<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
CYPROS PHARMACEUTICAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
CYPROS PHARMACEUTICAL CORPORATION
2714 LOKER AVENUE WEST
CARLSBAD, CALIFORNIA 92008
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, FEBRUARY 10, 1998
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Cypros
Pharmaceutical
Corporation (the "Company") will be held at the Company's executive offices,
2714 Loker Avenue West, Carlsbad, California 92008 on Tuesday, February 10, 1998
at 10:00 a.m. (local time), for the following purposes:
(1) To elect members of the Board of Directors to serve for the
ensuing year and until their successors are elected;
(2) To amend the Company's 1992 Stock Option Plan (the "1992 Plan") to
increase the aggregate number of shares of the Company's Common Stock
authorized for issuance under the 1992 Plan from 2,266,288 to 2,766,288;
(3) To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending July 31, 1998; and
(4) To transact such other business as may properly come before the
meeting or any adjournments and postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on December 12, 1997
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting. Only holders of the Company's Common Stock at
the close of business on the record date are entitled to vote at the Annual
Meeting.
By Order of the Board of Directors,
/S/ DAVID W. NASSIF
David W. Nassif, Secretary
Carlsbad, California
December 12, 1997
YOUR VOTE IS IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER, EVEN IF
YOU DO PLAN TO ATTEND, PLEASE PROMPTLY COMPLETE, SIGN, DATE AND MAIL THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES. RETURNING A SIGNED PROXY WILL NOT PREVENT YOU FROM VOTING IN
PERSON AT THE ANNUAL MEETING, IF YOU SO DESIRE, BUT WILL HELP THE COMPANY SECURE
A QUORUM AND REDUCE THE EXPENSE OF ADDITIONAL PROXY SOLICITATION. PLEASE NOTE,
HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE ANNUAL MEETING, YOU MUST OBTAIN FROM THE
RECORDHOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
CYPROS PHARMACEUTICAL CORPORATION
2714 LOKER AVENUE WEST
CARLSBAD, CALIFORNIA 92008
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, FEBRUARY 10, 1998
------------------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is furnished to the shareholders of Cypros
Pharmaceutical Corporation, a California corporation (the "Company"), in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of the Company. The proxies solicited hereby are to be voted at the
Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held
at the Company's executive offices on February 10, 1998 at 10:00 a.m. (local
time), and at any and all adjournments and postponements thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders.
The executive offices of the Company are located at 2714 Loker Avenue West,
Carlsbad, California 92008. The telephone number is 760-929-9500. This Proxy
Statement and the accompanying form of proxy will be mailed to shareholders
entitled to vote at the Annual Meeting on or about December 15, 1997.
A form of proxy is enclosed for your use. The shares represented by each
properly executed, unrevoked proxy will be voted as directed by the shareholder
for the nominees to the Board of Directors and for any other matter to be
brought before the shareholders. If no direction is made, the shares represented
by each properly executed proxy will be voted for management's nominees for the
Board of Directors and for each other matter brought before the shareholders.
Any proxy given may be revoked at any time prior to the exercise thereof by
filing with the Secretary of the Company at the Company's executive offices a
written instrument revoking such proxy or by the filing of a duly executed proxy
bearing a later date. Any shareholder present at the Annual Meeting who has
given a proxy may withdraw it and vote his shares in person if such shareholder
so desires. Attendance at the meeting will not, by itself, revoke a proxy.
It is contemplated that the solicitation of proxies will be made primarily
by mail. The Company will make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the shares and may reimburse them for their expenses in so
doing. Should it appear desirable to do so in order to ensure adequate
representation of shares at the Annual Meeting, officers, agents and employees
of the Company may communicate with shareholders, banks, brokerage houses and
others by telephone, telegraph, or in person to request that proxies be
furnished. No additional compensation will be paid to directors, officers or
other regular employees of the Company for such services. All expenses incurred
in connection with this solicitation, including preparation, assembly, printing
and mailing of this Proxy Statement, will be borne by the Company. The Company
has no present plans to hire special employees or paid solicitors to assist in
obtaining proxies, but reserves the option of doing so if it should appear that
a quorum otherwise might not be obtained.
Only holders of record of the Company's Common Stock, no par value, at the
close of business on December 12, 1997, are entitled to notice of and to vote at
the Annual Meeting. As of December 12, 1997, the Company had issued and
outstanding 15,475,118 shares of Common Stock.
Each share of Common Stock is entitled to one vote on all matters to be
voted upon at the Annual Meeting.
<PAGE> 4
Votes at the Annual Meeting, including those cast in person or by proxy,
will be tabulated by the Inspector of Elections appointed by the Board of
Directors, who will separately tabulate affirmative and negative votes,
abstentions and non-votes. Abstentions from voting and broker non-votes will be
counted for purposes of determining the existence of a quorum, but, except for
Proposal 2, are not counted for any purpose in determining whether a matter has
been approved. With regard to Proposal 2, abstentions will have the same effect
as negative votes and broker non-votes will not be counted for any purpose in
determining whether the matter has been approved.
PROPOSAL 1 -- ELECTION OF DIRECTORS
NOMINEES
Directors are elected at each annual meeting of shareholders and hold
office until the next annual meeting of shareholders or until their respective
successors are elected and qualified, or until such Director's earlier death,
resignation or removal. The Board of Directors is presently composed of five
members. The following persons are nominees for election as Directors of the
Company, have each consented to serve as a Director if elected and are presently
serving as Directors of the Company: Dr. Paul J. Marangos, Robert F. Allnutt,
Digby W. Barrios, Virgil D. Thompson and Dr. Robert A. Vukovich.
The five candidates receiving the highest number of affirmative votes cast
at the meeting will be elected Directors of the Company. Management proxies will
be voted FOR the election of all of the above-named nominees unless the
shareholder indicates that the proxy shall not be voted for all or any one of
the nominees. If for any reason any nominee should, prior to the Annual Meeting,
become unavailable for election as a Director, an event not now anticipated, the
proxies will be voted for such substitute nominee, if any, as may be recommended
by management. In no event, however, shall the proxies be voted for a greater
number of persons than the number of nominees named.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE ABOVE
NOMINEES.
Set forth below is certain information with respect to the nominees for
Director of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- ----------- -------------------------------------
<S> <C> <C>
Paul J. Marangos, Ph.D.......... 50 Chairman of the Board, President,
Chief Executive Officer and Director
Robert F. Allnutt(1)............ 62 Director
Digby W. Barrios................ 59 Director
Virgil D. Thompson(2)........... 58 Director
Robert A. Vukovich, 54 Director
Ph.D.(1)(2)...................
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
PAUL J. MARANGOS, Ph.D., has been President and Chairman of the Board since
he co-founded the Company in November 1990. He became the Chief Executive
Officer of the Company in February 1993. From April 1988 to November 1990, he
was Senior Director of Research at Gensia Pharmaceuticals, Inc., a biotechnology
company. From 1980 to 1988, he was Chief of Neurochemistry in the Biological
Psychiatry Branch, National Institute of Mental Health. Dr. Marangos obtained
his doctorate in biochemistry from the University of Rhode Island and did his
post-doctoral work at the Roche Institute of Molecular Biology. He has published
250 research papers and four books in the field of biochemistry and pharmacology
and is the recipient of the A.E. Bennett Award in Biological Psychiatry (1980).
Dr. Marangos' most recent book published in July 1992 is entitled Emerging
Strategies in Neuroprotection. He is a member of the Society for
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<PAGE> 5
Neuroscience and the American Academy for the Advancement of Science. Dr.
Marangos is the founding editor of the Journal of Molecular Neuroscience
published by Humana Press.
ROBERT F. ALLNUTT has been a Director of the Company since November 1996.
He has been a management consultant since February 1995. Mr. Allnutt was
Executive Vice President of the Pharmaceutical Manufacturers Association from
May 1985 until February 1995. Mr. Allnutt is also a director of Cortex
Pharmaceuticals, Inc., a developer of pharmaceuticals to treat age-related
degenerative diseases and disorders, and Penederm, Inc., a developer and
marketer of specialized dermatology products.
DIGBY W. BARRIOS has been a Director of the Company since February 1993. He
has been a management consultant since June 1992. Mr. Barrios held various
management positions at Boehringer Ingelheim Corporation, a manufacturer of
pharmaceuticals and fine chemicals, from January 1983 to June 1992, the last
five years of which he was President and Chief Executive Officer. He is also a
director of Roberts Pharmaceutical Corporation, an international pharmaceutical
company which licenses, acquires, develops and commercializes post-discovery
drugs in selected therapeutical categories, Sepracor, Inc., which develops
improved chemical entities that are enhanced forms of existing, widely sold
pharmaceuticals, and Sheffield Pharmaceuticals, Inc., an early-stage company
involved in the development of therapies, delivery systems and devices.
VIRGIL D. THOMPSON has been a Director of the Company since January 1996.
He has been the President and Chief Executive Officer and a member of the Board
of Directors of Cytel Corporation since January 1996. He was the President and
Chief Executive Officer of CIBUS Pharmaceutical, Inc. from July 1994 to January
1996. Prior thereto, he was the President of Syntex Laboratories, Inc.
("Syntex") from August 1991 to August 1993 and an Executive Vice President of
Syntex from March 1986 to August 1991. Mr. Thompson is also a director of
Biotechnology General Corporation, which develops, manufactures and markets
genetically-engineered and other products for human health care, and Aradigm
Corporation, which develops non-invasive pulmonary drug delivery products.
ROBERT A. VUKOVICH, PH.D., has been a Director of the Company since August
1992. Since 1983, he has been Chairman of the Board, President and Chief
Executive Officer of Roberts Pharmaceutical Corporation. Prior thereto, he was
the Director of the Division of Developmental Therapeutics for Revlon Health
Care Group from 1979 to 1983. Dr. Vukovich received a doctorate in pharmacology
and pathology from Jefferson Medical College, Philadelphia.
MEETINGS; ATTENDANCE; COMMITTEES
The Board of Directors held 7 meetings during the fiscal year ended July
31, 1997. Each of the Directors attended at least 75% of the aggregate number of
meetings of the Board and of the committees on which he served, held during the
period for which he was a director or committee member, respectively, except for
Mr. Barrios. The Board of Directors has an Audit Committee, which met twice
during the last fiscal year, and a Compensation Committee, which met three times
during the last fiscal year. The Board does not have a Nominating Committee. In
practice, the entire Board performs the function of a Nominating Committee.
The Audit Committee of the Board of Directors is responsible for reviewing
and supervising the financial controls of the Company, including the selection
of the Company's auditors, the scope of the audit procedures, the nature of the
services to be performed by and the fees to be paid to the Company's independent
auditors, and any changes in the accounting standards of the Company. The Audit
Committee meets with the Company's independent auditors twice annually. The
Audit Committee is composed of two non-employee directors: Mr. Allnutt and Dr.
Vukovich.
The Compensation Committee of the Board of Directors is responsible for
setting the initial salary and stock option grant for new executive officers,
for making salary adjustments, awarding bonuses and/or additional stock option
grants to executive officers, and for developing incentive compensation programs
for such officers. The Compensation Committee is composed of two non-employee
directors: Mr. Thompson and Dr. Vukovich.
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<PAGE> 6
DIRECTOR COMPENSATION
The Company compensates its non-employee Directors for their service on the
Board with an annual grant of 10,000 stock options under the 1993 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). Options granted under the
Directors' Plan have an exercise price equal to 85% of the fair market value of
the Common Stock (as determined by the Board) on the date of the grant and vest
in 48 equal monthly installments commencing on the date of the grant, provided
the non-employee Director serves continuously on the Board during the month. The
Company also reimburses its directors who are not employees for their reasonable
expenses incurred in attending meetings. No additional fees are paid for
participation in committee meetings. Directors who are officers of the Company
receive no additional compensation for Board service. Therefore, Dr. Marangos
received no additional compensation for Board service in fiscal 1997.
PROPOSAL 2 -- APPROVAL OF AMENDMENT TO 1992 STOCK OPTION PLAN
In August 1992, the Board of Directors and shareholders of the Company
adopted the Company's 1992 Stock Option Plan (the "1992 Plan") and reserved
500,000 shares of the Company's Common Stock for issuance under the 1992 Plan.
In January 1995, the shareholders of the Company approved an increase in the
number of shares reserved under the 1992 Plan to 1,000,000 and in May 1995, the
number of shares reserved increased as a result of a 2.5:1.0 stock split.
At November 21, 1997, options (net of canceled, expired or exercised
options) covering an aggregate of 1,570,540 shares of the Company's Common Stock
had been granted under the 1992 Plan, 130,122 options had been exercised and
695,748 shares (plus any shares that might in the future be returned to the 1992
Plan as a result of cancellations or expiration of options) remained available
for future grant under the 1992 Plan.
In November 1997, the Stock Option Committee approved an amendment to the
1992 Plan, subject to shareholder approval, to increase the number of shares
authorized for issuance under the 1992 Plan from a total of 2,266,288 shares to
2,766,288 shares. The Stock Option Committee adopted this amendment to ensure
that the Company can continue to grant stock options to employees and
consultants at levels determined appropriate by the Compensation Committee (for
officers) and the Stock Option Committee (for all other employees and
consultants).
Shareholders are requested in this Proposal 2 to approve the 1992 Plan, as
amended. If the shareholders fail to approve this Proposal 2, the Company may
not be able to attract and retain qualified employees. The affirmative vote of
the holders of a majority of the shares present in person or represented by
proxy and voting at the meeting will be required to approve the 1992 Plan, as
amended.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE 1992 STOCK
OPTION PLAN.
The essential features of the 1992 Plan are outlined below:
GENERAL
The 1992 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1992 Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the 1992 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The 1992 Plan was adopted to provide a means by which selected officers and
employees of and consultants to the Company and its affiliates could be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of employees holding key positions, to secure and retain the services
of
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<PAGE> 7
persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for the success of the Company.
ADMINISTRATION
The 1992 Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the 1992 Plan and, subject to the
provisions of the 1992 Plan, to determine the persons to whom and the dates on
which options will be granted, the number of shares to be subject to each
option, the time or times during the term of each option within which all or a
portion of such option may be exercised, the exercise price, the type of
consideration and other terms of the option. The Board of Directors is
authorized to delegate administration of the 1992 Plan to a committee composed
of not fewer than two members of the Board. The Board has delegated
administration of the 1992 Plan to the Stock Option Committee of the Board,
whose members are not eligible for options under the 1992 Plan. The Compensation
Committee of the Board, however, determines the number of stock options for each
executive officer. In addition, the 1992 Plan contains a provision granting the
Board the power to limit the Directors who may serve as members of the
Compensation Committee and the Stock Option Committee to those who are "outside
directors" under Section 162(m) of the Code. As used herein with respect to the
1992 Plan, the "Board" refers to the Stock Option Committee and the Compensation
Committee, as applicable, as well as to the Board of Directors itself.
ELIGIBILITY
Incentive stock options may be granted under the 1992 Plan only to
employees (including directors if they are also key employees) of the Company
and its affiliates. Selected employees, directors and consultants are eligible
to receive nonstatutory stock options under the 1992 Plan.
No incentive stock option may be granted under the 1992 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of the Company or any affiliate of
the Company, unless the option exercise price is at least 110% of the fair
market value of the stock subject to the option on the date of grant and the
term of the option does not exceed five years from the date of grant. For stock
options granted under the 1992 Plan, the aggregate fair market value, determined
at the time of grant, of the shares of Common Stock with respect to which such
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its affiliates) may not exceed
$100,000. In addition, the 1992 Plan contains a per-employee, per-calendar year
limitation on the number of options that may be granted equal to 100,000;
provided, however, that the Compensation Committee or the Stock Option Committee
may determine in some future circumstances that it would be in the best
interests of the Company and its shareholders to grant options to purchase a
greater number of shares to a single employee during a calendar year.
COMMON STOCK SUBJECT TO THE 1992 PLAN
If options granted under the 1992 Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
again becomes available for issuance under the 1992 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1992 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1992 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant. The exercise price
of nonstatutory options under the 1992 Plan may not be less than 85% of the fair
market value of the Common Stock subject to the option on the date of the option
grant. In some cases (see "Eligibility" above), the exercise price of an option
granted under the 1992 Plan may not be less than 110% of such fair
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market value. At November 21, 1997, the closing price of the Company's Common
Stock as reported on the Nasdaq National Market System was $5.50 per share.
The exercise price of options granted under the 1992 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (iii) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the 1992 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the 1992 Plan typically vest monthly over a
48-month period during the optionee's employment or services as a consultant.
Shares covered by options granted in the future under the 1992 Plan may be
subject to different vesting terms. The Board has the power to accelerate the
time during which an option may be exercised. In addition, nonstatutory options
granted under the 1992 Plan may permit exercise prior to vesting, but in such
event the optionee may be required to enter into an early exercise stock
purchase agreement that allows the Company to repurchase shares not yet vested
at their exercise price should the optionee leave the employ of the Company
before vesting. To the extent provided by the terms of an option, an optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by a cash payment upon exercise by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned stock of the Company or by a combination of these
means.
Term. The maximum term of options under the 1992 Plan is ten years, except
that in certain cases (see "Eligibility" above) the maximum term is five years.
Options under the 1992 Plan terminate three months after the termination of the
optionee's employment or relationship as a director or consultant of the Company
or any affiliate of the Company unless (a) the termination of employment is due
to such person's permanent and total disability (as defined in the Code), in
which case the option may, but need not, provide that it may be exercised at any
time within twelve months of such termination; (b) the optionee dies while
employed by or serving as a consultant or director of the Company or any
affiliate of the Company, or within three months after termination of such
relationship, in which case the option may, but need not, provide that it may be
exercised (to the extent the option was exercisable at the time of the
optionee's death) within twelve months of the optionee's death by the person or
persons to whom the rights to such option pass by will or by the laws of descent
and distribution; or (c) the option by its terms specifically provides
otherwise. Individual options by their terms may provide for exercise within a
longer period of time following termination of employment or the consulting
relationship. The option term may also be extended in the event that exercise of
the option within these periods is prohibited for specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1992 Plan or subject to
any option granted under the 1992 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1992 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to an employee during a calendar year, and the class,
number of shares and price per share of stock subject to such outstanding
options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1992 Plan provides that, in the event of a dissolution or liquidation
of the Company, any outstanding options under the 1992 Plan will terminate if
not exercised prior to such event. The 1992 Plan also provides that in the event
of a specified type of merger or other corporate reorganization, to the extent
permitted by law, any surviving corporation will be required to either assume
options outstanding under the 1992 Plan or substitute similar options for those
outstanding under such plan, or such outstanding options will continue in full
force and effect. In the event that any surviving corporation declines to assume
or continue options outstanding under the 1992 Plan, or to substitute similar
options, then with respect to options held by persons
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then performing services for the Company, the vesting of such options shall
accelerate immediately prior to such event, but all such accelerated options and
any other outstanding options will terminate if not exercised prior to such
event.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1992 Plan without shareholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1992 Plan will terminate in August 2002.
The Board may also amend the 1992 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the shareholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires shareholder approval in
order for the 1992 Plan to satisfy Section 422 of the Code or Rule 16b-3 of the
Securities Exchange Act of 1934 (the "Exchange Act"); (b) increase the number of
shares reserved for issuance upon exercise of options; or (c) change any other
provision of the 1992 Plan in any other way if such modification requires
shareholder approval in order to comply with Rule 16b-3 of the Exchange Act or
satisfy the requirements of Section 422 of the Code.
RESTRICTIONS ON TRANSFER
Under the 1992 Plan, an option may not be transferred by the optionee
otherwise than by will or by the laws of descent and distribution, except that a
nonstatutory stock opton may be transferable upon such terms and conditions as
the Board determines in its discretion. During the lifetime of an optionee, an
option may be exercised only by the optionee. In addition, shares subject to
repurchase by the Company under an early exercise stock purchase agreement may
be subject to restrictions on transfer which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1992 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the stock was held for more than one year. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1992 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages
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or supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, the provisions of Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the optionee. Upon disposition of the stock, the
optionee will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of the option. Such gain or loss
will be long or short-term depending on whether the stock was held for more than
one year. Slightly different rules apply to optionees who acquire stock subject
to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
covered employees in a taxable year to the extent that compensation exceeds $1
million for a covered employee. It is possible that compensation attributable to
stock options, when combined with all other types of compensation received by a
covered employee from the Company, may cause this limitation to be exceeded in
any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation", are disregarded for purposes of the deduction limitation. Under
Section 162(m), compensation attributable to stock options will qualify as
performance-based compensation, provided that the option is granted by a
compensation committee comprised solely of "outside directors," and either: (i)
the option plan contains a per-employee limitation on the number of shares for
which options may be granted during a specified period, the per-employee
limitation is approved by the shareholders, and the exercise price of the option
is no less than the fair market value of the stock on the date of grant; or (ii)
the option is granted (or exercisable) only upon the achievement (as certified
in writing by the compensation committee) of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain, and the option is approved by the shareholders.
PROPOSAL 3 -- RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Pursuant to the recommendation of its Audit Committee, the Board of
Directors has appointed Ernst & Young LLP as independent auditors of the Company
for the fiscal year ending July 31, 1998, and has further directed that
management submit the selection of independent auditors for ratification by the
shareholders. Ernst & Young LLP has audited the Company's financial statements
and prepared its federal and state tax returns since 1992. A representative of
Ernst & Young LLP will be available at the Annual Meeting to respond to
appropriate questions or make such statements as such representative deems
appropriate.
Shareholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the shareholders for ratification as a matter of good corporate practice. If
the shareholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its shareholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE SELECTION OF ERNST & YOUNG LLP.
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation paid by the Company to
its Chief Executive Officer and each of the other most highly compensated
current executive officers of the Company who earned more than $100,000 in the
fiscal year ended July 31, 1997 (collectively, the "Named Executive Officers")
for services rendered to the Company for the fiscal years ended July 31, 1997,
1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY
----------------------------------------------------- ------ ------------
<S> <C> <C>
Paul J. Marangos..................................... 1997 $214,019
Chairman of the Board, President and 1996 $195,000
Chief Executive Officer 1995 $183,462
Stephen C. Eisold.................................... 1997 $176,154(1)
Executive Vice President of Commercial Development
and Chief Operating Officer
Anthony W. Fox....................................... 1997 $161,384(2)
Vice President of Drug Development 1996 $165,038
and Regulatory Affairs 1995 $151,058
David W. Nassif...................................... 1997 $144,554
Senior Vice President, Chief Financial Officer 1996 $133,269
and Secretary 1995 $118,846
</TABLE>
- ---------------
(1) Mr. Eisold did not earn more than $100,000 in cash compensation from the
Company in any prior fiscal year as he joined the Company in May 1996.
(2) Dr. Fox began reducing his time commitment to the Company in June 1997 in
order to allow him to pursue the startup of another biopharmaceutical
company. In October 1997, the Company hired Zofia E. Dziewanowska, M.D.,
Ph.D., as his successor. Dr. Fox remains a consultant to the Company during
the transition period.
STOCK OPTION GRANTS AND EXERCISES
The Company grants incentive stock options to its executive officers under
the 1992 Plan. Option Grants in Last Fiscal Year
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents certain information with respect to stock
option grants made during the fiscal year ended July 31, 1997 under the 1992
Option Plan to the Company's Chief Executive Officer and the Named Executive
Officers.
OPTION GRANTS IN 1997 FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
--------------------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED OPTION TERMS(3)
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME GRANTED(1) IN 1997(2) PRICE DATE 5% 10%
- ---------------------------- ----------- ------------ -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Marangos (CEO)...... 25,000 21% $ 4.06 9/10/1996 $165,333 $263,265
David W. Nassif............. 15,000 13% $ 4.06 9/10/1996 $ 99,200 $157,959
</TABLE>
- ---------------
(1) Options become exercisable over a four-year period with 1/48th of the shares
vesting monthly. The options will fully vest upon a change of control, as
defined in the Company's option plans, unless the acquiring company assumes
the options or substitutes similar options. The term of the options is ten
years.
9
<PAGE> 12
(2) Based on options to purchase 116,500 shares granted to employees in fiscal
1997, including the Chief Executive Officer and the Named Executive
Officers.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. These amounts represent assumed rates of appreciation only, in
accordance with the rules of the SEC, and do not reflect the Company's
estimate or projection of future stock price performance. Actual gains, if
any, depend on overall market conditions and the actual future performance
of the Company and its Common Stock and no gain to the optionee is possible
unless the stock price increases over the option term, which will benefit
all shareholders.
OPTION EXERCISES AND YEAR-END VALUE TABLE
There were no option exercises by the Chief Executive Officer or any of the
Named Executive Officers during the fiscal year ended July 31, 1997. The
following table presents certain information with respect to option exercises
during the fiscal year ended July 31, 1997 by the Chief Executive Officer and
each of the Named Executive Officers and the value at July 31, 1997 of
unexercised options held by such individuals. The value of unexercised options
reflects the increase in market value of the Company's Common Stock from the
date of grant through July 31, 1997 (the last trade in the Company's Common
Stock on that date was executed at $4.25 per share). The value actually realized
upon future option exercises by the Chief Executive Officer and the Named
Executive Officers will depend on the value of the Company's Common Stock at the
time of exercise.
AGGREGATED OPTION EXERCISES IN 1997 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AS OF IN-THE-MONEY OPTIONS AT
SHARES FY-END(#)(1) FY-END($)(2)
ACQUIRED IN VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Marangos (CEO).. -- -- 5,208 19,792 $ 990 $ 3,760
Stephen C. Eisold....... -- -- 29,166 70,834 -- --
Anthony W. Fox.......... -- -- 118,749 31,251 -- --
David W. Nassif......... -- -- 112,229 27,771 $ 176,211 $ 6,014
</TABLE>
- ---------------
(1) Includes both in-the-money and out-of-the-money options. "In-the-money"
options are options with exercise prices below the market price of the
Company's Common Stock.
(2) Based on the fair market value of the underlying shares on the last day of
the fiscal year less the exercise or base price. Excludes out-of-the-money
options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Dr. Marangos has an employment agreement with the Company effective until
August 31, 1999, pursuant to which he is employed as Chairman of the Board of
Directors, President and Chief Executive Officer of the Company at an annual
salary of $216,500 per year. Dr. Marangos' employment agreement contains certain
provisions concerning maintenance of confidential information of the Company and
assignment of inventions by the Company. In the event that the Company
terminates Dr. Marangos' employment with or without cause in accordance with the
agreement, Dr. Marangos is entitled to continue to receive base salary and
benefits for a period of 12 months following termination.
10
<PAGE> 13
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)
Compensation Philosophy
The Company's executive compensation programs are designed to attract and
retain executives capable of leading the Company to meet its business objectives
and to motivate them to enhance long-term shareholder value. The Company's
compensation of executive officers generally has been comprised of a cash salary
and stock option grants under the 1992 Plan.
Base Salary
The Compensation Committee uses a number of factors in setting the base
salary of a new executive officer, including the officer's credentials and
previous compensation package and the average salary for such position as
reported in various industry group surveys that the Compensation Committee uses.
The surveys that the Compensation Committee uses generally include companies
that are in the development stage with no more than 50 employees, a narrower
group of companies than those in the Nasdaq Pharmaceutical Stocks group shown on
the Company's Stock Price Performance Graph. Subsequent salary increases are
based upon reviews of each officer's performance in helping the Company to
achieve its business objectives, including the advancement of its clinical and
research programs, product acquisitions, sales growth, capital raising and cost
containment, and ultimately, the performance of the Company's stock price. The
Company's financial position is also a factor that is considered by the
Compensation Committee.
Stock Option Grants
Each incoming executive officer is given a stock option grant under the
1992 Plan at the time of employment in order to provide a long-term incentive
and align executive officer and shareholder long-term interests by creating a
direct link between executive compensation and shareholder return. Stock options
are granted at an exercise price equal to the fair market value of the Company's
Common Stock on the date of the grant. In order to facilitate long-term
incentives through the option grants, options are generally subject to monthly
vesting over a 48-month period and are exercisable for 10 years.
The initial grant and any subsequent grants to an executive officer is
determined by the Compensation Committee in much the same way that the officer's
base salary is determined.
Chief Executive Officer
The salary of Dr. Marangos is reviewed periodically by the Compensation
Committee in light of his accomplishments in furthering the growth of the
Company and the salaries paid to chief executive officers of comparable
companies. The employment agreement for the Chief Executive Officer allows for
the payment of an annual bonus in the sole discretion of the Compensation
Committee, based upon the annual performance evaluation for such officer. While
the Company and Dr. Marangos met most of their goals and objectives for the 1997
fiscal year, the Compensation Committee determined that the Company was not in a
position to pay Dr. Marangos a cash bonus. For this same reason, the Company has
not yet instituted a cash bonus plan for the Company's other executive officers.
11
<PAGE> 14
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code.
The Compensation Committee has determined that stock options granted under
the 1992 Plan with an exercise price at least equal to the fair market value of
the Company's Common Stock on the date of grant shall be treated as
"performance-based compensation."
Compensation Committee
Virgil D. Thompson
Robert A. Vukovich
- ---------------
(1) The material in this report and in the following stock price performance
presentation is not soliciting material, is not deemed filed with the U.S.
Securities and Exchange Commission (the "SEC") and is not incorporated by
reference in any filing of the Company under the Securities Act of 1933, as
amended, or the Exchange Act, whether made before or after the date of this
Proxy Statement and irrespective of any general incorporation language in
such filing.
12
<PAGE> 15
STOCK PRICE PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock, based on its market price and assuming
reinvestment of dividends, with the cumulative total return of companies on the
Nasdaq Stock Market (U.S. common stocks) and the Nasdaq Pharmaceutical Stocks
group for the period beginning November 30, 1992 (the end of the month in which
the Company's Common Stock first began trading) through the Company's fiscal
year ended July 31, 1997. The Company's Common Stock was initially offered to
the public and subject to securities registration on November 3, 1992. This
graph assumes that the value of the investment in the Company's Common Stock and
each of the comparison groups was $100 on November 30, 1992 and that all
dividends were reinvested at the time they were paid.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
CYPROS PHARMACEUTICAL CORPORATION, THE NASDAQ STOCK MARKET AND
NASDAQ PHARMACEUTICAL STOCKS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ
(FISCAL YEAR COVERED) CYPROS NASDAQ COMPOSITE PHARMACEUTICALS
<S> <C> <C> <C>
11/30/92 100 100 100
7/30/93 64 108 73
7/29/94 131 110 65
7/30/95 231 155 92
7/30/96 115 170 109
7/31/97 109 250 128
</TABLE>
13
<PAGE> 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 21, 1997 by (i) all
persons known by the Company to own beneficially 5% or more of the outstanding
shares of the Company's Common Stock, (ii) each nominee for Director, (iii) the
Named Executive Officers, and (iv) all officers and directors of the Company as
a group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OWNED OF TOTAL
- ----------------------------------------- ------------------ ----------
<S> <C> <C>
President and Fellows of Harvard
College................................ 1,637,500 10.6%
c/o Harvard Management Company, Inc.
600 Atlantic Avenue
Boston, MA 02210
Paul J. Marangos(1)...................... 1,628,270 10.5
2714 Loker Avenue West
Carlsbad, California 92008
Bernard B. Levine........................ 1,273,082 8.2
P.O. Box 2635
La Jolla, CA 92038-2635
Anthony W. Fox(2)........................ 137,978 *
David W. Nassif(3)....................... 121,625 *
Robert A. Vukovich(4).................... 110,250 *
Digby W. Barrios(5)...................... 84,625 *
Stephen C. Eisold(6)..................... 41,666 *
Virgil D. Thompson(7).................... 15,291 *
Robert F. Allnutt(8)..................... 7,770 *
All officers and directors, as a group
(8 persons)(9)......................... 2,147,475 13.4
</TABLE>
- ---------------
* Less than one percent.
(1) Includes 8,333 shares issuable upon options exercisable within 60 days.
(2) Includes 136,978 shares issuable upon options exercisable within 60 days.
(3) Includes 120,625 shares issuable upon options exercisable within 60 days.
(4) Includes 110,250 shares issuable upon options exercisable within 60 days.
(5) Includes 79,625 shares issuable upon options exercisable within 60 days.
(6) Includes 41,666 shares issuable upon options exercisable within 60 days.
(7) Includes 15,291 shares issuable upon options exercisable within 60 days.
(8) Includes 6,770 shares issuable upon options exercisable within 60 days.
(9) Includes 519,538 shares issuable upon options exercisable within 60 days.
TRANSACTIONS WITH RELATED PARTIES
Neither the Company nor any of its directors, nominees, officers or
beneficial owners of more than 5% of the Company's outstanding Common Stock are
parties to any relationships or transactions described in Item 404 of Regulation
S-K promulgated by the SEC.
14
<PAGE> 17
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the directors and executive
officers of the Company and persons who own more than ten percent of the
Company's Common Stock (i) to file with the SEC and the National Association of
Securities Dealers, Inc. initial reports of ownership and reports of changes in
ownership of the Company's Common Stock and (ii) to furnish the Company with a
copy of each such report.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended July 31, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders are advised that any shareholder proposal intended for
consideration at the 1999 Annual Meeting must be received by the Company, at the
address set forth on the first page of this Proxy Statement, no later than
August 18, 1998, to be included in the proxy material for the 1999 Annual
Meeting. It is recommended that shareholders submitting proposals direct them to
the Secretary of the Company and utilize certified mail, return receipt
requested, in order to ensure timely delivery. Shareholders are also advised to
review the Company's Bylaws, which contain additional requirements with respect
to advance notice of shareholder proposals and director nominations.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1997, as filed with the SEC, including the financial statements
and financial statement schedules but excluding exhibits, is being provided to
shareholders together with this Proxy Statement. Upon written request, the
Company will furnish to shareholders a copy of the exhibits to such Annual
Report on Form 10-K, upon payment of a fee limited to the Company's reasonable
expenses in furnishing such exhibits. Such requests should be directed to the
Chief Financial Officer, at the Company's executive offices, 2714 Loker Avenue
West, Carlsbad, California 92008.
OTHER MATTERS
The Board of Directors knows of no matter to come before the Annual Meeting
other than as specified herein. If other business should, however, be properly
brought before the Annual Meeting, the persons voting the proxies will vote them
in accordance with their best judgment.
THE SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN PROMPTLY THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
/S/ DAVID W. NASSIF
David W. Nassif, Secretary
Carlsbad, California
December 12, 1997
15
<PAGE> 18
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
CYPROS PHARMACEUTICAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints PAUL J. MARANGOS and DAVID W. NASSIF, and each of
them, proxies with full power of substitution, to vote all shares of Common
Stock of Cypros Pharmaceutical Corporation (the "Company"), which the
undersigned is entitled to vote, at the Annual Meeting of Shareholders of Cypros
to be held at Cypros's offices, 2714 Loker Avenue West, Carlsbad, California on
Tuesday, February 10, 1998 at 10:00 a.m. local time, and at all adjournments
thereof, upon the following matters:
The Board of Directors recommends votes for:
(1) Election of Paul J. Marangos, Robert F. Allnutt, Digby W. Barrios, Virgil D.
Thompson and Robert A. Vukovich as Directors of the Company to serve until
the 1999 Annual Meeting or until their successors are elected and qualified.
<TABLE>
<S> <C>
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed above
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
(2) To amend the Company's 1992 Stock Option Plan (the "1992 Plan") to increase
the aggregate number of shares of the Company's Common Stock authorized for
issuance under the 1992 Plan from 2,266,288 to 2,766,288 shares.
[ ] FOR [ ] AGAINST [ ] WITHHOLD
(3) To ratify the selection of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending July 31, 1998.
[ ] FOR [ ] AGAINST [ ] WITHHOLD
<PAGE> 19
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES LISTED ABOVE. IF ANY NOMINEE NAMED ABOVE DECLINES OR IS
UNABLE TO SERVE AS A DIRECTOR, THE PERSONS NAMED AS PROXIES SHALL HAVE FULL
DISCRETION TO VOTE FOR ANY OTHER PERSON WHO MAY BE NOMINATED. WHEN PROPERLY
EXECUTED, THIS PROXY ALSO AUTHORIZES THE PROXY HOLDERS TO ACT IN ACCORDANCE WITH
THEIR DISCRETION UPON ALL MATTERS INCIDENT TO THE CONDUCT OF THE MEETING AND
UPON OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
DATED:
- ------------------------------ ------------------------------------
SIGNATURE
------------------------------------
PRINT NAME
------------------------------------
SIGNATURE (IF HELD JOINTLY)
------------------------------------
PRINT NAME
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS HEREON. IF THE STOCK IS
REGISTERED IN THE NAMES OF TWO OR
MORE PERSONS, EACH SHOULD SIGN.
EXECUTORS, ADMINISTRATORS, TRUSTEES,
GUARDIANS AND ATTORNEYS-IN-FACT
SHOULD ADD THEIR TITLES. IF SIGNER
IS A CORPORATION, PLEASE GIVE FULL
CORPORATE NAME AND HAVE A DULY
AUTHORIZED OFFICER SIGN, STATING
TITLE. IF SIGNER IS A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
PLEASE VOTE, DATE AND PROMPTLY
RETURN THIS PROXY IN
THE ENCLOSED RETURN ENVELOPE WHICH
IS POSTAGE
PREPAID IF MAILED IN THE UNITED
STATES.
