SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
EROX CORPORATION
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 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:
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[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
EROX CORPORATION
Notice of Annual Meeting of Shareholders
to be held May 20, 1998
------------------------------------
To the Shareholders of EROX Corporation:
The annual meeting of shareholders (the "Annual Meeting") of EROX
Corporation (the "Company") will be held at the Holiday Inn Palo Alto-Stanford,
625 El Camino Real, Palo Alto, California, on May 20, 1998, at 10:00 a.m. local
time, for the following purposes:
(1) To elect six Directors to hold office until the next Annual
Meeting;
(2) To approve an amendment to the Company's Articles of
Incorporation to change its name from Erox Corporation to
Human Pheromone Sciences Inc.;
(3) To approve an amendment to the Company's Non-Employee
Directors' Stock Option Plan to increase the number of shares
available for issuance by 200,000; and
(4) To act upon such other business as may properly come before
the meeting.
These items of business are more fully described in the Proxy Statement
accompanying this notice.
Only shareholders of record at the close of business on April 13, 1998,
are entitled to notice of, and to vote at, the Annual Meeting and any
adjournments or postponements thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, please mark, sign, date
and return the enclosed proxy card as soon as possible in the postage-prepaid
envelope enclosed for that purpose. Any shareholder attending the meeting may
vote in person even if the shareholder has returned a proxy.
BY ORDER OF THE BOARD OF DIRECTORS
Julian N. Stern, Secretary
Fremont, California
April 16, 1998
================================================================================
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE SIGN
AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE IN THE ENCLOSED POSTPAID
ENVELOPE. THANK YOU FOR ACTING PROMPTLY.
================================================================================
<PAGE>
EROX CORPORATION
4034 Clipper Court
Fremont, California 94538
Telephone: (510) 226-6874
-----------------------------
PROXY STATEMENT
-----------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board") of EROX Corporation, a California corporation (the "Company"). The
proxy is solicited for use at the annual meeting of shareholders (the "Annual
Meeting") to be held at 10:00 a.m. local time on May 20, 1998, at the Holiday
Inn Palo Alto-Stanford, 625 El Camino Real, Palo Alto, California.
Record Date and Shares Outstanding
Only shareholders of record at the close of business on April 13, 1998,
are entitled to notice of, and to vote at, the Annual Meeting and any
adjournments or postponements thereof. At the close of business on that date,
the Company had outstanding 10,289,488 shares of common stock and 1,433,333
shares of preferred stock. Holders of a majority of the outstanding shares of
common and preferred stock of the Company, either present in person or by proxy,
will constitute a quorum for the transaction of business at the Annual Meeting.
Revocability of Proxies
Any shareholder giving a proxy in the form accompanying this proxy
statement has the power to revoke the proxy prior to its exercise. A proxy can
be revoked by an instrument of revocation delivered prior to the Annual Meeting
to the Secretary of the Company, by a duly executed proxy bearing a later date
or time than the date or time of the proxy being revoked, or at the Annual
Meeting if the shareholder is present and elects to vote in person. Mere
attendance at the Annual Meeting will not serve to revoke a proxy.
Voting and Solicitation
A shareholder has the right to request cumulative voting for the
election of directors by giving notice of such shareholder's intention to
cumulate votes at the meeting prior to the voting. Cumulative voting allows a
shareholder to cast that number of votes which equals the number of directors to
be elected multiplied by the number of shares held by such shareholder and to
distribute those votes among the nominees as the shareholder may choose.
However, no shareholder shall be entitled to vote for more than six candidates
and votes may not be cast in favor of a candidate unless the candidate's name
has been placed in nomination prior to the voting. In the election of Directors,
the six candidates receiving the highest number of affirmative votes of the
shares represented and voting at the Annual Meeting will be elected directors.
On all other matters, each share is entitled to one vote on each
proposal that comes before the Annual Meeting. Abstentions and broker non-votes
will be counted in determining whether a quorum is present at the Annual
Meeting. However, abstentions are counted as votes against a proposal for
purpose of determining whether or not a proposal has been approved, whereas
broker non-votes are not counted for such purpose.
The Company will bear the entire cost of solicitation, including
preparation, assembling and mailing this proxy statement, the proxies and any
additional material, which may be furnished to shareholders. The Company will,
upon request, reimburse the reasonable charges and expenses of brokerage houses
or other nominees or fiduciaries for forwarding proxy materials to, and
obtaining authority to execute proxies from, beneficial owners for whose
accounts they hold shares of Common Stock. The original solicitation of proxies
by mail may be
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<PAGE>
supplemented by telephone, telegram and/or personal solicitation by directors,
officers or employees of the Company. No additional compensation will be paid
for such services.
STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 13, 1998 by: (i)
each person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each of the Company's executive
officers named in the Summary Compensation Table; (iii) each of the Company's
directors; and (iv) by all directors and executive officers as a group. Except
as otherwise indicated, the Company believes that the beneficial owners of the
securities listed below, based on information furnished by such owners, have
sole investment and voting power with respect to the Common Stock shown as being
beneficially owned by them:
<CAPTION>
Directors, Nominees, Officers And 5% Stockholders Shares Beneficially Owned(1) Percent Of Class(1)(2)
- ------------------------------------------------- ---------------------------- ----------------------
<S> <C> <C>
William P. Horgan (3) 297,433 2.7
Michael V. Stern(4) 308,885 2.8
Bernard I. Grosser, M.D.(5) 141,716 1.3
Helen C. Leong(6) 219,124 2.0
Michael D. Kaufman(7) 909,916 8.3
Robert Marx(8) 152,724 1.4
Maxine C. Harmatta(9) 88,854 0.8
All executive officers and directors
as a group (7 persons)(10) 953,260 19.3
David L. Berliner, M.D. 587,500 5.4
535 Middlefield Road, Suite 240
Menlo Park, CA 94025
<FN>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of Shares
beneficially owned by a person and the percentage of ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of April
13, 1998 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of
each other person. The persons named in this table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and except as indicated in the other footnotes to this
table.
(2) Percentage of beneficial ownership is based on 10,289,488 shares of
Common Stock outstanding as of April 13, 1998.
(3) Includes 284,233 shares issuable on exercise of outstanding options.
(4) Includes 111,545 shares issuable on exercise of outstanding options.
(5) Includes 64,166 shares issuable on exercise of outstanding options.
(6) Includes 64,166 shares issuable on exercise of outstanding options.
(7) Includes 891,167 shares held in the name of a partnership and 18,749
shares issuable on exercise of outstanding options.
(8) Includes 54,166 shares issuable on exercise of outstanding options
(9) Includes 88,854 shares issuable on exercise of outstanding options.
(10) Includes 685,879 shares issuable on exercise of outstanding options.
</FN>
</TABLE>
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<PAGE>
PROPOSAL 1 -- ELECTION OF DIRECTORS
Each of the six directors to be elected will hold office until the next
annual meeting of the shareholders or until a successor shall be elected and
qualified. The following individuals are proposed for election:
Name Age Principal Occupation
- ---- --- --------------------
William P. Horgan 50 Chairman of the Board of Directors,
Chief Executive Officer and Director
Michael V. Stern 39 President and Director
Bernard I. Grosser, M.D. 68 Director
Michael D. Kaufman 57 Director
Helen C. Leong 70 Director
Robert Marx 67 Director
William P. Horgan was appointed to the newly created post of Chairman
of the Board in November 1996 after serving as President, Chief Executive
Officer and Director since January 1994, when he joined the Company. From May
1992 to January 1994, he served as Chief Financial and Administrative Officer of
Geobiotics, Inc., a biotechnology-based development stage company, and from
January 1990 to May 1992, was employed by E.S. Jacobs and Company as Senior Vice
President of Worlds of Wonder, Inc.
Michael V. Stern was named President in November 1996. Mr. Stern has
served as a Director since March 1993, and was appointed Vice President Sales
and Marketing in February 1994. Prior to that, from February 1993 until February
1994 he was Director of Marketing and Sales for McGuire Company, a division of
Kohler Company.
Bernard I. Grosser, M.D. has served as a Director since March 1992. Dr.
Grosser is Chairman of the Department of Psychiatry at the University of Utah
and has served in that capacity since 1982. Dr. Grosser has conducted extensive
research related to hormonal target areas of the brain.
Michael D. Kaufman, a Director since August 1997, is Managing General
Partner of MK Global Ventures, a firm he founded in 1987. Prior to 1987, Mr.
Kaufman spent six years as a General Partner of Oak Investment Partners, where
he was involved in the formation of numerous technology companies and served as
founding investor and director of Businessland, Davox, Katun, Easel, Ekco,
Interlan and Ziyad, among others. Prior to becoming a Partner of Oak Investment
Partners, Mr. Kaufman was President and COO of Centronics Data Corporation, a
$150 million NYSE-listed manufacturer of computer-related printing devices.
Helen C. Leong has served as a Director since April 1993. Mrs. Leong is
and has been for more than five years the managing partner of Leong Ventures,
which makes investments in the areas of biogenetics and health-oriented
technologies. She is a general partner of CLW Associates, which specializes in
real estate and start-up businesses in consumer fields. Mrs. Leong is also a
founder of Mid-Peninsula Bank of Palo Alto where she has served as a director
since 1988.
Robert Marx has served as a Director since October 1994. Mr. Marx was
the founder and Co-Chief Executive Officer of Gildamarx Incorporated, a firm
specializing in designing and manufacturing exercise apparel and products for
active lifestyles from 1979 until the sale of the company in 1996. He is a
member of the Executive Committee of the Sports Apparel Products Council and the
Board of Directors of the California Manufacturers Association.
-4-
<PAGE>
There are no family relationships between directors or executive
officers of the Company.
Required Vote
The six nominees receiving the highest number of affirmative votes of
the shares present or represented and entitled to be voted for them will be
elected as directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION
OF THE NOMINEES.
Board Compensation
Directors currently are not compensated for attending Board meetings,
but are reimbursed for their reasonable expenses incurred in attendance. The
Company's Non-Employee Directors' Stock Option Plan (the "Directors' Plan")
provides for the automatic grant of 25,000 shares of Common Stock if a person
who is neither an officer nor an employee of the Company and who has not
previously been a member of the Board is elected or appointed director. Each
such option will become exercisable at the rate of one-twelfth of the number of
shares covered by the option each month following the grant date, so long as the
individual is serving as a director, with full vesting over one year. In
addition, in June of each year, the Company is required to grant to each
non-employee director a 10-year Non-Qualified Option to purchase 10,000 shares
of the Company's Common Stock at an exercise price equal to the fair market
value of Common Stock on the date of the grant. These options will vest
one-twelfth per month after the date of grant, as long as the individual is
serving as a director, with full vesting over one year. The exercise price of
all options granted pursuant to the Directors' Plan is the fair market value of
the Company's Common Stock at the time of grant. A total of 275,000 shares are
reserved for issuance under the Directors' Plan.
An increase in the number of shares available for issuance under this
Plan is the subject of Proposal 3.
Board Meetings and Committees of the Board
The Board of Directors met eight times in 1997. Each director
participated in at least 88% of the meetings of the Board.
The Board of Directors has an Audit Committee and a Compensation and
Stock Option Committee.
The Audit Committee of the Board of Directors, whose members are Mrs.
Leong, Dr. Grosser, and Mr. Marx, held one meeting during 1997, with all
director members in attendance at such meeting. The Audit Committee's purpose is
to consult with the Company's independent auditors concerning their audit plans,
the results of the audit, the Company's accounting principles and the adequacy
of the Company's general accounting controls.
The Compensation and Stock Option Committee of the Board of Directors,
whose members are Mrs. Leong and Dr. Grosser, held two meetings during 1997,
with all director members in attendance at such meetings. The Compensation
Committee is responsible for determining salaries, incentives and other forms of
compensation for officers and other employees of the Company and administers
various incentive compensation and benefit plans.
-5-
<PAGE>
EXECUTIVE COMPENSATION
<TABLE>
The following table sets forth the total compensation for 1997, 1996
and 1995 of the Chief Executive Officer and each of the other executive officers
of the Company whose total salary and bonus for 1997 exceeded $100,000 (the
"Named Officers").
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual Compensation Award
----------------------------------------- -----------
Securities Underlying
Name and Principal Position Year Salary Bonus Options (#)
--------------------------- ---- ------ ----- -----------
<S> <C> <C> <C> <C>
William P. Horgan 1997 $193,000 -- --
Chairman of the Board and Chief 1996 $185,000 $55,000 100,000
Executive Officer 1995 $156,000 $10,000 100,000
Michael P. Stern 1997 $143,400 -- --
President 1996 $134,000 $40,200 150,000
1995 $120,000 $ 7,000 25,000
Maxine C. Harmatta 1997 $118,000 -- --
Vice President 1996 $110,000 $31,850 125,000
1995 $100,000 $ 5,300 15,000
</TABLE>
Option Grants in Last Fiscal Year
There were no option grants in 1997 to the Named Officers and none of
the Named Officers acquired any shares on exercise of options in 1997.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
<TABLE>
The following table sets forth certain information concerning the
exercise of options to purchase Common Stock during the year ended December 31,
1997 and the number of unexercised options held as of December 31, 1997 by the
Named Officers.
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at December 31, 1997 December 31, 1997
Name Exercisable/Unexercisable(#) Exercisable/Unexercisable($)(1)
---- ---------------------------- -------------------------------
<S> <C> <C>
William P. Horgan 271,039/98,961 -/-
Michael V. Stern 91,754/116,146 -/-
Maxine C. Harmatta 78,646/96,354 -/-
<FN>
- ---------------
(1) Assuming a stock price of $.75 per share, which was the closing price
of a Share of Common Stock reported on the NASDAQ National Market on
December 31, 1997.
</FN>
</TABLE>
-6-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1991, the Company transferred to Pherin Corporation ("Pherin"), a
newly formed California corporation, all of the Company's rights to its human
pheromone technology for use other than in the consumer products field, together
with $2 million in cash, in exchange for all of the stock of Pherin. Upon
approval by its shareholders at the Annual Meeting, held in August 1991, the
Company distributed to its shareholders all of the stock of Pherin. Certain
stockholders identified under "Principal Stockholders" above are also
stockholders of Pherin.
EROX and Pherin are parties to an agreement, pursuant to which Pherin
will supply EROX with its reasonable requirements of human pheromones and to
make available to EROX the basic manufacturing technology. Under the agreement,
payments to Pherin in 1997 totaled $280,000. After January 31, 1996, rather than
supply human pheromones to EROX, Pherin may instead elect to provide to the
Company all manufacturing technology in its possession that it has not
previously supplied to EROX. On February 10, 1998, the Company signed an
amendment renewing the agreement. The terms remain substantially the same as the
original agreement with payments to Pherin of $23,000 per month and the
agreement extending to March 1, 1999. Under this amendment, the Company has the
ability to cancel the agreement with 60 days prior written notice.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the outstanding shares of the Company's Common Stock, to file
with the Securities and Exchange Commission initial reports of ownership (Form
3) and changes in ownership of such stock (Forms 4 and 5).
To the Company's knowledge, based solely upon review of the copies of
such reports and certain representations furnished to it, all Section 16(a)
filing requirements applicable to its executive officers and directors were
complied with during the year ended December 31, 1997.
-7-
<PAGE>
PROPOSAL 2 -- APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION TO CHANGE ITS NAME FROM EROX CORPORATION TO HUMAN PHEROMONE
SCIENCES, INC.
At the Annual Meeting, shareholders will be asked to approve a change
of name for the Company from Erox Corporation to Human Pheromone Sciences, Inc.
In February 1998, the Board of Directors of the Company approved an
amendment to its Articles of Incorporation to change the Company's name from
Erox Corporation to Human Pheromone Science, Inc. The Company believes that the
name Erox connotes a line of fragrance products and as such does not effectively
communicate to consumers or investors the biotechnology base of the Company. The
Company considers the strength and breadth of its patented human pheromone
technology to be of greater significance than its current line of fragrance
products.
Recent developments in the scientific community have created increasing
media interest in pheromones. The scientific community as well as the consumer
is becoming more educated regarding the Vomeronasal Organ (VNO) and human
pheromones and their potential uses. The Company believes that the key to fully
exploiting its patented human pheromone technology is to firmly position itself
as the first consumer products company to employ the science and applications of
human pheromones. The name Human Pheromone Sciences Inc. clearly identifies the
Company as one whose business is the science and technology of human pheromones.
This change should aide in the Company's goal of expanding consumer and investor
perceptions of its technology into a broader range of consumer products.
The Board of Directors believes that the name change will provide
investors and the consuming public with a clearer picture of the mission of the
Company.
Required Vote
The approval of the amendment to the Articles of Incorporation of the
Company requires the affirmative vote of the holders of a majority of the
outstanding shares of the Company. Consequently, abstentions will have the
effect of a vote against the proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE AMENDMENT
TO THE COMPANY'S ARTICLES OF INCORPORATION TO CHANGE ITS NAME FROM EROX
CORPORATION TO HUMAN PHEROMONE SCIENCES, INC.
-8-
<PAGE>
PROPOSAL 3 -- APPROVAL OF 200,000 ADDITIONAL SHARES OF COMMON STOCK FOR THE
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
At the Annual Meeting, shareholders will be asked to approve an
amendment to the Non-Employee Directors' Stock Option Plan to increase the
number of shares available for issuance by 200,000 shares. This Plan currently
has remaining 25,000 shares of Common Stock available for issuance.
Background
In 1994, the Board and the shareholders approved the Non-Employee
Directors' Stock Option Plan (the "Directors' Plan") for which 275,000 shares of
Common Stock were reserved for issuance on exercise of options; 25,000 shares
remain available for issuance. On February 11, 1998, the Board of Directors
passed a resolution that the Director's Plan be amended to increase the
authorized number of shares by 200,000. The purpose of this proposal is to
obtain shareholder approval of the amendment to the Directors' Plan increasing
the authorized number of shares by 200,000. Only non-employee directors of the
Company are eligible to participate and only Non-qualified Options may be
granted. The Directors' Plan provides that option grants to non-employee
directors of the Company be made on a mandatory basis and not on a discretionary
basis. The Directors' Plan may be administered by the Board of Directors or the
Board may delegate its authority to a committee composed of not less than two
outside directors (the "Administrator") and may delegate routine matters to
management.
Description of the Directors' Plan
The Directors' Plan operates as follows. Each director who is neither
an officer nor an employee of the Company and who has not previously been
granted a stock option by the Company as of the date the Directors' Plan was
adopted by the Board shall be granted an initial 10-year Non-qualified Option to
purchase 25,000 shares of the Company's Common Stock at an exercise price equal
to the fair market value of Common Stock on the date of the grant. Each person
who is not an officer or employee of the Company and who has not previously been
a member of the Board who is thereafter elected or appointed to the Board shall
also be granted a Non-qualified Option for 25,000 shares on the same terms. Each
such option will become exercisable at the rate of one-twelfth of the number of
shares covered by the option each month following the grant date, so long as the
individual is serving as a director, with full vesting over one year.
In June of each year, the Company is required to grant to each
non-employee director a 10-year Non-qualified Option to purchase 10,000 shares
of the Company's Common Stock at an exercise price equal to the fair market
value of Common Stock on the date of the grant. These options will vest
one-twelfth per month after the date of grant, as long as the individual is
serving as a director, with full vesting over one year.
The consideration payable in connection with any Non-qualified Option
granted under the Directors' Plan (including any related taxes) may be paid in
cash or by delivery of shares of Common Stock of the Company. Options generally
terminate three months after a non-employee director ceases to be, for any
reason, a director of the Company, with the following exceptions: if a
non-employee director ceases to be a director due to death, disability or
retirement, the options may be exercised for one year after the termination,
unless a shorter period is specified in the option agreement but, in no event,
after the expiration date of the option.
The Board may amend, alter or discontinue the Directors' Plan or any
option at any time, except that the consent of a participant is required if the
participant's existing rights under an outstanding option would be impaired. In
addition, to the extent required under applicable tax and securities laws and
regulations, the shareholders of the Company must approve any amendment,
alteration, or discontinuance of the Directors' Plan that would increase the
total number of shares reserved under the Directors' Plan and in certain other
circumstances as the Board may deem advisable to comply with such laws and
regulations. In addition, the provisions of the Directors' Plan governing who is
granted options, the number of shares covered by each option, the exercise
price, and the period of exercisability and the timing of option grants may not
be amended more than once every
-9-
<PAGE>
six months, other than for changes necessary to conform to the Internal Revenue
code of 1986 or the Employee Retirement Income Security Act of 1974.
The Company views stock options as a means of providing incentives to
its Board members. In addition, the Company believes it important that directors
have meaningful equity ownership in the Company; stock options are one way for
directors to obtain such ownership.
Federal Income Tax Consequences
In general, a non-employee director who is not a citizen or resident of
the United States ("U.S. Director") should not have taxable income upon the
grant of a Non-qualified Option. Upon exercise of a Non-qualified Option, the
U.S. Director will generally have ordinary income (and the Company will be
entitled to a corresponding deduction) in the amount by which the fair market
value of the stock at the time exceeds the purchase price. If shares are held at
least eighteen months after the date the U.S. Director has taxable income from
acquiring them, then upon sales of the shares the non-employee director will
have long-term capital gain or loss equal to the difference between the sales
price and the fair market value of the shares on the date the income is
recognized. Under current federal income tax law, long term capital gain is
taxable at a maximum stated rate of 20%, while ordinary income is taxable at a
maximum stated rate of 39.6%. In the case of both capital gains and ordinary
income, the effective rate of tax may be higher because of various phase out and
recapture provisions.
Required Vote
Approval of the amendment to the Directors' Plan providing for
additional shares requires the affirmative vote of a majority of the votes cast
at a duly held shareholders' meeting at which a quorum of the voting power is
represented.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL
OF 200,000 ADDITIONAL SHARES OF COMMON STOCK FOR THE NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN.
Plan Benefits
The following table shows the number of options which may be granted to
the named individuals and groups under the Directors' Plan over the 10-year life
of the Directors' Plan assuming the Board of Directors to have members who are
not officers or employees of the Company:
Non-Employee Directors' Stock Option Plan
Name and Position Number of Options(1)
----------------- --------------------
William P. Horgan 0
Chairman and Chief Executive Officer
Executive Officers as a Group 0
Non-Executive Director Group(2) 225,000
Non-Executive Officer Employee Group 0
- --------------------
(1) All options granted at fair market value as of date of grant.
(2) Only non-employee directors are eligible to receive grants under the
Directors' Plan.
-10-
<PAGE>
OTHER BUSINESS
The Board of Directors knows of no business which will be presented for
consideration at the Annual Meeting other than as stated in the Notice of
Meeting. If, however, other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
the shares presented thereby on such matters in accordance with their best
judgment.
SHAREHOLDER PROPOSAL
Under the rules of the Securities and Exchange Commission, shareholders
who wish to submit proposals for inclusion in the Proxy Statement for the Annual
Meeting of Shareholders to be held in 1999 must submit such proposals so as to
be received by the Company at 4034 Clipper Court, Fremont, California 94538, on
or before December 31, 1998.
BY ORDER OF THE BOARD OF DIRECTORS
Julian N. Stern, Secretary
Fremont, California
April 16, 1998
IMPORTANT
You are cordially invited to attend the meeting in person. Whether or
not you plan to attend the meeting, you are earnestly requested to sign and
return the accompanying proxy in the enclosed envelope.
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<PAGE>
EROX CORPORATION
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. Purpose.
The purpose of this Plan is to offer Nonemployee Directors of
EROX Corporation an opportunity to acquire a proprietary interest in the success
of the Company, or to increase such interest, by purchasing shares of the
Company's Common Stock. This Plan provides for the grant of Options to purchase
Shares. Options granted hereunder shall be "Nonstatutory Options," and shall not
include "incentive stock options" intended to qualify for treatment under
Sections 421 and 422A of the Internal Revenue Code of 1986, as amended.
2. Definitions.
As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the entity, either the Board or
the Committee, responsible for administering this Plan, as provided in Section
3.
(b) "Board" shall mean the Board of Directors of the Company,
as constituted from time to time.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the committee, if any, appointed by
the Board in accordance with Section 3(c) to administer this Plan.
(e) "Company" shall mean EROX Corporation.
(f) "Common Stock" shall mean the Common Stock of the Company.
(g) "Expiration Date" shall mean the last day of the term of
an Option established under Section 6(c).
(h) "Fair Market Value" shall mean, as of the date in
question, the last transaction price quoted by the NASDAQ National Market System
on the business day immediately preceding such date; provided, however, that if
the foregoing shall be inappropriate, then the Fair Market Value shall be
determined by the Administrator in good faith at its sole discretion and on such
basis as it shall deem appropriate. Such determination shall be conclusive and
binding on all persons.
<PAGE>
(i) "Nonemployee Director" shall mean any person who is a
member of the Board but is not an employee of the Company or any Parent or
Subsidiary of the Company and has not been an employee of the Company or any
Parent or Subsidiary of the Company at any time during the preceding twelve
months. Service as a director does not in itself constitute employment for
purposes of this definition.
(j) "Option" shall mean a stock option granted pursuant to
this Plan. Each Option shall be a nonstatutory option not intended to qualify as
an incentive stock option within the meaning of Section 422A of the Code.
(k) "Option Agreement" shall mean the written agreement
described in Section 6 evidencing the grant of an Option to a Nonemployee
Director and containing the terms, conditions and restrictions pertaining to
such Option.
(l) "Option Shares" shall mean the Shares subject to an Option
granted under this Plan.
(m) "Optionee" shall mean a Nonemployee Director who holds an
Option.
(n) "Plan" shall mean this EROX Corporation Nonemployee
Directors' Stock Option Plan, as it may be amended from time to time.
(o) "Related Option" shall have the meaning set forth in
Section 7(d).
(p) "Section" unless the context clearly indicates otherwise,
shall refer to a Section of this Plan.
(q) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 9.
(r) "Subsidiary" shall mean a "subsidiary corporation" of the
Company, whether now or hereafter existing, within the meaning of Section 425(f)
of the Code, but only for so long as it is a "subsidiary corporation."
3. Administration.
(a) This Plan shall be administered by the Board unless and
until such time as the Board delegates administration to a Committee pursuant to
Section 3(c); provided, however, that if by virtue of the composition of the
Board or otherwise, the Board does not satisfy the requirements for
disinterested administration of a plan in accordance with Rule 16b-3(c), or any
successor provision, the Board shall delegate administration to a Committee
pursuant to Section 3(c) (in any case, the "Administrator").
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<PAGE>
(b) The Administrator shall have full power and discretion,
subject to the express provisions of this Plan:
(i) To construe and interpret this Plan and Options
granted under it, and to establish, amend, and revoke rules and regulations for
administration of this Plan. In the exercise of this power, the Administrator
shall generally determine all questions of policy and interpretation that may
arise and may correct any defect, omission, or inconsistency in this Plan or in
any Option Agreement in a manner and to the extent it shall deem necessary or
expedient to make this Plan fully effective.
(ii) To amend this Plan as provided in Section 13.
(iii) Generally, to exercise such powers and to
perform such acts as are deemed necessary or expedient to promote the best
interests of the Company.
(c) The Board, by resolution, may delegate administration of
this Plan (including, without limitation, the Board's powers under Section 3(b))
to a Committee composed of not less than two directors appointed by the Board
who are "disinterested persons" within the meaning set forth in Rule 16b-
3(c)(2)(i) under the Exchange Act or any successor definition adopted by the
Securities and Exchange Commission or any successor agency. The Committee shall
then have the administrative powers theretofore possessed by the Board under
this Plan, subject to such constraints, not inconsistent with the provisions of
this Plan, as the Board may adopt from time to time. Subject to the proviso in
Section 3(a), the Board at any time may revest in itself the administration of
this Plan.
(d) All decisions, interpretations and other actions of the
Administrator shall be final and binding on all persons. No member of the
Committee or Board shall be liable for any action that he has taken or failed to
take in good faith with respect to this Plan or any Option.
4. Eligibility.
Only Nonemployee Directors may receive Options under this
Plan.
5. Shares Subject to Plan.
(a) Aggregate Number. Subject to Section 9 (relating to
adjustments upon changes in Shares), the Shares which may be issued upon
exercise of Options shall not exceed in the aggregate 275,000 Shares. Shares
issued under this Plan may be unissued Shares or reacquired Shares. The number
of Shares that are subject to Options at any time under the Plan shall not
exceed the number of Shares that then remain available for issuance
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<PAGE>
under the Plan. The Company, during the term of the Plan, shall at all times
reserve and keep available sufficient Shares to satisfy the requirements of the
Plan. If any Option shall for any reason terminate or expire without having been
exercised in full, the Shares allocable to the unexercised portion of such
option shall be available again for the purpose of this Plan.
(b) No Rights as a Stockholder. An Optionee shall have no
rights as a stockholder with respect to any Shares covered by his or her Option
until the issuance (as evidenced by the appropriate entry on the books of the
Company or its duly authorized transfer agent) of a stock certificate evidencing
such Shares. Subject to Section 9, no adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions, or other rights for which the record date is prior to the date
the certificate is issued.
6. Grant of Options.
(a) Mandatory Initial Option Grants. Subject to the terms and
conditions of this Plan, each Board member who is not an officer or employee of
the Company and who has not previously been granted a stock option by the
Company as of the date this Plan is adopted by the Board and each person
thereafter who is not an officer or employee of the Company and who has not
previously been a member of the Board who is elected or appointed as a member of
the Board, shall be granted an Option to purchase 25,000 Shares on the adoption
by the Board of this Plan or on such election or appointment, as the case may
be, at an exercise price equal to the Fair Market Value of such Shares on the
date of such option grant.
(b) Mandatory Annual Option Grants. Subject to the terms and
conditions of this Plan, on the 14th day of June of each year beginning with
1994 (or beginning with 1993 in the case of each Nonemployee Director who does
not receive an initial 25,000 share grant), the Company shall grant to each such
Nonemployee Director then in office an Option to purchase 10,000 Shares at an
exercise price equal to the Fair Market Value of such Shares on the date of such
option grant.
(c) Terms; Vesting. Subject to the other provisions of this
Plan, each Option granted pursuant to this Plan shall be for a term of ten
years. Each Option granted under Section 6 shall become exercisable with respect
to one-twelfth of the number of Shares covered by such Option on the 14th day of
each month following the grant date, so that such Option shall be fully
exercisable on the first anniversary date of the Option grant.
(d) Limitation on Other Grants. The Administrator shall have
no discretion to grant Options under this Plan other than as set forth in
Sections 6(a) and 6(b).
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<PAGE>
(e) Option Agreement. As soon as practicable after the grant
of an Option, the Optionee and the Company shall enter into a written Option
Agreement which specifies the date of grant, the number of Option Shares, the
option price, and the other terms and conditions applicable to the Option.
(f) Transferability. No Option shall be transferable otherwise
than by will or the laws of descent and distribution, and an Option shall be
exercisable during the Optionee's lifetime only by the Optionee.
(g) Limits on Exercise. Subject to the other provisions of
this Plan, an Option shall be exercisable in such amounts as are specified in
the Option Agreement.
(h) Exercise Procedures. To the extent the right to purchase
Shares has accrued, Options may be exercised, in whole or in part, from time to
time, by written notice from the Optionee to the Company stating the number of
Shares being purchased, accompanied by payment of the exercise price for the
Shares, and other applicable amounts, as provided in Section 7.
(i) Termination of Directorship; Death; Disability. If for any
reason other than death or permanent and total disability, an Optionee ceases to
be a member of the Board, Options granted to the Optionee, to the extent
exercisable at the date of such cessation, may be exercised in whole or in part
at any time within three months after the date of such cessation (but in no
event after the Expiration Date), but not thereafter. If an Optionee dies or
become permanently and totally disabled (within the meaning of Section 11(e)(3)
of the Code) while he or she is a member of the Board (or, in the event of
death, within the period that the Option remains exercisable after the Optionee
ceases to be a member of the Board), Options granted to the Optionee, to the
extent exercisable on the date of death or permanent and total disability, may
be exercised in whole or in part by the Optionee, by the Optionee's personal
representative, or by the person to whom the Option is transferred by will or
the laws of the descent and distribution, at any time within (x) one year after
the date of death or permanent and total disability of the Optionee or (y) if
lesser, the period specified in the Option Agreement, but (z) in no event after
the Expiration Date.
7. Payment and Taxes upon Exercise of Options.
(a) Purchase Price. The purchase price of Shares issued under
this Plan shall be paid in full at the time an Option is exercised.
(b) Form of Consideration. Optionees may make all or any
portion of any payment due to the Company upon exercise of an Option by delivery
of cash or any Shares or other securities of the Company, so long as such Shares
or other securities
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<PAGE>
constitute valid consideration for the stock under applicable law and are
surrendered in good form for transfer; provided, however, that Options may not
be exercised by the delivery of Shares or other securities of the Company more
frequently than at six-month intervals. Shares or other securities delivered
upon exercise shall be valued at their Fair Market Value on the delivery date.
(c) Taxes. Irrespective of the form of payment made for
exercise of an Option, exercise shall be conditioned upon payment in cash to the
Company by the Optionee of all local, state and federal withholding taxes
applicable, in the Administrator's judgment, to the exercise of the Option.
(d) Withholding of Shares. In addition, if and to the extent
authorized by the Administrator in its discretion, a person who has received
Options may make an election to have Shares or other securities of the Company
withheld by the Company or to tender any such securities to the Company upon any
exercise of an Option to pay the amount of tax that would otherwise be required
by law to be withheld by the Company subject to the following limitations:
(i) such election shall be irrevocable;
(ii) such election shall be subject to the
disapproval of the Administrator;
(iii) such election may not be made within six months
of the grant date of the Option the exercise of which resulted in the tax
withholding obligation (the "Related Option"); and
(iv) such election must be made prior to or
coincident with the date of exercise of the Related Option and within any ten
day period prior to the date that the amount of tax to be withheld upon such
exercise is determined beginning on the third business day following the date of
release for publication of the Company's quarterly or annual summary statements
of sales and earnings.
Any Shares or such other securities so withheld or tendered will be valued by
the Company at the their Fair Market Value on the date of exercise. The right to
so withhold or tender shares shall relate separately to each Option or any
increment of any Option covering not less than 100 Shares.
8. Use of Proceeds.
Proceeds from the sale of Shares pursuant to this Plan shall
be used for general corporate purposes.
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<PAGE>
9. Adjustment of Shares.
(a) Changes in Capital Structure. Subject to Section 9(b), if
the outstanding Shares are changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation, by
reason of a reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination of securities or declaration of stock
dividends, the total number and/or kind of securities for the purchase of which
Options may be granted under this Plan, and the number and/or kind of securities
as to which Options (or portions thereof) are outstanding, shall be adjusted
proportionately by the Administrator. Any adjustment in an outstanding Option
shall be made without change in the total exercise price applicable to the
unexercised portion of such Option and with a corresponding adjustment in the
exercise price per Share. Any adjustment under this Section 9(a) shall be
subject to the provisions of the Company's Certificate of Incorporation, as
amended, and applicable law.
(b) Acquisitions and Other Transactions. In connection with
the dissolution or liquidation of the Company or a partial liquidation involving
more than 50% of the assets of the Company, a merger or reorganization of the
Company in which another entity is the survivor, a merger or reorganization of
the Company under which more than 50% of the Shares outstanding prior to the
merger or reorganization are converted into cash, other securities, or both, or
a sale of more than 50% of the Company's assets, the Administrator, upon 10
days' prior written notice to the Optionee, shall (i) accelerate the vesting
schedule to which all Options are subject; and (ii) shorten the period during
which all Options are exercisable (provided each Option remains exercisable, to
the extent otherwise exercisable, for at least 10 days after the date the notice
is given) and provided that Options not exercised prior to the effective date of
the dissolution, liquidation, reorganization, merger, sale, or other event shall
terminate upon the effective date of such event.
10. No Right to Directorship.
Neither, this Plan nor any Option granted hereunder shall
confer upon any Optionee any right with respect to continuation of the
Optionee's membership on the Board or shall interfere in any way with provisions
in the Company's Certificate of Incorporation and By-Laws relating to the
election, appointment, terms of office, and removal of members of the Board.
11. Legal Requirements.
The Company shall not be obligated to offer or sell any Shares
upon exercise of any Option unless the Shares are at that time effectively
registered or exempt from registration under the
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<PAGE>
federal securities laws and the offer and sale of the Shares are otherwise in
compliance with all applicable securities laws and the regulations of any stock
exchange on which the Company's securities may then be listed. The Company shall
have no obligation to register the securities covered by this Plan under the
federal securities laws or take any other steps as may be necessary to enable
the securities covered by this Plan to be offered and sold under federal or
other securities laws. Upon exercising all or any portion of an Option, an
Optionee may be required to furnish representations or undertaking deemed
appropriate by the Company to enable the offer and sale of the Shares or
subsequent transfers of any interest in the Shares to comply with applicable
securities laws. Certificates evidencing Shares acquired upon exercise of
Options shall bear any legend required by, or useful for purposes of compliance
with, applicable securities laws, this Plan or the Option Agreements.
12. Duration and Amendments.
(a) Duration. This Plan shall become effective on June 14,
1993, subject to the approval of the Company's stockholders. This Plan and any
Options granted hereunder shall be null and void if such approval is not
obtained. This Plan shall terminate automatically on June 13, 2003, and may be
terminated on any earlier date pursuant to Section 12(b).
(b) Amendment; Termination. The Board may amend, suspend or
terminate this Plan at any time and for any reason; provided, however, that the
provision of this Plan may not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder; that any amendment
which increases the number of Shares available for issuance under this Plan
(except as provided in Section 9(a)), which materially changes the class of
persons who are eligible for the grant of Options, or which materially increases
the benefits accruing to participants under this Plan, shall be subject to the
approval of the Company's stockholders. Stockholder approval shall not be
required for any other amendment of this Plan.
(c) Effect of Amendment or Termination. No Shares shall be
issued or sold under this Plan after the termination hereof, except upon
exercise of an Option granted before termination. Termination or amendment of
this Plan shall not affect any Shares previously issued and sold or any Option
previously granted under this Plan.
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