SCHEDULE 14A INFORMATION
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| | Preliminary Proxy Statement
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(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
Embrex, Inc.
(Name of Registrant as Specified In Its Charter)
Not Applicable
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Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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computed pursuant to Exchange Act Rule 0-11 (set forth the
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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
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(1) Amount Previously Paid:
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(4) Date Filed:
<PAGE>
EMBREX, INC.
1035 Swabia Court
Durham, North Carolina 27703
--------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
--------------------------------------------------
To Be Held on May 21, 1998
To Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
of Embrex, Inc. (the "Company") which will be held on Thursday, May 21, 1998 at
9:00 a.m., local time, at the North Carolina Biotechnology Center, 15 Alexander
Drive, Research Triangle Park, North Carolina, for the following purposes:
(1) To elect a Board of Directors of the Company for the ensuing
year.
(2) To approve an amendment to the Company's Incentive Stock
Option and Nonstatutory Stock Option Plan which would increase
the maximum number of shares of Common Stock available for
issuance pursuant to the Plan.
(3) To approve an amendment to the Company's Bylaws which would
change the range of the number of Directors on the Board of
Directors from a minimum of one (1) and maximum of seven (7)
members to a minimum of one (1) and a maximum of twelve (12)
members;
(4) To ratify the action of the Board of Directors in appointing
Ernst & Young LLP as independent accountants for the fiscal
year ending December 31, 1998.
(5) To transact such other business as may properly come before
the Annual Meeting or any adjournments of the meeting.
Shareholders of record at the close of business on March 23, 1998 are
entitled to notice of and to vote at the Annual Meeting and any and all
adjournments of the meeting.
IT IS DESIRABLE THAT YOUR SHARES OF STOCK BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU MAY HOLD. EVEN THOUGH YOU MAY PLAN TO
ATTEND THE MEETING IN PERSON, PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY IN
THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING YOU MAY REVOKE YOUR PROXY AND
VOTE IN PERSON.
By Order of the Board of Directors
/s/ Don T. Seaquist
Don T. Seaquist
Secretary
Durham, North Carolina
April 24, 1998
<PAGE>
EMBREX, INC.
1035 Swabia Court
Durham, North Carolina 27703
--------------------
PROXY STATEMENT
--------------------
Annual Meeting of Shareholders to be held May 21, 1998
SOLICITATION AND VOTING RIGHTS
This Proxy Statement and the accompanying proxy card are being mailed
to shareholders on or about April 24, 1998, in connection with the
solicitation of proxies by the Board of Directors of Embrex, Inc. (the
"Company") for use at the Annual Meeting of Shareholders (the "Annual Meeting")
to be held at the North Carolina Biotechnology Center, 15 Alexander Drive,
Research Triangle Park, North Carolina, on May 21, 1998 at 9:00 a.m., local
time, and at all adjournments of the meeting. All expenses incurred in
connection with this solicitation, including postage, printing, handling, and
the actual expenses incurred by custodians, nominees, and fiduciaries in
forwarding proxy material to beneficial owners, will be paid by the Company. In
addition to solicitation by mail, certain officers, directors, and employees of
the Company, who will receive no additional compensation for their services, may
solicit proxies by telephone, personal communication or other means. Corporate
Election Services has been engaged by the Company to tabulate the proxy voting.
In addition, Hill and Knowlton, Inc. will solicit delinquent proxies or request
resubmission of proxies which are received by the Company unsigned or improperly
completed. The aggregate fees to be paid to Corporate Election Services and Hill
and Knowlton, Inc.
are not expected to exceed $7,500.
The purposes of the Annual Meeting are to: (1) elect six nominees to
the Board of Directors; (2) approve an amendment to the Company's Incentive
Stock Option and Nonstatutory Stock Option Plan which would increase the maximum
number of shares of Common Stock available for issuance pursuant to the Plan;
(3) approve an amendment to the Company's Bylaws which would change the range of
the number of Directors on the Board of Directors from a minimum of one (1) and
maximum of seven (7) members to a minimum of one (1) and a maximum of twelve
(12) members; (4) ratify the action of the Board of Directors in appointing
Ernst & Young LLP as independent accountants for the fiscal year ending December
31, 1998; and (5) act upon such other matters as may properly come before the
Annual Meeting or any adjournments of the meeting. The Board of Directors knows
of no other matters other than those stated above to be brought before the
Annual Meeting or any adjournments of the meeting.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted by filing with the Secretary of
the Company written notice of revocation, provided such notice is actually
received prior to the vote of shareholders, by duly executing and filing a
subsequent proxy with the Secretary of the Company before the vote of
shareholders, or by attending the Annual Meeting and voting in person. If the
accompanying proxy card is properly signed and returned, the proxy and the
shares of the Company represented by the proxy will be voted in the manner
directed in the proxy card. If no direction is made, the proxy and such shares
will be voted in favor of the proposals set forth in the accompanying proxy card
and described in this Proxy Statement and in such manner as the proxyholders
named on the accompanying proxy card in their discretion determine upon such
other business as may properly come before the meeting or any adjournment
thereof.
The Board of Directors has fixed the close of business on March 23,
1998 as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting and all adjournments of the
meeting. As of the close of business on February 27, 1998, there were 8,244,046
shares of Common Stock of
<PAGE>
the Company outstanding and entitled to vote. On all matters to come before the
Annual Meeting, each holder of Common Stock will be entitled to one vote for
each share held. The presence at the Annual Meeting, in person or by proxy, of
the holders of a majority of the shares entitled to vote at the meeting will
constitute a quorum.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of February 27,
1998, regarding shares of Common Stock of the Company owned of record or known
to the Company to be owned beneficially by each director and nominee for
director, each executive officer named in the Summary Compensation Table herein,
and all directors and executive officers as a group. Except as indicated in the
footnotes to this table, each of the persons named in the table has sole voting
and investment power with respect to the shares beneficially owned by such
person. The address of the directors, nominees and executive officers is the
Company's address.
<TABLE>
<CAPTION>
Shares
Name Beneficially Owned(1) Percent of Class
<S> <C> <C>
Randall L. Marcuson 176,283(2) 2.1%
Charles E. Austin 108,405(3) 1.3%
C. Daniel Blackshear 0 *
Lester M. Crawford, DVM, Ph.D. 21,500(4) *
Kenneth N. May, Ph.D. 31,000(5) *
Arthur M. Pappas 53,550(6) *
Don T. Seaquist 19,047(7) *
Catherine A. Ricks, Ph.D. 65,667(8) *
Rick L. Ryan, Ph.D. 17,156(9) *
Brian V. Cosgriff 18,432(10) *
All Directors and Executive Officers 571,116(11) 6.6%
as a Group (12 Persons)
</TABLE>
- ---------------------------
*Less than one percent
(1) The shares of Common Stock and voting rights owned by each person or by
all directors and executive officers as a group, and the shares
included in the total number of shares of Common Stock outstanding used
to determine the percentage of shares of Common Stock owned by each
person and such group, have been adjusted in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended, to reflect the
ownership of shares issuable upon exercise of outstanding options,
warrants or other common stock equivalents which are exercisable within
60 days. As provided in such Rule, such shares issuable to any holder
are deemed outstanding for the purpose of calculating such holder's
beneficial ownership but not any other holder's beneficial ownership.
(2) Includes 7,562 shares of Common Stock owned by Mr. Marcuson, 1,326
shares of Common Stock owned jointly by Mr. Marcuson and his children,
and 167,395 shares of Common Stock subject to exercisable options.
(3) Includes 25,000 shares of Common Stock subject to exercisable options.
(4) All shares subject to exercisable options.
(5) Includes 20,000 shares of Common Stock subject to exercisable options
and 4,000 shares held jointly with Dr. May's spouse.
2
<PAGE>
(6) Includes 17,250 shares of Common Stock subject to exercisable options.
(7) Includes 8,625 shares of Common Stock subject to exercisable options.
(8) Includes 62,425 shares of Common Stock subject to exercisable options
and 100 shares of Common Stock owned by Dr. Ricks' spouse. Dr. Ricks
disclaims beneficial ownership of the shares held by her spouse.
(9) Includes 8,250 shares of Common Stock subject to exercisable options.
(10) Includes 15,000 shares of Common Stock subject to exercisable options
owned by Mr. Cosgriff and 217 shares of Common Stock owned jointly by
Mr. Cosgriff and his children.
(11) Includes 398,870 shares of Common Stock subject to exercisable options.
In addition, the following table sets forth certain information as to
each person known to the Company to be the beneficial owner of more than five
percent of the Company's Common Stock as of February 27, 1998.
<TABLE>
<CAPTION>
Name and Address of Shares
Beneficial Owner Beneficially Owned Percent of Class
<S> <C> <C>
Mohamed Abdulmohsin Al Kharafi 629,500(1) 7.6%
& Sons W.L.L.
P.O. Box 886 Safat
13009 Safat Kuwait
Palo Alto Investors, Inc. and 850,400(2) 10.3%
William Leland Edwards
431 Florence Street, Suite 200
Palo Alto, CA 94301
</TABLE>
- ------------------------------
(1) Based on information obtained from a Schedule 13D filed by Mohamed
Abdulmohsin Al Kharafi & Sons W.L.L. ("Kharafi") with the Securities
and Exchange Commission dated May 15, 1996. Kharafi indicated in the
Schedule 13D that it holds the Company's Common Stock as an equity
investment.
(2) Based on information obtained from a Schedule 13D amendment filed by
Palo Alto Investors, Inc. ("PAI") and William Leland Edwards with the
Securities and Exchange Commission on April 2, 1998. PAI and Mr.
Edwards share voting and dispositive power over 822,000 shares and Mr.
Edwards has sole voting and dispositive power over 28,400 shares. Mr.
Edwards is the controlling shareholder of PAI, a California corporation
that is a registered investment adviser under section 203 of the
Investment Advisers Act of 1940. The Schedule 13D amendment indicated
that such shares were acquired as an equity investment.
3
<PAGE>
MANAGEMENT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
<S> <C> <C>
Randall L. Marcuson 49 President, Chief Executive Officer and Director
Don T. Seaquist 49 Vice President, Finance and Administration
Catherine A. Ricks, Ph.D. 51 Vice President, Research and Development
Rick L. Ryan, Ph.D. 49 Vice President, Global Commercial Development
Brian V. Cosgriff 45 Vice President, Sales and Marketing
V. Hayes Fenstermacher 62 Vice President, Manufacturing Services
David M. Baines, Ph.D. 50 Vice President (also, Managing Director, Embrex
Europe Limited)
</TABLE>
Randall L. Marcuson joined the Company in 1990 as President and Chief
Executive Officer and a director. Prior to coming to the Company, Mr. Marcuson
was Vice President, Animal Health Products for the International Agricultural
Division of American Cyanamid. Mr. Marcuson joined American Cyanamid in 1984
after 10 years of domestic and international marketing experience with Monsanto
Agricultural Products Company. Mr. Marcuson holds a B.A. degree in international
relations from the University of Kansas.
Don T. Seaquist joined the Company in 1996 as Vice President, Finance
and Administration. Prior to joining the Company, Mr. Seaquist was Vice
President and Treasurer of Greyhound Lines, Inc. from February 1990 to January
1995. Previously, Mr. Seaquist was Managing Director of Trinity Litchfield
Group, an investment firm, Vice President and Treasurer of Horsehead Industries,
an international manufacturing company, and Manager of International Corporate
Finance for United Technologies Corporation. Mr. Seaquist holds a B.S.B.A. in
Management from Georgetown University and an MBA in Finance and Marketing from
Columbia University.
Catherine A. Ricks, Ph.D. joined the Company in 1989 as Vice President,
Research and Development. Prior to joining the Company, Dr. Ricks was Manager of
Animal Industry Discovery and Biotechnology for American Cyanamid. During her 10
years with American Cyanamid she managed a variety of research programs directed
at increasing livestock productivity. She holds a B.S. in botany and an M.S. in
plant physiology from London University, London, England, and a Ph.D. in dairy
science from Michigan State University, and is an Adjunct Professor in animal
science at Rutgers University and in poultry science at North Carolina State
University.
Rick L. Ryan, Ph.D. joined the Company in 1996 as Vice President,
Global Commercial Development. Previously, Dr. Ryan was Director, International
Markets for a unit of Monsanto Company. While at Monsanto, from December 1981 to
August 1996, Dr. Ryan also held positions as Manager of Research and
Development, Product Development Director, Commercial Development Director, and
Director Strategic Planning. Dr. Ryan holds a Ph.D. in Biochemistry from the
University of Illinois and an MBA from Washington University (St. Louis).
Brian V. Cosgriff joined the Company in 1995 as Vice President, Sales
and Marketing. Prior to joining the Company, Mr. Cosgriff was with SmithKline
Beecham for approximately nine years, where he served in various capacities,
including Director of Strategic Product Development for that firm's Animal
Health business, Director of Business Development and Planning in the United
States, and as Sales Director in Australia. Mr. Cosgriff has also worked for
Monsanto Australia, Ltd. and Merck Sharp & Dohme, New Zealand. Mr. Cosgriff
holds a B.S. degree in biology and economics from the University of Canterbury,
Christchurch, New Zealand and an advanced degree in marketing from the
University of New South Wales in Sydney, Australia.
4
<PAGE>
V. Hayes Fenstermacher was appointed Vice President, Manufacturing
Services in 1996. He joined the Company in 1991 as Director of Engineering.
Prior to coming to the Company, Mr. Fenstermacher was Director of Manufacturing
Services for The Cooper Tools Division of Cooper Industries. He holds a B.S.
degree in Mechanical Engineering from the University of Delaware. Prior to
joining Cooper, Mr. Fenstermacher held various positions with Bethlehem Steel,
Federal-Mogul Corp. and Campbell Chain Company.
David M. Baines, Ph.D. was appointed Vice President of Embrex, Inc. in
1995. Dr. Baines joined the Company as Managing Director of Embrex Europe
Limited in 1993, and continues to serve the Company in this capacity. Prior to
this, Dr. Baines served as a consultant to the Company. Before his affiliation
with Embrex, Dr. Baines had a 23-year career with Rhone Merieux, a subsidiary of
Rhone-Poulanc. Dr. Baines served as Chief Executive of Rhone Merieux's United
Kingdom animal health subsidiary, and before that as General Manager of its
operations in New Zealand. Dr. Baines began his career as a development and
senior research scientist for Rhone Merieux, and holds a B.Sc. degree in Zoology
from Reading University and a Ph.D. degree in Entomology from London University.
5
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
Pursuant to the authority granted by the Company's Bylaws, the Board of
Directors of the Company has established the number constituting the Board of
Directors for the ensuing year to be six. The proxies cannot be voted for a
greater number of persons than the number of nominees named, and any seat not
filled at the Annual Meeting may be filled as a vacancy by the Board of
Directors. Each of the nominees currently serves as a director of the Company.
The nominees for election as directors are named and certain other information
is provided below:
<TABLE>
<CAPTION>
First Year Elected
Name Position With Company Age Director
- ---- --------------------- --- --------
<S> <C> <C>
Randall L. Marcuson President, Chief Executive Officer, 49 1990
and Director
Charles E. Austin (1) Chairman of the Board of 70 1986
Directors
C. Daniel Blackshear (2) Director 54 1998
Lester M. Crawford, DVM, Ph.D.(2) Director 60 1993
Kenneth N. May, Ph.D.(1) Director 67 1989
Arthur M. Pappas (1) Director 50 1995
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee of the Board.
(2) Member of the Audit Committee of the Board.
Randall L. Marcuson's biographical information is included under
MANAGEMENT in this Proxy Statement.
Charles E. Austin has served as a director of the Company since 1986.
Prior to his retirement in January 1988, Mr. Austin was with American Cyanamid
Company for 25 years, the last 10 years as a corporate officer. He served in a
variety of senior management positions including responsibility for American
Cyanamid's worldwide agricultural business. Mr. Austin serves as a director of
MGI Pharma, Inc. and Cytogen Corporation and as a board member or advisor to
other private biotechnology companies. He is on the advisory council of A.M.
Pappas & Associates, LLC and Founders Court, a leveraged buy-out firm. He
received his B.S. and M.S. degrees in agronomy at the University of Illinois.
C. Daniel Blackshear became a director of the Company on March 19,
1998. Mr. Blackshear has been President and CEO of Carolina Turkeys since 1994
and was Senior Vice President and a division General Manager of Cuddy Farms,
Inc. from 1982 to 1994. From 1971 to 1982, he served in a number of managerial
positions at Pillsbury Farms, Country Pride Foods and ConAgra Poultry. Early in
his career, he worked as Quality Assurance Director and Food Scientists Section
Manager at Gold Kist, Inc. Mr. Blackshear holds both a B.S. degree in
Agriculture as a poultry major and a M.S. degree in Food Science and Management
from the University of Georgia. He is a past President of both the North
Carolina Turkey Federation and the North Carolina Poultry Federation.
Lester M. Crawford, DVM, Ph.D. has served as a director of the Company
since 1993. Dr. Crawford has been Director of the Center for Food and Nutrition
Policy at Georgetown University since July 1997 and was Executive Director for
the Association of American Veterinary Medical Colleges from August 1993 until
June 1997. From 1991 until 1993, he was Executive Vice President for Scientific
Affairs of the National Safety and Inspection Service, U.S. Department of
Agriculture (USDA). Prior to joining the USDA, Dr. Crawford served as Director
of the Center for Veterinary Medicine, Food and Drug Administration, and in
various positions at the University of Georgia, including Head, Department of
Physiology-Pharmacology. Early in his career, he worked in
6
<PAGE>
research and development for American Cyanamid and in private veterinary
practice. Dr. Crawford holds a Doctorate of Veterinary Medicine degree from
Auburn University, a Ph.D. in Pharmacology from the University of Georgia and
received an honorary doctorate from Budapest University in 1987. He was elected
a member of the French Academy of Veterinary Medicine in 1984.
Kenneth N. May, Ph.D. has served as a director of the Company since
1989. Dr. May retired in August 1989 as Chairman, Chief Executive Officer and a
director of Holly Farms Foods, Inc., completing 19 years with that company. Dr.
May began his career with Holly Farms as Director of Research and Quality
Assurance and subsequently became Vice President of that function. Prior to
joining Holly Farms, Dr. May held positions as Professor of Poultry Science at
Mississippi State University and the University of Georgia. He holds B.S. and
M.S. degrees in poultry science from Louisiana State University and a Ph.D. in
food technology from Purdue University. He also holds an honorary doctorate of
agriculture from Purdue University. Dr. May is a technical advisor and
consultant to the National Broiler Council on food safety matters. Dr. May also
is a director of Alcide Corporation. Dr. May has been active in the Poultry and
Egg Institute, the Poultry Science Association, and the National Broiler Council
and has served on various committees for the USDA.
Arthur M. Pappas has served as a director of the Company since 1995.
Mr. Pappas is Chairman and Chief Executive Officer of A.M. Pappas & Associates,
LLC, an international management and consulting services company and investor in
high technology and life science industries. Mr. Pappas previously served as a
director on the Board of Glaxo Holdings plc with executive and Board
responsibilities for operations in Asia Pacific, Latin America and Canada. Mr.
Pappas also serves as a director of Quintiles Transnational Corp., Gene
Medicine, Inc. and KeraVision, Inc. and as a board member or advisor to other
private biotechnology companies. Mr. Pappas' 25 years of experience in the
health care industry also includes positions with Merrell Dow Pharmaceuticals
and Abbott Laboratories International, Inc. Mr. Pappas received a B.S. degree in
Biology from Ohio State University and an M.B.A. in Finance from Xavier
University.
The Board of Directors has no reason to believe that the persons named
above as nominees for directors will be unable or will decline to serve if
elected. However, in the event of death or disqualification of any nominee or
refusal or inability of any nominee to serve, it is the intention of the
proxyholders named in the accompanying proxy card to vote for the election of
such other person or persons as the proxyholders determine in their discretion.
In no circumstance will the proxy be voted for more than six nominees. Properly
signed and returned proxies, unless revoked, will be voted as directed by the
shareholder or, in the absence of such direction, will be voted in favor of the
election of the recommended nominees.
Under North Carolina law, directors are elected by a plurality of the
votes cast by the holders of the Common Stock of the Company at a meeting at
which a quorum is present. "Plurality" means that the individuals who receive
the largest number of votes cast, even if less than a majority, are elected as
directors up to the maximum number of directors to be chosen at the meeting.
Consequently, any shares not voted (whether by abstention, broker nonvote or
otherwise) will not be included in determining which nominees receive the
highest number of votes. All directors hold office until the next Annual Meeting
of the Company's shareholders and until the election and qualification of their
successors.
The Board of Directors recommends that the shareholders vote "FOR" the election
of the nominees.
7
<PAGE>
Director Attendance and Board Committees
During the last fiscal year, the Board of Directors met six times. Each
person that served as a director during the 1997 fiscal year attended 75% or
more of the aggregate of the Board meetings and committee meetings (held during
the period for which the director was in office) of the Board of which the
director was a member, except Mr. Pappas.
The Board of Directors has two standing committees, an Audit Committee
and a Compensation Committee. The members of these committees are identified in
the table above.
The Audit Committee is responsible for reviewing the scope, results and
effectiveness of the Company's internal accounting controls and the audits by
the Company's independent public accountants. Also, the Audit Committee
recommends to the Board the engagement of independent auditors. During 1997, the
Audit Committee held three meetings.
The Compensation Committee recommends to the Board of Directors
compensation arrangements for certain employees and directors and is responsible
for the administration of certain of the Company's compensation plans.
Specifically, the Compensation Committee administers the Company's incentive and
nonstatutory stock option plans and employee stock purchase plan. During 1997,
the Compensation Committee held four meetings.
The Company does not have a nominating committee of the Board of
Directors. The Board performs the functions that might be performed by such a
committee.
Compensation of Directors
During 1997 non-officer directors received a $6,000 annual retainer,
payable $1,500 each calendar quarter, and $750 per Board of Directors or
committee meeting attended, plus expenses. No compensation is paid for committee
meetings held on the same day as or on days contiguous to the date of a Board of
Directors meeting. Non-officer directors also are eligible to receive
nonstatutory stock option grants pursuant to the Company's Incentive Stock
Option and Nonstatutory Stock Option Plan (June 1993), and 1989 and 1991
Nonstatutory Stock Option Plans. During 1997, each non-officer director of the
Company also received options to purchase 5,000 shares of Common Stock at an
exercise price of $6.875.
8
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth a summary of compensation earned by or
paid to the Company's Chief Executive Officer and the next four most highly
compensated executive officers of the Company who served in such capacities on
December 31, 1997, for services rendered during the fiscal years indicated.
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Annual Long Term Compensation
Principal Position Compensation (1)(2) Securities Underlying Options(#)
------------------ ------------------- --------------------------------
Year Salary
---- ------
<S> <C> <C> <C>
Randall L. Marcuson 1997 $210,000 35,000
President and Chief 1996 $185,000 51,000
Executive Officer 1995 $175,000 25,100
Don T. Seaquist 1997 $137,000 3,000
Vice President, Finance 1996 $135,000(3) 31,500
and Administration
Catherine A. Ricks, Ph.D. 1997 $133,000 12,500
Vice President, Research 1996 $125,500 7,000
and Development 1995 $122,500 12,100
Rick L. Ryan, Ph.D. 1997 $132,000 3,000
Vice President, Global 1996 $130,000(4) 30,000
Commercial Development
Brian V. Cosgriff 1997 $131,500 10,000
Vice President, Sales and 1996 $125,000 -0-
Marketing 1995 $125,000 25,000
</TABLE>
- -------------
(1) No executive officer of the Company received any personal benefits
other than those benefits available to all employees through
participation in employee benefit plans.
(2) Includes compensation that has been deferred under the Company's
401(k) Retirement Savings Plan.
(3) Mr. Seaquist joined the Company in 1996, and the salary indicated is
the annual compensation rate. The actual amount of salary paid to Mr.
Seaquist in 1996 was $42,321.
(4) Dr. Ryan joined the Company in 1996, and the salary indicated is the
annual compensation rate. The actual amount of salary paid to Dr. Ryan
in 1996 was $47,333.
9
<PAGE>
Option Grants in Last Fiscal Year
---------------------------------
The following table sets forth stock options granted by the Company to
the named executive officers in the past fiscal year. No stock appreciation
rights were granted. The table also sets forth the hypothetical potential
realizable values that would exist for the options at the end of their ten-year
terms, at assumed rates of stock price appreciation of 5% and 10%. The actual
value of the options will depend on the market value of the Company's Common
Stock. No gain to the option holders is possible without an increase in the
stock price, which will benefit all shareholders proportionately. These
potential realizable values, based on 5% and 10% appreciation rates prescribed
by the Securities and Exchange Commission, are not intended to forecast possible
future appreciation, if any, of the Company's stock price.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock
Price Appreciation for
Individual Grants Option Term
----------------- -----------
Percent of
Total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options In Fiscal Price Per Expiration
Name Granted Year Share Date 5%($) 10% ($)
- ---- ------- ---- ----- ---- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Randall L. Marcuson 35,000(1) 12.52% $6.875 1/22/07 $151,328 $383,495
Don T. Seaquist 3,000(1) 1.07% $6.875 1/22/07 $12,971 $32,871
Catherine A. Ricks, Ph.D. 12,500(1) 4.47% $6.875 1/22/07 $54,046 $136,963
Rick L. Ryan, Ph.D. 3,000(1) 1.07% $6.875 1/22/07 $12,971 $32,871
Brian V. Cosgriff 10,000(1) 3.58% $6.875 1/22/07 $43,237 $109,570
Total potential stock price appreciation from January 22, 1997 to
January 22, 2007 for all shareholders at assumed
rates of stock price appreciation (2) $35,626,647 $90,284,919
</TABLE>
- ------------------
(1) The options granted are incentive stock options and become exercisable
25% per year commencing one year from the date of grant and are fully
exercisable four years from the date of grant. Payment of the exercise
price must be in cash, or at the discretion of the Compensation
Committee, in capital stock of the Company, by a note bearing interest
and payable in installments, or by any other lawful means. Generally,
the options granted must be exercised within 10 years from the date of
grant, but must be exercised within three months after termination of
the option holder's employment (for reasons other than disability or
death) and within one year after the option holder's disability or
death. These stock options include a provision that would accelerate
the vesting of the options upon a "change in control" of the Company.
(2) Based on price of $6.875 on January 22, 1997 and a total of
8,239,946 shares of Common Stock outstanding.
10
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values(1)
Number of Securities Value of Unexercised
Underlying Unexercised "In-The-Money" Options at
Options at Fiscal Year-End Fiscal Year-End
Name Exercisable/Unexercisable Exercisable/Unexercisable (2)
---- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Randall L. Marcuson 167,395 / 57,500 $222,186 / $0
Don T. Seaquist 8,625 / 25,875 $0 / $0
Catherine A. Ricks, Ph.D. 62,425 / 15,375 $91,922 / $0
Rick L. Ryan, Ph.D. 8,250 / 24,750 $0 / $0
Brian V. Cosgriff 15,000 / 20,000 $0 / $0
</TABLE>
- ----------------
(1) No options were exercised by executive officers in the last fiscal
year.
(2) Options are "In-the-Money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The value of the
options is calculated by subtracting the exercise price from $5.3125,
the closing market price of the underlying Common Stock as of December
31, 1997.
Employment Agreements
All employees of the Company, including the executive officers named in
the above tables, have entered into employment agreements with the Company. Each
employment agreement provides for merit-based salary increases at the Board of
Directors' sole discretion and includes confidentiality and non-competition
provisions, as well as an ownership provision in the Company's favor for
techniques, discoveries and inventions arising during the term of employment.
Each employment agreement provides that the named executive officer serves at
the pleasure of the Company and does not state a term of employment. Each
agreement also provides that if the Company terminates the officer's employment
without cause, the officer will be entitled to receive an amount ranging from
one to one and one-half times the officer's annual compensation.
Each of the executive officers of the Company has entered into a Change
in Control Severance Agreement with the Company. Each of these agreements
provides that after a change in control of the Company, the officer will be
entitled to receive certain payments and benefits, including a payment equal to
2.9 times the officer's annual compensation, if within two years the Company
terminates the officer's employment for reasons other than cause, disability or
death, or if the employee terminates his employment for good reason, for example
a change in the employee's position, responsibilities, or salary. Also under
such circumstances, all stock options held by such officers immediately vest.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Based solely on a review of the report forms that were filed and written
representations from executive officers and directors, the Company believes that
during 1997 all Section 16 filing requirements applicable to its executive
officers and directors were complied with except that Arthur M. Pappas, a
Company director, and Don T. Seaquist, the Company's Vice President, Finance and
Administration, each inadvertently failed to report three transactions in
Company Common Stock on a timely basis. Both Mr. Papas and Mr. Seaquist
subsequently reported such transactions on Form 5s at the end of the 1997 fiscal
year.
11
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
General
The Compensation Committee (the "Committee") reviews and makes
recommendations to the full Board of Directors regarding the overall
compensation structure and program of the Company including employee benefit and
stock option plans. The Committee serves also as the Stock Option Committee and
approves (or recommends to the full Board of Directors at its discretion) the
grant of stock options from the Company's various stock option plans. The
Committee is composed entirely of non-officer and non-employee directors.
Executive Compensation
The Company's policy is to pay its executives and other employees at
rates competitive with the national or local markets in which it must recruit to
enable the Company to maintain a highly competent and productive staff. The
Company competes for management personnel with many larger and more profitable
companies.
Compensation of executives consists of the same components as the
compensation of other Company employees: monthly salary, company paid fringe
benefits (consisting principally of group health and other insurance) and stock
options. Executives are paid salaries within a range established for their
position. Salary ranges for executive positions are established using the same
process as for other positions and job levels within the Company, i.e., by
systematically evaluating the position and assigning a salary range based on
comparisons with pay scales for similar positions in reasonably comparable
companies using regional and national salary surveys. Companies included in
these salary surveys will vary and are not necessarily the same as the companies
used for purposes of the performance graph included in this Proxy Statement.
Presently, stock option awards are the principal means for rewarding executives
for good performance.
Adjustments to executive salaries are generally made annually along
with adjustments to other employee salaries. Adjustments to executive salaries
other than the Chief Executive Officer ("CEO") are recommended to the Committee
by the CEO based on an executive's performance during the preceding year, the
executive's salary relative to the salary range for the position, and the
competitive situation. That performance is measured based on the executive's
success in achieving goals established at the beginning of the year. Where
achievement of these goals cannot readily be measured objectively, the Committee
will exercise its subjective judgment in determining the degree to which goals
are achieved. Corporate performance also is considered by the Committee,
although it is not determinative of executive compensation because corporate
performance is best measured over longer periods of time.
CEO Compensation
The CEO's compensation is recommended by the Committee to the full
Board of Directors based on the Committee's knowledge of the level appropriate
to enable the Company to remain competitive and retain top management.
In addition, the compensation of Mr. Randall L. Marcuson, President and
Chief Executive Officer, has been and is based on the Committee's subjective
assessment of his progress toward achieving Company objectives of profitability,
developing the INOVOJECT(R) egg injection system and other products, commercial
introduction of those products to the global poultry industry, establishing a
commercial presence in international markets, overall organizational
development, and enhancing long term shareholder value. In reaching this year's
recommendation, particular weight was given to the fact that the Company had
significantly increased its number of INOVOJECT(R) placements, commenced global
expansion into Asia, and strongly increased revenues and net income.
12
<PAGE>
Stock Option Grants
Stock options are intended to enhance the long term proprietary
interest in the Company on the part of employees and others who can contribute
to the Company's overall success and to increase the value of the Company to its
shareholders.
Generally all employees of the Company are eligible to receive annual
stock option grants. Guidelines are established for ranges of option grants
based on the salary ranges of various position levels within the Company.
Guideline ranges for stock option grants increase relative to cash compensation
as position levels increase, since the Committee believes that employees at
higher levels in the organization have a greater opportunity to influence and
contribute to shareholder value. The Committee may decide to award stock options
greater than the guideline amounts or more frequently than annually, if it
believes the recipient has made an exceptional contribution to the Company's
progress.
Stock options are also awarded upon hiring employees to fill certain
senior positions in the Company. The size of those awards are determined based
on the guidelines for annual awards for the position to be occupied by the new
employee and the competitive situation.
The process for determining amounts of stock option awards is based on
the same criteria as those used for determining adjustments to cash
compensation, although success in achieving performance goals is weighed more
heavily in determining stock option awards.
This report is submitted by the following members of the Compensation
Committee of the Board of Directors:
Charles E. Austin
Kenneth N. May, Ph.D.
Arthur M. Pappas
13
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph compares the cumulative total shareholder return on
the Company's Common Stock over the five-year period ended December 31, 1997,
with the cumulative total return for the same period on the Nasdaq Composite
(US) Index and a peer group selected by the Company on a line-of-business basis
(the "Peer Group"). The Peer Group of the following 14 companies is based on
companies identified as bio/veterinary by BioCentury Publications Inc. in its
"BioCentury, The Bernstein Report on BioBusiness": Cantab Pharmaceuticals plc,
CytRx Corp., Dekalb Genetics Corp., DNAP Holding Corp., Draxis Health, Inc.,
Ecogen Inc., Ecoscience Corp., Energy Biosystems Inc., Envirogen Inc., Epitope
Inc., Idexx Labs Inc., ImmuCell Corp., Mycogen Corp., and Oxis International
Inc. Two companies were removed from the Peer Group in 1997. The first, Biosys,
Inc. filed for bankruptcy protection and the second, Calgene, Inc. was acquired.
The graph assumes that at the beginning of the period indicated $100 was
invested in the Company's Common Stock and the stock of the companies comprising
the Nasdaq Composite (US) Index and the Peer Group, and that all dividends, if
any, were reinvested.
[Line Graph appears here which includes the following plot points]
<TABLE>
<CAPTION>
- ----------------------------------------------------- ------------ ----------- ----------- ----------- -----------
Comparison of Cumulative Total Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Embrex, Inc. $ 100.00 $ 77.42 $ 79.03 $ 75.81 $ 83.87 $ 68.54
- ----------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Peer Group $ 100.00 $ 106.23 $ 85.00 $ 151.92 $ 163.56 $ 141.88
- ----------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Nasdaq Composite (US) $ 100.00 $ 114.80 $ 112.21 $ 158.70 $ 195.19 $ 239.53
- ----------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
</TABLE>
14
<PAGE>
PROPOSAL 2: AMENDMENT TO INCENTIVE STOCK OPTION
AND NONSTATUTORY STOCK OPTION PLAN
On March 19, 1998, the Board of Directors of the Company approved,
subject to shareholder approval, an amendment to the Company's Incentive Stock
Option and Nonstatutory Stock Option Plan (June 1993) (the "Plan") to increase
the number of shares of Common Stock that may be issued under the Plan. The
Board of Directors recommends that the shareholders approve the proposed
amendment to the Plan, which increases the maximum number of shares of Common
Stock that may be issued under the Plan from 1,200,000 to 1,900,000. The
proposed amendment would not change any other terms of the Plan.
The Plan is being amended in order to ensure the availability of an
adequate number of shares of Common Stock to allow the Plan to continue. Without
the proposed amendment, the maximum number of shares of Common Stock which may
be issued under the Plan is 1,200,000 shares. As of February 27, 1998,
substantially all of such 1,200,000 shares under the Plan had been issued or
reserved for issuance pursuant to options previously granted under the Plan.
Outstanding options granted under the Plan are included in the descriptions of
options under EXECUTIVE COMPENSATION in this Proxy Statement.
The Plan authorizes the Company to grant either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonstatutory stock options. Incentive stock options are
intended to qualify for favorable tax treatment under the Code. The Plan may be
used to grant incentive stock options to all employees and nonstatutory stock
options to employees, directors, consultants and other parties who have made
significant contributions to the Company. The Plan is designed to secure for the
Company and its shareholders the benefits arising from capital stock ownership
by employees of the Company and other participants who are expected to
contribute to the Company's future growth and success. The Plan is intended to
benefit the Company and its shareholders by encouraging employees and other
participants to remain employees of, or otherwise involved with the Company, to
own stock, and to share in the long-term success of the Company to which they
contribute. If the proposed amendment to the Plan is not approved by
shareholders, the amendment will not become effective. In such event, the
Company will examine other alternatives and may submit other compensation plans
for shareholder approval at a later date or take action not requiring
shareholder approval.
The Plan was originally approved by shareholders at the 1993 Annual
Meeting and was amended by shareholders at the 1996 Annual Meeting to increase
the shares issuable under the Plan (the "Plan Amendment"). The Plan and Plan
Amendment were submitted to shareholders at those times so that the option
grants and option exercises under the Plan would come within the "safe harbor"
of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and so that incentive stock options granted under the Plan
would be afforded favorable federal tax treatment. Rule 16b-3 is the exemption
provision primarily relied upon by issuers to exempt certain stock option and
other employee benefit plan transactions from potential "short swing" profit
liability under the Exchange Act. Although during 1996 Rule 16b-3 was amended so
that shareholder approval of the Plan is not required as a condition for Rule
16b-3 "safe harbor" treatment, the proposed amendment to the Plan is being
submitted to the shareholders in order that participants under the Plan will be
able to continue to avail themselves of favorable federal tax treatment. The
Plan also is being submitted to shareholders because under the terms of the
Plan, a material increase in the maximum number shares which may be issued under
the Plan requires shareholder approval, as well as approval by the Board of
Directors.
As of February 27, 1998, the market price of the Company's Common Stock
was $5.50 per share, based on the last reported transaction price on such date
for the Common Stock as listed for trading on the Nasdaq National Market System.
For a more complete description of the features of the Plan, including
its terms, eligibility requirements, and amendment and termination procedures,
see the Summary of Incentive Stock Option and Nonstatutory Stock Option Plan
attached hereto as Appendix I and incorporated by reference herein.
Approval of this proposal requires the affirmative vote of a majority
of the Company's shares of Common Stock present, or represented, and entitled to
vote at the Annual Meeting. Shares voted for the proposal and shares
15
<PAGE>
represented by returned proxies that do not contain instructions to vote against
the proposal or to abstain from voting will be counted as shares cast for the
proposal. Shares will be counted as cast against the proposal if the shares are
voted either against the proposal or to abstain from voting. Broker non-votes
will not change the number of votes cast for or against the proposal, but will
be treated as shares present or represented at the meeting.
The Board of Directors recommends that the shareholders vote "FOR" the proposed
amendment to the Plan.
PROPOSAL 3: AMENDMENT TO THE COMPANY'S BYLAWS
The Board of Directors has approved, subject to shareholder approval,
an amendment to the Company's Amended and Restated Bylaws ("Bylaws"). The
purpose of the proposed amendment is to change the range of the number of
Directors by increasing the maximum number of Directors from seven (7) to twelve
(12) members. The Bylaws currently provide that the number of Directors shall be
not less than one (1) nor more than seven (7). On March 27, 1998, the Board of
Directors approved and recommended for shareholder approval an amendment to
Article IV, Section 2 of the Company's Bylaws to change the authorized size of
the Board so that the number of Directors shall be not less than one (1) and no
more than twelve (12). This increase has been recommended by the Board of
Directors to provide the Company greater flexibility in the event it wishes to
increase the size of the Board of Directors. If Proposal 3 is approved by
shareholders at the Annual Meeting, Section 2 of Article IV of the Company's
Bylaws will be amended to read as follows:
Section 2. Number, Term and Qualifications.
The number constituting the board of directors shall be not
less than one (1) nor more than twelve (12). The number of directors
within this variable range may be fixed or changed from time to time by
the shareholders or the board of directors. Each director shall hold
office until his death, resignation, retirement, removal,
disqualification, or until his successor is elected and qualified.
Directors need not be residents of the State of North Carolina or
shareholders of the Corporation.
Approval of this proposal requires the affirmative vote of a majority
of the Company's shares of Common Stock present, or represented, and entitled to
vote at the Annual Meeting. Shares voted for the proposal and shares represented
by returned proxies that do not contain instructions to vote against the
proposal or to abstain from voting will be counted as shares cast for the
proposal. Shares will be counted as cast against the proposal if the shares are
voted either against the proposal or to abstain from voting. Broker non-votes
will not change the number of votes cast for or against the proposal, but will
be treated as shares present or represented at the meeting.
The Board of Directors recommends that shareholders vote "FOR" the proposed
amendment to the Bylaws.
PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Ernst & Young LLP has served as the independent accounting firm of the
Company since its inception. Pursuant to the recommendation of the Audit
Committee, the Board of Directors has appointed Ernst & Young LLP as independent
accountants for the fiscal year ending December 31, 1998. Although the selection
and appointment of independent accountants are not required to be submitted to a
vote of the shareholders, the Board of Directors desires to obtain shareholder
ratification of this appointment. A representative of Ernst & Young LLP is
expected to be present at the Annual Meeting and to be available to respond to
appropriate questions, and will be afforded an opportunity to make a statement.
The Board of Directors recommends that the shareholders vote "FOR" the
ratification of the appointment of Ernst & Young LLP for fiscal year 1998.
16
<PAGE>
MISCELLANEOUS
Upon written request made by any shareholder to Don T. Seaquist, Vice
President Finance and Administration and Corporate Secretary, Embrex, Inc., Post
Office Box 13989, Research Triangle Park, North Carolina 27709, a copy of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
including the financial statements, will be provided without charge.
SUBMISSION OF SHAREHOLDER PROPOSALS
FOR 1999 ANNUAL MEETING
Any proposals which shareholders intend to present for a vote of
shareholders at the 1999 Annual Meeting of Shareholders and which such
shareholders desire to have included in the Company's proxy statement and form
of proxy relating to that meeting must be sent to the Company's principal
executive offices, marked to the attention of the Secretary of the Company, and
received by the Company at such offices on or before December 17, 1998.
Proposals received after December 17, 1998 will not be considered for inclusion
in the Company's proxy materials for its 1999 Annual Meeting.
By Order of the Board of Directors
/s/ Don T. Seaquist
Don T. Seaquist
Secretary
April 24, 1998
17
<PAGE>
APPENDIX I
SUMMARY OF INCENTIVE STOCK OPTION AND NONSTATUTORY STOCK OPTION PLAN
The Embrex, Inc. Incentive Stock Option and Nonstatutory Stock Option
Plan (June 1993) (the "Plan") was approved by the shareholders at the 1993
Annual Meeting and was amended by the shareholders at the 1996 Annual Meeting.
The following description of the Plan is a summary of the material terms and
provisions of the Plan, is not intended to be complete description, and is
qualified in its entirety by reference to the full text of the Plan. A copy of
the Plan may be obtained without charge upon written request made by a
shareholder to Don T. Seaquist, Vice President Finance and Administration and
Corporate Secretary, Embrex, Inc., Post Office Box 13989, Research Triangle
Park, North Carolina 27709.
General Information. The Plan authorizes the Company to grant either
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock options.
The Plan may be used to grant incentive stock options to all employees and
nonstatutory stock options to employees, directors, consultants or other parties
who have made significant contributions to the Company. The aggregate number of
shares of Common Stock which may be issued under the Plan may not exceed
1,200,000. The proposed amendment to the Plan would increase such aggregate
number of shares to 1,900,000.
Administration of Plan. The Plan is administered by a committee
appointed by the Board of Directors, which must consist of two or more
disinterested directors. Presently, the Compensation Committee of the Board
serves as the committee under the Plan. In general, the Compensation Committee
has broad discretionary authority regarding the Plan, including the authority to
determine which options shall constitute incentive stock options and which
options shall constitute nonstatutory stock options, which persons shall be
granted options and the amount of such options, to determine and construe the
terms and provisions of the agreements and other documents by which options are
granted and accepted, and to make all other determinations that the Compensation
Committee shall deem necessary or desirable for the administration of the Plan.
Eligibility. Those persons eligible to receive incentive stock options
under the Plan are certain employees of the Company whom the Compensation
Committee may select from time to time in order to fulfill the purpose of the
Plan as described above. Those persons eligible to receive nonstatutory stock
options under the Plan are certain employees, directors and consultants of the
Company, or other parties who have made a significant contribution to the
business and success of the Company, as may be selected from time to time by the
Compensation Committee or the Board of Directors. As of February 28, 1998, there
were 126 employees and directors of the Company, all of which were eligible to
receive stock options under the Plan. The granting of stock options is
conditioned on the execution by the recipient of an option agreement which shall
contain terms and conditions consistent with the Plan as determined by the
Compensation Committee or the Board of Directors from time to time. The Company
does not receive any payment or other consideration at the time of the granting
of the options.
Terms and Exercise of Incentive Stock Options. The prices at which
shares of Common Stock under the incentive stock options may be purchased are
determined in the discretion of the Board of Directors or Compensation
Committee, but option exercise prices must be no less than the fair market value
of the underlying Common Stock at the time of the grant (110% of the fair market
value for 10% or greater shareholders). Payment of the exercise price of an
option shall be in cash. The Board of Directors or Compensation Committee in its
discretion shall determine the term of each incentive stock option, but
incentive stock options may not be exercised later than 10 years from the date
of grant (5 years for 10% or greater shareholders). Each incentive stock option
granted under the Plan is exercisable either in full or installments as set
forth in the agreement evidencing the option. Officers and directors may not
dispose of their options or the Common Stock received upon exercise of their
options until at least six months has elapsed from the date of option grant.
Incentive stock options are not transferable otherwise than by will or
the laws of descent and distribution, and during the optionee's lifetime are
exercisable only by the optionee. Generally, incentive stock options granted
under the Plan must be exercised within three months after termination of the
optionee's employment (for reasons other than cause, disability or death),
within one year after the optionee's death or disability, or within 10 years
18
<PAGE>
after the date of the option grant. If the optionee's employment is terminated
by the Company for cause, the right to exercise the option terminates
immediately. The holder of an incentive stock option shall have no rights as a
shareholder with respect to the shares of Common Stock covered by the option
until the date of issuance of a stock certificate upon the due exercise of the
option.
Federal Income Tax Consequences of Incentive Stock Options. Incentive
stock options issued under the Plan are intended to qualify for favorable tax
treatment under the Code. Under the rules governing such options, an employee
will not recognize income, and the Company will not be entitled to any
deduction, upon the grant of an option to the employee. In addition, the
employee will not recognize income, and the Company will not be entitled to any
deduction, when the option is exercised, provided the employee was an employee
of the Company at all times during the period from the grant of the option until
the date three months before its exercise. The employee will recognize gain or
loss upon a sale or other disposition of the stock received in exercise of the
option. If the disposition occurs more than two years from the date the option
was granted and one year from the date the option was exercised, the amount of
gain or loss recognized will equal the difference between the amount realized on
the disposition of the stock and the option price the employee paid for the
stock, and the entire gain will be treated as capital gain. If the disposition
occurs before the end of these holding periods, the employee will recognize
ordinary compensation income equal to the difference between the fair market
value of the stock on the date the option was exercised and the option price
paid for the stock. The employee will also recognize capital gain or loss equal
to the difference between the amount realized on the disposition of the stock
and the sum of the option price the employee paid for the stock and the amount
of compensation income, if any, the employee recognized as a result of the
disposition. In such a case, the Company will be entitled to a deduction equal
to the amount treated as compensation income to the employee.
Terms and Exercise of Nonstatutory Stock Options. The prices at which
shares of Common Stock under the nonstatutory stock options may be purchased are
determined in the discretion of the Board of Directors or Compensation
Committee, but option exercise prices must be no less than the fair market value
of the underlying Common Stock at the time of the grant. Payment of the exercise
price of an option shall be in cash. The Compensation Committee, in its
discretion, shall determine the term of each nonstatutory stock option, but such
options may not be exercisable more than 10 years from the date of grant. Each
nonstatutory stock option granted under the Plan is exercisable either in full
or installments as set forth in the agreement evidencing the option. Officers
and directors may not dispose of their options (other than upon exercise or
conversion) or their underlying Common Stock until at least six months has
elapsed from the date of grant.
Nonstatutory stock options are not transferable otherwise than by will
or the laws of descent and distribution, and during the optionee's lifetime are
exercisable only by the optionee. If the optionee is an employee and such
employment terminates for any reason other than death, the optionee may, unless
discharged for cause, exercise his or her option to the extent the optionee was
entitled to exercise the option on the date when such employment was terminated
within certain limitations. If the termination of employment is voluntary on the
part of the optionee, the optionee must exercise the option within 10 days after
the date of termination of employment unless a longer period not exceeding three
months is allowed by the Compensation Committee. If the termination of
employment is involuntary on the part of the optionee, the optionee must
exercise the option within three months after the date of termination of
employment. An option may be exercised only to the extent exercisable on the
date of termination of employment and, in no event, may an optionee exercise the
option when the termination was for cause. If an optionee retires or resigns
with the Company's consent, the optionee's option may be exercised in the same
manner as if the optionee had continued in the Company's employment; provided,
however, the Compensation Committee may terminate all unexercised options if it
determines that the optionee has engaged in any activity detrimental to the
Company's interest.
If the optionee dies at a time when such optionee is entitled to
exercise an option, then such option may be exercised within one year after the
optionee's death as to the shares which the optionee was entitled to purchase
immediately prior to death.
The Plan provides that each non-officer director, upon the completion of each
full year of service, will receive, without further action by the Compensation
Committee or the Board of Directors, a nonstatutory stock option to
19
<PAGE>
purchase shares of Common Stock in accordance with the following schedule: 1993:
2,000 shares; 1994: 3,000 shares; 1995: 4,000 shares; 1996 and subsequent years:
5,000 shares. If a director is not qualified for an award under the above
schedule because the director has not completed the full year of service, the
Compensation Committee, in its discretion, may determine whether or not an
option will be awarded.
Federal Income Tax Consequences of Nonstatutory Stock Options. Under
the Code, an individual granted a nonstatutory stock option realizes no taxable
income upon receipt of the option, provided the option does not have readily
ascertainable fair market value at the date of grant. The employee will
recognize ordinary taxable income upon the exercise of the option equal to the
excess of the fair market value of the stock acquired at the time of the
exercise of the option over the option price paid. The Company will be entitled
to a deduction equal to the same amount to the extent such amount is treated as
reasonable compensation under the Code. The deduction will be allowed in the
Company's taxable year which includes the last day of the optionee's taxable
year in which the option is exercised. An optionee's tax basis in shares
acquired upon the exercise of the option will be the fair market value of such
shares on the date the option is exercised. Upon any sale of shares acquired
upon exercise of a nonstatutory stock option, the optionee's gain or loss will
equal the difference between the amount realized on the sale and such tax basis.
Amendment and Termination. The Board of Directors may from time to time
modify or amend the Plan in any respect, except that without the approval of the
shareholders of the Company, the Board may not materially increase the benefits
accruing to individuals who participate in the Plan, materially increase the
maximum number of shares which may be issued under the Plan (except for
permissible adjustments provided in the Plan), or materially modify the
requirements as to eligibility for participation in the Plan. The modification
or amendment of the Plan shall not, without the consent of an optionee, affect
his rights under an option previously granted to him, provided that with respect
to incentive stock options, the Board of Directors shall have the right to amend
or modify the Plan and any outstanding options granted under the Plan to the
extent necessary to qualify such options for favorable income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code. The Plan terminates upon the
earlier of the tenth anniversary of the date of its adoption by the Board of
Directors or the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise or cancellation of options
granted under the Plan.
20
<PAGE>
********************************************************************************
APPENDIX A
PROXY PROXY
EMBREX, INC.
Proxy for Annual Meeting of Shareholders
To Be Held on May 21, 1998
Solicited by the Board of Directors
The undersigned hereby constitutes and appoints Randall L. Marcuson and
Don T. Seaquist and each of them as attorney and proxy of the undersigned, each
with full power of substitution, to represent the undersigned and to vote all of
the shares of Common Stock in Embrex, Inc. (the "Company") which the undersigned
is entitled to vote at the Annual Meeting of Shareholders of the Company to be
held at the North Carolina Biotechnology Center, 15 Alexander Drive, Research
Triangle Park, North Carolina, on Thursday, May 21, 1998, at 9:00 a.m., local
time, and any adjournments of the meeting.
When properly executed and returned, this proxy and the shares
represented hereby will be voted in the manner directed herein by the
undersigned. If no direction is made, this proxy and such shares will be voted
FOR Proposals 1, 2, 3 and 4 set forth below and described in the Proxy
Statement. The undersigned further gives the above-named attorneys and proxies
the authority to vote in their discretion upon such other matters as may
properly come before the Annual Meeting and any adjournments of the meeting.
This proxy may be revoked prior to its exercise.
The Board of Directors Recommends a Vote FOR the Proposals Listed Below.
1. Election of Board of Directors:
___ FOR all nominees listed below (except as marked to the contrary
below).
___ WITHHOLD AUTHORITY to vote for all nominees listed below.
Charles E. Austin; C. Daniel Blackshear; Lester M. Crawford, DVM,
Ph.D.; Randall L. Marcuson; Kenneth N. May, Ph.D.; Arthur M. Pappas.
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below:
2. Approve an amendment to the Company's Incentive Stock Option and
Nonstatutory Stock Option Plan which would increase the maximum number
of shares of Common Stock available for issuance pursuant to the Plan:
___ FOR ___ AGAINST ___ ABSTAIN
3. Approve an amendment to the Company's Bylaws that would change the
range of the number of Directors on the Board of Directors from a
minimum of one (1) and maximum of seven (7) members to a minimum of one
(1) and a maximum of twelve (12) members:
___ FOR ___ AGAINST ___ ABSTAIN
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4. Ratify the action of the Board of Directors in appointing Ernst & Young
LLP as independent accountants for the Company for the fiscal year
ending December 31, 1998:
___ FOR ___ AGAINST ___ ABSTAIN
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders, the Proxy Statement for such meeting, and the Annual
Report to Shareholders for 1997.
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign.
Date ________________________, 1998
(Be sure to date proxy)
-----------------------------------
Signature and title, if applicable
-----------------------------------
Signature if held jointly
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign the full corporate name by the President or other authorized officer. If a
partnership or other non-corporate entity, please sign in the entity's name by
an authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
2
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