SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential,
for Use of the
Commission
Only (as
permitted by
Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule
14a-12
Cryomedical
Sciences, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act
Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee
was paid previously. Identify the previous filing
by registration statement number, or the Form
or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
CRYOMEDICAL SCIENCES, INC.
1300 Piccard Drive, Suite 102
Rockville, Maryland 20850
_______________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on December 16, 1998
To the Stockholders of
CRYOMEDICAL SCIENCES, INC.
You are hereby notified that a Special Meeting of
Stockholders of Cryomedical Sciences, Inc., a Delaware
corporation (the "Company"), will be held at the offices of the
Company, 1300 Piccard Drive, Suite 102, Rockville, Maryland
20850, on December 16, 1998, at 10:00 a.m., Maryland time, to
(i) ratify and approve each of the matters contained in a Plan of
Recapitalization and Financing (the "Plan") adopted and approved
by the Company's Board of Directors pursuant to the terms and
conditions of a Stock Purchase Agreement with ValorInvest, Ltd.
and required by the terms thereof to be submitted to the
Company's stockholders for their approval, and (ii) transact such
other business as may properly come before the meeting and any
and all adjournments thereof.
The Plan is comprised of each of the matters to be voted
on at the Meeting, and provides that the Company (i) amend its
Certificate of Incorporation to (a) effect a (1) one-for-five, (2) one
for six, (3) one for seven, (4) one for eight, (5) one for nine, (6)
one for ten, (7) one for eleven, (8) one for twelve, (9) one for
thirteen, (10) one for fourteen, (11) one for fifteen, or (12) one for
sixteen reverse stock split of the issued and outstanding shares of
common stock of the Company, par value $.001 per share
("Common Stock"), each of such alternatives to be approved by
the stockholders of the Company and one of such approved
alternatives to be chosen by the Board of Directors of the
Company, (b) reduce the number of authorized shares of Common
Stock from 50,000,000 shares to 25,000,000 shares, and (c) reduce
the authorized number of shares of Preferred Stock, par value
$.001 per share, from 9,378,800 shares to 1,000,000 shares, (ii)
adopt a 1998 Stock Option Plan, (iii) grant stock options/warrants
for approximately 19,780,000 shares (pre-reverse stock split) (of
which stock options/warrants for 19,155,000 shares (pre-reverse
stock split) have been granted, subject to stockholder approval),
exercisable at $.25 per share (pre-reverse stock split) to
management, others who have provided services to the Company,
and directors, to appropriately incentivize and compensate them,
and (iv) prepare and file a registration statement with the Securities
and Exchange Commission for the sale of securities by the
Company. Each matter in the Plan will be voted on separately
and, if approved, may be effectuated by the Company. However,
for the Plan to be approved, each matter in the Plan must be
approved. THE FAILURE TO APPROVE EACH MATTER IN
THE PLAN, AND THEREFORE THE PLAN, COULD HAVE
A MATERIAL ADVERSE EFFECT ON THE BUSINESS AND
FINANCIAL CONDITION OF THE COMPANY. SEE
"PROXY STATEMENT - BACKGROUND." Approval of a
matter requires a "FOR" vote on the accompanying proxy. If no
choice is specified in the accompanying Proxy, the Proxy will be
voted "FOR" the matter. A vote to "ABSTAIN" with respect to
a matter will have the same effect as a vote "AGAINST" the
matter.
The foregoing items of business are more fully described
in the Proxy Statement accompanying this Notice.
The Board of Directors has fixed the close of business on
October 23, 1998 as the record date for the determination of
stockholders entitled to notice of and to vote at the Special Meeting
or any adjournments thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED
TO ATTEND THE SPECIAL MEETING. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED
TO COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY
VOTE YOUR SHARES IN PERSON IF YOU WISH TO DO SO,
EVEN IF YOU HAVE SIGNED AND RETURNED YOUR
PROXY CARD.
By Order of the Board of Directors,
Richard J. Reinhart, Ph.D., President and Chief
Executive Officer
Rockville, Maryland
November 6, 1998
IT IS IMPORTANT THAT THE ENCLOSED PROXY
FORM
BE COMPLETED AND RETURNED PROMPTLY<PAGE>
CRYOMEDICAL SCIENCES, INC.
1300 Piccard Drive, Suite 102
Rockville, Maryland 20850
_______________
PROXY STATEMENT
_______________
SPECIAL MEETING OF STOCKHOLDERS
December 16, 1998
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Cryomedical Sciences,
Inc., a Delaware corporation (the "Company"), of proxies to be
voted at a Special Meeting of Stockholders of the Company to be
held on December 16, 1998 (the "Meeting"), at 10:00 a.m.,
Maryland time, at the offices of the Company, 1300 Piccard
Drive, Suite 102, Rockville, Maryland 20850, and at any
adjournments thereof.
The close of business on October 23, 1998 has been
fixed as the record date for the determination of stockholders
entitled to notice of and to vote at the Meeting. On that date
there were 33,454,302 shares of the Company's common stock,
par value $.001 per share ("Common Stock"), issued and
outstanding, each of which has one vote on each matter to be
presented at the Meeting (the "Proposals"), and 128 shares of the
Company's Series E Convertible Preferred Stock, par value
$.001 per share ("Preferred Stock"), issued and outstanding,
each of which has 10,000 votes on each Proposal. The holders
of Common Stock and the holders of Preferred Stock will vote
together on the Proposals as if they held one class of stock. The
holders of stock representing a majority of the votes entitled to
be cast at the Meeting, present in person or by proxy, will
constitute a quorum for the transaction of business at the Meeting
and any adjournments thereof. Approval of the Proposals to
amend the Company's Certificate of Incorporation (the
"Charter") to (i) effect a one-for-five, one-for-six, one-for-seven,
one-for-eight, one-for-nine, one-for-ten, one-for-eleven, one-for-
twelve, one-for-thirteen, one-for-fourteen, one-for-fifteen, or
one-for-sixteen reverse stock split of the issued and outstanding
Common Stock, with one of such approved alternatives to be
chosen by the Board of Directors of the Company (the "Reverse
Stock Split"), (ii) reduce the number of authorized shares of
Common Stock from 50,000,000 shares to 25,000,000 shares
(the "Common Stock Reduction"), and (iii) reduce the number
of authorized shares of Preferred Stock from 9,378,800 shares
to 1,000,000 shares (the Preferred Stock Reduction"), requires
the affirmative vote of the holders of stock representing a
majority of the votes entitled to be cast at the Meeting. Approval
of the Proposals to (i) ratify and approve the Company's 1998
Stock Option Plan (the "1998 Stock Option Plan"), (ii) ratify and
approve the grant of stock options/warrants to purchase
19,155,000 shares (pre-Reverse Stock Split) of Common Stock,
exercisable at $.25 per share (pre-Reverse Stock Split) to
management, others who have performed services for the
Company, and directors, to appropriately incentivize and/or
compensate them for the services provided to the Company (the
"Stock Option/Warrant Grant"), and (iii) approve the preparation
and filing of a registration statement with the Securities and
Exchange Commission for the sale of securities by the Company
(the "SEC Filing"), requires the affirmative vote of the holders
of stock representing a majority of shares present in person or
represented by proxy at the Meeting and entitled to vote thereon.
All votes will be tabulated by the inspector(s) of election
appointed for the Meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker non-votes.
Abstentions will be counted towards the tabulation of votes cast
on the Proposals 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 a Proposal has
been approved.
A form of proxy is enclosed for use at the Meeting. The
proxy may be revoked by a stockholder at any time before it is
voted by execution of a proxy bearing a later date or by written
notice to the Secretary of the Company before the Meeting, and
any stockholder present at the Meeting may revoke his or her
proxy thereat and vote in person if he or she desires. When
such proxy is properly executed and returned, the shares of
Common Stock or Preferred Stock it represents will be voted at
the Meeting in accordance with any instructions noted thereon.
If no direction is indicated, all shares of Common Stock and
Preferred Stock represented by valid proxies received pursuant
to this solicitation (and not revoked prior to exercise) will be
voted (i) FOR the proposed amendment to the Charter to effect
the Reverse Stock Split, (ii) FOR the proposed amendment to the
Charter to effect the Common Stock Reduction, (iii) FOR the
proposed amendment to the Charter to effect the Preferred Stock
Reduction, (iv) FOR the ratification and approval of the 1998
Stock Option Plan, (v) FOR the ratification and approval of the
Stock Option/Warrant Grant, and (vi) FOR the approval of the
SEC Filing.
The cost for soliciting proxies on behalf of the Board of
Directors will be borne by the Company. In addition to
solicitation by mail, proxies may be solicited in person or by
telephone, telefax, or cable by personnel of the Company who
will not receive any additional compensation for such
solicitation. The Company may reimburse brokers or other
persons holding stock in their names or the names of their
nominees for the expenses of forwarding soliciting material to
their principals and obtaining their proxies. The approximate
date of mailing of this Proxy Statement and accompanying form
of proxy is November 6, 1998.<PAGE>
BACKGROUND
The Company has been in a precarious financial position
and has been seeking the raise capital for more than the past
year. In connection with the Company's efforts to raise capital,
the Company entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") with ValorInvest, Ltd.
("ValorInvest"), a Geneva Switzerland based investment bank
unrelated to the Company, pursuant to which, among other
things, ValorInvest (i) purchased from the Company, 128 Series
E Units at a price of $1,562.50 per Unit (an aggregate of
$200,000), and (ii) agreed to purchase, on or before December
28,1998, an additional 256 Series E Units at a price of
$1,562.50 per Unit (an aggregate of $400,000). Each Unit
consists of one share of Series E Convertible Preferred Stock
("Series E Preferred Stock"), convertible into 10,000 shares of
Common Stock, and a warrant ("Series E Warrant") to purchase
5,000 shares of Common Stock at $.25 per share, the exercise
of which is subject to the consummation of a public offering of
(a), in the event the Common Stock is trading at a price of $.50
or more (pre-Reverse Stock Split), 16,000,000 shares (pre-
Reverse Stock Split) of Common Stock at not less than $.50 per
share (pre-Reverse Stock Split), or (b), in the event the Common
Stock is trading at a price of less than $.50 per share (pre-
Reverse Stock Split), 16,000 Series F Units at $500 per Series
F Unit. Each Series F Unit shall consist of one share of Series
F Convertible Preferred Stock (to be authorized at such time),
convertible into 1,000 shares (pre-Reverse Stock Split) of
Common Stock, entitled to one vote for each share of Common
Stock into which it is convertible, and automatically convertible
into Common Stock if the closing or bid price of the Common
Stock on any day is $.50 or more (pre-Reverse Stock Split), and
a warrant to purchase 250 shares (pre-Reverse Stock Split) of
Common Stock at $.75 per share (pre-Reverse Stock Split).
The Stock Purchase Agreement requires the Board of
Directors of the Company to adopt a Plan of Recapitalization and
Financing (the "Plan") and to submit the Plan to the Company's
stockholders for their approval. The Plan is comprised of each
of the matters to be voted on at the Meeting, and provides in its
entirety that the Company (i) amend its Certificate of
Incorporation to (a) effect a reverse stock split of the issued and
outstanding shares of Common Stock, (b) reduce the number of
authorized shares of Common Stock from 50,000,000 shares to
25,000,000 shares, and (c) reduce the authorized number of
shares of Preferred Stock, par value $.001 per share, from
9,378,800 shares to 1,000,000 shares, (ii) adopt a 1998 Stock
Option Plan, (iii) grant stock options/warrants for approximately
19,780,000 shares (pre-reverse stock split) (of which stock
options/warrants for 19,155,000 shares (pre-reverse stock split)
have been granted, subject to stockholder approval), exercisable
at $.25 per share (pre-reverse stock split), and (iv) prepare and
file a registration statement with the Securities and Exchange
Commission for the sale of securities by the Company. The
objectives of the Plan are to simplify the capitalization of the
Company and increase the price of the Common Stock, to
provide a means to appropriately incentivize and compensate
management, others who have provided services to the
Company, and directors, and to provide a means to obtain
adequate financing for the Company to carry out its objectives
and to keep and maintain its listing on the NASDAQ Stock
Market. There can be no assurance that all of these objectives
can be met. The issuance of a significant number of shares on
a public offering and upon the exercise of options and warrants
could have the effect of decreasing the market price of the
Common Stock, earnings per share, if any, and book value per
share.
Subject to the adoption by the Company and its
stockholders of the Plan, ValorInvest has agreed to use its best
efforts to arrange for a public offering ("Public Offering")
(contemplated to be in Europe) of the Company's securities
through an underwriter (the "Underwriter") to be designated or
approved by ValorInvest. Through ValorInvest, the Company
has obtained a letter of interest for a Public Offering from a
German Underwriter. The letter does not contain any
commitment for a Public Offering, and any Public Offering by
such Underwriter, at the very least, would be subject to the
completion of due diligence by such Underwriter and market
conditions. The terms of a Public Offering, if any, would be as
negotiated between the Company and the Underwriter. There
can be no assurance that the Public Offering, if consummated,
would be on the terms set forth above, or that a Public Offering
would be consummated at all. The Company has covenanted to
include the shares of Common Stock issuable upon conversion
of the Series E Preferred Stock in any registration statement filed
with the Securities and Exchange Commission covering securities
to be issued in connection with the Public Offering at the
Company's cost and expense, and to keep such registration
statement effective until such time as such shares of Common
Stock may be sold pursuant to an exemption from registration
pursuant to the Securities Act of 1933, as amended.
In the event the Plan is not approved by the Company
and its stockholders, there would be no requirement on the part
of ValorInvest to use its best efforts to arrange for the Public
Offering. In addition, if the Plan is not approved by the
Company's stockholders by January 27, 1999, then, at the
request of ValorInvest, the Company must redeem the Series E
Units at a per Unit price equal to the price paid therefor plus an
additional amount determined by multiplying the price paid
therefor by a fraction, the denominator of which is the number
"120" and the numerator of which is the number of months
(rounded to a higher whole number) elapsed between September
30, 1998 and the redemption date. Any such request by
ValorInvest would have a material adverse effect on the
business and financial condition of the Company.
The Plan is comprised of each of the matters to be
voted on, including the Reverse Stock Split, the Common
Stock Reduction, the Preferred Stock Reduction, the 1998
Stock Option Plan, the Stock Option/Warrant Grant and the
SEC Filing. Each matter in the Plan will be voted on separately
and, if approved, may be effectuated by the Company.
However, for the Plan to be approved, each matter in the Plan
must be approved. THE FAILURE TO APPROVE EACH
MATTER CONTAINED IN THE PLAN, AND THEREFORE
THE PLAN, COULD HAVE A MATERIAL ADVERSE
EFFECT ON THE BUSINESS AND FINANCIAL
CONDITION OF THE COMPANY.
On August 31, 1998, the Board of Directors of the
Company unanimously approved the Plan. The Plan is now
being submitted for approval by the Company's stockholders.
APPROVAL OF A MATTER REQUIRES A "FOR"
VOTE ON THE ACCOMPANYING PROXY. IF NO
CHOICE IS SPECIFIED IN THE ACCOMPANYING
PROXY, THE PROXY WILL BE VOTED "FOR" THE
MATTER. A VOTE TO "ABSTAIN" WITH RESPECT TO
A MATTER WILL HAVE THE SAME EFFECT AS A
VOTE "AGAINST" THE MATTER.
<PAGE>
PROPOSAL TO AMEND THE CERTIFICATE OF
INCORPORATION
TO EFFECT THE REVERSE STOCK SPLIT
Reason for Submission to Stockholders
This Proposal is being submitted to stockholders to
comply with the terms of the Stock Purchase Agreement and to
satisfy the requirements of the Delaware General Corporation
Law. The Proposal is one of the matters contained in the Plan
of Recapitalization and Financing (the "Plan") which, pursuant
to the Stock Purchase Agreement, is to be adopted by the
Company and submitted to the Company's stockholders for their
approval. The failure of the Company's stockholders to
approve this Proposal would constitute a failure to approve
the Plan and could have a material adverse effect on the
business and financial condition of the Company. See
"Background."
Reasons for the Reverse Stock Split
The principal reasons to effectuate the Reverse Stock
Split are to increase the number of authorized but unissued
shares of Common Stock, to reduce the number of shares of
Common Stock that are outstanding, and to increase the price per
share of the Common Stock.
The Company currently is authorized to issue 50,000,000
shares of Common Stock, of which 33,454,302 shares of
Common Stock are issued and outstanding. There also are
outstanding 128 shares of Series E Preferred Stock and 128
Series E Warrants which are convertible/exercisable into
1,280,000 shares of Common Stock and 640,000 shares of
Common Stock, respectively, and other options and warrants to
purchase 2,096,400 shares of Common Stock. In addition, in
accordance with the Stock Purchase Agreement, the Company (i)
is required to issue to ValorInvest an additional 256 shares of
Series E Preferred Stock, convertible into 2,560,000 shares of
Common Stock, and Series E Warrants to purchase 1,280,000
shares of Common Stock, and (ii) has granted to management,
others who have provided services to the Company, and
directors an aggregate of 19,155,000 stock options/warrants (pre-
Reverse Stock Split) to appropriately incentivize and/or
compensate them, in each case subject to the approval of the
Plan by the Company's stockholders. Thus, the Company may
be required to issue a number of shares of Common Stock,
which, together with the Company's issued and outstanding
shares of Common Stock, would exceed its current authorized
capital of 50,000,000 shares of Common Stock. Lastly, there
currently is an insufficient number of authorized but unissued
shares of Common Stock available to allow the Company to
complete the contemplated Public Offering.
The Company contemplates that the Reverse Stock Split
will be a minimum of one-for-ten (with the final determination
to be based upon the price of the Common Stock at the time of
the Reverse Stock Split and negotiations with the Underwriter,
if any). After a one-for-ten Reverse Stock Split, there would be
outstanding approximately 3,345,430 shares of Common Stock,
Series E Preferred Stock convertible into 128,000 shares of
Common Stock, Series E Warrants to purchase 64,000 shares of
Common Stock, other options and warrants to purchase
2,125,140 shares of Common Stock (assuming ratification and
approval of the Stock Option/Warrant Grant), and a contractual
commitment to issue to ValorInvest additional Series E Preferred
Stock and Series E Warrants convertible/exercisable into an
aggregate of 384,000 shares of Common Stock, for an aggregate
of approximately 6,046,570 shares of Common Stock issued and
outstanding or required to be reserved for issuance. Therefore,
the Reverse Stock Split will enable the Company to issue shares
of Common Stock pursuant to the conversion of outstanding and
contracted for shares of Series E Convertible Preferred Stock and
the exercise of outstanding warrants and options, and to
consummate a Public Offering.
The Company also believes that the higher share price
which may result from the Reverse Stock Split will help to
generate interest in the Company among investors, thereby
facilitating future financings. In addition, the Company
anticipates, but there can be no assurance, that the Reverse Stock
Split will enable the Common Stock to maintain its listing on the
NASDAQ Stock Market, for which a minimum $1.00 bid price
is required. There can be no assurance, however, that a higher
share price will have such effect or that any financings will be
consummated in the future.
Fractional Shares
No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock will be issued
in connection with the Reverse Stock Split. In lieu of issuing
fractional shares, each fractional share will be rounded up to the
next highest whole share of Common Stock.
Effects of the Reverse Stock Split
Upon the effectiveness of the Reverse Stock Split, the
number of shares owned by each holder of Common Stock shall
be reduced by the ratio of a minimum of 5 to 1 and a maximum
of 16 to 1, so that each such stockholder will thereafter own one
share of Common Stock for every 5 or 6 or 7 or 8 or 9 or 10 or
11 or 12 or 13 or 14 or 15 or 16 shares of Common Stock he or
she owned immediately prior to the Reverse Stock Split.
It is contemplated that the Reverse Stock Split will be a
minimum of one-for-10 (with the final determination to be based
upon the price of the Common Stock at the time of the Reverse
Stock Split and negotiations with the Underwriter, if any).
Assuming a one-for-10 Reverse Stock Split, the principal effect
of the Reverse Stock Split will be that (i) the number of shares
of Common Stock issued and outstanding will be reduced from
33,454,302 shares to approximately 3,345,430 shares, (ii) all
outstanding shares of Series E Preferred Stock entitling holders
thereof to receive, upon conversion, shares of Common Stock
will enable such holders to receive, upon conversion thereof,
1/10th of the number of shares of Common Stock which such
holders would have received upon conversion thereof
immediately preceding the Reverse Stock Split, (iii) all
outstanding options and warrants entitling the holders thereof to
purchase shares of Common Stock will enable such holders to
purchase, upon exercise of their options and warrants, 1/10 of
the number of shares of Common Stock which such holders
would have been able to purchase upon exercise of their options
or warrants immediately preceding the Reverse Stock Split at the
same aggregate price required to be paid therefor upon exercise
thereof immediately preceding the Reverse Stock Split, and (iv)
the number of shares included in the Company's 1998 Stock
Option Plan will be reduced to 1/10th of the number of shares
currently included in such Stock Option Plan. The Reverse
Stock Split will not alter the percentage ownership interest in the
Company of any stockholder, except to the extent that the
Reverse Stock Split results in a stockholder of the Company
owning a fractional share (see "Reverse Stock Split - Fractional
Shares"). Voting and other rights accompanying the Common
Stock will not be altered.
Pursuant to the Reverse Stock Split, the par value of the
Common Stock will remain $0.001 per share. As a result, on
the effective date of the Reverse Stock Split, the stated capital on
the Company's balance sheet attributable to the Common Stock
will be reduced to 1/10th of its present amount (assuming a one-
for-ten Reverse Stock Split), and the additional paid-in capital
account shall be credited with the amount by which the stated
capital is reduced.
Exchange of Shares
The Reverse Stock Split will be effective at the close of
business on the date of filing of the appropriate certificate of
amendment to the Charter with the Secretary of State of the State
of Delaware, unless the Company specifies otherwise. The
record date for the Reverse Stock Split will be the effective date
of the amendment to the Charter (the "Record Date"). On or
about the Record Date, notice of the Reverse Stock Split (the
"Split Notice") will be mailed to each stockholder of record at
the most recent address of such stockholder appearing on the
Company's records. The Split Notice shall be accompanied by
a Letter of Transmittal and shall request that each stockholder
surrender his or her existing stock certificate(s) (the "Old
Certificate") evidencing ownership of the pre-Reverse Stock Split
Common Stock (the "Old Common Stock"), together with the
Letter of Transmittal, to American Stock Transfer and Trust
Company to be exchanged for a new stock certificate(s)
evidencing ownership of the number of shares of Common Stock
resulting from the Reverse Stock Split (the "New Common
Stock"). From and after the Record Date, all Old Certificates
will be deemed to represent only that number of shares of New
Common Stock resulting from the Reverse Stock Split.
Federal Income Tax Consequences
The Company believes that the federal income tax
consequences of the Reverse Stock Split will be as follows:
(i) Except as explained in (v) below, no
income gain or loss will be recognized
by stockholders on the surrender of their
Old Common Stock or the receipt of
their New Common Stock.
(ii) Except as explained in (v) below, the
tax basis of the New Common Stock
will equal the tax basis of the Old
Common Stock exchanged therefor.
(iii) Except as explained in (v) below, the holding
period of the New Common Stock will include
the holding period of the Old Common Stock if
such shares were held as capital assets.
(iv) The conversion of the Old Common Stock into
the New Common Stock will produce no taxable
income or gain or loss to the Company.
(v) The federal income tax treatment of the
receipt of the additional fractional
interest by a stockholder is not clear and
may result in tax liability not material in
amount in view of the low value of such
fractional interest.
The foregoing summary represents the Company's
opinion only and is based on the existing provisions of the
Internal Revenue Code of 1986, as amended, and existing
administrative interpretations thereof, any of which may be
revised retroactively. The Company's opinion is not binding
upon the Internal Revenue Service or the courts, and there can
be no assurance that the Internal Revenue Service or the courts
would accept the positions expressed above.
The state and local tax consequences of the Reverse
Stock Split may vary significantly as to each stockholder,
depending upon the state in which he/she resides. Stockholders
are urged to consult their own tax advisors with respect to the
federal, state, and local tax consequences of the Reverse Stock
Split.
No Right of Appraisal
Under the Delaware General Corporation Law,
dissenting stockholders are not entitled to appraisal rights with
respect to the Company's proposed amendment to the Charter to
effect the Reverse Stock Split, and the Company will not provide
stockholders with any such right.
Voting Requirement
Approval of the Proposal for the Reverse Stock Split
requires the affirmative vote of the holders of stock representing
a majority of the votes entitled to be cast at the Meeting.
The Board of Directors recommends that the
stockholders vote FOR the proposed amendment to the
Charter to effect the Reverse Stock Split.
PROPOSAL TO AMEND THE CERTIFICATE OF
INCORPORATION
TO EFFECT THE COMMON STOCK REDUCTION
Reason for Submission to Stockholders
This Proposal is being submitted to stockholders to
comply with the terms of the Stock Purchase Agreement and to
satisfy the requirements of the Delaware General Corporation
Law. The Proposal is one of the matters contained in the Plan
of Recapitalization and Financing (the "Plan") which, pursuant
to the Stock Purchase Agreement, is to be adopted by the
Company and submitted to the Company's stockholders for their
approval. The failure of the Company's stockholders to
approve this Proposal would constitute a failure to approve
the Plan and could have a material adverse effect on the
business and financial condition of the Company. See
"Background."
Reasons for Reducing the Number of Authorized Shares of
Common Stock
Presently, the Charter authorizes the issuance of
50,000,000 shares of Common Stock, of which 33,454,302
shares of Common Stock are issued and outstanding. There also
are outstanding Series E Preferred Stock and Series E Warrants
convertible/exercisable into 1,280,000 shares of Common Stock
and 640,000 shares of Common Stock, respectively, and other
options and warrants to purchase 2,096,400 shares of Common
Stock. In addition, in accordance with the Stock Purchase
Agreement, the Company (i) is required to issue to ValorInvest
an additional 256 shares of Series E Preferred Stock, convertible
into 2,560,000 shares of Common Stock, and Series E Warrants
to purchase 1,280,000 shares of Common Stock, and (ii) has
granted to management, others who have provided services to the
Company, and directors an aggregate of 19,155,000 stock
options/warrants (pre-Reverse Stock Split) to appropriately
incentivize and/or compensate them, in each case subject to the
approval of the Plan by the Company's stockholders. Assuming
a minimum one-for-ten Reverse Stock Split, there would be
outstanding a maximum of approximately 3,345,430 shares of
Common Stock, Series E Preferred Stock convertible into
128,000 shares of Common Stock, Series E Warrants to
purchase 64,000 shares of Common Stock, other options and
warrants to purchase 2,125,140 shares of Common Stock
(assuming ratification and approval of the Stock Option/Warrant
Grant), and a contractual commitment to issue to ValorInvest
additional Series E Preferred Stock and Series E Warrants
convertible/exercisable into an aggregate of 384,000 shares of
Common Stock, for an aggregate of approximately 6,046,570
shares of Common Stock issued and outstanding or required to
be reserved for issuance. In such case, an authorized capital of
50,000,000 shares of Common Stock would be unnecessary.
Rather, the Board of Directors believes that an authorized capital
of 25,000,000 shares of Common Stock would be sufficient to
ensure that the Company has enough shares of Common Stock
available to meet its outstanding commitments as well as to
provide the Company with flexibility in connection with various
corporate purposes, including the Public Offering, if any, and
possible future financings and acquisitions requiring the issuance
of Common Stock.
Effect of the Reduction
The reduction of authorized shares of Common Stock
will not alter the par value of the Common Stock or the rights of
stockholders.
No Right of Appraisal
Under the Delaware General Corporation Law,
dissenting stockholders are not entitled to appraisal rights with
respect to the Company's proposed amendment to the Charter to
effect the Common Stock Reduction, and the Company will not
provide stockholders with any such right.
Voting Requirement
In accordance with the Charter, approval of the Proposal
for the Common Stock Reduction requires the affirmative vote
of the holders of stock representing a majority of the votes
entitled to be cast at the Meeting.
The Board of Directors recommends that the
stockholders vote FOR the proposed amendment to the
Charter to effect the Common Stock Reduction.
PROPOSAL TO AMEND THE CERTIFICATE OF
INCORPORATION
TO EFFECT THE PREFERRED STOCK REDUCTION
Reason for Submission to Stockholders
This Proposal is being submitted to stockholders to
comply with the terms of the Stock Purchase Agreement and to
satisfy the requirements of the Delaware General Corporation
Law. The Proposal is one of the matters contained in the Plan
of Recapitalization and Financing (the "Plan") which, pursuant
to the Stock Purchase Agreement, is to be adopted by the
Company and submitted to the Company's stockholders for their
approval. The failure of the Company's stockholders to
approve this Proposal would constitute a failure to approve
the Plan and could have a material adverse effect on the
business and financial condition of the Company. See
"Background."
Reasons for Reducing the Number of Authorized Shares of
Preferred Stock
Presently the Charter authorizes the issuance of
9,378,800 shares of Preferred Stock, of which 128 shares,
designated as Series E Convertible Preferred Stock, are issued
and outstanding. Under such circumstances, authorized capital
of 9,378,800 shares of Preferred Stock is unnecessary. Rather,
the Board of Directors believes that an authorized capital of
1,000,000 shares of Preferred Stock would be sufficient to
ensure that the Company has enough shares of Preferred Stock
available to meet its outstanding commitments as well as to
provide the Company with flexibility in connection with various
corporate purposes, including the Public Offering, if any, and
possible future financings and acquisitions requiring the issuance
of Preferred Stock.
Effect of the Reduction
The reduction of authorized shares of Preferred Stock
will not alter the par value of the Preferred Stock or the rights
of stockholders.
No Right of Appraisal
Under the Delaware General Corporation Law,
dissenting stockholders are not entitle to appraisal rights with
respect to the Company's proposed amendment to the Charter to
effect the Preferred Stock Reduction, and the Company will not
provide stockholders with any such right.
Voting Requirement
In accordance with the Charter, approval of the Proposal
for the Preferred Stock Reduction requires the affirmative vote
of the holders of stock representing a majority of the votes
entitled to be cast at the Meeting.
The Board of Directors recommends that the
stockholders vote FOR the proposed amendment to the
Charter to effect the Preferred Stock Reduction.
Method of Effecting the Charter Amendments
The Reverse Stock Split, the Common Stock Reduction
and the Preferred Stock Reduction shall become effective,
automatically and without further action by the stockholders,
upon the filing with the Delaware Secretary of State of an
appropriate certificate of amendment to the Charter (the "Charter
Filing"). The complete text of such amendment is set forth in
Exhibit A hereto. At any time prior to the effectiveness of the
Charter Filing (or, if no Charter Filing has been made, prior to
the Charter Filing), the Board of Directors may abandon the
Charter Amendments without further action by the stockholders.
PROPOSAL TO APPROVE AND RATIFY THE 1998
STOCK OPTION PLAN
Reason for Submission to Stockholder
This Proposal is being submitted to stockholders to
comply with the terms of the Stock Purchase Agreement, to
satisfy requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), and to satisfy the requirements of the
NASDAQ Stock Market. The Proposal is one of the matters
contained in the Plan of Recapitalization and Financing (the
"Plan") which, pursuant to the Stock Purchase Agreement, is to
be adopted by the Company and submitted to the Company's
stockholders for their approval. The failure of the Company's
stockholders to approve this Proposal would constitute a
failure to approve the Plan and could have a material adverse
effect on the business and financial condition of the
Company. See "Background."
Description of the 1998 Stock Option Plan
On August 31, 1998, the Board of Directors, subject to
stockholder approval, adopted the 1998 Stock Option Plan for
employees, including officers, and directors of, and consultants
and advisors to, the Company or any subsidiary corporation
(aggregating approximately 27 persons as of October 1, 1998).
A summary of the 1998 Stock Option Plan (the "Stock Option
Plan") is set forth below. The summary is qualified in its
entirety by reference to the full text of the Stock Option Plan, a
copy of which is attached hereto as Exhibit B.
The Stock Option Plan covers 20,000,000 shares of
Common Stock (subject to adjustment to cover stock splits, stock
dividends, recapitalizations and other capital adjustments,
including the Reverse Stock Split). The options granted under
the Stock Option Plan will be designated as incentive stock
options or non-incentive stock options by the Board of Directors
or a committee thereof, which also will have discretion as to the
persons to be granted options, the number of shares subject to
the options, and the terms of the option agreements. Only
employees (including officers) of the Company may be granted
incentive stock options. The options to be granted under the
Stock Option Plan and designated as incentive stock options are
intended to receive incentive stock option tax treatment pursuant
to Section 422 of the Code.
The Stock Option Plan provides that all options
thereunder shall be exercisable during a period of no more than
ten years from the date of grant (five years for options granted
to holders who own more than 10% of the total combined voting
power of all classes of stock of the Company), depending upon
the specific stock option agreement, and that the option exercise
price for incentive stock options shall be at least equal to 100%
of the fair market value of the Common Stock at the time of
grant (110% for options granted to holders who own more than
10% of the total combined voting power of all classes of stock
of the Company). In addition, the aggregate fair market value
(determined on the date of grant) of the Common Stock with
respect to which incentive stock options are exercisable for the
first time by an employee during any calendar year shall not
exceed $100,000.
The Stock Option Plan permits optionees whose
employment is terminated without cause and other than by reason
of death, disability or retirement at age 65, to exercise their
options prior to the expiration thereof or within three months of
termination, whichever is earlier, but only to the extent the
holder had the right to exercise such options on the date of
termination. If the employment of an optionee is terminated for
cause and other than by reason of death, disability or retirement
at age 65, any options granted to the optionee will terminate
automatically. If employment is terminated by reason of
disability or retirement at age 65, the optionee may exercise his
options at any time prior to the expiration thereof or within one
year from the date of termination (three months from the date of
termination in the event of termination by reason of retirement
at age 65), whichever is earlier, but only to the extent the holder
had the right to exercise such options on the date of termination.
If employment is terminated by death, the person or persons to
whom the optionee's rights under the option are transferred by
will or the laws of descent and distribution have similar rights of
exercise within three months after such death (but not after the
expiration of the option). Options are not transferable otherwise
than by will or the laws of descent and distribution, or pursuant
to a qualified domestic relations order as defined under the Code
or Title I of the Employee Retirement Income Security Act or
the rules thereunder, and are exercisable during the optionee's
lifetime only by the optionee. Shares subject to options which
expire or terminate may be the subject of future options. The
Stock Option Plan terminates on August 30, 2008.
If shares are issued to the holder of a non-incentive
option under the Stock Option Plan (a) no income will be
recognized by the holder at the time of grant of the option; (b)
except as stated below, upon exercise of the option, the holder
will recognize taxable ordinary income in an amount equal to the
excess of the fair market value of the shares over the option
price; (c) if the holder exercising the option is restricted from
selling the shares so acquired because the holder is an officer or
director of the Company and would be subject to liability under
Section 16(b) of the Exchange Act, then, unless the holder makes
an election to be taxed under the rule of clause (b) above, the
holder will recognize taxable ordinary income, at the time such
Section 16(b) restriction terminates, equal to the excess of the
fair market value of the shares at that time over the option price,
and any dividends he or she receives on the shares before that
time will be taxable to him or her as income; (d) the Company
will be entitled to a deduction at the same time and in the same
amount as the holder has income under clause (b) or (c); and (e)
upon a sale of shares so acquired, the holder may have additional
short-term or long-term capital gain or loss.
If shares are issued to the holder of an incentive stock
option under the Stock Option Plan, (a) no income will be
recognized by such holder at the time of the grant of the option
or the transfer of shares to the holder pursuant to his or her
exercise of the option; (b) the difference between the option
price and the fair market value of the shares at the time of
exercise will be treated as an item of tax preference to the
holder; (c) no deduction will be allowed to the Company for
federal income tax purposes in connection with the grant or
exercise of the option; and (d) upon a sale or exchange of the
shares after the later of (i) one year from the date of transfer of
the shares to the original holder, or (ii) two years from the date
of grant of the option, any amount realized by the holder in
excess of the option price will be taxed to the holder as a long-
term capital gain, and any loss sustained by the holder will be a
long-term capital loss. If the shares are disposed of before the
holding period requirements described in the preceding sentence
are satisfied, (aa) the holder will recognize taxable ordinary
income in the year of disposition in an amount determined under
the rules of the Code; (bb) the Company will be entitled to a
deduction for such year in the amount of the ordinary income so
recognized; (cc) the holder may have additional long-term or
short-term capital gain or loss; and (dd) the tax preference
provision might not be applicable.
The Stock Option Plan provides for the cashless payment
of the exercise price of options granted under the Stock Option
Plan by (a) delivery to the Company of shares of Common Stock
having a fair market value equal to such purchase price, (b)
irrevocable instructions to a broker to sell shares of Common
Stock to be issued upon exercise of the option, followed by
delivery to the Company of the amount of sale proceeds
necessary to pay such purchase price, and delivery of the
remaining cash proceeds less commissions and brokerage fees to
the optionee or delivery of the remaining shares of Common
Stock to the optionee, or (c) by any combination of the methods
of payment described in (a) and (b) above.
Voting Requirement
Approval of the proposal to ratify and approve the Stock
Option Plan requires affirmative vote of the holders of stock
representing a majority of the shares present in person or
represented by proxy at the Meeting and entitled to vote thereon.
The Board of Directors recommends that the
stockholders vote FOR ratification and approval of the Plan.
PROPOSAL TO APPROVE THE STOCK
OPTION/WARRANT GRANT
Reason for Submission to Stockholders
This Proposal is being submitted to stockholders to
comply with the terms of the Stock Purchase Agreement and to
satisfy the requirements of the NASDAQ Stock Market. The
Proposal is one of the matters contained in a Plan of
Recapitalization and Financing (the "Plan") which, pursuant to
the Stock Purchase Agreement, is to be adopted by the
Company's Board of Directors and submitted to the Company's
stockholders for their approval. The failure of the Company's
stockholders to approve this Proposal would constitute a
failure to approve the Plan and could have a material adverse
effect on the business and financial condition of the
Company. See "Background."
Reason for the Stock Option/Warrant Grant
In connection with the adoption and approval of the Plan
by the Board of Directors, and pursuant to the terms thereof, the
Board of Directors granted, on a pre-Reverse Stock Split basis:
(i) under the 1998 Stock Option Plan, stock options to purchase
an aggregate of 13,300,000 shares of Common Stock, at $.25
per share, to: Richard J. Reinhart, Ph.D., President, Chief
Executive Officer and Director - 7,200,000; John Baust, Ph.D.,
Senior Vice President and Chief Scientific Officer - 2,160,000;
Alan F. Rich, Vice President - Sales and Marketing - 1,100,000;
an aggregate of 14 employees - 775,000,; Howard S. Breslow,
Director - 720,000 and J. Donald Hill, Director - 720,000, (ii)
warrants to purchase 2,880,000 shares of Common Stock, at
$.25 per share, to Breslow & Walker, LLP, the Company's
general counsel, of which Howard S. Breslow, a director of the
Company, is a member, and (iii) warrants to purchase 3,600,000
shares of Common Stock, at $.25 per share, to BWM
Investments, an affiliate of Breslow & Walker, LLP, of which
Howard S. Breslow, a director of the Company, is a partner, to
appropriately incentivize and/or compensate them for services
provided to the Company. The Company believes that it has
been only through the efforts of management, the Board of
Directors, and the Company's legal counsel (and its affiliates)
that the Company has maintained its viability under some very
trying and difficult circumstances.
Approval of the Stock Option/Warrant Grant requires the
affirmative vote of the holders of stock representing a majority
of shares present in person or represented by proxy at the
Meeting and entitled to vote thereon.
Voting Requirement
The Board of Directors recommends that the
stockholders vote FOR ratification and approval of the Stock
Option/Warrant Grant.
PROPOSAL TO APPROVE THE SEC FILING
Reason for Submission to Stockholders
This Proposal is being submitted to stockholders to
comply with the terms of the Stock Purchase Agreement. The
Proposal is one of the matters contained in a Plan of
Recapitalization and Financing (the "Plan") which, pursuant to
the Stock Purchase Agreement, is to be adopted by the
Company's Board of Directors and submitted to the Company's
stockholders for their approval. The failure of the Company's
stockholders to approve this Proposal would constitute a
failure to approve the Plan and could have a material adverse
effect on the business and financial condition of the
Company. See "Background." The failure of the Company's
stockholders to approve this Proposal would not preclude the
Company from filing a registration statement with the Securities
and Exchange Commission ("SEC") for the sale of securities by
the Company.
Reason for the SEC Filing
Subject to the adoption of the Plan by the Company and
its stockholders, ValorInvest has agreed to use its best efforts to
arrange for a public offering ("Public Offering") (contemplated
to be in Europe) of the Company's securities through an
underwriter (the "Underwriter"), to be designated or approved
by ValorInvest. Through ValorInvest, the Company has
obtained a letter of interest for a Public Offering from a German
Underwriter. The letter does not contain any commitment for a
Public Offering, and any Public Offering by such Underwriter,
at the very least, would be subject to the completion of due
diligence by such Underwriter and market conditions. The terms
of a Public Offering, if any, would be as negotiated between the
Company and the Underwriter, and the Company does not know
what type of securities, i.e. common stock, preferred stock,
units, etc., it will issue in any Public Offering. The Company
will not solicit authorization from stockholders prior to the
issuance of any such securities, and the terms thereof, including
dividend or interest rates, conversion prices, voting rights,
redemption prices, maturity dates and similar matter that might
be applicable to such securities will be determined by the Board
of Directors. There can be no assurance that a Public Offering
will be consummated.
The consummation of the Public Offering would require
the filing of a registration statement with the SEC. In addition,
the Company has covenanted to include the shares of Common
Stock issuable upon conversion of the Series E Preferred Stock
purchased pursuant to the Stock Purchase Agreement in the
registration statement at the Company's cost and expense, and to
keep such registration statement effective until such time as such
shares of Common Stock may be sold pursuant to an exemption
from registration pursuant to the Securities Act of 1933, as
amended. Accordingly, the Plan contains an undertaking by the
Company that it will prepare and file a registration statement
with the SEC for the sale of securities of the Company on such
terms and conditions as may be mutually agreed to between the
Company and an underwriter to be designated or approved by
ValorInvest.
Voting Requirement
Approval of the SEC Filing requires the affirmative vote
of the holders of stock representing a majority of shares present
in person or represented by proxy at the Meeting and entitled to
vote thereon.
The Board of Directors recommends that the
stockholders vote FOR ratification and approval of the SEC
Filing.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of October 1, 1998,
certain information regarding the beneficial ownership of
Common Stock and Preferred Stock by (i) each stockholder
known by the Company to be the beneficial owner of more than
5% of the outstanding shares thereof; (ii) each director of the
Company; (iii) each executive officer of the Company; and (iv)
all of the Company's directors and executive officers as a group.
<TABLE>
<CAPTION>
<S>
Title of Class<PAGE>
<C>Name and Address of
Beneficial Owner C
<PAGE>
Amount and Nature of
Beneficial Ownership(1)<PAGE>
<C>Percentage of Class (1)<PAGE>
Common Stock<PAGE>
Richard R. Reinhart, Ph.D.*/**
1300 Piccard Drive, Suite 102
Rockville, MD 20850
<PAGE>
1,000,000(2)<PAGE>
2.9%<PAGE>
Common Stock John G. Baust, Ph.D.*
1300 Piccard Drive, Suite 102
Rockville, MD 20850
<PAGE>
400,000(3) 1.1% Common Stock Alan F. Rich*
1300 Piccard Drive, Suite 102
Rockville, MD 20850
<PAGE>
185,500(4) *** Common Stock Howard S. Breslow, Esq. **
c/o Breslow & Walker, LLP
767 Third Avenue
New York, NY 10017
<PAGE>
268,000(5) *** Common Stock J. Donald Hill**
1300 Piccard Drive, Suite 102
Rockville, MD 20850
<PAGE>
75,000(6) *** Preferred
Stock<PAGE>
ValorInvest, Ltd.
29 Quai des Berges
1201 Geneva, Switzerland
<PAGE>
128 100% Common Stock All officers and directors as
a group (five persons)
<PAGE>
1,928,500(7) 5.6% Preferred
Stock<PAGE>
All officers and directors as a
group (five persons)
<PAGE>
- - 0 - - 0 -____________________
</TABLE>
(1) Shares of Common Stock subject to options and warrants
currently exercisable or exercisable within 60 days are
deemed outstanding for computing the number of shares and
the percentage of the outstanding shares held by a person
holding such options or warrants, but are not deemed
outstanding for computing the percentage of any other
person. Except as indicated by footnote, and subject to
community property laws where applicable, the Company
believes that the persons named in the table have sole voting
and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) Includes 1,000,000 shares of Common Stock issuable upon
the exercise of outstanding stock options.
(3) Includes 380,000 shares of Common Stock issuable upon
the exercise of outstanding stock options.
(4) Includes 180,000 shares of Common Stock issuable upon
the exercise of outstanding stock options.
(5) Includes 100,000 shares of Common Stock issuable upon
the exercise of outstanding stock options.
(6) Consists of 75,000 shares of Common Stock issuable upon
the exercise of outstanding stock options.
(7) Includes 1,735,000 shares of Common Stock issuable upon
the exercise of outstanding stock options.
* Executive Officer.
** Director.
***Less than 1%.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for the Company's 1997 fiscal year, its transitional
period and its last two completed fiscal years with respect to its
Chief Executive Officer and to each of the Company's named
executive officers.
<TABLE>
<CAPTION>
<S>
Long Term Compensation<PAGE>
Annual Compensation Awards
Payouts <PAGE>
Name and Principal
Position C
<PAGE>
Fiscal
Year (1)C
<PAGE>
Salary
($) (2)C
<PAGE>
Bonus
($)C
<PAGE>
Other Annual
Compensation
($) C
<PAGE>
Restricted
Stock
Award(s)
($ )<PAGE>
<C>Options/
SARs
(#) (3)C
<PAGE>
LTIP
Payouts
($) C
<PAGE>
All Other
Compensation
($)
<PAGE>
Richard J. Reinhart, Ph.D
Current President, Chief
Executive Officer and
Director (4)
<PAGE>
1997
1996.5
1996<PAGE>
159,964
75,481
9,712<PAGE>
- -
- -(5)
- - <PAGE>
- -
- -
- -<PAGE>
- -
- -
- -<PAGE>
250,000
750,000
- -<PAGE>
- -
- -
- -<PAGE>
- -
- -
- -<PAGE>
John G. Baust, Ph.D.
Senior Vice President,
Research and
Development
<PAGE>
1997
1996.5
1996
1995<PAGE>
115,140
57,668
108,646
104,429<PAGE>
- -
- -
- -
- -<PAGE>
46,349(7)
- -
- -
- -<PAGE>
- -
- -
- -
- -<PAGE>
50,000
- -
- -
- -<PAGE>
- -
- -
- -
- -<PAGE>
9,750(6)
6,162(6)
- -
9,243(6)<PAGE>
Alan F. Rich
Vice President,
Sales and Marketing<PAGE>
1997
1996.5
1996
1995<PAGE>
100,450
50,012
87,600
94,417<PAGE>
- -
- -
- -
- -<PAGE>
30,053
23,073
66,015
132,596<PAGE>
- -
- -
- -
- -<PAGE>
50,000
- -
- -
- -<PAGE>
- -
- -
- -
- -<PAGE>
- -
- -
- -
</TABLE>
- -
(1) On July 25, 1996, the Board of Directors authorized a
change in the Company's fiscal year from a period
beginning July 1 and ending June 30 to a variable period
that usually ends on the last Sunday of the calendar year.
The six-month transition period is identified as Fiscal
1996.5 for purposes of this table.
(2) Salaries for fiscal year 1996 reflect a 10% salary
reductions for executive officers of the Company
commencing April 1, 1995. Such salary reductions were
reinstated in July 1996.
(3) Options to acquire shares of Common Stock.
(4) Dr. Reinhart's employment with the Company
commenced in May 1996.
(5) Dr. Reinhart's contract contains a potential bonus
provision based upon a "percentage of pretax profits of
the Company."
(6) Consists of Company contributions made in Dr. Baust's
name to the State University of New York at
Binghamton.
(7) Includes pension payments made for John Baust, Ph.D.
<PAGE>
COMPENSATION OF DIRECTORS
Through June 1996, the Company compensated outside
directors for their service in such capacity at an annual fee of
$5,000 plus $1,000 for each Board meeting attended. As of
January 15, 1997, it was determined that the Company would
compensate Messrs. Howard S. Breslow and J. Donald Hill for
Board of Directors meetings held during the transition period and
Board of Directors meetings held during 1997 with a grant of
warrants to purchase 25,000 shares of Common Stock at an
exercise price of $0.50. These options vest immediately and
expire in ten years.
OPTION/SAR GRANTS IN YEAR ENDED DECEMBER
28, 1997
In 1997, the Company issued options to purchase shares
of Common Stock to the executive officers named in the
Executive Compensation Table, as follows:
<TABLE>
<CAPTION>
<S>Name<PAGE>
<C>Number of Securities
Underlying Options
Granted<PAGE>
<C>Percent of Total Options
Granted to Employees in
Fiscal Year<PAGE>
<C>Exercise Price <C>Expiration
Date<PAGE>
Richard J. Reinhart, Ph.D.<PAGE>
250,000 62.5% $.50 12/31/06 John G. Baust, Ph.D.
<PAGE>
50,000 12.5% $.50 12/31/06 Alan F. Rich 50,000 12.5% $.50 12/31/06
The Company does not have any outstanding stock
appreciation rights.
</TABLE>
AGGREGATED OPTION/SAR EXERCISES DURING
THE 1997 FISCAL YEAR
AND THE 1997 FISCAL YEAR OPTION/SAR VALUES
The following table provides information related to
options exercised by each of the executive officers named in the
Executive Compensation Table during the 1997 Fiscal Year and
the number and value of options held at December 28, 1997.
The Company does not have any outstanding stock appreciation
rights. None of the options were in the money at period ended
December 28, 1997.
<TABLE>
<CAPTION>
<S>
<PAGE>
Number of Unexercised
Options at Fiscal Year End (#)C
<PAGE>
Value of Unexercised In-the-
Money Options at Fiscal Year
End ($) (1)C
<PAGE>
Name <C>Shares
Acquired on
Exercise (#)<PAGE>
<C>Value Realized
($)<PAGE>
<C>Exercisable <C>Unexercisable <C>Exercisable <C>Unexercisable<PAGE>
Richard J. Reinhart, Ph.D<PAGE>
- - - -
<PAGE>
1,000,000 - -<PAGE>
John G. Baust, Ph.D.<PAGE>
- - -
<PAGE>
330,000 50,000 - - Alan F. Rich - - 100,000 80,000 - -
</TABLE>
(1) The closing price for the Company's Common Stock as
reported on the NASDAQ Stock Market on December
28, 1997 was $.25. Value is calculated on the basis of
the difference between the option exercise price and $.25
multiplied by the number of shares of Common Stock
underlying the option.
EMPLOYMENT AND RELATED AGREEMENTS
In May 1996, the Company and Richard J. Reinhart,
Ph.D. entered into an employment agreement through December
31, 1999 pursuant to which Dr. Reinhart was employed as
President, Chief Executive Officer and a director of the
Company. In accordance to his employment agreement, Dr.
Reinhart was granted options to purchase 750,000 shares of
Common Stock at an exercise price of $2.1875 per share
pursuant to the Company's 1998 Stock Option Plan. The option
vests one-fifth each year, for five years, commencing one year
from employment. In addition to his base salary, Dr. Reinhart
is entitled to a bonus based upon a percentage of "pretax profits
of the Company." Such bonus ranges from 10% for the period
ended December 31, 1996 to 3% for 2001. In the event the
term of the employment agreement is terminated for a reason
other than death, disability, or discharge for cause or
resignation, the Company is required to pay Dr. Reinhart as
follows: (a) if such termination occurs within the first six months
of the Employment Period, Dr. Reinhart shall be entitled to
receive the salary due him up to the date of termination and (b)
if termination occurs after the initial six months, Dr. Reinhart
shall be entitled to the salary due him for (i) the balance of his
Employment Period, (ii) a period of two and a half years, or (iii)
until subsequently employed, whichever is sooner; provided,
however, Dr. Reinhart shall have an affirmative obligation to
seek comparable employment and mitigate the Company's
damages.
In July 1990, the Company and John G. Baust, Ph.D.
entered into a three year employment agreement (as amended in
December 1991 and July 1993), automatically renewable for
additional one year periods (absent notice to the contrary by
either party). The agreement provides that Dr. Baust shall retain
his affiliation with the State University of New York at
Binghamton, where he is the Director of the Center for
Cryobiological Research. During the transition period ended
December 29, 1996, the Company made no payments to SUNY.
In January 1997, the Company determined it would pledge a gift
amount of $39,000, consisting of four quarterly payments of
$9,750 in the name of the Senior Vice President for calendar
1997. In accordance with Dr. Baust's employment agreement,
in July 1990, Dr. Baust was granted an option to purchase an
aggregate of 200,000 shares of Common Stock at $1.875 per
share pursuant to the Company's 1988 Stock Option Plan. The
option vested one-third each year for three years, commencing
for one year from the date of the agreement. Among other
things, the employment agreement also provided for the
Company to loan to Dr. Baust the funds required for the exercise
of the options at the time of exercise. Such loans would be for
terms of five years, accrue interest at a rate of 5% per annum
and be secured by shares obtained from the option exercise. In
accordance with the terms of the agreement, in May 1993 the
Company lent $37,500 to Dr. Baust to exercise options to
purchase 20,000 shares of Common Stock.
Alan F. Rich joined the Company in May 1992 as a
regional sales manager. On March 1, 1994, the Company and
Mr. Rich entered into a one year employment agreement,
automatically renewable for additional one year periods (absent
notice to the contrary by either party), pursuant to which Mr.
Rich is employed as Vice President, Sales and Marketing, of the
Company. Mr. Rich's base salary is to increase each year to the
extent of any cost of living increases based upon the Consumer
Price Index increase for the immediate preceding year. In
addition, Mr. Rich is entitled to commissions of up to 1% of the
sales revenue of the Company. In accordance with the
employment agreement, in March 1994, Mr. Rich was granted
options to purchase 100,000 shares of Common Stock at $3.125
per share pursuant to the Company's 1988 Stock Option Plan.
The options vest with respect to 20,000 shares after one year, an
additional 25,000 shares after two years, an additional 25,000
shares after three years, and an additional 30,000 shares after
four years.
In connection with the execution of the employment
agreements between the Company and each of its executive
officers, each officer executed a Proprietary Information and
Inventions Agreement, pursuant to which each agreed, among
other things, to keep the Company's information confidential and
assigned all inventions to the Company, except for certain
personal inventions not related to the Company's work, whether
existing or later developed.
NEW PLAN BENEFITS
The following table sets forth with respect to the 1998
Stock Option Plan the benefits or amounts that will be received
by the executive officers named in the Executive Compensation
Table, the current executive officers as a group, the current
directors who are not executive officers as a group, and all
employees who are not executive officers as a group:
<TABLE>
<CAPTION>
1998 Stock Option Plan
<S>
<PAGE>
Name
<C>
<PAGE>
Dollar Value(2)<PAGE>
<C>
Number of Units(1)<PAGE>
Richard J. Reinhart, Ph.D.(3)<PAGE>
- - 7,200,000<PAGE>
John G. Baust, Ph.D.(3)<PAGE>
- - 2,160,000<PAGE>
Alan F. Rich(4)<PAGE>
- - 1,100,000<PAGE>
Executive Group<PAGE>
- - 10,460,000<PAGE>
Non-Executive Director Group (2 people)(3)<PAGE>
- - 1,440,000<PAGE>
Non-Executive Officer Employee Group (14 people)(4)<PAGE>
- - 775,000
</TABLE>
(1) Represents pre-Reverse Stock Split shares of Common
Stock issuable upon the exercise of options.
(2) The closing price for the Company's Common Stock as
reported on the NASDAQ Stock Market on November 2,
1998 was $.125. Value is calculated on the basis of the
difference between the option exercise price of $.25 (pre-
Reverse Stock Split) and $.125, multiplied by the number
of shares of Common Stock underlying the option.
(3) These options vest immediately and expire on August 30,
2008.
(4) These options vest to the extent of 25% thereof upon
grant and 25% thereof on each of the first three
anniversary dates of their grant.
In addition to the foregoing options to be issued pursuant
to the 1998 Stock Option Plan, Breslow & Walker, LLP, the
Company's general counsel, of which Howard S. Breslow, a
director of the Company, is a member, will receive warrants,
expiring August 30, 2008, to purchase 2,880,000 shares (pre-
Reverse Stock Split) of Common Stock, at $.25 per share (pre-
Reverse Stock Split), and BWM Investments, an affiliate of
Breslow & Walker, LLP, of which Howard S. Breslow is a
partner, will receive warrants, expiring August 30, 2008, to
purchase 3,600,000 shares (pre-Reverse Stock Split) of Common
Stock, at $.25 per share (pre-Reverse Stock Split). The closing
price for the Company's Common Stock as reported on the
NASDAQ Stock Market on November 2, 2998 was $.125.
Breslow & Walker, LLP, has continued to provide legal services
to the Company despite the fact that no payment has been made
on invoices rendered since January 1, 1997, and, in large part,
Breslow & Walker, LLP has provided services since said date
without billing therefor. As of November 3, 1998, the amount
of outstanding billed services totalled $81,575.43. Breslow &
Walker, LLP has agreed to defer the payment of such fee until
the earlier of December 31, 1999 or the receipt by the Company
of a minimum of $1,000,000 in financings over and above the
ValorInvest investment pursuant to the Stock Purchase
Agreement and has waived its right to any payment for unbilled
services performed during 1997 and 1998. BWM Investments
is responsible for introducing the Company to ValorInvest and
will not receive any cash fee for such introduction nor with
respect to any Public Offering consummated through the
Underwriter. (See "Background.")<PAGE>
INTEREST OF CERTAIN PERSONS
The Stock Purchase Agreement with ValorInvest requires
the Board of Directors of the Company to adopt a Plan of
Recapitalization and Financing (the "Plan") and to submit the
Plan to stockholders for their approval. In connection with the
adoption and approval by the Board of Directors of the Plan, and
pursuant to the terms thereof, the Board of Directors granted, on
a pre-Reverse Stock Split basis: (i) under the 1998 Stock Option
Plan, stock options to purchase an aggregate of 13,300,000
shares of Common Stock, at $.25 per share, including grants to
the following executive officers and directors of the Company:
Richard J. Reinhart, Ph.D., President, Chief Executive Officer
and Director - 7,200,000; John G. Baust, Ph.D.,Senior Vice
President and Chief Scientific Officer - 2,160,000; Alan F. Rich,
Vice President-Sales and Marketing - 1,100,000; Howard S.
Breslow, Director - 720,000; and J. Donald Hill, Director -
720,000, (ii) warrants to purchase 2,880,000 shares of Common
Stock, at $.25 per share, to Breslow & Walker, LLP, the
Company's general counsel, of which Howard S. Breslow, a
director of the Company, is a member, and (iii) warrants to
purchase 3,600,000 shares of Common Stock, at $.25 per share,
to BWM Investments, an affiliate of Breslow & Walker, LLP,
of which Howard S. Breslow, a director of the Company, is a
partner, to appropriately incentivize and/or compensate them for
services provided to the Company, in each case subject to
approval of the Plan by the stockholders of the Company.
OTHER MATTERS
The Board of Directors of the Company does not know
of any other matters that are to be presented for action at the
Meeting. Should any other matters properly come before the
Meeting or any adjournments thereof, the persons named in the
enclosed proxy will have the discretionary authority to vote all
proxies received with respect to such matters in accordance with
their judgment.
<PAGE>
STOCKHOLDER PROPOSALS TO BE PRESENTED AT
THE
COMPANY'S NEXT ANNUAL MEETING OF
STOCKHOLDERS
Stockholder proposals intended to be presented at the next
Annual Meeting of Stockholders of the Company must be
received by the Company, at its principal executive offices,
within a reasonable time prior to the solicitation of proxies in
connection with such meeting in order for such proposals to be
included in the Proxy Statement and Proxy relating to such
meeting.
This Proxy Statement is sent by order of the Board of
Directors of the Company.
/s/ Richard J. Reinhart
Richard J. Reinhart, Ph.D., President
and Chief Executive Officer
Rockville, Maryland
November 6, 1998
STOCKHOLDERS ARE URGED TO SPECIFY
THEIR CHOICES AND DATE, SIGN, AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. A
PROMPT RESPONSE IS HELPFUL AND YOUR
COOPERATION WILL BE APPRECIATED.<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
CRYOMEDICAL SCIENCES, INC.
(Pursuant to Section 242 of the General Corporation Law of
the State of Delaware)
Cryomedical Sciences, Inc. (the "Corporation"), a corpo-
ration organized and existing under the General Corporation Law
of the State of Delaware (the "GCL"), certifies as follows:
1. The name of the Corporation is Cryomedical
Sciences, Inc.
2. The date of filing of the Corporation's certificate
of incorporation (the "Certificate of Incorporation") with the
Secretary of State of the State of Delaware was November 5,
1987.
3. Subdivision (a) of Article Fourth of the
Certificate of Incorporation is hereby amended so that it shall
now read as follows:
"FOURTH: (a) The total number of
shares of stock which the Corporation
shall have the authority to issue is
25,000,000 shares of common stock,
each having a par value of $.001 (the
"Common Stock"), and 1,000,000
shares of preferred stock, each having
a par value of $.001 (the "Preferred
Stock").
The Board of Directors is
expressly authorized to provide for the
issuance of all or any shares of
Preferred Stock in one or more classes
or series, and to fix for each such class
or series such voting powers, full or
limited, or non-voting powers, and
such distinctive designations,
preferences, and relative, participating,
optional, or other special rights, and
such qualifications, limitations, or
restrictions thereof, as shall be stated
and expressed in the resolution or
resolutions adopted by the Board of
Directors providing for the issuance of
such class or series and as may be
permitted by the GCL, including,
without limitation, the authority to
provide that any such class or series
may be (i) subject to redemption at
such time or times and at such price or
prices; (ii) entitled to receive dividends
(which may be cumulative or non-
cumulative) at such rates, on such
conditions, and at such times, and
payable in preference to, or in such
relation to, the dividends payable on
any other class or classes or any other
series; (iii) entitled to such rights upon
the dissolution of, or upon any
distribution of the assets of, the
Corporation; or (iv) convertible into,
or exchangeable for, shares of any
other classes of stock of the
Corporation at such price or prices or
at such rates of exchange and with
such adjustments; all as may be stated
in such resolution or resolutions."
4. Upon the filing in the Office of the Secretary of
State of the State of Delaware of a Certificate of Amendment to
the Certificate of Incorporation of the Corporation whereby this
Article Fourth is amended to read as set forth herein (the
"Filing"), each ___________ shares of Common Stock issued
and outstanding and held of record by each stockholder of the
Corporation immediately prior to the Filing shall, automatically
and without the need for any further action on the part of any
stockholder, be combined into one (1) validly issued, fully paid,
and non-assessable share of Common Stock, par value $.001 per
share. No scrip or fractional shares will be issued by reason of
this amendment, but, in lieu thereof, one whole share will be
issued to those stockholders who would otherwise be entitled to
receive fractional shares.
5. This Certificate of Amendment to the Certificate
of Incorporation was authorized by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote
thereon at a meeting of stockholders pursuant to Sections 222
and 242 of the GCL.
IN WITNESS WHEREOF, I hereunto sign my name and
affirm that the statements made herein are true under penalties
of perjury this ____ day of _________________, 1998.
CRYOMEDICAL SCIENCES, INC.
By
Richard J. Reinhart, Ph.D., President and
Chief Executive Officer
<PAGE>
EXHIBIT B
CRYOMEDICAL SCIENCES, INC.
1998 STOCK OPTION PLAN
1. Purpose of Plan. The purpose of this 1998 Stock
Option Plan (the "Plan") is to further the growth and
development of Cryomedical Sciences, Inc. (the
"Company") by encouraging and enabling employees,
officers, and directors of, and consultants and advisors to,
the Company to obtain a proprietary interest in the
Company through the ownership of stock (thereby
providing such persons with an added incentive to continue
in the employ or service of the Company and to stimulate
their efforts in promoting the growth, efficiency, and
profitability of the Company), and affording the Company
a means of attracting to its service persons of outstanding
quality.
2. Shares of Stock Subject to the Plan. Subject to the
provisions of Section 12 hereof, an aggregate of
20,000,000 shares of the common stock, par value $.001
per share, of the Company ("Common Stock") shall be
reserved for issuance upon the exercise of options which
may be granted from time to time in accordance with the
Plan. As the Board of Directors of the Company ("Board
of Directors") shall from time to time determine, such
shares may be, in whole or in part, authorized but unissued
shares or issued shares which have been reacquired by the
Company. If, for any reason, an option shall lapse, expire,
or terminate without having been exercised in full, the
unpurchased shares underlying such option shall (unless the
Plan shall have been terminated) again be available for
issuance pursuant to the Plan.
3. Administration.
(a) The Board of Directors shall administer the
Plan and, subject to the provisions of the Plan, shall have
authority to determine and designate from time to time
those persons eligible for a grant of options under the Plan,
those persons to whom options are to be granted, the
purchase price of the shares covered by each option, the
time or times at which options shall be granted, and the
manner in which said options are exercisable. In making
such determination, the Board of Directors may take into
account the nature of the services rendered by the
respective persons, their present and potential contributions
to the Company's success, and such other factors as the
Board of Directors in its sole discretion shall deem rele-
vant. Subject to the express provisions of the Plan, the
Board of Directors also shall have authority to interpret the
Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, to determine the terms and
provisions of the instruments by which options shall be
evidenced (which shall not be inconsistent with the terms
of the Plan), and to make all other determinations
necessary or advisable for the administration of the Plan,
all of which determinations shall be final, binding, and
conclusive.
(b) The Board of Directors may, at its
discretion, in accordance with the provisions of the
Company's By-Laws, appoint from among its members a
Stock Option or Compensation Committee (the
"Committee"). The Committee shall be composed of two
or more directors and shall have and may exercise any and
all of the powers relating to the administration of the Plan
and the grant of options hereunder as are set forth above in
Section 3(a), as the Board of Directors shall confer and
delegate. The Board of Directors shall have the power at
any time to fill vacancies in, to change the membership of,
or to discharge, the Committee. The Committee shall
select one of its members as its Chairman and shall hold its
meetings at such time and at such places as it shall deem
advisable. A majority of the Committee shall constitute a
quorum and such majority shall determine its action. The
Committee shall keep minutes of its proceedings and shall
report the same to the Board of Directors at the meeting
next succeeding. No director or member of the Committee
shall be liable for any action or determination made in
good faith with respect to the Plan or any option granted
thereunder.
4. Persons To Whom Shares May Be Granted.
(a)Options may be granted to persons who are,
at the time of the grant, employees (including part-time
employees), officers, and directors of, or consultants or
advisors to, the Company or any subsidiary corporation (as
defined in Section 425 of the Internal Revenue Code of
1986, as amended (the "Code"), a "Subsidiary") as the
Board of Directors (or Committee) shall select from time
to time from among those nominated by the Board of
Directors (or Committee). For the purposes of the Plan,
options only may be granted to those consultants and
advisors who shall render bona fide services to the
Company and such services must not be in connection with
the offer or sale of securities in a capital raising
transaction. Subject to the provisions hereinafter set forth,
options granted under the Plan shall be designated either (i)
"Incentive Stock Options" (which term, as used herein,
shall mean options intended to be "incentive stock options"
within the meaning of Section 422 of the Code) or (ii)
"Non-Incentive Stock Options" (which term, as used
herein, shall mean options not intended to be incentive
stock options" within the meaning of Section 422 of the
Code). Each option granted to a person who is solely a
director of, or consultant or advisor to, the Company or a
Subsidiary on the date of the grant shall be designated a
Non-Incentive Stock Option.
(b) The Board of Directors (or Committee) may
grant, at any time, new options to a person who has
previously received options, whether such prior options are
still outstanding, have previously been exercised in whole
or in part, have expired, or are canceled in connection with
the issuance of new options. The purchase price of the
new options may be established by the Board of Directors
(or Committee) without regard to the existing option price.
5. Option Price.
(a) The purchase price of the Common Stock
underlying each option shall be determined by the Board of
Directors (or Committee), which determination shall be
final, binding, and conclusive; provided, however, in no
event shall the purchase price of Incentive Stock Options be
less than 100% (110% in the case of optionees who own
more than 10% of the total combined voting power of all
classes of stock of the Company) of the fair market value
of the Common Stock on the date the option is granted. In
determining such fair market value, the Board of Directors
(or Committee) shall consider (i) the last sale price of the
Common Stock on the date on which the option is granted
or, if no such reported sale takes place on such day, the
last reported bid price on such day, on NASDAQ or on the
principal national securities exchange on which the
Common Stock is admitted to trading or listed, or (ii) if not
listed or admitted to trading on NASDAQ or a national
securities exchange, the closing bid price as quoted by the
National Quotation Bureau or a recognized dealer in the
Common Stock on the date of grant. If the Common Stock
is not publicly traded at the time an option is granted, the
Board of Directors (or Committee) shall deem fair market
value to be the fair value of the Common Stock after taking
into account appropriate factors which may be relevant
under applicable federal tax laws and Internal Revenue
rules and regulations. For purposes of the Plan, the date
of grant of an option shall be the date specified by the
Board of Directors (or Committee) at the time it grants
such option; provided, however, such date shall not be
prior to the date on which the Board of Directors (or
Committee) acts to approve the grant.
(b) The aggregate fair market value (determined
at the time the Incentive Stock Options are granted) of the
Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by an employee
during any calendar year shall not exceed $100,000.
Non-Incentive Stock Options shall not be subject to the
limitations of this paragraph 5(b).
6. Exercise of Options.
(a) The number of shares which are issued
pursuant to the exercise of an option shall be charged
against the maximum limitations on shares set forth in
Section 2 hereof.
(b) The exercise of an option shall be made
contingent upon receipt by the Company from the holder
thereof of (i) if deemed necessary by the Company, a
written representation and acknowledgement that (1) at the
time of such exercise it is the holder's then present
intention to acquire the option shares for investment and
not with a view to distribution or resale thereof, (2) the
holder knows that the Company is not obligated to register
the option shares and that the option shares may have to be
held indefinitely unless an exemption from the registration
requirements of the Securities Act of 1933, as amended
(the "Act"), is available or the Company has registered the
shares underlying the options, and (3) the Company may
place a legend on the certificate(s) evidencing the option
shares reflecting the fact that they were acquired for
investment and cannot be sold or transferred unless
registered under the Act, and (ii) payment in full of the
purchase price of the shares being purchased. Payment
may be made in cash; by certified check payable to the
order of the Company in the amount of such purchase
price; by delivery to the Company of shares of Common
Stock having a fair market value equal to such purchase
price; by irrevocable instructions to a broker to sell shares
of Common Stock to be issued upon exercise of the option
and to deliver to the Company the amount of sale proceeds
necessary to pay such purchase price and to deliver the
remaining cash proceeds, less commissions and brokerage
fees, to the optionee; or by any combination of such
methods of payment.
7. Term of Options. The period during which each
option granted hereunder shall be exercisable shall be
determined by the Board of Directors (or Committee);
provided, however, no option shall be exercisable for a
period exceeding ten (10) years from the date such option
is granted.
8. Non-Transferability of Options. No option granted
pursuant to the Plan shall be subject to anticipation, sale,
assignment, pledge, encumbrance, or charge, or shall be
otherwise transferable except by will or the laws of descent
and distribution or pursuant to a qualified domestic
relations order (as defined by the Code or Title I of the
Employee Retirement Income Security Act or the rules
thereunder), and an option shall be exercisable during the
lifetime of the holder thereof only by such holder.
9. Termination of Services. If an employee, officer, or
director to whom an option has been granted under the Plan
shall cease to be an employee, officer, or director of the
Company or a Subsidiary by reason of a termination of
such relationship without cause and other than by reason of
death or disability, such holder may exercise such option at
any time prior to the expiration date of the option or within
three months after the date of termination, whichever is
earlier, but only to the extent the holder had the right to
exercise such option on the date of termination. If an
employee, officer, or director to whom an option has been
granted under the Plan shall cease to be an employee,
officer, or director of the Company or a Subsidiary by
reason of a termination of such relationship for cause and
other than by reason of death or disability, such options
shall terminate, lapse, and expire forthwith and
automatically. So long as the holder of an option shall
continue to be in the employ, or continue to be a director,
of the Company or one or more of its Subsidiaries, such
holder's option shall not be affected by any change of
duties or position. Absence on leave approved by the
employing corporation shall not be considered an
interruption of employment for any purpose under the Plan.
The granting of an option in any one year shall not give the
holder of the option any rights to similar grants in future
years or any right to be retained in the employ or service
of the Company or any of its Subsidiaries or interfere in
any way with the right of the Company or any such
Subsidiary to terminate such holder's employment or
services at any time. Notwithstanding the foregoing, no
option may be exercised after ten years from the date of its
grant.
10. Disability of Holder of Option. If any employee,
officer, or director to whom an option has been granted
under the Plan shall cease to be an employee, officer, or
director of the Company or a Subsidiary by reason of
disability, such holder may exercise such option at any time
prior to the expiration date of the option or within one year
after the date of termination for such reason, whichever is
earlier, but only to the extent the holder had the right to
exercise such option on the date of termination.
Notwithstanding the foregoing, no option may be exercised
after ten years from the date of its grant. For the purposes
of the Plan, "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code.
11. Death of Holder of Option. If any employee,
officer, or director to whom an option has been granted
under the Plan shall cease to be an employee, officer, or
director of the Company or a Subsidiary by reason of
death, or such holder of an option shall die within three
months after termination, or in the case of the death of an
advisor or consultant to whom an option has been granted
under the Plan, the option may be exercised by the person
or persons to whom the optionee's rights under the option
are transferred by will or by the laws of descent and
distribution at any time prior to the expiration date of the
option or, in the case of an employee, officer, or director,
within three months from the date of death, whichever is
earlier, but only to the extent the holder of the option had
the right to exercise such option on the date of such
termination. Notwithstanding the foregoing, no option may
be exercised after ten years from the date of its grant.
12. Adjustments Upon Changes in Capitalization.
(a) If the shares of Common Stock outstanding
are changed in number, kind, or class by reason of a stock
split, combination, merger, consolidation, reorganization,
reclassification, exchange, or any capital adjustment,
including a stock dividend, or if any distribution is made to
stockholders other than a cash dividend and the Board of
Directors (or Committee) deems it appropriate to make an
adjustment, then (i) the aggregate number and class of
shares that may be issued or transferred pursuant to Section
2, (ii) the number and class of shares which are issuable
under outstanding options, and (iii) the purchase price to be
paid per share under outstanding options, shall be adjusted
as hereinafter provided.
(b) Adjustments under this Section 12 shall be
made in a proportionate and equitable manner by the Board
of Directors (or Committee), whose determination as to
what adjustments shall be made, and the extent thereof,
shall be final, binding, and conclusive. In the event that a
fraction of a share results from the foregoing adjustment,
said fraction shall be eliminated and the price per share of
the remaining shares subject to the option adjusted
accordingly.
(c) In the event of a liquidation of the Company,
or a merger, reorganization, or consolidation of the
Company with any other corporation in which the
Company is not the surviving corporation or the Company
becomes a wholly-owned subsidiary of another corporation,
any unexercised options theretofore granted under the Plan
shall be deemed canceled unless the surviving corporation
in any such merger, reorganization, or consolidation elects
to assume the options under the Plan or to issue substitute
options in place thereof; provided, however, if such options
would otherwise be canceled in accordance with the
foregoing, the optionee shall have the right, exercisable
during a ten-day period immediately prior to such liquid-
ation, merger, or consolidation, to exercise the option, in
whole or in part. The granting of an option pursuant to the
Plan shall not affect in any way the right or power of the
Company to make adjustments, reorganizations,
reclassifications, or changes of its capital or business
structure or to merge, consolidate, dissolve, liquidate, or
sell or transfer all or any part of its business or assets.
13. Vesting of Rights Under Options. Nothing contained
in the Plan or in any resolution adopted or to be adopted by
the Board of Directors (or Committee) or the stockholders
of the Company shall constitute the vesting of any rights
under any option. The vesting of such rights shall take
place only when a written agreement shall be duly executed
and delivered by and on behalf of the Company to the
person to whom the option shall be granted.
14. Rights as a Stockholder. A holder of an option shall
have no rights of a stockholder with respect to any shares
covered by such holder's option until the date of issuance
of a stock certificate to such holder for such shares.
15. Termination and Amendment. The Plan was adopted
by the Board of Directors on August 31, 1998, subject,
with respect to the validation of Incentive Stock Options
granted under the Plan, to approval of the Plan by the
stockholders of the Company at the next Meeting of
Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders is not obtained prior to August 30,
1999, any grants of Incentive Stock Options under the Plan
made prior to that date will be rescinded. The Plan shall
expire at the end of the day on August 30, 2008 (except as
to options outstanding on that date). Options may be
granted under the Plan prior to the date of stockholder
approval of the Plan. The Board of Directors (or
Committee) may terminate or amend the Plan in any
respect at any time, except that, without the approval of the
stockholders obtained within 12 months before or after the
Board of Directors (or Committee) adopts a resolution
authorizing any of the following actions, (a) the total
number of shares that may be issued under the Plan may
not be increased (except by adjustment pursuant to
paragraph 12); (b) the provisions regarding eligibility for
grants of Incentive Stock Options may not be modified; (c)
the provisions regarding the exercise price at which shares
may be offered pursuant to Incentive Stock Options may
not be modified (except by adjustment pursuant to
paragraph 12), and (d) the expiration date of the Plan may
not be extended. Except as otherwise provided in this
paragraph 15, in no event may action of the Board of
Directors (or Committee) or stockholders alter or impair
the rights of an optionee, without such optionee's consent,
under any option previously granted to such optionee.
16. Modification, Extension and Renewal of Options.
Subject to the terms and conditions and within the limita-
tions of the Plan, the Board of Directors (or Committee)
may modify, extend, or renew outstanding options granted
under the Plan, or accept the surrender of outstanding
options (to the extent not theretofore exercised) and
authorize the granting of new options in substitution
therefor. Notwithstanding the foregoing, no modification of
an option shall, without the consent of the holder thereof,
alter or impair any rights or obligations under any option
theretofore granted under the Plan.
17. Conversion of Incentive Stock Options into Non-
Qualified Options. Without the prior written consent of the
holder of an Incentive Stock Option, the Board of Directors
(or Committee) shall not alter the terms of such Incentive
Stock Option (including the means of exercising such
Incentive Stock Option) if such alteration would constitute
a modification within the meaning of Section 424(h)(3) of
the Code. The Board of Directors (or Committee), at the
written request or with the written consent of any optionee,
may in its discretion take such actions as may be necessary
to convert such optionee's Incentive Stock Options (or any
installments or portions of installments thereof) that have
not been exercised on the date of conversion into Non-
Incentive Stock Options at any time prior to the expiration
of such Incentive Stock Options, regardless of whether the
optionee is an employee of the Company at the time of
such conversion. Such actions may include, but shall not
be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such
Incentive Stock Options. At the time of such conversion,
the Board of Directors (or Committee) (with the consent of
the optionee) may impose such conditions on the exercise
of the resulting Non-Incentive Stock Options as the Board
of Directors (or Committee) in its discretion may
determine, provided that such conditions shall not be
inconsistent with the Plan. Nothing in the Plan shall be
deemed to give any optionee the right to have such
optionee's Incentive Stock Options converted into Non-
Incentive Stock Options, and no such conversion shall
occur until and unless the Board of Directors (or
Committee) takes appropriate action.
18. Withholding of Additional Income Taxes. Upon the
exercise of a Non-Incentive Stock Option, the transfer of a
Non-Incentive Stock Option pursuant to an arm's length
transaction, the making of a Disqualifying Disposition (as
described in Sections 421, 422 and 424 of the Code and
regulations thereunder), the vesting of transfer of restricted
stock or securities acquired on the exercise of an option
hereunder, or the making of a distribution or other payment
with respect to such stock or securities, the Company may
withhold taxes in respect of amounts that constitute
compensation includible in gross income. The Board of
Directors (or Committee) in its discretion may condition
the exercise of an option, the transfer of a Non-Incentive
Stock Option, or the vesting or transferability of restricted
stock or securities acquired by exercising an option on the
optionee's making satisfactory arrangement for such
withholding. Such arrangement may include payment by
the optionee in cash or by check of the amount of the
withholding taxes or, at the discretion of the Board of
Directors (or Committee), by the optionee's delivery of
previously held shares of Common Stock or the
withholding from the shares of Common Stock otherwise
deliverable upon exercise of option shares having an
aggregate fair market value equal to the amount of such
withholding taxes.
19. Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board
of Directors (or Committee), the members of the Board of
Directors (or Committee) administering the Plan shall be
indemnified by the Company against reasonable expenses,
including attorneys' fees, actually and necessarily incurred
in connection with the defense of any action, suit, or
proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with
the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of
a judgment in any action, suit, or proceeding, except in
relation to matters as to which it shall be adjudged in such
action, suit, or proceeding that such member is liable for
negligence or misconduct in the performance of his duties,
and provided that within 60 days after institution of any
such action, suit, or proceeding, the member shall in
writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
20. Governing Law. The validity and construction of the
Plan and the instruments evidencing options shall be
governed by the laws of Delaware, or the laws of any
jurisdiction in which the Company or its successors in
interest may be organized.<PAGE>
PROXY
CRYOMEDICAL SCIENCES, INC.
1300 Piccard Drive, Suite 102
Rockville, Maryland 20850
This Proxy is solicited on behalf of the Board of Directors
The undersigned, acknowledging receipt of the proxy
statement dated November 6, 1998 of Cryomedical Sciences, Inc.,
hereby constitutes and appoints Richard J. Reinhart and J. Donald Hill,
and each or any of them, attorney, agent, and proxy of the
undersigned, with full power of substitution to each of them, for and
in the name, place, and stead of the undersigned, to appear and vote all
the shares of stock of Cryomedical Sciences, Inc., standing in the name
of the undersigned on the books of said corporation on October 23,
1998 at the Special Meeting of Stockholders of Cryomedical Sciences,
Inc., to be held at the offices of the Company, 1300 Piccard Drive,
Suite 102, Rockville, Maryland 20850, on December 16, 1998 at 10:00
a.m., Maryland time, and any and all adjournments thereof.
When properly executed, this proxy will be voted as
designated by the undersigned.
If no choice is specified, this proxy will be voted (i) FOR
approval of the proposed Amendment to the Company's Certificate
of Incorporation ("Charter") to effect a one-for-five, one for six,
one for seven, one for eight, one for nine, one for ten, one for
eleven, one for twelve, one for thirteen, one for fourteen, one for
fifteen, or one for sixteen reverse stock split of the issued and
outstanding shares of Common Stock, with one of such approved
alternatives to be chosen by the Board of Directors of the Company
(the "Reverse Stock Split"), (ii) FOR the approval of the proposed
amendment to the Charter to reduce the number of authorized
shares of Common Stock from 50,000,000 shares to 25,000,000
shares (the "Common Stock Reduction"), (iii) FOR the approval of
the proposed amendment to the Charter to reduce the number of
authorized shares of Preferred Stock of the Company, par value
$.001 per share ("Preferred Stock"), from 9,378,800 shares to
1,000,000 shares (the "Preferred Stock Reduction"), (iv) FOR
ratification and approval of the Company's 1998 Stock Option Plan
(the "1998 Stock Option Plan"), (v) FOR ratification and approval
of the grant of stock options/warrants for 19,780,000 shares (pre-
Reverse Stock Split), exercisable at $.25 per share (pre-Reverse
Stock Split) to management, others who have performed services
for the Company, and directors, to appropriately incentivize and
compensate them (the Stock Option/Warrant Grant"), and (vi)
FOR approval of the preparation and filing of a registration
statement with the Securities and Exchange Commission for the sale
of securities by the Company (the "SEC Filing"). AS DISCLOSED
IN THE ACCOMPANYING PROXY STATEMENT, THE
FAILURE TO APPROVE EACH OF THE PROPOSALS
CONTAINED HEREIN COULD HAVE A MATERIAL ADVERSE
EFFECT ON THE BUSINESS AND FINANCIAL CONDITION OF
THE COMPANY. SEE "PROXY STATEMENT -
BACKGROUND." The approval of a matter requires a "FOR"
vote. A vote to ABSTAIN with respect to a matter will have the
same effect as a vote AGAINST the matter.
1. PROPOSAL TO AMEND THE
CHARTER TO EFFECT THE REVERSE STOCK SPLIT.
( ) FOR ( ) AGAINST ( ) ABSTAIN
2. PROPOSAL TO AMEND
CHARTER TO EFFECT THE COMMON STOCK REDUCTION.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. PROPOSAL TO AMEND
CHARTER TO EFFECT THE PREFERRED STOCK REDUCTION.
( ) FOR ( ) AGAINST ( ) ABSTAIN
4. PROPOSAL TO RATIFY AND
APPROVE THE 1998 STOCK OPTION PLAN.
( ) FOR ( ) AGAINST ( ) ABSTAIN
5. PROPOSAL TO APPROVE THE
STOCK OPTION/WARRANT GRANT.
( ) FOR ( ) AGAINST ( ) ABSTAIN
6. PROPOSAL TO APPROVE THE
SEC FILING.
( ) FOR ( ) AGAINST ( ) ABSTAIN
7. FOR SUCH OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE
MEETING AND ANY
ADJOURNMENTS THEREOF.
Date
Print Name
Signature
Signature, if held jointly
When shares are held by joint tenants, both should
sign. When signing as attorney, administrator,
trustee, or guardian, please give full title as such. If
a corporation, please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE.<PAGE>
Dear Shareholder:
Since the announcement of the Company's Plan of
Recapitalization and Financing (the "Plan"), I have been
inundated with calls from stockholders with questions about
the Plan. The Plan was adopted by the Board of Directors
of the Company in accordance with the terms and
conditions of a Stock Purchase Agreement (the
"Agreement") with ValorInvest, Ltd. ("ValorInvest"). The
Agreement requires that the Plan be submitted to the
Company's stockholders for their approval.
The enclosed proxy material contains a great deal
of information regarding the Plan. We hope that this
material will answer any questions you may have.
However, if you still have questions regarding the Plan
after you have reviewed the proxy material, please give me
a call at the Company at (301) 417-7070 extension 222.
This is an important enough issue that I am going to make
myself available over the next several weeks to answer any
questions you may have. If I am unable to take your call
immediately, please leave a message containing your name,
telephone number and a time that I can get back to you.
Due to the fact that the Company is unable to
contact its many shareholders on a one on one basis I am
taking this opportunity to make you aware of the primary
consideration that the Company has in regard to the
approval of the Plan. It is most important that you realize
the following:
1. The Plan consists of six individual matters.
2. Each matter is individually itemized on the
proxy voting card.
3. In order for the Plan to be "approved",
all six of these matters must be approved.
4. If you elect to abstain or vote against any
one of these matters your overall vote will
be considered to be "against" the Plan.
It is important that you understand that if the Plan
is not approved by the Company's stockholders, then, at
the request of ValorInvest, the Company must redeem the
Series E Units purchased by ValorInvest pursuant to the
Agreement at the price paid therefor plus a penalty. ANY
SUCH REQUEST BY VALORINVEST WOULD HAVE A
MATERIAL ADVERSE EFFECT ON THE BUSINESS
AND FINANCIAL CONDITION OF THE COMPANY.
Your management team, together with the Board of
Directors and the Company's counsel, have worked very
hard to maintain the viability of the Company over the past
year. It is imperative that we get stockholder approval
of the Plan. We look forward to your support.
Sincerely,
Richard J. Reinhart, Ph.D.
President and CEO
