<PAGE>
<PAGE>
Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
VION PHARMACEUTICALS, INC.
.................................................................
(Name of Registrant as Specified In Its Charter)
.................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
............................................................
(2) Aggregate number of securities to which transaction
applies:
.......................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
.......................................................
(4) Proposed maximum aggregate value of transaction:
.......................................................
(5) Total fee paid:
.......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................
(3) Filing Party:
.......................................................
(4) Date Filed:
.......................................................
<PAGE>
<PAGE>
VION PHARMACEUTICALS, INC.
4 SCIENCE PARK
NEW HAVEN, CONNECTICUT 06511
(203) 498-4210
May 17, 1999
Dear Fellow Stockholder:
You are cordially invited to attend the Company's Annual Meeting of
Stockholders to be held at 3:00 p.m., on Thursday, June 17, 1999, at the Kitano
Hotel, 66 Park Avenue, New York, New York.
This year you are being asked to approve: (i) the election of eight
directors to the Company's Board of Directors, (ii) amendments to the Company's
Amended and Restated 1993 Stock Option Plan increasing the number of shares that
may be granted under the Plan and certain other changes, and (iii) the selection
of the Company's independent auditors. At the meeting, I will be pleased to
report on the affairs of the Company and a discussion period will be provided
for questions and comments of general interest to stockholders.
We look forward to greeting personally those stockholders who are able to
be present at the meeting; however, whether or not you plan to be with us at the
meeting, it is important that your shares be represented. Accordingly, you are
requested to sign and date the enclosed proxy and mail it in the envelope
provided at your earliest convenience.
Thank you for your cooperation.
Very truly yours,
ALAN KESSMAN
ALAN KESSMAN
President and Chief Executive Officer
<PAGE>
<PAGE>
VION PHARMACEUTICALS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
New Haven, Connecticut
May 17, 1999
Notice is hereby given that the Annual Meeting of Stockholders of Vion
Pharmaceuticals, Inc. will be held on Thursday, June 17, 1999 at 3:00 p.m., at
the Kitano Hotel, 66 Park Avenue, New York, New York, for the following
purposes:
(1) To elect eight directors to serve for the ensuing year;
(2) To consider and vote on the approval of amendments to the Amended
and Restated 1993 Stock Option Plan to increase the number of
shares that may be granted and to make certain other changes to
the Plan;
(3) To consider and vote on the approval of Ernst & Young LLP as the
Company's independent auditors for the year ending December 31,
1999; and
(4) To transact such other business as may properly come before the
Annual Meeting or any adjournment of the Annual Meeting.
Stockholders of record of the Company's Common Stock and the Company's
Class A Convertible Preferred Stock at the close of business on April 27, 1999
will be entitled to notice of and to vote at the Annual Meeting or any
adjournments of the Annual Meeting. All stockholders are cordially invited to
attend the Annual Meeting in person. Stockholders who are unable to attend the
Annual Meeting in person are requested to complete and date the enclosed form of
proxy and return it promptly in the envelope provided. No postage is required if
mailed in the United States. Stockholders who attend the Annual Meeting may
revoke their proxy and vote their shares in person.
THOMAS MIZELLE
Secretary
<PAGE>
<PAGE>
VION PHARMACEUTICALS, INC.
4 SCIENCE PARK
NEW HAVEN, CONNECTICUT 06511
--------------------------------
PROXY STATEMENT
--------------------------------
GENERAL INFORMATION
PROXY SOLICITATION
This Proxy Statement is furnished to the holders of Common Stock and Class
A Convertible Preferred Stock of Vion Pharmaceuticals, Inc. (the 'Company') in
connection with the solicitation by the Board of Directors of the Company of
proxies for use at the Annual Meeting of Stockholders to be held on Thursday,
June 17, 1999, or at any adjournments of the Annual Meeting. The purpose of the
meeting and the matters to be acted upon are described in the accompanying
Notice of Annual Meeting of Stockholders.
Proxies for use at the meeting are being solicited by the Board of
Directors of the Company. Proxies will be mailed to stockholders on or about
May 18, 1999 and will be solicited chiefly by mail. The Company will make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to the beneficial owners of the
shares and will reimburse them for their expenses. Should it appear desirable to
do so in order to ensure adequate representation of shares at the meeting,
officers, agents and employees of the Company may communicate with stockholders,
banks, brokerage houses and others by telephone, facsimile, or in person to
request that proxies be furnished. All expenses incurred in connection with this
solicitation will be borne by the Company.
REVOCABILITY AND VOTING OF PROXY
A form of proxy for use at the Annual Meeting and a return envelope for the
proxy are enclosed. Stockholders may revoke the authority granted by their
execution of proxies at any time before their effective exercise by filing with
the Secretary of the Company a written notice of revocation or a duly executed
proxy bearing a later date, or by voting in person at the meeting. Shares of the
Company's Common Stock and Class A Preferred Stock represented by executed and
unrevoked proxies will be voted in accordance with the choice or instructions
specified thereon. If no specifications are given, the proxies intend to vote
the shares represented thereby to approve Proposals No. 1, 2 and 3 as set forth
in the accompanying Notice of Annual Meeting of Stockholders and in accordance
with their best judgment on any other matters which may properly come before the
meeting.
RECORD DATE AND VOTING RIGHTS
Only stockholders of record at the close of business on April 27, 1999 are
entitled to notice of and to vote at the Annual Meeting. On April 27, 1999 there
were 15,204,922 shares of Common Stock outstanding and 514,065 shares of Class A
Preferred Stock outstanding; each share of Common Stock is entitled to one vote
and each share of Class A Preferred Stock is entitled to 2.777777 votes on the
matters to be presented at the Annual Meeting. The total number of votes
entitled to be cast at the Annual Meeting is 16,632,880. The holders of a voting
majority of the outstanding shares that may be voted at the meeting, present in
person or by proxy, will constitute a quorum at the Annual Meeting. Abstentions
and broker non-votes will be counted for purposes of determining the presence or
absence of a quorum. 'Broker non-votes' are shares held by brokers or nominees
which are present in person or represented by proxy, but which are not voted on
a particular matter because instructions have not been received from the
beneficial owner. Under applicable Delaware law, the effect of broker non-votes
on a particular matter depends on whether the matter is one as to which the
broker or nominee has discretionary voting authority. The effect of broker
non-votes on the specific items to be brought before the Annual Meeting of
Stockholders is discussed under each item.
<PAGE>
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of April 27, 1999 (except as
otherwise noted in the footnotes) regarding the beneficial ownership (as defined
by the Securities and Exchange Commission (the 'SEC')) of the Company's Common
Stock and Class A Preferred Stock of: (i) each person known by the Company to
own beneficially more than five percent of the Company's outstanding Common
Stock or Class A Preferred Stock; (ii) each current director of the Company;
(iii) the Company's Chief Executive Officer and each other officer who received
over $100,000 in compensation from the Company during the 1998 fiscal year; and
(iv) all current directors and executive officers of the Company as a group.
Except as otherwise specified, the named beneficial owner has the sole voting
and investment power over the shares listed and the address of each beneficial
owner is c/o Vion Pharmaceuticals, Inc., 4 Science Park, New Haven, Connecticut
06511.
<TABLE>
<CAPTION>
TOTAL NUMBER PERCENTAGE PERCENTAGE OF
OF SHARES OF OF CLASS A
CLASS A COMMON STOCK COMMON STOCK PREFERRED STOCK
COMMON PREFERRED BENEFICIALLY BENEFICIALLY BENEFICIALLY
DIRECTORS AND EXECUTIVE OFFICERS STOCK STOCK OWNED(1) OWNED OWNED
- ------------------------------------------------------ -------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Michel C. Bergerac.................................... 38,750(2) 0 38,750 * --
Frank T. Cary......................................... 62,718(3) 0 62,718 * --
James L. Ferguson..................................... 22,250(4) 0 22,250 * --
Michael C. Kent....................................... 347,056(5) 0 347,056 2.3% --
Alan Kessman.......................................... 4,000 0 4,000 * --
William R. Miller..................................... 171,906(6) 0 171,906 1.1% --
Alan C. Sartorelli, Ph.D. ............................ 442,758(7) 0 442,758 2.9% --
E. Donald Shapiro..................................... 26,633(8) 0 26,633 * --
Walter B. Wriston..................................... 57,718(9) 0 57,718 * --
Terrence W. Doyle, Ph.D. ............................. 280,124(10) 0 280,124 1.8% --
Thomas E. Klein....................................... 104,684(11) 0 104,684 * --
Thomas Mizelle........................................ 128,410(12) 0 128,410 * --
John A. Spears........................................ 422,317(13) 0 422,317 2.7% --
All directors and executive officers as a group (12
persons)............................................ 1,687,007(14) 0 1,687,007 10.9% --
OTHER BENEFICIAL OWNERS
Elliott Associates, L.P.
Westgate International, L.P.
Martley International, Inc.
c/o Elliott Associates, L.P.
712 Fifth Avenue, 36th Floor
New York, NY 10019.................................. 3,010,279(15) 0 3,010,279 17.8% --
Phoenix Partners L.P.
Morgens Waterfall Vintiadis
Investments N.V.
Betje Partners
c/o Morgens Waterfall Vintiadis
& Co., Inc.
10 East 50th Street
New York, NY 10022.................................. 302,787 206,479(16) 876,340 5.6% 40.2%
Kingdon Capital Management Corp.
152 West 57th Street,
50th Floor
New York, NY 10019.................................. 0 230,350(17) 639,861 4.0% 44.8%
</TABLE>
(Footnotes on next page)
2
<PAGE>
<PAGE>
(Footnotes from previous page)
* Less than one percent
(1) The Class A Preferred Stock is convertible into Common Stock by dividing
(i) the sum of the $10.00 per share stated value by (ii) $3.60 per share
(as adjusted from time to time for certain events of dilution). As of April
27, 1999, each share of Class A Preferred Stock was convertible into
2.777777 shares of Common Stock.
(2) Represents shares issuable upon exercise of options exercisable within 60
days.
(3) Includes 10,000 shares issuable upon exercise of options exercisable within
60 days.
(4) Includes 21,250 shares issuable upon exercise of options exercisable within
60 days.
(5) Includes 14,302 shares of Common Stock beneficially owned by Mr. Kent's
wife, as to which Mr. Kent disclaims beneficial ownership. Also includes
3,750 shares issuable upon exercise of options exercisable within 60 days.
(6) Includes 28,750 shares issuable upon exercise of options exercisable within
60 days.
(7) Includes (i) 190,874 shares beneficially owned by Dr. Sartorelli's wife and
(ii) 57,260 shares held in trust for Dr. Sartorelli's grandchildren, for
which Dr. Sartorelli's wife serves as trustee, as to which Dr. Sartorelli
disclaims beneficial ownership. Does not include 57,260 shares beneficially
owned by other family members of Dr. Sartorelli, which were received as
gifts from Dr. Sartorelli. Also includes 3,750 shares issuable upon
exercise of options exercisable within 60 days.
(8) Includes 13,750 shares issuable upon exercise of options exercisable within
60 days.
(9) Includes 10,000 shares issuable upon exercise of options exercisable within
60 days.
(10) Includes 86,600 shares held by Dr. Doyle's wife and children, as to which
Dr. Doyle disclaims beneficial ownership. Also includes 8,400 shares
issuable upon exercise of options exercisable within 60 days.
(11) Includes 83,400 shares issuable upon exercise of options exercisable within
60 days. Also includes 1,199 shares of common stock held by Mr. Klein's
wife and children.
(12) Includes 120,900 shares issuable upon exercise of options exercisable
within 60 days. Also includes 488 shares of common stock held by Mr.
Mizelle's children.
(13) Includes 386,812 shares issuable upon exercise of options exercisable
within 60 days.
(14) Includes 342,700 shares issuable upon exercise of options exercisable
within 60 days.
(15) Beneficial ownership information is based upon data set forth in a Schedule
13D Amendment No. 2 filed with the SEC on April 16, 1999. Elliott
Associates, L.P. owns 625,468 shares of Common Stock and beneficially owns
2,500 shares of the Company's 5% Convertible Preferred Stock Series 1998,
which are convertible into 722,195 shares of Common Stock, and also
beneficially owns 78,132 of the Company's Class A Warrants which are
convertible into 156,264 shares of Common Stock. Westgate International,
L.P., which has its business address at c/o Midland Bank Trust Corporation
(Cayman) Limited, P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands,
British West Indies, owns 628,709 shares of Common Stock and beneficially
owns 2,500 shares of the Company's 5% Convertible Preferred Stock Series
1998, which are convertible into 722,195 shares of Common Stock, and also
beneficially owns 77,724 of the Company's Class A Warrants which are
convertible into 155,448 shares of Common Stock. Pursuant to the
Certificate of Designation for the Company's 5% Convertible Preferred Stock
Series 1998, the aggregate percentage ownership by Elliott Associates, L.P.
and Westgate International, L.P. of Common Stock is limited to 9.9% of the
Common Stock, although effective June 8, 1999 the threshold is being
increased from 9.9% to 19.9%. Martley International, Inc. is the investment
manager for Westgate International, L.P. and has shared voting and
dispository power over the shares held by Westgate International, L.P.
Martley International, Inc. disclaims beneficial ownership of all such
shares.
(16) Beneficial ownership information is based in part upon data set forth in a
Schedule 13G filed with the SEC on February 12, 1999. Class A Preferred
Stock consists of 103,238 shares held by Phoenix Partners L.P., 72,160
shares held by Morgens Waterfall Vintiadis Investments N.V. and 31,081
shares held by Betje Partners. Morgens, Waterfall, Vintiadis & Co., Inc. is
deemed to beneficially own all such shares by virtue of it status as
investment advisor to the foregoing entities.
(17) Consists of 138,208 shares held by M. Kingdon Offshore, N.V., 46,071 shares
held by Kingdon Partners, L.P. and 46,071 shares held by Kingdon
Associates, L.P. Kingdon Capital Management Corp. ('KCMC') is a general
partner of Kingdon Partners, L.P. and Kingdon Associates, L.P. and is the
investment advisor to M. Kingdon Offshore, N.V. KCMC disclaims beneficial
ownership of all indicated shares.
3
<PAGE>
<PAGE>
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Eight directors (constituting the entire Board) are to be elected at the
Annual Meeting. Unless otherwise specified, the enclosed proxy will be voted in
favor of the persons named below to serve until the next annual meeting of
stockholders and until their successors shall have been duly elected and shall
qualify. Each person named below is now a director of the Company. In the event
any of these nominees shall be unable to serve as a director, the shares
represented by the proxy will be voted for the person, if any, who is designated
by the Board of Directors to replace the nominee. All nominees have consented to
be named and have indicated their intent to serve if elected. The Board of
Directors has no reason to believe that any of the nominees will be unable to
serve or that any vacancy on the Board of Directors will occur.
The nominees, their ages, the year in which each first became a director of
the Company and their principal occupations or employment during the past five
years are:
<TABLE>
<CAPTION>
YEAR FIRST
BECAME PRINCIPAL OCCUPATION
NOMINEE AGE DIRECTOR DURING THE PAST FIVE YEARS
- -------------------------------- --- ---------- -------------------------------------------------------------
<S> <C> <C> <C>
William R. Miller............... 70 1995 Chairman of the Board of the Company since April 1995; from
February 1995 until April 1995, Chairman of the Board of
OncoRx Inc. ('OncoRx'), which was merged into a subsidiary of
the Company (then known as MelaRx Pharmaceuticals, Inc.) in
April 1995; currently Chairman of the Board of SIBIA
Neurosciences, Inc., and a director of ImClone Systems, Inc.,
Isis Pharmaceuticals, Inc., Transkaryotic Therapies, Inc.,
Westvaco Corporation and Xomed Surgical Products Inc.; from
1964 until his retirement in 1991, various positions with
Bristol-Myers Squibb Company, including Vice Chairman of the
Board commencing in 1985. (1)
Alan Kessman.................... 52 1998 Chief Executive Officer of the Company since January 1999 and
President of the Company since April 1999; Partner of PS
Capital, an international investment and management advisor,
since October 1998; from 1983 to 1998, Chairman, President
and Chief Executive Officer of Executone Information Systems,
Inc. and its subsidiary eLottery, Inc.; currently a member of
the advisory board of eLottery, Inc. (2)
Alan C. Sartorelli, Ph.D........ 67 1995 Professor of Pharmacology at Yale University School of
Medicine since 1967; Chairman of the Company's Scientific
Advisory Board since April 1995; Chairman of the OncoRx
Scientific Advisory Board from May 1993 to April 1995;
Director of Yale Comprehensive Cancer Center from 1984 to
1993.
Michel C. Bergerac.............. 67 1992 Chairman of M.C. Bergerac & Co., Inc., an investment advisory
firm, since 1985; from 1974 to 1985, Chairman of the Board,
President and Chief Executive Officer of Revlon, Inc. (1)
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
BECAME PRINCIPAL OCCUPATION
NOMINEE AGE DIRECTOR DURING THE PAST FIVE YEARS
- -------------------------------- --- ---------- -------------------------------------------------------------
<S> <C> <C> <C>
Frank T. Cary................... 78 1995 Director of Celgene Corporation, Cygnus Therapeutic Systems,
ICOS Corporation, Lincare, Inc., Lexmark International Group,
Inc. and Teltrend, Inc; from 1973 to 1981, Chairman of the
Board and Chief Executive Officer of IBM. (1)(3)
James L. Ferguson............... 72 1995 Director of ICOS Corporation; Chairman of the Board of
General Foods Corporation from 1974 until 1989 and President
from 1973 to 1977.
Michael C. Kent................. 59 1995 Founded OncoRx in May 1993 and served as a director until
April 1995; since 1983, President and Chief Executive Officer
of Kent, Reynolds & Stuart, a consulting firm; involved in
the creation of a number of biotechnology companies,
including Nova Pharmaceutical Corporation, Celgene
Corporation, Neurogen Corporation, Biopure Corporation,
Pathogenesis Corporation, Texas Biotechnology Corporation and
ICOS Corporation.
Walter B. Wriston............... 79 1995 Director of ICOS Corporation, York International Corporation
and Cygnus, Inc.; retired as Chairman and Chief Executive
Officer of Citicorp and its principal subsidiary, Citibank,
N.A., in 1984 after having served as Chief Executive Officer
for 17 years. (3)
</TABLE>
- ------------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Mr. Kessman is the nominee of Elliott Associates, L.P. and Westgate
International, L.P., which have the right to designate a nominee to the
Board of Directors pursuant to the Certificate of Designation of the
Company's 5% Convertible Preferred Stock Series 1998.
(3) Member of the Audit Committee of the Board of Directors.
During the fiscal year ended December 31, 1998, the Board of Directors held
five meetings. Each incumbent director attended at least 75% of the meetings of
the Board of Directors held and of all committees of the Board of Directors on
which he served while he was director of the Company, except for Messrs.
Bergerac, Cary and Wriston, who attended two of the five meetings of the Board
of Directors, and Messrs. Bergerac and Cary, who attended two of the four
meetings of the Compensation Committee and Mr. Cary, who did not attend the sole
meeting of the Audit Committee.
In April 1995, the Board established an Audit Committee to review the
internal accounting procedures of the Company and to consult with and review the
audit scope and results of the audit with the Company's independent auditors and
the services provided by the auditors. Messrs. Wriston, Cary and E. Donald
Shapiro are the members of the Audit Committee. The Audit Committee met once in
1998.
In April 1995, the Board formed the Compensation Committee to administer
the Company's stock option plans and the Company's executive compensation
policies. Messrs. Bergerac, Cary and Miller are the members of this committee.
Mr. Miller replaced Mr. Kent as a member of the Compensation Committee in
October 1998. The Compensation Committee held four meetings in 1998.
VOTE REQUIRED
The eight nominees receiving the highest number of affirmative votes of the
shares present in person or represented by proxy and entitled to vote for them,
a quorum being present, shall be elected
5
<PAGE>
<PAGE>
as directors. Only votes cast for a nominee will be counted, except that the
accompanying proxy will be voted for all nominees in the absence of instruction
to the contrary. Abstentions, broker non-votes and instructions on the
accompanying proxy card to withhold authority to vote for one or more nominees
will result in the respective nominees receiving fewer votes. However, the
number of votes otherwise received by the nominee will not be reduced by such
action.
THE BOARD OF DIRECTORS DEEMS 'PROPOSAL NO. 1 -- ELECTION OF DIRECTORS' TO
BE IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A
VOTE 'FOR' APPROVAL OF THIS PROPOSAL.
MANAGEMENT
EXECUTIVE OFFICERS
The following table contains the names and positions of the executive
officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------------- --------------------------------------------------
<S> <C>
Alan Kessman....................................... President, Chief Executive Officer and Director
Terrence W. Doyle, Ph.D............................ Vice President -- Research & Development
Thomas E. Klein.................................... Vice President -- Finance and Chief Financial
Officer
Thomas Mizelle..................................... Vice President -- Operations and Secretary
</TABLE>
Alan Kessman, age 52, has been the Company's Chief Executive Officer since
January 1999, the Company's President since April 1999 and has been a director
of the Company since October 1998. Since October 1998, Mr. Kessman has been a
partner of PS Capital, an international investment and management advisor. From
1983 to 1998, Mr. Kessman was Chairman, Chief Executive Officer and President of
Executone Information Systems, Inc., a developer and marketer of voice and data
communications systems, and its subsidiary eLottery, Inc.
Terrence W. Doyle, Ph.D., age 56, has been the Company's Vice President of
Research and Development since the merger with OncoRx and served in the same
capacity for OncoRx from January 1994 until the merger. Dr. Doyle was an
employee of the Bristol-Myers Squibb Company ('Bristol-Myers') from 1967 to
1993. From 1990 to 1993, Dr. Doyle was an Executive Director with Bristol-Myers.
Dr. Doyle is the original holder of 41 U.S. patents for anti-infective,
anti-inflammatory and anti-tumor agents and the author of over 100 published
research articles and abstracts on cancer chemotherapy.
Thomas E. Klein, age 49, has been the Company's Vice President -- Finance
and Chief Financial Officer since October 1995. From 1988 to 1994, Mr. Klein was
Director of Finance and Treasurer of Novo Nordisk of North America, Inc.
Thomas Mizelle, age 48, has been the Company's Vice President of Operations
since the merger with OncoRx and has been the Company's Secretary since October
1995. Prior to the merger, Mr. Mizelle was Vice President of Business
Development since August 1994. From May 1990 to July 1994, Mr. Mizelle served as
Senior Vice President, Vice President of Sales and Marketing and Director of
Sales of Immunex Corporation.
6
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the Company's chief executive
officer and each of the other executive officers who earned over $100,000 and
were serving at the end of 1998, for services in all capacities to the Company,
its subsidiaries and predecessors.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION AWARDS
----------------------- OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SARS (#) COMPENSATION ($)
- --------------------------------------------- ---- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
John A. Spears -- Former President and Chief
Executive Officer (1)...................... 1998 $ 246,750 $37,013(2) 12,000 $ --
1997 $ 234,557 $61,000 -- $ --
1996 $ 189,167 $70,500 15,000 $ --
Terrence W. Doyle -- Vice President --
Research and Development................... 1998 $ 183,750 $27,563(2) 9,600 $ --
1997 $ 174,549 $38,000 -- $ --
1996 $ 154,167 $42,000 12,000 $ --
Thomas E. Klein -- Vice President -- Finance
and Chief Financial Officer................ 1998 $ 157,500 $23,625(2) 9,600 $ --
1997 $ 148,486 $33,000 -- $ --
1996 $ 129,167 $36,000 37,000 $ --
Thomas Mizelle -- Vice President --
Operations and Secretary................... 1998 $ 183,750 $27,563(2) 9,600 $ --
1997 $ 173,362 $38,000 -- $ --
1996 $ 154,167 $42,000 62,000 $ --
</TABLE>
- ------------------------
(1) The Company was a party to an employment agreement with Mr. Spears.
See ' -- Employment Agreements.' Mr. Spears was Chief Executive Officer
of the Company until January 1999 and President of the Company until
April 1999.
(2) Payments of bonuses accrued in 1998 have been deferred until completion of
the Company's next round of financing.
The following table sets forth the grant of stock options made during the
year ended December 31, 1998 to the persons named in the Summary Compensation
Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
NUMBER OF SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN FISCAL EXERCISE
NAME OPTIONS GRANTED PERIOD(1) PRICE EXPIRATION DATE
- ------------------------------------------- -------------------- ------------------- -------- ---------------
<S> <C> <C> <C> <C>
John A. Spears............................. 12,000 5.4% $ 3.0313 1/29/2008
Terrence W. Doyle.......................... 9,600 4.3% $ 3.0313 1/29/2008
Thomas E. Klein............................ 9,600 4.3% $ 3.0313 1/29/2008
Thomas Mizelle............................. 9,600 4.3% $ 3.0313 1/29/2008
</TABLE>
- ------------------------
(1) Computed based on an aggregate of 221,112 shares issuable upon exercise of
options granted to employees during the year ended December 31, 1998.
7
<PAGE>
<PAGE>
The following table sets forth information with respect to unexercised
stock options held by the persons named in the Summary Compensation Table at
December 31, 1998. No stock options were exercised in 1998 by such persons.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS THE-MONEY OPTIONS AT FISCAL
AT FISCAL YEAR-END (#) YEAR-END ($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John A. Spears.......................................... 383,812 19,500 $ 1,538,147 $29,718
Terrence W. Doyle....................................... 6,000 15,600 $ 4,875 $23,775
Thomas E. Klein......................................... 74,750 46,850 $ 78,313 $59,713
Thomas Mizelle.......................................... 106,000 53,100 $ 134,250 $70,650
</TABLE>
- ------------------------
(1) Computed based upon the difference between the closing price of the
Company's Common Stock on December 31, 1998 ($5.00) and the exercise price.
EMPLOYMENT AGREEMENTS
Effective January 11, 1999, the Company entered into an agreement with Alan
Kessman and PS Capital LLC, an entity of which Mr. Kessman is a member, pursuant
to which Mr. Kessman serves as Chief Executive Officer of the Company. The
agreement provides for a base salary of $300,000 per year. The agreement does
not provide for any payments upon a change in control or any other severance
payments. As an inducement to enter into the agreement, on January 11, 1999 the
Company granted to Mr. Kessman ten year options to purchase an aggregate of
980,000 shares of Common Stock. The foregoing grants consist of (i) an option to
purchase 760,000 shares at an exercise price of $5.775 (representing a 10%
premium to the market price on the date prior to the date of grant), such option
to vest 25% on July 11, 2000, 50% on July 11, 2001, 75% on July 11, 2002 and
100% on July 11, 2003 and (ii) an option to purchase 220,000 shares at an
exercise price of $5.25 (representing the market price on the date prior to the
date of grant), such option to vest in full six months from the date of grant.
The option to purchase 220,000 shares of Common Stock is not terminable if Mr.
Kessman is no longer acting as Chief Executive Officer of the Company.
Effective January 16, 1998, the Company entered into an Employment
Agreement with John A. Spears, then its President and Chief Executive Officer.
The agreement was for a term of three years and provided for an annual base
salary of $246,750 (the 'Base Salary'). In the event of a termination of the
Employment Agreement by the Company for any reason other than 'just cause' or
death, including upon a 'change in control,' the Company was required to pay Mr.
Spears the Base Salary for the remaining term of the Employment Agreement,
subject to the obligation of Mr. Spears to mitigate damages by seeking new
employment. The Company also had the right at any time after the first
anniversary of the date of the agreement to terminate the Employment Agreement
without cause upon ten days notice, upon payment to Mr. Spears of a single lump
sum equal to one year's Base Salary, plus an amount equal to the average annual
cash bonus paid to Mr. Spears during the prior two years. Mr. Spears resigned as
Chief Executive Officer in January 1999 and resigned as President and as a
director of the Company in April 1999. Pursuant to his resignation, the
Employment Agreement was terminated and the Company agreed to make bi-monthly
payments to Mr. Spears in the same amounts as his Base Salary due pursuant to
the Employment Agreement through the earlier of January 15, 2001 or the date on
which Mr. Spears secures full-time employment; provided, the Company will
receive a credit against such payments equal to 75% of any gross income earned
by Mr. Spears from providing services as a part-time employee or consultant; and
provided further, that Mr. Spears will receive a lump-sum payment of 40% of the
balance of payments otherwise payable through January 15, 2001 if he secures
full-time employment elsewhere, such amount to be payable only if the Company
closes an underwritten public offering resulting in gross proceeds of at least
$10 million. The Company also agreed to pay Mr. Spears his 1998 bonus of
$37,012.50 and Mr. Spears agreed to a lock-up provision regarding certain of
the shares underlying his stock options and further agreed to a confidentiality
covenant.
8
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<PAGE>
SEVERANCE AGREEMENTS
Effective October 15, 1998, the Company entered into Severance Agreements
with Thomas Mizelle, its Vice President -- Operations, Terrence W. Doyle, its
Vice President -- Research & Development and Thomas E. Klein its Vice
President -- Finance (collectively, the 'Officers'), pursuant to which each
Officer would be entitled to certain payments in the event such Officer loses
his employment during the twelve month period following a 'change in control.'
Specifically, if a 'change in control' (as defined below) occurs, the Officer
shall be entitled to a lump sum severance payment equal to the sum of twelve
months of the Officer's monthly base salary as in effect as of the date of
termination or immediately prior to the change in control of the Company,
whichever is greater, plus the average of the last two cash bonus payments made
to the Officer prior to the change in control of the Company. The Officer would
also be entitled to all payments necessary to provide the Officer with group
health insurance benefits substantially similar to those which the Officer was
receiving immediately prior to the date of termination until the earlier of 18
months after termination or the date the Officer has obtained new full-time
employment. These amounts are not payable if termination of the Officer is
because of the Officer's death, by the Company for Cause (as defined in the
Severance Agreement), or by the Officer other than for Good Reason (as defined
in the Severance Agreement). For purposes of the Severance Agreements, a 'change
in control' of the Company means that any person or entity becomes the
beneficial owner of securities of the Company representing 30 percent or more of
the combined voting power of the Company's then outstanding securities; during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by an acquiring person) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds ( 2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority of the Board; or the stockholders of the Company approve a merger or
consolidation of the Company (other than certain recapitalizations).
COMPENSATION OF DIRECTORS
Directors are reimbursed for expenses actually incurred in connection with
each meeting of the Board of Directors or any Committee thereof attended. The
Company also pays the Chairman of the Board $4,000 per meeting of the Board
attended and each other non-employee director $1,000 for each such meeting
attended. Certain directors are also entitled to automatic grants of options
under the Company's Amended and Restated 1993 Stock Option Plan. See
' -- Directors' Options.'
DIRECTORS' OPTIONS
The provisions of the Company's Amended and Restated 1993 Stock Option Plan
(the 'Plan') provide for the automatic grant of non-qualified stock options to
purchase shares of Common Stock ('Director Options') to directors of the Company
who are not employees or principal stockholders of the Company ('Eligible
Directors'). Newly elected Eligible Directors of the Company will be granted a
Director Option to purchase 20,000 shares of Common Stock on the date such
person is first elected or appointed a director (an 'Initial Director Option').
Also, on the day immediately following the date of the annual meeting of
stockholders, each Eligible Director, other than directors who received an
Initial Director Option since the last annual meeting, will be granted a
Director Option to purchase 5,000 shares of Common Stock ('Automatic Grant') on
the day immediately following the date of each annual meeting of stockholders.
The size of the Automatic Grant for the Chairman of the Board has been increased
from 5,000 shares per year to 20,000 shares per year, and the size of the
Automatic Grant for the other Eligible Directors has been increased from 5,000
shares per year to 15,000 shares per year, each subject to stockholder approval.
See 'Proposal No. 2 -- Amendments to Amended and Restated 1993 Stock Option
Plan.' The exercise price for each share subject to a Director Option will be
the fair market value of the Common Stock on the date of grant. Director Options
will expire the earlier of 10 years after the date of grant or 90 days after the
termination of the director's service on the Board of Directors.
9
<PAGE>
<PAGE>
During the fiscal year ended December 31, 1998, Mr. Kessman was granted an
Initial Director Option to purchase 20,000 shares of Common Stock at an exercise
price of $2.563 per share and Messrs. Miller, Bergerac, Cary, Ferguson, Kent,
Sartorelli, Shapiro and Wriston were each granted ten year options under the
Plan (which included the Automatic Grant) to purchase 15,000 shares of Common
Stock, at an exercise price of $4.875 per share.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of the Company's Common Stock, to file initial reports of ownership and
reports of changes in ownership with the SEC and The NASDAQ Stock Market.
Executive officers, directors and greater than ten percent beneficial owners are
required by the SEC to furnish the Company with copies of all Section 16(a)
forms they file.
Based upon a review of the forms furnished to the Company and written
representations from the Company's executive officers and directors, the Company
believes that during fiscal 1998 all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than ten percent
beneficial owners were complied with.
PROPOSAL NO. 2 -- AMENDMENTS TO AMENDED AND RESTATED
1993 STOCK OPTION PLAN
On January 11, 1999, the Board of Directors adopted, subject to stockholder
approval, an amendment to the Company's Amended and Restated 1993 Stock Option
Plan (the 'Plan') increasing the number of shares that may be issued under the
Plan from 1,500,000 to 3,000,000. In addition, the Board of Directors also
adopted an amendment to the Plan increasing the size of the annual Automatic
Grant to directors other than the Chairman of the Board from 5,000 shares to
15,000 shares and increasing the size of the annual Automatic Grant to the
Chairman of the Board from 5,000 shares to 20,000 shares. As the directors are
recipients of the Automatic Grant and potential recipients of other option
grants under the Plan, they may be viewed to have a conflict of interest.
However, the Board of Directors believes that approval of the amendments to
increase the aggregate number of shares which may be granted under the Plan and
the size of the Automatic Grant will serve the best interests of the Company and
its stockholders by permitting the Company to utilize stock options as a means
to attract and retain key employees, directors and consultants who are in a
position to contribute materially to the successful conduct of the business and
affairs of the Company and, in addition, stimulate in such individuals an
increased desire to render greater service to the Company. The Board believes
that it requires additional shares for future grants under the Plan to meet the
Company's needs, particularly in light of the Company's current efforts to
recruit additional personnel in order to complete its expansion plan. Through
December 31, 1998, options to purchase an aggregate of 1,396,162 shares have
been granted under the Plan. The Company also currently has in effect its Senior
Executive Stock Option Plan, pursuant to which it has granted stock options to
purchase 980,000 shares of Common Stock to Alan Kessman, its Chief Executive
Officer. See 'Executive Compensation -- Employment Agreements.' The closing
price for a share of Common Stock on the NASDAQ SmallCap Market on May 13, 1999
was $6.50.
DESCRIPTION OF THE PLAN
In April 1993, the Board of Directors adopted the Plan covering 534,750
shares of the Company's Common Stock pursuant to which employees, officers and
directors of, and consultants or advisers to, the Company are eligible to
receive incentive stock options ('incentive options') within the meaning of
Section 422 of the Internal Revenue Code (the 'Code') and/or options that do not
qualify as incentive options ('non-qualified options'). Certain technical
amendments to the Plan were approved by the Board in October 1995 and in January
1996 the Board amended the Plan to increase the number of shares which may be
granted under the Plan to 1,000,000. This amendment was approved by the
Company's stockholders in April 1996. In January 1997 the Board amended the Plan
to increase the number of shares which may be granted under the Plan to
1,500,000. This amendment was approved by
10
<PAGE>
<PAGE>
the Company's stockholders in April 1997. The Plan, which expires in April 2003,
is administered by the Compensation Committee of the Board of Directors. The
purposes of the Plan are to ensure the retention of existing executive
personnel, key employees, directors, consultants and advisors and to provide
additional incentive by permitting such individuals to participate in the
ownership of the Company, and the criteria to be utilized by the Board of
Directors or the Compensation Committee in granting options pursuant to the Plan
will be consistent with these purposes. The Plan also provides for automatic
grants of options to certain directors. See 'Executive
Compensation -- Directors' Options.' There are currently 43 employees, 9
directors and 7 consultants eligible to receive grants under the Plan.
Options granted under the Plan may be either incentive options or
non-qualified options. Incentive options granted under the Plan are exercisable
for a period of up to 10 years from date of grant at an exercise price which is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive option granted under the Plan to a
stockholder owning more than 10% of the outstanding voting power may not exceed
five years and its exercise price may not be less than 110% of the fair market
value of the Common Stock on the date of the grant. To the extent that the
aggregate fair market value, as of the date of grant, of the shares for which
incentive options become exercisable for the first time by an optionee during
the calendar year exceeds $100,000, the portion of the option which is in excess
of the $100,000 limitation will be treated as a non-qualified option.
Additionally, the aggregate number of shares of Common Stock that may be subject
to options granted to any person in a calendar year shall not exceed 25% of the
maximum number of shares of Common Stock which may be issued from time to time
under the Plan. Options granted under the Plan to officers, directors or
employees of the Company may be exercised only while the optionee is employed or
retained by the Company or within 90 days of the date of termination of the
employment relationship or directorship. However, options which are exercisable
at the time of termination by reason of death or permanent disability of the
optionee may be exercised within 12 months of the date of termination of the
employment relationship or directorship. Upon the exercise of an option, payment
may be made by cash or by any other means that the Board of Directors or the
Compensation Committee determines. No option may be granted under the Plan after
April 14, 2003.
Options may be granted only to employees, officers and directors of, and
consultants and advisors to, the Company that the Board of Directors or the
Compensation Committee shall select from time to time in its sole discretion,
provided that only employees of the Company are eligible to receive incentive
options. An optionee may be granted more than one option under the Plan. The
Board of Directors or the Compensation Committee will, in its discretion,
determine (subject to the terms of the Plan) who will be granted options, the
time or times at which options shall be granted, the number of shares subject to
each option and whether the options are incentive options or non-qualified
options. In making this determination, consideration may be given to the value
of the services rendered by the respective individuals, their present and
potential contributions to the success of the Company and such other factors
deemed relevant in accomplishing the purpose of the Plan.
Under the Plan, the optionee has none of the rights of a stockholder with
respect to the shares issuable upon the exercise of the option until shares are
actually issued upon exercise of the option. No adjustment is made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in the Plan. During the lifetime of the
optionee, an option shall be exercisable only by the optionee. No option may be
sold, pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of decent and distribution.
The Board of Directors may amend or terminate the Plan except that
stockholder approval is required to effect a change so as to increase the
aggregate number of shares that may be issued under the Plan (unless adjusted to
reflect changes as a result of a stock dividend, stock split, recapitalization,
merger or consolidation of the Company), to modify the requirements as to
eligibility to receive options, to increase materially the benefits accruing to
participants or as otherwise may be required by Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, (the 'Exchange Act') or Section 422 of the
Code. No action taken by the Board may materially and adversely affect any
outstanding option grant without the consent of the optionee.
11
<PAGE>
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Under current tax law, there are no Federal income tax consequences to
either the employee or the Company on the grant of non-qualified options if
granted under the terms set forth in the Plan. Upon exercise of a non-qualified
option, the excess of the fair market value of the shares subject to the option
over the option price (the 'Spread') at the date of exercise is taxable as
ordinary income to the optionee in the year it is exercised and is deductible by
the Company as compensation for Federal income tax purposes, if Federal income
tax is withheld on the Spread. However, if the shares are subject to vesting
restrictions conditioned on future employment or the holder is subject to the
short-swing profits liability restrictions of Section 16(b) of the Exchange Act
(i.e., is an executive officer, director or 10% stockholder of the Company),
then taxation and measurement of the Spread is deferred until such restrictions
lapse, unless a special election is made under Section 83(b) of the Code to
report that income currently without regard to the restrictions. The optionee's
basis in the shares will be equal to the fair market value on the date taxation
is imposed and the holding period commences on that date.
Incentive option holders incur no regular Federal income tax liability at
the time of grant or upon exercise of an option, assuming that the optionee was
an employee of the Company from the date the option was granted until 90 days
before exercise. However, upon exercise, the Spread must be added to regular
Federal taxable income in computing the optionee's 'alternative minimum tax'
liability. An optionee's basis in the shares received on exercise of an
incentive stock option will be the option price of such shares for regular
income tax purposes. No deduction is allowable to the Company for Federal income
tax purposes in connection with the grant or exercise of an incentive option.
If the holder of shares acquired through exercise of an incentive option
sells those shares within two years of the date of grant of the option or within
one year from the date of exercise of the option (a 'Disqualifying
Disposition'), the optionee will realize income taxable at ordinary rates.
Ordinary income is reportable during the year of sale equal to the difference
between the option price and the fair market value of the shares at the date the
option is exercised, but the amount includable as ordinary income will not
exceed the excess, if any, of the proceeds of the sale over the option price. In
addition to ordinary income, a Disqualifying Disposition may result in taxable
income subject to capital gains treatment if the sales proceeds exceed the
optionee's basis in the shares (i.e., the option price plus the amount
includable as ordinary income). The amount of the optionee's taxable ordinary
income will be deductible by the Company in the year of the Disqualifying
Disposition.
At the time of sale of shares received upon exercise of an option (other
than a Disqualifying Disposition of shares received upon the exercise of an
incentive option), any gain or loss is long-term or short-term capital gain or
loss, depending upon the holding period. The holding period for long-term
capital gain or loss treatment is more than one year.
The foregoing is not intended to be an exhaustive analysis of the tax
consequences relating to stock options issued under the Plan. For instance, the
treatment of options under state and local tax laws, which is not described
above, may differ from the treatment for Federal income tax purposes.
VOTE REQUIRED
The affirmative vote of holders of a majority of the shares of Common Stock
and Class A Preferred Stock issued, outstanding and entitled to vote, present or
represented at the meeting, a quorum being present, is required for the adoption
of this proposal. Broker non-votes with respect to this matter will be treated
as neither a vote 'for' or a vote 'against' the matter, although they will be
counted in determining if a quorum is present. However, abstentions will be
considered in determining the number of votes required to attain a majority of
the shares present or represented at the meeting and entitled to vote.
Accordingly, an abstention from voting by a stockholder present in person or by
proxy at the meeting has the same legal effect as a vote 'against' the matter
because it represents a share present or represented at the meeting and entitled
to vote, thereby increasing the number of affirmative votes required to approve
this proposal.
THE BOARD OF DIRECTORS DEEMS 'PROPOSAL NO. 2 -- AMENDMENTS TO AMENDED AND
RESTATED 1993 STOCK OPTION PLAN' TO BE IN THE BEST INTERESTS OF THE COMPANY AND
ITS STOCKHOLDERS AND RECOMMENDS A VOTE 'FOR' APPROVAL OF THIS PROPOSAL.
12
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<PAGE>
NEW PLAN BENEFITS
The Company can not now determine the number of shares of Common Stock that
will be granted in the future under the Amended and Restated 1993 Stock Option
Plan, as amended. The following table sets forth information regarding the
benefits received during 1998 pursuant to the Amended and Restated 1993 Stock
Option Plan by: (i) each executive officer named in the Summary Compensation
Table (see 'Executive Compensation'); (ii) all current executive officers as a
group; (iii) all current directors who are not executive officers as a group;
and (iv) all employees, including all current officers who are not executive
officers, as a group.
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE(1) NUMBER OF SHARES
- ------------------------------------------------------------------------------ --------------- ----------------
<S> <C> <C>
John A. Spears -- Former President and Chief Executive Officer................ $ 36,376 12,000
Terrence W. Doyle -- Vice President -- Research and Development............... $ 29,100 9,600
Thomas E. Klein -- Vice President -- Finance and Chief Financial Officer...... $ 29,100 9,600
Thomas Mizelle -- Vice President -- Operations and Secretary.................. $ 29,100 9,600
All current executive officers as a group..................................... $ 138,560 48,800
All current directors who are not executive officers as a group............... $ 585,000 120,000
All employees, including current officers who are not executive officers, as a
group....................................................................... $ 708,603 221,112
</TABLE>
- ------------------------
(1) Amounts are determined by multiplying the number of options granted by the
exercise price of the applicable options, which in each case was the market
price of a share of Common Stock on the applicable grant date.
PROPOSAL NO. 3 -- RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1999, and has further
directed that management submit the selection of independent auditors for
ratification by stockholders at the Annual Meeting. Ernst & Young LLP has
audited the Company's financial statements since 1995. A representative of Ernst
& Young LLP is expected to be present at the Annual Meeting and will have an
opportunity to make a statement if he or she desires and will be available to
respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Board will reconsider whether
or not to retain that firm. Even if the selection were ratified, the Board in
its discretion may direct the appointment of a different independent accounting
firm at any time during the year if the Board determines that such a change
would be in the best interests of the Company and its stockholders.
VOTE REQUIRED
The affirmative vote of holders of a majority of the aggregate voting power
of Common Stock and Class A Preferred Stock issued, outstanding and entitled to
vote, present or represented at the meeting, a quorum being present, is required
for the adoption of this proposal. Broker non-votes with respect to this matter
will be treated as neither a vote 'for' nor a vote 'against' the matter,
although they will be counted in determining if a quorum is present. However,
abstentions will be considered in determining the number of votes required to
attain a majority of the shares present or represented at the meeting and
entitled to vote. Accordingly, an abstention from voting by a stockholder
present in person or by proxy at the meeting has the same legal effect as a vote
'against' the matter because it represents a share present or represented at the
meeting and entitled to vote, thereby increasing the number of affirmative votes
required to approve this proposal.
THE BOARD OF DIRECTORS DEEMS 'PROPOSAL NO. 3 -- RATIFICATION OF SELECTION
OF INDEPENDENT AUDITORS' TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND RECOMMENDS A VOTE 'FOR' APPROVAL OF THIS PROPOSAL.
13
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<PAGE>
CERTAIN TRANSACTIONS
In January 1998, the Company entered into a consulting agreement with Kent,
Reynolds & Stuart ('KR&S'), pursuant to which KR&S was to assist the Company by
providing executive search services, consulting regarding financing activities
and corporate partnership arrangements. Michael Kent, a director of the Company,
is a principal of KR&S. In 1998, the Company paid KR&S an aggregate of $120,000
for consulting services under this consulting agreement and otherwise. The
consulting agreement terminated on December 31, 1998. The Company has retained
KR&S to provide additional executive search services during 1999 and has paid a
$60,000 retainer to KR&S for these services.
STOCKHOLDER PROPOSALS
All stockholder proposals which are intended to be presented at the 2000
Annual Meeting of Stockholders of the Company must be received by the Company no
later than January 18, 2000 for inclusion in the Board of Directors' proxy
statement and form of proxy relating to that meeting.
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at the
Annual Meeting. However, if any other business properly comes before the Annual
Meeting, it is the intention of the persons named in the enclosed proxy to vote
on those matters in accordance with their best judgment.
The prompt return of your proxy will be appreciated and helpful in
obtaining the necessary vote. Therefore, whether or not you expect to attend the
Annual Meeting, please sign the proxy and return it in the enclosed envelope.
By Order of the Board of Directors
THOMAS MIZELLE
Secretary
Dated: May 17, 1999
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<PAGE>
Appendix A
VION PHARMACEUTICALS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON JUNE 17, 1999
Alan Kessman and Thomas Mizelle, and each of them, as the true and lawful
attorneys, agents and proxies of the undersigned, with full power of
substitution, are hereby authorized to represent and to vote all shares of
Common Stock or Class A Convertible Preferred Stock of Vion Pharmaceuticals,
Inc. held of record by the undersigned on April 27, 1999, at the Annual Meeting
of Stockholders to be held at 3:00 p.m. on Thursday, June 17, 1999, at the
Kitano Hotel, 66 Park Avenue, New York, New York, and at any adjournments
thereof. Any and all proxies heretofore given are hereby revoked.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BY THE
UNDERSIGNED. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR PROPOSALS
NO. 1, 2 AND 3.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE>
<PAGE>
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE USING
DARK INK ONLY.
<TABLE>
<S> <C> <C> <C>
WITHHOLD Nominees: William R. Miller, Alan Kessman,
AUTHORITY Michel C. Bergerac, Frank T. Cary,
FOR to vote for the James L. Ferguson, Michael C.
all nominees listed nominees. Kent, Alan C. Sartorelli, Ph.D.;
1. Election of [ ] [ ] and Walter B. Wriston.
Directors
</TABLE>
FOR ALL LISTED NOMINEES (EXCEPT DO NOT VOTE FOR THE
NOMINEE(S) WHOSE NAME(S) APPEAR(S) BELOW):
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
2. Approval of Amendments to the
Company's Amended and Restated [ ] [ ] [ ]
1993 Stock Option Plan:
3. Approval of Appointment of Ernst &
Young LLP as the Company's [ ] [ ] [ ]
Independent Auditors:
</TABLE>
Discretionary authority is hereby granted
with respect to such other matters as may
properly come before the meeting.
Important: Please sign exactly as name
appears below. Each joint owner should sign.
Executors, administrators, trustees, etc.
should give full title as such. If signor is a
corporation, please give full corporate name
by duly authorized officer. If a partnership,
please sign in partnership name by
authorized person.
<TABLE>
<S> <C> <C>
SIGNATURE_____________________________ SIGNATURE IF HELD JOINTLY_____________________________ DATED________, 1999
</TABLE>
The above-signed acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the Proxy Statement furnished therewith. Please sign, date and
return this proxy card promptly using the enclosed envelope.
<PAGE>
<PAGE>
Appendix B
VION PHARMACEUTICALS, INC.
AMENDED AND RESTATED
1993 STOCK OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for Vion
Pharmaceuticals, Inc. (the "Corporation") and its stockholders the benefits
arising from capital stock ownership by employees, officers and directors of,
and consultants or advisors to, the Corporation and its subsidiary corporations
who are expected to contribute to the Corporation's future growth and success.
Except where the context otherwise requires, the term "Corporation" shall
include all present and future subsidiaries of the Corporation as defined in
Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code"). Those provisions of the Plan which make
express reference to Section 422 shall apply only to Incentive Stock Options (as
that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Corporation (or a
Committee designated by the Board of Directors) and may be either incentive
stock options ("Incentive Stock Options") meeting the requirements of Section
422 of the Code or non-statutory options which are not intended to meet the
requirements of Section 422 of the Code.
(b) Administration. The Plan will be administered by the Board of
Directors of the Corporation, whose construction and interpretation of the terms
and provisions of the Plan shall be final and conclusive. The Board of Directors
may in its sole discretion grant options to purchase shares of the Corporation's
Common Stock, $.01 par value per share ("Common Stock") and issue shares upon
exercise of such options as provided in the Plan. The Board shall have
authority, subject to the express provisions of the Plan, to construe the
respective option 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 agreements, which need not be identical, and to make all
other determinations in the judgment of the Board of Directors necessary or
desirable for the administration of the Plan. The Board of Directors may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any option agreement in the manner and to the extent it shall deem expedient
to carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by the
Board of Directors shall be liable for any action or determination under the
Plan made in good faith. The Board of Directors may, to the full extent
permitted by or consistent with applicable laws or regulations (including,
without limitation, applicable state law and Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange
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Act"), or any successor rule ("Rule 16b-3")), delegate any or all of its powers
under the Plan to a committee (the "Committee") appointed by the Board of
Directors, and if the Committee is so appointed all references to the Board of
Directors in the Plan shall mean and relate to such Committee with respect to
the powers so delegated.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply to the Corporation only at such time
as the Corporation's Common Stock is registered under the Exchange Act, subject
to the last sentence of Section 3(b), and then only to such persons as are
required to file reports under Section 16(a) of the Exchange Act (a "Reporting
Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors to, the
Corporation; provided, that Incentive Stock Options may only be granted to
individuals who are employees of the Corporation (within the meaning of Section
3401(c) of the Code). A person who has been granted an option may, if he or she
is otherwise eligible, be granted additional options if the Board of Directors
shall so determine.
(b) Grant of Options to Reporting Persons. From and after the
registration of the Common Stock of the Corporation under the Exchange Act, the
selection of a director or an officer who is a Reporting Person (as the terms
"director" and "officer" are defined for purposes of Rule 16b-3) as a recipient
of an option, the timing of the option grant, the exercise price of the option
and the number of shares subject to the option shall be determined either (i) by
the Board of Directors, of which all members shall be "disinterested persons"
(as hereinafter defined), or (ii) by a committee consisting of two or more
directors having full authority to act in the matter, each of whom shall be a
"disinterested person." For the purposes of the Plan, a director shall be deemed
to be a "disinterested person" only if such person qualifies as a "disinterested
person" within the meaning of Rule 16b-3, as such term is interpreted from time
to time. If at least two of the members of the Board of Directors do not qualify
as a "disinterested person" within the meaning of Rule 16b-3, as such term is
interpreted from time to time, then the granting of options to officers and
directors who are Reporting Persons under the Plan shall not be determined in
accordance with this Section 3(b) but shall be determined in accordance with the
other provisions of the Plan.
(c) Directors' Options. Directors of the Company who are not employees
or beneficial owners of 5% or more of the outstanding Common Stock of the
Company ("Eligible Directors") and who are elected to the Board of Directors
subsequent to the date hereof will be granted an option ("Director Option") to
purchase 20,000 shares of Common Stock on the date that such person is first
elected or appointed a director (an "Initial Director Option"). Each Eligible
Director other than the Chairman of the Board will receive an automatic grant of
a Director Option to purchase 15,000 shares of Common Stock on the day
immediately following the date of each annual meeting of stockholders held
subsequent to December 31, 1998, as long as such director is a member of the
Board of Directors, and provided that such director did not
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receive an Initial Director Option since the previous annual meeting of
stockholders. The Chairman of the Board, if an Eligible Director, will receive
an automatic grant of a Director Option to purchase 20,000 shares of Common
Stock on the day immediately following the date of each annual meeting of
stockholders held subsequent to December 31, 1998, as long as such director is a
member of the Board of Directors, and provided that such director did not
receive an Initial Director Option since the previous annual meeting of
stockholders. The exercise price for each share subject to a Director Option
shall be equal to the fair market value of the Common Stock on the date of
grant. Director Options shall become exercisable in four equal annual
installments commencing one year from the date the option is granted and will
expire the earlier of 10 years after the date of grant or 90 days after the
termination of the director's service on the Board. This Section 3(c) shall not
be amended more than once every six months, other than to comport with changes
in the Internal Revenue Code, the Employee Retirement Income Security Act, or
the rules thereunder.
4. Stock Subject to Plan.
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Corporation which may be issued and sold under the Plan is 3,000,000 shares.
If an option granted under the Plan shall expire, terminate or is cancelled for
any reason without having been exercised in full, the unpurchased shares subject
to such option shall again be available for subsequent option grants under the
Plan.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient
of an option shall execute an option agreement in such form not inconsistent
with the Plan as may be approved by the Board of Directors. Such option
agreements may differ among recipients.
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6. Purchase Price.
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors at the time
of grant of such option; provided, however, that in the case of an Incentive
Stock Option, the exercise price shall not be less than 100% of the Fair Market
Value (as hereinafter defined) of such stock, at the time of grant of such
option, or less than 110% of such Fair Market Value in the case of options
described in Section 11(b). "Fair Market Value" of a share of Common Stock of
the Corporation as of a specified date for the purposes of the Plan shall mean
the closing price of a share of the Common Stock on the principal securities
exchange on which such shares are traded on the day immediately preceding the
date as of which Fair Market Value is being determined, or on the next preceding
date on which such shares are traded if no shares were traded on such
immediately preceding day, or if the shares are not traded on a securities
exchange, Fair Market Value shall be deemed to be the average of the high bid
and low asked prices of the shares in the over-the-counter market on the day
immediately preceding the date as of which Fair Market Value is being determined
or on the next preceding date on which such high bid and low asked prices were
recorded. If the shares are not publicly traded, Fair Market Value of a share of
Common Stock (including in the case of any repurchase of shares, any
distributions with respect thereto which would be repurchased with the shares)
shall be determined in good faith by the Board of Directors. In no case shall
Fair Market Value be determined with regard to restrictions other than
restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Corporation in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i) by
delivery to the Corporation of shares of Common Stock of the Corporation having
a Fair Market Value on the date of exercise equal in amount to the exercise
price of the options being exercised, (ii) by any other means (including,
without limitation, by delivery of a promissory note of the optionee payable on
such terms as are specified by the Board of Directors) which the Board of
Directors determines are consistent with the purpose of the Plan and with
applicable laws and regulations (including, without limitation, the provisions
of Rule 16b-3 and Regulation T promulgated by the Federal Reserve Board) or
(iii) by any combination of such methods of payment.
7. Option Period.
Subject to earlier termination as provided in the Plan, each option and
all rights thereunder shall expire on such date as determined by the Board of
Directors and set forth in the applicable option agreement, provided, that such
date shall not be later than (10) ten years after the date on which the option
is granted.
8. Exercise of Options.
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Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. No option granted to a Reporting Person for purposes of the
Exchange Act, however, shall be exercisable during the first six months after
the date of grant. Subject to the requirements in the immediately preceding
sentence, if an option is not at the time of grant immediately exercisable, the
Board of Directors may (i) in the agreement evidencing such option, provide for
the acceleration of the exercise date or dates of the subject option upon the
occurrence of specified events, and/or (ii) at any time prior to the complete
termination of an option, accelerate the exercise date or dates of such option.
All options granted under the Plan will become exercisable in no fewer than four
equal annual installments commencing not earlier than the first anniversary of
the date of grant.
9. Nontransferability of Options.
No option granted under this Plan shall be assignable or otherwise
transferable by the optionee except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. An option may be exercised during the lifetime of the optionee only
by the optionee. In the event an optionee dies during his employment by the
corporation or any of its subsidiaries, or during the three-month period
following the date of termination of such employment, his option shall
thereafter be exercisable, during the period specified to the full extent to
which such option was exercisable by the optionee at the time of his death
during the periods set forth in Section 10 or 11(d).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, an optionee may exercise an
option at any time within three (3) months following the termination of the
optionee's employment or other relationship with the Corporation or within one
(1) year if such termination was due to the death or disability of the optionee,
but, except in the case of the optionee's death, in no event later than the
expiration date of the Option. If the termination of the optionee's employment
is for cause or is otherwise attributable to a breach by the optionee of an
employment or confidentiality or non-disclosure agreement, the option shall
expire immediately upon such termination. The Board of Directors shall have the
power to determine what constitutes a termination for cause or a breach of an
employment or confidentiality or non-disclosure agreement, whether an optionee
has been terminated for cause or has breached such an agreement, and the date
upon which such termination for cause or breach occurs. Any such determinations
shall be final and conclusive and binding upon the optionee.
11. Incentive Stock Options.
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Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Stockholder. If any employee to whom an Incentive Stock Option
is to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Corporation (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the Fair
Market Value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years from
the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Corporation) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate Fair Market Value, as
of the respective date or dates of grant, of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Corporation, except that:
(i) an Incentive Stock Option may be exercised within the period
of three months after the date the optionee ceases to be an employee of
the Corporation (or within such lesser period as may be specified in the
applicable option agreement), provided, that the agreement with respect
to such option may designate a longer exercise period and that the
exercise after such three-month period shall be treated as the exercise
of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Corporation,
or within three months after the optionee ceases to be such an employee,
the Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser period
as may be specified in the applicable option agreement); and
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(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provisions thereto) while
in the employ of the Corporation, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be such an employee because of such disability (or within such
lesser period as may be specified in the applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Incoming Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions to Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its
sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, rights of first refusal, commitments to pay cash
bonuses, to make, arrange for or guaranty loans or to transfer other property to
optionees upon exercise of options, or such other provisions as shall be
determined by the Board of Directors; provided, that such additional provisions
shall not be inconsistent with any other term or condition of the Plan and such
additional provisions shall not cause any Incentive Stock Option granted under
the Plan to fail to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its
sole discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be permitted if it would cause the Plan to fail to comply with Section
422 of the Code or with Rule 16b-3 (if applicable).
13. General Restrictions.
(a) Investment Representations. The Corporation may require any person
to whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Corporation to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Corporation deems necessary or appropriate in order to comply with federal and
applicable state securities laws, or with covenants or representations made by
the Corporation in connection with any public offering of its Common Stock.
(b) Compliance with Securities Law. Each option shall be subject to the
requirement that if, at any time, counsel to the Corporation shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state
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or federal law, or the consent or approval of any governmental or regulatory
body, or that the disclosure of non-public information or the satisfaction of
any other condition is necessary as a condition of, or in connection with the
issuance or purchase of shares thereunder, such option may not be exercised,
in whole or in part, unless such listing, registration, qualification, consent
or approval, or satisfaction of such condition shall have been effected or
obtained on conditions acceptable to the Board of Directors. Nothing herein
shall be deemed to require the Corporation to apply for or to obtain such
listing, registration or qualification, or to satisfy such condition.
14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder with
respect to any shares covered by the option (including, without limitation, any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalization, Reorganizations and Related
Transactions.
(a) Recapitalization and Related Transactions. If, through or as a
result of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Corporation, or (ii) additional shares
or new or different shares or other non-cash assets are distributed with respect
to such shares of Common Stock or other securities, an appropriate and
proportionate adjustment shall be made in (x) the maximum number and kind of
shares reserved for issuance under the Plan, (y) the number and kind of shares
or other securities subject to any then outstanding options under the Plan, and
(z) the price for each share subject to any then outstanding options under the
Plan, without changing the aggregate purchase price as to which such options
remain exercisable. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 15 if such adjustment (i) would cause the Plan to fail
to comply with Section 422 of the Code or with Rule 16b-3 or (ii) would be
considered as the adoption of a new plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. If the Corporation
shall be the surviving corporation in any reorganization, merger or
consolidation of the Corporation with one or more other corporations, any then
outstanding option granted pursuant to the Plan shall pertain to and apply to
the securities to which a holder of the number of shares of Common Stock subject
to such options would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding proportionate
adjustment of the purchase price as to which such options may be exercised so
that the aggregate purchase price as to which such options may be exercised
shall be the same as the aggregate purchase price as to which such options may
be exercised for the shares remaining subject to the options immediately prior
to such reorganization, merger, or consolidation.
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(c) Board Authority to Make Adjustments. Any adjustments made under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, Etc.
(a) General. In the event of a consolidation or merger in which
the Corporation is not the surviving corporation, or sale of all or
substantially all of the assets of the Corporation in which outstanding shares
of Common Stock are exchanged for securities, cash or other property of any
other corporation or business entity or in the event of a liquidation of the
Corporation (collectively, a "Corporate Transaction"), the Board of Directors of
the Corporation, or the board of directors of any corporation assuming the
obligations of the Corporation, may, in its discretion, take any one or more of
the following actions, as to outstanding options: (i) provide that such options
shall be assumed, or equivalent options shall be substituted, by the acquiring
or succeeding corporation (or an affiliate thereof), provided that any such
options substituted for Incentive Stock Options shall meet the requirements of
Section 424(a) of the Code, (ii) upon written notice to the optionees, provide
that all unexercised options will terminate immediately prior to the
consummation of such transaction unless exercised by the optionee within a
specified period following the date of such notice, (iii) in the event of a
Corporate Transaction under the terms of which holders of the Common Stock of
the Corporation will receive upon consummation thereof a cash payment for each
share surrendered in the Corporate Transaction (the "Transaction Price"), make
or provide for a cash payment to the optionees equal to the difference between
(A) the Transaction Price times the number of shares of Common Stock subject to
such outstanding options (to the extent then exercisable at prices not in excess
of the Transaction Price) and (B) the aggregate exercise price of all such
outstanding options in exchange for the termination of such options, and (iv)
provide that all or any outstanding options shall become exercisable in full
immediately prior to such event.
(b) Substitute Options. The Corporation may grant options under the Plan
in substitution for options held by employees of another corporation who become
employees of the Corporation, or a subsidiary of the Corporation, as the result
of a merger or consolidation of the employing corporation with the Corporation
or a subsidiary of the Corporation, or as a result of the acquisition by the
Corporation, or one of its subsidiaries, of property or stock of the employing
corporation. The Corporation may direct that substitute options be granted on
such terms and conditions as the Board of Directors considers appropriate in the
circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Corporation or interfere in any way with the right of the Corporation at any
time to terminate such employment or to increase or decrease the compensation of
the optionee.
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18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the approval
of the stockholders of the Corporation is required under Section 422 of the Code
or any successor provision with respect to Incentive Stock Options, or under
Rule 16b-3, the Board of Directors may not effect such modification or amendment
without such approval.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding option agreements in a
manner not inconsistent with the Plan. The Board of Directors shall have the
right to amend or modify (i) the terms and provisions of the Plan and of any
outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code and (ii) the terms and
provisions of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3.
20. Withholding.
(a) The Corporation shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Corporation,
which may be withheld by the Corporation in its sole discretion, the optionee
may elect to satisfy such obligations, in whole or in part, (i) by causing the
Corporation to withhold shares of Common Stock otherwise issuable pursuant to
the exercise of an option or (ii) by delivering to the Corporation shares of
Common Stock already owned by the optionee. The shares so delivered or withheld
shall have a Fair Market Value equal to such withholding obligation as of the
date that the amount of tax to be withheld is to be determined. An optionee who
has made an election pursuant to this Section 20(a) may only satisfy his or her
withholding obligation with shares of Common Stock which are not subject to any
repurchase, forfeiture, unfulfilled vesting or other similar requirements.
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(b) The acceptance of shares of Common Stock upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Corporation if any or all of such shares are disposed of by the
optionee within two years from the date the option was granted or within one
year from the date the shares were transferred to the optionee pursuant to the
exercise of the option, and (ii) if required by law, to remit to the
Corporation, at the time of and in the case of any such disposition, an amount
sufficient to satisfy the Corporation's federal, state and local withholding tax
obligations with respect to such disposition, whether or not, as to both (i) and
(ii), the optionee is in the employ of the Corporation at the time of such
disposition.
(c) Notwithstanding the foregoing, in the case of a Reporting Person
whose options have been granted in accordance with the provisions of Section
3(b) herein, no election to use shares for the payment of withholding taxes
shall be effective unless made in compliance with any applicable requirements of
Rule 16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the date of the Board's adoption of the Plan, no
options previously granted under the Plan shall be deemed to be Incentive Stock
Options and no Incentive Stock Options shall be granted thereafter. Amendments
to the Plan not requiring stockholder approval shall become effective when
adopted by the Board of Directors; amendments requiring stockholder approval (as
provided in Section 19) shall become effective when adopted by the Board of
Directors, but no Incentive Stock Option granted after the date of such
amendment shall become exercisable (to the extent that such amendment to the
Plan was required to enable the Corporation to grant such Incentive Stock Option
to a particular optionee) unless and until such amendment shall have been
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months of the Board's adoption of such amendment,
any Incentive Stock Options granted on or after the date of such amendment shall
terminate to the extent that such amendment to the Plan was required to enable
the Corporation to grant such option to a particular optionee.
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Subject to this limitation, options may be granted under the Plan at any time
after the effective date and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate upon the earlier of (i) the close of business on the
day next preceding the tenth anniversary of the date of is adoption by the Board
of Directors, or (ii) the date on which all shares available for issuance under
the Plan shall have been issued pursuant to the exercise or cancellation of
options granted under the Plan. If the date of termination is determined under
(i) above, then options outstanding on such date shall continue to have force
and effect in accordance with the provisions of the instruments evidencing such
options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
24. Governing Law.
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of New York without regard to the
principles of conflicts of laws.
Originally Adopted by the Board of Directors on
April 15, 1993
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