SCHEDULE 14A
(Rule 14a-101)
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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material to Rule 14a-11(c) or Rule 14a-12
Xytronyx, 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
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
Item 22(a)(2) of Schedule A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
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/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
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[LOGO]
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XYTRONYX, INC.
June , 1997
Dear Stockholder:
On behalf of the Board of Directors and management of Xytronyx, Inc., I
cordially invite you to our Annual Meeting to be held on Thursday, August 7,
1997, at the offices of Donovan Leisure Newton & Irvine, 30 Rockefeller Plaza,
39th Floor, New York, NY 10112. This will be our twelfth Annual Meeting since we
became a public company in October 1985, and we hope that it will be possible
for you to attend in person.
I look forward to meeting many stockholders personally at the Annual
Meeting at which time we can discuss important activities and accomplishments of
the Company.
It is important to us that your shares be represented at the meeting
whether or not you plan to attend. You can be sure your shares are voted at the
meeting in accordance with your preferences by properly completing, signing and
returning your proxy card in the enclosed envelope.
Sincerely,
Dr. H. Laurence Shaw
Chairman of the Board
XYTRONYX, INC.
6730 MESA RIDGE ROAD, SUITE A
SAN DIEGO, CALIFORNIA 92121
(619) 550-3900
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 7, 1997
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Notice is hereby given that an Annual Meeting (the "Meeting") of the
Stockholders of Xytronyx, Inc., a Delaware corporation (the "Company"), will be
held at the offices of Donovan Leisure Newton & Irvine, 30 Rockefeller Plaza,
39th Floor, New York, NY 10112 on Thursday, August 7, 1997, at 10:00 a.m. E. S.
T., and at any adjournments thereof, for the following purposes:
1. To elect six Directors to hold office for a one-year term or until their
successors are elected and qualified. The following persons are nominees
(the "Nominees") for election to the Board of Directors by holders of the
outstanding shares entitled to vote: Messrs. H. Laurence Shaw, Jack H.
Halperin, John G. Kringel, Elliott H. Vernon, Jerry A. Weisbach and
Michael S. Weiss;
2. To approve an amendment (the "Authorized Amendment") to the Company's
Certificate of Incorporation increasing the number of authorized shares of
Common Stock of the Company from 30,000,000 to 100,000,000, and increasing
the number of authorized shares of Preferred Stock of the Company from
300,000 to 2,000,000;
3. To approve an amendment (the "Name Amendment") to the Company's
Certificate of Incorporation to change the name of the Company to Pacific
Pharmaceuticals, Inc. or such other name as may be determined by the Board
of Directors;
4. To approve the adoption of the Company's Equity Incentive Plan (the
"Incentive Plan");
5. To approve the adoption of the Company's Stock Option Plan for
Non-Employee Directors (the "Director Plan");
6. To consider and act upon a proposal to ratify the selection of Deloitte
& Touche LLP as the Company's independent public accountants for the fiscal
year ending March 31, 1998; and
7. To consider and act on such other business as may properly be presented
at the Meeting.
A record of the stockholders has been taken as of the close of business on June
26, 1997 (the "Record Date"), and only those stockholders of record on the
Record Date will be entitled to notice of and to vote at the Meeting. A
complete list of the stockholders entitled to vote at the Meeting arranged in
alphabetical order, and showing the address of such stockholder and the number
of shares registered in the name of each stockholder, will be kept open at the
offices of Donovan Leisure Newton & Irvine, 30 Rockefeller Plaza, 39th Floor New
York, NY 10112, for examination by any stockholder during business hours for a
period of ten (10) days immediately prior to the Meeting.
An affirmative vote of a majority of the outstanding shares entitled to vote is
required for approval of the Authorized Amendment and the Name Amendment. The
votes of a majority of the shares present at the meeting in person or by proxy
is required for the approval of the Nominees, for the approval of the Incentive
Plan and the Director Plan and to ratify the selection of Deloitte & Touche LLP
as the Company's independent accountants.
Your participation in the Meeting is important. To ensure your representation,
if you do not expect to be present at the Meeting, please sign and date the
enclosed proxy and return it promptly in the enclosed postage-prepaid envelope
which has been provided for your convenience. A proxy may be revoked by a later
dated, properly executed proxy. The prompt return of proxies will ensure a
quorum for the Meeting and save the expense of a further solicitation.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ DR. H. LAURENCE SHAW
------------------------
DR. H. LAURENCE SHAW
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SAN DIEGO, CALIFORNIA
JUNE ___, 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. YOUR VOTE
IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE EXECUTE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
XYTRONYX, INC.
6730 MESA RIDGE ROAD, SUITE A
SAN DIEGO, CA 92121
(619) 550-3900
JUNE , 1997
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PROXY STATEMENT
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SOLICITATION OF PROXIES
This proxy statement (the "Proxy Statement") is furnished in connection with the
solicitation of proxies by the Board of Directors of Xytronyx, Inc., a Delaware
corporation (the "Company"), for use at the Annual Meeting (the "Meeting") of
Stockholders, to be held at the offices of Donovan Leisure Newton & Irvine, 30
Rockefeller Plaza, 39th Floor, New York, NY 10112, on Thursday, August 7, 1997,
at 10:00 a.m. E.S.T. and at any adjournments thereof.
Shares of capital stock of the Company entitled to vote at the Meeting which are
represented by properly executed and dated proxies returned prior to the Meeting
will be voted at the Meeting in accordance with the specifications thereon.
Shares represented by valid proxies will be voted in accordance with the
instructions indicated thereon and otherwise in accordance with the judgment of
the persons designated as the holders of the proxies. Any proxy on which no
direction is specified will be cast: FOR Proposal 1 to elect the Nominees as
Directors; FOR Proposal 2 to approve an amendment (the "Authorized Amendment")
to the Company's Certificate of Incorporation increasing the number of
authorized shares of Common Stock of the Company from 30,000,000 to 100,000,000,
and increasing the number of authorized shares of Preferred Stock of the Company
from 300,000 to 2,000,000; FOR Proposal 3 to approve an amendment (the "Name
Amendment") to the Company's Certificate of Incorporation to change the name of
the Company to Pacific Pharmaceuticals, Inc. or such other name as may be
determined by the Board of Directors; FOR Proposal 4 to approve the adoption of
the Company's Equity Incentive Plan (the "Incentive Plan"); FOR Proposal 5 to
approve the adoption of the Company's 1996 Stock Option Plan for Non-Employee
Directors (the "Director Plan"); and FOR Proposal 6 to ratify the selection of
Deloitte & Touche LLP as the Company's independent public accountants for the
fiscal year ending March 31, 1998. The proxy also confers discretionary
authority on the persons designated therein to vote on other business, not
currently contemplated, which may come before the Meeting.
Any stockholder giving a proxy has the right to revoke it by giving written
notice to the Secretary of the Company or by duly executing and delivering a
proxy bearing a later date or by attending the Meeting and giving oral notice to
the Secretary at any time prior to the voting.
This Proxy Statement, accompanying form of proxy and the Fiscal 1997 Annual
Report to Stockholders, including financial statements, are first being mailed
to stockholders on or about June 30, 1997.
1
A complete list of the stockholders entitled to vote at the Meeting arranged in
alphabetical order, showing their address and the number of shares registered in
the name of each stockholder, will be kept open at the offices of Donovan
Leisure Newton & Irvine, 30 Rockefeller Plaza, 39th Floor, New York, NY 10112,
for examination by any stockholder during business hours for a period of ten
(10) days immediately prior to the Meeting.
The cost of the solicitation of proxies for the Meeting will be paid by the
Company. In addition to solicitation of proxies by use of mails, Directors,
Officers and employees of the Company may solicit proxies personally, or by
other appropriate means. The Company will request banks, brokerage houses and
other custodians, nominees or fiduciaries holding stock in their names for
others to send proxy materials to, and to obtain proxies from the beneficial
holders of such stock, and the Company will reimburse them for their reasonable
expenses in doing so.
QUORUM
The presence in person or by proxy of stockholders of a majority of the
outstanding shares entitled to vote is required for there to exist the quorum
needed to transact business of the Meeting. If, initially, a quorum should not
be present, the Meeting may be adjourned from time to time until a quorum is
obtained.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the voting power of the
outstanding Common Stock and the Preferred Stock is required for approval of the
Authorized Amendment and the Name Amendment. The affirmative vote of the
holders of a majority of the voting power of the Common Stock and Preferred
Stock present at the meeting in person or by proxy is required for the approval
of the Nominees as Directors for approval of the Incentive Plan and the Director
Plan, and to ratify the selection of Deloitte & Touche LLP as the Company's
independent accountants.
Abstentions and "broker non-votes" (as defined below) are counted for purposes
of determining whether a quorum is present, but do not represent votes cast with
respect to any proposal. Abstention from voting on any matter will have the
practical effect of voting against any of the proposals since it is one less
vote for approval. Broker non-votes are not considered to be shares "entitled
to vote" (other than for quorum purposes), and will therefore have the effect of
reducing the absolute number of votes required for stockholders to approve
Proposals 1, 4, 5 and 6, but will have the same effect as a negative vote on
Proposals 2 and 3. "Broker non-votes" are shares held by a broker or nominee
for which an executed proxy is received by the Company, but are not voted as to
one or more proposals because instructions have not been received from the
beneficial owners or persons entitled to vote and the broker or nominee does not
have discretionary power to vote.
APPRAISAL RIGHTS
Stockholders will not have appraisal rights with respect to any of the proposals
to be voted upon at the Meeting. Delaware law does not require that holders of
the Common Stock and Preferred Stock who object to any or all of the Proposals,
and who vote against or abstain from voting in favor of any or all of the
Proposals, be afforded any appraisal or dissenters' rights or the right to
receive cash for their shares.
2
RECORD DATE AND OUTSTANDING VOTING SECURITIES
The securities of the Company entitled to vote at the Meeting consist as of June
26, 1997, the record date fixed by the Board of Directors (the "Record Date"),
of 8,151,029 shares of Common Stock, $0.02 par value (the "Common Stock"), and
50,001 shares of Series A Convertible Preferred Stock, $25.00 par value (the
"Preferred Stock"). Each share of Common Stock is entitled to one vote on all
matters presented to the stockholders. Each share of Preferred Stock
outstanding as of the record date is entitled to 208.333 votes on all matters
presented to the stockholders. Only stockholders of record on the books of the
Company at the close of business on the Record Date will be entitled to vote at
the Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Name Amendment will allow the Company to signal a new direction for the
future, and the Incentive Plan and the Director Plan will permit the Company to
fully capitalize on the new direction by allowing it to attract and retain
quality officers and directors. Accordingly, the Board of Directors unanimously
recommends that the Company's stockholders vote (i) FOR the election of the
Nominees as Directors, (ii) FOR approval of the Authorized Amendment, (iii) FOR
approval of the Name Amendment, (iv) FOR approval of the adoption of the
Incentive Plan, (v) FOR approval of the adoption of the Director Plan, and (vi)
FOR ratification of the selection of Deloitte & Touche LLP as the Company's
independent public accountants for the fiscal year ending March 31, 1998.
AVAILABLE INFORMATION
The Company's Annual Report to Stockholders for the Fiscal Year ending March 31,
1997, including financial statements, accompanies this Proxy Statement.
Stockholders and Preferred Stockholders may obtain (free of charge) a copy of
the Company's most recent Annual Report on Form 10-K, excluding Exhibits, as
filed with the Securities and Exchange Commission (the "SEC") by writing to
Xytronyx, Inc., Attention: Investor Relations, at the address shown on Page 1.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the SEC. The reports, proxy
statements and other information filed by the Company with the SEC can be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices at Seven World Trade Center, 13th Floor, New York 10007 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material also can be obtained from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Information filed with the SEC can
also be inspected at the SEC's site on the World Wide Web at http://www.sec.gov.
In addition, material filed by the Company can be inspected at the offices of
the American Stock Exchange ("Amex") at 86 Trinity Place, New York, N.Y. 10006.
3
EXECUTIVE COMPENSATION
The information under this heading relates to the compensation of the Chairman
of the Board (who was also the Chief Executive Officer at Fiscal 1997 year-end)
and the other most highly compensated executive officers of the Company as of
the Fiscal 1997 year-end for services in all capacities during Fiscal 1997.
This information is presented in compliance with the rules and regulations of
the Securities and Exchange Commission applicable to those companies, such as
Xytronyx, Inc., that meet the definition of a "small business issuer".
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-------------------------------------------
Annual Compensation Awards Payouts
- -------------------------------------------------------------------------------------------------------------------------
Restricted
Name and Stock Number LTIP
Principal Fiscal Awards of Payout
Position Year Salary Bonus Other Amount Options Amount
- ---------------------------------------------------------------------------- -------------------------------------------
H. Laurence Shaw 1997 $ 64,000 (a) $ 25,000 $ 23,493 $ - 675,000 $ -
Chairman of the
Board and Chief
Executive Officer
Larry O. Bymaster 1997 $ 206,733 $ - $ - $ - $ -
Director-Special 1996 $ 207,169 $ 75,000 $ - $ - 75,000 $ -
Projects 1995 $ 163,925 $ 75,000 $ - $ - 195,000 $ -
David Okrongly (c)
Vice-President- 1997 $ 127,214 $ - $ - $ - 75,000 $ -
Research and 1996 $ 112,631 $ - $ - $ - 25,000 $ -
Development 1995 $ 85,664 (b) $ - $ - $ - 25,000 $ -
(a) Represents approximately three month's compensation earned after Dr. Shaw
joined the Company in December 1996
(b) Represents approximately nine month's compensation earned after Dr.
Okrongly joined the Company in June 1994
(c) Dr. Okrongly left the Company on May 6, 1997
4
COMPENSATION PURSUANT TO PLANS
INDIVIDUAL OPTION GRANTS TO EXECUTIVE OFFICERS DURING FISCAL 1997
Potential Realizable Value
Percent at Assumed Annual
Number of of Total Rates of Stock Price
Securities Options Appreciation for
Underlying Granted to Option Term
Name of Options Employees Exercise Expiration -----------------------------------
Executive Officer Granted in FY 1997 Price (d) Date 5% 10%
- --------------------------------------------------------------------------------------------------------------------------
H. Laurence Shaw 525,000 (a) 50% $ 1.1250 12/17/06 $ 371,441 $ 941,308
150,000 (b) 14% $ 106,126 $ 268,944
David Okrongly 75,000 (c) 7% $ 1.2500 02/12/07 $ 58,959 $ 149,413
Larry O. Bymaster 20,000 (e) $ 1.0625 04/16/99 $ 3,566 $ 5,975
Anil Singhal 150,000 (f) $ 1.0625 04/21/97 $ 100,230 $ 254,003
(a) Options become exercisable in equal quarterly installments over two years
beginning March 17, 1997.
(b) Options become exercisable in equal quarterly installments over two years
beginning December 17, 1998.
(c) Options become exercisable in four equal annual installments after the first
anniversary of the grant date.
(d) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of shares already owned, subject to certain conditions.
(e) Options were granted after close of fiscal 1997 in April 1997. Options
become exercisable in equal quarterly installments over two years.
(f) Options were granted after close of fiscal 1997 in April 1997.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND
FISCAL YEAR END 1997 OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Number of Unexercised Options In-The-Money Options
Shares at March 31, 1997 at March 31, 1997
Name of Acquired Value ---------------------------------- --------------------------------
Executive Officer on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------- ---------------------------------- --------------------------------
H. Laurence Shaw - $ - 65,625 609,375 $ 4,102 $ 42,188
Larry O. Bymaster (a) - $ - 160,500 229,500 $ - $ -
David Okrongly (b) - $ - 17,500 107,500 $ - $ -
(a) Does not include 20,000 option shares granted in April 1997 which are
unexercisable.
(b) Dr. Okrongly left the Company on May 6, 1997. His options will not vest
under the plan.
5
EMPLOYMENT AGREEMENT
The employment agreement with Dr. Shaw is for an initial two year period
beginning December 17, 1996, subject to renewal upon mutual agreement. The
Company has agreed to pay Dr. Shaw an initial salary of $250,000 per annum,
subject to certain annual increases. Dr. Shaw will also be entitled to receive
a minimum annual bonus of $25,000, with an additional annual milestone-based
bonus at the discretion of the Board of Directors of up to an additional
$125,000. In connection with the execution of the employment agreement, Dr.
Shaw was paid a $25,000 signing bonus.
Dr. Shaw was also granted qualified incentive stock options pursuant to the
recently approved Incentive Plan to purchase 675,000 shares of the common stock
of the Company, exercisable for a period of ten years, at an exercise price of
$1.125. With respect to 525,000 of such options, the options become exercisable
over a period of two years from the date of the employment agreement in eight
successive equal quarterly installments but shall be subject to immediate
vesting upon the occurrence of certain transactions deemed a change in control
of the Company. The remaining 150,000 options become exercisable over a two
year period commencing on the first anniversary of the agreement in eight
successive equal quarterly installments. In addition to the foregoing, Dr. Shaw
will be entitled to additional stock options from time to time at the discretion
of the Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 27, 1995, Paramount Capital, Inc. ("Paramount") and the Company
entered into a Financial Advisory Agreement whereby Paramount agreed to act as
non-exclusive financial advisor to the Company and to identify and negotiate
potential acquisition candidates, investments or strategic alliances. Pursuant
to a Placement Agency Agreement entered into between Paramount and the Company
dated September 27, 1996, the parties agreed to extend the Financial Advisory
Agreement for an additional eighteen (18) months.
Paramount acted as placement agent for the Company on its November 1995 private
placement (the "1995 Private Placement") and on its December 1996 private
placement (the "1996 Private Placement").
In November 1995 the Company completed the 1995 Private Placement of $3,485,000
of units consisting of Common Stock and Class A Warrants. In connection
therewith, the Company paid commissions of $313,650 and non-accountable expense
allowances of $139,400 to Paramount. The Company will also pay a commission to
Paramount of 6% of the gross proceeds received upon any exercise of such Class A
Warrants. Pursuant to its engagement in connection with the 1995 Private
Placement, Paramount received the right to designate two nominees to the Board
of Directors of the Company; Michael S. Weiss, a Senior Managing Director of
Paramount, and Elliott H. Vernon were subsequently designated and elected to the
Board of Directors. Mr. Weiss and Mr. Vernon receive customary Board member
compensation and each voted in favor of the December 1996 changes to the
Company's Board and management set forth in Proposal 1. In connection with the
offering, the Company issued to Paramount unit purchase warrants, at an exercise
price equal to 110% of the price per unit paid by the investors in the 1995
Private Placement, to purchase up to 348,500 shares of Common Stock and 435,675
Class A Warrants. Unit purchase warrants to purchase up to 20,522 shares of
Common Stock and 25,651 Class A Warrants were transferred
6
by Paramount to Mr. Weiss. Certain affiliates of the Placement Agent were
investors in the 1995 Private Placement.
The 1996 Private Placement was completed in two stages and raised $10,000,000
(net proceeds to the Company of $8,690,000) through the sale of 100 Premium
Preferred Units at a price per Unit of $100,000, each Unit consisting of 500
shares of Convertible Preferred Stock, par value $25.00 per share, and 50,000
Common Stock Purchase Warrants, to accredited individuals and institutional
investors pursuant to Regulation D under the Securities Act of 1933, as amended.
Paramount received an aggregate dollar commission of $900,000 and a
non-accountable expense allowance of $410,753. The Company will also pay a
commission to Paramount of 6% of the gross proceeds received upon any exercise
of the warrants. Additionally, in connection with the Private Placement and in
connection with its provision of financial advisory services, Paramount received
a Unit Purchase Option and an Advisory Option (the "Options") which, in
aggregate, entitle the holders to purchase 25 Premium Preferred Units at an
exercise price equal to 110% of the per unit paid by Investors in the 1996
Private Placement. Accordingly, the Options would entitle the holders thereof,
upon exercise, to receive (I) 12,500 share of convertible preferred stock,
convertible into 2,604,245 share of common stock, and (ii) Common Stock Purchase
Warrants to purchase 1,250,038 shares of common stock. Paramount has informed
the Company that the options will be allocated to certain employees of
Paramount, including Mr. Weiss. Each share of Preferred Stock may be converted
into 208.33333 shares of common stock at any time after the final closing of the
Private Placement which took place on March 7, 1997.
Paramount is affiliated with certain significant stockholders of the Company,
including the Aries Trust, a Cayman Islands Trust ("Aries Trust"), Aries
Domestic Fund, L.P., a Delaware Corporation ("Aries Domestic") and Dr. Lindsay
A. Rosenwald. Paramount is also affiliated with Paramount Capital Asset
Management, Inc. ("Paramount Capital") which is the investment manager of Aries
Trust and the General Partner of Aries Domestic. Dr. Rosenwald is the sole
stockholder of Paramount Capital.
In June 1996 the Company entered into an agreement (the "BTI Agreement") with
Binary Therapeutics, Inc. (BTI) under which the Company was granted an option to
acquire BTI. If the Company elects to exercise its option, the agreement calls
for the Company to issue common stock to the BTI stockholders with an aggregate
acquisition value of $6,000,000. Mr. Weiss, a Director of the Company, is a
Director and Secretary of BTI. Certain other affiliates of Paramount, including
Aries Trust, Aries Domestic and Dr. Rosenwald are stockholders of BTI. Under
the BTI Agreement, as amended, the Company is required to advance to BTI funds
to repay $615,000 in indebtedness in the event that the Company exercises its
option to acquire BTI. The holders of such indebtedness are Aries Trust, Aries
Domestic and Dr. Rosenwald.
The Company and BTI have agreed to extend the period during which the Company
may exercise its option to acquire BTI by a merger of BTI into a wholly owned
subsidiary of the Company from April 30, 1997 until such time as BTI has
completed human clinical trials of Boronated Porphyrin Compounds (BOPP) at an
agreed upon dose level. The option period was extended at the Company's request
to enable BTI to complete preclinical studies, to commence clinical trials in
humans and to demonstrate that a given dose level of BOPP in humans would not
cause certain adverse events. The Company believes that the extension of the
option will give it greater opportunity to access the preliminary data resulting
from the BOPP preclinical trials and the Phase I human clinical trials before
determining whether to acquire BTI and to evaluate the possibility of adverse
events in human patients. Accordingly, the Company has determined to defer
exercise of the option and the shareholder vote therewith.
7
In October 1996, Aries Trust and Aries Domestic extended a line of credit (the
"Line of Credit") of up to $500,000 to the Company, which the Company
subsequently drew down but has since repaid. Aries Trust received warrants to
purchase 105,000 shares of Common Stock and Aries Domestic received warrants to
purchase 45,000 shares of Common Stock as consideration for extending the Line
of Credit to the Company.
In December, 1995, as a result of the Common Stock and warrants to purchase
Common Stock received in the 1995 Private Placement, Aries Trust, Aries
Domestic, and Dr. Rosenwald filed a Schedule 13D with the SEC indicating they
beneficially owned in the aggregate greater than 11% of the issued and
outstanding equity securities of the Company. In April, 1997, as a result of
the Common Stock, Preferred Stock, and options and warrants to purchase Common
Stock received in the 1996 Private Placement and for the Line of Credit, Aries
Trust, Aries Domestic, Paramount Capital and Dr. Rosenwald filed an amendment to
their earlier filed Schedule 13D indicating their increased beneficial ownership
(please refer to the table of "Beneficial and Record Ownership of Securities"
below). Paramount was permitted two appointments to the Board of Directors of
the Company pursuant to the placement agency agreement for the 1995 Private
Placement as discussed above. David R. Walner, Associate Director of Paramount
and Secretary of Paramount Capital, has served as Secretary of the Company,
without compensation, since December 1996.
The Company entered into a consulting agreement with Donna Shaw Ph.D., the wife
of the Chairman, President and Chief Executive Officer, H. Laurence Shaw. Under
the agreement, Dr. Donna Shaw will use her pharmaceutical licensing background
to assist the Company with developing corporate research alliances with third
parties for the Company's pharmaceutical products. Dr. Donna Shaw was Director
of Licensing at Abbott Laboratories. The consulting agreement was approved by
the Board of Directors and includes a monthly consulting fee of $3,000 per month
for the initial term of six months. Dr. Donna Shaw may also be granted options
to purchase 20,000 shares of the Company's common stock under the Equity
Incentive Plan (described herewith in Proposal 4,) upon the successful
introduction of one or more potential partners.
In April 1996, the Board of Directors approved a relocation package for Dr. H.
Laurence Shaw, which includes payment of all of Dr. Shaw's relocation expenses
and an interest free bridge loan of $300,000 for Dr. Shaw to use to acquire a
new residence in California. The loan, which was made on May 13, 1997, will be
paid back upon the earlier of (i) the sale of Dr. Shaw's New Jersey residence
or (ii) December 17, 2001.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company currently receive an annual
retainer of $3,000 and a fee of $1,000 for each Board meeting attended in
person. The Company also reimburses Directors for reasonable travel and related
expenses incurred in attending meetings. Officers of the Company who serve on
the Board or any Committee thereof receive no compensation for doing so.
The Board of Directors has approved the Incentive Plan and the Director Plan.
Each has been designed to allow for the provision of long-term performance
incentives to key employees, consultants and Directors of the Company in the
form of stock options, stock appreciation rights, restricted stock and other
awards, including cash-based awards. Each plan provides up to 3,000,000 shares
of Common Stock for issuance as awards under the Plan. The Board is submitting
the plans for stockholder approval at the Meeting pursuant to proposals 4 and 5
set
8
forth below. Pending such approval, the Company has granted options pursuant to
the Director Plan to purchase 50,000 shares each at an exercise price of $1.125
to Messrs. Halperin, Weiss, Vernon and Weisbach during the fiscal year ended
March 31, 1997 and granted options to purchase 50,000 shares at an exercise
price of $1.0625 to Mr. Kringel on April 16, 1997. In addition, the Director
Plan calls for annual grants of 10,000 options for each Director at the market
price on the date of the Annual Stockholders' Meeting.
The 1991 Stock Option Plan for Non-Employee, Non-Consultant Directors (the "1991
Directors' Plan") was approved by the stockholders on September 27, 1991, under
which all non-employee, non-consultant Directors automatically participate.
Under the 1991 Directors' Plan, 87,000 shares of the Company's Common Stock, as
adjusted for stock splits, were reserved for issuance upon exercise of
Nonqualified Stock Options granted or to be granted to Directors of the Company.
All options granted under the 1991 Directors' Plan are at a per share exercise
price equal to the closing price per share of Common Stock on the American Stock
Exchange on the grant date. The 1991 Directors' Plan will terminate on
September 27, 2001, unless terminated earlier by the Board of Directors.
Options to purchase 2,000 shares of common stock at $2.50 per share were granted
to all Directors in October 1996. All options expire on the tenth anniversary of
the date of grant. None of the options has been exercised.
BENEFICIAL AND RECORD OWNERSHIP OF SECURITIES
The following table sets forth certain information as of June , 1997, with
respect to the beneficial ownership of the Company's Common Stock and Preferred
Stock by (a) each person who is known to the Company to own beneficially more
than 5% of the outstanding shares of Common Stock and Preferred Stock; (b) each
present executive officer, Director and Nominee, and (c) all Executive Officers,
Directors and Nominees as a group.
COMMON STOCK PREFERRED STOCK
------------ --------------- % OF TOTAL
NAME SHARES (1)(2) % SHARES % VOTING POWER
- ---- ------------- - ------ - ------------
Paramount Capital Asset
Management, Inc. (3)
787 Seventh Ave.
New York, NY 10019 2,689,729 24.81% 12,639 20.18% 28.67%
Dr. Lindsay Rosenwald (3) 3,122,112 27.70% 12,639 20.18% 31.00%
The Aries Trust (3) 1,618,997 16.57% 8,340 14.30% 18.08%
Aries Domestic Fund, L. P. (3) 1,070,732 11.61% 4,299 7.92% 10.59%
Lou Weisbach
5980 West Touhy Ave.
Niles, IL 60714 540,100 6.21% - - 2.91%
Peter Baram
6835 La Jolla Scenic South
La Jolla, CA. 92037 479,797 5.56% - - 2.58%
9
COMMON STOCK PREFERRED STOCK
------------ --------------- % OF TOTAL
NAME SHARES (1)(2) % SHARES % VOTING POWER
- ---- ------------- - ------ - ------------
Dr. H. Laurence Shaw
6730 Mesa Ridge Rd., Suite A
San Diego, CA. 92121 131,250 1.58% - - *
Larry O. Bymaster 175,500 2.11% - - *
David A. Okrongly 14,500 * - - *
Jack H. Halperin 30,300 * - - *
John G. Kringel 22,500 * - - *
Elliott H. Vernon 23,500 * - - *
Michael S. Weiss (4) 69,673 * - - *
Jerry A. Weisbach 22,500 * - - *
All Directors and Executive
Officers as a group (8 persons) 348,473 5.80% - - 1.88%
H. Laurence Garrett, III (5) 4,900 * - - *
William M. Jorgenson (5) 10,300 * - - *
John M. Kolbas (5) 11,800 * - - *
Morris S. Weeden (5) 10,300 * - - *
(1) The inclusion of any shares of Common Stock deemed beneficially owned does
not constitute an admission by the person named that he is the beneficial owner
of those shares. Beneficial ownership also includes shares of Common Stock
which may be acquired within 60 days of June __, 1997, through the exercise
of warrants or options, or otherwise, as follows: Dr. Rosenwald, 2,177,229
shares; Paramount Capital, 2,177,229 shares; Aries Domestic Fund, L.P., 870,732
shares; The Aries Trust, 1,418,997 shares; Dr. Baram, 250,000 shares; Mr.
Bymaster, 172,500 shares; Dr. Shaw, 131,250; Mr. Halperin, 30,300 shares; Mr.
Kringel, 22,500 shares; Mr. Vernon, 23,500 shares; Mr. Weisbach, 22,500 shares;
Mr. Weiss, 69,673 shares; and all Directors and Executive Officers as a group,
348,473 shares.
(2) To the best of the Company's knowledge, unless otherwise indicated, the
beneficial owners named in column one have sole voting and investment power with
respect to the shares of Common Stock held.
(3) The Aries Domestic Fund, L.P. is the beneficial owner of 1,966,357 shares
and the Aries Trust is the beneficial owner of 3,356,497 shares of Common Stock
over which they may be deemed to hold shared voting power with Dr. Lindsay
Rosenwald and Paramount Capital. Paramount Capital is the general partner of
Aries Domestic Fund, L.P. and is the investment manager of the Aries Trust, and
therefore may be deemed to be the beneficial owner of the shares of Common Stock
10
beneficially owned by each. Dr. Lindsay Rosenwald is the beneficial owner of
5,755,237 shares of Common Stock issuable upon the exercise of certain warrants
and, as the President and sole shareholder of Paramount Capital, may be deemed
to be the beneficial owner of the 5,322,854 shares of Common Stock beneficially
owned by Paramount Capital, although he disclaims such beneficial ownership
except to the extent of his pecuniary interest. The address for each of
Paramount Capital Asset Management, Inc., Aries Domestic Fund, L.P. and the
Aries Trust is 787 Seventh Avenue, New York, NY 10019.
(4) Includes warrants to purchase 46,173 shares of Common Stock. Mr. Weiss
disclaims beneficial ownership of all shares owned by other employees or
principals of Paramount or Paramount Capital.
(5) Messrs. Garrett, Jorgenson, Kolbas and Weeden resigned from the Company
effective as of January 1, 1997.
* Less than 1%
PROPOSAL 1
ELECTION OF DIRECTORS
In December, 1996, the Company effected certain changes to its Board of
Directors and management, which included the resignations of Messrs. Larry O.
Bymaster, H. Laurence Garrett, III, William L. Jorgenson, John M. Kolbas and
Morris Weeden as directors of the Company effective as of December 19, 1996, and
the replacement of Larry O. Bymaster as Chief Executive Officer and President
effective as of January 1, 1997. Drs. H. Laurence Shaw and Jerry A. Weisbach
became Directors of the Company effective December 19, 1996, and Dr. H. Laurence
Shaw became Chief Executive Officer and President effective as of January 1,
1997. Mr. John G. Kringel became the sixth member of the current Board of
Directors effective as of April 16, 1997.
Six Directors are to be elected at the Meeting, each to serve for a term of one
year and until his successor shall be duly elected and qualified. The proxies
solicited hereby are intended to be voted FOR the Nominees whose names are
listed below unless authority to vote for election of any or all of such
nominees is withheld by marking the proxy to that effect. If a quorum is
present, the six nominees receiving an affirmative vote of the holders of a
majority of the Common Stock and Preferred Stock represented and entitled to
vote at the Meeting in person or by proxy shall be elected. Shares with respect
to which authority to vote for a nominee or nominees is withheld will not be
counted in the total number of shares voted for such nominee or nominees. The
Company has no reason to believe that any nominee will not be available for
election to serve his prescribed term. However, if any nominee should for any
reason be unable to serve, the shares represented by all valid proxies will be
voted for the election of such other person as the Board may recommend in his
place, or the Board may reduce the number of Directors to eliminate the vacancy.
Pursuant to the Company's Bylaws, the size of Board of Directors is currently
fixed at nine members. However, the Board has nominated only the six existing
Board members for election at this time. Votes cannot be cast, either in person
or by proxy, for a greater number of persons than the number of nominees named
herein.
11
The following table sets forth the name and age of each nominee and the
positions and offices with the Company held by him, his principal occupation and
business experience during the past five years, and the year of commencement of
his term as a Director of the Company.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF THE
FOLLOWING NOMINEES:
Year First
Principal Occupation and Business Became
Name Age Experience During the Past Five Years Director
---- --- ------------------------------------- --------
Dr. H. Laurence Shaw 51 From 1995 to the present, Dr. Shaw served as Corporate Vice President 1996
Research & Development of C.R. Bard. Prior to that, from 1993-1995,
Dr. Shaw served as Chief Executive Officer, President and Director of
Atlantic Pharmaceuticals, Inc. and Chief Executive Officer of each of
Atlantic's operating companies from their inception in 1993. From
1984-1993, he was Vice President, Medical and Regulatory Affairs and
Advanced Research at Abbott Laboratories. Previously, from 1981-1984,
he was a board member of Revlon Health Care, Ltd. (UK) and Director,
Medical and Technical Affairs. At Revlon, he was responsible for
pharmaceutical formulation and development, new business development
and clinical research for Revlon's major research unit outside of the
USA. Prior to Revlon, he served as International Medical Director for
Meadox Medical Inc.; Medical Director for Merck in the UK; and as
Associate Director for SmithKline Corporation. Dr. Shaw is a graduate
of the University College Hospital Medical School, London, UK and has
worked in clinical practice in the UK and in the USA. He is a Fellow
of the Faculty of Pharmaceutical Medicine of the Royal College of
Physicians, a Fellow of the American College of Clinical Pharmacology
and a member of many professional associations.
Jack H. Halperin 50 Mr. Halperin is a corporate and securities attorney with expertise in 1992
financing transactions who has practiced independently since 1987.
Mr. Halperin was a member of the law firm of Solinger Grosz &
Goldwasser, P.C. from 1981 to 1987. Mr. Halperin has a B.A. from
Columbia College and a J.D. from New York University School of Law.
Mr. Halperin is a member of the Board of Directors of I-Flow
Corporation, AccuMed International, Inc., and Memry Corporation.
12
John G. Kringel 58 Mr. Kringel, has been Senior Vice President of Hospital Products 1997
and President of Hospital Products Division of Abbott Laboratories
since October 1990 and September 1983 respectively. He joined Abbott
in 1980 as divisional vice president of corporate planning and
development. From 1977 to 1980, Kringel was associated with the
Warner-Lambert Co., where he was executive vice president of American
Optical Corporation and president of the vision care and safety
products division. Prior to that, Kringel was general manager of the
U.S. medical division of Corning Glass Works. Mr. Kringel is a member
of the Board of Directors of Lakeland Health Services, Inc., and the
Board of Trustees of Highland Park Hospital and Chairman of Groveland
Health Services Board of Trustees. He is also Chairman of Lakeland
Health Ventures, Inc.'s Board of Directors. He is a member of the
Board and Chairman of the Northeast Illinois Council of the Boy Scouts
of America, Member of the Board of Directors of the American Society of
Hospital Pharmacists Research & Education Foundation, and a member of
the Board of Directors of Navix Radiology Systems, Inc.
Elliott H. Vernon 54 Elliott H. Vernon has been the Chairman of the Board and Chief Executive 1995
Officer of Healthcare Imaging Services, Inc., a publicly held health
care management and services company that supplies state-of-the-art
medical equipment and services to physicians, hospitals, and other health
care providers in the Northeast region since its inception in 1991.
Mr. Vernon is also the managing partner of MR General Associates, a New
Jersey general partnership and the general partner of DMR Associates,
and has held such positions for the past seven years. Mr. Vernon is Of
Counsel to the law firm of Schottland, Aaron, Plaza, Costanzo &
Manning, Esq., with offices in New York and New Jersey. Mr. Vernon is
currently a director of Transworld Home Healthcare, Inc., a publicly
held regional supplier of a broad range of alternate site healthcare
services and products.
13
Michael S. Weiss 31 Mr. Weiss is Senior Managing Director of Paramount Capital, Inc., an 1995
investment banking firm and certain affiliated entities. He joined
the companies is 1993. Previously, from 1991 through 1993, Mr. Weiss
was an attorney with Cravath, Swaine & Moore. Mr. Weiss serves as
Chairman of Genta, Incorporated, and serves as a director of AVAX
Technologies, and Palatin Technologies, Inc. and is secretary of
Atlantic Pharmaceuticals, Inc., all of which are publicly traded
biotechnology companies. Mr. Weiss is also currently a member of
the Board of Directors of several privately held biopharmaceutical
companies. Mr. Weiss is also a Director, Secretary and stockholder
of Binary Therapeutics, Inc. Mr. Weiss received his J.D. from Columbia
University School of Law and a B.S. in Finance from The State University
of New York at Albany.
Jerry A Weisbach, Ph.D. 56 Dr. Weisbach is a member of the Board of Directors of Hybridon, Inc., 1996
Cima Labs, Exponential Biotherapies, Inc., Synthon Corporation and Neose
Technologies, Inc. and is a member of the Scientific Advisory Boards of
Magainin Pharmaceuticals, Chemgenics, Inc. and AVAX Technologies, Inc.
Dr. Weisbach is a former Vice President of Warner-Lambert Company and
President of its Pharmaceutical Research Division where, from 1979 to
1987, he was responsible for all pharmaceutical research and development
activities of Warner-Lambert. Prior to joining Warner-Lambert in 1979,
Dr. Weisbach served at Smith Kline and French Laboratories from 1960 to
1979, where he was Vice President, Research from 1977 to 1979. From 1988
to 1994, he was Director of Technology Transfer and continues as Adjunct
Professor at Rockefeller University. Dr. Weisbach received his Ph.D. in
Chemistry from Harvard University.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met eight times during fiscal year 1997, including the
meetings which effected changes to the Company's Board of Directors and
management. The Company's Board of Directors has an Audit Committee and
Executive Compensation and Stock Option Committee. The Board has no nominating
or similar committee. The current members of the Audit Committee are Messrs.
Weiss and Weisbach. This committee monitors the Company's basic accounting
policies, reviews audit and management reports and makes recommendations
regarding the appointment of the independent auditors. The Audit Committee met
once during the last fiscal year, and otherwise its responsibilities were
assumed by the full Board of Directors. The members of the Executive
Compensation Committee and Stock Option Committee are Messrs. Halperin and
Vernon. This
14
committee, which met once during the last fiscal year and reviews and determines
appropriate Officer compensation and administers and makes awards under the
various stock option plans. During fiscal 1997, all of the Company's Directors
attended at least 75% of the meetings of the full Board and of committees of
which they were members.
The affirmative vote of the holders of a majority of the voting power of the
Common Stock and Preferred Stock present at the Meeting in person or by proxy is
required to approve the election of the Nominees as Directors of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF
EACH NOMINEE
PROPOSAL 2
PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY FROM
30,000,000 TO 100,000,000, AND INCREASING THE NUMBER OF AUTHORIZED SHARES OF
PREFERRED STOCK OF THE COMPANY FROM 300,000 TO 2,000,000.
Delaware Law provides that an amendment to a certificate of incorporation of a
Delaware corporation effecting a change of the corporation's name must first be
approved by the corporation's Board of Directors, then approved by a majority of
the issued and outstanding shares held by the Company's stockholders.
The Board of Directors of the Company has unanimously approved and recommended
adoption of an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock available for issuance
by the Company from 30 million to 100 million shares and to increase the number
of authorized shares of preferred stock of the company from 300,000 to
2,000,000. As of the date of this Proxy Statement, 8,151,029 shares of Common
Stock were outstanding out of the 30 million currently authorized shares. As a
result of the 1996 Private Placement and the issuance of certain Common Stock
purchase warrants relating to the settlement of a class action law suit against
the Company dating from 1992, the Company is in the process of registering with
the SEC: (i) 10,416,978 shares of Common Stock underlying shares of Preferred
Stock; (ii) 5,250,150 shares of Common Stock underlying Class A Warrants (the
"Class A Warrants"); (iii) 309,734 shares of Common Stock underlying Class B
Warrants (the "Settlement Warrants"); (iv) 1,250,038 shares of Common Stock
underlying Common Stock purchase warrants, which warrants partly underlie a Unit
Purchase Option and an Advisory Option (the "Paramount Options") that in
aggregate, entitle Paramount to purchase 25 Premium Preferred Units at an
exercise price equal to 110% of the per unit price paid by the investors in the
1996 Private Placement; (v) 2,604,245 shares of Common Stock underlying
Preferred Stock, which Preferred Stock partly underlie the Paramount Options;
and (vi) 6,500,188 Class A Warrants to purchase shares of Common Stock. The
number of shares of Common Stock issuable upon conversion of the Preferred Stock
and upon exercise of the Class A Warrants, the Settlement Warrants, and the
Paramount Options, though subject to adjustment in certain events, is 32,304,900
shares of Common Stock, or 2,304,900 shares more than the currently authorized
number of shares of Common Stock. The Company agreed with the investors in the
1996 Private Placement that it would use its best efforts to increase the
authorized Common Stock of the Company to 100,000,000 shares within 90 days
after March 7,
15
1997, the final closing date of the 1996 Private Placement, but in any event no
later than 270 days after such date. If after 270 days following March 7, 1997,
the Company has failed to authorize sufficient shares, the Company agreed that
each investor in the 1996 Private Placement is entitled at the investor's option
to require the Company to repurchase such investor's shares of Preferred Stock
for $200.00 per share.
The Company's Board of Directors has unanimously adopted the proposal to amend
Article FOURTH of the Certificate of Incorporation as follows:
RESOLVED, that in the judgment of the Board of Directors of the Company, it
is deemed advisable that, subject to the approval of the holders of the issued
and outstanding shares of the Company's Common Stock, the Certificate of
Incorporation of this Company be amended, by changing the first paragraph of
Article FOURTH so that, as amended said Article shall be and read as follows:
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue One Hundred and Two Million
(102,000,00) shares consisting of (a) One Hundred Million (100,000,000) shares
of Common Stock the par value of Two Cents ($.02) per share and (b) Two Million
(2,000,000) shares of Preferred Stock of the par value of Twenty-Five Dollars
($25.00) per share.
FURTHER RESOLVED that the officers of the Company be, and each of them
hereby is, authorized and empowered to take all actions, to execute, deliver and
file all instruments and documents, to enter into all agreements and to do, or
cause to be done, any such acts and things (including the payment of all
necessary fees and expenses), in the name and on behalf of the Company under its
seal or otherwise as they or any of them deem necessary or desirable to carry
out the intent and purpose of the foregoing resolutions.
PURPOSES
Management and the Board of Directors believe that the Authorized Amendment is
necessary in order to ensure that (i) there will be sufficient authorized,
unissued and unreserved shares of Common Stock available to effect the issuance
of Common Stock upon the conversion of the Preferred Stock and exercise of the
currently issued and exercisable warrants and options, and (ii) the Company will
have shares available for issuance at the Board of Directors' discretion for
future acquisitions, stock splits, stock dividends, equity financings, employee
benefit plans and other corporate purposes.
Management and the Board of Directors of the Company believe that it is in the
best interest of the Company to have additional shares of Common Stock available
for general corporate purposes, including acquisitions, equity financings,
grants of stock options and other corporate purposes. The Company believes that
the proposed effective increase in the number of authorized shares of Common
Stock will give the Company greater flexibility in responding to business needs
and opportunities by allowing shares of Common Stock to be issued by the Board
of Directors without the delay of a meeting of stockholders. The Board of
Directors will determine whether, when and on what terms the issuance of shares
of Common Stock may be warranted in connection with any of the foregoing
purposes and will continue to consider potential financing and other
transactions which may result in the issuance of some or all of these additional
shares.
16
MISCELLANEOUS
Stockholders of the Company do not now have preemptive right to subscribe for or
purchase additional shares of Common Stock, and the stockholders will have no
preemptive rights to subscribe for or purchase any of the authorized shares of
Common Stock that will be available for issuance as a result of the increase in
the number of authorized shares of Common Stock.
If the proposed amendment is adopted, the authority of the Board of Directors to
issue the authorized but unissued shares of Common Stock might be considered as
having the effect of discouraging an attempt by another person or entity to
effect a takeover or otherwise gain control of the Company since the issuance of
additional shares of the Common Stock would dilute the voting power of the
Common Stock then outstanding. Although the issuance of any additional shares
will be on terms deemed to be in the best interest of the Company and its
stockholders, under certain circumstances, the issuance of additional shares of
Common Stock could have an adverse effect on the market price per share of the
Common Stock.
IMPLEMENTATION
If the proposed amendment is adopted by the stockholders, it will become
effective upon filing and recording a Certificate of Amendment as required by
the General Corporation Law of Delaware.
The affirmative vote of the holders of a majority of the Common Stock and
Preferred Stock entitled to vote is required to approve this proposed amendment
to the Certificate of Incorporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
INCREASE THE AUTHORIZED COMMON STOCK AND PREFERRED STOCK OF THE COMPANY.
PROPOSAL 3
PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY TO PACIFIC PHARMACEUTICALS, INC OR SUCH OTHER
NAME AS MAY BE DETERMINED BY THE BOARD OF DIRECTORS
Delaware Law provides that an amendment to a certificate of incorporation of a
Delaware corporation effecting a change of the corporation's name must first be
approved by the corporation's Board of Directors, then approved by a majority of
the issued and outstanding shares held by the Company's stockholders.
The Board of Directors has unanimously approved and recommended adoption of an
amendment to the Company's Certificate of Incorporation to change the name of
the Company to Pacific Pharmaceuticals, Inc.
17
The Company was incorporated in 1983 to develop and commercialize its PTM kit.
As described in the Company's 1997 Annual Report to Stockholders, the Company
acquired rights to new technologies which the Board of Directors of the Company
has determined to best represent the future direction of the Company. The Board
has adopted a development plan which will, in particular, focus on the Company's
cancer therapies. The Company is pursuing its development plan in order to
better promote the Company's core future enterprises. The Board of Directors
believes that adoption of the Name Amendment, along with the implementation of
the Company's overall development plan, will more accurately reflect the
Company's status, vis-a-vis its products and will ultimately enhance the
Company's ability to commercialize and market its products.
The proposed Name Amendment would not affect, in any way, the validity or
transferability of the Company's stock certificates presently outstanding, and
the Company's stockholders would not be required to surrender or exchange any
certificates now held by them. The proposed Name Amendment would not affect in
any way the capital or corporate structure of the Company.
The text of the actual resolution which will be presented for a vote of the
stockholders at the Meeting will read substantially as follows:
RESOLVED: That the Company's Certificate of Incorporation be amended to
change the name of the Company to Pacific Pharmaceuticals, Inc. or such other
name as the Board of Directors shall deem appropriate and in the best interests
of the Company; and further
RESOLVED that at any time prior to the filing of an amendment with the
Delaware Secretary of State and not withstanding authorization of the proposed
amendment by the stockholders of the Company, the Board of Directors may abandon
such action without further action by the stockholders if they deem such
abandonment to be in the best interest of the stockholders.
Although the Board of Directors does not currently expect to adopt a name for
the Company other than Pacific Pharmaceuticals, Inc., it may become necessary to
adopt a different name if for any reason Pacific Pharmaceuticals, Inc. is
unavailable or deemed unsuitable by the Board of Directors. Therefore, the
Board of Directors is also asking for your approval to let it choose an
alternative name if for any reason Pacific Pharmaceuticals is either unavailable
or deemed unsuitable by them. Once the Certificate of Incorporation is amended
to adopt a new name any subsequent formal name change would require additional
stockholder approval. The affirmative vote of the holders of a majority of the
Common Stock and Preferred Stock entitled to vote is required to approve the
proposed Name Amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
CHANGE THE NAME OF THE COMPANY TO PACIFIC PHARMACEUTICALS, INC. OR SUCH OTHER
NAME AS THE DIRECTORS MAY DECIDE.
18
PROPOSAL 4
APPROVAL OF THE ADOPTION OF THE XYTRONYX, INC. EQUITY INCENTIVE PLAN
GENERAL
The Board of Directors has adopted a new stock plan entitled the "Xytronyx, Inc.
Equity Incentive Plan" (the "Incentive Plan") for key employees and consultants
of the Company. The Incentive Plan is effective as of December 17, 1996,
subject to approval by the affirmative vote of the holders of a majority of the
voting power of the Common Stock and Preferred Stock, voting as a single class
present in person or represented by proxy at the Meeting and entitled to vote
thereon; provided, however, that a quorum is present at the Meeting.
The Board of Directors believes that the Incentive Plan will assist the Company
in attracting, retaining and rewarding key employees and consultants, enable the
employees and consultants to acquire or increase a proprietary interest in the
Company in order to promote a closer identity of interests between the employees
and consultants the Company's stockholders and provide to the employees and
consultants an increased incentive to expend their maximum efforts for the
success of the Company's business.
The Incentive Plan and the Director Plan (collectively the "New Plans") will, if
both are approved by the holders of the Common Stock and the Preferred Stock,
replace the Company's 1985 Non-Qualified Plan, 1988 Non-Qualified Plan, 1991
Non-Qualified Plan, 1988 Incentive Stock Option Plan and 1989 Key-Employee Plan
(collectively, the "Old Plans"). If the New Plans are both approved, no further
grants of options will be made under the Old Plans. Any stock options previously
granted under Old Plans, however, will remain outstanding pursuant to the terms
of the applicable plan. If the New Plans are not both approved, the Old Plans
will remain in effect in their present form.
A SUMMARY OF THE MATERIAL FEATURES OF THE INCENTIVE PLAN
A summary of the material features of the Incentive Plan is set forth below.
This summary is qualified in its entirety by reference to the full text of the
Incentive Plan, which is attached as Exhibit A to this Proxy Statement.
Capitalized terms used herein will, unless otherwise defined, have the meanings
assigned to them in the text of the Incentive Plan.
ADMINISTRATION
The Incentive Plan will be administered by the Compensation Committee of the
Board of Directors (the "Committee)". The Committee shall, at all times,
consist of two or more persons each of whom is a "non-employee director" within
the meaning of Rule 16b-3 under the Exchange Act. The Committee is authorized,
among other things, to construe, interpret and implement the provisions of the
Incentive Plan, to select the employees to whom awards will be granted, to
determine the terms and conditions of the awards, including the vesting or
exercisability of any award, and to make all other determinations deemed
necessary or advisable for the administration of the Incentive Plan.
19
SHARES AVAILABLE
The aggregate number of shares of Common Stock available for issuance under the
Incentive Plan will be 3,000,000, subject to adjustment as described below.
Such shares may be authorized and unissued shares or treasury shares.
If any shares of Common Stock subject to an award are forfeited or the award is
settled in cash or otherwise terminates for any reason whatsoever without an
actual distribution of shares, the shares subject to such award will again be
available for awards under the Incentive Plan. In the event that the Committee
determines that any stock dividend, recapitalization, forward split or reverse
split, reorganization, merger, consolidation, spin-off, combination, repurchase,
or share exchange, or other similar corporate transaction or event, affects the
Common Stock such that an adjustment is appropriate in order to prevent dilution
or enlargement of the rights of participants under the Incentive Plan, the
Committee may adjust any or all of (i) the number and kind of shares of Common
Stock which may be issued in connection with awards, (ii) the number and kind of
shares of Common Stock issuable in respect of outstanding awards, (iii) the
aggregate number and kind of shares of Common Stock available under the
Incentive Plan, and (iv) the exercise price, grant price, or purchase price
relating to any award, or, if deemed appropriate, the Committee may also provide
for cash payments relating to outstanding awards.
ELIGIBILITY AND BASIS OF PARTICIPATION - AWARDS
Persons eligible to participate in the Incentive Plan include all key
consultants and employees of the Company and its subsidiaries, as determined by
the Committee. The Incentive Plan provides for the grant of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted
stock, bonus stock, awards in lieu of cash obligations and other stock-based
awards. The Incentive Plan also permits cash payments either as a separate
award or as a supplement to a stock-based award, and for the income and
employment taxes imposed on a participant in respect of any award. To date, the
Committee has issued stock options under the Incentive Plan to Messrs. Shaw,
Bymaster, Okrongly, Singhal and four other employees and consultants of the
Company. See "Executive Compensation - Summary Compensation Table" for
information on prior awards to the named Executive Officers. No determination
has been made as to the types or amounts of awards that will be granted in the
future to specific individuals under the Incentive Plan.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS ("SARS")
The Committee is authorized to grant stock options, including both incentive
stock options ("ISOs"), which can result in potentially favorable tax treatment
to the participant, and non-qualified stock options, and also to grant SARs
entitling the participant to receive the excess of the fair market value of a
share of Common Stock on the date of exercise over the grant price of the SAR.
The exercise price per share of Common Stock subject to an option and the grant
price of a SAR is determined by the Committee, provided that the exercise price
of an ISO may not be less than the fair market value of the Common Stock on the
date of grant. Thus, options other than ISOs may be granted with an exercise
price less than the fair market value of the underlying shares. The terms of
each option or SAR, the times at which each option or SAR shall be exercisable,
and provisions requiring forfeiture of unexercised options or SARs at or
following termination of employment will be fixed by the Committee, except that
no ISO or SAR relating thereto will have a term exceeding ten years. Options
may be exercised by payment of the
20
exercise price in cash or in Common Stock, outstanding awards or other property
(possibly including notes or obligations to make payment on a deferred basis, or
through "cashless exercises") having a fair market value equal to the exercise
price, as the Committee may determine from time to time. The Committee also
determines the methods of exercise and settlement and certain other terms of the
SARs.
RESTRICTED STOCK
The Incentive Plan also authorizes the Committee to grant restricted stock.
Restricted stock is an award of shares of Common Stock which may not be disposed
of by participants and which may be forfeited in the event of certain
terminations of employment or certain other events prior to the end of a
restriction period established by the Committee. Such an award would entitle
the participant to all of the rights of a stockholder of the Company, including
the right to vote the shares and the right to receive any dividends thereon,
unless otherwise determined by the Committee.
OTHER STOCK-BASED AWARDS, BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS
In order to enable the Company to respond to business and economic developments
and to trends in executive compensation practices, the Incentive Plan authorizes
the Committee to grant awards that are denominated or payable in, or valued in
whole or in part by reference to the value of, Common Stock. The Committee
determines the terms and conditions of such awards, including consideration to
be paid to exercise awards in the nature of purchase rights, the period during
which awards will be outstanding, and forfeiture conditions and restrictions on
awards. In addition, the Committee is authorized to grant shares as a bonus
free of restrictions, or to grant shares or other awards in lieu of Company
obligations to pay cash or deliver other property under other plans or
compensatory arrangements, subject to such terms as the Committee may specify.
CASH PAYMENTS
The Committee may grant the right to receive cash payments whether as a separate
award or as a supplement to any stock-based awards. Also, to encourage
participants to retain awards payable in stock by providing a source of cash
sufficient to pay the income and employment taxes imposed as a result of a
payment pursuant to, or the exercise or vesting of, any award, the Incentive
Plan authorizes the Committee to grant a tax bonus in respect of any award.
OTHER TERMS OF AWARDS
In the discretion of the Committee, awards may be settled in cash, Common Stock,
other awards or other property. The Committee may require or permit
participants to defer the distribution of all or part of an award in accordance
with such terms and conditions as the Committee may establish, including payment
of reasonable interest on any deferred amounts under the Incentive Plan. The
Incentive Plan authorizes the Committee to place shares or other property in
trusts or make other arrangements to provide for payment of the Company's
obligations under the Incentive Plan. Awards granted under the Incentive Plan
may not be pledged or otherwise encumbered and generally are not transferable
except by will or by the laws of descent and distribution.
21
Awards under the Incentive Plan generally will be granted for no consideration
other than services. The Committee may, however, grant awards alone, in
addition to, in tandem with, or in substitution for, any other award under the
Incentive Plan, other awards under other Company plans, or other rights to
payment from the Company. Awards granted in addition to or in tandem with other
awards may be granted either at the same time or at different times. If an
award is granted in substitution for another award, the participant must
surrender such other award in consideration for the grant of the new award.
CHANGE OF CONTROL
In the event of a change of control of the Company, all awards granted under the
Incentive Plan that are still outstanding and not yet vested or exercisable or
which are subject to restrictions, will become immediately 100% vested in each
participant or will be free of any restrictions, and will be exercisable for the
remaining duration of the award. All awards that are exercisable as of the
effective date of the change of control will remain exercisable for the
remaining duration of the award.
Under the Incentive Plan, a change of control occurs upon any of the following
events: (i) the acquisition of beneficial ownership by any person, other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a subsidiary, of any securities of the Company such that, as a
result of such acquisition, such person, either (A) beneficially owns more than
20% of the Company's outstanding voting securities entitled to vote on a regular
basis for a majority of the members of the Board of Directors or (B) otherwise
has the ability to elect a majority of the members of the Board of Directors;
(ii) a change in the composition of the Board of Directors such that a majority
of the members of the Board of Directors are not Continuing Directors; or (iii)
the stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 80% of the
total voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company's assets. The foregoing events will not be deemed
to be a change of control if the transaction or transactions causing such change
were approved in advance by the affirmative vote of at least a majority of the
Continuing Directors.
AMENDMENT AND TERMINATION
The Board of Directors may amend, alter, suspend, discontinue, or terminate the
Incentive Plan or the Committee's authority to grant awards thereunder without
further stockholder approval or the consent of the participants, except
stockholder approval must be obtained within one year after the effectiveness of
such action if required by law or regulation or under the rules of the
securities exchange on which the Common Stock is then quoted, listed or as
otherwise required by Rule 16b-3 under the Exchange Act. Notwithstanding the
foregoing, unless approved by the stockholders, no amendment will: (i) change
the class of persons eligible to receive awards; (ii) materially increase the
benefits accruing to participants under the Incentive Plan; or (iii) increase
the number of shares of Common Stock subject to the Incentive Plan.
22
Unless earlier terminated by the Board of Directors, the Incentive Plan will
terminate on the earlier of ten years after its approval by the stockholders or
when no shares of Common Stock remain available for issuance. The Incentive
Plan will continue, however, with respect to awards made before termination of
the Incentive Plan until such awards have been exercised, terminated or
forfeited.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to awards under the Incentive Plan. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
income and other tax consequences. A participant will not realize any income
upon the award of an option (including any other stock-based award in the nature
of a purchase right) or an SAR, nor will the Company be entitled to any tax
deduction.
When a participant who has been granted an option which is not an ISO exercises
that option and receives Common Stock which is either "transferable" or not
subject to a "substantial risk of forfeiture" under Section 83(c) of the Code,
the participant will realize compensation income subject to withholding taxes.
The amount of that compensation income will equal the excess of the fair market
value of the Common Stock (without regard to any restrictions) on the date of
exercise of the option over its exercise price, and the Company will generally
be entitled to a tax deduction in the same amount and at the same time as the
compensation income is realized by the participant. The participant's tax basis
for the Common Stock so acquired will equal the sum of the compensation income
realized and the exercise price. Upon any subsequent sale or exchange of the
Common Stock, the gain or loss will generally be taxed as a capital gain or loss
and will be a long-term capital gain or loss if the Common Stock has been held
for more than one year after the date of exercise.
If a participant exercises an option which is an ISO and the participant has
been an employee of the Company or its subsidiaries throughout the period from
the date of grant of the ISO until three months prior to its exercise, the
participant will not realize any income upon the exercise of the ISO (although
an alternative minimum tax liability may result) and the Company will not be
entitled to any tax deduction. If the participant sells or exchanges any of the
shares acquired upon the exercise of the ISO more than one year after the
transfer of the shares to the participant and more than two years after the date
of grant of the ISO, any gain or loss (based upon the difference between the
amount realized and the exercise price of the ISO) will be treated as long-term
capital gain or loss to the participant. If such sale, exchange or other
disposition takes place within two years of the grant of the ISO or within one
year of the transfer of shares to the participant, the sale, exchange or other
disposition will generally constitute a "disqualifying disposition" of such
shares. As a result, to the extent that the gain realized on the disqualifying
disposition does not exceed the difference between the fair market value of the
shares at the time of exercise of the ISO over the exercise price, such amount
will be treated as compensation income in the year of the disqualifying
disposition, and the Company will be entitled to a deduction in the same amount
and at the same time as the compensation income is realized by the participant.
The balance of the gain, if any, will be treated as capital gain and will not
result in any deduction by the Company.
23
With respect to other awards (including SAR's) granted under the Incentive Plan
that may be settled either in cash or in Common Stock or other property that is
either transferable or not subject to a substantial risk of forfeiture under
Section 83(c) of the Code, the participant will realize compensation income
(subject to withholding taxes) equal to the amount of cash or the fair market
value of the Common Stock or other property received. The Company will be
entitled to a deduction in the same amount and at the same time as the
compensation income is realized by the participant.
With respect to awards involving Common Stock or other property that is both
nontransferable and subject to a substantial risk of forfeiture, unless an
election is made under Section 83(b) of the Code, as described below, the
participant will realize compensation income equal to the fair market value of
the Common Stock or other property received at the first time the Common Stock
or other property is either transferable or not subject to a substantial risk of
forfeiture. The Company will be entitled to a deduction in the same amount and
at the same time as the compensation income is realized by the participant.
Even though Common Stock or other property may be nontransferable and subject to
a substantial risk of forfeiture, a participant may elect (within 30 days of
receipt of the Common Stock or other property) to include in gross income the
fair market value (determined without regard to such restrictions) of such
Common Stock or other property at the time received. In that event, the
participant will not realize any income at the time the Common Stock or other
property either becomes transferable or is not subject to a substantial risk of
forfeiture, but if the participant subsequently forfeits such Common Stock or
other property, the participant's loss would be limited only to the amount
actually paid for the Common Stock or other property. While such Common Stock
or other property remains nontransferable and subject to a substantial risk of
forfeiture, any dividends or other income will be taxable as additional
compensation income. Finally, special rules may apply with respect to
participants subject to Section 16(b) of the Exchange Act.
The Committee may condition the payment, exercise or vesting of any award on the
payment of withholding taxes and may provide that a portion of the Common Stock
or other property to be distributed will be withheld (or previously acquired
stock or other property surrendered by the participant) to satisfy such
withholding and other tax obligations.
Finally, amounts paid pursuant to an award which vests or becomes exercisable,
or with respect to which restrictions lapse, upon a change in control may
constitute a "parachute payment" under Section 208G of the Code. To the extent
any such payment constitutes an "excess parachute payment," the Company would
not be entitled to deduct such payment and the participant would be subject to a
20 percent excise tax (in addition to regular income tax).
24
NEW PLAN BENEFITS
EQUITY INCENTIVE PLAN FOR EMPLOYEES AND CONSULTANTS
Number of Shares
Name and Position Exercise Price Granted under the Plan
----------------- -------------- ----------------------
Dr. H. Laurence Shaw $ 1.125 675,000
Chairman, President and CEO
Larry O. Bymaster- Director-Special Projects $ 1.0625 20,000
Dr. David Okrongly (a)
Vice President-Research & Development $ 1.25 75,000
Dr. Anil Singhal
Vice President-Research & Development $ 1.0625 150,000
All employees and consultants as a group (8) 1,264,000
(a) Dr. Okrongly left the Company on May 6, 1997. His options will not vest
under the plan.
Awards under the Incentive Plan are made at the sole discretion of the
Committee, therefore, it is not possible to predict the future value of options
issuable under the Equity Incentive Plan. On June ___, 1997, the closing price
of the Common Stock on Amex was $_.__ per share.
The affirmative vote of the holders of a majority of the voting power of the
Common Stock and Preferred Stock present at the Meeting in person or by proxy is
required to approve the Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE
XYTRONYX INC. EQUITY INCENTIVE PLAN.
PROPOSAL 5
APPROVAL OF THE XYTRONYX, INC. STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Board of Directors has adopted a new stock plan entitled the "Xytronyx, Inc.
1996 Stock Option Plan For Non-Employee Directors" (the "Director Plan"). The
Director Plan is effective as of December 17, 1996, subject to the approval by
the affirmative vote of the holders of a majority of the voting power of the
Common Stock and Preferred Stock, voting as a single class present in person or
represented by proxy at the Meeting and entitled to vote thereon; provided,
however, that a quorum is presented at the meeting.
The Director Plan is intended to promote the interests of the Company and its
stockholders by strengthening the Company's ability to attract and retain the
services of experienced and knowledgeable non-employee Directors and by
encouraging such Directors to acquire an increased proprietary interest in the
Company.
25
The full text of the Director Plan for Non-Employee Directors is set forth in
Exhibit B attached hereto. A summary of the Director Plan is set forth below.
ADMINISTRATION
The Director Plan is to be administered by the Compensation Committee (the
"Committee") of the Company's Board of Directors. Subject to the terms of the
Director Plan, the Committee shall have the power to construe the provisions of
the Director Plan, to determine all questions arising thereunder, and to adopt
and amend such rules and regulations for administering the Director Plan as the
Committee deems desirable.
PARTICIPATION IN THE DIRECTOR PLAN
Each member of the Company's Board of Directors who is not otherwise an employee
of the Company or any subsidiary of the Company is eligible to participate in
the Director Plan. There are currently five Directors of the Company eligible
to participate in the Director Plan.
SHARES SUBJECT TO THE DIRECTOR PLAN
An aggregate of 3,000,000 shares of Common Stock of the Company are reserved for
Option grants under the Director Plan, subject to any capital adjustment which
may result from a split-up or consolidation of shares or the payment of any
stock dividend, or other increase or decrease in the number of issued shares.
Any Option shares granted under the Director Plan that expire or terminate
unexercised for any reason will be available for reissuance.
ELIGIBILITY AND OPTION TERMS
Each individual who was an eligible Director on December 17, 1996 was granted an
initial option to purchase 50,000 shares, and each individual who becomes an
eligible Director thereafter will be granted an initial Option to purchase
50,000 shares immediately following the Annual Meeting at which such Director is
first elected to be a Director. Each year an Option to purchase 10,000 shares
will be granted immediately following the Company's Annual Meeting to each
eligible Director at such time. All Options granted under the Director Plan are
non-statutory options and do not qualify under Section 422 of the Internal
Revenue Code of 1986, as amended.
Each Option granted under the Director Plan shall expire ten years from the date
of grant and be evidenced by an Option Agreement which shall include the
exercise price per share, which is not to be less than 100% of the fair market
value per share at the close of business on the day of the grant of the Option.
Options granted immediately following an Annual Meeting shall vest and become
exercisable and non-forfeitable on the day of the next Annual Meeting, if the
optionee has continued to serve as a Director until that meeting. Options
granted other than immediately following an Annual Meeting shall vest and become
exercisable and non-forfeitable on the first anniversary of the day on which
such option is granted, if the optionee has continued to serve as a Director
until that day.
26
Payment of the Option exercise price shall be made in cash, bank certified,
cashier's or personal check, or payment may be made in whole or in part by (a)
transfer to the Company of shares of Common Stock having a fair market value
equal to the Option price at the time of exercise or (b) delivery of
instructions to the Company to withhold shares that would otherwise be issued on
such exercise of the Option.
If termination of the optionee's service as a Director occurs by reason of
voluntary mid-term retirement, declining to stand for re-election, becoming a
full-time employee of the Company or a subsidiary of the Company or becoming
disabled, all unvested Options shall automatically expire and all vested Options
shall continue to be exercisable until the stated expiration date of such
Options. In the event of the death of an optionee while the optionee is a
director, the then-outstanding Options of such optionee that have vested shall
be exercisable for one year from the date of the death of the optionee or until
the stated grant expiration date, whichever is earlier. However, all Options
which have not vested shall automatically expire and shall not be exercisable.
If the termination of an optionee's service as a Director by the Board of
Directors occurs for cause or if a Director fails to be re-elected, the
Committee in its sole discretion can cancel the then-outstanding Options. No
Option shall be assignable or transferable other than by will or the laws of
descent and distribution.
TERMINATION AND AMENDMENT
The Board may amend, terminate or suspend the Director Plan at any time, in its
sole and absolute discretion, provided that no amendment is made more than once
every six months that would change the amount, price or timing of the initial
and annual grants and no amendment is made that would materially increase the
number of shares that may be issued under the Director Plan, materially modify
the requirements as to eligibility for participation in the Director Plan or
would otherwise materially increase the benefits accruing to participants under
the Director Plan without the approval of the Company's stockholders.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND THE PARTICIPANT
Options granted under the Director Plan under current Federal income tax laws
will be subject to the following tax treatment: (i) The grant of an Option will
not result in income to the optionee or any deduction allowed to the Company;
(ii) The exercise of an Option will generally result in ordinary income to the
optionee in an amount equal to the excess of the fair market value of the shares
at the time of exercise over the option price; (iii) A deduction from income
will be allowed to the Company in an amount equal to the amount of ordinary
income recognized by the optionee; (iv) A subsequent disposition of the shares
will result in a long-term or short-term capital gain (or loss) equal to the
difference between the amount received and the tax basis of the shares, usually
fair market value at the time of exercise.
The Federal income tax consequences described in this section are based on laws
and regulations in effect on January 1, 1997. Future changes in those laws and
regulations may affect the tax consequences described herein. No discussion of
State income tax treatment has been included.
27
GRANTS APPROVED BY THE BOARD OF DIRECTORS ON DECEMBER 17, 1996
The Committee recommended and the Board approved, subject to approval and
ratification by the stockholders, the Director Plan and an award of options for
50,000 shares each to the four eligible non-employee Directors serving on the
Board as of the effective date of the Director Plan. The options were awarded
at an exercise price per share of $1.125, which was the per share fair market
value of Company's Common Stock on December 17, 1996.
If the Director Plan is approved by the Company's stockholders at the Meeting,
the grants described above will become effective as of December 17, 1996.
Immediately following the Meeting, all non-employee Directors shall
automatically be granted Options to purchase 10,000 shares. The exercise price
per share of Common Stock Subject to the Option shall not be less than 100% of
the per share fair market value of the underlying Common Stock at the close of
business on the day of the grant of the Option.
NEW PLAN BENEFITS
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Number Of Options
Name Granted Under The Plan
---- ----------------------
Jack Halperin 50,000
John G. Kringel 50,000
Elliott Vernon 50,000
Michael Weiss 50,000
Dr. Jerry A. Weisbach 50,000
All non-employee Directors as a group(5) 250,000
Awards under the Incentive Plan are made at the sole discretion of the
Committee, therefore, it is not possible to predict the future value of options
issuable under the Director Plan. On June ___, 1997, the closing price of the
Common Stock on Amex was $_.__ per share.
The affirmative vote of the holders of a majority of the voting power of the
Common Stock and Preferred Stock present at the Meeting in person or by proxy is
required to approve the Director Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE
XYTRONYX, INC. STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
28
PROPOSAL 6
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Although not required to do so, the Board customarily seeks stockholder
ratification of its selection of Deloitte & Touche LLP to serve as the Company's
independent public accountants for the fiscal year ending March 31, 1998.
Deloitte & Touche LLP has served as the Company's independent public accountants
since 1983. It is anticipated that a representative of Deloitte & Touche LLP
will attend the Meeting, will have an opportunity to make a statement if he or
she desires to do so and will be available to respond to appropriate questions
from stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF
DELOITTE & TOUCHE LLP TO SERVE AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE FISCAL YEAR ENDING MARCH 31, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors and executive
officers, and persons who own more than ten percent of a registered class of the
Company's equity securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, Directors and greater than ten percent stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, and reliance by the Company upon such reports and
representations, during the fiscal year ended March 31, 1997, all Section 16(a)
requirements applicable to its officers, directors and greater than ten percent
beneficial owners were complied with, except as explained in the following
paragraph.
Certain individuals were inadvertently delinquent in the timely filing of
certain reports required of officers or directors of public companies under
Section 16(a) of the Exchange Act. In each case, such inadvertent reporting
delinquencies have since been cured. In December 1996, the Board of Directors
effected changes to the Company's Board of Directors and management. Messrs.
Shaw and Weisbach did not timely make a report on Form 3 with respect to their
becoming a reporting officer status in December 1996, and Mr. Kringel did not
timely make a report on Form 3 with respect to his becoming a reporting officer
in April 1997. Due to the fact that the terms of exercise of certain options
granted in December 1996, were not confirmed by the Board of Directors until
April, 1997, Messrs. Shaw, Halperin, Kringel, Vernon, Weisbach and Weiss did not
timely make reports on Form 4 with respect to the grant of such options. As
noted, as of the date of this Proxy Statement, these Section 16(a) reporting
delinquencies have been corrected and the Company is currently taking steps to
assist its directors and officers in meeting their Section 16(a) reporting
responsibilities.
29
STOCKHOLDERS' PROPOSALS
Proposals of stockholders which are intended to be presented at the 1998 Annual
Meeting must be consistent with the regulations of the SEC and received by the
Company at its principal executive offices not later than February 28, 1998 for
inclusion in the Company's proxy materials for that meeting. Such proposals
should be directed to Xytronyx, Inc., Attention: Investor Relations, at the
address shown on Page 1.
OTHER BUSINESS
At the date of this Proxy Statement, the Company knows of no other matters to be
brought before the Meeting. If other matters should properly come before the
Meeting, it is the intention of each person mentioned in the proxy to vote such
proxy in accordance with his judgment of such matters. Discretionary authority
with respect to such other matters is granted by the execution of the enclosed
proxy.
REQUEST TO VOTE, SIGN AND RETURN PROXIES
PLEASE VOTE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AT YOUR EARLIEST CONVENIENCE.
DATED: JUNE 30, 1997
BY ORDER OF THE BOARD OF DIRECTORS
BY: /s/ H. LAURENCE SHAW
--------------------
DR. H. LAURENCE SHAW
30
Exhibit B
XYTRONYX, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose. The purpose of the Xytronyx, Inc. Stock Option Plan for
Non-Employee directors (the "Plan") is to promote the interests of Xytronyx,
Inc. (the "Company") and its stockholders by strengthening the Company's ability
to attract and retain the services of experienced and knowledgeable non-employee
directors and by encouraging such directors to acquire an increased proprietary
interest in the Company.
2. Shares Subject to the Plan. Subject to adjustment as provided in
Article 7, the total number of shares of common stock (the "Common Stock") of
the Company for which options may be granted under the Plan shall be
3,000,000 shares of Common Stock (the "Shares"). The Shares shall be shares
currently authorized but unissued or currently held or subsequently acquired
by the Company as treasury shares, including shares purchased in the open
market or in private transactions. If any option granted under the Plan
expires or terminates for any reason without having been exercised in full,
the Shares subject to, but not delivered under, such options may become
available for that grant of other options under the Plan. No shares
delivered to the Company in full or partial payment of an option exercise
price payable pursuant to Section 6.3 shall become available for the grant of
other options under the Plan.
3. Administration of the Plan. The Plan shall be administered by the
Compensation Committee of the Company's Board of Directors (the "Committee"),
subject to Articles 10 and 11. Subject to the terms of the Plan, the
Committee shall have the power to construe the provisions of the Plan, to
determine all questions arising thereunder, and to adopt and amend such rules
and regulations for administering the Plan as the Committee deems desirable.
4. Participation in the Plan. Each member of the Company's Board of
Directors (a "Director") who is not otherwise an employee of the Company or
any subsidiary of the Company (an "Eligible Director") shall be eligible to
participate in the Plan.
5. Nonstatutory Stock Options. All options granted under the Plan shall
be nonstatutory options not intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended.
6. Option Terms. Each option granted to an Eligible Director under the
Plan and the issuance of Shares thereunder shall be subject to the following
terms:
6.1 Option Agreements. Each option granted under the Plan shall be
evidenced by an option agreement (an "Agreement") duly executed on behalf of
the Company and by the Eligible Director to whom such option is granted and
dated as of the applicable date of grant. Each Agreement shall be signed on
behalf of the Company by an officer or officers delegated such authority by
the Committee using either manual or
facsimile signature. Each Agreement shall comply with and be subject to the
terms and conditions of the Plan. Any Agreement may contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Committee.
6.2. Option Grant Size and Grant dates.
6.2.1 Initial Grants. An option to purchase 50,000 Shares as
adjusted pursuant to Article 7 (an "Initial Grant") shall be granted to:
a. each Director who is an Eligible Director on the Effective
Date (as hereinafter defined), and
b. each other Eligible Director immediately following the Annual
Meeting at which such Director is first elected to be a Director or at the close
of business on the day upon which such Eligible Director is first appointed by
the Board to be a Director, whichever first occurs; provided, that if an
Eligible Director who previously received an Initial Grant terminates service as
a Director and is subsequently elected or appointed to the Board, such Director
shall not be eligible to receive a second Initial Grant, but shall be eligible
to receive only Annual Grants as provided in Section 6.2.2.
6.2.2 Annual Grants. An option to purchase 10,000 Shares as adjusted
pursuant to Article 7 (an "Annual Grant"), shall be granted automatically each
year, immediately following the Annual Meeting, to each Director who is an
Eligible Director at such time.
6.3 Option Exercise Price. Each Agreement shall state the exercise price
per share of the shares of Common Stock to which it relates. The exercise price
per share of Common Stock subject to an option shall not be less than 100% of
the fair market value ("Fair Market Value") per share of such Common Stock at
the close of business on the day of the grant of the option. For purposes of
this Plan, Fair Market Value on any date shall be the mean of the high and low
sales prices per share of Common Stock on the relevant date as reported on the
stock exchange or market on which the Common Stock is primarily traded, or if no
sale is made on such date, then the Fair Market Value is the weighted average of
the mean of the high and low sales prices per share of Common Stock on the next
preceding day and the next succeeding day on which such sales were made, as
reported on the stock exchange or market on which the Common Stock is primarily
traded.
6.4 Exercisability. Subject to Section 6.7, an option shall incrementally
vest and become exercisable in twelve equal portions (subject to necessary
rounding) for each quarter of each year of the three year period beginning the
day on which such option was granted, if the optionee has continued to serve as
a Director until that day.
6.5 Time and Manner of Option Exercise. Any vested and exercisable option
is exercisable in whole or in part at any time or from time to time during the
term of the option period by giving written
notice, signed by the person exercising the option, to the Company stating
the number of Shares with respect to which the option is being exercised,
accompanied by payment in full of the option exercise price for the number of
Shares to be purchased and by the payment or making provision satisfactory to
the Company for the payment of any taxes which the Company is obligated to
collect with respect to the issue or transfer of the Shares upon such
exercise. The date both such notice and payment are received by the office
of the Secretary of the Company shall be the date of exercise for the stock
option as to such number of Shares. No option may at any time be exercised
with respect to a fractional Share.
6.6 Payment of Exercise Price. Payment of the option exercise price may
be in cash or payment may be in whole or part by
a. transfer to the Company of shares of Common Stock having a
Fair Market Value equal to the option exercise price at the time of such
exercise, or
b. delivery of instructions to the Company to withhold Shares,
that would otherwise be issued on such exercise of the option, having a Fair
Market Value at the time of such exercise equal to the total option exercise
price of the options being exercised.
If the Fair Market Value of the number of whole shares transferred or the
number of whole option Shares surrendered is less than the total exercise price
of the option being exercised, the shortfall must be made up in cash.
6.7 Terms of Options. Each option shall expire ten years from its date of
grant, but shall be subject to earlier termination as follows:
a. In the event of the termination of an optionee's services as
a Director by reason of voluntary mid-term retirement, declining to stand for
re-election, becoming a full time employee of the Company or a subsidiary of the
Company or becoming disabled, all options granted pursuant to this Plan but
unexercisable pursuant to Section 6.4 shall automatically expire and shall not
be exercisable and all options exercisable pursuant to Section 6.4 but
unexercised shall continue to be exercisable until the stated expiration date of
such options.
b. In the event of the death of an optionee or total disability
while the optionee is a Director, the then outstanding options of such optionee
that have vested pursuant to Section 6.4 shall be exercisable for one year from
the date of the death of the optionee or until the stated grant expiration date,
whichever is earlier, by his/her successors in interest, in accordance with the
paragraph below. However, all options which have been granted, but have not
become exercisable pursuant to Section 6.4, shall automatically expire.
c. In the event of the termination of an optionee's service as a
Director by the Board of Directors for cause or the failure
of such Director to be re-elected (other than for the reasons set forth in
Section 6.7 (a) or (b)), the Committee in its sole discretion can cancel the
then-outstanding options of such optionee, including those options which are
exercisable and such options shall automatically expire and become
non-exercisable on the effective date of such termination.
Exercise of a deceased optionee's options that are still exercisable shall
be by the estate of such optionee or by a person or persons whom the optionee
has designated in writing filed with the Company, or, if no such designation has
been made, by the person or persons to whom the optionee's rights have passed by
will or the laws of descent and distribution.
6.8 Transferability. The right of any optionee to exercise an option
granted under the Plan shall, during the lifetime of such optionee, be
exercisable only by the optionee and shall not be assignable or transferable by
such optionee other than by will or the laws of descent and distribution.
6.9 Limitation of Rights.
6.9.1 Limitation as to Shares. Neither the recipient of an option
under the Plan nor an optionee's successor or successors in interest shall have
any rights as a stockholder of the Company with respect to any Shares subject to
an option granted to such person until the date of issuance of a stock
certificate for such Shares.
6.9.2 Limitation as to Directorship. Neither the Plan, nor the
granting of an option, nor any other action taken pursuant to the Plan shall
constitute or be evidence of any agreement or understanding, express or implied,
that an Eligible Director has a right to continue as a Director for any period
of time or at any particular rate of compensation.
6.10 Regulatory Approval and Compliance. The Company shall not be
required to issue any certificate or certificates for Shares upon the exercise
of an option granted under the Plan or to record as a holder of record of Shares
the name of the individual exercising an option under the Plan, without
obtaining to the complete satisfaction of the Committee the approval of all
regulatory bodies deemed necessary by the Committee and without complying, to
the Committee's complete satisfaction, with all rules and regulations under
federal, state, or local law deemed applicable by the Committee.
7. Capital Adjustments. The aggregate number and class of Shares subject
to and authorized by the Plan, the number of class of Shares with respect to
which an option may be granted to an Eligible Director under the Plan as
provided in Article 6, the number and class of Shares subject to each
outstanding option, and the exercise price per share specified in each such
option shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a split-up or
consolidation of shares or any like capital
adjustment or the payment of any stock dividend, or other increase or
decrease in the number of such Shares effected without receipt of
consideration by the Company.
8. Effectiveness of the Plan. The Plan shall be effective as of December
19, 1996 (the "Effective Date"), subject to the approval by the Company's
stockholders. All options issued prior to the date of the approval of the Plan
by the Company's stockholders shall be issued subject to such approval. The
Plan shall continue in effect until it is terminated by action of the Board or
the Company's stockholders, but such termination shall not affect the terms of
any then outstanding options.
9. Termination and Amendment of the Plan. The Board may amend, terminate
or suspend the Plan at any time, in its sole and absolute discretion; provided,
however, that if required to qualify the Plan under Rule 16b-3 promulgated under
Section 16, of the Securities Exchange Act of 1934, as amended ("Rule 16b-3"),
no amendment shall be made more than once every six months that would change the
amount, price or timing of the Initial and Annual Grants, other than to comport
with changes in the Internal Revenue Code of 1986, as amended, or the rules and
regulations promulgated thereunder; and provided, further, that if required to
qualify the Plan under the Rule 16b-3, no amendment that would
a. materially increase the number of Shares that may be issued
under the Plan,
b. materially modify the requirements as to eligibility for
participation in the Plan, or
c. otherwise materially increase the benefits accruing to
participants under the Plan shall be made without the approval of the Company's
stockholders.
10. Compliance with Rule 16b-3. Other provisions of the Plan
notwithstanding, neither the Committee nor any other person (other than an
Eligible Director acting in conformity with the terms of the Plan) shall have
any discretionary authority to make determinations regarding the Plan required
by Rule 16b-3 to be afforded exclusively to "disinterested persons" as defined
thereunder.
Exhibit A
XYTRONYX, INC.
EQUITY INCENTIVE PLAN
Section 1. Purpose of the Plan
The purpose of the Xytronyx, Inc. Equity Incentive Plan (the "Plan") is to
further the interests of Xytronyx, Inc. (the "Company") and its shareholders by
providing long-term performance incentives to those key employees and
consultants of the Company and its Subsidiaries who provide valuable services
contributing to the growth and protection of the business of the Company and its
Subsidiaries.
Section 2. Definitions
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Award" means any Option, SAR (including a Limited SAR),
Restricted Stock, Stock granted as a bonus or in lieu of other awards, other
Stock-Based Award, Tax Bonus or other cash payments granted to a Participant
under the Plan.
(b) "Award Agreement" shall mean the written agreement, instrument or
document evidencing an Award.
(c) "Change of Control" means and includes each of the following:
(i) the acquisition, in one or more transactions, of beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) by any person or
entity or any group of persons or entities who constitute a group (within the
meaning of Section 13(d)(3) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
Subsidiary, of any securities of the Company such that, as a result of such
acquisition, such person, entity or group either (A) beneficially owns (within
the meaning of Rule l3d-3 under the Exchange Act), directly or indirectly, more
than 20% of the Company's outstanding voting securities entitled to vote on a
regular basis for a majority of the members of the Board of Directors of the
Company or (B) otherwise has the ability to elect, directly or indirectly, a
majority of the members of the Board; (ii) a change in the composition of the
Board of Directors of the Company such that a majority of the members of the
Board of Directors of the Company are not Continuing Directors; or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 80% of the
total voting power represented by the voting securities of the Company or such
surviving entity
outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
or more transactions) all or substantially all of the Company's assets.
Notwithstanding the foregoing, the preceding events shall not be deemed to
be a Change of Control if, prior to any transaction or transactions causing such
change, a majority of the Continuing Directors shall have voted not to treat
such transaction or transactions as resulting in a Change of Control.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) A "Continuing Director" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board on the effective date of the Plan or (ii) was nominated for election or
elected to such Board with the affirmative vote of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(g) "Fair Market Value" means, with respect to Stock, Awards, or
other property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee in good faith and in accordance with applicable law.
Unless otherwise determined by the Committee, the Fair Market Value of Stock
shall mean the mean of the high and low sales prices of Stock on the relevant
date as reported on the stock exchange or market on which the Stock is primarily
traded, or if no sale is made on such date, then the Fair Market Value is the
weighted average of the mean of the high and low sales prices of the Stock on
the next preceding day and the next succeeding day on which such sales were
made, as reported on the stock exchange or market on which the Stock is
primarily traded.
(h) "ISO" means any Option designated as an incentive stock option
within the meaning of Section 422 of the Code.
(i) "Limited SAR" means an SAR exercisable only for cash upon a
Change of Control or other event, as specified by the Committee.
(j) "Option" means a right granted to a Participant pursuant to
Section 6(b) to purchase Stock at a specified price during specified time
periods. An Option may be either an ISO or a nonstatutory Option (an Option not
designated as an ISO).
(k) "Restricted Stock" means Stock awarded to a Participant pursuant
to Section 6(d) that may be subject to certain restrictions and to a risk of
forfeiture.
2
1. (l) "Stock-Based Award" means a right that may be denominated or
payable in, or valued in whole or in part by reference to the market value
of, Stock, including, but not limited to, any Option, SAR (including a
Limited SAR), Restricted Stock, Stock granted as a bonus or Awards in lieu of
cash obligations.
(m) "SAR" or "Stock Appreciation Right" means the right granted to a
Participant pursuant to Section 6(e) to be paid an amount measured by the
appreciation in the Fair Market Value of Stock from the date of grant to the
date of exercise of the right, with payment to be made in cash, Stock or as
specified in the Award, as determined by the Committee.
(n) "Subsidiary" shall mean any corporation, partnership, joint
venture or other business entity of which 50% or more of the outstanding voting
power is beneficially owned, directly or indirectly, by the Company.
(o) "Tax Bonus" means a payment in cash in the year in which an
amount is included in the gross income of a Participant in respect of an
Award of an amount equal to the federal, foreign, if any, and applicable
state and local income and employment tax liabilities payable by the
Participant as a result of (i) the amount included in gross income in respect
of the Award and (ii) the payment of the amount in clause (i) and the amount
in this clause (ii). For purposes of determining the amount to be paid to the
Participant pursuant to the preceding sentence, the Participant shall be
deemed to pay federal, foreign, if any, and state and local income taxes at
the highest marginal rate of tax imposed upon ordinary income for the year in
which an amount in respect of the Award is included in gross income, after
giving effect to any deductions therefrom or credits available with respect
to the payment of any such taxes.
Section 3. Administration of the Plan
The Plan shall be administered by the Compensation Committee of the Board
of Directors of the Company (the "Committee"). No member of the Committee while
serving as such shall be eligible for participation in the Plan. Any action of
the Committee in administering the Plan shall be final, conclusive and binding
on all persons, including the Company, its Subsidiaries, employees,
Participants, persons claiming rights from or through Participants and
stockholders of the Company.
Subject to the provisions of the Plan, the Committee shall have full and
final authority in its discretion (a) to select the key employees and
consultants who will receive Awards pursuant to the Plan ("Participants"), (b)
to determine the type or types of Awards to be granted to each Participant, (c)
to determine the number of shares of Stock to which an Award will relate, the
terms and conditions of any Award granted under the Plan (including, but not
limited to, restrictions as to transferability or forfeiture, exercisability or
settlement of an Award and waivers or accelerations thereof, and waivers of or
modifications to performance conditions relating to an Award, based in each case
on such considerations as the Committee shall deter-
3
mine) and all other matters to be determined in connection with an Award; (d)
to determine whether, to what extent, and under what circumstances an Award
may be settled, or the exercise price of an Award may be paid, in cash,
Stock, other Awards or other property, or an Award may be canceled,
forfeited, or surrendered; (e) to determine whether, and to certify that,
performance goals to which the settlement of an Award is subject are
satisfied; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan, and to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable in the administration of the
Plan; and (g) to make all other determinations as it may deem necessary or
advisable for the administration of the Plan. The Committee may delegate to
officers or managers of the Company or any Subsidiary or to unaffiliated
service providers the authority, subject to such terms as the Committee shall
determine, to perform administrative functions and to perform such other
functions as the Committee may determine, to the extent permitted under Rule
16b-3, and applicable law.
Section 4. Participation in the Plan
Participants in the Plan shall be selected by the Committee from among the
key employees and consultants of the Company and its Subsidiaries.
Section 5. Plan Limitations; Shares Subject to the Plan
Subject to the provisions of Section 8(a) hereof, the aggregate number of
shares of common stock, $0.02 par value, of the Company (the "Stock") available
for issuance as Awards under the Plan shall not exceed 3,000,000 shares.
No Award may be granted if the number of shares to which such Award
relates, when added to the number of shares previously issued under the Plan and
the number of shares which may then be acquired pursuant to other outstanding,
unexercised Awards, exceeds the number of shares available for issuance pursuant
to the Plan. If any shares subject to an Award are forfeited or such Award is
settled in cash or otherwise terminates for any reason whatsoever without an
actual distribution of shares to the Participant, any shares counted against the
number of shares available for issuance pursuant to the Plan with respect to
such Award shall, to the extent of any such forfeiture, settlement, or
termination, again be available for Awards under the Plan; provided, however,
that the Committee may adopt procedures for the counting of shares relating to
any Award to ensure appropriate counting, avoid double counting, and provide for
adjustments in any case in which the number of shares actually distributed
differs from the number of shares previously counted in connection with such
Award.
Section 6. Awards
(a) GENERAL. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to
Section 8(a)), such additional terms and
4
conditions, not inconsistent with the provisions of the Plan, as the
Committee shall determine, including terms requiring forfeiture of Awards in
the event of termination of employment by the Participant; provided, however,
that the Committee shall retain full power to accelerate or waive any such
additional term or condition as it may have previously imposed. All Awards
shall be evidenced by an Award Agreement.
(b) OPTIONS. The Committee may grant Options to Participants on
the following terms and conditions:
(i) Exercise Price. The exercise price of each Option shall be
determined by the Committee at the time the Option is granted, but (except as
provided in Section 7(a)) the exercise price of any Option shall not be less
than the Fair Market Value of the shares covered thereby at the time the Option
is granted.
(ii) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in part,
whether the exercise price shall be paid in cash or by the surrender at Fair
Market Value of Stock, or by any combination of cash and shares of Stock,
including, without limitation, cash, Stock, other Awards, or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis, such as through "cashless exercise" arrangements,
to the extent permitted by applicable law), and the methods by which Stock will
be delivered or deemed to be delivered to Participants.
(iii) Incentive Stock Options. The terms of any Option granted
under the Plan as an ISO shall comply in all respects with the provisions of
Section 422 of the Code, including, but not limited to, the requirement that no
ISO shall be granted more than ten years after the effective date of the Plan.
(c) RESTRICTED STOCK. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and conditions:
(i) Restricted Period. Restricted Stock awarded to a
Participant shall be subject to such restrictions on transferability and
other restrictions for such periods as shall be established by the Committee,
in its discretion, at the time of such Award, which restrictions may lapse
separately or in combination at such times, under such circumstances, or
otherwise, as the Committee may determine.
(ii) Forfeiture. Restricted Stock shall be forfeitable to the
Company upon termination of employment during the applicable restricted
periods. The Committee, in its discretion, whether in an Award Agreement or
anytime after an Award is made, may accelerate the time at which restrictions
or forfeiture conditions will lapse or remove any such restrictions,
including upon death, disability or retirement, whenever the Committee
determines that such action is in the best interests of the Company.
5
(iii) Certificates for Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates may bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Restricted Stock.
(iv) Rights as a Shareholder. Subject to the terms and
conditions of the Award Agreement, the Participant shall have all the rights of
a stockholder with respect to shares of Restricted Stock awarded to him or her,
including, without limitation, the right to vote such shares and the right to
receive all dividends or other distributions made with respect to such shares.
If any such dividends or distributions are paid in Stock, the Stock shall be
subject to restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which the Stock has been distributed.
(d) STOCK APPRECIATION RIGHTS. The Committee is authorized to
grant SARs to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess of (A)
the Fair Market Value of one share of Stock on the date of exercise over (B) the
grant price of the SAR as determined by the Committee as of the date of grant of
the SAR, which grant price (except as provided in Section 7(a)) shall not be
less than the Fair Market Value of one share of Stock on the date of grant.
(ii) Other Terms. The Committee shall determine the time or
times at which an SAR may be exercised in whole or in part, the method of
exercise, method of settlement, form of consideration payable in settlement,
method by which Stock will be delivered or deemed to be delivered to
Participants, whether or not an SAR shall be in tandem with any other Award, and
any other terms and conditions of any SAR. Limited SARs may be granted on such
terms, not inconsistent with this Section 6(e), as the Committee may determine.
Limited SARs may be either freestanding or in tandem with other Awards.
(e) BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The
Committee is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of Company or Subsidiary obligations to pay cash or deliver
other property under other plans or compensatory arrangements; provided that,
in the case of Participants subject to Section 16 of the Exchange Act, such
cash amounts are determined under such other plans in a manner that complies
with applicable requirements of Rule 16b-3 so that the acquisition of Stock
or Awards hereunder shall be exempt from Section 16(b) liability. Stock or
Awards granted hereunder shall be subject to such other terms as shall be
determined by the Committee.
(f) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject
to limitations under applicable law, to grant to Participants such other
Stock-Based Awards in addition to those provided
6
in this Section 6, as deemed by the Committee to be consistent with the
purposes of the Plan. The Committee shall determine the terms and conditions
of such Awards. Stock delivered pursuant to an Award in the nature of a
purchase right granted under this Section 6(f) shall be purchased for such
consideration and paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Stock, other Awards, or other property,
as the Committee shall determine.
(g) CASH PAYMENTS. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants Tax Bonuses and
other cash payments, whether awarded separately or as a supplement to any
Stock-Based Award. The Committee shall determine the terms and conditions of
such Awards.
Section 7. Additional Provisions Applicable to Awards
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan or any award granted under any other plan of
the Company or any Subsidiary, or any business entity acquired by the Company or
any Subsidiary, or any other right of a Participant to receive payment from the
Company or any Subsidiary. If an Award is granted in substitution for another
Award or award, the Committee shall require the surrender of such other Award or
award in consideration for the grant of the new Award. Awards granted in
addition to, or in tandem with other Awards or awards may be granted either as
of the same time as, or a different time from, the grant of such other Awards or
awards. The per share exercise price of any Option, grant price of any SAR, or
purchase price of any other Award conferring a right to purchase Stock:
(i) granted in substitution for an outstanding Award or award,
shall be not less than the lesser of (A) the Fair Market Value of a share of
Stock at the date such substitute Award is granted or (B) such Fair Market Value
at that date, reduced to reflect the Fair Market Value at that date of the Award
or award required to be surrendered by the Participant as a condition to receipt
of the substitute Award; or
(ii) retroactively granted in tandem with an outstanding Award
or award, shall not be less than the lesser of the Fair Market Value of a share
of Stock at the date of grant of the later Award or at the date of grant of the
earlier Award or award.
(b) EXCHANGE AND BUY OUT PROVISIONS. The Committee may at any time
offer to exchange or buy out any previously granted Award for a payment in
cash, Stock, other Awards (subject to Section 7(a)), or other property based
on such terms and conditions as the Committee shall determine and communicate
to a Participant at the time that such offer is made.
(c) PERFORMANCE CONDITIONS. The right of a Participant to exercise
or receive a grant or settlement of any Award, and the timing
7
thereof, may be subject to such performance conditions as may be specified by
the Committee.
(d) TERM OF AWARDS. The term of each Award shall, except as
provided herein, be for such period as may be determined by the Committee;
provided, however, that in no event shall the term of any ISO, or any SAR
granted in tandem therewith, exceed a period of ten years from the date of
its grant (or such shorter period as may be applicable under Section 422 of
the Code).
(e) FORM OF PAYMENT. Subject to the terms of the Plan and any
applicable Award Agreement, payments or transfers to be made by the Company
or a Subsidiary upon the grant or exercise of an Award may be made in such
forms as the Committee shall determine, including, without limitation, cash,
Stock, other Awards, or other property (and may be made in a single payment
or transfer, in installments, or on a deferred basis), in each case
determined in accordance with rules adopted by, and at the discretion of, the
Committee. (Such payments may include, without limitation, provisions for
the payment or crediting of reasonable interest on installments or deferred
payments.) The Committee, in its discretion, may accelerate any payment or
transfer upon a change in control as defined by the Committee. The Committee
may also authorize payment upon the exercise of an Option by net issuance or
other cashless exercise methods.
(f) LOAN PROVISIONS. With the consent of the Committee, and
subject at all times to laws and regulations and other binding obligations or
provisions applicable to the Company, the Company may make, guarantee, or
arrange for a loan or loans to a Participant with respect to the exercise of
any Option or other payment in connection with any Award, including the
payment by a Participant of any or all federal, state, or local income or
other taxes due in connection with any Award. Subject to such limitations,
the Committee shall have full authority to decide whether to make a loan or
loans hereunder and to determine the amount, terms, and provisions of any
such loan or loans, including the interest rate to be charged in respect of
any such loan or loans, whether the loan or loans are to be with or without
recourse against the borrower, the terms on which the loan is to be repaid
and the conditions, if any, under which the loan or loans may be forgiven.
(g) CHANGE OF CONTROL. In the event of a Change of Control of the
Company, all Awards granted under the Plan that are still outstanding and not
yet vested or exercisable or which are subject to restrictions shall become
immediately 100% vested in each Participant or shall be free of any
restrictions, as of the first date that the definition of Change of Control
has been fulfilled, and shall be exercisable for the remaining duration of
the Award. All Awards that are exercisable as of the effective date of the
Change of Control will remain exercisable for the remaining duration of the
Award.
8
Section 8. Adjustments upon Changes in Capitalization; Acceleration in
Certain Events
(a) In the event that the Committee shall determine that any stock
dividend, recapitalization, forward split or reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase or share exchange, or
other similar corporate transaction or event, affects the Stock or the book
value of the Company such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock which may thereafter be issued in
connection with Awards, (ii) the number and kind of shares of Stock issuable in
respect of outstanding Awards, (iii) the aggregate number and kind of shares of
Stock available under the Plan, and (iv) the exercise price, grant price, or
purchase price relating to any Award or, if deemed appropriate, make provision
for a cash payment with respect to any outstanding Award; provided, however, in
each case, that no adjustment shall be made which would cause the Plan to
violate Section 422(b)(1) of the Code with respect to ISOs.
(b) In addition, the Committee is authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, events
described in the preceding paragraph) affecting the Company or any Subsidiary,
or in response to changes in applicable laws, regulations, or accounting
principles.
Section 9. General Provisions
(a) CHANGES TO THE PLAN AND AWARDS. The Board of Directors of the
Company may amend, alter, suspend, discontinue, or terminate the Plan or the
Committee's authority to grant Awards under the Plan without the consent of the
Company's stockholders or Participants, except that any such amendment,
alteration, suspension, discontinuation, or termination shall be subject to the
approval of the Company's stockholders within one year after such Board action
if such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Stock may then be listed or quoted, and the Board may otherwise, in
its discretion, determine to submit other such changes to the Plan to the
stockholders for approval; provided, however, that without the consent of an
affected Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may materially and adversely affect the rights of such
Participant under any Award theretofore granted and any Award Agreement relating
thereto. The Committee may waive any conditions or rights under, or amend,
alter, suspend, discontinue, or terminate, any Award theretofore granted and any
Award Agreement relating thereto; provided, however, that without the consent of
an affected Participant, no such amendment, alteration, suspension,
discontinuation, or termination of any Award may materially and adversely affect
the rights of such Participant under such Award.
9
The foregoing notwithstanding, any performance condition specified in
connection with an Award shall not be deemed a fixed contractual term, but shall
remain subject to adjustment by the Committee, in its discretion at any time in
view of the Committee's assessment of the Company's strategy, performance of
comparable companies, and other circumstances.
Notwithstanding the foregoing, if the Plan is ratified by the stockholders
of the Company at the Company's 1997 Annual Meeting of Stockholders or at any
Special Meeting of the Stockholders, then unless approved by the stockholders of
the Company, no amendment will: (i) change the class of persons eligible to
receive Awards; (ii) materially increase the benefits accruing to Participants
under the Plan, or (iii) increase the number of shares of Stock subject to the
Plan.
(b) NO RIGHT TO AWARD OR EMPLOYMENT. No employee or other person
shall have any claim or right to receive an Award under the Plan. Neither the
Plan nor any action taken hereunder shall be construed as giving any employee
any right to be retained in the employ of the Company or any Subsidiary.
(c) TAXES. The Company or any Subsidiary is authorized to withhold
from any Award granted, any payment relating to an Award under the Plan,
including from a distribution of Stock or any payroll or other payment to a
Participant amounts of withholding and other taxes due in connection with any
transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company and Participants to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include authority to
withhold or receive Stock or other property and to make cash payments in
respect thereof in satisfaction of a Participant's tax obligations.
(d) LIMITS ON TRANSFERABILITY; BENEFICIARIES. No Award or other
right or interest of a Participant under the Plan shall be pledged, encumbered,
or hypothecated to, or in favor of, or subject to any lien, obligation, or
liability of such Participants to, any party, other than the Company or any
Subsidiary, or assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution, and such Awards and rights shall
be exercisable during the lifetime of the Participant only by the Participant or
his or her guardian or legal representative. Notwithstanding the foregoing, the
Committee may, in its discretion, provide that Awards or other rights or
interests of a Participant granted pursuant to the Plan (other than an ISO) be
transferable, without consideration, to immediate family members (I.E.,
children, grandchildren or spouse), to trusts for the benefit of such immediate
family members and to partnerships in which such family members are the only
partners. The Committee may attach to such transferability feature such terms
and conditions as it deems advisable. In addition, a Participant may, in the
manner established by the Committee, designate a beneficiary (which may be a
person or a trust) to exercise the rights of the Participant, and to receive any
distribution, with respect to any Award upon the death of the Participant. A
beneficiary, guardian, legal representative or other person claiming any
10
rights under the Plan from or through any Participant shall be subject to all
terms and conditions of the Plan and any Award Agreement applicable to such
Participant, except as otherwise determined by the Committee, and to any
additional restrictions deemed necessary or appropriate by the Committee.
(e) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Participant
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Participants. No Award shall
confer on any Participant any of the rights of a stockholder of the Company
unless and until Stock is duly issued or transferred to the Participant in
accordance with the terms of the Award.
(f) DISCRETION. In exercising, or declining to exercise, any grant
of authority or discretion hereunder, the Committee may consider or ignore
such factors or circumstances and may accord such weight to such factors and
circumstances as the Committee alone and in its sole judgment deems
appropriate and without regard to the affect such exercise, or declining to
exercise such grant of authority or discretion, would have upon the affected
Participant, any other Participant, any employee, the Company, any
Subsidiary, any stockholder or any other person.
(g) EFFECTIVE DATE. The effective date of the Plan is December 17,
1996.
11
XYTRONYX, INC.
PROXY
ANNUAL MEETING, AUGUST 7, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints H. Laurence Shaw and Peter J. Schaeffer as
Proxies, each with full power to appoint his substitute, and hereby authorizes
them to appear and vote as designated below, all shares of Common Stock and
Series A Convertible Preferred Stock of Xytronyx, Inc. held on record by the
undersigned on June 26, 1997, at the Annual Meeting of Stockholders to be held
on August 7, 1997, and any adjournment thereof.
The undersigned hereby directs this proxy to be voted:
Please mark your vote
as in this example: / X /
FOR AGAINST ABSTAIN
1. Election of Directors Nominees: H. Laurence Shaw
Jack Halperin / / / / / /
John G. Kringel
Elliott H. Vernon
Jerry A. Weisbach
Michael S. Weiss
For, except vote withheld from the following nominee(s):
-------------------------------------------------------
2. To approve an amendment to the Company's Certificate of Incorporation / / / / / /
increasing the number of authorized shares of Common Stock of the
Company from 30,000,000 to 100,000,000, and increasing the number of
authorized shares of Preferred Stock of the Company from 300,000
to 2,000,000.
3. To approve an amendment to the Company's Certificate of Incorporation to / / / / / /
change the name of the Company to Pacific Pharmaceuticals, Inc. or such
other name as may be determined by the Board of Directors.
4. To approve the adoption of the Company's Equity Incentive Plan. / / / / / /
5. To approve the adoption of the Company's Stock Option Plan for Non- / / / / / /
Employee Directors.
6. To ratify the Board of Directors' selection of Deloitte & Touche LLP as / / / / / /
the Company's independent public accountants for the year ended
March 31, 1998.
Please check this box if you / /
plan to attend the meeting.
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE)
In their discretion, the named Proxies may vote on such other business as
may properly come before the Annual Meeting, or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTIONS IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5 AND 6.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE
WITH THE STOCKHOLDER'S DIRECTIONS ABOVE. THE PROXY CONFERS DISCRETIONARY
AUTHORITY IN RESPECT TO MATTERS NOT KNOW OR DETERMINED AT THE TIME OF THE
MAILING OF THE NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS TO THE UNDERSIGNED.
-------------------------------
Date
-------------------------------
Signature of stockholder
-------------------------------
Signature if held jointly
Note: PLEASE MARK, DATE, SIGN AND RETURN
THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. If signing as attorney,
executor, administrator, trustee or
guardian, please give full title. If a
corporation or partnership, please sign
in corporate or partnership name by an
authorized person.