SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as premitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SYMBOLLON 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
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A
/ / 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 by written preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
2) Form, Schedule or Registration No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
<PAGE>
PRELIMINARY COPIES
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
MAY 26, 1999
TO THE STOCKHOLDERS OF SYMBOLLON CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Symbollon Corporation, a Delaware corporation (the "Company"), will be held at
the Company's executive offices, located at 37 Loring Drive, Framingham,
Massachusetts 01702-8768, on May 26, 1999 at 10:00 a.m., local time, for the
following purposes:
1. To consider and act upon the election of five directors to serve
for the next year, or to serve for staggered terms in the event
that the proposed amendment set forth in Item 3 is approved;
2. To consider and act upon a proposal to amend the Company's 1993
Stock Option Plan to (a) increase the aggregate number of shares
of stock authorized for issuance and delivery in connection with
awards under such Plan from 800,000 shares of Class A Common Stock
to 1,600,000 shares of Class A Common Stock and (b) extend the
expiration date of such Plan from August 4, 2003 to August 4,
2008;
3. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to: (a) classify the Board of
Directors into three classes, with members of each class serving
for staggered terms; (b) provide that directors may be
removed only for cause by the affirmative vote of the holders of
at least eighty percent (80%) of the voting power of all shares
of capital stock of the Company entitled to vote generally in the
election of directors, voting together; (c) provide that any
vacancy on the Board may be filled by a majority vote of the
directors then in office, even if less than a quorum; (d)
provide that the stockholder vote required to alter, amend,
repeal or adopt any provision inconsistent with these amendments
shall be at least eighty percent (80%) of the voting power of all
of the shares of capital stock of the Company entitled to vote
generally in the election of directors, voting together; and (e)
provide for certain other related matters;
4. To consider and act upon, for purposes of the shareholder approval
policy of the Nasdaq SmallCap Market, a proposal to issue and sell
the final 400,000 of up to 750,000 Units, each consisting of one
share of Class A Common Stock and one redeemable Warrant to
purchase a share of Class A Common Stock, and all shares of Class
A Common Stock issuable upon exercise of such Warrants, in a
private placement to accredited investors;
5. To consider and act upon a proposal to ratify the appointment of
BDO Seidman, LLP as the independent auditors of the Company; and
6. To transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.
The close of business on April 1, 1999 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the meeting. A complete list of those stockholders will be open to
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours at the executive offices of the Company, 37 Loring
Drive, Framingham, Massachusetts 01702-8768, for a period of 10 days prior to
the meeting. The stock transfer books of the Company will not be closed.
All stockholders are cordially invited to attend the meeting. Whether
or not you expect to attend, you are kindly requested by the Board of Directors
to sign, date and return the enclosed proxy promptly. Stockholders who execute
proxies retain the right to revoke them at any time prior to the voting thereof.
A return envelope which requires no postage if mailed in the United States is
enclosed for your convenience.
By the order of the Board of Directors,
PAUL C. DESJOURDY
Assistant Secretary
Dated: April __, 1999
<PAGE>
PRELIMINARY COPIES
SYMBOLLON CORPORATION
37 LORING DRIVE
FRAMINGHAM, MA 01702-8768
(508) 620-7676
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Symbollon Corporation (the "Company" or
"Symbollon") for the Annual Meeting of Stockholders to be held at the Company's
executive offices, located at 37 Loring Drive, Framingham, Massachusetts
01702-8768, on May 26, 1999 at 10:00 a.m., local time, and for any adjournment
or adjournments thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Stockholders. Any stockholder giving such a proxy has the
power to revoke it at any time before it is voted. Written notice of such
revocation should be forwarded directly to the Assistant Secretary of the
Company, at the above stated address. Attendance at the meeting will not have
the effect of revoking the proxy unless such written notice is given.
If the enclosed proxy is properly executed and returned, the shares
represented thereby will be voted in accordance with the directions thereon and
otherwise in accordance with the judgment of the persons designated as proxies.
Any proxy on which no direction is specified will be voted in favor of the
following actions described in this Proxy Statement: (1) for the election of the
nominees set forth under the caption "Election of Directors;" (2) for the
proposed amendments to the Company's 1993 Stock Option Plan; (3) for the
proposed amendments to the Certificate of Incorporation regarding the
classification of the Board of Directors and related matters; (4) for the
issuance and sale of Units in a private placement; and (5) for the ratification
of the appointment of BDO Seidman, LLP as the independent auditors of the
Company.
The approximate date on which the Company intends to mail or otherwise
deliver definitive copies of this Proxy Statement and the accompanying form of
proxy to the Company's stockholders is April __, 1999.
Your vote is important. Accordingly, you are urged to sign and return
the accompanying proxy card whether or not you plan to attend the meeting. If
you do attend, you may vote by ballot at the meeting, thereby canceling any
proxy previously given.
VOTING
Only holders of shares of the Company's Class B Common Stock, $.001 par
value per share (the "Class B Common Stock"), and Class A Common Stock, $.001
par value per share (the "Class A Common Stock", the shares of Class A Common
Stock and Class B Common Stock are sometimes collectively referred to herein as
the "Shares"), of record as at the close of business on April 1, 1999, are
entitled to vote at the meeting. On the record date there were issued and
outstanding 15,738 shares of Class B Common and 3,589,331 shares of Class A
Common Stock. Each outstanding share of Class B Common Stock is entitled to five
votes, and each outstanding share of Class A Common Stock is entitled to one
vote, upon all matters to be acted upon at the meeting. A majority in interest
of the outstanding Shares, represented at the meeting in person or by proxy,
shall constitute a quorum. The affirmative vote of a plurality of the votes cast
is necessary to elect the nominees as directors. The affirmative vote of a
majority of the votes cast is necessary to approve the proposed amendments to
the Company's 1993 Stock Option Plan, to approve the issuance and sale of Units
in a private placement and to ratify the appointment of BDO Seidman, LLP as the
independent auditors of the Company. The affirmative vote of a majority of the
voting power of the outstanding Shares is necessary to approve the proposed
<PAGE>
amendments to the Certificate of Incorporation. Abstentions and broker non-votes
are included in the determination of the number of Shares present at the meeting
for quorum purposes, but not in the tabulation of the votes cast on proposals
presented to stockholders. Since Shares which abstain or are represented by
broker non-votes are still outstanding Shares, abstentions and broker non-votes
with respect to the proposed amendments to the Certificate of Incorporation have
the same effect as a vote against such proposed amendments.
The stockholders vote at the meeting by casting ballots (in person or
by proxy) which are tabulated by a person appointed by the Board of Directors
before the meeting to serve as the inspector of election at the meeting and who
has executed and verified an oath of office. The cost of preparing, assembling
and mailing the proxy, this Proxy Statement and the other material enclosed will
be borne by the Company. In addition to the solicitation of proxies by use of
the mails, officers and employees of the Company may solicit proxies by
telephone or other means of communication. The Company, through its transfer
agent, will request brokerage houses, banking institutions, and other
custodians, nominees and fiduciaries, with respect to Shares held of record in
their names or in the names of their nominees, to forward the proxy material to
the beneficial owners of such Shares and will reimburse them for their
reasonable expenses in forwarding the proxy material.
BOARD OF DIRECTORS
Election of Directors
Unless authority to do so has been withheld or limited in the proxy, it
is the intention of the persons named as proxies to vote at the meeting the
Shares to which the proxy relates to elect the nominees named below. Each of the
nominees is currently a director of the Company. Management recommends that the
persons named below be elected as directors of the Company and it is intended
that the accompanying proxy will be voted for their election as directors,
unless the proxy contains contrary instructions. The Company has no reason to
believe that any of the nominees will not be a candidate or will be unable to
serve. However, in the event that any of the nominees should become unable or
unwilling to serve as a director, the persons named in the proxy have advised
that they will vote for the election of such person or persons as shall be
designated by management.
If Item 3 is approved, Messrs. Desjourdy and Lieberstein will be
designated Class I directors and elected for a term of one year expiring at the
2000 Annual Meeting of Stockholders and until their successors are elected and
qualified; Messrs. Richards and Maradie will be designated Class II directors
and elected for a term of two years expiring at the 2001 Annual Meeting of
Stockholders and until their successors are elected and qualified; and Mr.
Kessler will be designated a Class III director and elected for a term of three
years expiring at the 2002 Annual Meeting of Stockholders and until his
successor is elected and qualified. If Item 3 is not approved, then five
directors are to be elected to serve as directors until the next Annual Meeting
and until their successors are elected and qualified.
The following sets forth the names and ages of the five nominees for
election to the Board of Directors, their respective principal occupations or
employments during the past five years and the period during which each has
served as a director of the Company.
Jack H. Kessler, Ph.D., 48
Jack H. Kessler, Ph.D., is the founder of the Company and has served as
Executive Vice-President, Chief Scientific Officer, Secretary, and a director
since the Company's move to Massachusetts in May 1991, and as Chairman of the
Board of Directors since May 1996. Prior to that time, and since the Company was
initially formed in Illinois in 1986, Dr. Kessler was the Company's sole
stockholder and served as its sole officer and director. From January 1990 until
May 1991, he served as principal systems engineer for Kollsman Manufacturing
Company, a diagnostic instrument design and manufacturing company.
<PAGE>
James C. Richards, Ph.D., 51
James C. Richards, Ph.D., served as President and Chief Executive
Officer of the Company from May 1991 to September 1995, as Treasurer from May
1991 to May 1994, and as a director since May 1991. Since October 1995, Dr.
Richards has been President, Chief Executive Officer and a director of
IntelliGene, Inc., a privately held company specializing in DNA probe
technologies. From November 1990 to May 1991, he served as Managing Director and
principal stockholder of Carlton Bio Venture Partners, a consulting firm
specializing in financing and acquisition of healthcare, medical products and
biotechnology companies. From 1986 to November 1990, Dr. Richards served as
director of business planning and development for Gene-Trak Systems, a joint
venture originally between AMOCO Corporation and Integrated Genetics, Inc.,
engaged in developing diagnostic test devices using DNA probes for the
healthcare and food industries.
Paul C. Desjourdy, 37
Paul C. Desjourdy has served as Executive Vice President and Chief
Financial Officer since July 1, 1996, as Vice-President Finance and
Administration and Chief Financial Officer of the Company from September 20,
1993 to June 30, 1996, as Treasurer since May 1994, and as a director since
August 1996. From September 1989 to September 1993, Mr. Desjourdy, a certified
public accountant, was an attorney at the law firm of Choate Hall & Stewart.
Richard F. Maradie, 51
Richard F. Maradie has served as a director of the Company since April
1998. Since February 1999, Mr. Maradie has served as Senior Vice President of
Commercial Development of Oakwood Laboratories, a private biopharmaceutical
company developing drug delivery technologies. From March 1997 to August 1998,
Mr. Maradie served as President, Chief Executive Officer and a director of
Novavax, Inc., a public biopharmaceutical company developing topical and oral
drug delivery technologies. From July 1994 to March 1997, he served as
President, Chief Executive Officer and a director of Protyde Pharmaceuticals,
Inc., a private biopharmaceutical company developing products for the diagnosis
and treatment of cancer. From 1991 to 1994, Mr. Maradie served as Executive Vice
President and Chief Operating Officer of Platelet Research Products, Inc., a
private biopharmaceutical company developing therapeutic products derived from
blood platelets. From 1988 to 1991, he served as President, Chief Operating
Officer and a director of VimRx Pharmaceuticals, Inc., a public pharmaceutical
company developing therapeutics based on natural products.
Eugene Lieberstein, 60
Eugene Lieberstein has served as a director of the Company since April
1998. Since June 1993, Mr. Lieberstein has been a partner at the law firm of
Wyatt, Gerber, Meller and O'Rourke specializing in patent procurement and
litigation (Mr. Lieberstein and his firm serve as patent counsel for the
Company). From 1970 to 1993, he served as Patent Counsel for Union Carbide
Corporation.
The Board of Directors recommends that the Stockholders vote FOR each
of the five nominees.
General Information Concerning the Board of Directors and its Committees
The Board of Directors of the Company met three times in the fiscal
year ended December 31, 1998. The Delaware General Corporation Law provides that
the Board of Directors, by resolution adopted by a majority of the entire board,
may designate one or more committees, each of which shall consist of one or more
directors. The Board of Directors annually elects from its members the Executive
Committee, Audit Committee, and Compensation Committee. The Company does not
have a Nominating Committee. During the last fiscal year each of the directors
attended at least 75% of the total number of meetings of the Board of Directors
and of the committees on which each director serves.
<PAGE>
Executive Committee. The Executive Committee exercises all the powers
and authority of the Board of Directors in the management and affairs of the
Company between meetings of the Board of Directors, to the extent permitted by
law. During fiscal 1998, the Executive Committee was composed of three
directors, Messrs. Kessler, Desjourdy and Richards. The Executive Committee did
not meet during fiscal 1998.
Audit Committee. The Audit Committee reviews the engagement of the
independent auditors and their independence. The Audit Committee also reviews
the audit and non-audit fees of the independent auditors, the adequacy of the
Company's internal control procedures and financial reports to be filed with the
Securities and Exchange Commission. During fiscal 1998, the Audit Committee was
composed of three directors, Messrs. Desjourdy, Maradie and Lieberstein. The
Audit Committee met once during fiscal 1998.
Compensation Committee. The Compensation Committee reviews and
recommends to the Board of Directors remuneration arrangements and compensation
plans for the Company's executives. The Compensation Committee also authorizes
stock option grants, administers the 1993 Stock Option Plan and proposes other
stock option plans. During fiscal 1998, the Committee was composed of three
directors, Messrs. Kessler, Maradie and Lieberstein. The Compensation Committee
met once during fiscal 1998.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's voting stock as of April 1, 1999 for (i)
each of the Company's directors, (ii) each of the Named Executive Officers,
(iii) all directors and executive officers of the Company as a group and (iv)
each person known by the Company to own beneficially 5% or more of the
outstanding shares of any class of its voting stock:
<TABLE>
<CAPTION>
Shares of Percentage Percentage
Class A of Total of Total
Name and Address of Beneficially Percent of Voting Voting
Beneficial Owner (1) Owned (2)(3) Class (3) Securities (3) Power (4)
- --------------------- ------------ --------- -------------- ---------
<S> <C> <C> <C> <C>
Bausch & Lomb Pharmaceuticals, Inc. (5) 669,545 18.7% 18.6% 18.3%
Dr. Jack H. Kessler (6)(7) 586,762 15.8% 15.7% 15.5%
Anthony J. Cantone (8) 377,778 10.5% 10.5% 10.3%
Dr. James C. Richards (6)(9) 364,443 10.1% 10.1% 9.9%
Irwin M. Rosenthal (10) 277,372 7.7% 7.7% 7.6%
Magar, Inc. (10) 277,372 7.7% 7.7% 7.6%
Dr. Herbert Moskowitz (10) 277,372 7.7% 7.7% 7.6%
Martin D. Fife (10) 277,372 7.7% 7.7% 7.6%
Paul C. Desjourdy(6) (11) 224,960 6.0% 5.9% 5.8%
Richard M. Lilly(12) 190,600 5.3% 5.3% 5.2%
Eugene Lieberstein (6)(13) 8,333 * * *
Richard F. Maradie (6)(13) 3,333 * * *
All Executive Officers
and Directors as a Group (5 persons) (14) 1,857,376 51.8% 51.5% 50.6%
- ----------------------------
</TABLE>
* Less than 1% of the Class A Common Stock outstanding.
<PAGE>
(1) All shares are beneficially owned and sole voting and investment power
is held by the persons named, except as otherwise noted.
(2) "Class A" refers to the Class A Common Stock. Does not include
information regarding the 15,738 shares of Class B Common Stock
(currently convertible into 15,738 shares of Class A Common Stock)
outstanding which are held by three non-affiliate owners. Includes
627,199 shares of Class A Common Stock which are subject to transfer to
the Company for no consideration if the Company's pretax income (before
extraordinary items and any charge related to the release of shares) is
less than $15,000,000 in fiscal 1999. So long as such shares are
subject to this condition, the holder may vote but not dispose of such
shares. Such shares are treated as outstanding in the table.
(3) Based upon 3,589,331 shares of Class A Common Stock and 15,738 shares
of Class B Common Stock outstanding but also reflecting as outstanding,
with respect to the relevant beneficial owner, the shares which that
beneficial owner could acquire upon exercise of options exercisable
within 60 days.
(4) The Class B Common Stock is entitled to five votes per share, whereas
the Class A Common Stock is entitled to one vote per share. See Note 2.
(5) The address of Bausch & Lomb Pharmaceuticals, Inc. ("Bausch & Lomb") is
8500 Hidden River Parkway, Tampa, Florida 33637. With certain
exceptions, these securities are voted in accordance with the
recommendations of the Board of Directors of Symbollon. See Note 14.
These securities may be redeemed at cost at the option of either the
Company or Bausch & Lomb.
See "Certain Transactions".
(6) The address of Directors Kessler, Richards, Desjourdy, Maradie and
Lieberstein is c/o Symbollon Corporation, 37 Loring Drive, Framingham,
MA 01702.
(7) Includes 1,100 shares owned by his minor child and currently
exercisable options to purchase 128,760 shares of Class A Common Stock.
(8) The address of Mr. Cantone is c/o Cantone Research, Inc., 766
Shrewsbury Avenue, Tinton Falls, New Jersey 07724.
(9) Includes currently exercisable options to purchase 6,250 shares of
Class A Common Stock.
(10) Dr. Moskowitz and Messrs. Rosenthal and Fife are each officers,
directors and principal stockholders of Magar, Inc.
("Magar"). These individuals may be considered to beneficially own, and
to have shared investment and voting power with respect to, all shares
of Class A Common Stock owned by Magar. Information relating to shares
owned by each of these individuals assumes that each beneficially owns
all shares of Class A Common Stock owned of record by Magar. The
address of each of these individuals is c/o Graham & James, LLP, 885
Third Avenue, 21st Floor, New York, NY 10022.
(11) Includes currently exercisable options to purchase 180,760 shares of
Class A Common Stock.
(12) The address of Mr. Lilly is c/o Indianapolis Securities, Inc., 2424
North Federal Highway, Boca Raton, FL 33431.
(13) Includes currently exercisable options to purchase 3,333 shares of
Class A Common Stock.
(14) Includes the 669,545 shares owned by Bausch & Lomb which, with certain
exceptions, are voted in accordance with the recommendations of the
Board of Directors of Symbollon and currently exercisable options to
purchase 322,436 shares of Class A Common Stock.
EXECUTIVE COMPENSATION
The following tables set forth certain information relating to
compensation paid by the Company for each of the Company's last three completed
fiscal years to its executive officers whose annual compensation exceeded
$100,000 for the last completed fiscal year (the "Named Executive Officers").
Only those columns which call for information applicable to the Company or the
Named Executive Officers for the periods indicated have been included in such
tables.
<TABLE>
<CAPTION>
Summary of Compensation Table
Annual Long Term
Compensation Compensation
------------------- ----------------------
Salary Securities Underlying All Other
Name and Principal Position Year ($) Options/SARs (#) Compensation ($) (1)
- --------------------------- ---- -------------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Jack H. Kessler 1998 $160,000 60,000 $ 624
Executive Vice President, Chief 1997 $150,000 70,281 $ 624
Scientific Officer and Secretary 1996 $150,000 96,000 $ 624
Paul C. Desjourdy 1998 $145,000 60,000 $ 264
Executive Vice President, Chief 1997 $130,000 70,281 $ 264
Financial Officer and Treasurer 1996 $130,000 136,333 $ 264
- --------------------------------
</TABLE>
<PAGE>
(1) For each year includes premiums paid on term life insurance on behalf
of the Named Executive Officers in the following amounts: Dr.
Kessler: $624 and Mr. Desjourdy: $264.
Option/SAR Grants in Last Fiscal Year
The following table sets forth information with respect to options
granted during the last fiscal year to the Named Executive Officers of the
Company.
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total
Securities Options/SAR
Underlying Granted to Exercise
Options/SAR's Employees in or Base
Name Granted(#) Fiscal Year Price ($/Sh) Expiration Date
---- ------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Jack H. Kessler 45,000 (1) 21.6% $1.86 December 1, 2003
15,000 (2) 7.2% $1.86 December 1, 2003
Paul C. Desjourdy 45,000 (1) 21.6% $1.69 December 1, 2008
15,000 (2) 7.2% $1.69 December 1, 2008
- ---------------------------
</TABLE>
(1) These options vest and become exercisable one-third on December 1,
1999, December 1, 2000 and December 1, 2001, respectively.
(2) These options vest on December 1, 1998 and become exercisable on
December 1, 1999.
Aggregated Fiscal Year-End Option Values
The following table set forth certain information with respect to the
number of unexercised stock options held by each Named Executive Officer on
December 31, 1998, and the value of the unexercised in-the-money options at that
date.
<TABLE>
<CAPTION>
Aggregated Fiscal Year-End Option Values
Value of Unexercised
Number of Securities In-The-Money
Underlying Unexercised Options at Fiscal
Options at Fiscal Year-End Year-End ($) (1)
----------------------------------- -----------------------------------
Name (#)Exercisable (#)Unexercisable Exercisable Unexercisable
---- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack H. Kessler 128,760 97,521 $ 15,192 $ 3,384
Paul C. Desjourdy 180,760 85,854 $ 11,442 $ 7,134
- ------------------
</TABLE>
(1) The value of unexercised in-the-money options at December 31, 1998, was
determined by multiplying the difference between the fair market value
(the closing sales price) of the Company's Class A Common Stock at the
close of business on December 31, 1998 ($1.50 per share) and the option
exercise price, by the number of options outstanding at that date. The
values have not been realized and may not be realized. The options have
not been exercised and may never be exercised. In the event the options
are exercised, their value will depend upon the fair market value of
the underlying Class A Common Stock on the date of exercise.
<PAGE>
Director Compensation
Upon Board of Directors' approval in May 1998, the Company no longer
provides cash compensation to directors for attendance at board or committee
meetings. Each non-employee director is entitled to receive on January 1st of
each year an option (the "Annual Options") to purchase 2,500 shares of Class A
Common Stock at the then fair market value under the Company's 1995 Non-Employee
Directors' Stock Option Plan. The Annual Options may only be exercised with
respect to vested shares. One-half of the shares subject to such options vest on
the first anniversary of the date of grant and the balance vest on the second
anniversary of the date of grant. In addition, Messrs. Lieberstein and Maradie
were each granted an option under the Company's 1993 Stock Option Plan at the
then fair market value, vesting equally over three years, to purchase 10,000
shares of Class A Common Stock in 1998 when they joined the Board of Directors.
All directors will be reimbursed for ordinary and necessary travel expenses
incurred in attendance at each board or committee meeting.
Employment Agreements
On December 23, 1995, the Company entered into a new employment
agreement with Dr. Jack H. Kessler, its Executive Vice-President and Chief
Scientific Officer and a director and principal stockholder. On July 1, 1996,
the Company entered into a new employment agreement with Mr. Paul C. Desjourdy,
its Executive Vice-President and Chief Financial Officer and a director. Both
agreements expire in December 2000. In 1999, Dr. Kessler and Mr. Desjourdy will
receive salaries of $160,000 and $145,000, respectively, per annum. The
employment agreements provide for inflationary salary adjustments, and such
compensation may be incrementally increased and bonuses may be given upon the
approval of the Company's Board of Directors. Both Executive Officers have
agreed to devote their full time and best efforts to fulfill their duties and
responsibilities to the Company. They will be entitled to participate in
employee benefit plans.
The Company has the right to terminate the agreements for Cause (as
defined therein) or as a result of the Executive Officers' death or Permanent
Disability (as defined therein). The Executive Officers have the right to
terminate their agreements on account of their Constructive Discharge (as
defined therein). Except in the case of termination for Cause, upon early
termination of their agreements, the Executive Officers shall be entitled to
receive their salaries plus fringe benefits for a period of 18 months from the
date of termination and any bonuses prorated through the date of termination.
Both Executive Officers have agreed not to disclose to anyone
confidential information of the Company during the term of their employment or
thereafter and will not compete with the Company utilizing the Company's
proprietary information, know-how or trade secrets during the term of their
employment or thereafter. All work, research and results thereof, including,
without limitation, inventions, processes or formulae made, conceived or
developed by the Executive Officers during the term of employment which are
related to the business, research, and development work or field of operation of
the Company shall be the property of the Company.
Dr. Kessler is a principal stockholder, officer and director of a
company which has rights to use technology that he developed pertaining to
contact lens disinfection. This technology, which is similar to the Company's
technology, is not expected to be assigned to the Company. As a result, use of
the Company's technology in the area of contact lens disinfection may require
the prior consent of such other company or the then owner of such rights.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act") requires the Company's directors, officers and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file initial reports of ownership and changes in ownership of such securities
with the Securities and Exchange Commission. Directors, officers and greater
than ten percent beneficial owners are required by applicable regulations to
furnish the Company with copies of all Section 16(a) forms they file.
<PAGE>
Based solely upon a review of the copies of the forms furnished to the
Company and written representations from the Company's directors and officers,
the Company believes that during 1998 all filing requirements applicable to its
directors, officers and greater than ten percent beneficial owners were
satisfied.
CERTAIN TRANSACTIONS
From November 1987 through July 1990, Dr. Kessler loaned the Company an
aggregate of $51,495 at varying rates of interest, of which approximately $4,000
had been repaid. In May 1991, these loans were consolidated and the Company
issued Dr. Kessler a new promissory note in the amount of $47,549, payable on
demand at an annual interest rate of 7%. In August 1996, the Company repaid the
outstanding balance of the note, plus accrued interest, in part by issuing
44,444 shares of the Company's Series A Preferred Stock, $.001 par value, to Dr.
Kessler as part of a private placement of such Series A Preferred Stock at a
price of $1.125 per share. In May 1997, Dr. Kessler converted all of his Series
A Preferred Stock into an equal number of shares of the Company's Class A Common
Stock, pursuant to registration of such shares by the Company.
During August 1996 the Company issued 400,000 shares of Series A
Preferred Stock to Mr. Anthony Cantone at a purchase price of $1.125 per share
as part of a private placement. In May 1997, Mr. Cantone converted all of his
Series A Preferred Stock into an equal number of shares of the Company's Class A
Common Stock, pursuant to registration of such shares by the Company.
In August 1997, the Company entered into a Collaboration and
Sale/License Agreement with Bausch & Lomb Pharmaceuticals, Inc. ("Bausch &
Lomb"). Under the Collaboration and Sale/License Agreement, the parties intend
to develop ophthalmic products based on Symbollon's proprietary enzyme-based
iodine technology. Bausch & Lomb obtained exclusive marketing rights in the
United States and Canada for ophthalmic products that are developed based on
Symbollon's iodine technology. The agreement also provides Bausch & Lomb with
options to broaden its exclusive marketing rights to include the rest of the
world, and to include otic (ear) products. So long as the agreement is in
effect, Bausch & Lomb will make a series of milestone payments to Symbollon
based on the passage of time or the occurrence of certain events, plus royalty
payments on product sales and reimbursement of Symbollon's development efforts
under the agreement.
In conjunction with the Collaboration and Sale/License Agreement, the
parties entered into a Stock Purchase Agreement pursuant to which Bausch & Lomb
has purchased in August 1997 and 1998 an aggregate of 669,545 shares of Class A
Common Stock for $850,000. Pursuant to the Stock Purchase Agreement, the shares
purchased by Bausch & Lomb are subject to certain voting and transfer
restrictions and may be redeemed at cost at the option of either the Company or
the purchaser. Subject to certain exceptions, Bausch & Lomb has agreed to vote
its shares of Class A Common Stock in accordance with the recommendations of
Symbollon's Board of Directors. Bausch & Lomb may offset certain portions of the
future milestone payments due to Symbollon pursuant to the Collaboration and
Sale/License Agreement by requiring at cost redemption of the shares purchased
pursuant to the Stock Purchase Agreement. Under certain circumstances, if the
Collaboration and Sale/License Agreement is terminated prior to Symbollon's
receipt of the required milestone payments, then Bausch & Lomb has agreed to
transfer to Symbollon for no consideration up to $500,000 worth (valued at their
original purchase price) of the shares. Additionally, if the Collaboration and
Sale/License Agreement is terminated by Bausch & Lomb prior to its fourth
anniversary, Bausch & Lomb may require the Company to repurchase up to $350,000
worth (valued at their original purchase price) of the shares annually through
the seventh anniversary of the Stock Purchase Agreement in an amount equal to
25% of the Company's positive cash flows from operating activities.
For information concerning employment agreements and option agreements
with the Company's officers, see "Executive Compensation".
<PAGE>
APPROVAL OF AMENDMENTS TO THE
COMPANY'S 1993 STOCK OPTION PLAN
The Company's 1993 Stock Option Plan was approved by the directors and
stockholders of the Company in August 1993 and amended by the directors and
stockholders in 1995 and 1996. The purpose of the 1993 Stock Option Plan, as
amended (the "1993 Stock Option Plan"), is to enable the Company to provide an
incentive to certain employees, agents, consultants and directors of the Company
to contribute to the success of the Company. There are currently five employees
and three non-employee directors eligible to participate in the 1993 Stock
Option Plan.
The 1993 Stock Option Plan provided that (a) the total number of shares
of Common Stock with respect to which options and stock appreciation rights
("SARs") may be granted thereunder is 800,000 and (b) the expiration date of the
Plan was August 4, 2003 . The Board of Directors has adopted amendments to the
1993 Stock Option Plan, subject to the approval of stockholders pursuant to
Section 22 of the Plan, to (a) increase the total number of shares of Common
Stock with respect to which options and SARs may be granted thereunder to
1,600,000 shares and (b) extend the expiration date to August 4, 2008 (the
"Amendments"). The Amendments will enable the 1993 Stock Option Plan to continue
to achieve its purpose as described in the immediately preceding paragraph. To
date, options for an aggregate of 728,145 shares have been granted (net of
forfeitures) pursuant to the Plan to various individuals, including Messrs.
Desjourdy, Kessler, Maradie and Lieberstein (see "Executive Compensation"
above).
The complete text of the 1993 Stock Option Plan has been filed by the
Company with Securities and Exchange Commission as Exhibit A to the Company's
1994 Annual Stockholders Meeting Proxy Statement filed under cover of Schedule
14A dated May 4, 1994. These proposed Amendments (which will be reflected in
Sections 2(a) and 22 thereof), will (a) increase the total number of shares from
800,000 to 1,600,000 and (b) extend the expiration date from August 4, 2003 to
August 4, 2008. The following summary of material features of the 1993 Stock
Option Plan as proposed to be amended by the Amendments does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the 1993 Stock Option Plan.
The 1993 Stock Option Plan may be administered by either the entire
Board of Directors or a committee (the "Committee") of two or more directors
appointed by the Board of Directors. Members of the Committee must be
"disinterested" (as formerly defined under Rule 16b-3 promulgated under the
Exchange Act). The Board of Directors or Committee, as the case may be, is to
determine, among other things, the recipients of grants, whether a grant will
consist of incentive stock options ("ISOs"), non qualified stock options or SARs
(in tandem with an option or free-standing) or a combination thereof, and the
number of shares to be subject to such options and SARs. In the event that a
duly constituted Committee is not in existence at any time, the entire Board of
Directors is to administer the 1993 Stock Option Plan.
The 1993 Stock Option Plan provides for the granting of ISOs to
purchase the Company's Class A Common Stock at not less than the fair market
value on the date of the option grant and the granting of non-qualified options
and SARs with an exercise price not less than 85% of fair market value. SARs
granted in tandem with an option have the same exercise price as the related
option. The 1993 Stock Option Plan contains certain limitations applicable only
to ISOs granted thereunder. To the extent that the aggregate fair market value,
as of the date of grant, of the shares as to which ISOs become exercisable for
the first time by an optionee during any calendar year exceeds $100,000, the
option will be treated as a non qualified option. In addition, if an optionee
owns more than 10% of the total voting power of all classes of the Company's
stock at the time the individual is granted an ISO, the option price per share
cannot be less than 110% of the fair market value per share and the term of the
ISO cannot exceed five years. No option or SAR may be granted under the 1993
Stock Option Plan after August 4, 2003 (to be extended to August 4, 2008 by the
proposed Amendments) and no option or SAR may be outstanding for more than ten
years after its grant.
Upon the exercise of an option, the holder must make payment of the
full exercise price. Such payment may be made in cash, check or, under certain
circumstances, in shares of any class of the Company's common stock, or any
<PAGE>
combination thereof. The 1993 Stock Option Plan permits the Company to lend to
the holder of an option funds sufficient to pay the exercise price. SARs which
give the holder the privilege of surrendering such rights for the appreciation
in the Class A Common Stock between the time of the grant and the surrender, may
be settled, in the discretion of the Board or Committee, as the case may be, in
cash, common stock, or in any combination thereof. The exercise of an SAR
granted in tandem with an option cancels the option to which it relates with
respect to the same number of shares as to which the SAR was exercised. The
exercise of an option cancels any related SAR with respect to the same number of
shares as to which the option was exercised. Generally options and SARs may be
exercised while the recipient is performing services to the Company and within
three months after termination of such services.
The 1993 Stock Option Plan may be terminated at any time by the Board
of Directors, which may also amend the 1993 Stock Option Plan, except that
without stockholder approval it may not increase the number of shares subject to
the 1993 Stock Option Plan or change the class of persons eligible to receive
options and SARs under the 1993 Stock Option Plan.
Plan Benefits
The specific future benefits or amounts to be received by executive
officers, employees and directors under the 1993 Stock Option Plan as proposed
to be amended by the Amendments is not determinable. Since the adoption of the
Plan, Messrs. Kessler and Desjourdy have received options for an aggregate of
226,281 and 266,614 shares, respectively (60,000 and 60,000 of which were
received in 1998), the non-employee director group received options for an
aggregate of 20,000 shares, all in 1998 (see "Executive Compensation"), and all
employees, other than executive officers and the non-employee director group,
currently consisting of three persons, received options for 150,000 shares under
the 1993 Stock Option Plan, 88,000 of which were in 1998. No SARs have been
granted under the 1993 Stock Option Plan.
In addition to the 1993 Stock Option Plan, the Company has in effect a
1995 Non-Employee Directors' Stock Option Plan. See "Executive Compensation -
Director Compensation" above for a description of the benefits thereunder.
Federal Income Tax Consequences
Neither the receipt nor the exercise of an ISO is a taxable event, and
if the optionee does not dispose of stock acquired under an ISO prior to the
expiration of the requisite holding periods, any gain resulting from the sale of
the stock is long term capital gain. In such case the Company is not entitled to
any tax deduction with respect to the grant or the exercise of the option.
However, the amount by which the fair market value of shares at the time of
exercise of the option exceeds the option price will constitute an item of tax
preference for purposes of the alternative minimum tax for the optionee. The
statutory holding period is at least two years from the date the ISO is granted
and one year from the date the optionee receives his shares of Common Stock
pursuant to the exercise. If the stock is disposed of before the end of the
statutory holding period, the lesser of the difference between the exercise
price and the fair market value of the stock on the date of exercise or the
total amount of gain realized on the sale must be reported by the optionee as
ordinary income and the Company is entitled to a tax deduction for that amount.
The remaining gain, if any, is taxed to the optionee as long or short term
capital gain.
The receipt of a non-qualified stock option issued under the 1993 Stock
Option Plan will not result in any taxable income to the optionee or a tax
deduction to the Company at the time the option is granted. Generally, the
optionee will recognize ordinary income at the time the non-qualified stock
option is exercised in an amount equal to the excess of the fair market value on
the date of exercise of the shares received over the exercise price, and the
Company will be entitled to a tax deduction of an equal amount in the year the
optionee recognizes such income. The optionee will have a tax basis for his
shares equal to their fair market value at the time the optionee recognizes
ordinary income and any additional gain or loss recognized by the optionee on
disposition of the shares will generally be a short or long term capital gain or
loss and will not result in any additional tax deduction to the Company.
<PAGE>
The holder of an SAR will not realize any taxable income upon the grant
of such right. The holder will realize ordinary income in the tax year in which
payment is realized in an amount equal to the amount of such cash and/or the
then fair market value of the shares of Common Stock received upon exercise, and
the Company will normally be entitled to a tax deduction for an equal amount for
the same year.
The Board of Directors recommends that the Stockholders vote FOR the
proposal to approve the Amendments.
PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
CONCERNING CLASSIFICATION OF THE BOARD OF DIRECTORS,
THE REMOVAL OF DIRECTORS AND RELATED MATTERS
General
The Delaware General Corporation Law currently provides that the
Certificate of Incorporation may provide for classification of the Board into
one, two or three classes. The Board of Directors has adopted proposed
amendments to the Company's Certificate of Incorporation to: (a) classify the
Board, effective with this 1999 Annual Meeting, into three classes, as nearly as
equal as possible, so that each director (after a transitional period) will
serve for three years, with one class of directors being elected each year; (b)
provide that directors may be removed only for cause by the affirmative vote of
at least eighty percent (80%) of the voting power of all of the outstanding
shares of capital stock of the Company entitled to vote generally in the
election of directors; (c) provide that any vacancy on the Board may be filled
only by a majority vote of the directors then in office, even if less than a
quorum, and that a director elected to fill a vacancy hold office until the next
election of the class for which such director shall have been chosen; (d)
increase the stockholder vote required to alter, amend, repeal or adopt any
provision inconsistent with these proposed amendments to at least eighty percent
(80%) of the voting power of all of the outstanding shares of capital stock of
the Company entitled to vote generally in the elections of directors, voting
together; and (e) provide for certain other related matters. The full text of
the proposed amendments to the Certificate of Incorporation are set forth in
Exhibit A to this Proxy Statement, and the descriptions thereof in this Proxy
Statement are qualified in their entirety by reference thereto.
The Board of Directors believes that the proposed amendments are
advisable and in the best interest of the stockholders and recommends that the
stockholders approve the amendments. If the proposed amendments are approved,
the five directors elected to the Board at the 1999 Annual Meeting will be
divided into three classes as provided under "Board of Directors - Election of
Directors" and certain conforming amendments, in substantially the form set
forth in Exhibit B to this Proxy Statement, will be made by the Board of
Directors to the By-laws of the Company.
The Board believes that a classified Board will help lend continuity
and stability to the management of the Company. Following adoption of the
classified Board structure, at any given time approximately two-thirds of the
members of the Board will generally have had experience as directors of the
Company. The Board believes that this will facilitate long-range business
planning, strategic planning and policy making. In particular, the Company
believes that a classified Board will permit the Company to more effectively
represent the interests of all of its stockholders in a variety of situations,
including responding to circumstances which might be created by the demands or
actions of a single stockholder or stockholder group, than might be the case if
the Board were not classified and a measure of continuity from year to year were
not thereby assured.
The proposed classified Board amendment could discourage efforts to
obtain control of the Company. Accordingly, before voting on the proposed
amendments, stockholders should read carefully the description contained below
in "Anti-Takeover Effects of Existing Provisions of the Certificate of
Incorporation Relating to the Class B Common Stock and Preferred Stock" as well
as the following description of the proposed amendments. The classification of
<PAGE>
directors will have the effect of making it more difficult for stockholders to
change the composition of the Board in a relatively short period of time since
at least two Annual Meetings of Stockholders will be required to effect a change
in a majority of the members of the Board. The delay afforded by the proposed
amendments will help ensure that the Board, if confronted with a hostile tender
offer, a proxy contest or other similar proposal, would have sufficient time to
review and consider the proposal and appropriate alternatives to the proposal
and to act in what it believes to be the best interests of the stockholders.
The Company's management is not presently aware of any pending or
threatened effort to take over control of the Company or to change management,
either by a third party or by any holder or holders of any substantial block of
the Company's capital stock, whether by merger, tender offer, solicitation in
opposition to management or otherwise. Accordingly, the proposed amendments to
the Certificate of Incorporation are not being recommended in response to any
specific effort to obtain control of the Company of which the Company is aware.
The Board of Directors has concluded, however, that it is desirable to consider
these amendments at a time when the Company is not subject to a takeover attempt
because the Board of Directors believes it is prudent to seek stockholder
approval of these measures in advance since, given time and other constraints,
such action would often be impractical once a hostile attempt has been
announced.
Description of the Proposed Amendments
Classification of the Board of Directors. The Company's By-laws now
provide that directors shall hold office until the next annual meeting of
stockholders and until their successors are elected and have been qualified. The
proposed amended Article SIXTH of the Certificate of Incorporation provides that
the Board shall be divided into three classes of directors. Pursuant to the
amendments, each class will be as nearly equal in number of directors as
possible. If the proposed amendments are adopted, the Company's directors will
be divided into three classes and two directors will be elected for a term
expiring at the 2000 Annual Meeting of Stockholders, two directors will be
elected for a term expiring at the 2001 Annual Meeting of Stockholders, and one
director will be elected for a term expiring at the 2002 Annual Meeting of
Stockholders (in each case, until their respective successors are elected and
qualified or such director's earlier death, resignation or removal). Starting
with the 2000 Annual Meeting of Stockholders, one class of directors will be
elected each year for a three-year term. For information regarding the nominees
for election at this 1999 Annual Meeting and the class of Directors in which
each nominee will initially serve if the proposed amendments are adopted, see
"Board of Directors - Election of Directors".
The classification of directors will have the effect of making it more
difficult to change the composition of the Board. At least two stockholder
meetings, instead of one, will be required to effect a change in the control of
the Board. Although, the Company has not experienced any significant problems to
date with the continuity and stability of the Company's management and policies,
the Board believes that the longer time required to elect a majority of a
classified Board will help to assure the continuity and stability of the
Company's management and policies in the future, because a majority of the
directors at any given time will have prior experience as directors of the
Company. It should be noted that the classification provisions will apply to
every election of directors, not only when there is a contest for control, and
will apply whether or not a change in the Board would be beneficial to the
Company and its stockholders and whether or not a majority of the Company's
stockholders believes that such a change would be desirable.
Removal of Directors; Filling Vacancies on the Board of Directors.
Under Delaware General Corporation Law, directors serving on a classified board
may be removed only for cause unless the Certificate of Incorporation provides
otherwise. The Company's By-laws now provide that directors may be removed for
cause or without cause by the stockholders or for cause by the Board of
Directors. In order to protect the classification mechanism, the proposed
amendments provide that a director may be removed only for cause, by the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of all outstanding shares of capital stock entitled to vote generally in
the election of directors, voting together as a single class.
<PAGE>
The proposed amendments provide that a vacancy on the Board resulting
from such a removal may be filled only by vote of a majority of the directors
then in office. The proposed amendments would also permit the remaining
directors then in office to fill such a vacancy on the Board even if less than a
quorum. In addition, the proposed amendments provide that any new director
elected to fill such a vacancy on the Board will serve for the remainder of the
full term of the class in which the vacancy occurred. It also provides that no
decrease in the number of directors shall shorten the term of any incumbent.
Currently the Company's By-laws provide that a vacancy on the Board resulting
from removal of a director may be filled by a majority vote of the remaining
directors then in office, even if less than a quorum, or by the sole remaining
director. The By-laws currently also provide that any director elected to fill
such a vacancy on the Board will hold office until the election of their
successor at the next annual meeting of stockholders. The provisions of the
proposed amendments to the Certificate of Incorporation relating to the removal
of directors and the filling of vacancies on the Board will preclude a third
party from removing incumbent directors without cause (or in the case of a
sudden change of control of the Company, even with cause, unless the acquirer
controls eighty percent (80%) of the voting power) and simultaneously gaining
control of the Board by filling the vacancies created by removal with its own
nominees. The proposed amendments would also have the effect of allowing
directors to fill any vacancy created by removal of a director for cause by the
affirmative vote of stockholders having at least eighty percent (80%) of the
voting power. Therefore, if any director is removed by such a vote of the
stockholders, the directors then in office would have the right to replace such
director with a nominee of their choosing without stockholder approval.
Increased Stockholder Vote for Alteration, Amendment or Repeal of
Proposed Amendments. Under the Delaware General Corporation Law, stockholder
approval of most amendments to the Certificate of Incorporation requires, in the
absence of a greater voting requirement in the Certificate of Incorporation, the
favorable vote of at least a majority of the outstanding stock entitled to vote
thereon. The Delaware General Corporation Law also permits provisions to be
contained in the Certificate of Incorporation to require a greater vote. With
respect to such greater-voting provisions, the Delaware General Corporation Law
requires that any alterations, amendment or repeal thereof be approved by such
greater stockholder vote. As permitted by these provisions of Delaware General
Corporation Law, the proposed amendments require approval of at least eighty
percent (80%) of the votes cast on the matter by all of the outstanding shares
of capital stock of the Company entitled to vote generally in the election of
directors, voting together, for the alteration, amendment or repeal of, or the
adoption of any provision inconsistent with, the proposed amendments as embodied
in amended Article SIXTH of the Certificate of Incorporation.
The requirement of an increased stockholder vote is designed to prevent
a stockholder or a group of stockholders controlling a majority (but less than
eighty percent (80%)) of the voting power of all the outstanding shares of
capital stock of the Company entitled to vote from avoiding the requirements of
the proposed amendments by simply repealing them.
Anti-Takeover Effects of Existing Provisions of the Certificate of Incorporation
Relating to the Class B Common Stock and Preferred Stock.
The Company presently has in effect certain provisions in its
Certificate of Incorporation which, by themselves, or when added to the proposed
amendments to the Certificate of Incorporation, could preclude or inhibit the
takeover of the Company by a transaction not favored by the incumbent directors
and executive officers.
The Company's Certificate of Incorporation authorizes the issuance of
1,250,000 shares of Class B Common Stock, of which 15,738 shares are currently
outstanding. The Board of Directors, without further stockholder approval, may
authorize the issuance of additional authorized but unissued shares of Class B
Common Stock in the future and sell shares of Class B Common Stock held in the
Company's treasury subject to compliance with listing requirements of the Nasdaq
SmallCap Market. The holders of Class A Common Stock are entitled to one vote
for each share held on all matters voted on by common stockholders, including
the election of directors. The holders of Class B Common Stock are entitled to
five votes for each share held in the election of directors and on all matters
voted on by common stockholders. The Class B Common Stock is generally
<PAGE>
nontransferable, and while there is no trading market for the Class B Common
Stock, the Class B Common Stock is freely convertible into Class A Common Stock
on a share-for-share basis and, subject to compliance with applicable securities
laws, transferable thereafter.
The Company's Certificate of Incorporation also authorizes the issuance
of 5,000,000 shares of preferred stock on terms which may be fixed by the
Company's Board of Directors without further stockholder action subject to
compliance with listing requirements of the Nasdaq SmallCap Market. The terms of
any series of preferred stock, which may include priority claims to assets and
dividends, and special voting rights, could adversely affect the rights of
holders of the Class A Common Stock. No preferred stock is outstanding, and the
Company has no current plans to issue such preferred stock.
The issuance of such Class B Common Stock or preferred stock could make
the possible takeover of the Company or the removal of management or the Board
of Directors of the Company more difficult, discourage hostile bids for control
of the Company in which stockholders may receive premiums for their shares of
Class A Common Stock, or otherwise dilute the rights of holders of Class A
Common Stock and the market price of the Class A Common Stock.
The Board of Directors recommends that the Stockholders vote FOR the
proposal to approve the amendments to the Certificate of Incorporation.
PROPOSED ISSUANCE AND ISSUE OF UP TO 750,000 UNITS
IN A PRIVATE PLACEMENT
General
Pursuant to a Confidential Private Placement Memorandum dated March __,
1999 (the "PPM"), the Company is offering (the "Offering") for sale to persons
who qualify as "accredited investors" as that term is defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
units (the "Units"), each Unit consisting of one share of the Class A Common
Stock and one redeemable warrant (the "Warrants"), for a purchase price of
$______ [the Units will be priced at a discount to the market value of the Class
A Common Stock at the start of the Offering] per Unit, with a minimum offering
of 75,000 Units (the "Minimum Offering") and a maximum offering of 750,000 Units
(the "Maximum Offering"). Each Warrant is exercisable for a four-year period,
beginning on the date of the initial closing of the Offering, to purchase one
share of Class A Common Stock at exercise prices per share of $3.00 during the
first year, $4.00 during the second year, $5.00 during the third year and $6.00
thereafter. Warrants may be redeemed by the Company at $0.01 per Warrant in the
event that the closing bid price of the Class A Common Stock for twenty
successive trading days is equal to or greater than $5.00 during the first year,
$6.00 during the second year, $7.00 during the third year and $8.00 thereafter,
subject to the holder's right to exercise.
The Company has retained a National Association of Securities Dealers
(NASD) member as agent (the "Placement Agent") in connection with the
Offering of the Units on a ""best efforts" basis. Richard M. Lilly, a principal
and employee of the Placement Agent, is the beneficial owner of more than five
percent (5%) of the Company's Class A Common Stock. See "Security Ownership of
Certain Beneficial Owners and Management." The Company has agreed to pay the
Placement Agent a ten percent (10.0%) cash commission and Warrants equal to
10.0% of the Units sold (the "Placement Agent Warrants") for investors
identified and brought to the Offering by the Placement Agent. For investors
identified and brought to the Offering by the Company, the Placement Agent
will not receive any cash commissions or Placement Agent Warrant allocations.
The Units will be offered in accordance with Rule 506 of Regulation D
promulgated under the Securities Act, and accordingly the securities offered in
the Offering will not be registered under the Securities Act and may not be
offered or sold by the holders thereof absent registration or an applicable
exemption from the registration requirements. The Company has, however,
undertaken to use its reasonable best efforts to file a registration statement
<PAGE>
under the Securities Act to register for resale the shares of the Class A Common
Stock included in the Units and issuable upon exercise of the Warrants no later
than eight (8) months following the final closing of the Offering.
Reason for this Proposal; Nasdaq Stockholder Approval Requirement
Prior to accepting any offer to purchase Units in excess of the first
350,000 Units (the "Additional Units"), the Company must obtain stockholder
approval for such sales or assurances from Nasdaq that such sales are exempt
from the Nasdaq SmallCap Market listing requirements relating to stockholder
approval for certain share issuances. [As of April 15, 1999, the Company has
sold _________ Units for gross proceeds of $____________. Additionally, the
Company has received subscriptions for ________ Units, which subscription
agreements and funds are being held in escrow pending receipt of stockholder
approval.]
Stockholder approval of the issuance of the Additional Units is not
required under the Delaware General Corporation Law, the Company's Certificate
of Incorporation, or the Company's By-laws. However, as discussed below, the
Company is seeking stockholder approval of the issuance and sale of the
Additional Units (including the shares of Class A Common Stock and the Warrants
included therein and the shares of Class A Common Stock issuable upon exercise
of the Warrants) in order to satisfy certain listing requirements under the
Nasdaq Marketplace Rules for continued inclusion of the Company's Class A Common
Stock in the Nasdaq SmallCap Market.
The Class A Common Stock is traded in the over-the-counter market and
is quoted on the Nasdaq SmallCap Market. In order to qualify for inclusion in
the Nasdaq SmallCap Market, it is necessary that the Company satisfy certain
financial and other criteria set forth in the Nasdaq Marketplace Rules (the
"Rules"). In addition, in order to maintain such inclusion under the Rules, the
Company must, among other things, follow certain corporate governance
procedures, including obtaining stockholder approval in connection with certain
corporate transactions.
Rule 4310(c)(25)(H) of the Rules requires stockholder approval of the
issuance of securities by an issuer under various circumstances. In particular,
Subsections (i)b and d of paragraph (H) require stockholder approval prior to
the issuance of securities in the following situations:
"b. when the issuance will result in a change of control of the
issuer; . . . . . . or
d. in connection with a transaction other than a public offering
involving:
1. the sale or issuance by the issuer of common stock (or securities
convertible into or exercisable for common stock) at a price less than
the greater of book or market value which together with sales by
officers, directors or substantial shareholders of the Company equals
20% or more of common stock or 20% or more of the voting power
outstanding before the issuance; or
2. the sale or issuance by the company of common stock (or securities
convertible into or exercisable for common stock) equal to 20% or more
of the common stock or 20% or more of the voting power outstanding
before the issuance for less than the greater of book or market value
of the stock."
Prior to the Offering, the Company had 3,589,331 shares of Class A
Common Stock and 15,738 shares of Class B Common Stock outstanding. The Company
may issue and sell up to 350,000 Units (constituting 19.5% of the currently
outstanding Class A Common Stock assuming exercise of the Warrants included in
these Units) without stockholder approval. If the 400,000 Additional Units
(representing 22.3% of the currently outstanding Class A Common Stock assuming
exercise of the Warrants included in these Units) are issued, the Company
will have issued securities representing 41.8% of the shares of Class A Common
<PAGE>
Stock outstanding immediately prior to the Offering. Accordingly, in order to
comply with the Rules, it will be necessary for the Company to obtain
stockholder approval of the issuance of the Additional Units on the terms
and conditions of the Offering.
Although the Company could, instead of seeking stockholder approval for
the Additional Units, either not seek to issue and sell the Additional Units or,
alternatively, sell the Additional Units and be delisted from the Nasdaq
SmallCap Market, the Company believes it is in the stockholders' best interest
for the Company to both (1) seek the funds hoped to be raised by the Additional
Units in order to continue its development efforts, and (2) try to retain its
Nasdaq SmallCap Market listing, for the reasons set forth in the immediately
following section. However, as described below, even if stockholder approval
for the issuance and sale of the Additional Units is obtained and the Maximum
Offering is completed, there can be no assurance that the Company will continue
to meet the requirements for continued listing on the Nasdaq SmallCap Market.
Requirements for Continued Nasdaq Listing
In order to maintain the Class A Common Stock's listing on the Nasdaq
SmallCap Market, the Company must meet the continued listing requirements of
Rule 4310(c)(2) of the Rules, which requires that an issuer maintain (i) net
tangible assets of $2,000,000; (ii) market capitalization of $35,000,000; or
(iii) net income of $500,000 in the most recently completed fiscal year or in
two of the last three most recently completed fiscal years.
The continued listing criteria under the Rules also require, among
other things, that the minimum bid price per share of the Company's Class A
Common Stock be at least $1.00. If the Company is unable to meet this criteria
for a period of thirty (30) consecutive business days, the Company, upon notice
from Nasdaq, shall have a period of ninety (90) calendar days to achieve
compliance with the above criteria. Compliance can be achieved by meeting the
applicable criteria for a minimum of ten (10) consecutive business days during
such ninety (90) day compliance period. From time to time during 1998, the
minimum bid price for the Company's Class A Common Stock has been below $1.00
per share.
If the Company should become unable to meet the continued listing
criteria of the Nasdaq SmallCap Market and is delisted therefrom, trading, if
any, in the Class A Common Stock would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
the "OTC Bulletin Board Service." As a result, an investor would likely find it
more difficult to dispose of, or to obtain accurate quotations as to the value
of, the Company's securities. If the Company's securities were delisted from
Nasdaq, they may become subject to penny stock restrictions. If the Company's
securities were subject to the rules on penny stocks, the market liquidity for
the Company's securities could be severely adversely affected.
The "penny stock" rules under the Exchange Act impose additional sales
practice and market-making requirements on broker-dealers who sell and/or make a
market in such securities. For transactions covered by the penny stock rules, a
broker-dealer must make special suitability determinations for purchasers and
must have received the purchaser's written consent to the transaction prior to
sale. In addition, for any transaction involving a penny stock, unless exempt,
the rules require delivery prior to any transaction in a penny stock of a
disclosure schedule prepared by the Securities and Exchange Commission relating
to the penny stock market. Disclosure is also required to be made about
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in the account and information on the limited market and penny stocks. As a
result, the Company's delisting from the Nasdaq SmallCap Market and its becoming
subject to the rules on penny stock would negatively affect the ability or
willingness of broker-dealers to sell or make a market in the Company's
securities and, therefore, would severely and adversely affect the market
liquidity for the Company's Class A Common Stock.
Once delisted from Nasdaq, in order to regain listing on the Nasdaq
SmallCap Market the Company would have to meet the more stringent initial
listing qualifications which will require, among other things, (A) (i) net
tangible assets of $4,000,000, (ii) market capitalization of $50,000,000, or
(iii) net income of $750,000 in the most recently completed fiscal year, or in
<PAGE>
two of the most recently completed fiscal years, and (B) a common stock bid
price of at least $4.00 per share. There can be no assurance that the Company
could ever meet these stricter listing requirements, if delisted.
At December 31, 1998, the Company's balance sheet reflects total assets
of $2,504,489, stockholders' equity of $1,543,283 and net tangible assets of
$2,393,283. Based on the Company's internal estimates relating to planned
revenues and expenses for 1999, including a projected $750,000 milestone payment
due under its existing corporate relationships, the Company anticipates that its
existing capital resources will not be adequate to satisfy the continued listing
criteria of Nasdaq relating to net tangible assets by April 30, 1999. Based on
its internal estimates, the Company anticipates that it will require
approximately $500,000 and $1,100,000 of additional capital resources, before
including the proceeds from this Offering, in order to satisfy the net tangible
assets test at June 30, 1999 and December 31, 1999, respectively. Thus, even if
stockholders approve the issuance and sale of the Additional Units and the
Maximum Offering is completed, there can be no assurance that the Company will
be able to retain its Nasdaq SmallCap Market listing, particularly after
December 31, 1999. This paragraph contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Stockholders are cautioned that forward-looking statements are inherently
uncertain. Actual performance, achievements and results may differ materially
from those expressed, projected or suggested in the forward-looking statements
due to certain risks and uncertainties, including, but not limited to, the risks
and uncertainties described or discussed in the section "Risk Factors' in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, to
which stockholders are referred.
Impact of Issuance of Additional Units
The following table sets forth certain information regarding the
beneficial ownership of the Class A Common Stock of (i) Company's directors,
executive officers, and beneficial holders of 5% or more of the Class A Common
Stock ("Affiliated Shareholders"), (ii) all other current shareholders ("Other
Current Shareholders") and (iii) purchasers of Units in the proposed Offering
("New Shareholders"), before and after consummation of the proposed Maximum
Offering. The information reflecting consummation of the Maximum Offering
assumes that no Affiliated Shareholders or Other Current Shareholders will
purchase any Units (although they may do so):
<TABLE>
<CAPTION>
Number of Shares Owned (1) Percent of Class A Common Stock
-------------------------- -------------------------------
Before the After the Before the After the
Maximum Maximum Maximum Maximum
Class of Owner Offering Offering Offering Offering
- -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Affiliated Shareholders 2,380,690 2,380,690 66.3% 54.9%
Other Current Shareholders 1,208,641 1,208,641 33.7% 27.8%
New Shareholders - 750,000 0.0% 17.3%
- ------------------------------------
</TABLE>
(1) Shares which could be acquired upon exercise of the Warrants or
outstanding options and the 15,738 shares of five-vote per share Class
B Common Stock (held by Other Current Shareholders) are not reflected
for purposes of this table.
The following table includes the information set forth in the preceding
table based on similar assumptions but, in addition, assumes exercise of all
Warrants, including the Placement Agent Warrants (all of which are assumed to be
owned by the Placement Agent and are included in the beneficial ownership of the
related Affiliated Shareholder), outstanding before and after consummation of
the proposed Maximum Offering:
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Owned (2) Percent of Class A Common Stock
-------------------------- -------------------------------
Before the After the Before the After the
Maximum Maximum Maximum Maximum
Class of Owner Offering Offering Offering Offering
- -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Affiliated Shareholders 2,380,690 2,455,690 66.3% 47.5%
Other Current Shareholders 1,208,641 1,208,641 33.7% 23.4%
New Shareholders - 1,500,000 0.0% 29.1%
- ------------------------------------
</TABLE>
(2) Shares which could be acquired upon exercise of outstanding options and
the 15,738 shares of five-vote per share Class B Common Stock (held by
Other Current Shareholders) are not reflected for purposes of this
table.
Although the issuance of the Units in the proposed Offering will have a
dilutive effect on the Company's current stockholders, the Board of Directors
believes that stockholder approval of the Additional Units is in the best
interest of the Company in order to enable the Company to continue its
development efforts.
Impact of a Vote Against Issuance of Additional Units
If the issuance and sale of the Additional Units is not approved, the
Company would be unable to issue the Additional Units without endangering its
Nasdaq SmallCap Market listing, even if the Board of Directors determined to
issue the Units notwithstanding the stockholder vote. Delisting from the Nasdaq
SmallCap Market would have the possible adverse consequences described above. If
the Company chose not to issue the Additional Units, the Company may be unable
to satisfy the net tangible asset requirements under the Rules as of June 30,
1999 and accordingly may no longer qualify for continued inclusion on the Nasdaq
SmallCap Market in any case. In addition, the Company's development efforts
might be sooner hampered for lack of funds.
The Board of Directors recommends that the Stockholders vote FOR the
proposal to issue the Additional Units.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Management of the Company recommends a vote for the ratification of BDO
Seidman, LLP ("BDO") as the independent auditors for the Company for 1999.
BDO served as the Company's independent accountants for its 1998 fiscal
year. The Company has requested that a representative of BDO attend the meeting.
Such representative will have an opportunity to make a statement, if he or she
desires, and will be available to respond to appropriate questions of
stockholders.
Effective April 1, 1998, the Boston office of Richard A. Eisner &
Company, LLP ("RAE") was merged into the Boston office of BDO. This merger
resulted in RAE no longer having an office in the Boston area, and the Company
concluded that it would be appropriate to select a new accounting firm. At a May
20, 1998 meeting, the Board of Directors of the Company voted to retain BDO to
serve as the Company's independent auditors, effective immediately. RAE's report
on the Company's financial statements for the two years ended December 31, 1997
did not contain an adverse opinion or disclaimer of opinion, and was not
modified as to uncertainty, audit scope or accounting principles. During the two
years ended December 31, 1997 and any subsequent interim period, there were no
disagreements between the Company and RAE on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
which, if not resolved to the satisfaction of RAE, would have caused it to make
reference to the subject matter of the disagreement in connection with its
report on the audited financial statements.
<PAGE>
OTHER MATTERS
The Board of Directors is not aware of any matters not set forth herein
that may come before the meeting. If, however, further business properly comes
before the meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment.
STOCKHOLDERS PROPOSALS FOR THE 2000 PROXY STATEMENT
Stockholders may submit proposals on matters appropriate for
stockholder action at annual meetings in accordance with regulations adopted by
the Securities and Exchange Commission. To be considered for inclusion in the
proxy statement and form of proxy relating to the 2000 annual meeting, such
proposals must be received by the Company no later than December 14, 1999.
Proposals should be directed to the attention of the Assistant Secretary of the
Company.
STOCKHOLDERS PROPOSALS FOR PRESENTATION AT THE 2000 ANNUAL MEETING WITHOUT
INCLUSION IN THE PROXY STATEMENT
Stockholders who wish to present any proposal or matter at the 2000
Annual Meeting of Stockholders (other than by the process for including
stockholder proposals in the proxy statement) are required to notify the
Investor Relations Department of the Company of their intent no later than
February 24, 2000. The notice should describe the proposal or matter. This
requirement does not apply to the deadline for submitting stockholder proposals
for inclusion in the proxy statement (see "Stockholders Proposals for the 2000
Proxy Statement" above), nor does it apply to questions a stockholder may wish
to ask at the meeting.
The Company retains discretion to vote proxies it receives with respect
to proposals received after February 24, 2000. The Company retains discretion to
vote proxies it receives with respect to proposals received prior to February
24, 2000 provided (i) the Company includes in its proxy statement advice on the
nature of the proposal and how it intends to exercise its voting discretion and
(ii) the proponent does not issue a proxy statement.
ANNUAL REPORT ON FORM 10-KSB
The Company is furnishing without charge to each person whose proxy is
being solicited, a copy of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998, including the financial statements and
schedules thereto, but excluding exhibits. Requests for additional copies of
such report should be directed to the Company, Attention: Investor Relations.
By order of the Board of Directors,
PAUL C. DESJOURDY
Assistant Secretary
Dated: April __, 1999
<PAGE>
Exhibit A
Proposed Amended Article SIXTH of the Certificate of Incorporation (Item 3)
Relating to Classification of Directors and Related Matters
SIXTH.
I. Number of Directors. The number of directors of the
Corporation shall not be less than three. The exact number of directors within
the limitations specified in the preceding sentence shall be fixed from time to
time by the Board of Directors.
II. Classes of Directors. The Board of Directors shall be and
is divided into three classes: Class I, Class II and Class III. No one class
shall have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
III. Terms of Office. Each director shall serve for a term
ending on the date of the third annual meeting following the annual meeting at
which such director was elected; provided, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting in 2000; each
initial director in Class II shall serve for a term ending on the date of the
annual meeting in 2001; and each initial director in Class III shall serve for a
term ending on the date of the annual meeting in 2002; and provided further,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
IV. Allocation of Directors Among Classes in the Event of
Increases or Decreases in the Number of Directors. In the event of any increase
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of which
he is a member for the full term of such class and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of directors so as
to ensure that no one class has more than one director more than any other
class. To the extent possible, consistent with the foregoing rule, any newly
created directorships shall be added to those classes whose terms of office are
to expire at the latest dates following such allocation, and any newly
eliminated directorships shall be subtracted from those classes whose terms of
offices are to expire at the earliest dates following such allocation, unless
otherwise provided from time to time by resolution adopted by the Board of
Directors.
V. Quorum; Action at Meeting. A majority of the number of
directors fixed pursuant to Section I above shall constitute a quorum except
when a vacancy or vacancies exist, whereupon a majority of the directors then in
office shall constitute a quorum for the transaction of business, provided that
in no case shall less than one-third of the number of directors fixed pursuant
to Section I above constitute a quorum. If at any meeting of the Board of
Directors there shall be less than such a quorum, a majority of those present
may adjourn the meeting from time to time. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors unless a greater
number is required by law, by the By-laws of the Corporation or by this
Certificate of Incorporation.
VI. Removal. Directors of the Corporation may be removed only
for cause by the affirmative vote of the holders of at least eighty percent
(80%) of the combined voting power of all shares of the capital stock of the
Corporation issued and outstanding and entitled to vote generally in the
election of directors, voting together as a single class.
VII. Vacancies. Any vacancy in the Board of Directors, however
occurring, including (without limitation) a vacancy resulting from an increase
in the number of directors, shall be filled only by a vote of a majority of the
<PAGE>
directors then in office, even if less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected to hold office
until the next election of the class for which such director shall have been
chosen, subject to the election and qualification of his successor and to his
earlier death, resignation or removal.
VIII. Preferred Stock. Notwithstanding the foregoing, whenever
the holders of any one or more series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation (including such terms
as may be adopted by the Board of Directors pursuant to Section III of Article
FOURTH of the Certificate of Incorporation) applicable thereto, such directors
so elected shall not be divided into classes pursuant to this Article SIXTH, and
the number of such directors shall not be counted in determining the maximum
number of directors permitted under the foregoing provisions of this Article
SIXTH, in each case unless expressly provided by such terms.
IX. Amendments to Article. Notwithstanding any other provisions
of law, the Certificate of Incorporation or the By-laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least eighty percent (80%) of the combined
voting power of all shares of capital stock of the Corporation issued and
outstanding and entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal, or to adopt
any provision inconsistent with, any provision of this Article SIXTH.
<PAGE>
Exhibit B
By-law Amendments to be Adopted by the Board of Directors
Upon Stockholder Approval of Proposed Amendments to the Certificate of
Incorporation Relating to Classification of Directors and Related Matters
Section 2, 3 and 5 of Article III of the By-laws are hereby amended to
read as follows:
Section 2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. Unless otherwise set forth in the Certificate of Incorporation, the
number of directors shall be determined from time to time by resolution of the
board of directors.
Section 3. CLASSIFICATION OF DIRECTORS; ELECTION AND TERM. The board of
directors shall be and is divided into three classes: Class I, Class II and
Class III. No one class shall have more than one director more than any other
class. If a fraction is contained in the quotient arrived at by dividing the
designated number of directors by three, then if such fraction is one third, the
extra director shall be a member of Class I, and if such fraction is two-thirds,
one of the extra directors shall be a member of Class I and one of the extra
directors shall be a member of Class II, unless otherwise provided from time to
time by resolution adopted by the board of directors. Each director shall serve
for a term ending on the date of the third annual meeting of stockholders
following the annual meeting of stockholders at which such director was elected;
provided, that each initial director in Class I shall serve for a term ending on
the date of the annual meeting of stockholders in 2000; each initial director in
Class II shall serve for a term ending on the date of the annual meeting of
stockholders in 2001, and each initial director in Class III shall serve for a
term ending on the date of the annual meeting of stockholders in 2002; and
provided further, that the term of each director shall be subject to the
election and qualification of his successor and to his earlier death,
resignation or removal. In the event of any increase or decrease in the
authorized number of directors, (i) each director then serving as such shall
nevertheless continue as a director of the class of which he is a member for the
full term of such class and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the board of
directors among the three classes of a directors so as to ensure that no one
class has more than one director more than any other class. To the extent
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of offices are to expire at
the earliest dates following such allocation, unless otherwise provided from
time to time by resolution adopted by the board of directors. Any vacancy in the
board of directors, however occurring, including (without limitation) a vacancy
resulting from an increase in the number of directors, shall be filled only by a
vote of a majority of the directors then in office, although less than a quorum,
or by a sole remaining director. A director elected to fill a vacancy shall be
elected to hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his successor and to his earlier death, resignation or removal. Notwithstanding
the foregoing, whenever the holders of any one or more series of Preferred Stock
issued by the Corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of the Certificate of Incorporation
(including such terms as may be adopted by the Board of Directors pursuant to
Section III of Article FOURTH of the Certificate of Incorporation) applicable
thereto, such directors so elected shall not be divided into classes pursuant to
this Article III, Section 3, and the number of such directors shall not be
counted in determining the maximum number of directors permitted under the
foregoing provisions of this Article III, Section 3, in each case unless
expressly provided by such terms.
Section 5. REMOVAL OF DIRECTORS. Directors of the Corporation may be
removed only for cause by the affirmative vote of the holders of at least eighty
percent (80%) of the combined voting power of all shares of the capital stock of
the Corporation issued and outstanding and entitled to vote generally in the
election of directors, voting together as a single class.
PROPOSED AMENDED 1993 STOCK OPTION PLAN
SYMBOLLON CORPORATION
1993 STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of the Symbollon Corporation 1993 Stock Option Plan (the
"Plan") is to advance the interests of Symbollon Corporation, a Delaware
corporation (the "Company"), by providing an opportunity for ownership of the
stock (or, in the case of SARs, as defined below, the appreciation of the value
of the stock) of the Company by employees, agents and directors of, and
consultants to, the Company and its subsidiaries, as defined below. By providing
such opportunity,the Company seeks to attract and retain such qualified
personnel, and otherwise to provide additional incentive for grantees to promote
the success of its business.
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued or
treasury shares of the class A common stock, $.001 par value per share, of the
Company (the "Common Stock") for which options (the "Options") and stock
appreciation rights ("SARs") may be granted under the Plan shall be 1,600,000,
subject to adjustment as provided in Section 14 hereof.
(b) If an Option granted or assumed hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for subsequent Option grants
under the Plan; provided, however, that shares as to which an Option has been
surrendered in connection with the exercise of a related SAR will not again be
available for subsequent Option or SAR grants under the Plan.
(c) Stock issuable upon exercise of an Option may be subject to such
restrictions on transfer, repurchase rights or other restrictions as shall be
determined by the Board of Directors of the Company (the "Board").
3. Administration of the Plan.
(a) The Plan shall be administered by the Board. No member of the
Board shall act upon any matter exclusively affecting any Option or SAR granted
or to be granted to himself or herself under the Plan. A majority of the members
of the Board shall constitute a quorum, and any action may be taken by a
majority of those present and voting at any meeting. The decision of the Board
as to all questions of interpretation and application of the Plan shall be
final, binding and conclusive on all persons. The Board, in its sole discretion,
may grant Options to purchase shares of Common Stock and may grant SARs, as
provided in the Plan. The Board shall have authority, subject to the express
provisions of the Plan, to construe the respective Option and SAR agreements and
the Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective Option and SAR
agreements, which may but need not be identical, and to make all other
determinations in the judgment of the Board necessary or desirable for the
administration of the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Option or SAR
agreement in the manner and to the extent it shall deem expedient to implement
the Plan and
<PAGE>
shall be the sole and final judge of such expediency. No director shall be
liable for any action or determination made in good faith. The Board, in its
discretion, may delegate its power, duties and responsibilities to a committee,
consisting of two or more members of the Board, all of whom are "disinterested
persons" (as hereinafter defined). If a committee is so appointed, all
references to the Board herein shall mean and relate to such committee, unless
the context otherwise requires. For the purposes of the Plan, a director or
member of such committee shall be deemed to be "disinterested" only if such
person qualified as a "disinterested person" within the meaning of paragraph
(c)(2) of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as such term is interpreted from time to time.
4. Type of Options.
Options granted pursuant to the Plan shall be authorized by action of
the Board and may be designated as either incentive stock options meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified options which are not intended to meet the
requirements of such Section 422 of the Code, the designation to be in the sole
discretion of the Board. Options designated as incentive stock options that fail
to continue to meet the requirements of Section 422 of the Code shall be
redesignated as non-qualified options automatically without further action by
the Board on the date of such failure to continue to meet the requirements of
Section 422 of the Code.
5. Eligibility.
Options designated as incentive stock options may be granted only to
officers and key employees of the Company or of any subsidiary corporation
(herein called "subsidiary" or "subsidiaries"), as defined in Section 424(f) of
the Code and the Treasury regulations (the "Regulations") promulgated
thereunder. Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted incentive stock options pursuant
to the Plan. Options designated as non-qualified options may be granted to (i)
officers and key employees of the Company or of any of its subsidiaries, or (ii)
agents, directors of and consultants to the Company, whether or not otherwise
employees of the Company.
In determining the eligibility of an individual to be granted an
Option or SAR, as well as in determining the number of shares to be subject to
any such Option or SAR, the Board shall take into account the position and
responsibilities of the individual being considered, the nature and value to the
Company or its subsidiaries of his or her service and accomplishments, his or
her present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Board may deem relevant.
- 2 -
<PAGE>
6. Restrictions on Incentive Stock Options.
Incentive stock options (but not non-qualified options) granted under
this Plan shall be subject to the following restrictions:
(a) Limitation on Number of Shares. Ordinarily, the aggregate fair
market value of the shares of Common Stock with respect to which
incentive stock options are granted (determined as of the date the
incentive stock options are granted), exercisable for the first time
by an individual during any calendar year shall not exceed $100,000.
If an incentive stock option is granted pursuant to which the
aggregate fair market value of shares with respect to which it first
becomes exercisable in any calendar year by an individual exceeds
such $100,000 limitation, the portion of such option which is in
excess of the $100,000 limitation shall be treated as a non-qualified
option pursuant to Section 422(d)(1) of the Code. In the event that
an individual is eligible to participate in any other stock option
plan of the Company or any subsidiary of the Company which is also
intended to comply with the provisions of Section 422 of the Code,
such $100,000 limitation shall apply to the aggregate number of
shares for which incentive stock options may be granted under this
Plan and all such other plans.
(b) Ten Percent (10%) Shareholder. If any employee to whom an
incentive stock option is granted pursuant to the provisions of this
Plan is on the date of grant the owner of stock (as determined under
Section 424(d) of the Code) possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any
subsidiary of the Company, then the following special provisions
shall be applicable to the incentive stock options granted to such
individual:
(i) The Option price per share subject to such
incentive stock options shall be not less than 110%
of the fair market value of the stock determined at
the time such Option was granted. In determining
the fair market value under this clause (i), the
provisions of Section 8 hereof shall apply.
(ii) The incentive stock option by its terms shall not
be exercisable after the expiration of five (5)
years from the date such Option is granted.
7. Option and SAR Agreements.
Each Option and SAR shall be evidenced by an agreement (the
"Agreement") duly executed on behalf of the Company and by the grantee to whom
such Option or SAR is granted, which Agreement shall comply with and be subject
to the terms and conditions of the Plan. The Agreement may contain such other
terms, provisions and conditions which are not inconsistent with the Plan as may
be determined by the Board; provided that Options designated as incentive stock
options shall meet all of the conditions for incentive stock
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options as defined in Section 422 of the Code. No Option or SAR shall be granted
within the meaning of the Plan and no purported grant of any Option or SAR shall
be effective until the Agreement shall have been duly executed on behalf of the
Company and the grantee. More than one Option and SAR may be granted to an
individual, subject, if applicable, to the limitations of Section 6.
8. Option Price.
(a) The Option price or prices of shares of the Common Stock for
Options designated as non-qualified stock options shall be as determined by the
Board; provided, however, that such Option price shall be not less than 85% of
the fair market value of the shares subject to such Option, determined as of the
date of grant of such Option.
(b) Subject to the conditions set forth in Section 6(b) hereof, the
Option price or prices of shares of the Company's Common Stock for incentive
stock options shall be at least the fair market value of such Common Stock at
the time the Option is granted as determined by the Board in accordance with the
Regulations promulgated under Section 422 of the Code.
(c) If such shares are then listed on any national securities
exchange, the fair market value shall be the mean between the high and low sales
prices, if any, on the largest such exchange on the date of the grant of the
Option or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales prices on the nearest date before and
the nearest date after the date of grant in accordance with Section 25.2512-2 of
the Regulations. If the shares are not then listed on any such exchange, the
fair market value of such shares shall be the mean between the closing "Bid" and
the closing "Ask" prices, if any, as reported in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") for the date of the
grant of the Option, or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales prices on the nearest
date before and the nearest date after the date of grant in accordance with
Section 25.2512-2 of the Regulations. If the shares are not then either listed
on any such exchange or quoted in NASDAQ, the fair market value shall be the
mean between the average of the "Bid" National Daily Quotation Service for the
date of the grant of the Option, or, if none, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on the
nearest date before and the nearest date after the date of grant in accordance
with Section 25.2512-2 of the Regulations. If the fair market value cannot be
determined under the preceding three sentences, it shall be determined in good
faith by the Board.
9. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such Options, (ii) shares of
Common Stock owned by the
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grantee having a fair market value equal in amount to the exercise price of the
Options being exercised, or (iii) any combination of (i) and (ii); provided,
however, that payment of the exercise price by delivery of shares of Common
Stock owned by such grantee may be made only upon the condition that such
payment does not result in a charge to earnings for financial accounting
purposes as determined by the Board, unless such condition is waived by the
Board. The fair market value of any shares of Common Stock which may be
delivered upon exercise of an Option shall be determined by the Board in
accordance with Section 8 hereof.
(b) To the extent that the right to purchase shares under an Option
has accrued and is in effect, Options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the Option, to the Company, stating the number of shares with
respect to which the Option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the Option
at such time, during ordinary business hours, after thirty (30) days but not
more than ninety (90) days from the date of receipt of the notice by the
Company, as shall be designated in such notice, or at such time, place and
manner as may be agreed upon by the Company and the person or persons exercising
the Option.
10. Exercise of Options and SARs.
Each Option and SAR granted under the Plan shall, subject to Section
11(b) and Section 14 hereof, be exercisable at such time or times and during
such period as shall be set forth in the Agreement; provided, however, that no
Option or SAR granted under the Plan shall have a term in excess of ten (10)
years from the date of grant. To the extent that an Option or SAR is not
exercised by a grantee when it becomes initially exercisable, it shall not
expire but shall be carried forward and shall be exercisable, on a cumulative
basis, until the expiration of the exercise period. No partial exercise may be
made for less than one hundred (100) full shares of Common Stock. The exercise
of an Option shall result in the cancellation of any related SAR with respect to
the same number of shares of Common Stock as to which the Option was exercised.
11. Term of Options and SARs; Exercisability.
(a) Term.
(i) Each Option and SAR shall expire on a date
determined by the Board which is not more than
ten (10) years from the date of the granting
thereof, except (a) as otherwise provided
pursuant to the provisions of Section 6(b)
hereof, and (b) for earlier termination as
herein provided.
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<PAGE>
(ii) Except as otherwise provided in this Section 11,
an Option or SAR granted to any grantee whose
employment, for the Company or any of its
subsidiaries, is terminated, shall terminate on
the earlier of (i) ninety days after the date
such grantee's employment, for the Company or
any such subsidiary, is terminated, or (ii) the
date on which the Option or SAR expires by its
terms.
(iii) If the employment of a grantee is terminated by
the Company or any of its subsidiaries for cause
or because the grantee is in breach of any
employment agreement, such Option or SAR will
terminate on the date the grantee's employment
is terminated by the Company or any such
subsidiary.
(iv) If the employment of a grantee is terminated by
the Company or any of its subsidiaries because
the grantee has become permanently disabled
(within the meaning of Section 22(e)(3) of the
Code), such Option or SAR shall terminate on the
earlier of (i) one year after the date such
grantee's employment, for the Company or any
such subsidiary, is terminated, or (ii) the date
on which the Option or SAR expires by its terms.
(v) In the event of the death of any grantee, any
Option or SAR granted to such grantee shall
terminate one year after the date of death, or
on the date on which the Option or SAR expires
by its terms, whichever occurs first.
(b) Exercisability.
(i) Except as provided below, an Option or SAR
granted to a grantee whose employment, for the
Company or any of its subsidiaries, is
terminated, shall be exercisable only to the
extent that such Option or SAR has accrued and
is in effect on the date such grantee's
employment, for the Company or any such
subsidiary, is terminated.
(ii) An Option or SAR granted to a grantee whose
employment is terminated by the Company or any
of its subsidiaries because he or she has become
permanently disabled, as defined above, shall be
immediately exercisable as to the full number of
shares covered by such Option or SAR, whether or
not under the provisions of Section 10 hereof
such Option or SAR was otherwise exercisable as
of the date of disability.
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<PAGE>
(iii) In the event of the death of a grantee, the
Option or SAR granted to such grantee may be
exercised as to the full number of shares
covered thereby, whether or not under the
provisions of Section 10 hereof the grantee was
entitled to do so at the date of his or her
death, by the executor, administrator or
personal representative of such grantee, or by
any person or persons who acquired the right
to exercise such Option or SAR by bequest or
inheritance or by reason of the death of such
grantee.
(iv) Neither an SAR nor an Option granted granted in
connection with an SAR to a person subject to
Section 16(b) of the Exchange Act may be
exercised before six months after the date of
grant.
12. Options and SARs Not Transferable.
The right of any grantee to exercise any Option or SAR granted to him
or her shall not be assignable or transferable by such grantee other than by
will or the laws of descent and distribution or pursuant to a domestic relations
order as defined in the Code or Title 1 of the Employee Retirement Income
Security Act, or the rules thereunder, and any such Option or SAR shall be
exercisable during the lifetime of such grantee only by him or her. Any Option
or SAR granted under the Plan shall be null and void and without effect upon the
bankruptcy of the grantee to whom the Option or SAR is granted, or upon any
attempted assignment or transfer, except as herein provided, including without
limitation, any purported assignment, whether voluntary or by operation of law,
pledge, hypothecation or other disposition, attachment, trustee process or
similar process, whether legal or equitable, upon such Option or SAR.
13. Terms and Conditions of SARs.
(a) An SAR may be granted separately or in connection with an Option
(either at the time of grant or at any time during the term of the Option).
(b) The exercise of an SAR shall result in the cancellation of the
Option to which it relates with respect to the same number of shares of Common
Stock as to which the SAR was exercised.
(c) An SAR granted in connection with an Option shall be exercisable
or transferable only to the extent that such related Option is exercisable or
transferable.
(d) Upon the exercise of an SAR related to an Option, the holder will
be entitled to receive payment of an amount determined by multiplying:
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<PAGE>
(i) The difference obtained by subtracting the purchase
price of a share of Common Stock specified in the related Option from the fair
market value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Board), by
(ii) The number of shares as to which such SAR is exercised.
(e) An SAR granted without relationship to an Option shall be
exercisable as determined by the Board, but in no event after ten years from the
date of grant.
(f) An SAR granted without relationship to an Option will entitle the
holder, upon exercise of the SAR, to receive payment of an amount determined by
multiplying:
(i) The difference obtained by subtracting the fair market
value of the a share of Common Stock on the date the SAR was granted from the
fair market value of a share of Common Stock on the date of exercise of such SAR
(as determined by the Board), by
(ii) The number of shares as to which such SAR is exercised.
(g) Notwithstanding subsections (d) and (f) above, the Board may
limit the amount payable upon exercise of an SAR. Any such limitation shall be
determined as of the date of grant and noted on the instrument evidencing the
SAR granted.
(h) At the discretion of the Board, payment of the amount determined
under subsections (d) and (f) above may be made solely in whole shares of Common
Stock valued at their fair market value on the date of exercise of the SAR (as
determined by the Board), or solely in cash, or in a combination of cash and
shares. If the Board decides to make full payment in shares of Common Stock and
the amount payable results in a fractional share, payment for the fractional
share shall be made in cash.
14. Recapitalization, Reorganizations and the Like.
In the event that the outstanding shares of the Common Stock are
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which Options and SARs may be granted under the Plan and as to which outstanding
Options, SARs, or portions thereof then unexercised, shall be exercisable, to
the end that the proportionate interest of the grantee shall be maintained as
before the occurrence of such event; such adjustment in outstanding Options and
SARs shall be made without change in the total price applicable to the
unexercised portion of such Options and SARs and with a corresponding adjustment
in the Option price per share.
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<PAGE>
In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change in
Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock, in his, her or its sole discretion, may deliver to
the grantee the same kind of consideration that is delivered to the shareholders
of the Company as a result of such sale, conveyance or Change in Control, or the
Board may cancel all outstanding Options in exchange for consideration in cash
or in kind, which consideration in both cases shall be equal in value to the
value of those shares of stock or other securities the grantee would have
received had the Option been exercised (but only to the extent then exercisable)
and had no disposition of the shares acquired upon such exercise been made prior
to such sale, conveyance or Change in Control, less the Option price therefor.
Upon receipt of such consideration, all Options (whether or not then
exercisable) shall immediately terminate and be of no further force or effect.
The value of the stock or other securities the grantee would have received if
the Option had been exercised shall be determined in good faith by the Board,
and in the case of shares of Common Stock, in accordance with the provisions of
Section 8 hereof.
The Board shall also have the power and right to accelerate the
exercisability of any Options, notwithstanding any limitations in this Plan or
in the Agreement upon such a sale, conveyance or Change in Control. Upon such
acceleration, any Options or portion thereof originally designated as incentive
stock options that no longer qualify as incentive stock options under Section
422 of the Code as a result of such acceleration shall be redesignated as
non-qualified stock options without the necessity of further Board action.
A "Change in Control" shall be deemed to have occurred if any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time owned less than fifty percent (50%) of the
then outstanding Common Stock, shall acquire such additional shares of Common
Stock in one or more transactions, or series of transactions, such that
following such transaction or transactions, such person or group and affiliates
beneficially own fifty percent (50%) or more of the Common Stock outstanding.
Upon dissolution or liquidation of the Company, all Options and SARs
granted under this Plan shall terminate, but each grantee (if at such time in
the employ of or otherwise associated with the Company or any of its
subsidiaries as a director, agent or consultant) shall have the right,
immediately prior to such dissolution or liquidation, to exercise his or her
Option or SAR to the extent then exercisable.
If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old Option, or substitution of a new option for the old
Option,
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<PAGE>
in conformity with the provisions of such Section 424(a) of the Code and the
Regulations thereunder, and any such option grant shall not reduce the number of
shares otherwise available for issuance under the Plan.
No fraction of a share shall be purchasable or deliverable upon the
exercise of any Option, but in the event any adjustment hereunder in the number
of shares covered by the Option shall cause such number to include a fraction of
a share, such fraction shall be adjusted to the nearest smaller whole number of
shares.
15. No Special Employment Rights.
Nothing contained in the Plan or in any Option or SAR granted under
the Plan shall confer upon any grantee any right with respect to the
continuation of his or her employment by the Company or any subsidiary or
interfere in any way with the right of the Company or any subsidiary, subject to
the terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Option or SAR holder from the rate in existence at the time of the grant of an
Option or SAR. Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Board at the time of such occurrence pursuant to uniform
nondiscriminatory criteria.
16. Withholding.
The Company's obligation to deliver shares upon the exercise of any
non-qualified Option granted under the Plan, or cash upon the exercise of an SAR
granted under the Plan, shall be subject to the grantee's satisfaction of all
applicable Federal, state and local income and employment tax withholding
requirements. The Company and grantee may agree to withhold shares of Common
Stock purchased upon exercise of an Option to satisfy the above-mentioned
withholding requirements; provided, however, no such agreement may be made by a
grantee who is an "officer" or "director" within the meaning of Section 16 of
the Exchange Act, except pursuant to a standing election to so withhold shares
of Common Stock purchased upon exercise of an Option, such election to be made
not less than six months prior to such exercise and which election may be
revoked only upon six months prior written notice.
17. Restrictions on Issuance of Shares.
(a) Notwithstanding the provisions of Section 9, the Company may
delay the issuance of shares covered by the exercise of an Option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which such Option has
been exercised are at the time of the issue of
such shares effectively registered or
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<PAGE>
qualified under applicable Federal and state
securities acts now in force or as hereafter
amended; or
(ii) Counsel for the Company shall have given an
opinion, which opinion shall not be unreasonably
conditioned or withheld, that such shares are
exempt from registration and qualification under
applicable Federal and state securities acts now
in force or as hereafter amended.
(b) It is intended that all exercises of Options shall be effective,
and the Company shall use its best efforts to bring about compliance with the
above conditions within a reasonable time, except that the Company shall be
under no obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any Option may be
exercised, except as otherwise agreed to by the Company in writing in its sole
discretion.
18. Purchase for Investment; Rights of Holder on Subsequent
Registration.
Unless and until the shares to be issued upon exercise of an Option
granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended (the "1933 Act"), as now in force or hereafter amended, the
Company shall be under no obligation to issue any shares covered by any Option
unless the person who exercises such Option, in whole or in part, shall give a
written representation and undertaking to the Company which is satisfactory in
form and scope to counsel for the Company and upon which, in the opinion of such
counsel, the Company may reasonably rely, that he or she is acquiring the shares
issued pursuant to such exercise of the Option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the 1933 Act, or any other applicable law, and that if
shares are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued.
In the event that the Company shall, nevertheless, deem it necessary
or desirable to register under the 1933 Act or other applicable statutes any
shares with respect to which an Option shall have been exercised, or to qualify
any such shares for exemption from the 1933 Act or other applicable statutes,
then the Company may take such action and may require from each grantee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus or offering circular
as is reasonably necessary for such purpose and may require reasonable indemnity
to the Company and its officers and directors from such holder against all
losses, claims, damages and liabilities arising from such use of the information
so furnished and caused by any untrue statement of any material fact therein or
caused by the omission to state a material
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fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made.
19. Loans.
At the discretion of the Board, the Company may loan to the grantee
some or all of the purchase price of the shares acquired upon exercise of an
Option.
20. Modification of Outstanding Options and SARs.
Subject to any applicable limitations contained herein, the Board may
authorize the amendment of any outstanding Option or SAR with the consent of the
grantee when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
21. Approval of Stockholders.
The Plan shall become effective upon adoption by the Board; provided,
however, that the Plan shall be submitted for approval by the stockholders of
the Company no later than twelve (12) months after the date of adoption of the
Plan by the Board. Should the stockholders of the Company fail to approve the
Plan within such twelve-month period, all Options granted thereunder shall be
and become null and void.
22. Termination and Amendment of Plan.
Unless sooner terminated as herein provided, the Plan shall terminate
fifteen (15) years from the date upon which the Plan was duly adopted by the
Board of the Company. The Board may at any time terminate the Plan or make such
modification or amendment thereof as it deems advisable; provided, however, (i)
the Board may not, without the approval of the stockholders of the Company
obtained in the manner stated in Section 21, increase the maximum number of
shares for which Options and SARs may be granted or change the designation of
the class of persons eligible to receive Options and SARs under the Plan, and
(ii) any such modification or amendment of the Plan shall be approved by a
majority of the stockholders of the Company to the extent that such stockholder
approval is necessary to comply with applicable provisions of the Code, rules
promulgated pursuant to Section 16 of the Exchange Act, applicable state law, or
applicable NASD or exchange listing requirements. Termination or any
modification or amendment of the Plan shall not, without the consent of a
grantee, affect his or her rights under an Option or SAR theretofore granted to
him or her.
23. Limitation of Rights in the Option Shares.
A grantee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the Options except to the extent that the
Option shall have been
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exercised with respect thereto and, in addition, a certificate shall have been
issued theretofore and delivered to the grantee.
24. Notices.
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to the attention of the President at the
Company's principal place of business; and, if to a grantee, to his or her
address as it appears on the records of the Company.
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