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 Commission Only (as permitted by Rule
14a-6(e)(2))
| | 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
--------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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| | 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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<PAGE>
PRELIMINARY COPIES
------------------
EMBREX, INC.
1035 Swabia Court
Durham, North Carolina 27703
--------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
--------------------------------------------------
To Be Held on May 20, 1999
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 20, 1999, 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 ratify the action of the Board of Directors in appointing
Ernst & Young LLP as independent accountants for the fiscal year
ending December 31, 1999.
(3) To ratify an amendment to the Company's Bylaws regarding the call
of special shareholders' meetings.
(4) To consider a shareholder proposal to amend the Company's Bylaws
as described in the accompanying Proxy Statement, if such
proposal is properly brought before the meeting.
(5) To consider a shareholder proposal as described in the
accompanying Proxy Statement.
(6) 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 22, 1999, are
entitled to notice of and to vote at the Annual Meeting and any adjournment,
postponement or continuation of the meeting. Any action may be taken on any of
the foregoing matters at the Annual Meeting on the date specified above or on
any dates to which, by original or later adjournment, the Annual Meeting may be
adjourned, postponed or continued.
YOUR BOARD OF DIRECTORS URGES YOU TO SIGN, DATE AND MAIL THE ENCLOSED
PROXY CARD. IT IS IMPORTANT THAT YOUR SHARES OF STOCK BE REPRESENTED AT THE
MEETING REGARDLESS OF THE NUMBER OF SHARES YOU MAY HOLD. IF YOU ATTEND THE
MEETING YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. THE BOARD URGES THAT YOU
NOT SIGN OR RETURN ANY PROXY CARD OTHER THAN THE COMPANY'S PROXY CARD.
By Order of the Board of Directors
Don T. Seaquist
Secretary
Durham, North Carolina
April [ ], 1999
<PAGE>
EMBREX, INC.
1035 Swabia Court
Durham, North Carolina 27703
--------------------
PROXY STATEMENT
--------------------
Annual Meeting of Shareholders to be held May 20, 1999
SOLICITATION AND VOTING RIGHTS
This Proxy Statement and the accompanying proxy card are being mailed to
shareholders on or about April [ ], 1999, 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 20, 1999, at 9:00 a.m., local time, and at any
adjournment, postponement or continuation 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. In
addition, Beacon Hill Partners, Inc. and Hill and Knowlton, Inc. have been
engaged to solicit proxies. Corporate Election Services has been engaged by the
Company to tabulate the proxy voting. The aggregate fees to be paid to Beacon
Hill Partners, Inc., Hill and Knowlton, Inc. and Corporate Election Services are
not expected to exceed $20,000.
The purposes of the Annual Meeting are to: (1) elect seven nominees to
the Board of Directors; (2) ratify the action of the Board of Directors in
appointing Ernst & Young LLP as independent accountants for the fiscal year
ending December 31, 1999; (3) ratify an amendment to the Company's Bylaws to
allow the call of special shareholders' meetings by shareholders holding 33 1/3%
or more of the Company's shares; (4) consider a shareholder proposal to amend
the Company's Bylaws to allow the call of special shareholders' meetings by
shareholders holding 10% or more of the Company's shares entitled to vote at the
special meeting, if such proposal is properly brought before the Annual Meeting
by a shareholder who has given notice of its intent to do so; (5) consider a
shareholder proposal to retain an investment banking firm for the purposes
described below; and (6) act upon such other matters as may properly come 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 FOR Proposal 1, Proposal 2 and Proposal 3 set forth in the
accompanying proxy card and described in this Proxy Statement and AGAINST
Proposals 4 and 5 set forth in the accompanying proxy card and described in this
Proxy Statement. If any other matter properly comes before the Annual Meeting or
any adjournments of the meeting, the accompanying proxy card will confer
discretionary authority to vote and the proxyholders named in the proxy card
will vote on any such matters in their discretion. The Company has not received
notice of any matter that will come before the Annual Meeting other than the
matters described above.
<PAGE>
The Board of Directors has fixed the close of business on March 22, 1999
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 26, 1999, there were 8,302,372 shares of
Common Stock of 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 26,
1999, 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 in this
Proxy Statement, 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 218,471(2) 2.6%
Charles E. Austin 114,645(3) 1.4%
C. Daniel Blackshear 13,000(4) *
Lester M. Crawford, DVM, Ph.D. 27,500(5) *
Peter J. Holzer 34,500(6) *
Kenneth N. May, Ph.D. 38,000(7) *
Arthur M. Pappas 58,550(8) *
Don T. Seaquist 35,938(9) *
Catherine A. Ricks, Ph.D. 78,680(10) *
Brian V. Cosgriff 33,261(11) *
David M. Baines, Ph.D. 46,758(12) *
Rick L. Ryan, Ph.D. 29,102(13) *
All Directors and Executive 765,463(14) 9.2%
Officers
as a Group (13 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 200,895 shares of Common Stock subject to exercisable options
and 3,177 shares of Common Stock owned jointly by Mr. Marcuson and his
children.
(3) Includes 30,000 shares of Common Stock subject to exercisable options.
(4) Includes 7,500 shares of Common Stock subject to exercisable options.
2
<PAGE>
(5) Includes 26,500 shares of Common Stock subject to exercisable options.
(6) Includes 7,500 shares of Common Stock subject to exercisable options.
(7) Includes 25,000 shares of Common Stock subject to exercisable options
and 4,000 shares held jointly with Dr. May's spouse.
(8) Includes 22,250 shares of Common Stock subject to exercisable options.
(9) Includes 20,250 shares of Common Stock subject to exercisable options.
(10) Includes 73,050 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.
(11) Includes 27,000 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.
(12) Includes 42,600 shares of Common Stock subject to exercisable options.
(13) Includes 15,750 shares of Common Stock subject to exercisable options.
Dr. Ryan resigned on December 1, 1998, and has been replaced by Brian
Hrudka (see "Management").
(14) Includes 529,120 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 26, 1999.
NAME AND ADDRESS OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
---------------- ------------------ ----------------
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 1,115,400(2) 13.4%
William Leland Edwards
470 University Avenue
Palo Alto, CA 94301
- ------------------------------
(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. and William Leland Edwards with the Securities
and Exchange Commission on April 12, 1999. Palo Alto Investors, Inc. and
Mr. Edwards share voting and dispositive power over 1,083,000 shares and
Mr. Edwards has sole voting and dispositive power over 32,400 shares.
Mr. Edwards is the controlling shareholder of Palo Alto Investors, Inc.,
a California corporation that is a registered investment adviser under
section 203 of the Investment Advisers Act of 1940. Palo Alto Investors,
Inc. is the general partner of Micro Cap Partners, L.P. The Schedule 13D
amendment indicated that such shares were acquired as an equity
investment.
3
<PAGE>
MANAGEMENT
<TABLE>
<CAPTION>
The executive officers of the Company are as follows:
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C>
Randall L. Marcuson 50 President, Chief Executive Officer and
Director
Don T. Seaquist 50 Vice President, Finance and Administration
Catherine A. Ricks, Ph.D. 52 Vice President, Research and Development
Brian C. Hrudka 41 Vice President, Global Commercial
Development
Brian V. Cosgriff 46 Vice President, Sales and Marketing
V. Hayes Fenstermacher 63 Vice President, Manufacturing Services
David M. Baines, Ph.D. 51 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 poultry
science at North Carolina State University.
BRIAN C. HRUDKA joined the Company on March 15, 1999, as Vice President,
Global Commercial Development. Prior to joining the Company, Mr. Hrudka was with
Novartis for approximately eight years, where he served in various capacities,
including Vice President, Operations and Chief Financial Officer & Director of
Business Development for the U.S. Animal Health Division, and as Brand Manager
for the Plant Genetics Division for Ciba-Geigy, Inc., the predecessor company to
Novartis prior to the merger of Ciba-Geigy and Sandoz Pharmaceutical Company. He
has also worked for King Agro Inc. in a variety of sales and managerial
positions. Mr. Hrudka holds both a B.S. degree in Biochemistry and an MBA from
the University of Western Ontario.
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-Poulenc. 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 seven. 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> <C>
Randall L. Marcuson President, Chief Executive 50 1990
Officer, and Director
Charles E. Austin (1) Chairman of the Board of 71 1986
Directors
C. Daniel Blackshear(2) Director 55 1998
Lester M. Crawford, DVM, Ph.D.(2) Director 61 1993
Peter J. Holzer (2) Director 53 1998
Kenneth N. May, Ph.D.(1) Director 68 1989
Arthur M. Pappas (1) Director 51 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 Vice President of
American Cyanamid Company, where he was employed for 25 years. While at American
Cyanamid, Mr. Austin was instrumental in developing the company's biotechnology
position. He also served in a variety of senior management positions that
included responsibility for American Cyanamid's worldwide agricultural business.
Today, Mr. Austin serves as a board member to the private biotechnology
companies Mycotech and Sanguinex. In addition, he is on the advisory board of
A.M. Pappas & Associates, LLC, an international consulting and investment firm
focused on life science companies, technologies and products. He is also an
advisor to 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.
Carolina Turkeys is the fifth largest turkey producer in the U.S. From 1982 to
1994, Mr. Blackshear was Senior Vice President, Food Division, of Cuddy Farms,
Inc., responsible for operation of this vertically integrated operation. 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. He is former Director of the American Meat
Institute and currently is a director of the National Turkey 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
6
<PAGE>
1997. From 1991 until 1993, he was Executive Vice President for Scientific
Affairs of the National Food Processors Association. From 1987 to 1991 he was
Administrator of the Food 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 research and
development for American Cyanamid and in private veterinary practice. Presently,
he serves on the Expert Advisory Panel on Food Safety of the World Health
Organization and the Committee on Scientific Freedom and Responsibility of the
American Association for the Advancement of Science. 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.
PETER J. HOLZER became a director of the Company in May 1998. Since
1996, Mr. Holzer has been an Advisory Director of AMT Capital Advisors, LLC, a
New York-based strategic consulting and financial advisory firm focused on the
financial services industry. At AMT Capital, Mr. Holzer participates in
strategic consulting and financial advisory engagements. From 1967 to 1996, he
served in a number of managerial capacities at The Chase Manhattan Corporation,
most recently as Executive Vice President and Director, Strategic Planning and
Development from 1990 to 1996. In this role, he was a member of the senior
management team responsible for determining strategic direction as well as
managing internal corporate development. From 1987 to 1990, he was Senior Vice
President and Sector Executive, International Individual Banking, responsible
for all of Chase's international private banking and consumer banking
businesses. Prior positions at Chase included Vice President and General Manager
in Switzerland, Vice President and General Manager in Asia, as well as
responsibilities for credit training and management of the bank's European
petroleum division. Currently, Mr. Holzer also serves on the board of the
privately owned Columbia Analytical Services, an environmental testing
laboratory company, and as a trustee of Big Brothers/Big Sisters, New York, NY.
He holds a B.A. degree in International Affairs from Princeton University and an
MBA from Stanford University.
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 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 Chicken 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 consulting and investment company that works with life science
companies, technologies and products. 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' more than 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 seven 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.
7
<PAGE>
Under North Carolina law and the Company's Bylaws, 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.
DIRECTOR ATTENDANCE AND BOARD COMMITTEES
During the last fiscal year, the Board of Directors met eight times.
Each person that served as a director during the 1998 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.
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 1998, 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 1998,
the Compensation Committee held three 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 1998, non-officer directors received a $10,000 annual retainer,
payable $2,500 each calendar quarter, and $1,000 per Board of Directors or
committee meeting attended, plus expenses. During 1998, the non-officer Chairman
of the Board received an $18,000 annual retainer, payable $4,500 each calendar
quarter, and $1,000 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). During 1998, each non-officer director of the Company also received
options to purchase 5,000 shares of Common Stock at an exercise price of $5.375.
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, 1998, 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 BONUS(3)
---- ------ --------
<S> <C> <C> <C> <C>
Randall L. Marcuson 1998 $240,000 $50,000 24,000
President and Chief 1997 $210,000 -0- 35,000
Executive Officer 1996 $185,000 -0- 51,000
Don T. Seaquist(4) 1998 $155,000 $27,400 12,000
Vice President, Finance 1997 $137,000 -0- 3,000
and Administration 1996 $135,000 -0- 31,500
Brian V. Cosgriff 1998 $145,000 $32,876 13,000
Vice President, Sales and 1997 $131,500 -0- 10,000
Marketing 1996 $125,000 -0- -0-
David M. Baines, Ph.D. 1998 $144,450 -0- 12,000
Vice President (also 1997 $114,918 -0- 12,000
Managing Director, 1996 $104,051 -0- 12,500
Embrex Europe Limited)
Catherine A. Ricks, Ph.D. 1998 $143,000 $26,600 12,000
1997 $133,000 -0- 12,500
Vice President, Research 1996 $125,500 -0- 7,000
and Development
Rick L. Ryan, Ph.D.(5) 1998 $145,000 $26,400 12,000
Vice President, Global 1997 $132,000 -0- 3,000
Commercial 1996 $130,000 -0- 30,000
Development
- -------------
</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) These incentive compensation payments consist of cash and stock; see
"Report of the Compensation Committee of the Board of Directors."
(4) 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.
(5) Dr. Ryan joined the Company in 1996, and the salary indicated for 1996
is the annual compensation rate. The actual amount of salary paid to Dr.
Ryan in 1996 was $47,333. Dr. Ryan resigned on December 1, 1998 and has
been replaced by Mr. Hrudka. See "Management."
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted by the Company to
the named executive officers in the past fiscal year. No stock appreciation
rights were granted. The table also sets forth the hypothetical potential
realizable values that would exist for the options at the end of their ten-year
terms, at assumed rates of stock price appreciation of 5% and 10%. The actual
value of the options will depend on the market value of the Company's Common
Stock. No gain to the option holders is possible without an increase in the
stock price, which will benefit all shareholders proportionately. These
potential realizable values, based on 5% and 10% appreciation rates prescribed
by the Securities and Exchange Commission, are not intended to forecast possible
future appreciation, if any, of the Company's stock price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
-------------------------------------------- ------------
PERCENT OF
TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE PER EXPIRATION
NAME GRANTED YEAR SHARE DATE 5%($) 10% ($)
- ---- ------- ----- ---- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Randall L. Marcuson 24,000(1) 7.81% $5.375 1/20/08 $81,127 $205,594
Don T. Seaquist 12,000(1) 3.90% $5.375 1/20/08 $40,564 $102,797
Brian V. Cosgriff 13,000(1) 4.10% $5.375 1/20/08 $43,944 $111,363
David M. Baines, Ph.D. 12,000(1) 3.90% $5.375 1/20/08 $40,564 $102,797
Catherine A. Ricks, Ph.D. 12,000(1) 3.90% $5.375 1/20/08 $40,564 $102,797
Rick L. Ryan, Ph.D. 12,000(1) 3.90% $5.375 1/20/08 $40,564 $102,797
Total potential stock price appreciation from January 20, 1998 to
January 20, 2008 for all shareholders at assumed rates of stock
price appreciation (2) $27,856,292 $70,593,313
</TABLE>
- ------------------
(1) The options granted are incentive stock options and non-qualified 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.
10
<PAGE>
(2) Based on price of $5.375 on January 20, 1998, and a total of 8,240,754
shares of Common Stock outstanding.
<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>
Randall L. Marcuson 200,895 / 68,000 $201,225 / $0
Don T. Seaquist 20,250 / 36,250 $0 / $0
Brian V. Cosgriff 27,000 / 33,000 $0 / $0
David M. Baines, Ph.D. 42,600 / 31,000 $0 / $0
Catherine A. Ricks, Ph.D. 73,050 / 26,750 $83,250 / $0
Rick L. Ryan, Ph.D. 15,750 / 35,500 $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 $5.00, the
closing market price of the underlying Common Stock as of December 31,
1998.
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 1998 all Section 16 filing requirements applicable to its executive
officers and directors were complied with.
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), incentive
compensation, 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, incentive compensation payments and 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.
Incentive compensation payments (bonus payments) to executives are
generally made annually along with incentive compensation payments to other
employees. Incentive compensation payments other than the CEO are recommended to
the Committee by the CEO based on an executive's performance during the
preceding year. The performance is measured based on the executive's success in
achieving goals established in the beginning of the year and on corporate
performance. Incentive compensation payments are made to executives in the
following manner: 50% of the payment is awarded in the form of shares of the
Company's Common Stock and 50% is awarded in the form of cash. This method of
payment is intended to increase executive ownership of the Company's Common
Stock while providing sufficient cash to withhold taxes on the entire cash/stock
compensation.
12
<PAGE>
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
increased its number of INOVOJECT(R) placements, commenced global expansion into
Asia and Latin America, and increased revenues and net income.
The incentive compensation payment to Mr. Marcuson is made in the
following manner: 67% of the payment is awarded in the form of shares of the
Company's Common Stock and 33% is awarded in the form of cash. Like other
executives, this method of payment is intended to increase Mr. Marcuson's
ownership of the Company's Common Stock while providing sufficient cash to
withhold taxes on the entire cash/stock compensation.
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, 1998,
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"), in accordance with Regulation S-K under the Securities Act
of 1933. The Peer Group of the following 11 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.,
DNAP Holding Corp., Draxis Health, Inc., Ecogen Inc., Ecoscience Corp., Energy
Biosystems Inc., Envirogen Inc., Epitope Inc., Idexx Labs Inc., and ImmuCell
Corp. Three companies were removed from the Peer Group in 1998. The first,
DeKalb Genetics Corp., was acquired by Monsanto. The second, Mycogen Corp., was
acquired by Dow Chemical Company. The third, Oxis International Inc., was
reclassified to the autoimmune/inflammation group by BioCentury. 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.
[Graph appears here.]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Comparison of Cumulative Total Return
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Embrex, Inc. $100.00 $102.08 $ 97.92 $ 108.33 $ 88.53 $ 83.33
- ----------------------------------------------------------------------------------------------
Peer Group $100.00 $ 79.24 $ 140.35 $ 112.41 $ 64.21 $ 80.47
- ----------------------------------------------------------------------------------------------
Nasdaq Composite (US) $100.00 $ 97.74 $ 138.24 $ 170.03 $ 208.65 $ 292.51
- ----------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
PROPOSAL 2: 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, 1999. 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 1999.
15
<PAGE>
PROPOSAL 3: AMENDMENT TO THE COMPANY'S BYLAWS
Under North Carolina law, shareholders of a public company, such as the
Company, do not have the right to call a special meeting of shareholders unless
the company's bylaws or charter provide this right. On April 15, 1999, the Board
of Directors approved an amendment to the Company's Bylaws (the "Board
Amendment") that allows shareholders holding 33 1/3% or more of the shares of
the Company to call a special meeting of shareholders. The Board Amendment is
effective upon its approval by the Company's shareholders.
The Board of Directors may adopt this Board Amendment without
shareholder approval under applicable law. However, if the Board Amendment is
adopted by the shareholders, it may not be amended or repealed by the Board of
Directors without shareholder approval. The Board of Directors seeks to obtain
shareholder approval of the Board Amendment to ensure that the Board of
Directors may not amend this provision without the approval of the shareholders.
The Board of Directors believes that this Board Amendment appropriately
balances the interests of all shareholders. When an appropriate number of
shareholders determine a meeting is necessary, such shareholders would now have
the ability to request a special meeting. However, by requiring the holders of
at least 33 1/3% of the shares of the Company to request the special meeting,
the Board Amendment will prevent Palo Alto Investors, Inc. alone or a small
minority of shareholders from imposing on the Company the significant financial
and administrative burdens of a special shareholders' meeting. In addition, the
Board Amendment eliminates the call of a special shareholders' meeting solely by
the chairman of the board, chief executive officer or president so that only a
majority of the Board or 33 1/3% of the shares may call a special meeting.
The Board of Directors also believes that having a higher percentage
threshold than 10%, for example, is appropriate because the Company does not
have a classified or staggered Board of Directors. In the past, the Board of
Directors has considered, but rejected, a classified board. Under a classified
board, directors are elected for three-year terms and only one-third of the
board is elected in any single year. Since the Company does not have a staggered
board, the entire board of directors is elected every year. Thus, shareholders
already have the ability to hold the entire board of directors accountable every
year.
The resolution to be considered by the shareholders at the Annual Meeting reads
as follows:
"RESOLVED, that Article III, Section 4 of the Bylaws of the Company shall be
amended and restated to read in full as follows:
SECTION 4. Special Meetings: Special meetings of the shareholders may be
called at any time by at least a majority of the board of directors. The
Corporation shall also give notice of a special meeting of the
shareholders within 60 days after delivery to the Corporation of the
written request to hold a special meeting by qualified shareholders of
at least thirty three and one-third percent (33 1/3%) of all the votes
entitled to be cast on any issue proposed to be considered at the
special meeting, and the Corporation shall establish a date for the
special meeting that is within 60 days after the date of such notice;
provided, however, that the right of shareholders to call a special
meeting is subject to compliance with the provisions specified in
Article III, Section 13 relating to shareholder proposals generally and
the provisions specified in Article IV, Section 3 relating to nomination
of directors. For purposes of this section, a "qualified shareholder" is
a person who shall have been a shareholder of the Corporation for at
least six months immediately preceding the request for a special
meeting. Only business within the purpose or purposes described in the
meeting notice specified in Section 6 of this Article may be conducted
at a special meeting of shareholders.
The Board shall specify a record date for the special meeting, and the
date, time and place of the special meeting. The special meeting shall
be conducted pursuant to these Bylaws in the same manner as an annual
meeting."
North Carolina law does not require the shareholders to approve this
proposal in order for it to be effective, but the Board of Directors seeks
shareholder approval. Under North Carolina law and the Company's Bylaws,
approval of the Board Amendment requires the affirmative vote, either in person
or by proxy, of at least a
16
<PAGE>
majority of all shares of the Company's Common Stock voted at the Annual
Meeting. An abstention, withholding of authority to vote, or broker non-vote,
therefore, will not have the same legal effect as an "against" vote and will not
be counted in determining whether the proposal has received the required
shareholder vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT OF THE COMPANY'S BYLAWS AS DESCRIBED ABOVE.
17
<PAGE>
THE PALO ALTO INVESTORS/MICRO CAP PARTNERS PROPOSALS
Micro Cap Partners, L.P., a Delaware limited partnership, and its
general partner, Palo Alto Investors, Inc., a California corporation, (together
referred to as "Palo Alto") have expressed their intent to present the proposals
described below at the Annual Meeting. Palo Alto has filed with the Securities
and Exchange Commission proxy materials to solicit your vote in favor of each of
these proposals. According to Palo Alto's proxy statement, it is solely owned by
William Edwards, and we understand that Palo Alto has approximately five
employees, one of whom is Mr. Edwards. Palo Alto is the Company's largest
shareholder, beneficially holding approximately 13.4% of the Company's
outstanding common stock as of the record date. Palo Alto has accumulated its
position over the last 24 months. If the Palo Alto proposals are approved, then
Palo Alto would be empowered to call a special meeting based on its
shareholdings alone, at any time and at any place; a right no other current
single shareholder would have. Also, Palo Alto's proposals could impose
significant financial and administrative burdens on the Company which are
involved in calling special meetings and engaging an investment bank. Therefore,
the Board of Directors believes that the Palo Alto proposals are detrimental to
the interests of shareholders as a whole and are designed by Palo Alto to serve
its individual interests. Moreover, there is no assurance that any action
proposed by Palo Alto would improve the Company's stock price in light of the
current performance of micro-cap stocks generally. The Company continues to
perform well financially and is actively engaged in activities to address its
stock price and liquidity, which are described in greater detail below. Overall,
the Board of Directors believes that the Company is well-positioned to be
recognized by Wall Street when the micro-cap market turns upward, if not before.
Over the past two years, the U.S. stock markets have shown significant
increases in the stock prices of high-profile and large-capitalization
companies. This trend has not carried over to micro-cap companies. "Micro-caps"
are often defined as companies with a total market capitalization of $300
million or less, sometimes $100 million or less. The Company's market
capitalization has fluctuated between $33 million and $54 million in the past 12
months. Stock prices of small and micro-cap companies have declined, despite the
bull market, as evidenced by a decline in the Russell 2000 index of
approximately 3% in 1998 from 1997. Furthermore, if Internet stocks are removed
from the Russell 2000 index and only those companies with market capitalization
of $500 million or less (small-cap companies) are included, the index would be
down 37% from March 31, 1998 to March 31, 1999. Palo Alto's proxy statement
expresses its belief that the Company's stock price is inadequate on the basis
of inappropriate comparisons with earnings multiples of the stock market as a
whole and cash flow multiples of "leading" drug and animal health companies,
without regard to the capitalization of those companies and other important
factors. Management does not believe that these comparisons are relevant, given
the trends among micro-cap and small-cap companies, like the Company. Even
though management is not satisfied with the Company's stock price, cumulative
return on the Company's stock nevertheless has out-performed its peer group in
each of the past two years, as shown in the chart on page 14 of this Proxy
Statement.
The Company has continued to perform well financially despite the
performance of its stock price. Since 1995, the Company's revenues have
increased over 200% and operating profit has increased from a loss of $2.25
million to a $3.4 million operating profit. The Company achieved profitability
in 1996 and has generated net income of $2.9 million in 1998. Also, during the
period from 1996 to 1998, the Company's return on average equity increased from
4% to 17%.
Management has taken many positive actions to attract the attention of
Wall Street and promote interest in the Company, contrary to Palo Alto's
assertion in its proxy statement. For example, the Company added a new director
in May 1998, Peter Holzer, who as an Advisory Director of AMT Capital Advisors,
LLC, participates in strategic consulting and financial advisory engagements and
is well versed in Wall Street interests. Also, management has made more than 60
presentations during the past two years to analysts, investment bankers, fund
managers, stock brokers and individual investors. In addition, the Company has
hired an investor relations firm with a focus on the southeast, a region
familiar with agricultural and poultry products, and an internal director of
investor relations who spends upwards of 80% of her time on investor relations
activities. In addition, the Chief Executive Officer and the Chief Financial
Officer each have devoted significant time to investor relations activities. In
light of the performance of micro-cap stocks as a whole, as described above, it
is easy to see why micro-cap
18
<PAGE>
companies, like the Company, have a difficult time getting analyst and investor
attention. Thus, despite management's actions to communicate the Company's
history and explain its goals, the stock market still has not recognized the
value management believes should be represented in the Company's stock price as
a result of its growth and operating strategy and rapidly improving financial
performance. Management also initiated a share repurchase program in fall 1998
as a means to improve shareholder value and demonstrate management's confidence
in the stock. Management intends to continue its marketing efforts and engage in
other activities it deems appropriate with a view towards improving the stock
price to reflect the proper value of the Company.
Management believes that the composition of its Board of Directors gives
the Company important expertise and perspective to focus on increasing
shareholder value. Six of seven directors are independent directors with no
other connections to the Company who represent depth and experience in a broad
range of industries. The experience of the Board of Directors brings to the
Company and our shareholders independent financial advisory experience, insight
to the demands of the poultry and animal health industries, regulatory
expertise, and experience in global operations. All of these experiences are
invaluable to the Company and its shareholders.
Management and the Board of Directors have been flexible and
accommodating in communicating with Palo Alto prior to the distribution of this
Proxy Statement. In fact, the Company offered to permit Palo Alto to nominate a
director to fill a seat on the Board of Directors and to afford shareholders
holding 33 1/3% of the Company's stock the right to call a special meeting if
Palo Alto would withdraw its proposals. Palo Alto rejected this proposal and
insisted that any bylaw amendment require no greater than 20% of shares to call
a special meeting with the result that Palo Alto and one other current
shareholder would have the power to call a special meeting without regard to the
desires of the holders of the other 80% of the shares. In a continuing effort to
address any legitimate concerns of Palo Alto, the Board on its own decided to
proceed with the Bylaw amendment submitted to shareholders as Proposal 3
described in this Proxy Statement.
Management believes that the same factors that have influenced the
Company's stock price have impacted the performance of other small or micro-cap
stocks. As a result, the Company believes the proposals of Palo Alto are made in
its own interest and under its own fund and investor demands, and not in the
best interest of all of the Company's shareholders. Management believes this
motive of self-interest is evidenced by their actions in rejecting management's
overtures, as described above. In addition, management notes that Palo Alto's
proxy statement states that it intends to seek reimbursement from the Company
for Palo Alto's expenses in soliciting proxies. Management endeavors to act
prudently in spending the Company's resources and believes that Palo Alto's
request, which ultimately could result in a negative impact to earnings, is
further evidence of Palo Alto's intent to act in its own self-interest and not
in the interest of all of the Company's shareholders.
Your experienced, independent Board of Directors is working for all
shareholders, not just the interests of one shareholder. Your Board of Directors
is not satisfied with the stock price either and will continue to do what it can
to ensure that the Company is known and understood by Wall Street. Under the
leadership of the current Board of Directors, the Company's revenues, net income
and return on equity have risen dramatically in the past three years, as
previously discussed. The Board urges you to carefully consider its responses to
the Palo Alto proposals and to vote AGAINST each such proposal.
19
<PAGE>
PROPOSAL 4: SHAREHOLDER PROPOSAL TO AMEND BYLAWS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "AGAINST"
THIS PROPOSAL.
Palo Alto has expressed its intent to present a proposal at the Annual
Meeting to amend the Company's Bylaws to allow the call of an unlimited number
of special shareholders' meetings by shareholders who together own 10% or more
of the Company's shares and to take control of special meetings away from the
Company's Board of Directors who are elected by the shareholders. The Bylaw
provision submitted by the shareholder is attached as Exhibit A to this Proxy
Statement (the "Palo Alto Bylaw"). The Company's Bylaws, North Carolina laws and
federal securities laws govern whether a particular shareholder proposal is
proper for consideration at the Annual Meeting. If this proposal is properly
brought before the Annual Meeting, the Board of Directors recommends that the
shareholders vote "Against" this proposal.
The Board of Directors recommends that the shareholders reject the
proposal attached as Exhibit A and instead approve the Board Amendment to the
Bylaws contained in Proposal 3. The Board of Directors believes that the Board
Amendment protects the interests of all shareholders by granting the
shareholders the right to call a special meeting only upon the agreement of 33
1/3% or more of the shareholders and by permitting the chairman of the board to
conduct the special meeting. The Board of Directors adopted the Board Amendment,
and is submitting it to shareholders, in response to Palo Alto's demand that
shareholders should have a right to call a special meeting. The Board of
Directors believes that by requiring the holders of at least 33 1/3% of the
outstanding shares to request a special meeting, the Board Amendment will
prevent a single shareholder or group of shareholders holding a small minority
of shares to impose the significant financial and administrative burdens of a
special meeting discussed below, acting in their own self-interest to the
detriment of other shareholders. Currently, Palo Alto is the only shareholder of
the Company who beneficially holds more than 10% of the shares. If the Palo Alto
Bylaw is approved, then this single shareholder could call a special meeting
without the approval or desire of any other shareholder. Furthermore, the Palo
Alto Bylaw would permit the shareholder calling the special meeting to conduct
the meeting, which the Board believes could be detrimental to other
shareholders. The Board believes that adoption of the Palo Alto Bylaw would
undermine, rather than foster, shareholder democracy and could impose
significant and often unnecessary financial and administrative burdens on the
Company.
Applicable North Carolina law does not give shareholders of a public
company, such as the Company, the right to call a special meeting. North
Carolina law does permit, however, a corporation to provide in its charter or
bylaws for the right of a specified percentage of shares to call a special
meeting. Contrary to Palo Alto's assertion in its preliminary proxy statement,
the 10% ownership threshold of North Carolina law applies only to non-public
corporations. The Board of Directors believes that the North Carolina
legislature adopted this approach due to the significant financial and
administrative burdens that a special meeting can impose on a public company.
Thus, like many other public companies, until Board adoption of the Board
Amendment, which is subject to shareholder approval, the Company's Bylaws did
not provide for the call of special meetings by shareholders.
At the annual meeting of shareholders, shareholders have an opportunity
to raise any appropriate matter. In addition, rules of the Securities and
Exchange Commission allow shareholders to have their proposals included in the
proxy soliciting materials distributed by the Board for shareholder meetings.
Allowing a small minority of shareholders to call an unlimited number of special
meetings for any reason, at any time and at any place, would be disruptive to
the conduct of business and potentially expensive. Special meetings are costly
in terms of both time and money. Each of the holders of the Company's Common
Stock must receive notice and proxy materials for every special meeting. This
involves legal, printing and postage expense, in addition to those costs
normally associated with the Company's annual meeting. In addition, preparing
for a shareholder meeting requires significant attention from corporate officers
and employees, diverting them from running the business. The Board of Directors
believes the interests of the shareholders would be best served utilizing these
resources on operating and growing the Company's business and profitability,
particularly because shareholders already are free to bring matters before
shareholders' meetings on an annual basis.
The Board of Directors also believes that having a higher percentage
threshold to call a special meeting is appropriate because the Company does not
have a classified or staggered Board of Directors. In the past, the Board of
Directors has considered, but rejected, a classified board. Under a classified
board, directors are elected for
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three-year terms and only one-third of the board is elected in any single year.
Since the Company does not have a staggered board, the entire board of directors
is elected every year. Thus, shareholders already have the ability to hold the
entire board of directors accountable every year. Overall, unlike many other
companies, the Company has never taken any steps to restrict the shareholders'
ability to elect Board members through a staggered board or special meeting
bylaw provisions.
In addition, the effect of the Palo Alto Bylaw clearly would result in
additional power for Palo Alto without any further action or other shareholder
support. The Company historically has had low turnover among its management,
which has been important to the Company's growth and improvements in operating
results over the past three years. The Board is concerned that the ability of a
single shareholder, which may be acting in furtherance of its own agenda rather
than in the best interest of all shareholders, may threaten the Company's
ability to retain management.
For the reasons stated above, the Board of Directors believes that the
Palo Alto Bylaw is not in the best interests of the Company's shareholders.
Under North Carolina law and the Company's Bylaws, if this proposal is
properly brought before the Annual Meeting, approval of this proposed amendment
requires the affirmative vote, either in person or by proxy, of at least a
majority of all shares of the Company's Common Stock voted at the Annual
Meeting. The Company may prohibit this or any other proposal from coming before
the meeting if the proposal is not made in accordance with the Company's Bylaws,
North Carolina laws and other applicable law. The Company's Board of Directors
currently is considering whether the expected Palo Alto Bylaw proposal meets
applicable requirements. If it does not, the Company may exclude the proposal
from the meeting if Palo Alto attempts to introduce it. An abstention,
withholding of authority to vote, or broker non-vote, therefore, will not have
the same legal effect as an "against" vote and will not be counted in
determining whether the proposal has received the required shareholder vote.
Whether or not you have previously signed a proxy card sent by or on
behalf of Palo Alto or Micro Cap Partners, or any related party, your Board of
Directors urges you to support the Board by signing, dating and mailing the
enclosed proxy card. You will revoke any earlier dated proxy card solicited by
or on behalf of Palo Alto or Micro Cap Partners which you have signed. Do not
sign or return any proxy card sent to you by or on behalf of Palo Alto or Micro
Cap Partners or any related party.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "AGAINST" THE ADOPTION OF
THE FOREGOING SHAREHOLDER PROPOSAL.
PROXIES WILL BE VOTED "AGAINST" THE PROPOSAL UNLESS SHAREHOLDERS SPECIFY
OTHERWISE IN THEIR PROXIES.
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PROPOSAL 5: SHAREHOLDER PROPOSAL
Micro Cap Partners, L.P., whose address and number of shares will be
furnished by the Company promptly upon receipt of any request therefor, has
submitted the following proposal. The text of the proposal and the supporting
statement, for which the Board of Directors and the Company accept no
responsibility, are set forth below. Micro Cap Partners, L.P. must appear
personally or by proxy at the Annual Meeting to present the proposal.
SHAREHOLDER PROPOSAL
"The Board of Directors of the Company is requested promptly to retain a
nationally recognized investment banking firm to recommend and evaluate the
Company's options to increase shareholder value, including but not limited to,
an issuer tender offer."
SHAREHOLDER SUPPORTING STATEMENT
"We believe that Embrex shareholders deserve a fair return on their investment.
The proposed resolution is intended to be a referendum on shareholder value.
This is a chance for shareholders to tell management that they are not satisfied
with Embrex's current value, and want something done about it.
Palo Alto Investors is the general partner of Micro Cap Partners, L.P., the
proposer of this resolution. Palo Alto Investors is a registered investment
adviser specifically structured to make long-term investments in the equity of
"micro-cap" stocks based on original, fundamental analysis. Embrex, with its $40
million market capitalization, clearly falls within this category.
We consider ourselves to be constructive investors. We try to be supportive of
the companies in which we invest. Palo Alto Investors controls over 12% of
Embrex's shares and is Embrex's largest shareholder.
Despite Embrex's commercial success, and despite the fact that cash is piling up
in Embrex's bank account, Embrex's stock price is below the price of its Initial
Public Offering (in November of 1991). This drop in share value over the last
seven years has occurred during the biggest bull market of our generation.
We feel that of all the constituencies the Board serves, Embrex's shareholders
have been the most poorly served over time. Poultry producers save tens of
millions annually using Embrex products. Embrex's employees enjoy job security
and a nice work environment. It is time for management and the Board to
acknowledge their responsibility to the owners of Embrex. Voting yes on this
resolution is the way for you, an Embrex owner, to ask them to do so.
We urge you to vote "yes" for this resolution."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "AGAINST" THE
SHAREHOLDER PROPOSAL FOR THE FOLLOWING REASONS:
The Board of Directors and management of Embrex are firmly committed to
maximizing shareholder value and are always willing to consider suggestions to
accomplish this goal. The Board consists of individuals familiar with the
Company's business and the industry in which the Company operates, and six out
of seven Board members are outside directors who are not employees of the
Company. This independent governing body, on a regular basis, evaluates and
pursues appropriate courses of action that will, in the Board's judgment,
increase shareholder value. As part of this process, the Board of Directors
considers the costs and benefits of hiring outside advisors, including
investment banks. At this time, the Board believes it is considering alternative
strategies to maximize shareholder value and does not believe that hiring an
investment bank for the purpose outlined in the shareholder proposal is an
appropriate use of corporate funds and resources. The Board is continuing to
evaluate retaining an investment bank
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to assist the Company in pursuing and evaluating strategies being considered by
the Board. The Board opposes the shareholder proposal made by Palo Alto.
The Board has and is continuing to take steps to address the market
price and liquidity of the Company's stock. The Board believes that Embrex's
stock is undervalued, along with many other "micro cap" stocks that have been
underperformers when compared with other market sectors. This was acknowledged
by Palo Alto in its 1998 Annual Report which stated: "Though we enjoyed a number
of successes, the market for small stocks in general was dismal in 1998 as the
decline in the Russell 2000 indicates. Most of our holdings, like the Russell
2000, dropped in value in 1998. Even companies with superior fundamental
performance like Embrex, which posted almost 50% earnings growth, dropped in
value during the year." As part of its long-term effort to enhance share price
and liquidity, during 1998 the Company made numerous contacts with brokers and
analysts to generate additional investor activity and these efforts are
continuing in 1999. Also in 1998, Embrex hired a new internal director of
corporate communications and investor relations and engaged a new outside
investor relations firm. The Company is optimistic that these initiatives, along
with the Company's continued favorable financial performance, will have a
positive impact on share price.
In addition, in October 1998, Embrex's Board authorized a share
repurchase program to purchase up to 10% of its outstanding shares over an
18-month period. Because of certain trading restrictions, the Company has not
been able to date to repurchase as many shares as it would prefer. Nonetheless,
the Company has repurchased 40,800 shares as of March 15, 1999 and the
repurchase program is ongoing. The shareholder proposal includes a possible
tender offer by the Company which would involve significantly greater expense of
implementation than the 10% the Board has authorized under the repurchase
program. The Board believes that it is in the best interests of the shareholders
at this time to maintain the flexibility and cost-effectiveness of the existing
share repurchase program rather than to bear the expense of engaging an
investment bank and pursuing an issuer tender offer for a large percentage of
the Company's shares. As discussed in more detail below, the Board also believes
that at this time it is inappropriate to use additional funds for a repurchase
program or issuer tender offer beyond 10% of outstanding shares so that funds
can be used to support the Company's business plan.
The Board believes that the Company's money and efforts are best spent
on operating and growing the Company's business and profitability, rather than
on repurchasing more than 10% of its shares. In this regard, Embrex has and is
continuing to undertake initiatives to enhance shareholder value, many of which
are described in the Annual Report that accompanies this Proxy Statement. For
example, the Company continues its global marketing strategy to reach that
three-quarters of the world's poultry production capacity that it does not
already serve. During 1998, revenues attributable to international operations
increased 33% from 15% in 1997 to 20% of total revenues in 1998. In addition,
the development of biological products to deliver through the INOVOJECT(R)
system continued with the registration of Bursaplex(R) in six countries outside
the United States and nine countries where regulatory submissions are pending;
the registration of Bursamune(TM) in the United Kingdom and seven countries in
the European Union where regulatory submissions are pending; further proof of
principal for the development of additional VNF(R) - based vaccines for
Newcastle and Infectious Bronchitis diseases, and the proof of principal for the
delivery of a live coccidial vaccine IN OVO.
Palo Alto has stated that "cash is piling up in Embrex's bank account."
The Company's cash on hand actually declined $1.4 million from $8.6 to $7.2
million between year end 1997 and 1998. While past performance may not be any
indication of the future, the Board believes that the investment of internally
generated funds from operations and cash on hand in global expansion and new
product development will improve the Company's share value and market
capitalization better than the course suggested by Palo Alto.
Shareholders should know that the vote on the proposal is non-binding.
However, regardless of the outcome of the vote on the proposal, the Board has
and will continue to consider all reasonable opportunities to increase
shareholder value, including retaining an investment bank to assist the Company
in pursuing or considering strategies being considered by the Board. The Board
is keenly aware of its duties as directors and continues to act in what it
considers to be the best interest of shareholders. The Board believes that the
Company's current business strategy offers a comprehensive plan to enhance
long-term shareholder value and is the best course for Embrex to follow at this
time. Therefore, for all of the reasoning described above, the Board of
Directors does not believe that hiring an investment bank at this time for the
purposes proposed by Palo Alto would be in the best interests of the
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Company and its shareholders and the Board urges shareholders to reject the
proposal. The Board will continue to consider the engagement of an investment
bank and other appropriate measures it deems in the best interest of all
shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"AGAINST" THIS SHAREHOLDER PROPOSAL.
PROXIES WILL BE VOTED "AGAINST" THE PROPOSAL UNLESS SHAREHOLDERS SPECIFY
OTHERWISE IN THEIR PROXIES.
24
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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, 1998,
including the financial statements, will be provided without charge.
SUBMISSION OF SHAREHOLDER PROPOSALS
FOR 2000 ANNUAL MEETING
Any proposals which shareholders intend to present for a vote of
shareholders at the annual meeting of shareholders for the year 2000 and which
such shareholders wish 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 [__], 1999.
Proposals received after December [__], 1999 will not be considered for
inclusion in the Company's proxy materials for its 2000 Annual Meeting.
In addition, if a shareholder intends to present a matter for a vote at
the annual meeting of shareholders for the year 2000, other than by submitting a
proposal for inclusion in the Company's proxy statement for that meeting, the
shareholder must give timely notice in accordance with the Company's Bylaws. To
be timely, a shareholder's notice must be received by the Company not more than
90 days and not less than 50 days before the meeting. The Company's Bylaws
provide that an annual meeting may be held in any month; the 1999 annual meeting
will be held on May 20, 1999, and it is anticipated that the annual meeting for
the year 2000 will be held on a similar schedule.
Any shareholder proposal or notice described above must be in writing
and sent to the Company by registered mail, return receipt requested, to the
Company's executive offices at Post Office Box 13989, Research Triangle Park,
North Carolina 27709, Attention: Corporate Secretary. Any such proposal or
notice also will be subject to the requirements contained in the Company's
Bylaws relating to shareholder proposals and any applicable requirements of the
Securities Exchange Act of 1934.
By Order of the Board of Directors
Don T. Seaquist
Secretary
April [__], 1999
25
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EXHIBIT A
PROPOSED AMENDMENT TO ARTICLE III, SECTION 4
OF THE BYLAWS OF EMBREX, INC.
Amend Article III, Section 4 of the By-laws of Embrex, Inc. by adding to
the end thereof the following paragraph:
In addition, and notwithstanding any other provision of these by-laws to
the contrary, the following provisions shall govern special meetings of
shareholders of the Corporation. A special meeting of the shareholders of the
Corporation shall be called by the Secretary upon the written request of
shareholders who together own ten percent (10%) or more of the outstanding
shares of voting stock of the Corporation. The written request shall state the
purpose and date of the meeting. The notice of the special meeting shall be
mailed by the Secretary within 30 days following the Corporation's receipt of
such request. If the Secretary fails to call the special meeting and mail the
notice as required by the preceding sentence, a person designated by the
shareholders requesting the meeting shall have the power and authority to call
the special meeting and mail such notice. A special meeting called at the
request of shareholders shall be presided over by a person designated by the
shareholders calling the meeting. The record date for determining shareholders
entitled to request a special meeting is the date the first shareholder signs
the request. The record date for the special meeting shall be the record date
set forth in the request, so long as such date complies with North Carolina law.
Special meetings of shareholders shall be held at the location set forth in the
request. For purposes of this Section 4, "shareholder" includes a beneficial
owner whose shares are held in voting trust or by a nominee and whose beneficial
ownership is certified to the Corporation by that voting trust or nominee.
Without the approval of the shareholders, the board of directors may not further
amend or repeal this Section 4 of the By-laws governing special meetings or
adopt any new by-law provision that is inconsistent with or would render
ineffective the provisions of this Section 4 pertaining to special meetings of
shareholders.
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PROXY PRELIMINARY COPIES PROXY
---------------------
EMBREX, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 20, 1999
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 20, 1999, 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 AND 3 SET FORTH BELOW AND DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT, AND AGAINST PROPOSALS 4 AND 5 SET FORTH BELOW AND DESCRIBED IN THE
PROXY STATEMENT. THE UNDERSIGNED FURTHER GIVES THE ABOVE-NAMED ATTORNEYS AND
PROXIES THE DISCRETIONARY 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 PROPOSALS 1, 2 AND 3 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.;
Peter J. Holzer; 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 in the space provided below:
2. 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, 1999:
___ FOR ___ AGAINST ___ ABSTAIN
3. Ratify the Board Amendment to the Company's Bylaws to allow the call of
special shareholders' meetings by shareholders holding 33 1/3% or more
of the Company's shares:
___ FOR ___ AGAINST ___ ABSTAIN
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 4 LISTED
BELOW.
4. Approval of the shareholder proposal to amend the Company's Bylaws to
allow the call of special shareholders' meetings by shareholders holding
10% or more of the Company's shares and to allow such shareholders to
run the meeting:
___ FOR ___ AGAINST ___ ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 5 LISTED
BELOW.
5. Approval of the shareholder proposal to retain an investment banking
firm for the purposes described in the accompanying Proxy Statement:
___ 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 1998.
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign.
Date ________________________, 1999
(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
