in the case of
the death of the Participant), reduce the right of a Participant (or his or her
beneficiary, as the case may be) to a payment or distribution hereunder to which
he or she is otherwise entitled.
SECTION 13. MISCELLANEOUS
13.1 Governing Law. The Plan, and all agreements hereunder, shall
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be governed by and construed in accordance with the laws of the State of
Delaware.
13.2 Withholding Taxes. The Company shall have the right to deduct
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from all payments under the Plan any Federal, state, or local taxes required by
law to be withheld with respect to such payments.
13.3 Severability. In the event any provision of the Plan shall be
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held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
13.4 Successors. All obligations of the Company under the Plan
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shall be binding upon and inure to the benefit of any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
Adopted on August 5, 2000 by the Board of Directors
